In the Matter of River Rd. Hotel Partners Llc v. Bank
| Decision Date | 28 June 2011 |
| Docket Number | 10–3598.,Nos. 10–3597,s. 10–3597 |
| Citation | 65 Collier Bankr.Cas.2d 1900,55 Bankr.Ct.Dec. 13,651 F.3d 642 |
| Parties | In the Matter of RIVER ROAD HOTEL PARTNERS, LLC, River Road Expansion Partners, LLC, RadLAX Gateway Hotel, LLC and RadLAX Gateway Deck, LLC, Debtors–Appellants,v.AMALGAMATED BANK, Appellee. |
| Court | U.S. Court of Appeals — Seventh Circuit |
OPINION TEXT STARTS HERE
David M. Neff (argued), Attorney, Perkins Coie, Chicago, IL, for Debtors–Appellants.John W. Costello, Attorney, Wildman, Harrold, Allen & Dixon LLP, Chicago, IL, Adam A. Lewis (argued), Attorney, Morrison & Foerster LLP, San Francisco, CA, for Appellee.United States Trustee, Attorney, Office of the United States Trustee, Chicago, IL, for Trustee in Docket No. 10–3597.Craig Goldblatt, Attorney, Wilmer Hale LLP, Washington, DC, for Amicus Curiae.Before CUDAHY, MANION, and HAMILTON, Circuit Judges.CUDAHY, Circuit Judge.
Debtors–Appellants appeal from a bankruptcy court order denying the bid procedures motions that they filed in connection with the their Chapter 11 reorganization plans. They argue that the bankruptcy court erred in finding that their plan could not be confirmed over the objections of its secured creditors because it did not qualify for “fair and equitable” status under 11 U.S.C. § 1129(b)(2)(A). We affirm.1
In 2007 and 2008, River Road Hotel Partners, LLC, River Road Expansion Partners, LLC, and related entities (“the River Road Debtors”) built the InterContinental Chicago O'Hare Hotel and affiliated event space. In order to construct the hotel and event space, these entities obtained construction loans totalling approximately $155,500,000 from the Longview Ultra Construction Loan Investment Fund and the Longview Ultra I Construction Loan Investment Fund (“the River Road Lenders”). The loan documents designated Amalgamated Bank as the administrative agent and trustee of the River Road Lenders.
The InterContinental Chicago O'Hare Hotel and affiliated facilities opened in September 2008. Several months later, the River Road Debtors requested that the River Road Lenders supply them with several million dollars in additional funding so that they could finish building the hotel's restaurant and pay their general contractors and suppliers. The River Road Lenders entered into negotiations with the River Road Debtors concerning the conditions under which additional funding would be provided, but the parties could not agree on mutually satisfactory terms.2
On August 17, 2009, each of the River Road Debtors filed voluntary petitions for relief under Chapter 11 of 11 U.S.C. §§ 101, et seq. (the Bankruptcy Code, hereinafter “the Code”) in the United States Bankruptcy Court for the Northern District of Illinois, Eastern Division. At the time the petition was filed, the River Road Debtors owed at least $140,000,000 on the loans, with over $1,000,000 in interest accruing per month. In addition, approximately $9,500,000 in mechanics' liens have been asserted against the InterContinental Chicago O'Hare Hotel and its affiliated event spaces.
In 2007, RadLAX Gateway Hotel, LLC, purchased the property now known as the Radisson Hotel at Los Angeles International Airport. In order to purchase the hotel, pay for renovations and build a parking structure on an adjacent parcel of real estate (which was to be owned by a related entity, RadLAX Gateway Deck, LLC), RadLAX Gateway Hotel, LLC, and its affiliates (“the RadLAX Debtors”) obtained a construction loan totaling approximately $142,000,000 from the Longview Ultra Construction Loan Investment Fund (“the RadLAX Lenders”). The loan documents designated Amalgamated Bank as the administrative agent and trustee of the RadLAX Lenders.
During the course of building the parking structure the RadLAX Debtors incurred several million dollars of unanticipated costs. Around March 2009, the RadLAX Debtors ran out of funds and had to halt construction.3 The RadLAX Lenders entered into negotiations with the RadLAX Debtors concerning the conditions under which additional funding would be provided, but the parties could not agree on mutually satisfactory terms.
On August 17, 2009, each of the RadLAX Debtors filed voluntary petitions for relief under Chapter 11 of the Code in the United States Bankruptcy Court for the Northern District of Illinois, Eastern Division. At the time the petition was filed, the RadLAX Debtors owed at least $120,000,000 on the loans, with over $1,000,000 in interest accruing per month. In addition, over $15,000,000 in mechanics' liens have been asserted against the RadLAX properties.
On August 20, 2009, the bankruptcy court entered orders directing the joint administration of the River Road Debtors' bankruptcy cases under Case No. 09–30029. The court also entered orders directing the joint administration of the RadLAX Debtors' bankruptcy cases under Case No. 09–30047. Each set of Debtors continues to operate their businesses as debtors-in-possession pursuant to sections 1107(a) and 1108 of the Code.
On June 4, 2010, the River Road and RadLAX Debtors (collectively, “the Debtors”) submitted their reorganization plans to the bankruptcy court for confirmation. Both plans sought to sell substantially all of the Debtors' assets, with the proceeds to be distributed among the Debtors' creditors in accordance with the Code's priority rules. The Debtors also filed motions requesting the court's approval of their proposed procedures for conducting the asset sales. Both sets of proposals sought to auction off the Debtors' assets to the highest bidder, with the initial bid in each auction being supplied by a stalking horse bidder that had been lined up in the post-petition, pre-plan period. In one of their bid procedures motions, the River Road Debtors claimed that they had procured a stalking horse offer of $42,000,000 for their assets. On June 22, 2010, the RadLAX Debtors filed copies of a proposed asset purchase agreement that offered $47,500,000 for their assets.
On July 8, 2010, Amalgamated Bank, on behalf of the River Road and RadLAX Lenders (collectively, “the Lenders”), filed objections to the Debtors' proposed bid procedures. Because the Debtors' plans would impair the Lenders' interests and the Lenders had not accepted the plans, they could not be confirmed unless they qualified for one of the exceptions listed in Section 1129(b)(2)(A) of the Code. See 11 U.S.C. § 1129(a)(8), (b). Amalgamated argued that the Debtors' plans could not satisfy Section 1129(b)(2)(A)'s requirements because they sought to sell encumbered assets free and clear of liens without allowing the Lenders to bid their credit at the asset auctions, in violation of 11 U.S.C. § 1129(b)(2)(A)(ii)'s requirement that secured lenders be given credit-bidding rights. The Debtors filed omnibus replies to Amalgamated's objections, arguing that, while their plans did not comply with Section 1129(b)(2)(A)(ii)'s requirements, they were still confirmable because they satisfied Section 1129(b)(2)(A)(iii)'s requirements.
On July 22, 2010, the bankruptcy court orally ruled that the Debtors' plans could not be confirmed under Section 1129(b)(2)(A)(iii). On October 5, 2010, the court entered orders denying the Debtors' bid procedure motions. The Debtors filed notices of appeal and motions requesting that the bankruptcy court certify their appeals directly to this court pursuant to 28 U.S.C. § 158(d)(2)(A). On November 4, 2010, the court entered certifications for direct appeal to this court for both cases. On November 30, 2010, we entered an order authorizing and consolidating the River Road and RadLAX appeals.
This appeal presents two issues for this court to decide. First, we must determine whether events that occurred subsequent to the filing of the appeal have mooted the parties' dispute. Second, if we find that the appeal is not moot, we must turn to the merits of the Debtors' appeal and decide whether the bankruptcy court's interpretation of 11 U.S.C. § 1129(b)(2)(A) was correct.
A. The Issue Raised by the Debtors' Appeal Is Not Moot
The Lenders claim that it would be inappropriate for this court to review the bankruptcy court's denial of the Debtors' bid procedure motions because the Debtors' proposed plans are no longer pending before the bankruptcy court. The Lenders contend that the reorganization plans that the court originally considered are no longer viable due to the passing of several expiration dates contained in the asset purchase agreements that the Debtors filed. They alternatively argue that statements from the Debtors indicate that the Debtors have abandoned their original reorganization plans.
We reject the Lenders' mootness argument. While “it is well-settled that a federal court has no authority to give opinions upon moot questions or abstract propositions,” Porco v. Trs. of Ind. Univ., 453 F.3d 390, 394 (7th Cir.2006), an issue will not be considered moot unless the parties lack a “legally cognizable interest in the outcome.” Olson v. Brown, 594 F.3d 577, 580 (7th Cir.2010). It does not appear that the Debtors' reorganization plans suffer from either of the defects—the passing of expiration dates or abandonment—identified by the Lenders. On February 15, 2011, the RadLAX Debtors filed an amended asset purchase agreement with the bankruptcy court that largely resembled the agreement that was submitted in connection with the original reorganization plans. On March 2, 2011, the River Road Debtors filed a similar agreement. None of the confirmation deadlines contained in the amended agreements have expired. Further, the Debtors' statements before this court and the fact that they have filed amended agreements provide convincing evidence that the Debtors have not abandoned their asset sale plans.
Even if we were to find that the Debtors' original reorganization plans were based on asset...
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