In re Union Meeting Partners, Bankruptcy No. 92-17118DAS.

• Decision Date: 14 February 1995
• Docket Number: Bankruptcy No. 92-17118DAS.
• Citation: 178 BR 664
• Parties: In re UNION MEETING PARTNERS, a Pennsylvania general partnership, Debtor.
• Court: U.S. Bankruptcy Court — Eastern District of Pennsylvania

178 B.R. 664 (1995)

In re UNION MEETING PARTNERS, a Pennsylvania general partnership, Debtor.

Bankruptcy No. 92-17118DAS.

United States Bankruptcy Court, E.D. Pennsylvania.

February 14, 1995.

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

Aris J. Karalis, Ciardi, Maschmeyer & Karalis, P.C., Philadelphia, PA, for debtor.

J. Scott Victor, Saul, Ewing, Remick & Saul, Philadelphia, PA, for Lincoln Nat. Life Ins. Company.

Frederic Baker, Asst. U.S. Trustee, Philadelphia, PA.

OPINION

DAVID A. SCHOLL, Chief Judge.

A. INTRODUCTION

Presently before this court in the voluntary Chapter 11 bankruptcy case of UNION MEETING PARTNERS ("the Debtor"), a partnership which owns certain realty, is the Debtor's request that we confirm its Fourth Amended Plan of Reorganization ("the Plan") over the objection of the Debtor's first mortgagee, Lincoln National Life Insurance Company ("Lincoln"). In conjunction therewith, we are asked to decide a volley of motions filed in anticipation of and response to either the Plan itself, plan voting, or plan confirmation, including: (1) Lincoln's Motion for Valuation of Secured Claim ("the Valuation Motion"); (2) the Debtor's Motion Pursuant to 11 U.S.C. § 1126(e) to Designate Ballot Submitted by Lincoln in Class 3 and to Fix the Amount of Lincoln's Claim for Voting Purposes Under Class 1 and Class 6, Pursuant to Bankruptcy Rule 3018 ("the Debtor's Ballot Motion"); and (3) Lincoln's Expedited Motion to Strike Ballots of the Montgomery County Tax Claim Bureau and the Debtor's General Partners ("Lincoln's Ballot Motion").

When we retracted an earlier prohibition against further plan attempts by the Debtor, and permitted the filing of the Plan now before us, it was in recognition of the Debtor's recently secured post-petition financing commitment, and in the hope that, with a substantial cash-out as a real possibility, the parties would negotiate a consensual plan. Unfortunately, we were overly optimistic. It is clear to us now that both the Debtor and Lincoln perceive substantial, unrealized value in the Debtor's only asset, two adjoining office buildings in the Philadelphia suburb of Blue Bell, Pennsylvania ("the Property"), and neither will willingly give up its claim to the Property on its own terms without a fight to the death. Thus, the Plan, which appeared to be the groundwork of a consensual reorganization, cannot be confirmed without Lincoln's consent for many of the same technical reasons that prevented confirmation of its predecessors. See In re Union Meeting Partners, 160 B.R. 757 (Bankr.E.D.Pa.1993) ("Union Meeting I"); In re Union Meeting Partners, 165 B.R. 553 (Bankr.E.D.Pa.) ("Union Meeting III"), aff'd, C.A. No. 94-2419 (E.D.Pa. July 29, 1994) ("Union Meeting IV").

We have given the parties every possible opportunity to work out their differences and propose a consensual plan. We are not inclined to give them any more. Lincoln has already been granted relief from the automatic stay to attempt to foreclose its mortgage on the Property, and we have threatened to convert this reorganization case to a Chapter 7 case. Relief from the automatic stay and conversion of this case have been stayed by the District Court pending a determination of the Debtor's appeals of Union Meeting IV to the Third Circuit Court of Appeals. Those appeals (Nos. 94-1790 and 94-1791) were originally scheduled to be argued on the date of the filing of this Opinion, February 14, 1995. The argument has been continued, possibly in anticipation of this Opinion. Assuming that our prior decisions are not disturbed on appeal, we see no alternative but to convert this bankruptcy case to a Chapter 7 case to allow the trustee, the state courts, or Lincoln's eventual foreclosure to determine the future of the Property. In the meanwhile, we will not entertain any further requests of any party to file any further plan of reorganization unless such a plan is consensual.

B. FACTUAL AND PROCEDURAL HISTORY

The tortuous history of this case, which documents the ongoing struggle between the Debtor and Lincoln to gain control of the Property, is set forth in great detail in the four opinions already spawned by this case. In addition to Union Meeting I, III, and IV already referenced, we complete the picture by noting the presence of In re Union Meeting Partners, 163 B.R. 229 (Bankr.E.D.Pa.), aff'd, C.A. No. 94-1074 (E.D.Pa. April 2, 1994) ("Union Meeting II"). After four prior presentations of its plan of reorganization, all of which relied on an impermissible use of the rents generated by the Property ("the Rents") belonging to Lincoln, and an unsuccessful challenge, in Union Meeting II, to Lincoln's security interest in the Rents as a preference, the Debtor now seeks confirmation of the instant Plan. As indicated above, we lifted a ban against any further plan filings and when the Debtor informed us that it had secured a $6.75 million post-petition financing commitment from Firstrust Bank ("1st Trust"). With a source of cash other than Lincoln's Rents, we recognized a new possibility that the Debtor could confirm a plan.

We first learned of the 1st Trust commitment on October 19, 1994, when the Debtor filed a Motion to obtain authority to (A) make a $6,750,000 loan from 1st Trust secured by a super-priority lien pursuant to 11 U.S.C. § 364(d)(1); (B) pay the allowed secured claim of Lincoln in satisfaction of Lincoln's Mortgage; and (C) file a further amended plan ("the Financing Motion"). In the Financing Motion, the Debtor expressed a primary purpose of securing the 1st Trust financing and paying off Lincoln's secured claim before submitting a further plan. We were unwilling to allow the Debtor to thusly "cram down" Lincoln out of the context of a bankruptcy plan. Furthermore, despite Lincoln's initial opposition to the Financing Motion, we were nonetheless hopeful that the parties would negotiate any perceived difficulties with the Debtor's seemingly substantial and attractive efforts to cash out Lincoln.¹ Thus, on November 17, 1994, we entered an order permitting the Debtor to file the Plan, but requiring that the financing/cash-out elements of the Financing Motion could be effectuated only through confirmation of a plan.

Our hope of an amicable resolution to this ongoing saga was diminished by Lincoln's filing the Valuation Motion on December 15, 1994, and a set of rather frivolous objections to the Debtor's disclosure statement ("the Disclosure Statement") on December 16, 1994. The Valuation Motion essentially argued that the Debtor underestimated Lincoln's secured claim in the Plan because it credited the value of post-petition Rents collected by Lincoln against Lincoln's secured claim instead of adding that value to the secured claim. Lincoln also argued that the Debtor failed to take into account post-petition appreciation of the Property and the funds contained in the Debtor's bank account ("the DIP Account"), which Lincoln claimed were derived from "its" Rents, when calculating its secured claim. The Debtor filed an answer the Valuation Motion on December 19, 1994.

With regard to the objections to the Disclosure Statement, we were not at all impressed with Lincoln's arguments. We therefore had little difficulty approving the Disclosure Statement in our Order of December 22, 1994, which established deadlines for events in the confirmation process, culminating in a confirmation hearing on January 25, 1995.

On December 27, 1994, in the midst of the process of voting on the Plan, Lincoln purchased the priority tax claim of the Montgomery County Tax Bureau ("the Bureau") for $234,903.22, its face amount. In conjunction with this purchase, the Bureau assigned its rights and interests in the claim to Lincoln, including its right to vote on the Plan.² Lincoln ultimately cast a ballot on behalf of the priority tax holder class rejecting the Plan. However, as established in unrebutted trial testimony, before Lincoln was able to cast that vote, but after it purchased the claim, the Debtor's counsel called the Bureau and solicited its vote directly. Although the Debtor's counsel identified himself by his firm affiliation, he did not indicate that he was counsel for the Debtor. The Bureau's representative, mistakenly believing that he was speaking with Lincoln's counsel, agreed to cast a ballot on behalf of the priority tax claim. The Debtor's counsel then completed a ballot accepting the Plan and sent it to the Bureau for signature. The Bureau's representative signed the ballot and returned it to the Debtor's counsel.³ Thus, prior to the voting deadline, the Debtor received two conflicting ballots on behalf of the holder of the only Class 3 claim.

Not surprising, Lincoln filed Objections to confirmation of the Plan on January 18, 1995. Therein, Lincoln identified, first, two alleged Plan defects, the underestimation of its secured claim and the payment of only seven (7%) percent interest on its newly acquired priority tax claim, which it claimed gave rise to confirmation infirmities under §§ 1129(a)(7), (a)(11), and (b)(2)(A). Lincoln also asserted that no eligible impaired accepting class had voted in favor of the Plan. See 11 U.S.C. §§ 1129(a)(10), (b)(1). Finally, Lincoln argued that the Plan violated the absolute priority rule as codified at § 1129(b)(2)(B)(ii) because the Debtor's equity holders are permitted to retain their equity interests in the Debtor without contributing adequate new value.

On January 20, 1995, the Debtor filed its Ballot Motion, seeking the invalidation of Lincoln's ballot filed on behalf of the priority tax claim. Therein, the Debtor argued that, pursuant to Federal Rule of Bankruptcy Procedure ("F.R.B.P.") 3018(a), whoever held the Class 3 claim at the time that the Disclosure Statement was approved was the party entitled to vote the claim, which in this case was the Bureau. The Debtor's Ballot Motion also asked us to fix the amount of Lincoln's secured and unsecured...