479 B.R. 14
Bankr. D.P.R.2012Background
- DF Servicing moved to disqualify Debtor’s counsel under 327 and 101(14); hearing held May 16, 2012.
- DF Servicing also moved to dismiss under 1112(b) arguing bad faith, and to appoint a trustee/examiner under 1104(a) or convert under 1112(b).
- Debtor filed a second Chapter 11 petition for Costa Bonita Beach Resort, Inc.; prior petition (2009–2011) was dismissed.
- Court noted SARE status; property-based case with predominantly real estate assets and ongoing state court foreclosure actions.
- Court denied the motion to disqualify Debtor’s counsel, denied dismissal under 1112(b) and §1104(a), and denied abstention under §305.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Disqualification of Debtor’s counsel under 327(a) and 101(14) | DF Servicing contends conflict and non-disinterestedness exist | Cuprill argues disinterestedness and disclosure adequate | Denied disqualification; counsel deemed disinterested and properly disclosed |
| Bad faith/dismissal under 1112(b)(4) | Debtor filed to maximize assets; pending state foreclosure indicates bad faith | Debtor demonstrates good faith and feasibility of plan | Denied dismissal for bad faith; plan feasible and assets maximized |
| Appointment of trustee/examiner under 1104 | Trustee/examiner needed to investigate mismanagement and maximize estate | No proven cause; current management suitable | Denied appointment of trustee or examiner |
| Abstention under 305(a) | State forum available; abstention efficient | Abstention not warranted; case should proceed | Denied abstention; proceeding in bankruptcy court warranted |
Key Cases Cited
- In re Capitol Food Corp., 490 F.3d 21 (1st Cir. 2007) (good faith petition and purpose of Chapter 11 emphasized; not a per se bad faith case)
- In re El San Juan Hotel Corp., 239 B.R. 635 (1st Cir. BAP 1999) (disclosure and disinterestedness standards for professionals under 327(a))
- In re Martin, 817 F.2d 175 (1st Cir. 1987) (test for disinterestedness and adverse interest under 327(a))
- Marrama v. Citizens Bank of Mass., 549 U.S. 365 (2007) (good faith and totality of circumstances in bankruptcy petitions)