554 B.R. 395
Bankr. S.D. Tex.2016Background
- Frescos Tomver, an unsecured creditor, objected to Divine Ripe, L.L.C.’s disclosure statement and opposed the debtor’s motion to appoint employee Saul Zuniga as the debtor’s Rule 9001(5) representative. The debtor proposed a plan that depends on capital contributions from Marco Antonio Jimenez.
- The bankruptcy court had previously denied extending the automatic stay to Jimenez; litigation against Jimenez in district court continued and Jimenez testified in bankruptcy proceedings.
- Debtor filed its disclosure statement and plan; Frescos filed a detailed objection arguing the disclosure statement lacked adequate information about (a) Jimenez’s financial ability to fund the plan, (b) the debtor’s assets, projections, accounting and avoidable-transfer exposures, and (c) legal obstacles under PACA.
- The court held evidentiary hearings; it found some of Jimenez’s testimony less credible because Zuniga appeared to coach him during testimony. No witnesses testified at the disclosure-statement hearing; the parties submitted documentary exhibits.
- The court applied the Metrocraft factors and § 1125(a) adequacy standard and concluded the disclosure statement failed to provide adequate information necessary for creditors to make an informed vote.
- The court also denied the debtor’s motion to appoint Zuniga, finding he was neither formally authorized by the sole member nor sufficiently the ‘‘person in control’’ under Rule 9001(5) and Texas LLC law.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Adequacy of disclosure regarding Marco Jimenez | Jimenez is the plan’s funding lynchpin; disclosure lacks reliable financial detail, projections, sources, and proof of ability to perform | Debtor relied on pro forma analysis and Jimenez’s testimony/experience as the source for projections | Disclosure statement fails §1125(a) adequacy as to Jimenez; creditors lack sufficient information |
| Adequacy of disclosure about the debtor’s assets, finances, and projections | Disclosure omits or understates assets, lacks liquidation analysis detail, balance sheet, accounting methods, named accountants, and projections | Debtor included certain exhibits (tax returns, monthly reports, pro forma) and plan summary | Disclosure statement inadequate on multiple Metrocraft factors (assets/value, future, accounting/projections, avoidable transfers, tax consequences, receivables, administrative expenses) |
| PACA/legal impediment to plan confirmation | Plan depends on produce operations and Jimenez, but PACA licensing/eligibility may bar dealing in produce, making plan "forbidden by law" under §1129(a)(3) | Debtor did not fully address PACA at disclosure stage; argued good-faith proposal and left legal confirmation issues for later | Court did not decide PACA merits but found the disclosure’s failure to detail how PACA issues would be addressed supports denying approval; left confirmation-stage resolution open |
| Appointment of Saul Zuniga as debtor’s Rule 9001(5) representative | Debtor: Zuniga is de facto operations/finance manager and best positioned to represent the non-natural-person debtor | Frescos: Texas LLC law vests control in the member (Jimenez); Zuniga lacks formal authority and is not the authorized "person in control" | Motion to appoint denied: Zuniga not shown to be formally authorized nor the proper "other person in control" under Rule 9001(5) and Texas law |
Key Cases Cited
- In re Cajun Elec. Power Co-op, Inc., 150 F.3d 503 (5th Cir. 1998) (discusses adequacy-of-disclosure and court discretion under §1125)
- In re Texas Extrusion Corp., 844 F.2d 1142 (5th Cir. 1988) (defines adequate information standard and finality considerations for disclosure-orders)
- In re Metrocraft Pub. Servs., Inc., 39 B.R. 567 (Bankr. N.D. Ga. 1984) (enumerates factors used to evaluate adequacy of disclosure statements)
- Matter of T-H New Orleans Ltd. P’ship, 116 F.3d 790 (5th Cir. 1997) (treats good-faith/§1129(a)(3) in context of plan proposal)
- Stern v. Marshall, 564 U.S. 462 (2011) (federal constitutional limits on bankruptcy courts’ authority; discussed re: finality)
- In re Delta Produce, L.P., 817 F.3d 141 (5th Cir. 2016) (treats treatment of disclosure-statement orders as non-final for Stern analysis)
- In re Lively, 466 B.R. 897 (Bankr. S.D. Tex. 2011) (discusses absolute priority and confirmation considerations; used for disclosure/analysis context)