IN RE NESV ICE, LLC

661 B.R. 427

IN RE: NESV ICE, LLC, et al.,¹ Debtors.

Case No. 21-11226-CJP. Jointly Administered

United States Bankruptcy Court, D. Massachusetts

Signed April 15, 2024

Joseph M. Downes, III, William S. McMahon, Downes McMahon LLP, Boston, MA, for Debtors.

Heather Spraguem, US Dept. of Justice, Boston, MA, for Assistant U.S. Trustee.

MEMORANDUM OF DECISION ON CONTESTED CONFIRMATION OF MODIFIED SECOND AMENDED JOINT PLAN OF REORGANIZATION

Christopher J. Panos, United States Bankruptcy Judge.

NESV Ice, LLC ("Ice"), NESV Swim, LLC ("Swim"), NESV Tennis, LLC ("Tennis"), NESV Land East, LLC ("Land East"), NESV Field, LLC ("Field"), NESV Hotel, LLC ("Hotel"), and NESV Land, LLC ("Land," collectively with Swim, Tennis, Land East, Field, and Hotel, the "Land Debtors," and the Land Debtors together with Ice, the "Debtors"), Ashcroft Sullivan Sports Village Lender, LLC ("Ashcroft") and Shubh Patel, LLC ("SP" and, collectively with the Debtors and Ashcroft, the "Plan Proponents") seek confirmation of the Modified Second Amended Joint Plan of Reorganization of NESV Ice, LLC, NESV Swim, LLC, NESV Tennis, LLC, NESV Land East, LLC, NESV Field, LLC, NESV Hotel, LLC, NESV Land, LLC, Ashcroft Sullivan Sports Village Lender, LLC, and Shubh Patel, LLC (the "Plan") [Dkt. No. 770].² SHS ACK, LLC ("SHS") and Construction Source Management, LLC ("CSM") object to confirmation of the Plan (collectively, with prior pleadings referenced therein, the "Objections"). Confirmation of the Plan has been bifurcated into two phases. Because consideration of confirmation required estimation of certain claims and determination of preliminary issues, I conducted Phase I of the confirmation hearing at which eight witnesses testified and forty documents were admitted into evidence. Subsequently, I issued an Order Regarding Estimation of Claims, Valuation, and Tentative Rulings on Certain Objections to Confirmation, as amended [Dkt. No. 677], In re NESV Ice, LLC, No. 21-11226-CJP, 2023 WL 2278603, at *1 (Bankr. D. Mass. Feb. 28, 2023) ("Phase I Order"). After an eight-day Phase II evidentiary hearing at which fourteen witnesses testified and 240 documents were admitted into evidence,³ the parties filed post-trial briefs, replies, and proposed findings of fact and rulings of law.⁴ The docket reflects numerous additional briefs, oppositions, replies, affidavits, statements of expert witnesses, and other documents filed on various dates in connection with both phases of confirmation that were considered in entering these findings and rulings regarding the confirmation of the Plan.

The Plan Proponents must prove by a preponderance of the evidence that the Plan satisfies each requirement of § 1129(a).⁵ See, e.g., In re Mullins, 633 B.R. 1, 3 (Bankr. D. Mass. 2021); 7 Collier on Bankruptcy ("Collier") ¶ 1129.02 (Alan N. Resnick & Henry J. Sommer eds., 16th ed. rev.). The Court has an independent obligation to ensure that the plan satisfies the § 1129 requirements. See, e.g., In re Mullins, 633 B.R. at 3; In re Charles St. African Methodist Episcopal Church of Bos., 578 B.R. 56, 94-95 (Bankr. D. Mass. 2017).

Based on the evidentiary record at trial and the entire record in this case, I will overrule the Objections to confirmation and enter an order confirming the Plan provided that the Plan Proponents modify the Plan as described in this memorandum. I find that each of the requirements of § 1129 will have been met by a preponderance of the evidence if the Plan is modified. Some of the confirmation requirements were not contested or evidence proffered in support of those requirements was not rebutted. I will address below the requirements of § 1129 that were the subject of the Objections filed by SHS and CSM. In my findings of fact and rulings of law that follow,⁶ I have adopted portions of proposed findings, rulings, and legal argument submitted by the parties.

As will be discussed in detail below, I have determined that: Ashcroft is not an insider and may vote to accept the Plan, notwithstanding an existing subordination agreement; acceptance by one impaired class under this joint Plan satisfies § 1129(a)(10); the doctrine of marshaling will not be applied to require SHS to first seek satisfaction from collateral of guarantor Debtors not obligated to CSM; to be fair and equitable with respect to the secured claim of CSM as required by § 1129(b), the Plan must value CSM's lien after allocating a portion of the senior SHS term loan to the Debtors other than Ice that are the primary obligors of that loan; the Plan Rate required to be paid to satisfy § 1129(b) with respect to deferred payments under the Plan to SHS and CSM is the prime rate, plus 2%; and the Plan must be modified to provide that Ashcroft may not be paid any amounts on account of the equity interest to be issued under the Plan and any such equity interest must be held in trust for SHS until SHS's claims are paid in full.

I. BACKGROUND

A. The Parties

The Debtors each filed a voluntary chapter 11 petition on August 26, 2021 (the "Petition Date"). The Debtors were organized in contemplation of the development, construction, and operation of the New England Sports Village, a planned athletic, entertainment, and hospitality complex in Attleboro, Massachusetts (the "Project"). Affidavit of Stuart Silberberg, Ex. 163 ("Silberberg Affidavit"),⁷ ¶ 5. Each Debtor owns a parcel of real estate. Id. Ice is the only Debtor that has significantly developed and improved its property with the construction of an ice-skating rink (the "Rink") and is operating a business. Id. HarborOne Bank ("HarborOne") provided senior financing consisting of term debt loaned to the Land Debtors and construction financing loaned to Ice for the Rink. Each Debtor is obligated on the indebtedness to HarborOne either as a borrower or guarantor. SHS is the current holder of the claims arising from the HarborOne loans.

The sole member of each of the Debtors is Ajax 5Cap NESV, LLC ("Ajax 5Cap"). Id. Ajax 5Cap's sole manager is Stuart Silberberg. Id. at ¶ 1. Ajax 5Cap has two classes of members—Class A and Class B. Five Capital Management, LLC ("Capital Management") is a Class A member of Ajax 5Cap, holding less than fifteen percent of the Class A membership interests. Tr. Day 6 of Trial, Sept. 15, 2023 [Dkt. No. 877] ("Tr. Day 6"), Boucher Test., at 16:4-13. The initial majority members of Capital Management were David Boucher and Joseph Fitzpatrick. Agreement and Settlement Agreement Effective Feb. 9, 2018, Ex. 228 ("Feb. 9, 2018 Agreement"); Tr. Day 6, Boucher Test., 101; Tr. Day 6, Fitzpatrick Test., 193. In addition to its less than fifteen percent Class A membership interest in Ajax 5Cap, Capital Management possessed a forty-nine percent interest in the Ashcroft Sullivan New England Regional Development Center (the "NEDC"). Tr. Day 6, Boucher Test., 16, 23-24, 101; Tr. Day 6, Fitzpatrick Test., 122, 174, 195; Feb. 9, 2018 Agreement.

SP is a Class B member of Ajax 5Cap, having invested approximately $500,000 in late 2016. Tr. Day 3 of Trial, Aug. 1, 2023 [Dkt. No. 889] ("Tr. Day 3"), Patel Test., 50-52, 105, 157. Dharmesh Patel and his wife are the sole members of SP. Id. at 79-80. Dharmesh Patel is also the manager of SP. SP was not a creditor of the Debtors and held no interest in the Debtors at the time of the Debtors' Chapter 11 filings, other than indirectly as a Class B member of Ajax 5Cap. Id. at 50-52, 105, 157. SP became a creditor of the Debtors after the commencement of the bankruptcy cases when it provided debtor-in-possession ("DIP") financing to the Debtors. Id.; Silberberg Aff., ¶¶ 15-16. SP was the initial DIP financing lender in the case and the Debtors, and SP sought authority pursuant to a motion filed on or about February 7, 2023 to assign SP NESV, LLC the rights and liens granted to SP pursuant to the Court's prior orders authorizing DIP loans. The Debtors and SP represented that SP NESV, LLC is an affiliate of SP and that Dharmesh Patel is the principal of both SP and SP NESV, LLC, as replacement DIP lender. Mot. Dkt. No. 662; Ord. [Dkt. No. 674] (approving the proposed assignment to the replacement DIP lender). As of July 24, 2023, the Debtors owed $1,213,993 on account of their DIP borrowing, excluding interest. Silberberg Aff., ¶ 16.

SHS, as assignee of HarborOne, is a creditor possessing a mortgage covering the properties owned by each Debtor to secure its claim. SHS filed a proof of claim totaling $18,928,809.92. Claim No. 11. The Debtors objected to that claim. Dkt. No. 270. For purposes of plan confirmation, SHS's claim has been estimated in the amount of $13,148,497.68 as of the Petition Date. Stipulation Regarding Estimated Claim of SHS ACK, LLC [Dkt. No. 687] ("SHS Estimated Claim Stipulation"); Phase I Ord., 2023 WL 2278603, at *5-6. This amount consists of $10,493,951.14 attributable to the construction loan and $2,645,546.53 attributable to the term loan. SHS Estimated Claim Stipulation, Ex. A. The claim of SHS has also been estimated to include an additional $400,000 in attorneys' fees, costs, and charges allowable under § 506(b). Phase I Ord., 2023 WL 2278603, at *6.

CSM asserts a statutory mechanic's lien covering the real property and improvements owned by Ice. CSM filed Claim No. 5, reflecting a claim totaling $14,106,762.75. The Debtors objected to that claim. Dkt. No. 514. CSM acknowledged for estimation purposes that: (i) $5,825,486 of its claim is secured and (ii) $4,980,790 of contractual interest, plus any deficiency claim, should be treated as a general unsecured claim. Phase I Ord., 2023 WL 2278603, at *6. The claim of CSM has been estimated in the amount of $3,393,009, comprised of $1,276,071 (the undisputed portion of the secured claim), plus $2,116,938 (a reduction from the remaining disputed portion of CSM's secured claim of $4.6 million, after consideration of various defenses, credits, and counterclaims). Phase I Ord., 2023 WL 2278603, at *6.

Ashcroft is a secured creditor...