In re Real Wilson Enters., Inc.

• Decision Date: 23 September 2013
• Docket Number: DC No. HAR-7,Case No. 11-15697-B-11
• Parties: In re Real Wilson Enterprises, Inc., Debtor.
• Court: U.S. Bankruptcy Court — Eastern District of California

In re Real Wilson Enterprises, Inc., Debtor.

Case No. 11-15697-B-11

DC No. HAR-7

UNITED STATES BANKRUPTCY COURT EASTERN DISTRICT OF CALIFORNIA FRESNO DIVISION

Dated: September 23, 2013

NOT FOR PUBLICATION

POSTED ON WEBSITE

MEMORANDUM DECISION REGARDING MOTION TO

CONFIRM THIRD AMENDED PLAN

This disposition is not appropriate for publication. Although it may be cited for whatever persuasive value it may have, see Fed. R. App. P. 32.1, it has no precedential value, see 9th Cir. B.A.P. R. 8013-1.

Hilton A. Ryder, Esq., of McCormick, Barstow, Sheppard, Wayte & Carruth, LLP, appeared on behalf of the debtor, Real Wilson Enterprises, Inc.

Michael S. Abril, Esq., and Keri L. Bland, Esq., of Kuhs & Parker, appeared on behalf of the secured creditor, Citizens Business Bank.

Before the court is a motion by the debtor Real Wilson Enterprises, Inc. (the "Debtor" or "Real Wilson") to confirm its third amended chapter 11 plan (the "Plan"). Secured creditor Citizens Business Bank (the "Bank") vigorously opposes confirmation. Although the court is not yet ready to conclude that Real Wilson is unable to reorganizeand pay its debts through a chapter 11 plan, that reorganization will not be through this Plan. The Debtor has not sustained its burden of proof on a number of issues necessary to confirm a chapter 11 plan, including the fundamental requirement that a plan must be accepted by at least one impaired class of creditors. Accordingly, the motion to confirm the Debtor's Plan will be denied.

This Memorandum Decision contains the court's findings of fact and conclusions of law required by Federal Rule of Civil Procedure 52(a), made applicable to this contested matter by Federal Rules of Bankruptcy Procedure 7052 and 9014(c).¹ The court has jurisdiction over this matter under 28 U.S.C. § 1334, 11 U.S.C. § 1129, and General Order Nos. 182 and 330 of the U.S. District Court for the Eastern District of California. This is a core proceeding as defined in 28 U.S.C. § 157(b)(2)(L).

Background and Findings of Fact.

Only a brief background is necessary to tee up this ruling. Real Wilson is a corporation. It owns and operates a gas station and mini-mart business in Bakersfield, California (the "Mini-Mart"). The Bank holds a claim that is secured by virtually all of the Debtor's real and personal property assets. The Debtor's schedules declare assets of approximately $1.1 million and a secured debt to the Bank of more than $1.19 million.² The schedules also disclose a priority debt owed to the California State Board of Equalization ("SBOE") of more than $233,000. Not disclosed on the schedules is the fact that the Debtor also owes property taxes to the Kern County Treasurer-Tax Collector("KCTC") of more than $84,000.³

Real Wilson is owned by Randeep Dhillon ("Dhillon") who holds 100% of the stock in the corporation. Dhillon also owns numerous other entities, some of which, together with Dhillon personally, have also been before this court in unsuccessful chapter 11 proceedings filed in 2011 at or about the same time as this case.

In April 2011, the Bank filed a civil action against Real Wilson and Dhillon seeking the appointment of a receiver and judicial foreclosure of its lien against the Debtor's assets.⁴ Indeed, a receiver was appointed by the state court on May 13, 2011. This bankruptcy was then filed on May 17, 2011, to prevent the receiver from retaining possession of the Mini-Mart. On May 31, 2011, this court entered orders compelling the receiver to turn over the Mini-Mart to the Debtor and denying the Bank's request to excuse the receiver from the turnover requirement.

For months thereafter, this case suffered one frustrating delay after another. Initially, the Debtor blamed the delay on the fact that Dhillon was in his own personal bankruptcy and was unable to focus his attention on administration of this case. Further delay resulted from the Debtor's inability (or unwillingness) to diligently respond to and complete SBOE's audit of its tax liability. The Debtor filed its first plan and disclosure statement on January 19, 2012, but was unable to move toward confirmation because ofthe unresolved issues with SBOE. The Plan that is presently before the court was filed on January 17, 2013.⁵

The Plan places the Bank's secured claim into Classes 2A and 3A, bifurcating the claim into two separate claims and classes based on the kind of collateral (i.e., real or personal property) but then consolidates their treatment under Class 2A. Under the Plan, the Bank's secured claim will be treated as fully secured, be amortized over a period of 20 years, bear interest at the rate of 5% per annum, and become all due in seven years. The Plan provides for KCTC's secured property tax claim in Class 2B, which proposes to amortize the entire claim over a period of 60 months after confirmation with interest at the statutory rate of 18% per annum.

Issues Presented.

The Bank objects to confirmation on several grounds, but it does not object to the proposed treatment of its claim.⁶ Nevertheless, the Bank argues that the Plan does not satisfy other elements for confirmation prescribed in § 1129. For the reasons set forth below, the court agrees with the Bank that the Plan, in its current form, is unconfirmable. In so ruling though, the court will not attempt to address all of the issues raised by the Bank because resolution of each issue is not necessary to the court's ruling and some of those issues, such as the lack of evidence to support the proposed interest rate payable on the Bank's claim, are better left for resolution if and when the Debtor attempts to confirmanother plan. Instead, the court will address only those issues that require some legal analysis and resolution to guide the parties if the Debtor proposes another plan.

As a result of this contest, the Debtor is now on notice as to the issues it will need to address in a subsequent plan. The Debtor has already "burned its bridge" with the Bank and demonstrated an inability (or unwillingness) to honor its agreements with the Bank. See supra note 4. Based on this prepetition history between the parties and the record in this case, it is clear that confirmation of any plan will require a "cram down" over the Bank's objection and that any ruling in favor of the Debtor will be vigorously appealed. The court trusts that the next plan will be crafted with the appropriate changes and presented with additional evidence to preemptively address the Bank's certain objection.

Analysis and Conclusions of Law.

Burden of Proof. The Debtor, as the plan proponent, has the burden to prove, by a preponderance of the evidence, that its Plan satisfies the applicable confirmation requirements of § 1129. See Liberty Nat'l Enters. v. Ambanc La Mesa Ltd. P'ship (In re Ambanc La Mesa Ltd. P'ship), 115 F.3d 650, 653 (9th Cir. 1997). Even in the absence of an objection, the court has an independent duty to make sure that the Debtor has offered sufficient evidence to sustain a finding that each requirement under § 1129 has been satisfied. See Everett v. Perez (In re Perez), 30 F.3d 1209, 1213 (9th Cir. 1994).

Acceptance by an Impaired Class: § 1129(a)(10). The Bank's most compelling objection goes to the fact that the Plan was not accepted by at least one impaired, noninsider class. Unless a proposed plan leaves all classes of claims unimpaired, the Bankruptcy Code conditions a debtor's ability to confirm a chapter 11 plan on the requirement that "at least one class of claims that is impaired under the plan has accepted the plan, determined without including any acceptance of the plan by an insider." § 1129(a)(10). A class of creditors accepts a plan if, of the creditors who vote in that class, "at least two-thirds in amount and more than one-half in number of the allowed claims of such class" accept the plan. § 1126(c). Here, the creditors in four impairedclasses voted on the Plan by returning ballots; the Debtor argues that one of those classes, Class 5B, has accepted the Plan.⁷ However, the Bank contends that the Class 5B votes cannot be counted.

Class 5B is comprised of three creditors: JAL Enterprises, Inc., Kulsharan Kaur, and Jasvant Singh Gill. The Debtor concedes that JAL Enterprises, Inc. is an insider, so its acceptance must be disregarded. See § 1129(a)(10). Similarly, based on the testimony given during the confirmation hearing, it appears that Kulsharan Kaur is also an insider whose vote cannot be considered. This leaves only Jasvant Singh Gill, whose affirmative vote would arguably make Class 5B an accepting, impaired class.⁸ Nevertheless, as the Bank points out, the court must address a more foundational question of whether the creditors in Class 5B were even entitled to vote in the first place. The relevant statutory provision here states,

Notwithstanding any other provision of this section, a class is deemed not to have accepted a plan if such plan provides that the claims or interests of such class do not entitle the holders of such claims or interests to receive or retain any property under the plan on account of such claims or interests.

§ 1126(g) (emphasis added). "The legislative history pertinent to this Code section indicates that it is not even necessary to solicit votes from a class whose members are to receive or retain nothing" since they are deemed to have already rejected the plan. In re Waterways Barge P'ship, 104 B.R. 776, 783 (Bankr. N.D. Miss. 1989).

Here, the treatment of Class 5B is stated in the Plan as follows: "Class 5Bconsisting of the unsecured claims of Jal Enterprises, Inc. [sic], Kulsharan Kaur and Jasvant Singh [sic] shall be subordinated to payment of [Class 5A] and shall receive no distribution under the Plan." Based on the clear and unambiguous language of the Plan—that these creditors "shall receive no distribution under the Plan"—it appears that the holders of Class 5B claims are not entitled to "receive or retain any property under the plan." Therefore, even if none of the...