In re Repurchase Corp.

• Decision Date: 31 October 2005
• Docket Number: No. 04 B 32933.,04 B 32933.
• Citation: 332 B.R. 336
• Parties: In re REPURCHASE CORPORATION, Debtor.
• Court: U.S. Bankruptcy Court — Northern District of Illinois

332 B.R. 336

In re REPURCHASE CORPORATION, Debtor.

No. 04 B 32933.

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

October 31, 2005.

COPYRIGHT MATERIAL OMITTED

Shaw Gussis Fishman Glantz Wolfson & Towbin, Chicago, IL, for plaintiff.

MEMORANDUM OPINION DENYING DEBTOR'S (1) MOTION TO AMEND ORDER DENYING CONFIRMATION OF AMENDED PLAN AND (2) MOTION TO VACATE DISMISSAL ORDER

JACK B. SCHMETTERER, Bankruptcy Judge.

Repurchase Corporation ("Debtor") filed this Chapter 11 bankruptcy case on September 3, 2004. A confirmation hearing on Debtor's Amended Plan of reorganization was held July 12, 2005. Evidence was taken. Findings of facts and conclusions of law supporting a denial of confirmation were orally recited from the bench at the close of the hearing.

The United States Trustee ("UST") filed a Motion to Convert or, in the Alternative, Dismiss Chapter 11 Case on July 14, 2005. A further hearing was held on July 25, 2005 and an order dismissing Debtor's case was signed on July 25, 2005 and entered on July 26, 2005.

Debtor filed two motions based on Rule 59(e) of the Federal Rules of Civil Procedure seeking to have the orders denying confirmation and dismissing its case each vacated. A hearing was held August 23, 2005 when parties in interest were heard. From the pleading and evidence taken, the following Findings of Fact and Conclusions of Law are made and will be entered. Pursuant thereto, both motions are denied by separate orders.¹

FINDINGS OF FACT

1. Debtor filed a voluntary petition for relief under Chapter 11 of the Bankruptcy Code ("Code") on September 3, 2004.

2. Prior to filing for bankruptcy, Debtor's business consisted of acquiring and selling investment securities for profit. Leon Greenblatt, Debtor's president, and his wife jointly own Debtor. Debtor's last acquisition occurred in 2001 and was for the purchase of stock in Health Risk Management ("HRM"). At the time of this transaction, HRM's stock was Debtor's primary security asset. As of the date of its bankruptcy filing, the value of HRM's stock had drastically deceased in value. Debtor suffered significant loses as a result. This precipitated Debtor's bankruptcy filing.

3. Debtor's Amended Plan of reorganization and first amended disclosure statement were filed on April 28, 2005. According to its amended disclosure statement, Debtor's only assets are Net Operating Loss Carryovers ("NOL") that may be used for federal tax purposes. According to the disclosure statement, "the only way to monetize the sole valuable asset of the Debtor... is for the Debtor to cancel its current stock, issue New Stock and allow its post-confirmation equity to utilize the tax benefits of the NOLs." Am. Disclosure Statement, p. 8. Pursuant to the Amended Plan's terms of execution, a Mr. Greenblatt was to contribute $100,000 to Debtor in exchange for a 20% equity interest in the post-confirmation Debtor. This contribution would be used to make pro rata cash distribution to eligible claimants. Neither the Plan nor the disclosure statement further identify the Mr. Greenblatt who was to provide financing. The Amended Plan also provided for the Debtor to received a discharge upon confirmation.

4. The UST filed an objection to the Amended Plan and amended disclosure statement on June 17, 2005. MJK Clearing, Inc. ("MJK") also filed an objection to the Amended Plan on June 17, 2005. This was followed by Credit Suisse First Boston, LLC's ("CSFB") joining in the UST's objection.

5. A hearing on confirmation of the Amended Plan was held on July 12, 2005. Evidence was offered by the Debtor in the form of oral testimony from Mr. Leon Greenblatt. Mr. Greenblatt testified that he contemplated that the reorganized Debtor would engage in the same type of business it had operated prior to the bankruptcy filing even though the business had not operated for several years. He further testified that his wife would provide the $100,000 necessary to finance the Plan's execution in exchange for an 100% interest in the reorganized Debtor. According to Mr. Greenberg, his wife's interest would be 100% because none of the creditors expressed an interest in purchasing stock in the reorganized Debtor. In addition, his wife would contribute $500,000 needed as capital for the reorganized Debtor's future investment operations. The reorganized Debtor was also to use cash derived from entering sharing agreements for the utilization of the NOLs as an additional source of operating capital. Despite these prognostications, Debtor offered no additional evidence to substantiate Mr. Greenblatt's testimony. No money at all was shown to be available, from the wife or anyone else, either the $100,000 or the $500,000 in required capital. As to the reason why Debtor had not engaged in the purchasing and selling of securities for a long period before and since its bankruptcy filing, the witness testified that it was not possible for Debtor to attract new investors to invest in Debtor and enable it to purchase new investments while it was in a Chapter 11 case.

6. After consideration of the testimony and documentary evidence offered at the confirmation hearing, Findings of Facts and Conclusions of Law were orally delivered from the bench. The Amended Plan was held to fail mainly because no prospective investment supported it. It was also deemed illegal pursuant to section 1141(d)(3)(B) due to Debtor's failure to demonstrate that it will or could engage in business post-confirmation in light of the Plan that proposed to obtain a discharge. Confirmation was denied by order signed on July 25, 2005 and entered on July 26, 2005.

7. On July 14, 2005, the UST filed a motion to convert or, in the alternative, dismiss Debtor's case. The UST's reasoning was based on contention that a reasonable likelihood of Debtor's reorganization did not exist. A hearing was held on July 25, 2005 and the motion to dismiss was granted. An order dismissing the case was signed on July 25, 2005 and entered on July 27, 2005.

8. Thereafter, Debtor filed motions requesting that the order dismissing its case be vacated and that the order denying confirmation be altered so as to vacate it. Each motion was based on Rule 59(e) of the Federal Rules of Civil Procedure. MJK filed a written objection to these motions on August 19, 2005. A hearing on the motions was held August 23, 2005 whereby the Debtor, MJK, the UST and CSFB orally argued their respective positions. The motions did not offer specific new evidence although Debtor argued that now it can obtain a source of capital. Debtor did not contend that it was prepared to offer evidence that existed but was unavailable when confirmation was denied.

9. Facts stated in the Conclusion of Law will stand as additional Findings of Facts.

CONCLUSIONS OF LAW

Jurisdiction

Subject matter jurisdiction lies under 28 U.S.C. § 1334. These matters are before the bench pursuant to 28 U.S.C. § 157 and District Court Internal Operating Procedure 15(a). These matters constitute core proceedings under 28 U.S.C. §§ 157(b)(1) & (2)(L). Venue is proper pursuant to 28 U.S.C. § 1409(a).

Discussion

Debtor's motions request two forms of relief — vacation of the orders dismissing its case and denying confirmation of its Amended Plan of reorganization. Based on Rule 59(e) Fed.R.Civ.P., both motions allege that an error of law occurred in the rendering of each decision. However during oral argument on the motions, Debtor's counsel also argued that the motion to amend the order denying confirmation is intended to request opportunity to submit new evidence. See Fed.R.Bankr.P. 9023 which applies; Fed.R.Civ.P. 59(a). The motion itself does not request the latter relief. Debtor's counsel orally moved to have the judgment denying confirmation reopened for the purpose of submitting new evidence in support of confirming a plan of reorganization.

Since dismissal of Debtor's case hinged on the denial of confirmation, questions surrounding the propriety of the denial confirmation will be addressed first.

A. Motion to Amend and Vacate Order Denying Confirmation of Amended Plan

1. Rule 59(e) Fed.R.Civ.P.

Rule 59(e), made applicable by Rule 9023 of the Federal Rules of Bankruptcy Procedure, permits a party to file a motion seeking an alteration or amendment of a judgment. Motions based on Rule 59(e) will only be granted if there has been a mistake of law or fact to which the judgment was based upon or where there is newly discovered evidence that was not previously available. Gendron v. United States, 154 F.3d 672, 674 (7th Cir.1998). A judge's decision to grant or deny relief on such motions is discretionary. LB Credit Corp. v. Resolution Trust Corp., 49 F.3d 1263, 1267 (7th Cir.1995).

However Rule 59(e) may not be used as a means of presenting arguments or new legal theories or evidence that should have and could have been raised before the judgment was issued. Figgie Int'l Inc. v. Miller, 966 F.2d 1178, 1180 (7th Cir.1992); FDIC v. Meyer, 781 F.2d 1260, 1268 (7th Cir.1986). Nor does it afford a movant an opportunity to introduce evidence that was available before the judgment was rendered. Matter of Prince, 85 F.3d 314, 324 (7th Cir.1996). If evidence is presented, "the moving party must `show not only that this evidence was newly discovered or unknown to it until after the hearing, but also that it could not with reasonable diligence have discovered and produced such evidence [during the pendency of the motion].'" Caisse Nationale de Credit Agricole v. CBI Indus., Inc., 90 F.3d 1264, 1269 (7th Cir.1996) (quoting Engelhard Indus., Inc. v. Research Instrumental Corp., 324 F.2d 347, 352 (9th Cir.1963)).

In its motion, Debtor argues that an error of law occurred when confirmation was denied. Specifically, it contends that the discharge provision in its Amended Plan was proper, and that denial of confirmation based on an error of law. Pointing to 11 U.S.C. § 1141(d)(3) for support, Debtor maintains that the...