942 Penn RR, LLC, 642 B.R. 89

Background

942 Penn RR, LLC (Debtor) filed chapter 11 on May 23, 2022; owns a Miami Beach short‑term rental property. Equity and management are controlled by co‑owners Raz Ofer and Robert Mendez.
Related entities (Creative Directions, Inc. and Mortgage Holdings 2018, LLC), also owned/controlled by Ofer and Mendez, are scheduled as large secured creditors and allegedly hold a lease/consent foreclosure and priority to rents.
Secured creditor 1250916 Ontario Ltd. moved to appoint a chapter 11 trustee and opposed Debtor’s motion to voluntarily dismiss; several other creditors joined Ontario.
The Debtor filed inconsistent schedules (disputed secured claim amounts vs. property value), failed to timely file the Statement of Financial Affairs, used cash collateral without court authority, and filed a plan without a disclosure statement that omitted asserted related‑party claims.
The court found unresolvable conflicts between insiders’ interests and the estate, plus concerning pre‑ and postpetition conduct and misstatements, and concluded appointment of a trustee was warranted.
The court entered an order appointing a chapter 11 trustee under 11 U.S.C. §1104(a)(2) and §1112(b)(1) without an evidentiary hearing.

Issues

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether a chapter 11 trustee should be appointed under §1104/§1112	Trustee needed because insiders control related creditors, asserted large related‑party secured claims, conflicts and mismanagement threaten estate and creditors	Insiders (Debtor) argued dismissal is appropriate; claimed property value covers claims and insisted an evidentiary hearing is required to rebut allegations	Trustee appointed — court found appointment in best interests of creditors and estate due to conflicts, misstatements, and conduct
Whether dismissal under §1112(b)(1) is appropriate	Ontario opposed dismissal and sought trustee as alternative to dismissal	Debtor sought voluntary dismissal claiming lack of likelihood of rehabilitation and inability to pay insiders without disruption	Dismissal denied as requested; trustee appointment chosen as appropriate alternative
Whether an evidentiary hearing was required before appointing a trustee	Moving creditors relied on the existing record and documents as sufficient	Debtor requested an evidentiary hearing to contest facts and show future fiduciary compliance	Court ruled no evidentiary hearing necessary and decided on the documentary record
Whether Debtor’s pre‑ and postpetition conduct (use of cash collateral, incomplete schedules, undisclosed transfers/leases) justified removal of debtor in possession	Creditor argued unauthorized cash‑collateral use, missing SOFA, schedule inconsistencies, and omission of related‑party claims show untrustworthiness and breach of fiduciary duties	Debtor argued prepetition conduct is irrelevant and that insiders could perform fiduciary duties postpetition; relied on alleged property value and guarantees	Court found pre‑ and postpetition conduct relevant and persuasive to appoint a trustee; insiders disqualified as fiduciaries

Key Cases Cited

In re SunCruz Casinos, LLC, 298 B.R. 821 (Bankr. S.D. Fla. 2003) (discusses mandatory appointment for fraud/dishonesty and framework for trustee appointment)
In re Sundale, Ltd., 400 B.R. 890 (Bankr. S.D. Fla. 2009) (analyzes factors for appointing a chapter 11 trustee under §1104(a)(2))
In re Euro–Am. Lodging Corp., 365 B.R. 421 (Bankr. S.D.N.Y. 2007) (sets out non‑exhaustive factors courts consider under §1104(a)(2))
In re Ionosphere Clubs, Inc., 113 B.R. 164 (Bankr. S.D.N.Y. 1990) (permitting trustee appointment based on documentary record without full evidentiary hearing)
Marvel Ent. Grp., Inc. v. Official Comm. of Unsecured Creditors (In re Marvel Ent. Grp., Inc.), 140 F.3d 463 (3d Cir. 1998) (conflict of interest by controlling creditors can warrant trustee appointment)
In re V. Savino Oil & Heating Co., 99 B.R. 518 (Bankr. E.D.N.Y. 1989) (discusses equitable considerations in §1104(a)(2) analysis)
In re Sharon Steel Corp., 871 F.2d 1217 (3d Cir. 1989) (recognizes §1104(a)(2) appointment may be appropriate absent fault when estate interests require a neutral fiduciary)