530 B.R. 588
Bankr. W.D.N.Y.2015Background
- Debtors Rashmikant S. Patel and Arch Hospitality, Inc. (owner of a 120‑room hotel) filed Chapter 11 petitions and sought to sell the hotel to a buyer for $1,750,000.
- Outstanding encumbrances exceed the purchase price: TD Bank first mortgage (~$2.9M), Buffalo Realty second mortgage (~$477k+), unpaid real property taxes (~$234k+), NYS tax liens (~$40k+), and a Workers’ Compensation Board judgment (~$2,500).
- Debtors have operated in Chapter 11 nearly three years and have not proposed a confirmable plan; counsel represented they likely cannot satisfy priority claims to confirm a plan.
- Debtors moved (1) under 11 U.S.C. §506 to declare certain junior liens wholly unsecured and void, and (2) under 11 U.S.C. §§363(b) and 363(f) for authority to sell the property free and clear of liens.
- TD Bank consented to the sale; NYS Taxation withdrew its objection after assurances of payment; Buffalo Realty and the Workers’ Compensation Board did not respond.
- The U.S. Trustee opposed the sale arguing it is not in the best interests of the estate (no distribution to unsecured/administrative claimants).
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether liens can be treated as void under §506(d) so sale may proceed free and clear without creditor consent | Debtors: junior liens are wholly unsecured (first mortgage and taxes exceed value) so §506(d) voids them, eliminating their interests | Creditors/UST: even unsecured creditors retain an interest because dismissed case could reinstate liens under §349(b)(1); §506(d) ruling doesn’t eliminate §363(f) requirements | Court: §506(d) determination does not remove need to satisfy one of §363(f)’s conditions; motion to declare liens void denied as moot |
| Whether silence/failure to respond constitutes consent under §363(f)(2) permitting a sale free and clear | Debtors: nonresponding lienholders impliedly consented by failing to oppose the sale motion | Nonresponding creditors: silence is not an affirmative consent to extinguish perfected real‑property interests; perfection implies expectation of protection | Court: silence does not equal consent here; §363(f)(2) requires express consent absent satisfaction of another §363(f) subsection; sale denied for lack of consent |
Key Cases Cited
- FutureSource LLC v. Reuters Ltd., 312 F.3d 281 (7th Cir. 2002) (held that lack of objection can sometimes constitute consent where circumstances support that inference)
- Committee of Equity Security Holders v. The Lionel Corp., 722 F.2d 1063 (2d Cir. 1983) (articulates standards for court approval of a debtor‑in‑possession sale)
- In re Roberts, 249 B.R. 152 (Bankr. W.D. Mich. 2000) (silence does not constitute consent to a §363(f) sale)
- In re DeCelis, 349 B.R. 465 (Bankr. E.D. Va. 2006) (adopts rule that §363(f)(2) requires express consent, not mere silence)
- In re Silver, 338 B.R. 277 (Bankr. E.D. Va. 2006) (represents the contrary view that silence can be treated as consent in some contexts)
- In re W.R.M.J. Johnson Fruit Farm, Inc., 107 B.R. 18 (Bankr. W.D.N.Y. 1989) (supports view that consent must be affirmatively shown)