In re M.A.R. Designs & Constr., Inc.

653 B.R. 843

IN RE: M.A.R. DESIGNS & CONSTRUCTION, INC., Debtor.

CASE NO: 23-70001

United States Bankruptcy Court, S.D. Texas, McAllen Division

Signed September 22, 2023

Andrew Jimenez, DOJ-Ust, Houston, TX, Aubrey L. Thomas, Office of the US Trustee, San Antonio, TX, for U.S. Trustee.

Iain L. Kennedy, Nathan Sommers et al, Houston, TX, Brendon D. Singh, Tran Singh, LLP, Houston, TX, for Trustee.

Antonio Martinez, Jr., Attorney at Law, McAllen, TX, Gregorio Trevino, Law Office of Gregorio Trevino, Pharr, TX, for Debtor.

MEMORANDUM OPINION

Eduardo V. Rodriguez, Chief United States Bankruptcy Judge

In this subchapter V proceeding, M.A.R. Designs & Construction, Inc. proposed a liquidating plan in which the Debtor would remove itself as debtor in possession under 11 U.S.C. § 1185 and appoint the subchapter V trustee to act simultaneously as the disbursing agent under 11 U.S.C. § 1191(b) and liquidating trustee under the plan. In response, Sierra Title of Hidalgo County, Inc., Comack Investments, LLC, Copesa LLC, Carolos Lozano Gonzalez, Adrian Gonzalez, Kelvin Construction LLC, and the United States Trustee have all filed objections to confirmation. Additionally, the United States Trustee has filed a motion to convert the case to Chapter 7 and Comack Investments, LLC has filed its own expedited motion to convert to Chapter 7 or in the alternative, dismissal with prejudice. On June 15, 2023, the Court conducted an initial hearing. On July 31, 2023, and on August 3, 2023, the Court held a final hearing on confirmation and the motions to convert or dismiss. For the reasons stated herein, this Court (1) grants the "Motion of the United States Trustee to Convert Case"; (2) grants "Comack Investments, LLC's Expedited Motion To Dismiss With Prejudice Or Convert"; (3) denies confirmation of Debtor's plan as moot and overrules all objections to Debtor's plan as moot.

I. BACKGROUND

1. On January 1, 2023, (the "Petition Date") M.A.R. Designs & Construction, Inc. ("Debtor") filed for bankruptcy protection under Title 11 of the Bankruptcy Code¹ initiating the bankruptcy case ("Bankruptcy case"). The Debtor's president and sole shareholder is Mario Rodriguez ("Mr. Rodriguez").²

2. On January 25, 2023, the Debtor filed an Amended Voluntary Petition to elect to proceed under Subchapter V of Chapter 11.³

3. On January 31, 2023, Brendon Singh was appointed as the Subchapter V Trustee⁴ ("Subchapter V Trustee").

4. On February 9, 2023, the Court held its initial status conference and entered an Order instructing Debtor to, among other things, "provide proof of insurance of all assets to the UST listing the UST as a party of notice," and to file its plan no later than April 3, 2023.⁵

5. On April 3, 2023, Debtor timely filed its plan of reorganization⁶ ("Plan").

6. On April 17, 18, and 21, 2023, 5 objections ("Objections") were filed by Alejandro Moreno, Sierra Title of Hidalgo County, Inc. ("Sierra Title"), Nicolas Gomez, Daniel Cuevas, and Maria Cuevas,⁷ in opposition to the Plan.

7. On April 24, 2023, Debtor modified its Plan⁸ ("First Amended Plan") to address some of the Objections.

8. On April 25, 2023, additional objections were filed by Comack Investments, LP, and Title Resources Guaranty Company ("Objections to the First Amended Plan"), in opposition to the First Amended Plan.⁹

9. On April 30, 2023, Debtor filed its Second Amended Plan, ("Second Amended Plan")¹⁰ to address some the Objections to the First Amended Plan.

10. On May 1, 2023, additional objections were filed by Comack Investments, LP, and the United States Trustee ("Objections to the Second Amended Plan"), in opposition to the Second Amended Plan.¹¹

11. On May 8, 2023, Comack Investments, LLC ("Comack") filed a secured proof of claim in the amount of $360,689.34¹² ("Comack POC").

12. On May 19, 2023, Debtor filed its Third Amended Plan¹³ ("Third Amended Plan"), to address some of the Objections to the Second Amended Plan.

13. On June 7, and 8, 2023, John King, Sierra Title, Maria Cuevas, Daniel Cuevas, and Nicolas Gomez, filed objections in opposition to the Third Amended Plan¹⁴ ("Objections to the Third Amended Plan")

14. On June 9, 2023, the United States Trustee ("UST") filed its "Objection Of The United States Trustee ("UST") To Debtor's Amended Plan Of Reorganization Dated May 19, 2023"¹⁵ ("UST's Objection").

15. On June 12, 2023, Debtor filed its Fourth Amended Plan¹⁶ ("Fourth Amended Plan").

16. On June 15, 2023, UST filed its "Motion to Convert Case from Chapter 11 to Chapter 7"¹⁷ ("UST Motion to Convert").

17. On June 15, 2023, the Court held an initial hearing on the Fourth Amended Plan¹⁸

18. On June 29, 2023, Debtor filed its Fifth Amended Plan¹⁹ ("Fifth Amended Plan"). The Fifth Amended Plan proposes: (1) removing the debtor-in-possession, (2) liquidating the estate with use of a liquidating trust, (3) the Subchapter V Trustee serving as both the Subchapter V trustee and the liquidating trustee, (4) and lists Chapter 5 causes of action for the trustee to pursue against Mayberry Crossing LLC, Mario Rodriguez, Brenda Gonzales, and Toldos, LLC²⁰ ("Causes of Action").

19. On July 10, 2023, Sierra Title filed its "Sierra Title Of Hidalgo County, Inc. and John King, Trustee's Objection To Confirmation Of Third Amended Chapter 11 Plan (Relates To ECF #300)"²¹ ("Sierra Title Plan Objection").

20. On July 13, 2023, Comack filed its "Comack Investments, LLC's Expedited Motion To Dismiss With Prejudice Or Convert" ("Comack's Motion to Convert or Dismiss").²²

21. On July 17, 2023, Comack filed its "Comack Investments, LLC's Objection To Confirmation Of Third Amended Chapter 11 Plan [Doc #300]" ("Comack's Objection").²³

22. On July 20, 2023, Copesa LLC, Carolos Lozano Gonzalez, Adrian Gonzalez, and Kelvin Construction LLC filed objections to the Fifth Amended Plan²⁴ ("Objections to the Fifth Amended Plan").

23. On July 20, 2023, the UST filed its "Supplemental Objection Of The United States Trustee To Debtor's Amended Plan Of Liquidation Dated June 29, 2023".²⁵ ("UST Supplemental Objection").

24. On July 26, 2023, Debtor filed its "Response to UST's Motion to Convert Case."²⁶

25. On July 27, 2023, Debtor filed its "Response to Comack Investments, LLC's Expedited Motion to Dismiss With Prejudice Or Convert."²⁷

26. On July 31, 2023, and August 3, 2023, the Court held a hearing on the Fifth Amended Plan,²⁸ (collectively, "Hearing") now issues its instant Memorandum Opinion.

II. JURISDICTION, VENUE, AND CONSTITUTIONAL AUTHORITY

This Court holds jurisdiction pursuant to 28 U.S.C. § 1334, which provides "the district courts shall have original and exclusive jurisdiction of all cases under title 11," and exercises its jurisdiction in accordance with Southern District of Texas General Order 2012-6.²⁹ Section 157 allows a district court to "refer" all bankruptcy and related cases to the bankruptcy court, wherein the latter court will appropriately preside over the matter.³⁰ This court determines that pursuant to 28 U.S.C. § 157(b)(2)(A), (L) and (O) this proceeding contains core matters, as it primarily involves proceedings concerning confirmation of a plan and administration of this estate.³¹ This proceeding is also core under the general "catch-all" language because confirmation of a Chapter 11 plan and a motion to convert or dismiss are proceedings that can only arise in the context of a bankruptcy case.³²

This Court may only hear a case in which venue is proper.³³ 28 U.S.C. § 1408 provides that "a case under title 11 may be commenced in the district court for the district— in which the domicile, residence, [or] principal place of business . . . have been located for one hundred and eighty days immediately preceding such commencement." Debtor's principal place of business was in McAllen, Texas 180 days immediately preceding the Petition Date, and therefore, venue of this proceeding is proper.³⁴

This Court must evaluate whether it has constitutional authority to enter a final order in this case. While bankruptcy judges can issue final orders and judgments for core proceedings, absent consent, they can only issue reports and recommendations on non-core matters.³⁵ Here, the confirmation of a plan and conversion of a bankruptcy case are core proceedings pursuant to 28 U.S.C. § 157(b)(2)(A), (L) and (O). Accordingly, this Court concludes that the narrow limitation imposed by Stern does not prohibit this Court from entering a final order here.³⁶ Alternatively, this Court has constitutional authority to enter a final order because all parties in interest have consented, impliedly if not explicitly, to adjudication of this dispute by this Court.³⁷ None of these parties has ever objected to this Court's constitutional authority to enter a final order or judgment. These circumstances unquestionably constitute implied consent. Thus, this Court wields the constitutional authority to enter a final order here.³⁸

III. ANALYSIS

Pending before the Court are three matters: (B) UST's Motion to Convert, (C) Comack's Motion to Dismiss or Convert, (D) confirmation of Debtor's Fifth Amended Plan and Objections filed in Opposition to Debtor's Fifth Amended Plan. The Court will consider each in turn.

A. Standard to Convert or Dismiss Under 11 U.S.C. § 1112(b)

Section 1112(b)(1) states that the court shall dismiss or convert a chapter 11 case for cause, whichever is in the best interest of creditors and the estate, unless the court determines that the appointment of a trustee or an examiner under § 1104 is in the best interests of the estate.³⁹ Because § 1104 does not apply in a subchapter V case,⁴⁰ this Court has no power to appoint a chapter 11 trustee or an examiner in this case. Therefore, this Court is restricted to converting or dismissing this case under § 1112(b).

The Code defines "cause" for purposes of § 1112(b) with a non-exhaustive enumerated list including, in pertinent part: (A) substantial or continuing loss to or diminution of the estate and the absence of a reasonable likelihood of rehabilitation; (B) gross...