In re Northwest Timberline Enterprises, Inc., 04-36426-SGJ-11.
| Decision Date | 24 August 2006 |
| Docket Number | No. 04-36426-SGJ-11.,No. 04-36448-SGJ-11.,04-36426-SGJ-11.,04-36448-SGJ-11. |
| Citation | 348 B.R. 412 |
| Parties | In re NORTHWEST TIMBERLINE ENTERPRISES, INC., Debtor. In re Construction and Real Estate Information Services, Inc., Debtor. |
| Court | U.S. Bankruptcy Court — Northern District of Texas |
Arthur I. Ungerman, Dallas, TX, for debtor.
CAME ON FOR CONSIDERATION by this court, on May 22 and 30, 2006, the Motions of Chevron U.S.A. Inc. for Relief from the Automatic Stay Pursuant to 11 § 362(d)(1) and (d)(2) and Motions to Convert Cases to Chapter 7 by Chevron U.S.A. Inc. filed in each of the two above-referenced cases. Desiring to enter detailed written reasons for justifying its decision, and given that there was an approximately two-year history involving these debtors under two previous bankruptcy judges before this judge was reassigned these cases, of which the court believed it should take judicial notice and give due and fair consideration, the court took the matters under advisement. Having carefully considered the arguments of counsel, testimony of witnesses, the evidence adduced, the two-year history of these cases, and the applicable law, the court now enters this memorandum opinion.
This court has jurisdiction over these matters under 28 U.S.C. §§ 157(b)(2)(G) and (L) and 1334. This memorandum opinion encompasses the court's findings of facts and conclusions of law pursuant to Federal Rules of Bankruptcy Procedure 7052 and 9014. Where appropriate, a finding of fact shall be construed as a conclusion of law and vice versa. The court reserves the right to make further findings fact and conclusions of law.
1. These eases, In re Northwest Timberline Enterprises Inc. ("NWTE"), case no. 04-36426, and In re Construction and Real Estate Information Services, Inc. ("CREIS"), case no. 04-36448 (), are affiliated, but not consolidated, cases. Each Debtor owns and operates separate gas stations and convenience stores. NWTE's operations are located at 3311 West Northwest Highway, Dallas, Texas, and CREIS' operations are located at 8817 Clark Road, Dallas, Texas.
2. Saeed Mahboubi is the common connection to the two Debtors that makes them "affiliated" Debtors. Mr. Mahboubi is the president and 70% shareholder of NWTE and is also the president and 70% shareholder of CREIS.1
3. As referenced above, the NWTE and CREIS cases are more than two years old. NWTE was filed under Chapter 11 on June 8, 2004, and CREIS was filed under Chapter 11 on June 9, 2004.
4. NWTE and CREIS have each essentially been two-party disputes between the respective Debtors and their undersecured lender, Chevron U.S.A. Inc. ("Chevron"). Chevron is both the secured lender (secured by virtually all the Debtors' assets) and the largest unsecured creditor in each case (by virtue of having large unsecured deficiency claims in each case).
5. Chevron claims to be owed $1,557,197.46 by NWTE [see Proof of Claim # 10 in the NWTE case] and $1,507,219.19 by CREIS [see Proof of Claim # 9 in the CREIS case] in connection with separate loans to each Debtor.2 According to Chevron, Chevron and the Debtors have stipulated that the value of Chevron's collateral in each case (and, thus, the amount of the secured claims of Chevron in each case) is $1.1 million less unpaid ad valorem taxes.3 The Debtors assert in their post-trial memorandum, filed on June 5, 2006, that "the debtors stipulated that Chevron held a secured claim equal to $1.1 million less taxes and other secured indebtedness."4 The Debtor's most recent plan modification provides that the Chevron allowed secured claim against each Debtor will be set under the plan as "$940,000 less payments made during the case." In any event, it appears from the evidence and representations that it is undisputed that Chevron's bifurcated secured claim, pursuant to Section 506(a) of the Bankruptcy Code, is $940,000 (or perhaps slightly less) in each case, and its unsecured deficiency claim, pursuant to Section 506(a) of the Bankruptcy Code, is approximately $600,000 (or perhaps slightly more) in each case.
6. The only other significant, interested creditors in these cases are the Dallas County taxing authorities which are owed ad valorem and real estate taxes for the years 2001-2006, totaling approximately $322,000 in the aggregate against both Debtors. The court finds it extremely significant that these Debtors are five year, behind on paying their ad valorem and real estate taxes — a fact that will be further addressed later in this opinion.
7. An unsecured creditors committee was never formed in either of these cases. There are very few unsecured creditors.5
8. The Debtors have been pursuing a joint plan in their cases since December 27, 2004, when a first plan in each case was filed. A first amended plan was filed on March 8, 2005, and a second amended plan was filed on May 2, 2005. A plan supplement to the second amended plan was filed on May 9, 2005. A second plan supplement to the second amended plan was filed November 20, 2005. Then, a modification to the second amended plan was filed on May 19, 2006 (collectively, for ease of reference, the second amended plan and the supplements and modification thereto will be referred to as the "Current Joint Plan"). As of this date, neither Chevron nor the taxing authorities support the Current Joint. Plan.
9. On January 21, 2005, Chevron filed Motions of Chevron U.S.A. Inc. for Relief from Automatic Stay Pursuant to 11 U.S.C. § 362(d)(1) and (d)(2) in each of the bankruptcy cases (hereinafter "Motions to Lift Stay") [Docket Entry # 73 in the NWTE case and Docket Entry # 65 in the CREIS case], and on April 15, 2005, Chevron filed Motions to Convert Case to Chapter 7 (hereinafter "Motions to Convert") in each of the bankruptcy cases [Docket Entry # 93 in the NWTE case and Docket Entry # 85 in the CREIS case].
10. Looking back at the events that transpired after the filing of the Motions to Lift Stay and the Motions to Convert, on May 23, 2005, the court entered an order, in each case, granting the Debtors' Emergency Application to Establish Sale Procedures for Sale of Equity Interests in the Reorganized Debtor as Called for by Debtor's First Amended Plan of Reorganization and to Take Higher and Better Offers [Docket Entry # 110 in the NWTE case and Docket Entry # 101 in the CREIS case].
11. Then, on June 24, 2005, Judge Steven A. Felsenthal, after hearing testimony and argument, decided that a Chapter 11 trustee might be the most reasonable solution "to explore a more businesslike resolution of these cases." He signed an order authorizing the appointment of a Chapter 11 Trustee on June 27, 2005. [Docket Entry # 131 in the NWTE case and Docket Entry # 124 in the CREIS case.] Subsequently, Mr. Robert Yaquinto was appointed as the Chapter 11 trustee in each case (the "Chapter 11 Trustee"). The order appointing Mr. Yaquinto was not a broadly worded order including authority for Chapter 11 Trustee to conduct investigations of fraud, misconduct or anything of a similar nature. The Chapter 11 Trustee was apparently simply charged with helping to find a businesslike resolution for these cases. There is nothing in the record suggesting he was given full scale authority to take over the operations of the business and remove management from any exercise of control over the business.
12. Unfortunately, more than one year later, no "businesslike resolution" seems to have materialized in the cases.
13. On October 20, 2005, the Chapter 11 Trustee filed a Motion to Sell Property of Estate Free and Clear of Liens and Encumbrances (the "Motion to Sell") [Docket Entry # 140 in NWTE and Docket Entry # 135 in CREIS]. On November 30, 2005, the Trustee amended the motion to sell (the "Trustee's Amended Motion") [Docket Entry # 158 in the NWTE case and Docket Entry # 153 in the CREIS case]. After a hearing on December 6, 2005 on the Trustee's Amended Motion, Judge Robert C. McGuire, on December 13, 2005, issued an order whereby the bankruptcy court would "allow a sale of assets subject to later confirmation by this court with the understanding that no sale shall occur until a report of sale is filed with [this] [c]ourt and a hearing to confirm the sale is held." [Docket Entry # 161 in the NWTE case Docket Entry # 158 in the CREIS case].
11. Subsequently, the Chapter 11 Trustee conducted an auction on December 13, 2005, in which he accepted bids in two different forms: bids for all of the owned assets of the Debtors or, alternatively, bids for the equity interests of the Debtors. The assets of the estate to be sold included, hut were not limited to, real property and improvements thereon, and all person al property, including, but not limited to, inventory, accounts receivable, furniture, fixtures, machinery, and equipment, all of which is used in the business of the Debtors.6 Chevron credit bid $1.1 million in each case for the aforementioned assets No other bids were received for the proposed asset sales.
15. As for the equity sale, two bidders proved interested in the equity interests in the Debtors: John T. Evans of the John T. Evans Co., Inc. ("Evans") and Charles A. Burton of the Burton Oil Co., Inc. ("Burton"). Both had purportedly previously provided the Chapter 11 Trustee with evidence of financial ability to pay.7 Evans was declared the higher bidder for the equity, with a bid of $130,000 per Debtor. for a total bid of $260,000.
16. On March 6, 2006, the Chapter 11 Trustee filed a...
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