In re S B Bldg. Assocs. Ltd. P'ship

• Decision Date: 06 November 2020
• Docket Number: Case No.: 13-12685 VFP,Case No.: 13-12682 VFP, Case No.: 13-12689 VFP Jointly Administered
• Parties: IN RE: S B BUILDING ASSOCIATES LIMITED PARTNERSHIP, Debtor. In re: SB Milltown Industrial Realty Holdings, LLC, Debtor. In re: Alsol Corporation, Debtor.
• Court: U.S. Bankruptcy Court — District of New Jersey

621 B.R. 330

IN RE: S B BUILDING ASSOCIATES LIMITED PARTNERSHIP, Debtor.

In re: SB Milltown Industrial Realty Holdings, LLC, Debtor.

In re: Alsol Corporation, Debtor.

Case No.: 13-12682 VFP

Case No.: 13-12685 VFP

Case No.: 13-12689 VFP Jointly Administered

United States Bankruptcy Court, D. New Jersey.

Signed November 6, 2020

BERGER & BORNSTEIN, PA, Lawrence S. Berger, Esq., 237 South Street, Morristown, NJ 07960, Attorneys for Debtors

THOMPSON & KNIGHT, LLP, Stuart J. Glick, Esq., 900 Third Avenue, 20^th Floor, New York, NY 10022, Attorneys for Cherry Tree Property and SASS MUNI IV, V, and VI

OFFICE of the UNITED STATES TRUSTEE, Benjamin Teich, Esq., One Newark Center, Ste. 2100, Newark, NJ 07102

RABINOWITZ, LUBETKIN & TULLY, LLC, Jay L. Lubetkin, Esq., John J. Harmon, Esq., 393 Eisenhower Parkway, Ste. 100, Livingston, NJ 07039, Attorneys for Debtors

GIBBONS P.C., Mark Conlan, Esq., Thomas Valen, Esq., David N. Crapo, Esq., One Gateway Center, Newark, NJ 07102-5310, Attorneys for Boraie Development

NORRIS MCLAUGHLIN, P.A., Morris S. Bauer, Esq., 400 Crossing Boulevard, 8th Floor, P.O. Box 5933, Bridgewater, New Jersey 08807, Former Attorneys for Debtors

OPINION ON CONFIRMATION

VINCENT F. PAPALIA, Bankruptcy Judge

I. INTRODUCTION

In these cases, the Court is faced with an unusual, if not unique, situation. The Plans proposed by these Debtors (collectively, the "Plan"): (a) provide for a 100% dividend to unsecured creditors, with interest; (b) were overwhelmingly accepted by every secured and unsecured class that voted; (c) the classes of secured creditors that did not vote -- the EPA, Milltown and certain tax lien certificate holders -- have either entered into settlements with the Debtors and/or are being paid in full, are retaining their liens and have not objected to the Plan; and (d) at least as importantly, the Plan is based upon settlements that resolve complex, multiparty litigations with the EPA, the Sass Parties and Milltown that have been pending for many years. Those settlements will put to an end hotly contested, multimillion dollar claims by and against the Debtors and were entered into only after hard-fought negotiations and multiple mediation sessions.

Against that backdrop, two parties interposed substantial and, for the most part, well founded objections: Boraie Development, LLC ("Boraie") and the Office of the United States Trustee ("UST"), with Boraie being the only objecting creditor. As for Boraie, it is participating in this case by virtue of purchasing claims against two of the three Debtors, Alsol and S B Building (but not SB Milltown), totaling approximately $108,000. As noted, those claims are proposed to be paid in full, with interest. The natural question then becomes why is Boraie objecting.

The answer lies outside typical debtor-creditor relations. Boraie is the designated Redeveloper of the Debtors' Properties (as defined below). Boraie and the Debtors have been enmeshed in protracted litigation revolving around the development of the Debtors' Properties in the trial and appellate courts of New Jersey for nearly fifteen years. Significantly, the Debtors' Plan expressly leaves unaffected Boraie's rights against the Debtors as Redeveloper and with respect to the pending State Court litigation. The UST has no direct economic stake in this (or any other) bankruptcy proceeding but is properly exercising its statutory right and duty to oversee bankruptcy proceedings and enforce the bankruptcy laws. In sum, the objections here – substantive though they may be – are being made by a creditor that is to be paid in full, but which also has a very different and primary interest that it is pursuing as the Redeveloper of the Debtors' Properties, and the UST, who is not a creditor at all.

Boraie and the UST argue that the Debtors' Plan is unconfirmable as a matter of law and fact for numerous reasons and that these cases should be converted to cases under Chapter 7 or that a Chapter 11 Trustee should be appointed. The objections of Boraie and the UST may be summarized as follows:

1. The Debtors will be unable to pay administrative expenses required under the Plan in full on the Effective Date (or as may otherwise be agreed by administrative claimants);

2. The Debtors' Plan is not feasible for various reasons, including the lack of sufficient capital and available cashflow from the Debtors and its "backstop" – United States Land Resources, Inc. ("USLR") – to fund the initial, installment and balloon payments due under the Plan;

3. The Plan was not proposed in good faith and not by any means forbidden by law;

4. The continued management of the Debtors by Lawrence S. Berger is not in the interests of creditors or the public;

5. The provisions of the Plan and Global Settlement (as defined below) that call for cross-collateralization are not permitted as a matter of law;

6. The provisions of the Plan and Global Settlement that call for temporary or "deemed" substantive consolidation are also not permitted as a matter of law;

7. The Plan is being funded (at least in part) by alleged fraudulent transfers;

8. The Plan may be confirmed only under 11 U.S.C. § 1129(b) because not all impaired classes have affirmatively voted to accept the Plan – i.e., the EPA, Milltown, the tax lien certificate holders – as required for confirmation under 11 U.S.C. § 1129(a)(8). Thus, section 1129(b) applies, and the Plan does not satisfy its "fair and equitable" and "no unfair discrimination" requirements, principally because of the Plan's consolidation and/or cross-collateralization provisions and the related argument that the Plan violates the absolute priority rule.

The Court will address each of these arguments following a discussion of the lengthy procedural and factual history of these cases.

II. GENERAL BACKGROUND

This Opinion is being issued after trial on the vigorously contested confirmation hearing of three jointly administered Chapter 11 cases, In re S B Building Limited Partnership ("S B Building") Case No. 13-12682 (VFP); In re SB Milltown Industrial Realty Holdings, LLC ("SB Milltown") Case No. 13-12685 (VFP); and In re Alsol Corporation ("Alsol") Case No. 13-12689 (VFP) (collectively, the "Debtors"). The trial took place intermittently over ten days and was followed by a change of counsel for the Debtor, two rounds of post-trial briefings, two motions to reopen the hearing in order to supplement the trial record (one granted and one granted in part), and one motion to strike certain testimony of Debtor's principal (granted in part).¹ Additionally, during the trial, the evidentiary hearings were suspended for an extended period while the parties engaged in settlement discussions among themselves, as well as with the Court (with the consent of the parties), that were ultimately unsuccessful.

As noted, the two primary objecting parties are Boraie, which was appointed prepetition as Redeveloper of the Debtors' Properties, and the UST. The Court-appointed examiner, Frank A. Pina, and his retained attorneys and accountants, Trenk, DiPasquale, Della Fera & Sodono, P.C., and Mercadien, P.C., respectively, also have a standing Objection preserved under a December 18, 2018 Consent Order for the payment of their fees in the capped amount of $400,000.

Tax certificate holders Cherry Tree Property, LLC; Sass Muni IV, LLC; Sass Muni V, LLC; and Sass Muni VI, LLC (collectively, "Sass") filed a June 14, 2019 letter of counsel in support of confirmation.² The United States Environmental Protection Agency (the "EPA") also filed a letter in support of the Global Settlement, which is the cornerstone of the Debtors' Plan. Subsequently, the EPA advised the Court that it had no objection to confirmation of the Plan.³

III. JURISDICTIONAL STATEMENT

The Court has jurisdiction over this matter under 28 U.S.C. § 1334(b) and the Standing Orders of Reference entered by the United States District Court on July 10, 1984 and amended on September 18, 2012. This is a core proceeding under 28 U.S.C. § 157(b)(2)(A), (L) (confirmation of plans) and (O). Venue is proper in this Court under 28 U.S.C. § 1408. The Court issues the following findings of fact and conclusions of law pursuant to Fed. R. Bankr. P. 7052. To the extent that any of the findings of fact might constitute conclusions of law, they are adopted as such. Conversely, to the extent that any conclusions of law constitute findings of fact, they are adopted as such.

IV. STATEMENT OF FACTS

A. General Background

The Debtors together own twenty-four acres of contiguous property in the Borough of Milltown, Middlesex County, New Jersey (collectively, the "Properties"), formerly zoned for industrial use and once used in part as a Michelin tire facility.⁴ Alsol acquired its tracts of the property in 1940s; S B Building in 1986; and SB Milltown in 2004.⁵ The S B Building tracts include commercial buildings, a single-family home and vacant land.⁶ The SB Milltown tracts include one building leased to an unrelated tenant; other buildings were demolished.⁷ All buildings on the Alsol tract are demolished, and none were under lease during this Chapter 11 case.⁸ The three Debtors had a total of two tenants as of March 27, 2019.⁹ The Debtor(s) acquired these Properties for commercial investment, both (i) to be operated as commercial or industrial rentals; and (ii) to be redeveloped for commercial and/or residential use.¹⁰ Lawrence S. Berger, Esq. ("Mr. Berger") signed the petition of each of the three Debtors "as authorized agent or as President."¹¹ The Debtors described their ownership structure a follows:

S B Building wholly owns co-debtors SB Milltown and Alsol.

S B Building is owned 50% by Success Treuhand GMbH (limited partner); and 50% by S B Building GP, LLC.

The Disclosure Statement describes Mr. Berger as a general partner of S B Building GP, LLC.¹²

Debtor S B Building is also the sole owner of:

(i) 388 Route 22 Readington Holdings, LLC ("388 Route 22"), which owns a vacant 60,000 square foot building on six

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