495 B.R. 240
Bankr. E.D.N.Y.2012Background
- Archer Capital Fund loaned $2.6 million to GEL and GRL, secured by the GEL/GRL Mortgage and related agreements encumbering the GEL and GRL Properties and an assignment of leases.
- The Debtors filed and later dismissed separate Chapter 11 petitions in two districts to stay a state-court foreclosure sale, and then refiled in this district, with venue transferred back to this court.
- The Debtors have no employees or operating income for years; Archer is the sole substantial secured creditor, with a total claim exceeding $2.7 million including accrued interest.
- GRL’s GRL Property and GEL Property have been jointly targeted in foreclosure; insurance on the GRL Property lapsed in December 2011, and the Foreclosure Action judgment was entered in August 2011.
- The Debtors failed to file any required monthly operating reports and did not obtain waivers from the UST or the court, with other post-petition reporting obligations unmet.
- The court determined the filings were made in bad faith to derail settlement or foreclosure and granted dismissal with prejudice and in rem relief under § 362(d)(4)(B).
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether cause exists to dismiss under §1112(b). | GEL/GRL filed in bad faith with no prospect of reorganization. | Debtors lack intent to abuse; circumstances are not chaotic beyond reporting failures. | Yes; dismissal for cause under §1112(b) is warranted. |
| Whether failure to file monthly operating reports supports dismissal. | Debtors' failure to file required reports constitutes cause under §1112(b)(4)(F). | Possibly waivable; no timely reports filed yet. | Yes; failure to file monthly operating reports constitutes cause. |
| Whether lapse of insurance constitutes cause to dismiss or convert. | Insurance lapse on the GRL Property poses risk to the estate/public. | Debtors disputed insurance status; insurer obligations not proven. | Yes; §1112(b)(4)(C) cause exists due to lapse of insurance. |
| Whether the case can be dismissed despite unusual circumstances or potential plan feasibility. | No reasonable likelihood of plan confirmation; two-party dispute with no reorganization prospects. | Potential for plan unlikely but not categorically impossible; consider best interests of creditors. | No; dismissal proper, no unusual circumstances preventing dismissal under §1112(b)(2). |
| Whether §362(d)(4) relief in rem is appropriate. | Serial filings constitute a scheme to delay/defraud creditors; two-year stay relief warranted. | Relief should be conditioned on proper showing of scheme and state-law notice requirements. | Yes; §362(d)(4)(B) relief granted. |
Key Cases Cited
- In re C-TC 9th Ave. P’hip, 113 F.3d 1304 (2d Cir. 1997) (bad faith may support dismissal for bankruptcy petitions)
- In re Island Helicopters, Inc., 211 B.R. 453 (Bankr.E.D.N.Y. 1997) (bad faith may warrant dismissal in two-party disputes)
- In re Daniels, 362 B.R. 428 (Bankr.S.D. Iowa 2007) (failure to maintain insurance supports dismissal)
- In re Dabrowski, 257 B.R. 894 (Bankr.S.D.N.Y. 2001) (state-law issues may be abstained to court disputes)
- In re 698 Flushing Realty Corp., 335 B.R. 17 (Bankr.E.D.N.Y. 2005) (impossibility of confirming a plan over creditor objections)
- In re Montalvo, 416 B.R. 381 (Bankr.E.D.N.Y. 2009) (serial filings and scheme to delay/defraud as grounds for stay relief)
- In re Van Eck, 425 B.R. 54 (Bankr. Conn. 2010) (debtor’s good-faith effort to prosecute essential to plan feasibility)
- In re Ward, 423 B.R. 22 (Bankr.E.D.N.Y. 2010) (Rooker-Feldman doctrine and foreclosure challenge considerations)
- In re 51-53 West 129th Street HDFC, Inc., 475 B.R. 391 (Bankr.S.D.N.Y. 2012) (senior liens and plan feasibility considerations in valuation context)