526 B.R. 902
Bankr. M.D. Fla.2015Background
- Monticello Realty Investments, LLC (Debtor) sought Chapter 11 relief and a plan/Disclosure Statement in Sept. 2014, with a plan to be financed via new loan documents to be attached to the plan.
- The Bank (The Jacksonville Bank) held a prepetition secured claim arising from a 2003 loan to MRI Inc. for the Norco Office Center, secured by a mortgage with a Guaranty by Debtor.
- Modifications extended Note maturity several times (2008 to 2013, then to Aug. 15, 2014) and allowed limited payments while Debtor’s occupancy/ tax issues persisted.
- Debtor filed Plan Sept. 27, 2014, proposing to repay part of the Bank’s claim and to enter into new notes/mortgage to be filed at confirmation; no new loan documents were attached to the Plan.
- Bank objected to Plan terms, pursued cash collateral orders, and purchased the TIB unsecured claim to prevent confirmation over Bank objection if no new loan documents were executed.
- Court found Bank acted to protect its secured claim (not in bad faith) and subsequently denied confirmation due to multiple §1129(a) failures, including improper classification and feasibility concerns.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Bank ballots should be designated and disqualified | Funk contends Bank acted in bad faith to control class votes. | Bank argues ballots were cast to protect its secured position, not in bad faith. | Ballots not designated; no bad-faith designation proven. |
| Whether Bank’s Claim 3 should be allowed as a post-/pre-petition secured claim and fees | Debtor argues prepetition fees and postpetition costs are improperly asserted. | Bank asserts valid prepetition secured claim and postpetition fees under §506(b). | Bank’s prepetition claim confirmed; postpetition fees deemed reasonable and necessary. |
| Whether Plan complies with §1129(a)(1) (applicable provisions) | Guardian’s $12,475 administrative treatment is permissible under §507(a)(4). | Guardian/TIB classifications are legitimately distinct classes for administrative vs. unsecured claims. | Plan fails §1129(a)(1) due to improper Guardian/TIB classification under §1122. |
| Whether Plan complies with §1129(a)(7) (best interests for Bank) | Bank claims Plan underpays what Bank would receive in a Chapter 7 liquidation. | Plan provides restructuring and ongoing value; liquidation value uncertain. | Bank not shown to receive at least liquidation value; §1129(a)(7) not satisfied. |
| Whether Plan complies with §1129(a)(8) (each class either accept or is unimpaired) and §1129(a)(11) (feasibility) | Bank’s Class 3 and 5 are impaired; best interests require acceptance or impairment. | Feasibility and impairment contested but plan is intended to be feasible. | Plan violates §1129(a)(8) and §1129(a)(11); confirmation denied. |
Key Cases Cited
- In re Adelphia Communications Corp., 359 B.R. 54 (Bankr.S.D.N.Y.2006) (designation of votes is drastic and exceptional)
- In re Fed. Support Co., 859 F.2d 17 (4th Cir.1988) (good faith not require selfless disinterest; ulterior purpose bars vote)
- In re Landing Assocs., Ltd., 157 B.R. 791 (Bankr.W.D.Tex.1993) (bad faith requires ulterior aims in vote discipline)
- In re Figter Ltd., 118 F.3d 635 (9th Cir.1997) (misuse of claims to control class vote allowed under certain limits)
- In re Gilbert, 104 B.R. 206 (Bankr.W.D.Mo.1989) (self-interest per creditor does not automatically imply bad faith in voting)