In re Platte River Bottom, LLC

• Decision Date: 19 January 2016
• Docket Number: Case No. 13-29319-HRT,Case No. 13-29371-HRT,Case No. 29369-HRT,Case No. 13-29368-HRT,Case No. 13-13098 HRT
• Parties: In re: PLATTE RIVER BOTTOM, LLC, Debtor. In re: NOLAN ULMER and PATRICIA ULMER, Debtors. In re: UIV PROPERTIES RS, LLC, Debtor. In re: NPK WATER HOLDING, LLC, Debtor. In re: NPK INVESTMENTS, LLC, Debtor.
• Court: U.S. Bankruptcy Court — District of Colorado

In re: PLATTE RIVER BOTTOM, LLC, Debtor.

In re: NOLAN ULMER and PATRICIA ULMER, Debtors.

In re: UIV PROPERTIES RS, LLC, Debtor.

In re: NPK WATER HOLDING, LLC, Debtor.

In re: NPK INVESTMENTS, LLC, Debtor.

Case No. 13-13098 HRT

Case No. 13-29319-HRT

Case No. 13-29368-HRT

Case No. 29369-HRT

Case No. 13-29371-HRT

UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF COLORADO

Entered: January 20, 2016

January 19, 2016

Honorable Howard R. Tallman

Chapter 11

JOINTLY ADMINISTERED CASES UNDER CASE No. 13-13098-HRT

ORDER ON MOTION TO DISMISS

This case comes before the Court on Advantage Bank's Motion to Dismiss Chapter 11 Cases and Memorandum in Support Thereof (docket #265) (the "Motion").

I. BACKGROUND FACTS

1. Platte River Bottom, LLC, ("PRB") filed its voluntary petition under chapter 11 (Case No. 13-13098 HRT) on March 5, 2013. Since that time, it has remained in possession of its assets, and has operated as a Debtor-in-Possession. It owns real property and certain water rights. It generates limited income by leasing a portion of its real property.

2. A non-debtor entity, Ulmer Holding, LLC, ("Ulmer Holding") is the sole owner of PRB. Ulmer Holding is wholly owned by Nolan and Patricia Ulmer.

3. Nolan and Patricia Ulmer filed a petition for relief under chapter 11 (Case No. 13-29368-HRT) on November 20, 2013.

4. On November 21, 2013, three other entities that are wholly owned by Ulmer Holding filed petitions under chapter 11. Those entities are UIV Properties RS, LLC (Case No. 13-29368-HRT) ("UIV"); NPK Water Holding, LLC (Case No. 13-29369-HRT) ("NPK Water"); and NPK Investments, LLC (Case No. 13-29371-HRT) ("NPK Investments").

5. The case filed by the Ulmers along with UIV, NPK Water, and NPK Investments are being jointly administered with the PRB case (collectively, the "Debtors"). All of the business entities are ultimately 100% owned and controlled by Nolan and Patricia Ulmer as a result of their ownership and control of Ulmer Holding.

6. PRB owns approximately 188 acres of real property in Weld County, Colorado, with an address of 17043 County Road 394, LaSalle, Colorado (the "Property").

7. PRB acquired the Property at various times and in the form of various individual parcels along with associated water rights. At the time of acquisition, the water rights consisted principally of shares in the Godfrey Ditch Company ("Godfrey Shares").

8. PRB and/or various other of the Debtors entered into multiple agreements with the City of Evans (the "City") known as dry up covenants whereby Godfrey Shares were signed over to the City in exchange for Equivalent Residential Units ("EQRs"). An EQR is calculated to be roughly equivalent to the water usage of a single family residence.¹

9. According to the City's Resolution No. 29-2015 (the "Resolution"), adopted on October 20, 2015, by the City Council of the City of Evans,

between 2004 and 2012, a developer, Nolan Ulmer, either personally or through one of several entities he created, agreed with the City's then public works director, Earl Smith, to convey shares in the Godfrey Ditch Company ("Godfrey Ditch shares") to the City in exchange for EQRs, and the conversion factor used between Mr. Ulmer and Mr. Smith was 80 EQRs for each Godfrey Ditch share. . . . [T]he Godfrey Ditch shares were purportedly conveyed to the City through a series of separate transactions occurring on the following dates:

1/7/04

3 shares in exchange for 240 EQRs

1/12/04

16 shares in exchange for 1280 EQRs

6/1/05

1 share in exchange for 80 EQRs

7/17/06

5 shares in exchange for 400 EQRs

10/24/12

1 share in exchange for 80 EQRs

In its Resolution, the City Council finds that the City's issuance of EQRs to Ulmer and his entities in exchange for Godfrey Ditch shares was invalid because it was not approved by the City Council in accordance with the applicable City ordinances and in its Resolution, the City Council concludes that

1. The purported agreements seeking to convey Godfrey Ditch shares to the City of Evans in exchange for EQRs, as summarized above are not accepted by the City, and are hereby deemed invalid.

2. The EQRs issued in connection with the purported conveyances of Godfrey Ditch shares to the City are hereby cancelled and of no further force or effect.

10. PRB and other of the Debtors have pledged EQRs as collateral for loans received from both Advantage Bank ("Advantage"), the Movant herein, and Northstar Bank f/k/a Colorado Community Bank ("Northstar"), which has joined in the Motion.

11. The Debtors and the banks are involved in significant controversies concerning, among other issues, the banks' foreclosure of their security interests in EQRs.

12. On May 9, 2014, PRB filed an adversary action in this Court seeking to pursue claims against the banks and the City (Adversary No. 14-1231-HRT). After finding that the issues raised by the Debtor were controlled by state law and were duplicative of issues already the subject of pending state court litigation, the Court abstained from adjudication of those issues (Adversary No. 14-1231-HRT, docket #135). In addition, the Court lifted the automatic stay in order to allow the parties to fully litigate their disputes and to liquidate damages. The Court left the stay in place with respect to property of the bankruptcy estate.

II. DISCUSSION

Advantage, joined by Northstar, seeks dismissal of the Debtors' bankruptcy cases. Under 11 U.S.C. § 1112,

Except as provided in paragraph (2) and subsection (c), on request of a party in interest, and after notice and a hearing, the court shall convert a case under this chapter to a case under chapter 7 or dismiss a case under this chapter, whichever is in the best interests of creditors and the estate, for cause unless the court determines that the appointment under section 1104(a) of a trustee or an examiner is in the best interests of creditors and the estate.

11 U.S.C. § 1112(b)(1) (emphasis added). Examples of some particular circumstances that provide cause for dismissal under § 1112(b) are:

(A) substantial or continuing loss to or diminution of the estate and the absence of a reasonable likelihood of rehabilitation;

(B) gross mismanagement of the estate;

(C) failure to maintain appropriate insurance that poses a risk to the estate or to the public;

(D) unauthorized use of cash collateral substantially harmful to 1 or more creditors;

(E) failure to comply with an order of the court;(F) unexcused failure to satisfy timely any filing or reporting requirement established by this title or by any rule applicable to a case under this chapter;

(G) failure to attend the meeting of creditors convened under section 341(a) or an examination ordered under rule 2004 of the Federal Rules of Bankruptcy Procedure without good cause shown by the debtor;

(H) failure timely to provide information or attend meetings reasonably requested by the United States trustee (or the bankruptcy administrator, if any);

(I) failure timely to pay taxes owed after the date of the order for relief or to file tax returns due after the date of the order for relief;

(J) failure to file a disclosure statement, or to file or confirm a plan, within the time fixed by this title or by order of the court;

(K) failure to pay any fees or charges required under chapter 123 of title 28;

(L) revocation of an order of confirmation under section 1144;

(M) inability to effectuate substantial consummation of a confirmed plan;

(N) material default by the debtor with respect to a confirmed plan;

(O) termination of a confirmed plan by reason of the occurrence of a condition specified in the plan; and

(P) failure of the debtor to pay any domestic support obligation that first becomes payable after the date of the filing of the petition.

11 U.S.C. § 1112(b)(4).

The factors listed in § 1112(b)(4) are illustrative of common circumstances that arise in the context of chapter 11 cases that can indicate the presence of cause for dismissal. However, the list is non-exclusive; Congress did not undertake to supply an exhaustive list of reasons to dismiss or convert a chapter 11 case. See, e.g., Hall v. Vance, 887 F.2d 1041, 1044 (10th Cir. 1989); In re Colon Martinez, 472 B.R. 137, 144 (B.A.P. 1st Cir. 2012); In re Landmark A. Hess Farm, LLC, 448 B.R. 707, 711 (Bankr. D. Md. 2011); In re Paterno, 511 B.R. 62, 66 (Bankr. M.D. N.C. 2014); In re Van Eck, 425 B.R. 54, 59 (Bankr. D. Conn. 2010); In re Orbit Petroleum, Inc., 395 B.R. 145, 147 (Bankr. D. N.M. 2008).

Courts always evaluate the totality of the circumstances to determine if cause exists to dismiss or convert a chapter 11 case under § 1112(b). See, e.g., In re Original IFPC Shareholders, Inc., 317 B.R. 738, 743 (Bankr. N.D. Ill. 2004); In re Argus Group 1700, Inc., 206 B.R. 737, 753 (Bankr. E.D. Pa. 1996) aff'd sub nom. Argus Group 1700, Inc. v. Steinman, 206 B.R. 757 (E.D. Pa. 1997); In re WLB-RSK Venture, 296 B.R. 509, 514 (Bankr. C.D. Cal. 2003) aff'd, 320 B.R. 221 (B.A.P. 9th Cir. 2004) aff'd, 223 Fed. Appx. 555 (9th Cir. Feb. 22, 2007) (unpublished); In re Walden Ridge Dev., LLC, 292 B.R. 58, 62 (Bankr. D. N.J. 2003); In re 801 S. Wells St. Ltd. Partn., 192 B.R. 718, 726-27 (Bankr. N.D. Ill. 1996).

The evidence and the totality of the circumstances persuades the Court that Debtors' principal, Nolan Ulmer, has abused the bankruptcy process by filing these related bankruptcy cases to hinder and delay his secured creditors from enforcing their rights with no reasonableprospect of proposing a confirmable plan of reorganization. There is no "effective reorganization that is in prospect." United Sav. Ass'n of Texas v. Timbers of Inwood Forest Associates, Ltd., 484 U.S. 365, 376 (1988) (emphasis in original).

A. The Debtors' Plan

The Debtors' jointly proposed chapter 11 plan (docket #201) (the "Plan") broadly provides that the Property is to be developed as a sand and gravel operation and for water storage. The Debtors intend to develop this business from the ground up as no such enterprise is currently in existence.

At the time the Debtors acquired...