495 B.R. 328
Bankr. S.D. Tex.2013Background
- Debtor Yishlam, Inc., a Texas corporation formed to buy, improve, and develop real estate, filed Chapter 11 on May 6, 2013.
- Yishlam owns condominium units in two distinct Galveston buildings: the Colonial (15 units) and the Excelsior (5 units); the buildings are noncontiguous but within ~500 feet.
- Yishlam converted many units to condominiums but retained several unsold units that are tenant-occupied and constitute substantially all of its income.
- All units are pledged as collateral to creditor Great Central, and Yishlam uses a single bank account, one management contract, and one utilities/servicing contract for both properties.
- The Excelsior is governed by an independent condominium association that manages common areas; the Colonial is managed directly by Yishlam, which oversees common areas and units.
- Great Central moved to have Yishlam designated a single asset real estate (SARE) debtor under 11 U.S.C. § 101(51B); the court held a hearing and considered competing factual indicators.
Issues
| Issue | Plaintiff's Argument (Great Central) | Defendant's Argument (Yishlam) | Held |
|---|---|---|---|
| Whether debtor is a SARE under §101(51B) | Properties function as a single asset/project because all units are collateral, single bank account, single management/utility contracts | Properties are separate, noncontiguous, purchased/converted/operated at different times and manner; Excelsior has independent condo association | Denied — Great Central failed to prove SARE status by preponderance |
| Whether the two properties constitute a "single property" or "single project" | The unitary operation and financing indicate a common project | No common plan/scheme; distinct legal and operational structures (condominium association vs. direct management) | Not a single property; court analyzed single-project factors and found insufficient evidence of a common plan |
| Burden and standard of proof | Great Central bears burden to show SARE status by preponderance | Yishlam disputes factual linkage; argues lack of evidence of unified project | Court applied preponderance standard and found evidence equivocal, favoring denial |
| Relevance of common ownership/operational overlaps | Common collateral and shared contracts support single-project finding | Common ownership alone insufficient without showing common plan, contiguous/merged development, or regulatory filings | Court held common ownership/overlap insufficient absent proof of common plan or unitary purpose |
Key Cases Cited
- In re Scotia Pacific Co., LLC, 508 F.3d 214 (5th Cir.) (sets out SARE three-part test and standard)
- In re Bell Petroleum Servs., Inc., 3 F.3d 889 (5th Cir.) (defines preponderance standard and proof concept)
- In re McGreals, 201 B.R. 736 (Bankr. E.D. Pa.) (discusses common plan/scheme and common purpose for multi-parcel single-project analysis)
- In re JJMM Int’l Corp., 467 B.R. 275 (Bankr. E.D.N.Y.) (analyzes factors for treating multiple parcels as a single project)
- In re Hassen Imports P’ship, 466 B.R. 492 (Bankr. C.D. Cal.) (addresses burden on movant to establish SARE status)