In Re Innkeepers USA Trust
448 B.R. 131
Bankr. S.D.N.Y.2011Background
- Debtors seek approval of a Final Five Mile/Lehman stalking horse bid and related bidding procedures, fee provisions, and cash collateral changes in a complex chapter 11 proceeding involving 71 hotels.
- The Final Five Mile/Lehman Bid covers the Fixed/Floating Debtors and is supported by Midland (special servicer) and Lehman, with Five Mile as the sponsor.
- The Original Five Mile/Lehman Bid was revised to exclude Seven Sisters properties and later further revised to remove break-up fees; the market continued to generate multiple bids.
- Appaloosa, a CMBS certificateholder, objects to the Final Five Mile/Lehman Bid and the revised bidding procedures on standing and competitive-bidding grounds.
- The court must decide (i) Appaloosa’s standing to object as a certificateholder, and (ii) whether the Final Five Mile/Lehman Bid and bidding procedures are appropriate under the business judgment standard for section 363 purposes.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Appaloosa has standing to object as a certificateholder | Appaloosa has 263M face in REMIC certificates and is a party in interest | Appaloosa is a certificateholder, not a direct party in interest; no standing under the CMBS framework | Appaloosa lacks certificateholder standing; may hear as preferred shareholder/DIP lender instead |
| Whether the Final Five Mile/Lehman Bid and bidding procedures pass business-judgment review | Final bid increases value and furthers consensus; bidders directed to enterprise-wide structure | Procedures and bid terms are permissible; fiduciary-out preserves flexibility; no abuse of discretion | Motion granted; Final Five Mile/Lehman Bid and bidding procedures approved |
| Whether the fiduciary-out provisions undermine objection rights | Fiduciary-out allows consideration of all bids | Fiduciary-out trumps other terms and protects fiduciary duties | Fiduciary-out upheld; bidding framework remains valid |
| Whether objections tied to releases or plan terms should be resolved now | Releases/plan terms require early resolution | These are confirmation issues; not ripe until a plan is proposed | Not resolved now; reserved for future confirmation stage |
| Impact of Appaloosa’s alleged conflicts on proceedings | Midland conflicts affect representation of certificateholders | Servicer’s duties protect certificateholders; conflicts remedied by contract and remedies | Not resolved in standing decision; addressed via servicing agreements and contract-law remedies |
Key Cases Cited
- In re Shilo Inn, 285 B.R. 726 (Bankr.D.Or. 2002) (investors' rights in REMICs; certificateholders do not directly enforce pooled mortgage loans unless trustee acts)
- In re Refco Inc., 505 F.3d 109 (2d Cir. 2007) (investors in SPV not parties in interest; SPC has standing to sue for its interests; bankruptcy court not forum for investor disputes)
- In re Saint Vincent's Catholic Med. Ctrs. of New York, 429 B.R. 139 (Bankr.S.D.N.Y. 2010) (limits on standing where interests are not direct or pecuniary; broad but bounded 1109(b))
- In re Lionel Corp., 722 F.2d 1063 (2d Cir. 1983) (business-judgment standard for §363 sales; require articulated business justification)
- In re Integrated Resources, Inc., 147 B.R. 650 (S.D.N.Y. 1992) (business-judgment review elements for efficiency, diligence, and good faith)
- In re Refco, Inc. (Extended Stay context), not cited with official reporter here (S.D.N.Y. 2006) (illustrates limits of standing for investors in CMBS contexts; referenced for standing framework)