527 B.R. 379
Bankr. C.D. Cal.2015Background
- Jointly administered bankruptcy cases: Corona Care Convalescent Corporation and Corona Care Retirement, Inc., with Pasadena Adult Residential Care, Inc. lead case dismissed.
- Motions: UST §1112(b)(1) to convert, dismiss, or appoint a Chapter 11 trustee; and Committee §1104(a) to appoint a trustee.
- Settlement among debtors, insiders, committee, and HCF had aimed to reorganize via asset sales and plan confirmations; Pasadena cases dismissed, Corona cases continued.
- Debtors defaulted on settlement deadlines; attempts at consensual resolution failed; hearings held in March 2015.
- UST now seeks appointment of a Chapter 11 trustee due to substantial losses, lack of rehabilitation, and landlord confidence concerns.
- Court finds appointment of a Chapter 11 trustee in the best interests of creditors and the estate; 1104(a) moot.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether cause exists to grant §1112(b)(1) relief. | Kwan shows continuing losses and no rehabilitation. | Debtors contend dismissal or denial of trustee relief is better. | Yes; cause established under §1112(b)(4)(A). |
| Whether appointment under §1104(a) is warranted. | Trustee appointment supported by §1112(b)(4) grounds. | Appointment unnecessary if §1112(b)(1) granted. | Moot; §1112(b)(1) grant controls; §1104(a) not ruled on. |
| Is the appointment of a Chapter 11 trustee in the best interests of creditors and estate? | Trustee facilitates asset sale and creditor recovery. | Debtors' reorganization efforts should be pursued; trustee increases costs. | Yes; asset sale prospect and settlement goals favor trustee appointment. |
| Should asset sale under the settlement be pursued through trustee administration? | Sale process best preserves value for creditors. | Debtors argue for continued operation and external funding instead. | Yes; asset sale process under trustee oversight is in creditors' best interest. |
| Impact of landlord confidence and lease status on likelihood of rehabilitation. | Landlord requires trustee to extend leases; without trustee, risk to assets. | Debtors contend management can resolve without bankruptcy oversight. | Support for trustee; lease continuation depends on restructuring and asset preservation. |
Key Cases Cited
- Grogan v. Garner, 498 U.S. 279 (U.S. 1991) (burden of proof under 1112 seeks cause by preponderance)
- In re Woodbrook Assocs., 19 F.3d 312 (7th Cir. 1994) (standard for cause under 1112(b) typically preponderance)
- In re Citi-Toledo Partners, 170 B.R. 602 (Bankr.N.D. Ohio 1994) (cited for burden and standards under 1112(b)(1))