In re Chardon, LLC
519 B.R. 211
Bankr. N.D. Ill.2014Background
- Motions for relief from stay filed by FirstMerit against Wolf debtors’ 10611 Wolf Dr. property; stay relief denied.
- 10611 Wolf Dr. is held in a land trust with multiple Wolf family beneficiaries; ownership is through beneficiaries, not trustee title.
- Wolf siblings and their father filed Chapter 11 in separate, jointly administered cases; related Chardon Debtors also in Chapter 11, with cross-collateralized FirstMerit debt.
- FirstMerit claims substantial debt secured by the land and related collateral; plans propose to retain the property and pay claims over time.
- The court evaluated whether the property is estate property and whether a feasible plan exists to confirm, affecting whether relief from stay is appropriate.
- The court ultimately denied relief from stay, finding a feasible reorganization plan may be proposed and confirmed under the circumstances.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Is 10611 Wolf Dr. property of the debtors’ estates? | FirstMerit: land trust means real estate not estate property; only beneficial interests are estate property. | Wolf: real estate follows through beneficiaries; ownership substance remains with beneficiaries. | 10611 Wolf Dr. is property of the debtors’ estates (beneficiaries’ equitable interests include the real property). |
| Is the land necessary for the debtors’ effective reorganization? | Failure to show equity and necessity; property not essential for reorganization. | Proposed plans show feasible reorganization using rents from collateral to repay creditors. | Debtors have a reasonable possibility of a feasible plan; relief from stay denied pending plan confirmation. |
| What is the appropriate interest rate for 1129(b)(2)(A)(i) in a potential plan? | Court should adopt 4.0% or higher as needed to imply feasibility. | Rate should reflect market-like conditions; evidence limited; 4.25%–5.50% plausible. | Rate between 4.25% and 5.50% would meet 1129(b)(2)(A)(i) feasibility standard. |
| Should the plans rely on substantive consolidation or on Chardon Debtors’ assets/income? | Consolidation may be necessary to satisfy creditors; plans rely on combined assets. | Plans may avoid full substantive consolidation; reliance on Chardon income is permissible via plan amendments. | Consolidation questions are not resolved here; may be addressed at confirmation; not grounds for relief at this stage. |
| Do unfair discrimination, releases, or absolute priority bar confirmation? | Possible discrimination or unfriendly terms could prevent cramdown; releases may impermissibly extend releases. | Issues are fixable by amendments and settlements; not dispositive for stay relief. | These arguments do not mandate relief from stay at this stage and are reserved for confirmation proceedings. |
Key Cases Cited
- Till v. SCS Credit Corp., 541 U.S. 465 (U.S. 2004) (appropriate rate of interest for plan payments; feasible plan considerations)
- Airadigm Communications, Inc. v. Federal Communications Comm’n, 547 F.3d 763 (7th Cir. 2008) (present value requirement for interest on secured claims under 1129(b)(2)(A)(i))
- RadLAX Gateway Hotel, LLC v. Amalgamated Bank, 132 S. Ct. 2065 (S. Ct. 2012) (cramdown requirements; no unfair discrimination in plan)
- Timbers of Inwood Forest Assocs., Ltd., 484 U.S. 365 (U.S. 1988) (feasibility and prospect of reorganization; substantial uncertainty rejected for stay relief)
- Chicago Title & Trust Co., 75 Ill.2d 479, 389 N.E.2d 540 (Ill. 1979) (land trusts: beneficiaries’ ownership governs equity and estate inclusion)
- Gladstone Glen, 628 F.2d 1015 (7th Cir. 1980) (through look-through doctrine, beneficiaries’ interest can render property part of estate)
- Pentell, 777 F.2d 1281 (7th Cir. 1985) (ownership concepts in Illinois land trusts and attachment of rights in property)
- In re Smith, 224 B.R. 388 (Bankr. N.D. Ill. 1998) (discharge injunction and property held in land trust; ownership analysis in bankruptcy)