In re Clinton Nurseries, Inc.

IN RE: CLINTON NURSERIES, INC.; CLINTON NURSERIES OF MARYLAND, INC.; CLINTON NURSERIES OF FLORIDA, INC.; and TRIEM LLC, DEBTORS.

CASE No. 17-31897 (JJT)

CASE No. 17-31898 (JJT)

CASE No. 17-31899 (JJT)

CASE No. 17-31900 (JJT)

Jointly Administered under Case No. 17-31897 (JJT)

UNITED STATES BANKRUPTCY COURT DISTRICT OF CONNECTICUT HARTFORD DIVISION

Filed: March 6, 2020

March 4, 2020

CHAPTER 11

RE: ECF Nos. 1148, 1166

AMENDED MEMORANDUM OF DECISION¹ ON THE REORGANIZED DEBTORS' MOTION FOR ENTRY OF FINAL DECREE AND ORDER CLOSING THE CHAPTER 11 CASES

I. INTRODUCTION

Before the Court is the Motion for Entry of Final Decree and Order Closing the Chapter 11 Cases (the "Motion", ECF No. 1148) of the related Reorganized Debtors, Clinton Nurseries, Inc.; Clinton Nurseries of Maryland, Inc.; Clinton Nurseries of Florida, Inc.; and Triem LLC (collectively, the "Reorganized Debtors"). Therein, pursuant to 11 U.S.C. § 350 and Federal Rule of Bankruptcy Procedure 3022, the Reorganized Debtors proffered that the Plan has been substantially consummated and that any "required distributions have been made in accordance with the Plan and all documents and agreements necessary to implement the Plan were [duly] executed in accordance with the terms thereof" and, therefore, entry of a final decree is appropriate. Motion for Entry of Final Decree, p. 5. Critically, the Reorganized Debtors also assert that, as of "the Effective Date[,] the bankruptcy estates in these cases have no property [to administer] and the Reorganized Debtors have no duties to perform with respect to the bankruptcy estates . . . [a]ll deposits required by the Plan have been made . . . [and] [a]ny property proposed to be transferred pursuant to the Plan has been transferred." Id., p. 10.

In response, the United State Trustee (the "UST") objects to the entry of a final decree closing the Debtors' Chapter 11 cases because they are not "fully" administered "as evidenced by the unresolved Quarterly UST Fee Appeal and the 29 Active Adversary Proceedings that are currently being prosecuted" by the CN Trust before this Court. United States Trustee's Objection to the Debtor's Application for Entry of a Final Degree Closing the Chapter 11 Cases (the "Objection"), p. 4, ECF No. 1166.

II. BACKGROUND

After a hearing on January 3, 2020 (the "Confirmation Hearing", ECF No. 1182), this Court confirmed the Reorganized Debtors' Second Amended Chapter 11 Plan (the "Plan", ECF No. 1194) on January 9, 2020. During the Confirmation Hearing, the Court heard lengthy argument as to the contemplated post-confirmation status of numerous pending adversary proceedings and the Debtors' pending appeal regarding the constitutionality of Quarterly UST Fees. In tandem with the Order confirming the Plan, the Court issued a second, supplemental Order (the "Supplemental Order", ECF No. 1095) wherein it approved the creation of a special litigation trust (the "CN Trust") as outlined by the Plan. The CN Trust, which would assume and pursue all outstanding adversary proceedings previously held by the Debtors' estates,² was critical to the recoveries and Plan acceptance by unsecured creditors. Through an initial disbursement and subsequent annual funding by the Reorganized Debtors, that would be supplemented by any recoveries achieved in these adversary proceedings, the unsecured creditors will achieve a modest dividend from the Plan. Under the Plan, the CN Trust is the transferee of all rights, title and interest as to all avoidance actions and would, thereafter, be responsible for any claim objections and/or payments of dividends to unsecured creditors under the Plan, thus, distancing the Reorganized Debtors and the Debtors' estates from any further administrative obligations thereunder.

In addition to matters relating to confirmation, the Court also heard argument on the Debtors' Motion for Stay Pending Appeal (see Adv. Pro. No. 19-03014, ECF No. 14, "Motion for Stay"), which addressed whether the Reorganized Debtors' would be required to pay the increased Quarterly UST Fees³ during the pendency of the appeal as well as the material adverse impact such an obligation (estimated at $300,000 annually) would have on the Plan should the case not be timely closed. On January 9, 2020, this Court issued its Ruling on the Reorganized Debtors' Motion for Stay, whereby it granted the motion for the lesser period of 18 months (subject to extension) or the issuance of a dispositive decision from the Second Circuit Court of Appeals,⁴ and required that the Reorganized Debtors escrow the disputed fees by the effective date of their Chapter 11 Plan (id., ECF 28). That escrow agreement was promptly approved by this Court, established by the Debtors and funded as directed by the Court.

On January 24, 2020, in the absence of an appeal, or the filing of any stay or motion relating to the Court's Confirmation Order, the Debtors' filed a Notice of Effective Date of Debtors' Plan (ECF 1126). On February 10, 2020, the Reorganized Debtors filed the subject Motion requesting that their cases be closed so that further Quarterly UST Fees might be avoided and Plan feasibility would not be imperiled as heralded by the Debtors' during their Confirmation Hearing. After a hearing on the Motion on February 27, 2020, wherein the parties presented extensive argument on the matter, the Court took the matter under advisement. For the reasons discussed herein, the Reorganized Debtors' Motion for Entry of Final Decree is hereby GRANTED.

III. JURISDICTION

The Court has jurisdiction over this matter pursuant to 28 U.S.C. § 1334(b) and derives its authority to hear and determine this matter on reference from the District Court pursuant to 28 U.S.C. §§ 157(a) and (b)(1). This is a core proceeding under 28 U.S.C. § 157(b)(2)(A). Venue is proper in this District pursuant to 28 U.S.C. §§ 1408 and 1409.

IV. DISCUSSION

The issue before the Court is whether the Reorganized Debtors' Chapter 11 estates are fully administered pursuant to 11 U.S.C. § 350 and Fed. R. Bankr. P. 3022, despite the existence of the referenced pending adversary proceedings and a pending appeal.

Section 350 provides that, "(a) After an estate is fully administered and the court has discharged the trustee, the court shall close the case. (b) A case may be reopened in the court in which such case was closed to administer assets, to accord relief to the debtor, or for other cause." Federal Rule of Bankruptcy Procedure 3022, which gives effect to § 350, provides that, "[a]fter an estate is fully administered in a chapter 11 reorganization case, the court, on its own motion or on motion of a party in interest, shall enter a final decree closing the case."

While "fully administered" is not defined in the Code or by the Federal Rules of Bankruptcy Procedure, the 1991 Advisory Committee Note accompanying Rule 3022 provides the following guidance:

Entry of a final decree closing a chapter 11 case should not be delayed solely because the payments required by the plan have not been completed. Factors that the court should consider in determining whether the estate has been fully administered include (1) whether the order confirming the plan has become final, (2) whether deposits required by the plan have been distributed, (3) whether the property proposed by the plan to be transferred has been transferred, (4) whether the debtor or successor of the debtor under the plan has assumed the business or the management of the property dealt with by the plan, (5) whether payments under the plan have commenced, and (6) whether all motions, contested matters, and adversary proceedings have been finally resolved.

The court should not keep the case open only because of the possibility that the court's jurisdiction may be invoked in the future. A final decree closing the case after the estate is fully administered does not deprive the court of jurisdiction to enforce or interpret its own orders and does not prevent the court from reopening the case for cause pursuant to § 350(b) of the Code. . . .

Fed. R. Bankr. P. 3022 Advisory Committee Notes.

"Bankruptcy Rule 3022 is intended to allow bankruptcy courts flexibility in determining whether an estate is fully administered." In re Federated Dep't Stores, Inc., 43 Fed. Appx. 820, 822 (6th Cir. 2002) (internal citation omitted). Moreover, "[t]his statutory framework illustrates that determining when a case is 'fully administered' is a decision for the bankruptcy court based on consideration of numerous case-specific, procedural, and practical factors. The bankruptcy court is uniquely positioned to make this determination given that it will have overseen the particular debtor's case from the beginning and will have first hand knowledge of what matters have been, or need to be, completed before closure of the case. Further, the bankruptcy court will be very familiar with the debtor's confirmed plan of reorganization, the requirements for consummation of that plan, as well as the status of any pending motions, contested matters, and adversary proceedings." In re Union Home & Indus., Inc., 375 B.R. 912, 917 (B.A.P. 10th Cir. 2007). Critically, "not all the factors set forth in the Advisory Committee Note need to be present to establish that a case is fully administered for final decree purposes." In re Federated Dep't Stores, Inc., supra, 43 Fed. Appx. 822; see also In re MBF Inspection Services, Inc., 609 B.R. 889, 895 (Bankr. D.N.M. 2019) ("[a] bankruptcy court may try adversary proceedings after entry of a final decree"), In re Valence Tech., Inc., 2014 Bankr. LEXIS 4429, *8 ("[t]he existence of a pending matter, however, does not preclude closing a case"),⁵ In re Provident Fin., Inc., 2010 Bankr. LEXIS 5047, *27 (because pending appeal didn't implicate the administration of the debtor's estate, closing debtor's case was proper), In re McClelland, 377 B.R. 446, 453 (Bankr. S.D.N.Y. 2007), aff'd, 460 B.R. 397 (Bankr. S.D.N.Y. 2011) ("[i]f the estate is otherwise...