Double H Transp. LLC v. Odell (In re Double H Transp. LLC)

603 F.Supp.3d 468

IN RE: DOUBLE H TRANSPORTATION LLC, Debtor,

Double H Transportation LLC, Appellant,

v.Brad W. Odell, MHC Financial Services, and Engs Commercial Finance Co., Appellees.

CAUSE NO. EP-21-CV-121-KC

United States District Court, W.D. Texas, El Paso Division.

Signed May 16, 2022

Michael R. Nevarez, The Nevarez Law Firm, PC, El Paso, TX, for Appellant.

Brad W. Odell, Mullin Hoard and Brown, Lubbock, TX, for Appellee Brad W. Odell.

James Wallace King, Offerman & King, LLP, Beaumont, TX, for Appellee MHC Financial Services.

James Wesley Brewer, Kemp Smith LLP, El Paso, TX, for Appellee Engs Commercial Finance Co.

ORDER

KATHLEEN CARDONE, UNITED STATES DISTRICT JUDGE

On this day, the Court considered Debtor-Appellant Double H Transportation LLC's appeal of the bankruptcy court's Order Denying Confirmation of First Amended Plan of Reorganization ("Order Denying Confirmation"), No. 20-31055,¹ ECF No. 122, Order Converting Case to Chapter 7 ("Order Converting Case"), No. 20-31055, ECF No. 123, and Order Dismissing Debtor's Omnibus Objection to Class 4 Claims ("Order Dismissing Objection"), No. 20-31055, ECF No. 125. See ECF No. 1. For the reasons set forth below, the bankruptcy court is AFFIRMED .

I. BACKGROUND

Debtor-Appellant Double H Transportation LLC ("Debtor") appeals the outcome of its second Chapter 11 bankruptcy proceeding. Debtor filed its first Chapter 11 case on November 4, 2019. See No. 19-31830.² The bankruptcy court dismissed this case on motion of the United States Trustee. See Order Dismissing Case, No. 19-31830, ECF No. 147.

Soon thereafter, Debtor filed the instant case under the newly-enacted Chapter 11, Subchapter V, 11 U.S.C. §§ 1181 et seq. The bankruptcy court denied confirmation of the first plan that Debtor proposed ("Original Plan") and ordered Debtor to submit an amended plan. Order Denying Conf. Plan, No. 20-31055, ECF No. 84. The court warned Debtor that, if it failed to obtain confirmation by May 14, 2021, the court would consider such failure cause to either immediately convert the case to Chapter 7 or dismiss it with prejudice. Order Denying Conf. Plan 3.

Debtor filed its First Amended Plan of Reorganization ("Amended Plan") on March 19, 2021. Am. Plan, No. 20-31055, ECF No. 97. Shortly before the confirmation hearing, Appellees MHC Financial Services ("MHC") and Engs Commercial Finance Co. ("Engs") both filed objections to the Amended Plan as unsecured creditors. No. 20-31055, ECF Nos. 110, 118, 121. MHC and Engs averred they had not received notice of the case—a fact that they found particularly concerning given that they had been properly notified of and participated in Debtor's first Chapter 11 case. Tr. Hr'g 21:25–23:2, 24:21–25:9, ECF No. 7-1.

At the confirmation hearing on May 13, 2021, the bankruptcy court heard arguments and testimony from Debtor, and arguments from MHC, Engs, and the Subchapter V Trustee. See Tr. Hr'g 4:9–5:16, 32:16–33:2. The bankruptcy court denied confirmation of the Amended Plan and converted the case to Chapter 7, then consequently dismissed Debtor's objection to Class 4 claims. Debtor now appeals all three orders, arguing that the court abused its discretion by considering the objections, denying confirmation, denying leave to modify, and converting the case to Chapter 7.

II. DISCUSSION

A. Jurisdiction and Standards of Review

This court has jurisdiction to review a bankruptcy court's final orders under 28 U.S.C. § 158(a)(1). The three orders on appeal in this case are all final orders for purposes of appellate review. See Bullard v. Blue Hills Bank , 575 U.S. 496, 502–03, 135 S.Ct. 1686, 191 L.Ed.2d 621 (2015) (finality of order denying confirmation without leave to amend); Halvajian v. Bank of N.Y. (In re Halvajian) , 216 B.R. 502, 510 (D.N.J.), aff'd , 168 F.3d 478 (3d Cir. 1998) (finality of order converting case to Chapter 7); Whitney Bank v. SCC Kyle Partners, Ltd. (In re SCC Kyle Partners, Ltd.) , 518 B.R. 393, 400 (W.D. Tex. 2014) (citing Moody v. Empire Life Ins. Co. (In re Moody) , 849 F.2d 902, 904 (5th Cir. 1988) ) (finality of order denying objection to claim).

A bankruptcy court's conclusions of law are reviewed de novo. Perry v. Dearing (In re Perry) , 345 F.3d 303, 309 (5th Cir. 2003). Its findings of fact are reviewed for clear error, meaning that its assessment of the evidence may only be set aside if the reviewing court has "the definite and firm conviction that a mistake has been committed." Id. (quoting Robertson v. Dennis (In re Dennis) , 330 F.3d 696, 701 (5th Cir. 2003) ). Its balancing of the equities is reviewed for abuse of discretion. See Browning Mfg. v. Mims (In re Coastal Plains, Inc.) , 179 F.3d 197, 204–05 (5th Cir. 1999). A court "abuses its discretion if it bases its decision on an erroneous view of the law or on a clearly erroneous assessment of the evidence." Esmark Apparel, Inc. v. James , 10 F.3d 1156, 1163 (5th Cir. 1994). The reviewing court may affirm on any grounds supported by the record. Plunk v. Yaquinto (In re Plunk) , 481 F.3d 302, 305 (5th Cir. 2007).

B. The Bankruptcy Court Properly Denied Confirmation of the Amended Plan

Debtor argues that it was error for the bankruptcy court to deny confirmation of the Amended Plan for two reasons. First, it argues that the court was required to confirm the plan because no objections were properly submitted. Opening Br. 14–20, ECF No. 11. Second, it argues that, even if it was proper for the judge to consider MHC and Engs's objections, the court should have approved the Amended Plan over those objections because the plan complied with the relevant provisions of the Bankruptcy Code. Opening Br. 21–22. Appellees argue that the objections were properly considered, and even if they should have been excluded, the court correctly denied confirmation under its independent duty to determine if the Amended Plan complied with the Bankruptcy Code. Resp. Br. 9–10, ECF No. 13 (citing United Student Aid Funds, Inc. v. Espinosa , 559 U.S. 260, 277, 130 S.Ct. 1367, 176 L.Ed.2d 158 (2010) ).

Debtor's Amended Plan was filed under Chapter 11, Subchapter V, and is therefore subject to the requirements of that subchapter. See In re Sullivan , 626 B.R. 326, 330 (Bankr. D. Colo. 2021). Additionally, the statutory sections that apply to standard Chapter 11 bankruptcies apply to Subchapter V unless otherwise specified. See 11 U.S.C. § 1181 (enumerating the provisions of Chapter 11 that do not apply to Subchapter V); In re Moore Props. of Person Cnty., LLC , No. 20-80081, 2020 WL 995544, at *4 (Bankr. M.D.N.C. Feb. 28, 2020) (indicating that a standard Chapter 11 provision "applies unaltered" to Subchapter V unless the subchapter provides for an exception).

1. The bankruptcy court did not abuse its discretion in denying the Amended Plan on the grounds that it was not fair and equitable

The bankruptcy court denied confirmation for "multiple independent reasons." Order Denying Mot. Stay ("Order Denying Stay") 7, No. 20-31055, ECF No. 137.³ First among these was that the court concluded the Amended Plan could neither be confirmed as consensual under 11 U.S.C. § 1191(a), nor as "fair and equitable" under § 1191(b). Tr. Hr'g 59:2–61:10; Order Denying Stay 7. Debtor argues that this decision constituted an abuse of discretion. Opening Br. 14–22.

a. The bankruptcy court could not approve the Amended Plan under § 1191(a)

Subchapter V confirmation is governed by 11 U.S.C. § 1191.

In re Pearl Res. LLC , 622 B.R. 236, 251 (Bankr. S.D. Tex. 2020). Section 1191(a) states that a bankruptcy court shall approve a plan that complies with all the requirements of § 1129(a)—the section that governs standard Chapter 11 confirmation—other than the requirements set forth in paragraph (15). 11 U.S.C. § 1191(a). One of the requirements in § 1129(a) is that each impaired class has accepted the plan. Id. § 1129(a)(8). "A class is impaired if there is any alteration of a creditor's rights, no matter how minor." In re Sentinel Mgmt. Grp. , 398 B.R. 281, 317 (Bankr. N.D. Ill. 2008) (quoting In re Woodbrook Assocs. , 19 F.3d 312, 321 n.10 (7th Cir. 1994) ). Under § 1126(g), "a class is deemed not to have accepted a plan if such plan provides that the claims or interests of such class do not entitle the holders of such claims or interests to receive or retain any property under the plan on account of such claims or interests"—even if no objections are filed. 11 U.S.C. § 1126(g) ; In re SunEdison, Inc. , 575 B.R. 220, 226 (Bankr. S.D.N.Y. 2017). Section 1126(g) applies to the confirmation of a Subchapter V reorganization, since § 1126(g) is not listed among the sections of Chapter 11 that do not apply to Subchapter V. See 11 U.S.C. § 1181 ; Pearl Res. , 622 B.R. at 251 & n.72 (Bankr. S.D. Tex. 2020) (citing § 1181 for the proposition that a provision of Chapter 11 that is not listed in that section "remains applicable" to Subchapter V); In re Robinson , 628 B.R. 168, 174 n.31 (Bankr. D. Kan. 2021) (same).

Debtor argues at length that the bankruptcy court was required to approve the Amended Plan because, for various reasons, MHC and Engs did not properly file their objections. See Opening Br. 15–20. It reasons that, since no properly filed ballots rejected the Amended Plan, "the Plan should have been approved." Opening Br. 16. This argument is irrelevant. The Amended Plan proposed paying the unsecured creditors nothing, see Tr. Hr'g 9:1–10:6, thereby impairing those creditors’ rights.⁴ As the bankruptcy court observed, this means that those classes rejected the Amended Plan "by operation of the law" under § 1126(g), and so it could not confirm the plan under § 1191(a). Tr. Hr'g 59:4–6; see also Order Denying Stay 7.

b. The bankruptcy court's finding that the Amended Plan was not fair and equitable under § 1191(b) was not clearly erroneous

Debtor next argues that, even if MHC and Engs's objections were properly before the bankruptcy court, the court was required to confirm the Amended Plan because it complied with § 1191(b),...