In re Petersburg Regency LLC

• Decision Date: 02 November 2015
• Docket Number: Case No.: 15–17169 VFP
• Parties: In re: Petersburg Regency LLC, Debtor.
• Court: U.S. Bankruptcy Court — District of New Jersey

540 B.R. 508

In re: Petersburg Regency LLC, Debtor.

Case No.: 15–17169 VFP

United States Bankruptcy Court, D. New Jersey.

Signed November 2, 2015

Sokol Behot, LLP, David Edelberg, Esq., 433 Hackensack Avenue, Hackensack, NJ 07601, Counsel for Debtor

Eckert Seamans Cherin & Mellott LLC, Warren L. Soffian, Esq., 50 South 16 Street, 22nd Floor, Philadelphia, PA 19102, Counsel for WCD Consultants

Forman Holt Eliades & Youngman LLC, Daniel M. Eliades, Esq., David S. Catuogno, Esq., 80 Route 4 East, Ste. 290, Paramus, NJ 07652, Counsel for Ramada Worldwide Inc.

Accardi & Mirda, Anthony J. Accardi, Esq., 100 Eaglerock Avenue, Ste. 307, East Hanover, NJ 07936, Pro Se

Steve M. Kalebic, Esq., 167 Main Street, Hackensack, NJ 07601, Pro Se

Newman & Denburg, LLC, Gary S. Newman, Esq., 22–01 Broadway, Fair Lawn, NJ 07410, Counsel for AH Realty Associates, LLC

Drinker Biddle & Reath LLP, Robert K. Malone, Esq., 600 Campus Drive, Florham Park, NJ 07932, Counsel for Selective Way Insurance Co.

Porzio Bromberg & Newman, Warren J. Martin, Esq., Rachel A. Parisi, Esq., 100 Southgate Parkway, P.O. Box 1997, Morristown, NJ 07962, Counsel for James Burt

Joseph H. Neiman, Esq. 85 Main Street, Hackensack, NJ 07601, Counsel for William Spier

Nathalie I. Johnson–Noon, Esq., 401 East Jefferson Street, Ste. 204, Rockville, MD 20850, Counsel to ThyssenKrupp Elevator Corp.

Honorable Anthony J. Sciuto, Maggiano DiGirolamo & Lizzi PC, 201 Columbia Avenue, Fort Lee, NJ 07024, Pro Se

Mitchell B. Hausman, Esq., Office of the United States Trustee, One Newark Center, 1085 Raymond Boulevard, Ste. 2100, Newark, NJ 07102

Eamonn O'Hagen, Esq., Asst. United States Attorney, United States Attorney's Office, 970 Broad Street, Ste. 700, Newark, NJ 07102, Counsel to United States of America

Perkins Coie LLP, Gary F. Eisenberg, 30 Rockefeller Plaza, 22nd Fl., New York, N.Y. 10112, Counsel for Ittleson Trust–2010–1

Delbello Donnellan Weingarten, Wise & Wiederkehr, LLP, Jonathan S. Pasternak, Esq., One North Lexington Avenue, White Plains, N.Y. 10601, Counsel for R. Oshinsky & Co.

Webber McGill LLC, Douglas J. McGill, Esq., 760 Route 10, Ste. 104, Whippany, NJ 07981, Counsel for LeClairRyan

Cole Schotz Meisel Forman & Leonard, PA, Kenneth L. Baum, Esq., 25 Main Street–Court Plaza North, Hackensack, NJ 07601, Counsel for A.H. Realty Associates

Spencer Shuford LLP, Mark C. Shuford, Esq., 6806 Paragon Place, Ste. 200, Richmond, VA 23230, Counsel for City of Petersburg

Mr. Frank Conner, Air Technology Inc., 31 Glenbourne Drive, Boonton, NJ 07005

OPINION

HONORABLE VINCENT F. PAPALIA, Bankruptcy Judge

I. INTRODUCTION

These matters come before the Court on multiple contested motions filed by certain creditors of Petersburg Regency, LLC, a Chapter 11 Debtor (the “Debtor”), and one by the Debtor. The Debtor is a nonoperating hotel formerly located in Virginia and irretrievably damaged by a hurricane in 2003. The issue for the Court is whether to grant the creditors' motions to approve a settlement among them that provides for the distribution of the Debtor's only significant asset, the insurance proceeds generated by the storm damage, under a consensual settlement among those creditors (the “Settling Creditors”) and thereafter dismiss the case. In opposition, the Debtor, as joined by its principals, Mr. and Mrs. Harmon (the “Harmons”), argues (among other things) that the settlement and dismissal should not be approved as it is not in the best interests of creditors and that the Debtor should instead be permitted to proceed with a different distribution scheme under a Chapter11 plan of liquidation. The Settling Creditors, who represent allthe remaining secured and unsecured, non-insider claims against the Debtor, have advised that they unanimously oppose the Debtor's proposed Plan.

The Creditors' motions are:

(1) Motion of LeClairRyan, P.C. (“LeClair”) to dismiss the bankruptcy case under 11 U.S.C. § 1112(b)(Dkt. No. 26) (the “Motion to Dismiss”).

(2) Amended Cross–Motion of Jim Burt (“Burt”) for entry of an Order directing disbursement of Insurance Proceeds in connection with the dismissal of case (Dkt. No. 56 amending Dkt. No. 40) (the “Structured Dismissal Motion” and, with the Motion to Dismiss, the “Dismissal Motions”).

(3) Motion of Burt to approve a settlement among the Settling Creditors and dismiss the Debtor's bankruptcy case (Dkt. No. 110) (the “Settlement Motion”).

(4) Motion of Burt to expunge the claim of Specialized Environmental Services dba ATI Air Technology, Inc. (Dkt. No. 65).

The Debtor's application is a motion to expunge, reduce or modify certain claims (the “Claims Motion”) (Dkt. No. 106) Both Burt's Motion to Expunge and the Claims Motion by Debtor are addressed and resolved in separate orders. (Dkt. Nos.154 and 155).

For the reasons set forth below, the Court will approve the settlement among the Settling Creditors, authorize the distribution of the insurance proceeds pursuant to that settlement, and dismiss the bankruptcy case.

II. JURISDICTIONAL STATEMENT

The Court has jurisdiction over these matters under 28 U.S.C. § 1334(b)and the Standing Orders of Reference entered by the United States District Court on July 10, 1984 and amended on October 17, 2013. These are core proceedings under 28 U.S.C. § 157(b)(2)(A), (B), (K) ¹ and (O). Venue is proper in this court under 28 U.S.C. § 1408. The Court issues the following findings of fact and conclusions of law pursuant to Fed. R. Bankr. P. 7052. To the extent that any of the findings of fact might constitute conclusions of law, they are adopted as such. Conversely, to the extent that any conclusions of law constitute findings of fact, they are adopted as such.

III. PROCEDURAL AND FACTUAL HISTORY²

A. The Insurance Litigation

On September 13, 2003, the Debtor's hotel property in Petersburg, Virginia (the “Property”), sustained serious hurricane damage (Dkt. No. 110–1, ¶ 3). On September 20, 2004, the Debtor filed an action against its carrier, Selective Way Insurance Co. (“Selective”) in the Superior Court of New Jersey, Law Division, Bergen County, entitled Petersburg Regency, LLC v. Selective Way Insurance Company,Dkt. No. BER–L–12179–04 (the “Bergen County Action” or the “Insurance Litigation”) to recover on its policy (Dkt. No. 110–1, ¶ 4). The Debtor ceased operations in 2011 and ultimately lost the Property to a tax sale foreclosure in 2014 (Dkt. No. 26–1, McGill Appl., ¶¶ 5, 7 and Dkt. No. 26–2, McGill Cert., Ex. B).

After ten years of litigation in two states, including appeals and a reversal on appeal, the action was ultimately referred to arbitration. On December 23, 2014, Judge Anthony J. Sciuto (ret.), arbitrator, issued an opinion awarding the Debtor damages of $9,697,423 plus interest against Selective (Dkt. No. 110–1, ¶ 5). By Arbitration Award dated December 30, 2014, the amount of the interest was liquidated, with the result that the total award was $10,230,626.64 (the “Arbitration Award”) (Dkt. No. 110–1 ¶ 6).

B. The Interpleader Action and the Virginia Involuntary Bankruptcy Case and Other Related Litigation

As part of the extensive procedural maneuverings in this case, on December 30, 2014, the same day the final Arbitration Award was issued, Selective filed an Interpleader Action (the “Interpleader Action”) in the Circuit Court of the City of Petersburg, Virginia (Case No. CL 14–848). The Interpleader Action named the Debtor and several of its secured creditors, including Burt, Ittleson, Steve Kalebic and Accardi & Mirda, as defendants. (Dkt. 26–2, McGill Cert., Ex. D). In connection with that Action, Selective deposited $10,230,626.64, which represented the entire Arbitration Award, with the Petersburg Clerk of Court.

On January 7, 2015, the Debtor made application in the New Jersey Action for entry of an Order to Show Cause with Temporary Restraints seeking, among other things, an order: (i) temporarily and permanently enjoining Selective from pursuing the Interpleader Action; (ii) confirming the Arbitration Award; and (iii) enjoining Selective from contacting and communicating with the Debtor's creditors.

Not to be undone, on February 3, 2015, three alleged unsecured creditors of the Debtor filed an involuntary Chapter 7 petition (the “Involuntary Case”) against the Debtor in the United States Bankruptcy Court for the Eastern District of Virginia (Case No. 15–30526), which temporarily stayed both the New Jersey Action and the Interpleader Action.³The three petitioning creditors were experts utilized by LeClair in the New Jersey Action. As is acknowledged by LeClair and as is also noted by the Debtor, the claims of these creditors are included in the $901,839.08 amount claimed to be owed to LeClair. SeeResponse of LeClair to Claims Motion (Dkt. No. 128, ¶ 4).⁴

On February 25, 2015, the Debtor filed a motion to dismiss the Involuntary Case and a Memorandum in Support. In that Memorandum, the Debtor argued forcefully that the Involuntary Case should be dismissed for various reasons, including particularly that the bankruptcy filing was “futile” as the estate's “lone asset has insufficient value to ever result in a penny payout” to the Petitioning Creditors (who are unsecured) (Dkt. No. 26–2, McGill Cert., Ex. F, Memorandum in Support of Motion to Dismiss, pp. 1–2). Additionally, the Debtor argued that:

• The Involuntary Petition was filed in bad faith and for an improper purpose. (p.13).

• The amounts asserted as being secured against the Arbitration Award “far exceed” the amount of the Arbitration Award (of $10,225,583.92). Id. at 13–14.

• The pleadings filed in the state courts show that a Chapter 7 proceeding would be futile, in that the amount of claims asserted by prepetition secured creditors is in excess of the total amount of assets available for distribution. Id.at 14.

• [E]ven if an order for relief [in a Chapter 7 case] was entered, a Chapter 7 Trustee would likely conclude that there was [sic] no assets available for distribution to unsecured creditors and he or she would abandon his interest in the

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