In re Olde Prairie Block Owner, LLC

• Decision Date: 22 December 2011
• Docket Number: No. 10 B 22668.,10 B 22668.
• Parties: In re OLDE PRAIRIE BLOCK OWNER, LLC, Debtor.
• Court: United States Bankruptcy Courts. Seventh Circuit. U.S. Bankruptcy Court — Northern District of Illinois

464 B.R. 337

In re OLDE PRAIRIE BLOCK OWNER, LLC, Debtor.

No. 10 B 22668.

United States Bankruptcy Court, N.D. Illinois, Eastern Division.

Dec. 22, 2011.

John Ruskusky, George R. Mesires, Niles N. Park, Patrick F. Ross, Ungaretti & Harris LLP, Chicago, IL, Michael K. Desmond, Figliulo & Silverman PC, Chicago, IL, Neil E. Holmen, Walker Wilcox Matousek LLP, Chicago, IL, for Debtor.

Shima S. Roy, Andrew P. McDermott, Lawrence P. Vonckx, Baker & McKenzie LLP (Chicago), Chicago, IL, for CenterPoint Properties Trust.

David A. Newby, Coman & Anderson, P.C., Lisle, IL, for Colliers Bennett& Kahnweiler.Matthew T. Gensburg, Greenberg Taurig LLP, Chicago, IL, for CR Realty Advisors LLC.

Bradley A. Smith, Neal & Leroy LLC, Chicago, IL, for Metropolitan Pier & Exposition Authority.Rosanne Ciambrone, Matthew A. Olins, Duane Morris LLP, Chicago, IL, Jennifer Feldsher, Andrew J. Schoulder, Kelly Koscuiszka, Bracewell & Giuliani LLP, New York, NY, for JMB Capital Partners LP.Colleen E. McManus, Much Shelist, Chicago, IL, for Rosa Scarcelli.

MEMORANDUM OPINION ON CENTERPOINT'S MOTION TO DISMISS DEBTOR'S UPDATED THIRD AMENDED CHAPTER 11 PLAN (Docket No. 1093)

JACK B. SCHMETTERER, Bankruptcy Judge.

I. INTRODUCTION

A. Factual Background

Olde Prairie Block Owner, LLC (“Prairie” or “Debtor”) is Debtor in this Chapter 11 case. Its secured creditor CenterPoint Properties Trust (“CenterPoint”) has pending a Motion to Dismiss the case, contending that Prairie's pending “Updated Third Amended Plan of Reorganization” proposes an unlawful reorganization.

This relates to an on-going battle between Prairie and CenterPoint over Debtor's real estate securing a loan from CenterPoint. Prairie owns two adjacent parcels of real estate located near McCormick Place in Chicago, Illinois that it hopes to develop into a hotel complex. The first parcel, known as the “Olde Prairie Property,” is located at 230 E. Cermak Road in Chicago. The second parcel, known as the “Lakeside Property,” is located at 330 E. Cermak Road in Chicago. Prairie also holds a long-term lease (the “Parking Lease”) with the Metropolitan Pier and Exposition Authority (“MPEA”) that provides Prairie with rent-free use of 450 parking spaces at the McCormick Place parking garage until 2203.

Debtor filed under Chapter 11 of the Bankruptcy Code on May 18, 2010. Shortly after, on June 2, 2010, CenterPoint moved to dismiss Debtor's bankruptcy case, or in the alternative modify the automatic stay so as to permit a foreclosure action to proceed. The request to modify the stay was heard first and separately from the motion to dismiss and was denied after CenterPoint was found to be oversecured. (Docket No. 100) After months of further disputes including failed litigation in which Debtor sought to reduce CenterPoint's claim through several counterclaims, the Motion to Dismiss is again up for consideration following the Debtor's latest Plan submission and argument on certain legal issues asserted by CenterPoint against the Plan. (Debtor's Updated Third Amended Plan, Docket No. 1093)

It was earlier held that this is a single asset real estate case under 11 U.S.C. § 101(51B) requiring prompt filing of a plan with prospects of confirmation. CenterPoint focuses its present effort to dismiss the case by arguing that Debtor cannot confirm its currently proposed Plan because of legal impediments on its face. CenterPoint argues that the Plan contains at least four per se violations of confirmation requirements under 11 U.S.C. § 1129.

To focus the legal issues, on October 19, 2011, the parties were ordered to file briefs addressing the following four specific issues identified by CenterPoint as legal defects in the latest Plan:

1. Whether the Plan deprived CenterPoint of its statutory right to credit-bid its claim in violation of 11 U.S.C. § 1129(b)(2)(A)(ii).

2. Whether the Plan strips CenterPoint of the lien securing its claim in violation of 11 U.S.C. § 1129(b)(2)(A)(i).

3. Whether the Plan provides CenterPoint with the “indubitable equivalent” of its secured claim under 11 U.S.C. § 1129(b)(2)(A)(iii).

4. Whether the Plan provides for the impermissible release of guarantors of the Debtor's loan with CenterPoint.

At oral argument on November 21 and 22 of this year, Debtor's counsel acquiesced on the issue regarding release of Debtor's guarantors by agreeing to an amendment that eliminated that issue, leaving only the remaining three issues to be decided. (Tr. at 13–16) Furthermore, based on Circuit precedent discussed below, no analysis is yet possible on whether Debtor's Plan provides CenterPoint with the indubitable equivalent of its claim.

B. CenterPoint's Claim

CenterPoint's claim was disputed by Debtor in five counterclaims. Four of those were dismissed on pleading grounds. On June 22, 2011, following trial, Findings of Fact and Conclusions of Law were entered herein in favor of CenterPoint on Debtor's Counterclaim Count III. (Dkt. No. 937) Its claim was allowed in the amount of $50,458,075.05 plus interest from July 31, 2010 at an annual rate of 16.89%. The next day, the Supreme Court handed down its decision in Stern v. Marshall, ––– U.S. ––––, 131 S.Ct. 2594, 180 L.Ed.2d 475 (2011) that called into question a bankruptcy judge's authority to enter final judgment on non-bankruptcy law counterclaims. Supplemental briefing on this issue was ordered, following which Additional Conclusions of Law on Debtor's Counterclaim to CenterPoint's Claim were entered. (Dkt. No. 1007) On August 30, 2011, final judgments were entered on Debtor's Counterclaim Counts I, II, IV, and V. (Dkt. No. 1019) and separately on Debtor's Counterclaim Count III. (Dkt. No. 1021) CenterPoint filed a Motion to Amend in part the order regarding Count III so as to permit CenterPoint's allowed claim to be fully calculated in a later proceeding to include attorney's fees and interest as provided in Mortgage documents based upon the original valuation showing that CenterPoint was oversecured, unless any new valuation hearing which might be held in a Plan confirmation hearing would show otherwise. (Dkt. No. 1038). That Motion was allowed. (Dkt. No. 1119)

C. The Plan

The current proposed Plan bases its treatment of CenterPoint's liens on an estimated claim amount of $60,170,750.00. (Plan at 12) Under the Plan, CenterPoint would receive the following treatment of its claim:

(a) a cash payment on the Effective Date from the proceeds of the Cash Equity Investment in the amount of $35,000,000; and (b) [for the balance due] the executed Plan Note. The Plan Note, and related documentation, would containing [sic] the following terms and conditions: (i) interest would accrue on a quarterly basis at the prime rate ... plus one percent (1.0%) per annum ... (ii) a term of seven years, (c) no amortization or other required principal payments prior to the scheduled maturity date, (d) prepayable in whole or in part without premium or penalty, (e) secured by a first priority mortgage on the Olde Prairie Property and a first priority assignment of the Parking Lease ... and (f) containing other usual and customary commercially reasonable terms and provisions.

(Disclosure Statement at ii.) In sum, Debtor proposes to pay CenterPoint $35 million in cash immediately and pay the remaining amount of CenterPoint's allowed claim, which Debtor values at $25 million in its Plan, pursuant to a Plan Note. The Plan Note is to be secured by a parcel of real estate owned by the Debtor (the Olde Prairie Property) and the Parking Lease. It is not, notably, to be secured by the Lakeside parcel. CenterPoint would thereby lose its present lien on the Lakeside Parcel.

Debtor proposes to fund its Plan with a mixture of cash and non-cash equity contributions leading to the creation of a joint venture by two plan investors. The cash contribution will be in the amount of approximately $45 million (including the $35 million offered to CenterPoint) and is offered by a plan investor with a background in real estate development. The non-cash equity contribution consists of parcels of land offered by one of the Plan investors, Landmark America LLC. Both contributions are to be made in exchange for 50% ownership interests in what is referred to here as the “Reorganized Debtor.” The Debtor LLC. CenterPoint, as described further below, argues that the proposed Joint Venture would, in fact, be an entirely new entity because ownership of it would be changed.

D. Relevant Statutory Provisions

1. Cram Down Under 11 U.S.C. § 1129(b)(2)(A)

Subsection 1129(a) of the Bankruptcy Code provides requirements that a Chapter 11 plan must meet to be confirmed. Included in those requirements under § 1129(a)(8) is that each class of claims or interests either accept the plan or not be impaired by it. If this requirement is not met, the debtor may “cram down” the plan over objection of an impaired class by satisfying the requirements of § 1129(b). As Prairie seeks to modify the interest of the creditor CenterPoint by depriving it of one parcel of land securing its interest, it is impaired under the Code and has shown through objections that it will not accept the currently proposed Plan.

The one criterion under § 1129(b) is that “the plan does not discriminate unfairly, and is fair and equitable, with respect to each class of claims or interests that is impaired under, and has not accepted, the plan.” Subsection (b)(2)(A) sets out the requirements for what is “fair and equitable”:

§ 1129(b)(2) For the purposes of this subsection, the condition that a plan be fair and equitable with respect to a class includes the following requirements ... (A) With respect to a class of secured claims, the plan provides—

(i)(I) that the holders of a claim of such class retain the liens securing such claims, whether the property subject to such liens is retained by the debtor or transferred to another entity, to the extent of the allowed amount of such claims;

(II) that each holder of a claim of such...