In re Star Ambulance Service, LLC
MEMORANDUM OPINION
DENYING CONFIRMATION OF DEBTORS’ JOINTLY ADMINISTERED AMENDED PLAN OF REORGANIZATION
[Resolving Doc. #73]
I. INTRODUCTION
Thе Court held a hearing on August 17, 2015 on the Jointly Administered Amended Plan of Reorganization filed by Star Ambulance Service, LLC & Rodolfo E. Martinez» Jr. & Silvia Martinez, Debtors, having previously entered an order approving the Amended Disclosure Statement, [ECF No. 50], for a Small Business Case pursuant 'to
A. Findings & Conclusions
The findings and conclusions set forth herein and in the record of the Confirmation Hearing constitute this Court’s findings of fact and conclusions of law pursuant to
B. Jurisdiction, Venue, and Constitutional Authority
This Court has jurisdiction over this matter pursuant to
The matter at bar arises from the confirmation of Debtors’ Combined & Jointly Administered Plan of Reorganization, which is a matter that can only arise in bankruptcy. See In re Prescription Home Health Care,
II. PROCEDURAL HISTORY AND FINDINGS OF FACT
A. Star Ambulance Service, LLC’s Bankruptcy Filing
1. Pursuant to Debtors’ Amended Plan of Reorganization, the bankruptcy was precipitated by an I.R.S. levy and seizure
2. On January 22, 2015 Star Ambulance Service, LLC, a Texas Limited Liability Company, (“Star Ambulance”) filed its voluntary petition under Title 11, Chapter 11 under the United States Bankruptcy Code and checked the designation of Small Business Case pursuant to the provisions of
3. On January 22, 2015, Star Ambulance filed its First Amended Petition. [ECF No. 2]
4. On February 23, 2015, Star Ambulance filed its Second Amended Petition. [ECF No. 25]
B. Rodolfo E. Martinez, Jr. and Silvia Estella Martinez’s Bankruptcy Filings
1. On January 22, 2015, Rodolfo E. Martinez, Jr. & Silvia Estella Martinez (husband and wife respectively, collectively “Martinez”) filed their voluntary petition under Title 11, Chapter 13 of the United States Bankruptcy Code commencing Case No. 15-70042-M-13. [ECF No. 1]
2. On January 22, 2015, Martinez filed their Chapter 13 Plan. [ECF No. 2]
3. On January 29, 2015 Martinez filed their First Amended Chapter 13 Plan. [ECF No. 14]
4. On February 27, 2015, Martinez filed a Motion to Convert their case from Chapter 13 to 11. [ECF No. 19]
5. On March 23, 2015 this Court entered an order converting the Martinez case to a proceeding under Title 11, Chapter 11 of the United States Bankruptcy Code. [ECF No. 23]
6. On March 24, 2015, Martinez filed their First Amended Petition, wherein they elected to NOT check the designation of Small Business Case pursuant to the provisions of
7. On March 24, 2015 Mаrtinez also filed their First Amended Schedules. [ECF No. 25]
8. On March 26, 2015, Martinez filed their Second Amended Petition, this time electing to check the designation of Small Business Case pursuant to the provisions of
C. Star Ambulance Service, LLC & Rodolfo E. Martinez Jr. and Silvia Estella Martinez’s Jointly Administered Combined Disclosure & Plan of Reorganization
1. On May 13, 2015, Star Ambulance & Martinez (“Debtors”) filed a Motion for Expedited Consideration to have the respective Chapter 11 cases Jointly Administered. [15-70041; ECF No. 35]
2. On May 18, 2015, this Court entered an order granting the Debtors’ Motion for Expedited Consideration to Jointly Administer the respective Chapter 11 cases. [ECF No. 38]
4. Debtors subsequently amended their Plan on June 9, 2015. [ECF No. 44]
5. This Court entered an order approving the Jointly Administered Disclosure Statement on June 17, 2015 and set a hearing on the confirmation of the Plan for July 22, 2015. The hearing was continued to August 17, 2015. [ECF No. 50]
6. Debtors latest amended Plan of Reorganization, that is the subject of the August 17, 2015 hearing, was filed on August 17, 2015. [ECF No 73]
7. Significantly, since the filing of the Disclosure Statement and Plan of Reorganization, [ECF No. 40], and as of the date of the hearing on the Confirmation of the Plan, eighty-three (83) calendar days have elapsed.
III. EVIDENCE
At the hearing before this Court on August 18, 2015, the Debtors put forth the following evidence in support of the confirmation of their plan:
1. Affidavit on Confirmation of Amended Plan dated August 17, 2015 by Rodolfo E. Martinez, Jr., dated August 18, 2015.
2. Affidavit on Confirmation of Amended Plan dated August 17, 2015 by Silvia Martinez, dated August 18,2015.
3. Affidavit on Confirmation of Amended Plan dated August 17, 2015 by Silvia Martinez in her capacity as the President of Star Ambulance, LLC, dated August 18, 2015.
For each of the foregoing Affidavits presented by the Debtors, the affidavits merely read as recitations of
4. Ballot Summary with Attached Ballots, dated August 18, 2015.
The Ballot Summary provided the acceptance votes by Hidalgo County, an impaired secured creditor; Admin Recovery, an unimpaired secured creditor; Discover Bank, an impaired unsecured creditor; Billing Partners, an impaired unsecured creditor; and Mobile Relays, an impaired secured creditor. However, the Ballot Summary neglects to include the rejection by Knight Capital Funding II, LLC, [ECF No. 60], filed on July 21, 2015. Furthermore, there was no evidence presented as to whether or not the ballots submitted for each class was sufficient to accept the plan pursuant to
5. Testimony by Delina Martinez, Administration for Star Ambulance Service, LLC, who testified to the following:
a. Star Ambulance has been acquiring new contracts, which should help improve cash flow for their operations.
b. Star Ambulance’s improved cash flow since January 2015 has permitted them to become profitable, and that the level of profitability should increase going forward.
c. Winter months are typically more profitable for Star Ambulance, as there is an increase in the use of their services.
d. Star Ambulance currently operates six (6) ambulances, two (2) of which are owned by Star Ambulance. The remaining four (4) ambulances are being used pursuant to a verbal lease with Star EMS, which is owned by Rodolfo Martinez, Sr. Star Ambulance has been making the payments for those units on behalf of Star EMS.
e. Star Ambulance expects to recognize a minimum of fifty (50) percent of their accounts receivables, and the reduction is due to insurance company paymentsbeing less than payment in full. They are working to secure payment on the receivables, as many are 90 to 120 days old and many insurance companies do not pay on 60 day terms,
f. Star Ambulance experienced higher than average expenses during the month of July 2015, due to needed repairs on their ambulance units.. Ms. Martinez testified that there was not an expectation of the expenses to be reoccurring.
6. Clarifications on the Plan provided by Star Ambulance’s Counsel.
a. The Combined Plan contains no evidence of feasibility or projections of future cash flow under the plan.
b. The Liquidation Analysis is representative of the belief that the Debtors’ debts are greater than their assets, contrary to what is presented in their Schedules.
c. The Ballot Summary is intended to provide information about the Creditors that voted on the Plan, and Debtors are assuming that all non-voters have accepted the Plan.
d. Star Ambulances’ members intend to retain ownership of the entity post-bankruptcy, but this was not documented in the Disclosure or the Plan.
IV. Conclusions op Law
A. Effect of
Debtors filed their respective Chapter 11 cases and elected the “small business” provisions of
(e) In a small business case—
(1) only the debtor may file a plan until after 180 days after the date of the order for relief, unless that period is—
(A) extended as provided by this subsection, after notice and a hearing; or
(B) the court, for cause, orders otherwise;
(2) the plan and a disclosure statement (if any) shall be filed not later than 300 days after the date of the order for relief; and
(3) the time periods specified in paragraphs (1) and (2), and the time fixed in section 1129(e) within which the plan shall be confirmed, may be extended only if—
(A) the debtor, after providing notice to рarties in interest (including the United States trustee), demonstrates by a preponderance of the evidence that it is more likely than not that the court will confirm a plan within a reasonable period of time;
(B) a new deadline is imposed at the time the'extension is granted; and
(C) the order extending time is signed before the existing deadline has expired.
Thus, the plain language of the statute provides a scheme whereby small business cases should move expeditiously from filing to confirmation, a timeframe lasting no longer than 300 days for a plan to be filed and confirmation to occur within 45 days of the small business debtor’s filing of the plan. The statute places a burden upon small business debtors to act prudently, to file their plans in a relatively expedient fashion, and to ensure confirmation hearings occur on their plans within the prescribed 45-day timeframe.' Failing to do so violates the directives of
There is limited case law addressing when the 45-day timeframe begins: on the date of the original filing or the date of the amended filing. However, several cases are instructive on how the
Our sister bankruptcy court addressed a materially similar issue to the issue before this Court in In re Save Our Springs (S.O.S.) Alliance, Inc.,
Even if the Court were to disregard the 45 day confirmation limitation, the Plan as filed is patently not confirma-ble for the following reasons:
B. Debtors’ Jointly Administered Combined Amended Disclosure Statement & Plan of Reorganization [Case 15-70041-ECF No. 63]
As the proponent of the Plan, the Debtor must establish by a preponderance of the evidence that each of the confirmation requirements set forth in Bankruрtcy Code
1. Bankruptcy Rule 3016(a).
The Plan is dated and identifies the Debtors as the Plan proponents, thereby satisfying Bankruptcy Rule 3016(a).
Bankruptcy Code
(a). Proper Classification (
Section 1123(a)(1) addresses the contents of a plan and requires that a plan designate classes of claims and interests.
(b). Specified Treatment of Impaired and Unimpaired Classes (
(c). No Discrimination (11 U.S.C. 1123(a)(4).
(d). Implementation of the Plan (11 U.S.C. 1123(a)(5)).
(e). Nortr-Voting Equity Securities (11 U.S.C. 1128(a)(6)).
(f). Designation of Managers, Directors and Officers of the Debtors (11 U.S.C. 1123(a)(7)).
(g). Impairment Unimpairment of Any Class of Claims or Interests (11 U.S.C. 1123(b)(1)).
The classes of claims contained in the Plan adequately describe which classes are impaired or unimpaired, thus satisfying the requirements of
(h). Assumption and Rejection of Ex-ecutory Contracts (11 U.S.C. 1123(b)(2)).
Article 9 of the Plan provides for the rejection of the executory contracts and unexpired leases of the Debtors as of the Effective Date in accordance with
(i). Settlement of Claims and Causes of Action (
(j). Modification of Rights (
The Plan (1) leaves unaffected the rights of some holders of Claims in Classes 2-M, and (2) affects the rights of holders of Claims in all other Classes. Nevertheless, the Debtors have demonstrated by a preponderance of the evidence that the Plan complies with
(k). Cure of Defaults (
The Plan does not provide for the curing of any defaults. Accordingly, the Plan complies with
3. The Proponent of the Plan Complies with the Applicable Provisions of this Title (
Bankruptcy Code
4. The Plan has been Proposed in Good Faith and not by any means Forbidden by Law (
Bankruptcy Code
Here, the record shows that the Debtors proposed the Plan with “a basis for expecting that a reorganization can be effected.” Kane v. Johns-Manville,
5. Any Payment made or to be made by the Proponent has been Approved by, or is Subject to the Approval of, the Court as Reasonable. (11 U.S.C. § U29(a)a)
Bankruptcy Code
“Any payment made or to be made by the proponent,' by the debtor, or by a person issuing securities or acquiring property under the plan, for services or for costs and expenses in or in connection with the case, or in connection with the plan and incident to the case, has been approved by, or is subject to the approval of,' the court as reasonable.”
6. The Proponent of the Plan has Disclosed the Identity and Affiliations of Individuals (
Under Bankruptcy Code
“[DJisclose the identity and affiliations of any individual proposed to serve, after confirmation of the plan, as a director,officer, or voting trustee of the debtor, an affiliate of the debtor participating in a joint plan with the debtor or a successor to the debtor under the plan, and to show that the appointment to, or continuance in, such office of such individual is consistent with the interests of creditors and equity security holders and with public policy.”
7. Regulatory Approval of • Rate Changes (
Bankruptcy Code
8. Impaired Classes (
Bankruptcy Code
(1) has accepted the plan; or
(2) will receive or retain under the plan on account of such claim or interest property of a value, as of the effective date of the plan, that is not less than the amount that such holder would so receive or retain if the debtor were liquidated under chapter 7 of this title on such date....
Bankruptcy Code
Even assuming the Debtors had satisfied the best interests test — which they have not — the Court must review the remaining requirements of
9.Plan Acceptance by All Classes (
Bankruptcy Code
Bankruptcy Code
“Except to the extent that the holder of a particular claim has agreed to a different treatment of such claim, the plan provides that ... with respect to a claim of a kind specified in section 507(a)(2) [administrative expense claims] ... on the effective date of the plan, the holder of such claim will receive on account of such claim cash equal to the allowed amount of such claim.”
“each holder of a priority non-tax claim will receive: (i) if such class has accepted the plan, deferred cash payments of a value, as of the effective date of the plan, equal to the allowed amount of such claim; or (ii) if such class has not accepted the plan, cash on the effective date of the plan equal to the amount allowed of such claim[.]”
Finally, the Bankruptcy Code provides for similar treatment for unsecured and secured priority tax claims. For unsecured priority tax claims, the Bankruрtcy Code requires:
“[T]he holder of such claim will receive ... regular installment payments in cash — (i) of a total value, as of the effective date of the plan, equal to the allowed amount of such claim; (ii) over a period ending not later than 5 years after the date of the order for relief ... and (iii) in a manner not less favorable than the most favored nonpriority unsecured claim provided for by the plan....”
Here, section 12 of the Plan states that holders of allowed priority tax claims shall be paid in 60 monthly installments which shall begin thirty (30) days from the confirmation date, but the Plan is silent as to whether the payments are in accordance with this statute and accordingly, the Debtor has not established by a preponderance of. the evidence that the Plan meets the requirements set forth in
As to secured priority tax claims, Bankruptcy Code
11. Acceptance by Impaired Class(es) (
Bankruptcy Code
12. Plan Feasibility Requirement (
Bankruptcy Code
In determining if a plan is feasible, the “inquiry is peculiarly fact intensive and requires a case by case analysis, using as a backdrop the relatively low parameters articulated in the statute.” In re Eddington Thread Mfg. Co.,
In the context of
The proposed plan wholly fails to demonstrate financial feasibility. The Debtors'(1) did not provide any financial projections demonstrating its ability to fund the plan for the proposed period of time; (2) faded to disclose the adequacy of the Debtors’ capital structure; (3) failed to show the earning power of the Debtors’ business; (4) failed to show the ability of the Debtors’ management and the probability of the continuation of the same management and (5) any other related matter determinative of the prospects of a sufficiently successful operation to enable performance of the provisions of the plan. In re M & S Assocs. Ltd,
13.Payment of Plan Fees (
Bankruptcy Code
14. Payment of Retiree Benefits (11 U.S.C. § im(a)(lS))
Bankruptcy Code
15. Payment of Domestic Support Obligation (
Bankruptcy Code
16.Objection by Holders of Unsecured Claims of Individual Debtors (
In a case in which the debtor is an individual and in which the holder of an allowed unsecured claim objects to the confirmation of the plan—
(A) the value, as of the effective date of the plan, of the property to be distributed under the plan on account of such claim is not less than the amount of such claim; or
(B) the value of the property to be distributed under the plan is not less than the projected disposable income of the debtor (as defined in section 1325 (b)(2)) to be received during the 5-year period beginning on the date that the first payment is due under the plan, or during the period for which the plan provides payments, whichever is longer.
17. Transfers of Property (
Bankruptcy Code
18. Cramdown Provisions (
19. Avoidance of Tax Liability (
Finally, Bankruptcy Code
Therefore, for the reasons stated on the record, the Court holds that the 45-day timeline under
AS THE COURT FINDS THAT THE NECESSARY ELEMENTS UNDER
CONCLUSION
The Debtors prosecuted their Chapter 11 Bankruptcy with relative diligence since their initial filing in January 2015 and have continued to do so since moving for joint administration. The original plan and disclosure statement was filed on May 27, 2015 and the plan has been amended multiplе times since. The Debtors, however, have not filed any motions seeking to extend the time to confirm their original or amended plans. As such, the 45-day drop dead date for confirmation of the Plan before this Court, as required by
An Order consistent with this Memorandum Opinion will be entered on the docket simultaneously herewith.
.
. "The Bankruptcy Reform Act of 1994, Pub.L. No. 103-394, amended several aspects of Chapter 11 to apply in cases where a debtor is a “small business.” These amendments were created "to expedite thе process by which small businesses may reorganize under chapter 11." Floor Statements on the Bankruptcy Reform Act of 1994, 140 Cong. Rec. H10752, H10768 (daily ed. October 4, 1994) (analysis of Act’s provisions appended to remarks of Rep. Brooks) (
. "An amendment to a pleading relates back to the date of the original pleasing when: (A) the law that provides the applicable statute of limitations allows relation back; (B) the amendment asserts a claim or defense that arose out of the conduct, transаction, or occurrence set out — or attempted to be set out— in the original pleading; or (C) the amendment changes the party or the naming of the party against whom a claim is asserted, is Rule 15(c)(1)(B) is satisfied and if, within the period provided by Rule 4(m) for serving the summons and complaint, the party to be brought in by amendment: (i) received such notice of the action that it will not be prejudiced in defending on the merits; and (ii) knew or should known that that the action would have been brought against it, but for a mistake concerning the proper party’s identity-”
. The Court stated that "Bankruptcy Code