455 B.R. 153
8th Cir. BAP2011Background
- KGLP formed on Feb 1, 2007, between Keeleys and Grabanskis; Thomas Grabanski and John Keeley were managing partners.
- KGLP purchased farmland including Lenth and Unruh Parcels, secured by seller-financed mortgages.
- G&K Farms formed in 2008 to rent KGLP land, with G&K obtaining financing from Choice Financial and later second mortgages on the Lenth and Unruh Parcels.
- Transfer Agreement dated Sep 24, 2009 required Grabanskis to satisfy all partnership debts, while Keeleys alleged misallocation of crop proceeds and insurance to benefit Grabanskis.
- NRCS offered $2,563,000 for a conservation easement on the Lenth Parcel in July 2010; shortly after, Lenth and Unruh debtors defaulted, prompting foreclosure risk.
- Keeleys filed an involuntary bankruptcy petition against KGLP on Dec 6, 2010, triggering the partnership case at issue and leading to the March 30, 2011 trustee-appointment order by the Bankruptcy Court.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether cause exists to appoint a Chapter 11 trustee | Keeleys seek trustee due to fraud, mismanagement, and self-dealing by Grabanskis | KGLP argues no cause; maintains management is capable | Yes; cause found under §1104(a)(1) |
| Whether appointment is in the estate's and creditors' interests | Trustee needed to preserve asset value and prevent dissipation | Management capable; appointment unnecessary | Yes; appointment under §1104(a)(2) warranted |
| Appropriate standard of proof for trustee appointment | Clear and convincing standard should apply (citing Sharon Steel lineage) | Preponderance of the evidence suffices (Grogan v. Garner governs) | Preponderance of the evidence; and still affirmance of appointment under either standard |
Key Cases Cited
- In re Veblen West Dairy LLP, 434 B.R. 550 (Bankr.D.S.D. 2010) (appointing trustee under §1104; factors and discretionary standard)
- In re Bayou Group, LLC, 564 F.3d 541 (2d Cir. 2009) (preponderance standard for trustee appointment after Grogan v. Garner)
- In re G-I Holdings, Inc., 385 F.3d 313 (3d Cir. 2004) (balanced factors; standard for evaluating proceedings in bankruptcy)