KCC-Leawood Corporate Manor I v. TRAVELERS INS.
| Citation | 117 BR 969 |
| Decision Date | 29 August 1989 |
| Docket Number | Bankruptcy No. 88-00346-W-11-DJS.,Civ. A. No. 89-0335-CV-W-1 |
| Parties | KCC-LEAWOOD CORPORATE MANOR I, Appellant, v. The TRAVELERS INSURANCE COMPANY, Appellee. |
| Court | U.S. District Court — Western District of Missouri |
D. Kay Summers, Watson, Ess, Marshall & Enggas, Kansas City, Mo., for appellee.
Gerald P. Urbach, John Martin Klein, Geary, Stahl & Spencer, Dallas, Tex., Daniel J. Flanigan, McDowell, Rice & Smith, Kansas City, Mo., for appellant.
The debtor (hereafter, "KCC") appeals an order entered February 8, 1989, by the late Honorable Dennis J. Stewart, Chief Bankruptcy Judge. On April 5, 1989, Judge Stewart partially granted KCC's motion for a stay pending appeal, essentially suspending operation of the February 8, 1989, order.
KCC filed its appellant's brief on April 21, 1989. The appellee (hereafter, "Travelers") filed its brief on May 5, 1989. KCC filed a reply brief on May 18, 1989. Also on May 18, 1989, KCC filed a motion to amend the record on appeal to include its motion, filed February 21, 1989, for leave to appeal. On May 30, 1989, Traveler's filed an answer to the motion to amend. In the answer, Travelers consented to amending the appeal record but only if its May 7, 1989, response to the motion for leave to appeal also is included in the amended record.
The February 8, 1989, order is somewhat peculiar in that it purports to confirm a reorganization plan, but only if specified conditions are met. The reorganization plan would be different from the one proposed by KCC because it would include a significantly different term. The order provides for confirmation to arise automatically if the conditions are satisfied and, necessarily, withholds confirmation if the conditions do not occur. The stay order, of course, effectively prevents both the fulfillment and failure of the conditions. Thus, at this point, the confirmation or denial of the plan which would be implemented has not yet occurred. Implementation of the plan, as outlined in the order, is speculative and probably doubtful because one of the conditions of the order is that it be amended by KCC. KCC objects to the suggested amendment, and easily could refrain from making the amendment.
The only certainty about the order so far is that it manifests Judge Stewart's intent to deny the plan which was proposed by KCC. By discussing the reasons for finding the proposed plan to be flawed, and providing for confirmation of an alternative plan, Judge Stewart obviously (though implicitly) was denying confirmation of the previously proposed plan. That denial is sufficiently clear to be considered upon appeal. The remainder of the order remains inchoate, however, and therefore is not sufficiently ripe to permit meaningful appellate review. For the reasons set forth below, the denial of KCC's proposed plan will be affirmed, and this matter will be remanded to the bankruptcy court for further proceedings consistent with this order.
KCC filed a petition in the bankruptcy court January 25, 1988, seeking relief under Chapter 11 of the Bankruptcy Code (11 U.S.C. § 101 et seq.). KCC continues to operate as a debtor-in-possession because no trustee has been appointed. KCC is a limited partnership which owns an office building. The building is worth $1,600,000, secured by a 12.75% per annum promissory note issued by Travelers and worth $1,354,797.10. Thus, Travelers is an over-secured creditor. The property was increasing in value, and the company managing it is a specialist in managing distressed properties.
KCC filed its first amended disclosure statement pursuant to 11 U.S.C. § 1125. The plan included repayment of the promissory note at a maximum 10% per annum rate, rather than the 12.75% contract rate. Travelers filed objections on August 10, 1988, to the disclosure statement and to the proposed reorganization plan. The bankruptcy court conducted a hearing on September 13, 1988, to consider approval of KCC's first amended disclosure statement and to consider confirmation of KCC's proposed reorganization plan.
The confirmation would be conditioned upon (1) circulation of the disclosure statement to creditors and other parties in interest, (2) certification of ballots cast upon the reorganization plan, and (3) submission of evidence that the requisite amount of capital contributions to be raised from KCC's limited partners was raised. After considering a motion submitted by Travelers requesting an additional finding of fact, Judge Stewart entered the February 8, 1989, order.
The bankruptcy court, in its order, accepted KCC's valuation of $1,600,000 of the property, thereby rejecting Travelers' appraised value of $1,800,000. The court also calculated the value of the note (for principal, late charges and interest to January 23, 1988, the date of the petition) to be $1,353,672.07. The court also reduced Travelers' $4,500 post-petition appraiser's fee to $1,125 on the grounds of reasonability, pursuant to 11 U.S.C. § 506(b). The value of Travelers' claim was established at $1,354,797.10. Finally, the bankruptcy court found that feasibility had been demonstrated by KCC. The order concluded:
KCC raises essentially two arguments. First, KCC argues that the February 8, 1989, order is a final order suitable for appeal. Second, KCC argues that the bankruptcy court erred in finding that Travelers, as an over-secured creditor, was entitled to receive the contract rate of interest. Related to that argument, KCC urges that the bankruptcy court erred by making an inconsistent finding that the proposed reorganization plan was feasible when the court conditioned confirmation upon applying a 12.75% interest rate rather than the 10% proposed rate. Finally, KCC asserts that the bankruptcy court should not have found that the contract interest rate was reasonable, and should not have found that an over-secured creditor is entitled to accrual of interest at the contract rate pending confirmation of the plan.
In response, Travelers argues that the order cannot be considered final for purposes of appeal. Travelers also argues that KCC misconstrues the applicable statutes, and that using a "discount rate" of interest as proposed by KCC would not provide fair treatment to Travelers as required under 11 U.S.C. § 1129(b).
The Eighth Circuit Court of Appeals has identified three factors to be considered in determining whether a bankruptcy order is final: (1) The extent to which the order leaves the court nothing to do but to execute the order, (2) the extent to which delay in obtaining review would prevent the aggrieved party from obtaining effective relief, and (3) the extent to which a later reversal on that issue would require recommencement of the entire proceedings. In re Olson, 730 F.2d 1109, 1109 (8th Cir. 1984). As mentioned above, the February 8, 1989, order can be considered a final decision insofar as it implicitly denies KCC's proposed reorganization plan, but otherwise cannot be considered to be suitable for appeal.
The findings of fact and conclusions of law in the February 8, 1989, order necessarily preclude confirmation of the reorganization plan as it was proposed by KCC. The only reasonable construction of the order is that it is an implicit denial of the plan.
The implicit denial satisfies the Eighth Circuit test. First, there is nothing left to do with the order in regard to the plan proposed by KCC. The plan has been found to be fatally flawed under the law and therefore could not be confirmed so it was denied. Second, KCC (the aggrieved party) would be unable to get the relief it seeks under its proposed plan unless review is granted because the bankruptcy court has made clear that the plan would not be confirmed as submitted. That is, if this court does not review the denial now, it cannot reverse the denial and, thus, KCC would be precluded from implementing its proposed plan. Third, if the bankruptcy judge's ruling were reversed only after a different plan was adopted, the entire proceedings (beginning with resubmission of the denied plan) would need to be commenced again.
Confirmation of a plan is a final order for purposes of an appeal. In re Gonzalez, 73 B.R. 754, 765 (N.D.Ill.1987). Where a plan is denied by a bankruptcy court order, the district court may exercise its discretion to hear an appeal of that denial, pursuant to 28 U.S.C. § 158(a). So, to the extent the order is a denial of KCC's proposed plan, this court will consider it...
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