559 B.R. 186
Bankr. E.D. Mich.2016Background
- Debtors: St. James Nursing and Physical Rehabilitation Center, Inc. (operator) and MPMS St. James Real Estate Acquisition, LLC (RE Hold Co., real estate owner) filed joint Chapter 11 and proposed a combined plan and disclosure statement.
- Multiple parties objected; all but the Patel-related Entities (VPH Pharmacy, Reliance Pharmacy, Rajesh Patel, Chiman Patel) and Rehab Solutions settled via a stipulated proposed confirmation order (OCP Stipulation).
- Patel-related Entities (and Rehab Solutions by concurrence) contested confirmation, focusing primarily on feasibility under 11 U.S.C. § 1129(a)(11) and relatedly good faith under § 1129(a)(3). An evidentiary hearing addressed feasibility.
- Debtors presented revised five-year financial projections (Revised Projections) and testimony (H. Roger Mali) supporting cash flow sufficient to fund operations and plan payments; Patel-related Entities offered expert critique emphasizing bad-debt assumptions and revenue projections.
- Court found Debtors’ projections credible, that Medicaid contractual allowance adequately accounted for bad debt (and that even claimant’s higher allowance still yielded positive net income), and that all impaired classes had accepted the Plan.
Issues
| Issue | Patel-related Entities' Argument | Debtors' Argument | Held |
|---|---|---|---|
| Feasibility under § 1129(a)(11) | Revised projections are unreliable; understate bad debt and overstate private-patient revenue so Plan will likely fail | Revised Projections are conservative, grounded in historical performance, include sufficient bad-debt allowance (Medicaid contractual allowance) and show positive net income each projected year | Overruled objections; Plan is feasible — Debtors met burden by preponderance of evidence |
| Good faith under § 1129(a)(3) | Plan lacks good faith because it is not feasible | Plan proposed to preserve business and maximize creditor recovery; accepted by all impaired classes; proposed in good faith | Overruled; because Plan is feasible, good-faith requirement satisfied |
| Appointment of Chapter 11 trustee under § 1104 | Trustee needed due to alleged mismanagement/plan defects | No basis for trustee because Plan is confirmable and Debtors can perform | Denied — confirmation moots trustee motion |
| Rehab Solutions’ concurrence / abandonment | Concurred in Patel objections; argued rejection of Plan | Debtors argued objections lack merit and Rehab failed to prosecute | Overruled; Rehab’s concurrence overruled and its objections deemed abandoned for failure to appear |
Key Cases Cited
- In re Trenton Ridge Investors, LLC, 461 B.R. 440 (Bankr. S.D. Ohio 2011) (burden to prove § 1129 elements by preponderance and good-faith analysis)
- In re Waterford Hotel, Inc., 497 B.R. 255 (Bankr. E.D. Mich. 2013) (feasibility standard: reasonable probability and reasonable assurance of commercial viability)
- In re Arts Dairy, LLC, 432 B.R. 712 (Bankr. N.D. Ohio 2010) (feasibility requires reasonable assurance, not guarantee)
- In re Griswold Bldg., LLC, 420 B.R. 666 (Bankr. E.D. Mich. 2009) (feasibility determinations must be grounded in objective facts)
- Danny Thomas Props. II L.P. v. Beal Bank, S.S.B., 241 F.3d 959 (8th Cir. 2001) (feasibility requires predictions based on objective facts)
- In re Bonner Mall P’ship, 2 F.3d 899 (9th Cir. 1993) (chapter 11 purposes: preserve businesses and maximize recovery)
- Madison Hotel Assocs., 749 F.2d 410 (7th Cir. 1984) (good-faith considerations in plan confirmation)
- Fields Station LLC v. Capitol Food Corp. of Fields Corner, 490 F.3d 21 (1st Cir. 2007) (chapter 11 objectives: preserve going concern and maximize assets)