660 B.R. 296
Bankr. D. Iowa2024Background
- JKW Enterprises, LLC (JKW) and Stadiums Export, Inc. (Stadiums) filed voluntary Chapter 11 Subchapter V petitions in October 2023 after a devastating derecho event in 2020 stopped JKW's business operations.
- Both entities had substantial real estate holdings pledged to Solon State Bank, which began foreclosure actions when loan payments ceased following the derecho.
- JKW received over $1.1 million in insurance proceeds, which were not fully accounted for in property repairs, raising concerns from Solon State Bank about possible misappropriation.
- After bankruptcy was filed, Debtors experienced administrative struggles, including inability to open debtor in possession bank accounts or file confirmable plans, and demonstrated ongoing negative cash flows.
- The United States Trustee (UST) and Solon State Bank moved to dismiss, arguing bad faith filings and lack of any feasible prospect for reorganization.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Bad Faith Filing under § 1112(b)(1) | Filing was not in good faith; two-party dispute, delay tactics | Debtors can reorganize; actions were appropriate | Dismissal warranted for bad faith |
| Negative Cash Flow/Substantial Loss | Debtors have ongoing, worsening losses | Efforts at repair and eventual reorganization possible | Substantial loss supports dismissal |
| No Reasonable Likelihood of Rehabilitation | Debtors have no real plan, proposals are speculative | Relying on potential asset sales or litigation | No reasonable likelihood; cause for dismissal |
| Inadequate Plan/Delay | No plan filed, only extensions requested | Sought more time to propose plans | Delay supports dismissal |
Key Cases Cited
- In re Obstetric & Gynecologic Assocs. of Iowa City & Coralville, P.C., 651 B.R. 1 (Bankr. S.D. Iowa 2023) (bad faith as cause for dismissal and the impact of two-party disputes)
- In re Cedar Shore Resort, Inc., 235 F.3d 375 (8th Cir. 2000) (affirming dismissal for bad faith filings to prevent state court claims)
- In re AMC Realty Corp., 270 B.R. 132 (Bankr. S.D.N.Y. 2001) (factors for bad faith in bankruptcy filings)
- In re FRGR Managing Member, LLC, 419 B.R. 576 (Bankr. S.D.N.Y. 2009) (speculative litigation not a basis for rehabilitation)