In re Roedemeier, 06-20292-11.

• Decision Date: 16 August 2007
• Docket Number: No. 06-20292-11.,06-20292-11.
• Court: United States Bankruptcy Courts. Tenth Circuit. U.S. Bankruptcy Court — District of Kansas
• Parties: In re Jahn Eldredge ROEDEMEIER, Debtor.

374 B.R. 264

In re Jahn Eldredge ROEDEMEIER, Debtor.

No. 06-20292-11.

United States Bankruptcy Court, D. Kansas.

August 16, 2007.

COPYRIGHT MATERIAL OMITTED

Joanne B. Stutz, Thomas M. Mullinix, III, Evans & Mullinix PA, Shawnee, KS, for Debtor.

OPINION APPROVING THE DEBTOR'S DISCLOSURE STATEMENT, AND CONFIRMING HIS PLAN

DALE L. SOMERS, Bankruptcy Judge.

This matter was before the Court on April 5, 2007, for a combined hearing on approval of the Debtor's disclosure statement and confirmation of his plan of reorganization. The Debtor appeared by counsel Thomas Mullinix and Joanne Stutz. Creditor Bankers Healthcare Group did not object to the plan, but did object to (1) the disclosure statement, (2) the consolidation of the hearings on approval of the disclosure statement and confirmation of the plan, and (3) the Debtor's summary of balloting. Bankers appeared by counsel Elizabeth A. Carson. Late in January 2007, the Court issued an order consolidating the hearings on approval of the disclosure statement and confirmation of the plan. On April 5, the Court heard evidence concerning the disclosure statement and the plan. On April 10, the Court issued an order resolving the balloting dispute and directing the parties to submit written closing arguments on approval of the disclosure statement and confirmation of the plan, which they have done. The Court is now ready to rule on those matters.

FACTS

The Debtor has been a practicing dentist since graduating from dental school in 1979. Until 1996, his practice included at least one partner-dentist, and from 1982 until 1996, the practice operated at two locations. When the Debtor's co-owner severed their relationship in 1996, the Debtor assumed all the debts of the Roedemeier-Quattrochi DDS, P.C. ("R-Q"), and continued to use its name until 2005.

R-Q had done business as College Boulevard Dental Care, first on College Boulevard and later on Antioch Road, both in Overland Park, Kansas. While that practice was doing well, the Debtor hired another dentist in June 2003 to work three days a week, and arranged for another to start working in July 2004. The Debtor also obtained a loan commitment from the Small Business Administration to move the practice to a location on Metcalf Avenue in Overland Park and to pay off the R-Q debts. When a malpractice suit was filed against him, however, the Debtor lost the SBA financing and the two other dentists left his practice. He still moved his practice, and ultimately won the malpractice suit.

In April 2005, trying to recover from the damage to R-Q's practice caused by the lawsuit, the Debtor formed Deer Creek Family Dental Care, L.L.C., and began operating his practice through that entity. A company that had financed R-Q's equipment vigorously pursued the Debtor to collect on his guarantee of R-Q's debt, and he filed a Chapter 11 bankruptcy petition in March 2006. According to the Official Bankruptcy Form 22B the Debtor completed, his "current monthly income" for the six months before he filed his petition averaged $4,953 per month.

On January 8, 2007, the Debtor filed a disclosure statement, a Chapter 11 plan, and a motion to consolidate the hearing on approval of the disclosure statement and confirmation of the plan. Bankers Healthcare Group, Inc., one of R-Q's creditors whose debt the Debtor had guaranteed, filed two objections, one objecting to the disclosure statement and the other objecting to the consolidation motion.¹ Significantly, Bankers did not object to the Debtor's, plan. The Court signed an order approving the consolidation motion, setting the consolidated hearing for April 5, 2007.

Later, the Debtor filed a "Summary of Balloting," reporting that only two votes had been received, one by the Class 4 creditor and the other by one of the Class 5 creditors, the class of general unsecured creditors. Bankers objected to the summary, claiming it had never received a ballot and asking to have the summary withdrawn or stricken from the record. This issue was taken up at the April 5 hearing, along with the questions whether to approve the Debtor's disclosure statement and whether to confirm his plan. In an order issued a short time after the hearing, the Court resolved Bankers' objection to the Debtor's balloting summary by treating Bankers as having voted against the plan, leaving Class 4 as the only impaired class that had accepted the plan. The Court noted that its ruling meant the confirmation requirement established by 11 U.S.O A. § 1129(a)(10) that at least one impaired class accept the plan had been `satisfied. In the same order, the Court gave the Debtor and Bankers time to submit written closing arguments explaining their positions about approval of the Debtor's disclosure statement, and confirmation of his plan. The parties have now submitted their arguments. The Court will make additional findings as it discusses the parties' claims.

At the hearing on April 5, 2007, the Court allowed Bankers to start the presentation of evidence, even though the Debtor had the burden to prove his disclosure statement should be approved and his plan should be confirmed. During the hearing, Bankers never objected that any of the evidence the Debtor presented was going beyond the scope of Bankers' own presentation. In its closing argument, however, it argues the Debtor "failed to present any evidence whatsoever except on rebuttal" and that this failure alone justifies denying approval of the disclosure statement and denying confirmation of the plan, citing no authority for this claim. Federal Rule of Evidence 611(a)² gives the Court broad discretion to control the presentation of evidence, and the Court is aware of no authority suggesting that evidence presented without objection at any stage of a trial is less worthy of consideration or entitled to less weight than any other evidence. In a criminal case, the Tenth Circuit ruled that evidence submitted during rebuttal was sufficient to establish an essential element of a crime and support a conviction, even though at the close of the government's case-in-chief, the trial court had deferred ruling on the defendant's motion for acquittal.³ Clearly in this civil matter, the Debtor's evidence can be sufficient to support granting the relief he is seeking even if it should be considered to have been submitted during rebuttal rather than during his case-in-chief.

The Debtor's proposed plan of reorganization is not complicated. He wants to continue to run his dental practice through the Deer Creek entity. Deer Creek will pay its operating expenses, including payroll taxes and taxes imposed on personal property it has, and will assume obligations the Debtor incurred to National Bank of Kansas City for certain pieces of equipment, but treat the transactions as financing agreements rather than leases. Deer Creek will pay the Debtor a salary, which he will use to pay: (1) his living expenses, including first and second mortgages on his home, (2) the administrative expenses of his bankruptcy case (including his attorney fees, though Deer Creek may also pay them), (3) priority tax claims of about $73,000, and (4) five annual payments of $6,000 to be distributed pro rata among his general unsecured creditors. According to the Debtor and his expert witness, Tom J. McCann, Jr., Deer Creek will be able to generate sufficient income to allow the plan to succeed so long as it can increase its business enough to occupy two dental hygienists full time, instead of having one work full time and another part time, as the company has been doing. The Debtor is optimistic that the business can accomplish that goal and perhaps even add another dentist. Mr. McCann testified that the financial projections for Deer Creek that were attached to the disclosure statement were conservative and, based on the dental practice's history, should be achievable.

DISCUSSION

The evidence presented at the April 5 hearing left the Court with the initial impression that the Debtor's disclosure statement adequately described his plan of reorganization, and that he could be successful under the plan so long as he can continue to produce the same level of income for Deer Creek with his own services, and increase the practice enough to occupy two dental hygienists full time. There is a good chance he would be able to expand the practice more than that, making performance of the plan even easier and more certain. But Bankers raises a number of questions requiring more, detailed analysis. The Debtor's request to evaluate the plan under the cramdown provisions of § 1129(b) also requires more discussion.

1. Should the Debtor's disclosure statement be approved, despite Bankers' objections?

In its objection to the Debtor's disclosure statement, Bankers raised five issues: (1) the Debtor asserted an improper homestead exemption in the case; (2) the Debtor claimed to own equipment that belonged to R-Q; (3) the disclosure statement does not state what becomes of the equipment the Debtor appropriated (apparently referring to equipment that belonged to R-Q) or how that is dealt with; (4) the disclosure statement does not disclose how the Debtor plans to compensate R-Q's secured creditors or explain why those creditors should not be separately classified; and (5) the Debtor proposes to treat some of R-Q's creditors separately but not all of them, and does not indicate that this is what his plan would do. The first issue was resolved by an agreed order submitted by the Debtor and Bankers, and the second issue was resolved by the Court's order ruling the equipment still belonged to R-Q.

In Bankers' third issue, assuming it was referring only to the equipment that belonged to R-Q, Bankers has correctly pointed out that the disclosure statement does not explain what became of that equipment. The disclosure statement indicates that when he filed his Chapter 11 petition, the Debtor claimed to own the equipment, but does not indicate...