In re Perkins

• Court: U.S. District Court — Western District of Tennessee
• Citation: In re Perkins, 71 B.R. 294 (W.D. Tenn. 1987)
• Decision Date: 11 February 1987
• Docket Number: Misc. No. 86-1003.
• Parties: In re Edgar Raymond PERKINS, Debtor. Ben M. GAINES, Appellant, v. Edgar R. PERKINS, Appellee.

71 B.R. 294 (1987)

In re Edgar Raymond PERKINS, Debtor Ben M. GAINES, Appellant, v. Edgar R. PERKINS, Appellee.

Misc. No. 86-1003.

United States District Court, W.D. Tennessee, E.D.

February 11, 1987.

Bruce Kramer and Guthrie Castle, Borod & Huggins, Memphis, Tenn., for Gaines.

Benjamin S. Dempsey, Huntingdon, Tenn., for Perkins.

MEMORANDUM OPINION AND ORDER AFFIRMING DECISION OF BANKRUPTCY COURT

TODD, District Judge.

This is an appeal from a series of decisions by the bankruptcy court granting debtor Edgar Raymond Perkins' (Perkins) motions for enlargement of the exclusivity period in which to file plans of reorganization, 11 U.S.C. § 1121. The statute provides that "only the debtor may file a plan of reorganization during the first 120 days after the date of the order of relief under this chapter." 11 U.S.C. § 1121(b). Competing plans may be filed by an interested party

if and only if —

(1) a trustee has been appointed under this chapter;

(2) the debtor has not filed a plan before 120 days after the date of the order for relief under this chapter; or

(3) the debtor has not filed a plan that has been accepted, before 180 days after the date of the order for relief under this chapter, by each class of claims or interests that is impaired under the plan.

11 U.S.C. § 1121(c). The 120 and 180 day periods referred to in § 1121(c) may be increased or decreased by the court for cause upon a request made "within the respective periods." 11 U.S.C. § 1121(d). The effect of § 1121 is to give the debtor the exclusive right during a limited period to present the creditor body with a proposed plan of reorganization. Once the exclusivity period ends, competing plans may be proposed.

Perkins filed for Chapter 11 bankruptcy on November 21, 1984 (No. 84-11046, Bankr.W.D.Tenn.). His proposed plan of reorganization was filed March 20, 1985, within the 120 days provided by § 1121(b). When the plan was not confirmed by May 20, 1985, the date on which the 180 day period expired, Perkins moved to enlarge the exclusivity period. A hearing on the motion was held June 20, 1985, after which the bankruptcy court granted the motion, extending the exclusivity period to August 1, 1985. A second enlargement was granted by the bankruptcy court sua sponte on August 23, 1985, extending the period to November 1, 1985. On November 1, 1985, Perkins again moved for an enlargement. A hearing on that motion was held February 20, 1986, and on February 24, 1986, the bankruptcy court denied the motion and ordered that competing plans could be filed but could not be processed by the court clerk until otherwise directed by the court. On March 5, 1986, however, the bankruptcy court sua sponte reconsidered its February 24, 1986, order and granted Perkins' motion, extending the exclusivity period to April 21, 1986. Appellant Ben M. Gaines (Gaines) filed his motion seeking leave to appeal with this court on April 1, 1986; leave to appeal was granted July 7, 1986. However, the bankruptcy court has continued to grant enlargements of the exclusivity period. On June 11, 1986, and August 22, 1986, the bankruptcy court entered orders enlarging the exclusivity period. The exclusivity period resulting from the August 22, 1986, enlargement was to expire on August 31, 1986; however, in the interim Perkins filed yet another motion for enlargement of time. A hearing was initially set on that motion for October 30, 1986. The October 30, 1986, hearing was continued until December 4, 1986; the December 4, 1986, hearing was continued until January 15, 1987; and the January 15, 1987, hearing was continued to February 12, 1987. As a result of these continuances, Perkins retains the exclusive right to receive acceptances to his filed plan or reorganization. Therefore, Perkins has enjoyed an exclusivity period of over 800 days.

Other relevant facts may be briefly summarized. The Chapter 11 bankruptcy proceeding spawning this appeal is large and complex. There are approximately 100 creditors holding approximately 225 claims against Perkins' estate. The claims amount to roughly $10,000,000.00; the estate is valued at approximately $13,000,000.00, composed mainly of improved and unimproved real property. As the twenty-plus page Bankruptcy Docket sheets in the underlying bankruptcy case reveal, the creditors and the debtor are vigorously involved. Despite squabbles among certain interested parties, Perkins' reorganization plan has received acceptances from all but a few of the creditors.

ANALYSIS

The two issues presented by appellant are, briefly: 1) whether the bankruptcy court may enlarge the exclusivity period after the initial statutory period has expired but within the period of a previous enlargement, and if the answer is yes, 2) were the bankruptcy court's enlargements of the exclusivity period erroneous as a matter of law.

I. ENLARGEMENTS OF TIME AFTER THE INITIAL STATUTORY PERIOD HAS EXPIRED

The 1984 amendment to 11 U.S.C. § 1121(d) provides:

on request of a party in interest made within the respective periods in subsection (c) of this section and after notice and a hearing, the court may for cause reduce or increase the 120-day period or the 180-day period referred to in this section. (emphasis added)

Appellant contends that the clear meaning of the phrase "within the respective periods" is that the bankruptcy court is powerless to enlarge the exclusivity period once the initial 120-day or 180-day period expires, even if the motion for enlargement is made during a period of enlargement previously granted by the court. Appellant's position in this case, then, is that the bankruptcy court's power to grant enlargements of the exclusivity period expired on May 20, 1985, and all subsequent enlargements were ultra vires.

In support of this theory, appellant cites In re Westgate General Partnership, 55 B.R. 562 (Bankr.E.D.Penn.1985). In Westgate, the bankruptcy court held that a chapter 11 debtor could not successfully request an extension of the exclusivity periods beyond the 120-day or 180-day periods, even during the pendency of a previously granted enlargement. The court did not base its decision on case law, but candidly stated:

the parties have found no case law on the issue at hand, and our research has proved equally unproductive. Our decision must therefore be predicated on the plain language of § 1121 and the purpose of that provision. Without resort to logomachy or circumlocution, we simply conclude that the party opposing the enlargement\'s position is reflective of the Congressional intent evidenced in the 1984 Amendments.

In re Westgate, 55 B.R. at 564.

This court has found no authority other than In re Westgate dealing with this issue. Nevertheless, this court respectfully declines to follow the holding in In re Westgate, and concludes that the bankruptcy court is authorized to grant enlargements of time upon motion made beyond the initial statutory periods but within the pendency of a previous enlargement.

This result is based on statutory language, congressional intent, and logic. This court agrees that once the statutory periods, or enlargements thereof, have expired, the bankruptcy court is powerless to grant further extensions. It is only logical that once the exclusivity period and extensions thereto have expired, the debtor cannot resurrect his protected status in order to battle competing plans. But it is not logical to require that the bankruptcy judge make any enlargement decision based only on the facts available to him during the initial 120-day or 180-day period; it would be unfair to expect such prescience. The essence of chapter 11 proceedings is to give the debtor a chance to work out his problems by agreement with his creditors. In a large, complex case it is conceivable that given just a little more time, he could resolve existing differences and fashion an agreement with creditors which would inure to the benefit of all. For instance, a large debtor could work diligently to gain acceptances of his plan and approach success on the day before the enlargement to the initial exclusivity period was to expire. In this situation, under In re Westgate the bankruptcy court would be powerless to grant an additional enlargement, no matter how brief or meritorious. The legislative history does not support such a drastic construction of § 1121(d). The hallmark of the section is flexibility. See H.R.Rep. No. 95-595, 92 Cong., 2d Sess. 232, reprinted in 1978 U.S.Code Cong. & Admin.News 5787, 6191 (hereinafter U.S.Code Cong. & Admin.News).

This construction of the 1984 amendment to § 1121(d) will still achieve the balance required between debtor and creditor body rights, for any enlargement of the exclusivity period must still be supported by cause. 11 U.S.C. § 1121(d); In re Tony Downs Foods Co., 34 B.R. 405, 407-08 (Bankr.D. Minn.1983). Assuming that cause is shown, the bankruptcy court is authorized to grant a period of enlargement after the expiration of the initial statutory period of exclusivity, and within the pendency of a previously granted period of enlargement.

II. WHETHER IT WAS ERRONEOUS AS A MATTER OF LAW FOR THE BANKRUPTCY COURT TO CONTINUE TO GRANT ENLARGEMENTS OF TIME

Appellant contends that, even if the bankruptcy court was authorized to grant enlargements of time, it was clearly erroneous for the court to do so because of an absence of cause. 11 U.S.C. § 1121(d) gives the bankruptcy court discretion to grant enlargements of the exclusivity period, but the court's discretion is tempered by the section's requirement that enlargements be granted for cause. The section does not define "cause," and courts have struggled to extract guidelines from the legislative history.

The House Report to the 1978 Bankruptcy Act offers some guidance. While no definition is given, examples are offered in which the court might increase or reduce the exclusivity periods:

cause might include an unusually large or unusually small case,

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