In re Good

428 B.R. 235

In re Kenneth Marston GOOD, KG Legacy Ozarks, LLC, Legacy Capital Investments, LLC, KG Legacy Premier, LLC, LMI LBL, LLC, LMI 1 New, LP, KG Legacy Josey, LLC, LMI 1 New Parkway, L.P., Debtors.

No. 08-40955.

United States Bankruptcy Court,

E.D. Texas,

Sherman Division.

March 30, 2010.

Frank J. Wright, Wright Ginsberg Brusilow P.C., Paul B. Geilich, Dallas, TX, for Debtors.

MEMORANDUM OPINION AND ORDER

BRENDA T. RHOADES, Bankruptcy Judge.

This matter is before the Court on the objection of Legacy Capital Investments, LLC ("LCI") to the secured claim of RMR Investments, Inc. ("RMR"). Prior to the hearing on the objection, which was continued by agreement of the parties, RMR filed a motion for summary judgment. See Fed. R. Bankr.P. 7056 and 9014. In its motion, RMR argues that LCI is barred from objecting to its claim on the basis that it is undersecured. The Court heard the motion on January 15, 2010. This Memorandum Opinion constitutes the Court's findings of fact and conclusions of law. See Fed. R. Bankr.P. 7052 and 9014.

I. JURISDICTION

This Court has jurisdiction to consider this matter pursuant to 28 U.S.C. §§ 157(a) and 1334(b). The Court may enter a final order in this contested matter since it constitutes a core proceeding as contemplated by 28 U.S.C. § 157(b)(2)(A), (B), and (O).

II. SUMMARY JUDGMENT STANDARD

Motions for summary judgment are authorized by Rule 56 of the Federal Rules of Civil Procedure (the "Federal Rules"), as adopted and applied to this matter by Rules 7056 and 9014 of the Federal Rules of Bankruptcy Procedure (the "Bankruptcy Rules"). The entry of a summary judgment is appropriate "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986) (quoting Fed.R.Civ.P. 56(c)). If a summary judgment motion is properly supported, a party opposing the motion may not merely rest upon the contents of its pleadings, but must demonstrate the existence of specific facts constituting a genuine issue of material fact for which a trial is necessary.Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248-49, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986) (citing Fed.R.Civ.P. 56(e)).

In this case, the parties have essentially stipulated that there is no factual dispute in need of resolution and have presented opposing arguments based upon the application of appropriate law. For cases in which the unresolved issues are primarily legal rather than factual, summary judgment is particularly appropriate. See, e.g., Mansker v. TMG Life Ins. Co., 54 F.3d 1322, 1326 (8th Cir.1995); Thompson Everett, Inc. v. National Cable Advertising, L.P., 57 F.3d 1317, 1323 (4th Cir.1995). RMR's motion, LCI's response, and the record of this case contain the following body of uncontested facts.

III. RELEVANT BACKGROUND

The above-styled debtors each filed separate petitions for relief under Chapter 11 of the Code. The Court has jointly administered their cases. There is no dispute that RMR has a claim against LCI secured by approximately 86 acres of real estate located in Flower Mound, Texas, as well as the mineral interests underlying the real estate. RMR also has an unsecured claim against Kenneth Good based on his guaranty of LCI's obligations.

RMR's claim against LCI arises from a promissory note in the principle amount of $7,860,000, which matured by its terms on June 27, 2008. LCI was in default of its obligations to RMR when it filed for bankruptcy protection, and LCI filed its petition only a few weeks prior to the maturity date (on June 3, 2008) of the note. In its bankruptcy schedules, which LCI submitted to this Court under penalty of perjury, LCI listed RMR's claim in the amount of $7,931,386.48 as a non-contingent, liquidated, and undisputed claim. See Fed. R. Bankr.P. 1008 (requiring all schedules to be verified as provided in 28 U.S.C. § 1746). Mr. Good listed RMR's claim for $7,760,000 in his bankruptcy schedules, designating the claim as a contingent guaranty claim.

A. The Confirmation Battle

The debtors filed their original, joint plan of reorganization on August 25, 2008. In their original plan, the debtors proposed to fund the plan by developing and selling the mineral interests underlying the 86 acres in Flower Mound. Although the bankruptcy schedules filed by LCI indicated that it was a solvent entity ( i.e., its listed assets exceeded its liabilities), LCI proposed to repay only the principle amount of RMR's claim at less than its contractual rate of interest. The joint plan also provided that Mr. Good would retain his equity interests in the reorganized debtors.

RMR asserted numerous, substantive objections to the joint plan of reorganization. RMR also filed a motion to convert LCI's case to Chapter 7 on October 17, 2008, arguing that LCI had inflated the value of its assets and that its assets, in fact, were declining in value. In addition, RMR filed a motion seeking relief from the automatic stay for "cause" on October 24, 2008. ¹

LCI opposed RMR's motion to convert as well as its motion for relief from the automatic stay. LCI argued in its opposition to the motion for relief from the stay that "cause" did not exist, because RMR's own appraisal showed that the value of RMR's collateral was $11,500,000. Thus, LCI argued that RMR was adequately protected by a large "equity cushion" in itscollateral. The Court scheduled RMR's motions to be heard on December 16, 2008.

The debtors amended their reorganization plan several times in response to the objections of RMR and other creditors. RMR voted its secured claim against LCI's plan and its unsecured guaranty claim against Mr. Good's plan. On December 9, 2008, the Court considered confirmation of the debtors' proposed plan, as amended. RMR appeared and opposed confirmation. The parties presented arguments and evidence, and, at the conclusion of the hearing, the Court announced that she would rule on the record on January 27, 2009.

However, on December 17, 2008, the debtors filed a fourth amendment to their plan of reorganization. The amendment related to the treatment of what it described as RMR's "allowed secured claim." In particular, the fourth and final amendment to the plan removed the provisions for developing the mineral interests in which RMR had a secured interest. The amendment, instead, provided that LCI would retain RMR's collateral and that RMR would release its secured interest in portions of the 86 acres for certain prices as buyers were found, but in no event would RMR's remaining collateral be worth less than 110% of RMR's remaining secured claim. The amendment further provided that RMR would retain its right to credit bid in accordance with § 363(k) of the Code. LCI thereby sought to provide RMR with the "indubitable equivalent," see 11 U.S.C. § 1129(b)(2)(A)(iii), of its secured claim.

RMR objected to LCI's latest amendment of its plan, which the Court scheduled for a continued confirmation hearing for January 27, 2009. At the continued hearing, LCI again took the position that RMR was oversecured. LCI argued that its plan was feasible based on, among other things, valuations of the mineral interests underlying the 86 acres in Flower Mound. Although LCI and the other debtors claimed that their assets exceeded their liabilities, they did not propose to pay interest on general unsecured claims as required by §§ 726(a)(5) and 1129(a)(7) of the Code. At the conclusion of the hearing, the Court announced that she would confirm the proposed plan provided that the debtors modified their joint plan to provide for the payment of interest to unsecured creditors following the effective date of the plan.

On February 19, 2009, the Court entered a written order confirming the debtors' joint plan. RMR timely filed a motion for reconsideration, arguing that it should have received its contractual rate of interest as an oversecured creditor. The Court entered a Memorandum Opinion and Order on April 13, 2009, granting RMR's motion and vacating the confirmation order as it related to LCI's treatment of RMR. In light of the Court's ruling, RMR withdrew its still-pending motion for relief from the stay.

The parties subsequently sought reconsideration or clarification of the Court's April 13th Order. The Court heard these and other motions on May 20, 2009, and issued a Memorandum Opinion and Order on May 21, 2009. As the Court explained in its May 21st Memorandum Opinion, the evidence and arguments presented at the hearing reflected that conditions had worsened for the debtors since the confirmation hearing. The debtors had released most of the real estate listed in their joint plan in response to motions for relief from the automatic stay filed by their creditors. With respect to the remaining secured creditors, including RMR, the debtors took the position that they were not required to make any of the payments described in the confirmed plan, because the "confirmationorder" ² was not yet a "final order," ³ and the "effective date" ⁴ had not yet occurred. In light of the debtors' interpretation of the effective date of the plan, the Court sua sponte raised the issue of whether it had erred in determining the plan was feasible. The Court scheduled a hearing for May 29, 2009, to reconsider the issue of feasibility.

At the hearing on May 29, 2009, the parties announced that they had reached an agreement. The debtors represented to the Court that they would treat the order confirming the plan as having become final on May 21, 2009, and that they would file a notice setting an effective date of the plan to occur no later than June 20, 2009. The parties also announced that LCI had agreed to amend its plan to provide that RMR would receive the contract rate of interest; LCI, however, announced that...