490 B.R. 29
Bankr. E.D.N.Y.2013Background
- Debtors filed Chapter 11 in Oct 2012, designating the property as single asset real estate in Gary, Indiana.
- Fannie Mae holds first-priority secured notes totaling about $13.5 million with liens on the property and rents.
- Property comprises roughly 495–500 rental units on 43 acres; Debtors own Phase I and Phase II components.
- Fannie Mae filed a motion for relief from stay; the Debtors sought to confirm a plan of reorganization.
- Debtors proposed a plan treating Fannie Mae’s claim in Class 2 and a small unsecured class, funded by equity contributions and cash flow.
- Court-related cash collateral orders allowed limited interim use of cash collateral; the latest order covered Feb 2013.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Debtors’ plan has a reasonable possibility of confirmation within a reasonable time. | Debtors contend plan could be confirmed if value and feasibility are shown. | Fannie Mae argues there is no reasonable possibility of confirmation given value and impairment issues. | Debtors failed to show reasonable prospect of confirmation; stay relief granted. |
| Whether Class 3 (tenant security deposits) can constitute a legitimately impaired class for §1129(a)(10). | Debtors claimed Class 3 impairment supports consensual or cramdown path. | Fannie Mae contends Class 3 cannot be impaired for voting purposes; leases/payments remain administrative. | Class 3 is not a valid impaired voting class; impairment here is artificial and improper. |
| Whether the plan complies with the absolute priority rule and the new value exception. | Debtors rely on equity retention with new value for a post-confirmation distribution. | New value and absolute priority unlikely; equity holders’ contribution is insufficient and not properly new value. | Plan would violate the absolute priority rule; new value exception not satisfied. |
| Whether the Debtors made timely payments under §362(d)(3)(B). | Debtors argue a late payment could be credited; seek allowance of that payment. | Payments were not timely and calculated as cash-flow-based rather than statutorily required amount. | Debtors failed to demonstrate timely, statutorily required payments; 362(d)(3)(B) not satisfied. |
| Whether the plan’s treatment of Fannie Mae (and related value) defeats cramdown viability if 1111(b)(2) election is considered. | Fannie Mae maintains its deficiency claim controls voting and confirmation dynamics. | Debtors did not offer an appraisal or credible value to alter voting/deficiency dynamics. | Plan cannot overcome the voting/deficiency dynamics; no viable path to confirmation. |
Key Cases Cited
- Boston Post Road Ltd. P'ship v. FDIC (In re Boston Post Road Ltd. P'ship), 21 F.3d 477 (2d Cir. 1994) (impairment and voting rights in single-asset cases; administrative claims pay priority)
- Pegasus Agency, Inc. v. Grammatikakis (In re Pegasus Agency, Inc.), 101 F.3d 882 (2d Cir. 1996) (stay relief when plan's unfounded assumptions undermine likelihood of reorganization)
- Barakat v. Life Ins. Co. of Virginia (In re Barakat), 99 F.3d 1520 (9th Cir. 1996) (cramdown considerations and plan feasibility under §1129)
- Nw. Bank Worthington v. Ahlers, 485 U.S. 197 (1988) (absolute priority and cramdown in context of plan confirmations)
- In re Timbers of Inwood Forest Assocs., Ltd., 484 U.S. 365 (1988) (reasonable possibility of successful reorganization within a reasonable time under §362(d)(3)(A))
- LaSalle Bank Nat'l Trust v. LaSalle Partners, 526 U.S. 434 (1999) (new value and absolute priority concepts in reorganization)
- In re 18 RVC, LLC, 485 B.R. 492 (Bankr.E.D.N.Y. 2012) (contextual relevance to plan feasibility and cramdown standards)