In re Seasons Apartments, Ltd. Partnership
| Decision Date | 21 November 1997 |
| Docket Number | Bankruptcy No. 96BK-31400. |
| Parties | In re THE SEASONS APARTMENTS, LIMITED PARTNERSHIP, Debtor. |
| Court | United States Bankruptcy Courts. Fifth Circuit. U.S. Bankruptcy Court — Western District of Louisiana |
John M. Frazier, Shreveport, LA, for Debtor.
William T. D'Zurilla, New Orleans, LA, for Beal Bank.
Jeffrey R. Fine, Dallas, TX, for Sunset Downs Corp.
REASONS FOR DECISION
This matter came before the Court on the Approval of the Third Amended Disclosure Statement, the Debtor's Motion to Extend the Automatic Stay beyond November 15, 1997, this Court's Motion to Dismiss, and the Expedited Hearing on Beal Bank's Motion to Dismiss. This is a Core Proceeding pursuant to 28 U.S.C. § 157(b)(2)(B, G, & L). This Court has jurisdiction pursuant to 28 U.S.C. § 1334 and by virtue of the reference by the District Court pursuant to Local Civil Rule 83.4 incorporated into W.D.La. LBR 9029-3. No party at interest has sought to withdraw the reference to the bankruptcy court, nor has the District Court done so on its own motion. Pursuant to these reasons, the Objection of Beal Bank, S.S.B., to the Debtor's Third Amended Disclosure Statement is sustained, the Motion to Extend is denied, and the Case is dismissed, effective November 28, 1997, unless otherwise ordered by the Court.
In 1985, the Debtor formed to build and operate an apartment complex in Monroe, Louisiana. For its capitalization, the Debtor borrowed approximately three million dollars. The original lender and mortgagee is "The Ouachita National Bank in Monroe, Monroe, Louisiana, Trustee under Indenture of Trust dated as of July 1, 1985 between Trustee and Louisiana Public Facilities Authority." On August 14, 1985, the Federal Housing Commission, an agency of the Department of Housing and Urban Development (HUD), insured this mortgage.
Ouachita later became Premier Bank. In 1990, the latter made claim against the insurance, and assigned "all rights, title, and interest in" the note and mortgage to HUD, because of Debtor's default. In October, 1995, defendant, Beal Bank, S.S.B., purchased the note and mortgage from HUD. On July 18, 1996, Beal Bank demanded that the Debtor pay all amounts due under the note. Failing that, Beal stated its intent to file foreclosure proceedings. On August 9, 1996, the Debtor filed for relief under Chapter 11 of the Bankruptcy Code. As of August 9, 1996, the total amount due under the note and mortgage was $3,179,444.59 in principal, $211,482.50 in accrued interest, and $32,556.40 in late charges. Beal Bank is the sole secured creditor of the debtor.
On May 20, 1997, this Court filed reasons for decision holding that the rents of the Seasons complex could not be used to fund a reorganization of the Debtor, as these rents were assigned to Beal Bank as security for its debt. Reasons for Decision, May 20, 1997, The Seasons Apartment, A Limited Partnership v. Beal Bank, SSB, Adversary Proceeding 97-3010. Seasons sought a new trial on that issue, which was set for a hearing on June 4, 1997. Beal insisted that it had an absolute assignment as to the rentals.
Seasons filed a Motion for Valuation of Security and for Determination of "cash out price." The hearings on the motion for new trial and valuation were held on the 4th and 5th days of June. For reasons orally assigned, the Court determined the Debtor's appraisal was correct. The order, signed July 1, 1997, states that the total value of Beal Bank's collateral package is $2,250,000. This figure is the "cash out price." The Debtor was given 120 days to confirm a plan, pay the cash out price to Beal Bank, or the automatic stay would lift. The July 1st order also continued the previous interim cash collateral order in effect for the same 120 day period.1
Because the Court declined to accept Beal's argument on the rentals, Beal Bank filed a notice of appeal of the May 20, 1997 Reasons and the order therefrom, and this Court's order continuing the interim cash collateral order in effect. On that day, Beal also filed a motion to amend the judgment on valuation, or for a new trial. That matter was submitted on the briefs on August 19, 1997. An Order and accompanying Reasons for Decision were issued on August 22, 1997, denying Beal Bank's motion. On August 28, 1997, Beal appealed this Court's valuation determination.
All matters on appeal have been stayed by the District Court at Beal's request pending a determination of the issues presently before this Court.
On September 22, 1997, a hearing was held on the Second Amended Disclosure Statement. On October 8, 1997, this Court signed an order sustaining Beal Bank's objection to the disclosure statement on the basis that the plan disclosed was unconfirmable on its face. As Beal Bank was impaired under that version of the plan, would not vote in favor of the plan, and was the only non-insider creditor, the requirements of § 1129(a)(10) could not be met. This Court rejected the Debtor's invitation to deem its Class 1 Creditors, namely its attorney and its appraiser, as a voting class.
On October 15, 1997, the Debtor filed a Motion to permit the filing of a Third Modified Disclosure Statement, the confirmation of the Third Modified Plan, and extension of the date for termination of the automatic stay, along with a Third Amended Disclosure Statement and Plan. The Third Amended Plan proposed to pay Beal Bank the full amount of its allowed secured and undersecured claims under 11 U.S.C. §§ 502, 906. The Debtor maintains that this cash payment, to be made thirty days after confirmation, means that Beal's claim is unimpaired and thus is deemed to have accepted the plan. 11 U.S.C. § 1126(f). Beal argues that the deprivation of post-petition interest, fees, and costs amounts to an impairment under § 1124 of the Code.
At the hearing on the Third Amended Disclosure Statement, the Debtor reurged its argument that administrative claims can constitute an accepting class for purposes of 11 U.S.C. § 1129(a)(10). This Court again rejects the Debtor's argument. Administrative claims are priority claims under § 507(a)(1). Priority claims must be paid in full, and therefore cannot be impaired, much less vote in favor of a plan. 11 U.S.C. § 1129(a)(9)(A), In re Greystone III Joint Venture, 995 F.2d 1274, 1281 (5th Cir.1991), In re Distrigas Corp., 66 B.R. 382, 387 (Bkrtcy.D.Mass.1986).
The present Disclosure Statement states that Classes One through Six of the plan are unimpaired, including Class 4, Beal Bank's undersecured claim. Under § 1129(a)(10), if the plan impairs a class of claims, at least one class of claims that is impaired must accept the plan, "without including any acceptance of the plan by any insider," in order for the plan to be confirmable under § 1129(b)(2), i.e., by "cramdown." As Beal has been determined to be the only non-insider creditor, Beal's acceptance of the plan is crucial.2 The Debtor has attempted to "unimpair" Beal, thus obviating the requirement for Beal's acceptance. If Beal is impaired, the Disclosure Statement, as amended, may not be approved.
The parties have made much of Congress's repeal of 11 U.S.C. § 1123(3). Prior to the 1994 Bankruptcy Reform Act, that section provided that claims were unimpaired if ". . . on the effective date of the plan, the holder of such claim or interest receives, on account of such claim or interest, cash equal to . . . with respect to a claim, the allowed amount of such claim . . ." This provision essentially allowed a Chapter 11 Debtor to "cash out" a claim for the amount owed at the time of the filing of the bankruptcy petition. 11 U.S.C. § 502. The § 1123(3) amount does not include post-petition interest, even if the Debtor is solvent. § 502(b), In re New Valley Corp., 168 B.R. 73, 79 (Bkrtcy.D.N.J.1994). Because of the result reached in New Valley, Congress repealed subsection 3. See 104 CongRec. H10,768 (October 4, 1994).
While the Congressional Record reveals that Congress was most concerned about solvent debtors avoiding post-petition interest on unsecured claims, Congress repealed the entire subsection. The Debtor therefore argues that Congress only intended to deprive solvent debtors the ability to cash out unsecured claims without paying post-petition interest. The Debtor states that "It was likely never the intent of Congress to place such a burden of post-petition interest on an insolvent debtor in order to have a class of claims be unimpaired . . . the intent of the amendment was to overrule the basic inequity of the New Valley decision . . ."3 The Debtor then quotes law review articles which succinctly summarizes its argument as follows:
"Under both the Bankruptcy Act of 1898 and the Bankruptcy Code, courts generally awarded postpetition interest to unsecured creditors when the Debtor was solvent, and the amendment to Section 1124(3) contained in Section 213(d) of the Act is intended to codify that result . . . Arguably, the deletion of Bankruptcy Code Section 1124(3) requires that creditors of a solvent estate be paid in full, with interest, before equity holders may receive distributions in connection with their interests . . . Accordingly, solvent debtors may attempt to assert that creditors with no legal, contractual, or equitable claim to interest are left unimpaired under Section 1124(1) when they are paid the full amount of their claim, without interest . . . "4
The Debtor's Memorandum continues:
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