In re Royal Alice Props., LLC

• Decision Date: 30 November 2021
• Docket Number: CASE NO. 19-12337
• Citation: 637 B.R. 465
• Parties: IN RE: ROYAL ALICE PROPERTIES, LLC, Debtor.
• Court: U.S. Bankruptcy Court — Eastern District of Louisiana

637 B.R. 465

IN RE: ROYAL ALICE PROPERTIES, LLC, Debtor.

CASE NO. 19-12337

United States Bankruptcy Court, E.D. Louisiana.

Signed November 30, 2021

Erin Arnold, Kelly, Hart & Pitre, New Orleans, LA, Dwayne M. Murray, Dwayne M. Murray, Louis Middleton Phillips, Kelly Hart & Pitre, Baton Rouge, LA, for Trustee.

Leo D. Congeni, Congeni Law Firm, LLC, New Orleans, LA, for Debtor.

Amanda Burnette George, Office of the U.S. Trustee, New Orleans, LA, for U.S. Trustee.

SECTION "A"

MEMORANDUM OPINION AND ORDER

MEREDITH S. GRABILL, UNITED STATES BANKRUPTCY JUDGE

This Court held a two-day evidentiary hearing beginning on September 24, 2021, and concluding on September 27, 2021, to resolve the following matters:

(i) Motion To Approve (I) Settlement under FRBP 9019 ; and (II) Sale of Real Property Pursuant to 11 U.S.C. § 363 As Part of Settlement (the "Settlement/Sale Motion"), [ECF Doc. 418], as amended, [ECF Doc. 423]; and the Motion for Entry of Order (I) Establishing Bidding Procedures; (II) Scheduling the Auction for the Sale of Debtor's Real Property Assets; and (III) Granting Related Relief (the "Bid Procedures Motion"), [ECF Doc. 419], filed by the chapter 11 Trustee; the Oppositions thereto, [ECF Docs. 463, 471 & 472]; and related Replies, [ECF Docs. 503 & 504];¹ (ii) Motion of Party-in-Interest Arrowhead Capital Finance, LTD. Objecting to Computation of Interest, Legal Fees and Costs Payable to AMAG, INC., [ECF Doc. 429], filed by Arrowhead Capital Finance; the related Oppositions, [ECF Docs. 465 & 467], and Arrowhead's Reply, [ECF Doc. 494];²

(iii) Motion for Adequate Protection Pursuant to Section 363(e), and Motion To Require the Debtor To Assume or Reject Leases with Incorporated Memorandum, filed by Royal Street Bistro, LLC and PicturePro, LLC, [ECF Doc. 455]; the Oppositions, [ECF Docs. 461 & 466], and the Reply, [ECF Doc. 512];

(iv) Motion for Application for Compensation for Services Rendered and Reimbursement of Expenses in Accordance with Bankruptcy Rules 2016 and 9013, Local Rules 2016-1 and 9013-1 and U.S.C 11 § 506(b) in Accordance with the Amended Motion to Approve (I) Settlement under FRBP 9019, and (II) Sale of Real Property pursuant to 11 U.S.C. § 363 AS PART OF SETTLEMENT, [DOC. 423], [ECF Doc. 478], and Application for Approval of an Award of Secured Interest Pursuant to 11 U.S.C. § 506(b) in Accordance with the Amended Motion to Approve (I) Settlement under FRBP 9019, and (II) Sale of Real Property pursuant to 11 U.S.C. § 363 AS PART OF SETTLEMENT, [DOC. 423], [ECF Doc. 479], both filed by AMAG, Inc.; and the related Oppositions, [ECF Docs. 496 & 498]; and

(v) the following post-trial briefs:

a. Post-trial Brief Filed by Royal Street Bistro, LLC and PicturePro LLC in Accordance with Order, [ECF Doc. 528];

b. Intervenor Susan Hoffman's Memorandum (A) in Support of Proposed Plan of Reorganization and (B) in Supplemental Opposition to Trustee's Amended Motion To Approve (I) Settlement Under FRBP 9019 and (II) Sale of Real Property Pursuant to Settlement, [ECF Doc. 529];³

c. Reply Memorandum, filed on behalf of the chapter 11 Trustee, [ECF Doc. 543].

The parties stipulated to the admission of Joint Exhibits 1-5, 7-16, and 18 as evidence, with Exhibits 11-16 being admitted under seal. Appearances of counsel and testifying witnesses are listed in this Court's Order of September 30, 2021. [ECF Doc. 522]. At the close of evidence, the Court took the matters under submission, and now issues the following findings of fact and conclusions of law pursuant to Federal Rules of Bankruptcy Procedure 9014 and 7052.

JURISDICTION AND VENUE

This Court has jurisdiction to grant the relief provided for herein pursuant to 28 U.S.C. § 1334. The matters presently before the Court constitute core proceedings that this Court may hear and determine on a final basis under 28 U.S.C. § 157(b)(2)(A), (B), (M) & (O). The venue of the Debtor's chapter 11 case is proper under 28 U.S.C. §§ 1408 and 1409(a).

FINDINGS OF FACT⁴

A. The Trustee's Settlement/Sale Motion and Related Bid Procedures Motion

A full description of this Debtor's prepetition business dealings as a holding company for three income-producing immovable properties (the "Properties"), its bankruptcy filing on August 29, 2019, its post-petition litigation with secured creditor AMAG, Inc. ("AMAG"), and the chain of events leading to the appointment of Dwayne Murray to serve as the Chapter 11 Trustee (the "Trustee") may be found in this Court's Order of September 4, 2020. [ECF Doc. 308].

At this time, the Trustee's Settlement/Sale Motion asks this Court pursuant to Bankruptcy Rule 9019 and § 363 of the Bankruptcy Code to allow the Trustee (i) to settle the secured claim that AMAG holds as a result of its lien on all of the Debtor's Properties and rents and (ii) to sell those Properties free and clear of all interests. See Settlement/Sale Motion, ¶¶ 9-10. The proposed settlement envisions that AMAG's secured claim against the estate will be determined and allowed in the total amount of $6,004,961.46 (plus interest and costs accruing after June 30, 2021) (the "AMAG Settlement Amount"). See id. ¶ 10.⁵ The settlement would allow the estate to receive the Properties free and clear of AMAG's secured liens and sell them at a private auction, selling each of the three Properties separately or as a package within forty-five days after Court approval of the Settlement/Sale Motion and the Bid Procedures Motion. See id.

The proposed settlement would allow the estate to recoup from the first cash sale proceeds up to $25,000 paid by the Trustee for marketing expenses (the "Marketing Expense Limit") and would allow the estate to receive an amount equal to 1.25% of the Aggregate Credit-Bid Amount (defined below) regardless of the buyer or the purchase price amount (the "Estate Commission"). See id. In return for settling its claim, AMAG agrees

(i) to serve as a stalking-horse bidder earning no break-up fee, with the ability to creditbid an opening bid for the Properties in the aggregate amount of $5,015,000 ("Aggregate Credit-Bid Amount") and to offer a financing opportunity to other bidders as well;

(ii) to pay $50,000 to the Trustee for the benefit of the estate upon Court approval of the Bid Procedures Motion (the "Settlement Payment");

(iii) to split any amount received over and above the Aggregate Credit-Bid Amount 80% to AMAG and 20% to the estate until AMAG has received full payment of the AMAG Settlement Amount—even if AMAG itself is the successful bidder above the Aggregate Credit Bid Amount on any individual Property or if AMAG is the buyer of all of the Properties (the "Overbid Split"); and

(iv) to carve out from the collateral securing its secured lien the aggregate of the Marketing Expense Limit, the Settlement Payment, the Estate Commission, the payment of the Overbid Split, any cash on hand at the time of the closing of the sale, any accounts receivable (other than from the sale), and claims against third parties (the "Carve-Out Property") to enable the Trustee to pay allowed administrative expense claims.

See id.; see also Bid Procedures Motion, ¶ 8. As part of the settlement, AMAG also agrees to subordinate its claim to allow administrative expense claims up to the value of the Carve-Out Property, except that, in the event the Carve-Out Property is insufficient to pay allowed administrative expense claims, AMAG shall pay to the Trustee for the benefit of the estate onehalf of the shortfall, up to $100,000. See Settlement/Sale Motion, ¶ 10. The proposed settlement further contemplated that Court Orders approving the Sale Motion and the Bid Procedures Motion would be effective upon entry and that the settlement would not affect AMAG's rights against third parties under its loan documents and applicable law. See id. ¶ 10.⁶

And the proposed settlement provides that "all liens, claims, and interests in and to the Real Properties will attach to the proceeds with the same validity, extent, and priority that otherwise exists." See id. ¶ 41.

B. The Trustee's Testimony

The Trustee testified in support of the Settlement/Sale Motion and Bid Procedures Motion. The Trustee has practiced law for over 28 years, has taught bankruptcy courses in a regional law school, and has over 20 years of experience as a trustee in chapter 7, subchapter V, and traditional chapter 11 cases. See Hr'g Tr. 1-84:21 to 1-86:20. The Court finds the Trustee to be an earnest, well qualified, and trustworthy witness and affords much credibility to his testimony.

The Trustee reported that, since he was appointed by the United States Trustee's Office in September 2020 to serve as the Trustee in this case, neither Susan Hoffman, the sole equity holder of the Debtor, nor Peter Hoffman, her husband and, at times, designated representative of the estate, has presented him with feasible refinancing options for the AMAG debt owed by the Debtor. See Hr'g Tr. 1-91:6 to 1-94:22. The sole income of the Debtor comes from rent collected under recorded leases (the "Leases"). See Exs. 1, 3 & 5. Royal Street Bistro, LLC ("RSB"), owned by the Hoffman Family Trust, leases the first floor of 900-902 Royal Street as well as 910-912 Royal Street to operate two restaurants, Petite Amelie and Cafe Amelie, which Susan Hoffman manages. See Hr'g Tr. 6:1-7:22. PicturePro LLC ("PicturePro" and, together with RSB, the "Lessees"), of which Peter Hoffman is a member manager, leases the second, third, and fourth floors of 900-902 Royal Street; Susan Hoffman lives in that space and Peter Hoffman testified that he conducts business on behalf of PicturePro in that space. See Hr'g Tr. 6:1-7; 51:6-52:20. The Trustee confirmed that neither of the Lessees of the Properties pay rent on time without prodding from the Trustee and that PicturePro remains in default under the terms of its Lease, owing the estate approximately $55,000 in back rent. See Hr'g Tr. 1-86:23 to 1-88:3; 1-118:24 to 1-120:8; 1-131:17 to 1-133:12.

The Trustee presented evidence under seal...