549 B.R. 556
D. Conn.2016Background
- Sapphire filed Chapter 11 on the eve of a state-court trial seeking to void a transfer of the Ridgefield property.
- McKay sought dismissal for cause under 11 U.S.C. § 1112(b)(1) alleging bad faith filing.
- Bankruptcy court found bad faith and dismissed; on remand, hearing established further facts about finances and subdivision prospects.
- Court found Sapphire had no employees, no ongoing business, and the property as its sole asset with substantial secured debt
- Evidence showed Longman-controlled entities funded Sapphire and that subdivision plans had not been pursued credibly; credibility of Longman was questioned.
- Appellants challenged abstention history but the district court ultimately affirmed dismissal and declined §1112(b)(2) exceptions.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Was the bad faith finding clearly erroneous? | McKay argues bad faith lacked clear support. | Sapphire asserts factual basis supports bad faith. | Bad faith finding upheld |
| Does the record show objective futility of reorganization if required? | McKay contends objective futility is shown. | Sapphire argues there is chance of reorganization. | Record supports objective futility; dismissal affirmed |
| Did § 1112(b)(2) exception apply to bar dismissal? | Sapphire/Hudson City contend unusual circumstances and plan likelihood justify retention. | Bankruptcy court properly identified lack of reasonable plan and zoning hurdles. | Exception not satisfied; §1112(b)(2) does not apply |
Key Cases Cited
- In re C-TC 9th Ave. P’ship, 113 F.3d 1304 (2d Cir.1997) (eight-factor test for subjective bad faith in filing)
- LaSalle Bank Nat. Ass’n v. Nomura Asset Capital Corp., 424 F.3d 195 (2d Cir.2005) (appraisal standards and financial significance in bankruptcy)
- In re Comcoach Corp., 698 F.2d 571 (2d Cir.1983) (code purposes guide interpretation of bankruptcy terms)
- In re Plan. Corp., 777 F.3d 594 (2d Cir.2015) (clarified standard for appellate review of bankruptcy decisions)
- Young v. Higbee Co., 324 U.S. 204 (U.S.1955) (bankruptcy protection and creditor protection purposes)