477 B.R. 856
Bankr. M.D. Fla.2012Background
- On Oct. 19, 2011, four petitioning creditors filed an involuntary Chapter 7 against the Alleged Debtor.
- Pre-petition, a state-court fight over a contested mortgage lien at Naples Bay Resort prompted the appointment of a Receiver to operate the property.
- The Naples Bay Resort development includes a hotel, private residences, The Shoppes, a club, marina, spa, and related amenities.
- The Receiver, aided by Benchmark, stabilized the resort’s finances and assets prior to this bankruptcy case.
- On May 31, 2012, the Alleged Debtor moved to convert the involuntary Chapter 7 to Chapter 11, which APL and Jack Antaramian opposed and an emergency Chapter 11 trustee motion was filed.
- A June 19, 2012 hearing resulted in the Court granting the conversion, appointing a Chapter 11 trustee, and preserving the Receiver and Benchmark operations; the involuntary case would be moot with conversion.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether conversion to Chapter 11 should be granted | APL urged no sufficient cause under §1112(b)(4) or Marrama to deny conversion | Alleged Debtor argued causes existed to deny conversion or that bad faith barred it | Conversion granted; no cause found to deny. |
| If converted, whether a Chapter 11 trustee should be appointed | APL opposed trustee or argued status quo sufficient | Debtor suggested no need for a trustee; assets managed by Receiver/Benchmark | Appointment of a disinterested Chapter 11 trustee approved. |
| Maintenance of the Receiver and Benchmark post-conversion | Creditors sought continued control to protect estate | Debtor conceded Receiver/Benchmark should remain in place | Receiver and Benchmark shall remain in control until further order. |
| Whether an order for relief can be entered in the involuntary case prior to conversion | Involuntary relief sought before conversion | Relief would be moot post-conversion; no separate relief needed | No separate involuntary order; conversion constitutes relief under §348(a). |
| Due process in trustee appointment | Appointment should be timely and in line with due process | Notice sufficient; hearing held; due process satisfied | Due process satisfied; trustee appointed. |
Key Cases Cited
- Marrama v. Citizens Bank of Massachusetts, 549 U.S. 365 (U.S. 2007) (limits conversion rights when cause exists to dismiss or reconvert; bad faith may bar conversion)
- In re Euro-American Lodging Corp., 365 B.R. 421 (Bankr.S.D.N.Y. 2007) (appointing Chapter 11 trustee after conversion; confirms best value preservation)
- In re Meunghee Joung, 2011 WL 2413633 (Bankr.D.N.M. 2011) (considers best interests of creditors in conversion decisions)
- In re United States Mineral Products Co., 105 F. App’x 428 (3d Cir. 2004) (cites length of proceedings and need for neutral trustee to maximize value)
- In re Euro-American Lodging Corp., 365 B.R. 425 (Bankr.S.D.N.Y. 2007) ( discusses bad faith and rationale for conversion to Chapter 11)