517 B.R. 812
Bankr. E.D. Tenn.2014Background
- Debtor (owner/operator of the Comfort Inn in Alcoa, TN) filed Chapter 11 on March 17, 2014; court determined it is a single-asset real estate debtor. Tennessee State Bank (TSB) holds first and second secured notes (claims about $2.9M) and initiated foreclosure prepetition.
- Debtor obtained court approval to use cash collateral under a cash‑collateral order requiring $7,000/month adequate protection payments to TSB and replacement liens.
- TSB moved for relief from the automatic stay under 11 U.S.C. § 362(d)(1), (2) and (3) on grounds of inadequate protection, lack of equity/necessity, and unconfirmable plan.
- Debtor filed an Amended Plan proposing interest‑only payments to TSB ($12,805.96/mo. for one year, then increased payments and a balloon payment in 2019) and sought interim attorney fees of $13,185 to be paid from a $20,000 retainer derived from hotel revenues (TSB’s asserted cash collateral).
- Evidence included multiple appraisals (values ranging $2.1M–$3.75M), profit/loss statements showing variable revenues, testimony about postpetition repairs/marketing, and stipulations that TSB is undersecured (no equity cushion).
Issues
| Issue | Tennessee State Bank (Plaintiff) Argument | Debtor (Defendant) Argument | Held |
|---|---|---|---|
| Whether stay should be lifted for "cause" under § 362(d)(1) (inadequate protection) | Debtor used cash collateral without consent, failed to maintain taxes and property, collateral value declining — TSB not adequately protected | Debtor argues collateral value stable, made adequate protection payments, undertaking repairs/marketing to increase revenues | Court found cause under § 362(d)(1) and granted relief but conditioned the stay (see conditions) |
| Whether stay should be lifted under § 362(d)(2) (no equity & property not necessary for reorganization) | No equity and plan is not feasible; revenues insufficient to support proposed plan payments | Comfort Inn is essential to reorganization; Debtor presented an Amended Plan, pro forma, revenue improvements and management changes making reorganization plausible | Court denied relief under § 362(d)(2); Comfort Inn is necessary and Debtor has a realistic chance to reorganize; confirmation process to resolve feasibility/terms |
| Whether § 362(d)(3) (single asset rapid confirmation/payments) requires relief | TSB contends § 362(d)(3) applicable because single‑asset debtor has not met confirmation/payments test | Debtor had filed a plan with a reasonable possibility of confirmation within a reasonable time | Court declined to grant relief under § 362(d)(3) at this time because Debtor proposed a potentially confirmable plan |
| Whether Debtor may pay counsel from $20,000 retainer derived from rents (TSB cash collateral) | Retainer is cash collateral; Debtor must provide adequate protection before using rents to pay professionals | Debtor asked to pay $13,185 from the retainer as interim compensation | Court allowed the fee award in amount requested but denied payment from the $20,000 retainer because Debtor offered no adequate protection for TSB’s cash collateral |
Key Cases Cited
- Laguna Assocs. Ltd. P’ship v. Aetna Cas. & Sur. Co., 30 F.3d 734 (6th Cir. 1994) (automatic stay protects debtors while balancing creditors’ bargain)
- United Sav. Ass’n of Tex. v. Timbers of Inwood Forest Assocs., Ltd., 484 U.S. 365 (1988) (debtor bears burden to show property necessary for effective reorganization)
- Martin v. United States (In re Martin), 761 F.2d 472 (8th Cir. 1985) (framework for adequate protection when using cash collateral)
- In re Bushee, 319 B.R. 542 (Bankr. E.D. Tenn. 2004) (practical balancing test for court’s adequate‑protection inquiry)
- In re Bittwood Props. LLC, 473 B.R. 70 (Bankr. M.D. Pa. 2012) (adequate protection may be periodic payments, replacement liens, or indubitable equivalent)