Barcelona Capital, LLC v. Neno Cab Corp.

648 B.R. 578

BARCELONA CAPITAL, LLC, Appellant,

v.NENO CAB CORP., Appellee.

22-CV-00090 (HG)

United States District Court, E.D. New York.

Signed January 23, 2023

Michael L. Previto, Hauppauge, NY, for Appellant.

Martin Wolf, Wolf and Associates, PLLC, Brooklyn, NY, for Appellee.

MEMORANDUM & ORDER

HECTOR GONZALEZ, United States District Judge:

Barcelona Capital, LLC ("Creditor") has appealed an order of the U.S. Bankruptcy Court for the Eastern District of New York (the "Bankruptcy Court") in a bankruptcy proceeding commenced by Neno Cab Corp. ("Debtor"). ECF No. 1. The Bankruptcy Court's order: (i) denied without prejudice Creditor's motion to dismiss Debtor's bankruptcy petition, and (ii) denied without prejudice Creditor's alternative request for relief from the Bankruptcy Code's automatic stay. ECF No. 1-1. For the reasons set forth below, the Bankruptcy Court's denial of Creditor's motion to dismiss is an interlocutory order that is not appealable as of right, and the Court exercises its discretion to deny Creditor leave to appeal that portion of the Bankruptcy Court's order. Although the Bankruptcy Court's denial of Creditor's request for relief from the automatic stay is a final order appealable as of right, the Court affirms the Bankruptcy Court's order because the Bankruptcy Court did not abuse its discretion in denying such relief.

PROCEDURAL HISTORY

Debtor is a company that operates taxi cabs. At the time Debtor filed its bankruptcy petition, its only assets were two taxi medallions, a single vehicle, and some cash. ECF No. 5 ¶ 5; see also Bankr. ECF No. 27-1.¹ Debtor owes money to Creditor pursuant to multiple promissory notes signed over the course of several years, which have a collective principal amount of $1.6 million, and are secured by Debtor's two taxi medallions. ECF No. 4 ¶¶ 16–19. Debtor's principal has personally guaranteed these loans. Id. ¶ 19. Debtor filed a bankruptcy petition in December 2020, seeking to reorganize under Chapter 11 of the Bankruptcy Code, specifically Subchapter V. Id. ¶ 6. As of that time, Creditor was Debtor's only secured creditor, and Debtor owed less than $10,000 in unsecured credit card debt to its only other creditor. Bankr. ECF Nos. 27-2, 27-3.

Subchapter V proceedings are relatively new—they were established in February 2020 as part of the Small Business Reorganization Act—and they apply to "qualifying small business owners" with less than $7.5 million of certain types of debt. Gregory Funding v. Ventura , 638 B.R. 499, 502–03 (E.D.N.Y. 2022) ; see also 11 U.S.C. § 1182 (defining the types of debtors that may commence bankruptcy proceedings under Subchapter V). Subchapter V enables a debtor to reorganize its debts, as in a typical Chapter 11 proceeding, rather than liquidate its business, as in a Chapter 7 proceeding. See Gregory Funding , 638 B.R. at 502. However, unlike a typical Chapter 11 proceeding, a debtor that files a bankruptcy petition under Subchapter V has "the sole right to confirm a plan of reorganization"; creditors cannot file their own plan. Id. (citing 11 U.S.C. § 1189(a) ). Additionally, "Subchapter V modifies the rules under which particular classes of claims can be crammed down," which means that a bankruptcy court has greater authority to adopt a debtor's plan of reorganization even if creditors object to the plan. In re Chip's Southington, LLC , No. 20-21458, 2021 WL 5313546, at *4–5 (Bankr. D. Conn. Nov. 13, 2021).

In February 2021, Creditor filed a motion in the Bankruptcy Court seeking two forms of relief: (a) to dismiss Debtor's bankruptcy petition and thereby terminate the bankruptcy proceeding, or (b) alternatively, for relief from the Bankruptcy Code's automatic stay so that Creditor could pursue state court remedies against Debtor's taxi medallions and thereby recoup some of the money Debtor owed. Bankr. ECF No. 34. Creditor identified three reasons why Debtor's petition should be dismissed: (i) the estate was experiencing continued losses and had no reasonable likelihood of rehabilitation; (ii) Debtor filed the petition in bad faith; and (iii) Debtor filed the petition "for the improper purpose of benefitting non-debtor parties," i.e. , the individual principal who owned Debtor. Bankr. ECF No. 34-1 ¶ 19.

At the time Creditor made its motion in Bankruptcy Court, Debtor had not yet filed a plan of reorganization. Id. ¶¶ 15–16. In March 2021, after Creditor's motion was fully briefed, Debtor filed a proposed plan, which it followed up with an amended plan, both of which were filed within the deadline set by the Bankruptcy Court. Bankr. ECF Nos. 21, 43, 45. Creditor objected to Debtor's proposed plan. Bankr. ECF No. 46. While that plan was pending, the Bankruptcy Court held multiple conferences to discuss Creditor's pending motion and, ultimately, denied the motion without prejudice.

During the first of those conferences, in October 2021, the attorney representing Debtor's principal indicated that the principal was considering commencing his own bankruptcy proceeding. ECF No. 12-1 at 15:14–25. He was concerned that Creditor planned to foreclose on his home to enforce the guaranty that he had given for Debtor's debts. Id. Debtor's counsel explained that Creditor had file a petition in state court "to marshal the [principal's] house and to sell it," which Creditor did not dispute. Id. at 16:1–23. Bankruptcy Judge Lord explained to Creditor that, in light of that development, Creditor would likely need to choose between settling its debt with Debtor, together with the guaranty by Debtor's principal, or incurring the expense of fighting a second bankruptcy proceeding. Id. at 19:16–20:11. Judge Lord recommended that Creditor "stop tightening the screws further and see if you can make a deal." Id. at 25:6–9.

Creditor has frequently complained, both before the Bankruptcy Court and on appeal, that Debtor has not been operating its business, which Creditor argues means that Debtor does not intend to reorganize—or, at minimum, that Debtor is likely incapable of doing so. See, e.g. , ECF No. 4 ¶ 37; ECF No. 4-1 ¶¶ 50, 58. During the several months leading up to the Bankruptcy Court's order denying Creditor's motion, Debtor's monthly operating reports filed with the Bankruptcy Court confirmed that the financial activity in Debtor's bank accounts was negligible. Bankr. ECF Nos. 67, 68, 71, 72. However, Debtor claims that it was unable to generate income during the early phase of the bankruptcy proceeding because Creditor had seized Debtor's vehicle and both taxi medallions before Debtor's bankruptcy petition had triggered the automatic stay. See ECF No. 5 ¶¶ 12, 21–22. In fact, Debtor explains that it filed the bankruptcy petition because Creditor planned to sell the vehicle and both medallions at a private auction. Id. ¶ 22. Debtor apparently did not regain possession of one of its medallions from Creditor until only a few days before Creditor filed its motion to dismiss and for relief from the automatic stay. See Bankr. ECF No. 37 ¶ 55; Bankr. ECF No. 37-2. The record further reflects that Debtor was not able to obtain a new car to start monetizing that medallion until August 2021, nearly six months after Creditor's motion had been fully briefed. ECF No. 12-1 at 23:4–22. As of October 2021, Creditor still had possession of Debtor's original car, although Creditor insisted that the car had been made "available" to Debtor. Id. at 28:19–29:7.

The Bankruptcy Court eventually decided Creditor's motion on the record during a second conference in December 2021. During that conference, Judge Lord recognized that the Debtor's most recent monthly reports demonstrated that Debtor was not actively operating its business or earning significant money. ECF No. 13 at 10:25–11:6. Debtor's counsel conceded that Debtor had earned "no income to date" but represented that Debtor had recently registered its new car and was ready to start operating. Id. at 12:5–16. Both Debtor's counsel and the personal counsel for Debtor's principal expressed their hope that Creditor would agree to a "global resolution" of Debtor's debt and the principal's guaranty, so that they could avoid a second bankruptcy proceeding filed by Debtor's principal. Id. at 12:12–13:12.

When discussing the merits of Creditor's motion, Judge Lord explained that the motion had been made before Debtor had filed its plan of reorganization and that the relatively new provisions of Subchapter V of the Bankruptcy Code gave the Bankruptcy Court greater leeway to confirm that plan without Creditor's consent. Id. at 14:3–16. She further explained that she was prepared "to go to confirmation" of Debtor's plan "on a non-consensual basis." Id. at 14:24–15:10. She therefore denied "without prejudice" Creditor's motion to dismiss Debtor's bankruptcy petition because Debtor's filing of a plan after Creditor's filing of the motion had rendered the motion "stale," and Debtor had provided assurances that it was ready to begin "operating in good faith." Id. at 17:7–12. Judge Lord likewise denied "without prejudice" Creditor's motion for relief from the automatic stay because she wanted to "see if the Debtor can confirm a plan." Id. at 17:12–14. A few days after the conference, the Bankruptcy Court issued a written order indicating that Creditor's motion was "denied without prejudice" "for the reasons stated during the December 14 Hearing." ECF No. 1-1 at 2.

Creditor has argued on appeal that the Bankruptcy Court's order is improper because it was based on the court's desire to force a settlement of the personal guaranty given by Debtor's principal—a dispute outside the scope of the bankruptcy proceeding because the principal was not a party and had not even filed his own bankruptcy petition. See, e.g. , ECF No. 4 ¶¶ 4, 13, 27–29. Judge Lord admittedly made multiple comments about settlement during the conference in which she ruled on Creditor's motion. She remarked that she was "not sure why you [i.e. , the parties]...