In re St. Charles Preservation Investors, Ltd., Civ. A. No. 89-3302.
| Decision Date | 28 March 1990 |
| Docket Number | Civ. A. No. 89-3302. |
| Citation | 112 BR 469 |
| Parties | In re ST. CHARLES PRESERVATION INVESTORS, LTD. |
| Court | U.S. District Court — District of Columbia |
Robert H. Bear, Maxwell & Bear, Washington, D.C., for appellants, Class A Ltd. Partners.
Francis P. Dicello, Hazel, Thomas, Fiske, Beckhorn & Hanes, Washington, D.C., for appellees, Class B Ltd. Partners.
Kevin R. McCarthy, Lepon, McCarthy, Jutkowitz & Holzworth, Washington, D.C., for appellee, trustee.
This matter is before the Court on appeal from an order of the United States Bankruptcy Court for the District of Columbia. See Case No. 87-01126. The appellants contend that the bankruptcy court erred in ruling that the Class A Limited Partners' right to interest on their invested capital was not a claim conferring creditor status within the meaning of 11 U.S.C. § 101(4), (9) and that the bankruptcy court accordingly erred in denying the Class A Limited Partners' motion to confirm the election of the Chapter 7 trustee.
The debtor in this case, St. Charles Preservation Investors, Ltd., is a Georgia limited partnership. It was formed in 1983 to acquire the St. Charles Hotel located in Washington, D.C. In order to raise the purchase price for the hotel, it issued limited partnership interests denoted as "Class A" and "Class B."
The Class A limited partners were required to make a one-time cash payment of $19,000 for each unit as the purchase price for their interests at the time of their purchase. The partnership agreement provided that these limited partners would be entitled to receive guaranteed payments consisting of the payback of their purchase price in two specified installments and the right to receive interest at the stated rate of 18% per year. (Partnership Agreement, § 10.1, at 18). The offering materials cautioned these investors that the partnership would accrue interest expenses based upon the legal rights conferred, even if the partnership defaulted on the payments. (Private Placement Memorandum at 19). The Class A Limited Partners also received a nominal equity interest consisting of a one percent interest on profits, shared among the Class A Limited Partners as a group. This was to increase to a ten percent shared interest when all investors recovered their investment. (Partnership Agreement, § 11.1, at 20).
The Class B limited partners were required to make contributions of $62,000 per unit, payable $12,000 upon subscription, with the balance payable over four years ending March 1, 1987.
The Hotel suffered substantial operating losses and was eventually lost through foreclosure. The Class B partners defaulted on their obligation to St. Charles starting in March, 1985, and there is now a balance of $34,000 due and owing to the debtor for each Class B limited partnership interest. Because the hotel property was owned through another limited partnership which went through bankruptcy itself, there are no other assets in the instant estate.
On December 22, 1987, St. Charles Preservation Investors, Ltd., the debtor herein, filed a petition under Chapter 7 of the Bankruptcy Code in the United States Bankruptcy Court for the District of Columbia. At the meeting of creditors held on January 28, 1988 and continued to February 16, 1988, counsel for the Class A Limited Partners requested the election of a permanent trustee and nominated and voted for Joseph R. Whaley. An objection was made and a motion to confirm Whaley's election was filed on March 2, 1988. A hearing on the motion filed by the Class B Limited Partners to dismiss or abstain, in addition to the Class A Limited Partners' motion to confirm the election, was held on June 22, 1988.
On November 7, 1989, the Bankruptcy Judge issued an Order Denying Motion to Dismiss or Abstain and Denying Motion to Confirm the Election of Chapter 7 Trustee, and a supporting Memorandum Opinion. The bankruptcy court ruled that the Class A Limited Partners' right to interest on their invested capital was not a debt conferring creditor status within the meaning of 11 U.S.C. § 101(9).
A notice of appeal to this Court was filed by the appellants on November 14, 1989.
This Court has jurisdiction to hear appeals from the bankruptcy court pursuant to 28 U.S.C. § 158.2 Orders in bankruptcy cases may be immediately appealed as final orders as a matter of right if they dispose of discrete disputes within the larger case. It is not necessary to await the acceptance of the trustee's final account. In re County Management, Inc., 788 F.2d 311, 313 (5th Cir.1986).
In the instant case, the appellees contend that the order is not a final order pursuant to 28 U.S.C. § 158(a) because "an order denying the motion to confirm the election of a trustee . . . merely involves a preliminary step in the administration of a bankruptcy case — the designation of an individual who shall administer the estate, under the supervision of the Bankruptcy Court and other parties in interest." Appellees' Brief at 12.
The appellees' primary reliance on In re Delta Services Industries, 782 F.2d 1267 (5th Cir.1986), is not only inapposite but in fact supports the position of the appellants. In Delta Services, the court held that a bankruptcy court order approving appointment of an interim trustee was not a final appealable decision. However, recognizing that bankruptcy proceedings require a distinctive and more flexible definition of finality than that obtained in ordinary civil cases under 28 U.S.C. § 1291, the court adopted an approach which would consider an order final and appealable if it "conclusively determined substantive rights of parties." Id. at 1269-70. In Delta Services, the court held that because of the limited and temporary role of an interim trustee, the substantive rights of the parties would not be effected. The court expressly limited its holding to that of an interim trustee, explaining that an order approving the appointment of an interim trustee merely constituted a preliminary step in the liquidation proceedings and that "the service of the interim trustee terminates when the creditors elect a permanent trustee." Id. at 1271.
In the instant case, the election of the permanent trustee is hardly a preliminary step in the liquidation proceeding but is fundamental to the proceeding itself and the permanent trustee will be engaged in such proceeding to its conclusion. More fundamentally, however, the order denying appellants' motion to confirm the permanent trustee conclusively effects significant and substantive rights of the appellants.
The bankruptcy court's order conclusively determines the creditors' right to elect the trustee to represent their interests. This Court fully recognizes that a creditor does not have a right to the appointment of a particular trustee, but a creditor does have an interest "in the method by which the trustee is appointed or removed and a right to insist that the appointment or removal be made in accordance with applicable bankruptcy rules." In re Homer Arth Well No. 1, 529 F.2d 1272, 1274 (6th Cir.1976).
The bankruptcy court's denial of the motion to confirm the election of the trustee was premised on its determination that the Class A Limited Partners did not have any status as creditors of the estate and that it accordingly did not have a right to request the election of a permanent trustee and vote in that election. Thus, this determination did not simply involve the asserted right of the Class A Limited Partners to participate in the selection of a permanent trustee but, more fundamentally, was a disposition of the status of the Class A Limited Partners and their subsequent rights and priorities throughout the bankruptcy proceeding. The appellees do not contend that the bankruptcy court's disposition of status of the Class A Limited Partners is not conclusive. An order which conclusively determines a separable dispute over a creditor's claim or priority is appealable. In re Saco Development Corp., 711 F.2d 441, 444, 445-46 (1st Cir.1983).3
At the February 16, 1988 meeting of creditors, Joseph R. Whaley, was nominated as permanent trustee and received the votes of the Class A Limited Partners who, assuming that their rights against the estate are considered "claims," hold a sufficient majority of the total unsecured claims of the debtor. However, the bankruptcy court denied the motion to confirm the election of the trustee on the basis that the Class A Limited Partners were not "creditors" (i.e., holders of valid "claims") within the meaning of the Bankruptcy Code.
The Code provides the definitions for "claim" and "creditor":
11 U.S.C. § 101(4), (9) (emphasis added). The statute refers to a "right to payment" as it exists at the filing of the petition (with limited exceptions for specified claims arising subsequent to the petition). 11 U.S.C. § 502.
Under the plain language of the statute, if the Class A Limited Partners had legally enforceable rights to the payment of money from the debtor at the time of the bankruptcy petition, then they are "creditors" as the holders of "claims." The plain language of the statute is the best source of legislative intent and is to be followed unless to do so would be plainly inconsistent with the legislative history or would create an absurd result. Connecticut v. Schweiker, 684 F.2d 979, 990 (...
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