Northbrook Loans, LLC v. BlackAMG, 555 B.R. 680

Northbrook holds a mortgage on 3339-3341 N. Halsted St., Chicago; BlackAMG owes ~ $2.6 million and other junior encumbrances exist.
Northbrook obtained a state-court judgment of foreclosure (2012); a receiver remains in possession and no sheriff's sale has occurred.
Prior to bankruptcy, parties negotiated sales: Northbrook agreed to resell the property to Wells Street (later Halsted Investment Partners) if it obtained title at sale; OUT Chicago had agreed to fund BlackAMG’s reorganization if it could buy an adjacent property from Northbrook.
OUT Chicago declined to fund BlackAMG’s plan after failing to reach terms with Northbrook and instead sought creditor rights; BlackAMG concluded reorganization was no longer viable and moved to dismiss the Chapter 11 case.
Most creditors (OUT Chicago, Halsted Investment Partners, and others) supported dismissal; only Northbrook opposed dismissal and urged conversion to Chapter 7, arguing conversion would better protect creditors’ interests.
The bankruptcy court granted dismissal, finding dismissal (rather than conversion) better served creditors’ interests given the costs of conversion, absence of fraud or need for a trustee, and the parties’ positions.

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether the bankruptcy court abused its discretion under 11 U.S.C. § 1112(b) by dismissing rather than converting the Chapter 11 case	BlackAMG: Dismissal is appropriate because reorganization is no longer viable and creditors prefer dismissal; bankruptcy would not produce greater recoveries	Northbrook: Conversion to Chapter 7 is necessary to protect creditors and preserve the possibility of distribution to all creditors	Court affirmed dismissal; no abuse of discretion. Judge found the court considered creditors’ interests and weighed conversion costs against benefits.
Whether the bankruptcy court failed to consider creditors’ best interests when choosing dismissal over conversion	BlackAMG and most creditors: The main asset would be sold either way and bankruptcy sale unlikely to yield higher recovery; dismissal best serves creditors	Northbrook: Bankruptcy would better ensure equality of distribution and potential recovery for junior creditors	Court held the bankruptcy court did consider creditors’ interests and reasonably concluded dismissal—given creditor positions, likely recoveries, and added costs of a Chapter 7 trustee—was in creditors’ best interests.

In re Superior Siding & Window, Inc., 14 F.3d 240 (4th Cir. 1994) (sets two-step inquiry under § 1112(b): determine cause; then choose dismissal or conversion based on creditors’ interests)
In re Babayoff, 445 B.R. 64 (Bankr. E.D.N.Y. 2011) (court must weigh possible benefits of conversion against incremental costs to the estate)