In re Biz as Usual, LLC

627 B.R. 122

IN RE: BIZ AS USUAL, LLC, Debtor

Bky. No. 19-16476 ELF

United States Bankruptcy Court, E.D. Pennsylvania.

Signed April 28, 2021

Lee M. Herman, Lee M. Herman, Esquire, PC, Media, PA, Michael P. Kutzer, Philadelphia, PA, for Debtor.

MEMORANDUM

ERIC L. FRANK U.S. BANKRUPTCY JUDGE

I. INTRODUCTION

In this case, Biz as Usual, LLC ("the Debtor") seeks confirmation of its Fifth Amended Plan of Reorganization ("the Plan"). The Plan has not been accepted by all impaired classes of creditors. Therefore, Debtor seeks confirmation under 11 U.S.C. § 1129(b).

Two (2) contested matters are presently before the court:

(1) the objections to confirmation filed by City of Philadelphia ("the City"), Dalin Funding, LP ("Dalin") and the Pennsylvania Department of Revenue ("the Pa. D. Rev."); and

(2) the U.S. Trustee's ("the UST") motion to dismiss the case ("the UST Motion")

The court held a hearing on both matters on February 18, 2021.

The Plan will be denied confirmation because it is not feasible as required by 11 U.S.C. § 1129(a)(11) and it is not "fair and equitable," as required by 11 U.S.C. § 1129(b)(1).

In light the Debtor's failure to achieve confirmation despite being provided many opportunities over a lengthy time period, the UST Motion will be granted and the case dismissed.

II. BACKGROUND

A.

The Debtor is a limited liability company formed by Antoine Gardiner ("Mr. Gardiner")., President and sole member (Fifth Am. Disclosure Statement at 3) (Doc. No. 157). The Debtor has been in the business of purchasing, rehabilitating, and renting real estate for fifteen (15) years. (Id. ).

Over the course of this time, the Debtor acquired nine (9) properties in Philadelphia, Pennsylvania ("the Properties")¹ from owners unable to maintain the physical structures and pay taxes and municipal obligations as they became due. The Debtor acquired the Properties subject to unpaid municipal liabilities, which necessitated entering into payment plans with the City to service the debt. These payment arrangements were not successful, which led to collection action by the City and the Debtor's chapter 11 filing. (Id. at 9).

B.

The Debtor filed the present voluntary petition for relief under chapter 11 of the Bankruptcy Code on October 15, 2019.² The petition was filed on the eve of a sheriff's sale of four (4) the Properties scheduled on October 16, 2019. Since the commencement of the case, the Debtor has been maintaining possession of the Properties and operating its business as a debtor in possession pursuant to §§ 1107 and 1108 of the Bankruptcy Code.

This has been on a troubled case as result of missed filings, missed deadlines and a failure to prosecute material claims.

On January 24, 2020, approximately three (3) months into the case, the UST filed the UST Motion based on the Debtor's failure to:

• file or obtain approval and/or confirmation of a disclosure statement or plan;

• remain current with the filing of monthly operating reports;

• remain current with its post-petition financial obligations; and

• complete Schedule G and provide notice of its bankruptcy to its tenants.

(Doc. No. 40).

The UST Motion was continued numerous times and carried for over a year (with the UST's consent) to provide the Debtor with opportunities to cure various defects in the case. (See Doc. Nos. 44, 46, 53, 55, 63, 82, 104, 113, 123, 136, 142, 149, 154, 163, 172).

The Debtor filed its first disclosure statement and plan of reorganization in May 2020 (Doc. Nos. 59 & 60) after finally filing several overdue monthly operating reports. (See Doc. Nos. 47-52). The Debtor amended the disclosure statement and plan of reorganization five (5) times. (Doc. Nos. 97, 98, 134, 144, 152, 157, 158).

Further setbacks in the case included an illness that disabled the Debtor's then-counsel for approximately a month in the spring of 2020 and the Debtor finally replacing its initial counsel with new counsel in September 2020.

Another particularly troubling aspect of the case involves the Debtor's relationship with Dalin, one (1) of its secured creditors.

On April 7, 2020, Dalin filed three (3) proofs of claim. Dalin asserted that these claims were partially secured and partially unsecured claim, acknowledging that the outstanding debt exceeded the value of the properties securing the claims. (See Claim Nos. 6, 7, 8). In the aggregate, Dalin asserted a secured claim of $805,000.00 and a general unsecured claim of approximately of $438,000.00.³

In various hearings before and after the filing of Dalin's proofs of claim, the Debtor's principal addressed the court and asserted emphatically that he possessed signed mortgage satisfactions and that Dalin's claimed secured position was invalid in its entirety. The Debtor has asserted that Dalin filed its claims in bad faith, that the claims are unenforceable and that Dalin engaged in fraud. (Doc. Nos. 60, 98, 144, 152 and 157). The Debtor previously raised similar issues in its 2015 bankruptcy case, but the court dismissed the adversary proceeding without ruling on the merits when the main bankruptcy case was dismissed. (See Adv. No. 16-094).

Despite the size of Dalin's disputed claim, its potential impact on the Debtor's reorganization prospects and the existence of a previously filed adversary complaint, it took a court ordered deadline, (See Doc. Nos. 126 and 132), before the Debtor finally pressed its challenge to Dalin's claims by filing an adversary complaint. The Complaint was filed on November 12, 2020, more than a year into this case. See Biz as Usual, LLC v. Dalin Funding LP, Adv. No. 20-268. Even then, the complaint was filed late, more than a month after the deadline set by the court. And then, surprisingly, the Debtor failed to respond to Dalin's motion to dismiss the adversary complaint, which was timely filed on December 14, 2020. (See Adv. No. 20-268, Doc. No. 10). Rather than respond to the motion to dismiss, the Debtor eventually filed an amended complaint on February 18, 2021 (the same date as the confirmation hearing).⁴

C.

Three (3) creditors, besides Dalin, filed proofs of claim in this case.⁵

The City filed three (3) proofs of claim. Claim No. 3-1, filed on February 5, 2020 is for taxes, judgments, fees and liens in the amount of $268,952.52 and breaks down as follows:

• $210,937.09 representing the secured portion of the claim;

• $1,453.13 representing a priority tax claim; and

• $56,562.30 representing the unsecured portion of the claim

The City filed two (2) other proofs of claim on February 20, 2020. Claim No. 4-1 consists of a secured claim for water/sewer usage in the amount of $42,234.71. Claim No. 5-1 consists of a secured claim for water repair in the amount of $170. Combined, the City has secured claims totaling $253,341.80, a priority claim of $1,453.00 and a general unsecured claim of $56,562.30.

Two (2) creditors account for the remaining claims in the case. The Pa. D. Rev. filed a claim in the amount of $15,181.18, of which $15,174,11 is secured (Claim No 1-1). Hard Money PA, LLC ("Hard Money") filed a (fully) secured claim in the amount of $114,978.51 (Claim No. 2-1).

D.

On December 8, 2020, the Debtor filed its Fifth Amended Disclosure Statement ("the Disclosure Statement") and Fifth Amended Plan ("the Plan"). (Doc. No. 157). The court approved the Disclosure Statement on December 14, 2020. (Doc. No. 161).

The Plan classified the above creditors' claims as follows:

Class 1. The City's Allowed Unsecured Priority Claim (Claim No. 3-1)

Class 2. The City's Secured Claim for real estate taxes, municipal judgments, and fines. (Claim No. 3-1)

Class 3. The City's Secured Claims for the Water Department (Claim Nos. 4-1 & 5-1).

Class 4. Secured Claim of the Pa. D. Rev. (Claim No. 1-1).

Class 5. Secured Claim of Hard Money (Claim No. 2-1).

Class 6. Claims of Dalin (Claim Nos. 6-1, 7-1, 8-1).

The City's claims are separated into two (2) classes and treated differently:

• Class 1, the unsecured priority claim, is treated as unimpaired, to be paid on the effective date with unspecified interest from operating income.

• Class 2, the secured taxes and Class 3, the water claims are treated as impaired, to be paid from two (2) distinct estate assets: operating income and the sale of real estate.⁶

There is no separate classification and treatment for the City's general unsecured claim of $56,562.30 .

Dalin's claims (Claim Nos. 6-1, 7-1 8-1) are classified together in Class 6, but treated as if they were otherwise disallowed. The Plan states that the Debtor owes Dalin nothing on these claims because they were filed in bad faith and are unenforceable pursuant to 11 U.S.C.§ 502(b)(1). The Plan states the Debtor's intention to file an adversary proceeding addressing all three (3) claims to enable the recovery of money by the estate. The Plan assumes the Debtor's success in the adversary proceeding and the resulting disallowance of Dalin's claims. The Plan lacks any provision for Dalin's claims if the Debtor is unsuccessful in the adversary litigation.

Also, significant is the Plan's treatment of Class 10 (equity), the Debtor's interest in the estate:

The Debtor's principal shall receive such ordinary, customary and necessary payments as he has received prior to the bankruptcy during the pendency of this case, but shall not receive any extraordinary distribution (defined as any payment not in the ordinary course of business in excess of $5,000.00) until all payments set forth in this Plan have occurred.

Three (3) creditors filed timely objections to the Plan on January 25, 2021: the City, Dalin and the Pa. D. Rev. (Doc. Nos. 166, 167, 168).

The Debtor filed its Report of Plan Voting (late) on February 4, 2021. (Doc. No. 171).⁷ All classes rejected the plan except for Class 5, which is comprised solely of Hard Money.

The February 4, 2021 confirmation hearing was continued to February 14, 2021. On February 16, 2021, in the interim between the two (2) hearing dates, the Debtor filed two (2) omnibus objections to Claim Nos. 3 and 4 of the City and to all...