In Re Landmark Atlantic Hess Farm, LLC
448 B.R. 707
Bankr. D. Md.2011Background
- Hess Farm Partnership owned the Monkton property; Hess Farm’s trustee holds sale proceeds.
- Landmark Atlantic Hess Farms, LLC (Landmark) formed in 2008 to own the Hess Farm Note and pledged assets to Virginia Heritage Bank.
- Landmark filed Chapter 11 in 2010; Hess Farm was subordinated in a related adversary proceeding, transferring Landmark’s lien to the Hess Farm estate.
- The petition followed a Subordination Order; Landmark’s schedules initially showed only Virginia Heritage Bank’s secured claim and related unsecured debts.
- Landmark’s later amended schedules added Hess Farm and Cohen/Tally, LLC and Cohen/Silver as creditors; Landmark sued Cohen, Hess Farm, and related entities in a preference action, arguing a 547 transfer.
- The United States Trustee and Cohen moved to dismiss; the court held a hearing and issued a decision finding cause to dismiss under 1112(b)(4) and related grounds, concluding dismissal is in creditors’ and estate’s best interests.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether cause exists to dismiss under 11 U.S.C. §1112(b)(4)(A) | UST argues substantial losses exist and no rehabilitation | Cohen argues similarly but Landmark contends potential recovery via Preference Litigation | Yes; substantial and continuing losses with no rehabilitation. |
| Whether Landmark failed to act as fiduciary to creditors warranting dismissal | UST asserts fiduciary duty breach by delaying estate interests | Landmark controlled by Herrick; actions align with maximizing assets | Yes; dismissal supported on fiduciary failure. |
| Whether failure to timely file monthly operating reports constitutes cause | UST shows unexcused lateness and deficient reports | Catch-up reports filed shortly before hearing should excuse noncompliance | Yes; unexcused filing failures constitute cause. |
| Whether unusual circumstances under §1112(b)(2) preclude dismissal | Not applicable given §1112(b)(4) causes established | Unusual circumstances defense could apply if plan likely or cure forthcoming | No; defense not applicable where §1112(b)(4) causes exist. |
| Whether bad faith supports dismissal | Carolin Corp. standard supports dismissal for bad faith | Bad faith as separate ground not needed given §1112(b)(4) issues | Court finds bad faith evidence but relies on §1112(b)(4) cause for dismissal. |
Key Cases Cited
- Sydnor v. Bank of America, N.A., 431 B.R. 584 (Bankr.D.Md.2010) (two-fold inquiry into cause: continuing loss and lack of rehabilitation; context for 1112(b))
- In re Westgate Properties, Ltd., 432 B.R. 720 (Bankr.N.D.Ohio 2010) (substantial losses and absence of rehabilitation; rehabilitation not equal to reorganization)
- In re 3 Ram, Inc., 343 B.R. 113 (Bankr.E.D.Pa.2006) (rehabilitation concepts and asset considerations in §1112 matters)
- Loop Corp. v. United States Trustee, 379 F.3d 511 (8th Cir.2004) (context on going concern and rehabilitation; asset priority concerns)
- C-TC 9th Ave. P'ship, 113 F.3d 1304 (2d Cir.1997) (bad faith and improper use of Chapter 11; factors for dismissal)