479 B.R. 880
Bankr. D.N.M.2012Background
- Dooley motion to convert to Chapter 7 or dismiss Chapter 11; objections by NMBT, Farm Credit, Cochrell, and Hyatt; trial held July–Aug 2012; court denies motion but gives deadline for amended plan and disclosure statement.
- HDQ, LLC obtained a $1.835M judgment against Debtor and Quiet Title; appeal pending in NM Court of Appeals anticipated in 2013.
- Debtor reconstituted title business as Prima Title, LLC; continues managing multiple entities with growing aggregate asset value.
- Debtor filed Chapter 11 plan and disclosure statement on July 7, 2011 but did not seek disclosure statement approval or plan confirmation; exclusivity lapsed.
- Three creditors supported the motion at trial: Cochrell (June Cochrell estate), NMBT (home plaza mortgage and Trestle/ Poohbah guaranties), and Farm Credit (claims secured by Trestle land).
- Court setting: no dismissal or conversion; debtors must file amended plan and notice to creditors by Oct 10, 2012; failure triggers § 1112(b)(1) consequences.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether cause exists to convert or dismiss under §1112(b) | Dooley seeks conversion or dismissal for cause | Hyatt argues no cause; rehabilitation or unusual circumstances present | No dismissal/conversion; denial without prejudice; need amended plan by deadline |
| Whether there is substantial and continuing loss and no reasonable likelihood of rehabilitation | Dooley asserts continuing losses and no rehabilitation risk | Debtor rehabilitated; business interests improved | No substantial loss or no rehabilitation; Debtor rehabilitated and assets improving |
| Whether gross mismanagement or misallocation of assets supports relief | Dooley alleges intercompany transfers and extravagant spending | Accounting imperfections but no bad faith; assets managed for value | No bad faith or mismanagement sufficient for relief |
| Whether filing was in bad faith or a two-party dispute justifying dismissal | Case is two-party dispute; bankruptcy forum inappropriate | Not solely a two-party dispute; Debtor has broader obligations and plan possibilities | Bad faith not established; not grounds to dismiss or convert absent unusual circumstances |
Key Cases Cited
- In re Marsch, 36 F.3d 825 (9th Cir. 1994) (bad faith considerations and purposes of Chapter 11)
- In re Nichols, 223 B.R. 353 (Bankr.N.D. Okla. 1998) (two-party dispute and reorganization prospects)
- Orbit Petroleum, 395 B.R. 145 (Bankr.D.N.M. 2008) (unusual circumstances and treatment under §1112(b))
- In re Paolini, 312 B.R. 295 (Bankr.E.D.Va. 2004) (bad faith and plan filing considerations)
- SGL Carbon Corp., 200 F.3d 154 (3d Cir. 1999) (good faith and purpose of bankruptcy proceedings)