Sunflower Racing, Inc. v. Mid-Continent Racing & Gaming Co. (In Re Sunflower Racing, Inc.)Sunflower Racing, Inc. v. Mid-Continent Racing & Gaming Co. (In Re Sunflower Racing, Inc.)
This matter is before the court on the appeal of Sunflower Racing, Inc. (“Sunflower”) and Hollywood Park, Inc. (“HPI”) of the bankruptcy court’s June 4, 1998 order converting Sunflower’s Chapter 11 case to a Chapter 7 case. The Kansas Racing and Gaming Commission and Eric C. Rajala have not filed briefs in this appeal. The court heard oral argument on October 1, 1998. After careful consideration of the record on appeal, and the arguments and authorities presented by the parties in their briefs and at oral argument, the court is prepared to rule. For the reasons stated below, the court will affirm the bankruptcy court’s June 4, 1998 order.
Factual Background
On May 17, 1996, Debtor filed a Chapter 11 bankruptcy petition. Pursuant to 11 U.S.C. § 1121 and a number of orders of the bankruptcy court granting extensions, Debt- or had the exclusive right to file a plan of reorganization on or before July 15, 1997. On July 15, Debtor filed its plan of reorganization. Debtor filed its first amended reorganization plan on September 16,1997.
On October 1, 1997, the Creditor Group 1 filed its motion to permit approval of its disclosure statement and dissemination of its own plan for voting. At a hearing on the motion on October 27, the bankruptcy court denied the Creditor Group’s motion.
On October 81,1997, Debtor filed a second amended reorganization plan. The confirmation hearing on Debtor’s Second Amended Plan was held from January 22 through January 29, 1998. On April 8, 1998, the bankruptcy court entered an order denying confirmation of the Second Amended Plan (the “Confirmation Order”). The bankruptcy court stated in its order that “Sunflower is hereby denied any opportunity to amend its plan or to request further proceedings toward its confirmation.” Debtor and Hollywood Park filed a motion for reconsideration of the bankruptcy court’s April 8 Order. On May 21, 1998, the bankruptcy court denied the motion for reconsideration. Debtor and Hollywood Park appealed the bankruptcy court’s order denying their motion for reconsideration. Earlier today, we issued an order affirming the bankruptcy court’s denial of Debtor’s reorganization plan.
See In re Sunflower Racing, Inc.,
On May 27, 1998, the Creditor Group filed a motion to convert this action to a Chapter 7 case (the “Conversion Motion”) and a motion for an expedited hearing on the Conversion Motion. Both motions were served on all parties on that date. On May 28, 1998, the bankruptcy court granted the motion for an expedited hearing on the Conversion Motion and set the hearing for June 4, 1998. Notice of the hearing was served on all parties on May 28, 1998. On May 29, 1998, the Kansas Racing and Gaming Commission filed a pleading in support of the motion to convert this action to a Chapter 7 case. On June 3, 1998, the Appellants filed a motion for continuance of the hearing on the Conversion Motion and a motion to stay the bankruptcy action pending appeal of the Confirmation Order. On June 4, 1998, after a hearing, the bankruptcy court denied Appellants’ motion for a continuance and Appellants’ motion for a stay pending appeal. At the same hearing, the bankruptcy court granted the Creditor Group’s Conversion Motion. The bankruptcy court held that “pursuant to 11 U.S.C. §§ 1112(b)(1), (2), (3), and (5), cause exists to immediately convert this case to a ease under Chapter 7 of Title 11.” ROA No. 120 at 1. At the conclusion of the June 4 hearing, the United States Trustee’s office appointed Eric C. Rajala as the Chapter 7 bankruptcy trustee. Mr. Rajala has been in control of Debt- or’s operations since June 4.
Our standard of review in bankruptcy is clear. The bankruptcy courts’ legal conclusions are subject to
de novo
review.
See Broitman v. Kirkland (In re Kirkland),
Analysis
I. Cause To Convert The Case To Chapter 7.
Section 1112(b) of the Bankruptcy Code provides that on the request of a party in interest or the United States Trustee, a bankruptcy court, after notice and a hearing, may convert a case from Chapter 11 to Chapter 7 for cause. See 11 U.S.C. § 1112(b). The Bankruptcy Code sets forth several of “cause” including -
(1) continuing loss to or diminution of the estate and absence of a reasonable of rehabilitation;
(2) inability to effectuate a plan;
(3) unreasonable delay by the debtor that is prejudicial to creditors; [and]
* * * * *
(5) denial of confirmation of every plan and denial of a request made for additional time for filing another plan or a modification of a plan.
As noted above, the bankruptcy court relied on these four grounds as cause to convert the ease to Chapter 7. Any one of these grounds would be sufficient to convert the case.
We review the bankruptcy court’s decision to convert the case for an abuse of discretion.
See Stillivan Cent. Plaza I, Ltd. v. BancBoston Real Estate Capital Corp. (In re Sullivan Cent. Plaza I, Ltd.),
We find that the bankruptcy court correctly held that cause existed to convert the case pursuant to 11 U.S.C. §§ 1112(b)(2), (3), and (5). Accordingly, we need not decide whether cause existed to convert the case pursuant to section 1112(b)(1).
A. Inability To Effectuate A Plan.
The bankruptcy court found that was appropriate under section 1112(b)(2) because of Sunflower’s inability to effectuate a plan. The Tenth Circuit has held that “[djismissal under § 1112(b)(2) is appropriate where the debtor’s failure to file an acceptable plan after a reasonable time indicates its inability to do so whether the reason for the debtor’s inability to file is its poor financial condition, the structure of the claims against it, or some other reason.”
Hall,
Sunflower filed three plans. Although the bankruptcy court held a confirmation hearing only on the third plan, the court commented on the deficiencies of Sunflower’s first two plans. Moreover, Sunflower was on notice that if it did not present a confirmable plan to the bankruptcy court, the bankruptcy court would allow the Creditor Group to proceed so that the case could be concluded shortly after the denial of plan confirmation.
See, e.g.,
ROA No. 26,
B. Unreasonable Delay.
The bankruptcy court also held that conversion was appropriate under section 1112(b)(3) because of unreasonable delay by Sunflower which was prejudicial to the creditors. The bankruptcy court’s decision of what constitutes “unreasonable delay” and “prejudice” is clearly discretionary and very fact intensive.
See, e.g., In re Woodbrook Assocs.,
C. Denial Of Plan Confirmation And Any Amendment.
On April 8, 1998, the bankruptcy court denied confirmation of Sunflower’s reorganization plan. 2 See ROA No. 99. In that order, the bankruptcy court also denied any further attempts by Sunflower to file another plan or to amend the existing plan. 3 See id. at 40. Accordingly, the bankruptcy court held, in its June 4 conversion order, that cause to convert the case existed under section 1112(b)(5). See ROA No. 120 at 1.
Appellants argue that conversion under subsection (5) was inappropriate because the bankruptcy court had not denied a request for additional time to file another plan or a modified plan.
See
11 U.S.C. § 1112(b)(5)(cause includes “denial of confirmation of every proposed plan and denial of a request made for additional time for filing another plan or a modification of a plan”). Appellants filed a motion to file another plan or to amend the existing plan on June 3, 1998. The bankruptcy court did not rule on this motion prior to or at the June 4, 1998 hearing. While the bankruptcy court did not formally rule on the Appellants’ motion prior to issuing the conversion order, the bankruptcy court clearly stated in its April 8,1998 order that any such motions would be denied.
See
ROA No. 99 at 40 (“Sunflower is hereby denied any opportunity to amend its plan or to request further proceedings toward its confirmation.”). In these circumstances, we find that the bankruptcy court did not abuse
D. Necessity For Bankruptcy Court To Make Findings Of Fact And Conclusions Of Law.
Appellants also argue that the bankruptcy court only referred to §§ 1112(b)(1), (2), (3), and (5) in summary form and failed to make appropriate findings of fact and conclusions of law. A bankruptcy court generally must make findings of fact and conclusions of law in all contested matters. See Fed. R. Bankr.P. 9014, 7052; Fed. R.Civ.P. 52. Here, the bankruptcy court’s written order provides that “pursuant to 11 U.S.C. § § 1112(b)(1), (2), (3), and (5), cause exists to immediately convert this case to a case under Chapter 7 of Title 11.... [T]his order shall include and incorporate any and all findings of fact and conclusions of law made by the Court on the record.” ROA No. 120 at 1-2. At the hearing, the bankruptcy court stated: “the basis of the order is 11 U.S.C. § 1112(b)(1), (2), (3), and (5) as explained by the Court in its order denying stay of the appeal.” ROA No. 126 at 66-67. The bankruptcy court denied the Appellants’ motion for a stay pending appeal earlier at the same hearing. The bankruptcy court noted in its ruling that it was in the best interests of the public and creditors to move the case forward, that the court bent over backwards to give Sunflower a fair opportunity to put forth a plan, that Sunflower and Hollywood Park failed to present a confirma-ble plan despite these opportunities, and that Sunflower attempted to delay matters. See ROA No. 125 at 4-5. While the bankruptcy court gave only brief findings of fact and conclusions of law, we think the bankruptcy court adequately stated its rationale for converting the case based on the entire record. Moreover, we note that the factual findings necessary to support a finding of cause under sections 1112(b)(2), (3), and (5) in this case were very limited and intertwined with the legal conclusion of cause. For the above reasons, we find that the bankruptcy court in effect set forth its findings of fact and conclusions of law for conversion of the case pursuant to section 1112(b)(2), (3), and (5).
II. Expedited Hearing.
Appellants contend that the bankruptcy court erred in setting the hearing on the Creditor Group’s motion to convert on an expedited basis. Generally, a Debtor is given 20 days notice if a ease is to be converted or dismissed.
See
Fed. R. Bankr.P. 2002(a)(4). The bankruptcy court may shorten the 20 day notice period in its discretion and for cause shown.
See
Fed. R. Bankr.P. 9006(c)(1). We review the bankruptcy court’s ruling shortening the time period under rule 9006 for an abuse of discretion.
See State Bank of S. Utah v. Gledhill (In re Gledhill),
Here, the bankruptcy court set the conversion hearing on June 4 (7 days notice) for several reasons: (1) to accommodate counsel for Hollywood Park who indicated that he would be unavailable from June 6 through June 20, (2) all of the necessary information to decide the conversion motion was in the record, and (3) the best interests of the public and creditors would be served by moving the case forward.
See
ROA No. 126, Trans, of 6/4/98 Hrg., at 8,13, 51, 62. In these circumstances, we find that the bankruptcy court did not abuse its discretion by shortening the notice period for the conversion hearing to 7 days.
See In re Mandalay Shores Coop. Housing Ass’n, Inc.,
We also note that any alleged error by the bankruptcy court in shortening the notice period is harmless. Appellants allege that they were “greatly prejudiced” by the abbreviated notice of the conversion hearing. Appellants have not shown, however, how an additional 13 days notice would have materially altered counsel’s presentation at the conversion hearing, particularly with respect to section 1112(b)(2), (3), and (5). In the absence of such a showing, any alleged error by the bankruptcy court in reducing the notice period for the conversion hearing is harmless.
III. Denial Of Appellants’ Motion For Continuance.
Appellants argue that the bankruptcy court erred by not continuing the conversion hearing. Appellants filed a motion for continuance on June 3, 1998. Appellants requested a continuance because (1) of the shortened notice period for the hearing and (2) Mr. Rimbo, Sunflower’s President, was out of the country on business until June 5, 1998. We already held above that the bankruptcy court did not abuse its discretion by shortening the notice period. Accordingly, the bankruptcy court’s denial of Appellants’ motion for a continuance did not constitute an abuse of discretion. With respect to Mr. Rimbo’s unavailability, Appellants only claim that Mr. Rimbo would have testified regarding the prejudicial effect of conversion on the Debtor, its employees, TRAK East, and the industry. Notably, none of the proffered testimony involves the standards for cause relied on by the bankruptcy court. In sum, we find that the bankruptcy court did not err in denying Appellants’ motion for continuance.
IV. Lack Of An Evidentiary Hearing.
Appellants next contend'that the bankruptcy court erred by failing to hear any evidence in support of or in opposition to the Creditor Group’s Conversion Motion. As explained above, section 1112(b) states that a case may be converted “after notice and a hearing.” Section 102(a) provides that “after notice and a hearing” means “after such notice as is appropriate in the particular circumstances, and such opportunity for a hearing as is appropriate in the particular circumstances.” 11 U.S.C. § 102(1)(A).
Appellants assert that evidence should have been presented at the hearing because the issues with respect to conversion had not previously been before the bankruptcy court. Appellants ignore that with respect to at least three of the grounds relied on by the bankruptcy court,
i.e.,
inability to effectuate a plan, unreasonable delay, and denial of plan confirmation and amendment, an evidentiary hearing generally is unnecessary. A bankruptcy judge who has presided over a case since its inception can resolve these issues without an additional evidentiary hearing. A full evidentiary hearing on a conversion or dismissal motion simply is unnecessary when an adequate factual record already is before the bankruptcy court.
See A. Illum Hansen v. Tiana Queen Motel, Inc. (In re Tiana Queen Motel, Inc.),
IT IS THEREFORE ORDERED that the bankruptcy court’s June 4, 1998 order converting the ease from Chapter 11 to Chapter 7 is AFFIRMED.