In re Tavern Motor Inn, Inc.

• Decision Date: 20 December 1985
• Docket Number: Bankruptcy No. 83-89.
• Citation: 56 BR 449
• Court: U.S. Bankruptcy Court — District of Vermont
• Parties: In re TAVERN MOTOR INN, INC., d/b/a The Montpelier Tavern Inn, Debtor.

56 B.R. 449 (1985)

In re TAVERN MOTOR INN, INC., d/b/a The Montpelier Tavern Inn, Debtor.

Bankruptcy No. 83-89.

United States Bankruptcy Court, D. Vermont.

December 20, 1985.

Bruce Bjornlund, Waterbury, Vt., for John M. Kilmurry.

Andrew Field, Burlington, Vt., for debtor.

William Gray, Burlington, Vt., for Irving Anders of Montpelier, Vt. (Anders).

Jacqueline Hughes, Montpelier, Vt., for State of Vt., Dept. of Taxes (DOT).

John Kilmurry, Montpelier, Vt., for Barbara Kilmurry.

Spencer Knapp, Burlington, Vt., for Chittenden Trust Co. (CTC).

Brian Lyford, Northfield, Vt., for Northfield Sav. Bank of Northfield, Vt. (NSB).

Jerome I. Meyer, White River Junction, Vt., for Unsecured Creditor's Committee.

Patti Page, Burlington, Vt., for the U.S.I.R.S.

John P. Riley, Montpelier, Vt., for the City of Montpelier, Vt. (Montpelier).

Raffaele Terino, White River Junction, Vt., for Avery Inns of Vermont, Inc. (Avery).

F. Voight, pro se, for Culinary Institute of America (CIA).

MEMORANDUM AND ORDER

FRANCIS G. CONRAD, Bankruptcy Judge.

This matter is before the Court for an Order to approve debtor's Fifth Amended Plan of Reorganization (2nd revision). After an initial hearing on the amended plan, the objections, and a motion to convert by a secured creditor, debtor asked the Court to invoke 11 U.S.C. Section 1129(b), the "cram-down" provision of the Code. A hearing was held on the objections to applying 11 U.S.C. Section 1129(b). Because the debtor's Fifth Amended Plan of Reorganization (2nd revision) is not supported by adequate financial data as required by 11 U.S.C. Section 1125(a)(1), the Plan is DENIED confirmation. The motion for conversion is also DENIED with leave to renew within thirty (30) days.

Debtor, a domestic Vermont sub-chapter "S" corporation, operates a locally well-known hotel, and related commercial, retail, and office facilities, in the capitol city of Montpelier. Originally built in the 1930's, the Tavern, as it is known locally, has been through several facility additions and changes in ownership before filing its petition to reorganize on May 11, 1983. The case has had a long and acrimonious history characterized by continued bickering that has detracted from the issues and from the debtor's rehabilitative needs.

Debtor's first Plan of Reorganization was filed on October 26, 1983. It was amended five times, and the most recent amended plan has been revised twice. The plan needs to be amended again because of stipulations made at the various hearings. The Disclosure Statement, after being amended three (3) times and revised once, was approved by the Court on July 8, 1985. The confirmation hearing and objections to the most recent revised Plan were noticed to be heard on September 9, 1985. Four creditors filed objections and one creditor, CTC, filed motions to convert under 11 U.S.C. Section 1112(b), (1), (2), and (3) and for relief from the automatic stay imposed by 11 U.S.C. Section 362. CTC agreed to withdraw the motion for relief from stay pending the outcome of the confirmation hearing and our ruling on its motion to convert debtor to Chapter 7.

After the presentation of evidence at the hearing on September 9, 1985, two creditors withdrew their objections to the Plan. The Unsecured Creditor's Committee expressed their approval, explaining to the Court that under the Plan there is at least a hope of recovery. The Committee's counsel said, "This promise of a recovery is more than any amount they the unsecured creditors could hope to receive if the debtor were liquidated under Chapter 7 of the Bankruptcy Code." We concur with this statement. The evidence and the record in this case reveal little or no hope for recovery on the part of the unsecured creditors unless the debtor continues to operate.

At the close of the confirmation hearing debtor moved the Court to approve an application to invoke the "cram-down" provisions of 11 U.S.C. Section 1129(b). We held a hearing on this motion on October 17, 1985. The parties presented little new evidence at this hearing. Debtor, however, successfully negotiated away another creditor who had objected to the Plan. The sole remaining objecting creditor, CTC, held steadfast to its objections.

CTC's objections, succinctly summarized, are:

1) The Disclosure Statement is insufficient.

2) Chittenden Trust Company is impaired by the Plan.

3) The Plan lacks adequate means for implementation.

4) There is a likelihood of liquidation or further financial reorganization.

5) The charter provisions as required by 11 U.S.C. 1123(a)(6) are absent.

6) The Plan is discriminatory, unfair, and inequitable to the impaired creditors.

Several of CTC's objections do not strike at the heart of the problems in debtor's Plan and need not be resolved at this time. Neither debtor nor CTC adequately addressed these issues during the evidentiary hearings and we shall not now decide the issues raised by CTC's objections # 3, # 4, # 5, and # 6.

Impairment

Numerous classes are impaired under this Plan. With the exception of CTC, all classes have balloted for the Plan. Debtor states that "the note, mortgage, and security interests of the Chittenden Trust Company, dated December 15, 1980, shall remain undisturbed." (Plan, page 8). While the word "undisturbed" is not synonymous with unimpaired, construing the word in the context of the Plan, we find that the debtor intends to treat CTC as an unimpaired secured claim. The Plan also proposes to amortize all late charges and outstanding principal, with interest, over the remaining life of the note. Finally, the Plan proposes to pay the interest accrued and unpaid as of the date of distribution in equal monthly payments over 24 months, without interest. CTC argues that the Plan alters its rights under the loan agreement dated December 15, 1980. We disagree.

Section 1124 of 11 U.S.C., which defines impairment for purposes of Section 1123, provides in part:

Except as provided in Section 1123(a)(4) of this title, a class of claims or interests is impaired under a plan unless, with respect to each claim or interest of such class, the plan —

1) leaves unaltered the legal, equitable, and contractual rights to which such claim or interest entitles the holder of such claim or interest;

2) notwithstanding any contractual provision or applicable law that entitles the holder of such claim or interest to demand or receive accelerated payment of such claim or interest after the occurrence of a default —

A) cures any such default that occurred before or after the commencement of the case under this title, other than a default of a kind specified in section 365(b)(2) of this title;

B) reinstates the maturity of such claim or interest as such maturity existed before such default;

C) compensates the holder of such claim or interest for any damages incurred as a result of any reasonable reliance by such holder on such contractual provision or such applicable law; and

D) does not otherwise alter the legal, equitable, or contractual rights to which such claim or interest entitles the holder of such claim or interest;

This section defines the concept of impairment of claims or interests. Although there are Courts that disagree, In re Barrington Oakes General Partnership, 15 B.R. 952, 8 B.C.D. 569, 5 C.B.C.2d 969 (Bkrtcy.D.Utah 1981), the legislative history of this section indicates it is new. House Report No. 95-595, 95th Cong., 1st Sess. 408 (1977, U.S.Code Cong. & Admin. News 1978, 5787, 6364.

CTC argues what can be best described as a blanket impairment objection. In reality, CTC's objection raises two issues. The first pertains to CTC's pre-petition claim, the second to CTC's post-petition accrued interest. To which of these separate objections does 11 U.S.C. Section 1124 apply?

We are of the opinion that 11 U.S.C. Section 1124 applies only to pre-petition claims or interests and not to post-petition claims. Before reaching this conclusion, a brief review of the history of Section 1124 and its relation to other sections of Title 11 is appropriate. For a more detailed analysis of the history of Section 1124, see In re Barrington Oakes General Partnership, supra.

Section 1124 defines impairment for purposes of 11 U.S.C. Section 1123(a)(2). Thus impairment refers to that part of a debtor's Plan which addresses the treatment of claims and interests See generally, House Report, No. 95-595, 95th Cong. 1st Sess. 406 (1977); Senate Report, No. 95-989, 95th Cong. 2d Sess. 118 (1978). A claim, as defined in 11 U.S.C. Section 101(4), contemplates the broadest possible inclusion of all the debtor's legal obligations within the bankruptcy case so that the Bankruptcy Court may grant, if appropriate, the broadest possible relief. House Report, No. 95-595, 95th Cong. 1st Sess. 309 (1977); Senate Report, No. 95-989, 95th Cong. 2d Sess. 21 (1978). A claim is not defined as post- or pre-petition. The use of the word "unmatured" to describe a claim might argue or imply that the framers of the Code intended to include post-petition claims, and in particular, as here, post-petition interest. A reading of 11 U.S.C. Section 502(b)(2), however, dispells the notion that unmatured interest is an allowable claim. Section 502(b)(2) stands for the principle that interest stops accruing on the date the petition is filed. House Report, No. 95-595, 95th Cong. 1st Sess. 352-354 (1977), see also Senate Report, No. 95-989, 95th Cong. 2d Sess. 62-5 (1978). Finally, the legislative history of 11 U.S.C. Section 1124 indicates, throughout, an intention to return the creditor to its original position and the original terms of an obligation.

We are somewhat troubled by the clause in 11 U.S.C. Section 1124(2)(A), which requires the "cure of any such default that occurred before or after the commencement of the case under this Title . . ." This language seems at first blush to include post-petition claims. We need not decide this issue now on the facts of this case. Debtor was...