663 B.R. 846
Bankr. E.D.N.C.2024Background
- Debtor owned four real estate parcels: three adjacent Atlantic Beach lots (including an event venue operated by an insider's LLC) and one separate property (1807 Bridges) used as a residence and for short-term rental.
- Prepetition, the operating entity (Cottage LLC) managed events at one parcel and used adjacent parcels for overflow and parking; the fourth property was geographically separated and not used for events.
- BIP, a secured creditor owed at least $1.537 million, initiated foreclosure actions prior to the Debtor filing for subchapter V Chapter 11 bankruptcy.
- BIP sought to have the Debtor designated as a "single asset real estate entity" (SARE), which would impose greater restrictions and potentially facilitate foreclosure.
- The Debtor opposed SARE designation, claiming the properties were not a single project and thus eligible for subchapter V treatment.
- The court was tasked with determining the appropriate bankruptcy classification and whether the Debtor's business activities precluded SARE status.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| SARE Designation | Debtor's properties form a single economic project for SARE eligibility | Properties are not a single project; distinct uses and locations | Debtor is not a SARE; properties not a unified project |
| Commercial Activity Requirement (subchapter V eligibility) | N/A (not challenged by BIP directly) | Debtor satisfies commercial activity requirement; multiple business activities | Not determinative; court did not reach this issue |
| Good Faith Filing | Implied by BIP in questioning timing of property acquisition | 1807 Bridges acquired long before filing; no evidence of bad faith | Presumption of good faith survives |
| Stay Relief under §362(d)(3) | SARE classification would mandate expedited stay relief | Not a SARE, so special stay rules inapplicable | Stay remains in effect pending further hearing |
Key Cases Cited
- In re Blue, 630 B.R. 179 (Bankr. M.D.N.C. 2021) (addressing subchapter V eligibility and burdens)
- In re ENKOGS1, LLC, 626 B.R. 860 (Bankr. M.D. Fla. 2021) (single asset real estate test and the significance of additional business services)
- In re Larry Goodwin Golf, Inc., 219 B.R. 391 (Bankr. M.D.N.C. 1997) (operations constituting business versus passive property ownership)
- In re Hassen Imports Partnership, 466 B.R. 492 (Bankr. C.D. Cal. 2012) (common plan or scheme necessary for SARE status determination)