596 B.R. 186
Bankr. W.D. La.2019Background
- Debtor Delta Ag Group, LLC (single-asset LLC owning grain-storage bins on 5–6 acres) filed Chapter 11 after a sheriff’s foreclosure sale was reset following a dismissed Chapter 12 filing. The Bank holds a first mortgage (~$490,000); an insider (Ricky McIntyre) holds a subordinate mortgage (~$625,000). The U.S. filed a nominee lien to secure restitution assessed against a member (~$4.3M).
- Debtor has no employees or ongoing operations; proposed rehabilitation is to lease storage space and have Ricky McIntyre manage leases; no leases, contracts, licensing, or experience were in place.
- Debtor had not obtained casualty/liability insurance on the property; monthly operating reports showed no post-petition expenditures.
- Richland State Bank and the U.S. Trustee moved to dismiss or convert under 11 U.S.C. § 1112(b); Bank also urged bad-faith filing.
- The Court found it had constitutional authority to enter final orders (no Stern issue) and held that lack of insurance constituted "cause" under § 1112(b)(4)(C).
- Debtor failed to carry its burden under the § 1112(b)(2) exceptions: it did not identify "unusual circumstances," did not prove a reasonable likelihood of plan confirmation, and did not show it could cure the insurance deficiency within a court-fixed reasonable time. The case was dismissed (rather than converted) as being in creditors’ and estate’s best interests.
Issues
| Issue | Bank/UST Argument | Debtor Argument | Held |
|---|---|---|---|
| Constitutional authority (Stern) to enter final order | Bankruptcy court can finally decide motions involving only federal bankruptcy law | Debtor did not raise a viable Stern objection | Court: No Stern issue; has authority to enter final order |
| "Cause" under §1112(b)(4)(C): failure to maintain insurance | Lack of casualty/liability insurance on grain bins poses a risk to estate/public — constitutes cause | Insurance lapse had reasonable justification and could be cured | Court: Found cause under §1112(b)(4)(C) due to no insurance and public safety risks |
| §1112(b)(2) exception—unusual circumstances and likelihood of confirmation | N/A (movants argued dismissal/conversion proper) | Debtor claimed justification for lack of insurance and asserted plan to lease/storage business supports reorganization | Court: Debtor failed to show unusual circumstances, failed to show reasonable likelihood of plan confirmation, and failed to prove it could cure insurance within a reasonable time; thus §1112(b)(2) defense fails |
| Dismissal vs. Conversion (best interests of creditors/estate) | Prefer dismissal where estate has no equity | Debtor implicitly preferred reorganization in Chapter 11 | Court: Dismissal (not conversion) is in best interests because property has no equity for unsecured creditors |
Key Cases Cited
- Stern v. Marshall, 564 U.S. 462 (limitations on bankruptcy courts’ constitutional authority)
- BP RE, L.P. v. RML Waxahachie Dodge, L.L.C., 735 F.3d 279 (5th Cir.) (distinguishing matters that "stem from the bankruptcy itself")
- Little Creek Dev. Co. v. Commonwealth Mortgage Corp., 779 F.2d 1068 (5th Cir.) (good-faith filing and §1112(b) cause analysis)
- Fin. Sec. Assurance Inc. v. T-H New Orleans Ltd. P’ship (In re T-H New Orleans Ltd. P’ship), 116 F.3d 790 (5th Cir.) (feasibility standard for confirmation)
- Jentz v. ConAgra Foods, Inc., 767 F.3d 688 (7th Cir.) (hazards of grain storage and explosion risk)