637 B.R. 465
Bankr. E.D. La.2021Background
- Royal Alice Properties, LLC (debtor) owned three income-producing properties subject to a blanket AMAG, Inc. mortgage; AMAG filed an allowed secured claim (prepetition claim $4,623,618.26).
- Chapter 11 Trustee moved to settle AMAG’s claim under Fed. R. Bankr. P. 9019 and to sell the properties under 11 U.S.C. § 363; proposed settlement fixed AMAG’s claim at $6,004,961.46 (including postpetition interest and fees), with AMAG as stalking-horse credit-bidder ($5,015,000 aggregate) and various carve-outs for estate administrative costs/marketing.
- Tenants/insiders Royal Street Bistro, LLC (RSB) and PicturePro LLC occupy two properties under long-term, below‑market leases; PicturePro was in rent default (~$55,000 arrears).
- AMAG separately sought allowance of postpetition 18% default interest and attorneys’ fees under 11 U.S.C. § 506(b); Arrowhead Capital contested the computation and oversecured status.
- Trustee testified no viable refinancing had been presented, the insider leases do not cover AMAG debt, and sale/settlement would maximize recovery and stop mounting administrative costs.
Issues
| Issue | Hoffman's / Tenants' Argument | Trustee / AMAG's Argument | Held |
|---|---|---|---|
| Whether the Trustee’s proposed settlement/sale is an impermissible sub rosa plan or otherwise unfair under Rule 9019 | Hoffman: Sale would circumvent chapter 11 protections and foreclose refinancing/plan options | Trustee: No feasible refinancing or plan exists; settlement preserves value and ends costly litigation | Court: Settlement/sale is fair, reasonable, and in estate’s best interest; approved under Rule 9019 |
| Whether the Trustee may sell the properties free and clear of leasehold interests under § 363(f) | RSB/PicturePro: State foreclosure law should not be treated as "applicable nonbankruptcy law" to strip leases; leases survive absent §365 rejection | Trustee: § 363(f)(1) allows free-and-clear sale because state foreclosure would extinguish inferior leases; § 363(f)(4) also applies because PicturePro’s lease is bona fide disputed | Court: Sale may proceed free and clear under §§ 363(f)(1) and (f)(4); adopts Spanish Peaks analysis |
| Whether tenants are entitled to adequate protection under § 363(e) or required lease treatment under § 365 | Tenants: Entitled to indubitable equivalent (continued possession) as adequate protection; Trustee must assume/reject leases | Trustee: Proceeds of sale will carry same attachment/priority to interests; tenants’ lease equity is effectively valueless (junior to AMAG); § 365 rejection not required to sell under § 363 | Court: Attachment of proceeds affords adequate protection; tenants’ interests have negligible value; § 365 does not bar a § 363 sale free and clear |
| Whether AMAG is entitled to postpetition 18% default interest and reasonable attorneys’ fees under § 506(b) | Arrowhead: AMAG is not oversecured or interest should be limited (e.g., to contractual non-default rate or lower equitable rate) | AMAG: Oversecured; entitled to contractual default interest and reasonable fees; supporting invoices/declarations submitted | Court: Evidence shows AMAG oversecured; presumption favors contractual default interest; awards specified postpetition interest ($1,038,365.61) and fees ($343,278.31) and grants AMAG § 506(b) relief |
Key Cases Cited
- Official Comm. of Unsecured Creditors v. Cajun Elec. Power Coop., Inc., 119 F.3d 349 (5th Cir. 1997) (standard for approving compromises under Rule 9019)
- ASARCO, Inc. v. Elliott Mgmt. (In re ASARCO, L.L.C.), 650 F.3d 593 (5th Cir. 2011) (business‑judgment standard for sales under § 363)
- Institutional Creditors v. Continental Air Lines, Inc. (In re Continental Air Lines, Inc.), 780 F.2d 1223 (5th Cir. 1986) (factors for evaluating sale outside ordinary course)
- Pinnacle Restaurant at Big Sky, LLC v. CH SP Acquisitions, LLC (In re Spanish Peaks Holdings II, LLC), 872 F.3d 892 (9th Cir. 2017) (state foreclosure law may qualify as "applicable nonbankruptcy law" under § 363(f)(1))
- United Sav. Ass’n of Tex. v. Timbers of Inwood Forest Assocs., Ltd., 484 U.S. 365 (1988) (postpetition interest limited to the security cushion)
- Official Comm. of Unsecured Creditors v. Moeller (In re AGE Refining, Inc.), 801 F.3d 530 (5th Cir. 2015) (permissible to resolve intertwined settlement and valuation disputes without precise § 506(a) valuation)
- Southland Corp. v. Toronto-Dominion (In re Southland Corp.), 160 F.3d 1054 (5th Cir. 1998) (presumption favoring contractual default interest for oversecured creditors)