489 B.R. 51
6th Cir. BAP2013Background
- Five single-asset real estate debtors filed jointly-administered Chapter 11 cases in 2010; Bank of America held secured liens on LIHTC properties.
- Debtors sought valuation of LIHTC properties; a Valuation Order set values including tax credits, impacting secured claims.
- Debtors proposed multiple joint plans with complex tax-credit-based funding, but failed to reflect Valuation Order values timely and consistently.
- Bank moved to dismiss/convert and for relief from stay in 2012 based on continued loss, lack of plan feasibility, and bad-faith behavior; the court granted dismissal for cause.
- Bankruptcy court found substantial diminution of estate, lack of reasonable likelihood of rehabilitation, and bad-faith / fiduciary concerns; panel affirmed dismissal.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the bankruptcy court abused its discretion in dismissing for cause under § 1112(b)(4)(A). | Appellants contended possible unusual circumstances and potential rehabilitation. | Bank argued substantial loss, no reasonable likelihood of rehabilitation, and bad-faith actions warranted dismissal. | No abuse; dismissal affirmed under § 1112(b)(4)(A). |
| Whether the unusual-circumstances exception to § 1112(b)(2) applies. | Appellants relied on unusual circumstances to avoid dismissal. | Bank argued that cause under § 1112(b)(4)(A) precludes application of the unusual-circumstances exception. | Inapplicable; no unusual-circumstances exception given § 1112(b)(4)(A) finding. |
Key Cases Cited
- In re Timbers of Inwood Forest Assocs., Ltd., 484 U.S. 365 (U.S. 1988) (case establishing 'reasonable likelihood of rehabilitation' standard for 1112(b))
- United Savs. Ass’n of Tex. v. Timbers of Inwood Forest Assocs., Ltd., 484 U.S. 365 (U.S. 1988) (timbers framework cited in 1112(b) analyses)
- In re Loop Corp., 379 F.3d 511 (8th Cir. 2004) (burden of proof and abuse-of-discretion standard for dismissal)
- In re AMC Mortg. Co., 213 F.3d 917 (6th Cir. 2000) (bankruptcy court broad discretion to dismiss for cause)
- First Jersey Nat'l Bank v. Brown (In re Brown), 951 F.2d 564 (3d Cir. 1991) (reasonable likelihood of rehabilitation within a reasonable time)