Tiana Queen Motel, Inc., In re
| Decision Date | 29 November 1984 |
| Docket Number | D,Nos. 3,94 and 274,s. 3 |
| Citation | 749 F.2d 146 |
| Parties | , Bankr. L. Rep. P 70,158 In re TIANA QUEEN MOTEL, INC., Todem Homes, Inc., Anthony DeMarco, Debtors. A. ILLUM HANSEN, INC., Plaintiff-Appellee, v. TIANA QUEEN MOTEL, INC., Todem Homes, Inc., Anthony DeMarco, Defendants- Appellants. * In re Petition for Writ of Mandamus. A. ILLUM HANSEN, INC., Stanley Weisz, Phyllis H. Weisz and Stanley Weisz, P.C. Retirement Plan, Petitioners, v. Anthony DeMARCO, Respondent. ockets 83-5079, 83-5067 and 84-3063. |
| Court | U.S. Court of Appeals — Second Circuit |
Joseph Cyr, New York City (Donovan, Leisure, Newton & Irvine, Allan R. Freedman, New York City, of counsel), Anthony DeMarco, New York City, in a separate brief, for defendants-appellants.
Karen Carter Caso, Garden City, N.Y. (Shaw, Goldman, Licitra, Levine & Weinberg, P.C., Garden City, N.Y., of counsel), for plaintiff-appellee.
Neil P. Forrest, New York City (Cleary, Gottlieb, Steen & Hamilton, New York City, of counsel), for petitioners.
Edward J. Swan, New York City, for respondent.
Before FEINBERG, Chief Judge, and KEARSE and PIERCE, Circuit Judges.
Tiana Queen Motel, Inc. (Tiana Queen), Todem Homes, Inc. and Anthony DeMarco appeal from an order of the United States District Court for the Southern District of New York, 34 B.R. 357, Robert L. Carter, J., entered in September 1983, rejecting appeals from several bankruptcy court orders. The first three, by Bankruptcy Judge John J. Galgay, converted the Chapter 11 proceedings then pending for the three appellants to proceedings under Chapter 7 of the Bankruptcy Code; another order, by Bankruptcy Judge Prudence B. Abram, refused to stay an auction of certain assets in the three debtors' estates; and the last, by Bankruptcy Judge Galgay, authorized Dorothy Eisenberg, the Chapter 7 trustee in bankruptcy, to accept an offer to purchase assets.
In a related case, No. 84-3063, argued to us along with the appeal, A. Illum Hansen, Inc., Stanley Weisz, Phyllis H. Weisz and Stanley Weisz, P.C. Retirement Plan--all secured creditors of Tiana Queen--petition for a writ of mandamus directing Judge David N. Edelstein, of the Southern District of New York, to vacate an order restraining all actions with respect to any property in which Anthony DeMarco, or any entity in which Anthony DeMarco is a principal, has an interest. The secured creditors are joined in their petition by the Chapter 7 trustee.
For the reasons stated below, we affirm Judge Carter's order; on the petition for a writ of mandamus, we remand for further proceedings consistent with this opinion.
On July 17, 1981, Anthony DeMarco and two New York corporations in which he was and remains the sole stockholder, officer and director--Tiana Queen and Todem Homes--filed separate petitions for reorganization under Chapter 11 of the Bankruptcy Code. Resort to Chapter 11 was precipitated by a host of legal and financial difficulties that beset three properties belonging to DeMarco and the corporations. Tiana Queen owned land and a residential home in Lloyd Harbor, New York, and a parcel of land in Southampton, New York, upon which DeMarco sought to build a motel. To finance this construction, Tiana Queen had borrowed $310,000 from A. Illum Hansen, Inc., Stanley Weisz, Phyllis H. Weisz and Stanley Weisz, P.C. Retirement Plan, securing these loans with mortgages on both the motel and home properties. The Town of Southampton, however, alleged that the scope of the building permit had been exceeded. Litigation ensued, and in the meantime, the project came to a halt. At the time the three Chapter 11 petitions were filed, Tiana Queen faced judgments of foreclosure obtained by the secured creditors, who had received no payments since 1977.
The only asset of Todem Homes was an option to repurchase a seventeen-acre parcel of land in Lloyd Harbor, New York, which was being contested in the New York state courts. Todem Homes had been successful in the Appellate Division of the State of New York, Freidus v. Todem Homes, Inc., 80 A.D.2d 575, 435 N.Y.S.2d 786 (App.Div.2d Dept.1981), but an appeal was still pending in the New York Court of Appeals. When the petitions were filed, DeMarco and the two corporations also faced a number of judgments obtained by unsecured creditors, many of whom had represented DeMarco in his legal battles. The largest of these judgments dated back to December, 1979. The only significant assets in DeMarco's estate were his interests in the two corporations.
Dissatisfied with the progress of the reorganization proceedings, the creditors committee petitioned the bankruptcy court in February 1982 to convert the Chapter 11 proceeding for Tiana Queen into a Chapter 7 liquidation. Shortly thereafter, the debtors responded with plans of reorganization for all three estates. In March 1982, the creditors committee filed a motion to convert the Todem Homes Chapter 11 proceeding. Thereafter, in several hearings stretching over a period of many months, the creditors urged liquidation before Judge Galgay. Finally, at the conclusion of a hearing on October 26, 1982, over the debtors' objections, the judge ordered the conversion of the three Chapter 11 cases to Chapter 7 liquidations. The debtors appealed from that order to the district court, and the case was assigned to Judge Carter.
In November 1982, Dorothy Eisenberg was appointed Chapter 7 trustee for Tiana Queen, Todem Homes and DeMarco. In early February 1983, the trustee gave notice of her intention to auction the Tiana Queen motel site and residential property and the Todem Homes option. DeMarco, apparently acting pro se, requested Bankruptcy Judge Abram to stay the auction, and, upon her refusal to do so, again appealed to the district court. The auction was held on February 23, 1983, and Robert Mantin made the highest bid for the Tiana Queen motel site. In June 1983, Judge Galgay authorized the acceptance of this bid; the debtors appealed to the district court from this order as well.
In September 1983, Judge Carter rejected the debtors' attack on the three orders. The district court held that the conversion orders were fully consistent with the requirements of 11 U.S.C. Sec. 1112(b), that the appeal from Judge Abram's denial of a stay was moot and that the trustee could accept Mantin's bid. This appeal followed.
Under the Bankruptcy Code, 11 U.S.C. Sec. 1112(b), a Chapter 11 reorganization proceeding may be converted to a Chapter 7 liquidation case only upon the request of a party in interest, after notice and hearing, and for cause. Appellants contend that the district court erred in affirming the conversion orders because the bankruptcy court failed to comply with these requirements. We shall discuss each of them in turn.
In the Tiana Queen and Todem Homes Chapter 11 proceedings, counsel for the official creditors committees filed written conversion petitions in February 1982 and March 1982, respectively. Though these petitions do not appear to have been signed, appellants do not dispute that motions for conversion were made in both these cases. Appellants do argue, however, that no such motion was ever made with respect to DeMarco's personal estate. Appellee replies that during the course of the various hearings DeMarco's attorney suggested the inclusion of the DeMarco estate in the conversion hearings and the United States Trustee made such a motion.
We have recently held that a bankruptcy judge may not on his own motion convert a Chapter 11 reorganization into a Chapter 7 liquidation. In re Gusam Restaurant Corp., 737 F.2d 274 (2d Cir.1984). In reaching that result, we relied on the language of Sec. 1112(b), reproduced in relevant part in the margin, 1 and the legislative history. However, we did not reach the question whether an oral motion to convert by a party would suffice. Although there is no doubt that a written motion to convert will help prevent confusion and is preferable, we see no persuasive reason here to insist upon a document. The essential command of Sec. 1112(b) is that the court and all parties concerned be placed on notice of the nature of the motion and the identity of the movant. On the record before us, we believe that this was done.
In this case, the inextricable relationship between DeMarco and the two corporations he owned may have been responsible for the tendency of many of the participants in the conversion hearings to be imprecise in their references to the three estates involved in the bankruptcy proceedings. However, our review of the hearing transcripts persuades us that a party in interest orally moved to convert DeMarco's personal estate and that, well before the October 26, 1982 conversion orders, all parties concerned assumed that conversion of the DeMarco proceeding along with the other two was being considered.
The district court found that the motion requirement of Sec. 1112(b) was satisfied with respect to DeMarco's proceeding because conversion was "specifically requested" by DeMarco's counsel at a hearing on August 31, 1982. The colloquy on which the district court based its conclusion was as follows:
THE JUDGE: If there aren't acceptances, I can find that there is no prospect of a plan ever being accepted here and I can either dismiss the proceedings or convert it to Chapter 7.
That will be eleven o'clock a.m.
While the comments of DeMarco's attorney certainly lend...
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