In Re Midwest Properties of Shawano, LLC
442 B.R. 278
Bankr. D. Del.2010Background
- UST motions seek conversion/dismissal or trustee in Midwest Properties and Midwest Oil under §1112(b) for cause (losses, no rehabilitation, mismanagement); Midwest Oil also faces a separate insurance issue on Hadley Ave property.
- Cases filed July–Sept 2010; previous 2009 Chapter 11s were dismissed for cause; debtor entities are real-estate holding companies with minimal staff and reliance on related SIST and volunteers.
- Receivership properties in Midwest Properties generate no income; state court receivership controls rents; ownership/entitlement to rents is disputed and not clearly established.
- Midwest Oil produces losses and delinquent taxes on several properties; attempts to renegotiate mortgages/leases are informal and not documented; environmental issues on Hadley Ave property hinder potential sale/lease.
- Debtors failed to provide plan or financial projections; lack of cooperation with UST (missing rent logs, bank statements); no credible evidence of reasonable likelihood of rehabilitation.
- Court dismisses both cases under §1112(b)(4)(A); not in creditors’ interests to convert or appoint a trustee; dismissals without prejudice to refiling only by counsel admitted in this district; no unusual circumstances justify denial of motions.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether cause exists to dismiss Midwest Properties under §1112(b)(4)(A). | Continued losses and no likelihood of rehab. | Debtor cannot substantiate rehabilitation prospects. | Dismissal granted. |
| Whether cause exists to dismiss Midwest Oil under §1112(b)(4)(A). | Ongoing losses and delinquent taxes; lack of plan. | Debtor may renegotiate terms; potential rehab. | Dismissal granted. |
| Whether there are unusual circumstances to deny dismissal. | Debtors claim prejudice and bias in Shawano. | No credible unusual circumstances shown. | No unusual circumstances to avoid dismissal. |
| Whether petitions were filed in good faith. | Petitions served legitimate bankruptcy purpose. | Petitions filed to stay foreclosures, not rehabilitate. | Filed in bad faith; dismissals uphold good-faith concerns. |
| Whether dismissals should be with prejudice or a bar to refiling. | Bar to refiling protects creditors. | Bar to refiling unnecessary. | Dismissal without prejudice; bar to refiling limited to counsel-admitted filings. |
Key Cases Cited
- United States v. Gateway Access Solutions, Inc., 374 B.R. 556 (Bankr. M.D. Pa. 2007) (1112(b) amendments constrain discretion to dismiss/convert after cause found)
- United States v. Timbers of Inwood Forest Assocs., 484 U.S. 365 (1988) (economic stabilizing purpose of bankruptcy; rehab likelihood required)
- First Jersey Nat'l Bank v. Brown (In re Brown), 951 F.2d 564 (3d Cir. 1991) (good faith requirement in §1112(b) petitions; need for reasonable plan)
- In re Integrated Telecom Express, Inc., 384 F.3d 108 (3d Cir. 2004) (good faith filing; two inquiries: purpose and absence of tactical delay)
- In re SGL Carbon Corp., 200 F.3d 154 (3d Cir. 1999) (good faith and purpose of Chapter 11 petitions)
- Centennial Avenue Associates Ltd. P'ship v. First Jersey N.B., 200 B.R. 800 (Bankr. D.N.J. 1996) (reorganization likelihood within a reasonable time frame)
- Fields Station LLC v. Capitol Food Corp. of Fields Corner, 490 F.3d 21 (1st Cir. 2007) (automatic stay is not a standalone justification for filing)
- Santa Fe Minerals, Inc. v. Bepco, L.P. (In re 15375 Memorial Corp.), 589 F.3d 605 (3d Cir. 2009) (stay as a consequence of filing; not sole basis for good faith)