In re Sakon

617 B.R. 7

IN RE: John Alan SAKON, Debtor.

CASE No. 19-21619 (JJT)

United States Bankruptcy Court, D. Connecticut, Hartford Division.

Signed May 28, 2020

John Alan Sakon, Manchester, CT, pro se.

Bonnie C. Mangan, Law Office of Bonnie C. Mangan, South Windsor, CT, for Trustee.

RE: ECF Nos. 97, 118, 186, 198, 201, 202, 203

MEMORANDUM OF DECISION GRANTING THE TOWN OF GLASTONBURY'S MOTION TO CONVERT THE DEBTOR'S CASE TO A CASE UNDER CHAPTER 7, OR IN THE ALTERNATIVE, TO DISMISS, AND DENYING THE DEBTOR'S MOTION TO EXTEND TIME TO FILE RESPONSIVE PLEADING, REQUEST FOR EVIDENTIARY HEARING, AND APPLICATION FOR SUBPOENAS

James J. Tancredi, United States Bankruptcy Judge

I. INTRODUCTION

Before the Court are four interrelated motions concerning the conversion or dismissal of the Chapter 11 case of John Alan Sakon (the "Debtor")¹ : (1) The Motion to Convert the Debtor's Case to a Case under Chapter 7, or in the Alternative, to Dismiss (ECF No. 186, "Motion to Convert") filed by the Town of Glastonbury (the "Town"); (2) The Debtor's Motion to Extend Time to File Responsive Pleading to May 8, 2020 (ECF No. 198, "Motion to Extend"); (3) the Debtor's Request for Evidentiary Hearing (ECF No. 201); and (4) the Debtor's Application for Subpoenas (ECF No. 202).

Pursuant to 11 U.S.C. § 1112(b) and Rule 1017 of the Federal Rules of Bankruptcy Procedure, the Town moves for the entry of an order converting the Debtor's Chapter 11 case for cause to a case under Chapter 7 of the Bankruptcy Code, or in the alternative, to dismiss the above-captioned Chapter 11 case. See ECF No. 186. The Town's main argument is that cause exists to convert this case because of the substantial and continuing diminution of the bankruptcy estate and the absence of a reasonable likelihood of rehabilitation, which is predicated upon matters of record, the Debtor's own admissions and filings, and matters of judicial notice.

On February 6, 2020, the Town filed a redacted version of its Motion to Convert (ECF No. 97) in conjunction with its Motion to Seal (ECF No. 101), wherein the Town, out of an abundance of caution, and in compliance with the Court's entry of a Protective Order (ECF No. 58), redacted certain information relating to potential financing agreements that the Debtor had disclosed as confidential. Thereafter, the Debtor filed his first request for an extension based on the Debtor's ongoing medical issues and related treatment, see Motion for Extension of Time to File Responsive Pleading to April 3, 2020 (ECF No. 118), wherein he requested additional time to respond to the Town's Motion to Convert. The Court granted the Debtor's Motion (see ECF No. 128) and extended the response date to April 3, 2020.

On March 6, 2020, the Court held a hearing on the Town's Motion to Seal (ECF No. 139), and on March 25, 2020, issued an Order (ECF No. 174) denying the Motion to Seal in part, and directing the Town to file an updated and redacted version of the Motion to Convert "with direct redactions of any proposed loan rates and/or terms" so as to allow for competitive negotiations between the Debtor and potential lenders. The instant Motion to Convert, refiled on March 31, 2020 and docketed as ECF No. 186, reflects the Town's compliance with that Order. A hearing on the refiled motion was subsequently scheduled for April 9, 2020 (ECF No. 195).

On April 3, 2020, the date by which the Debtor was to respond to the Motion to Convert, the Debtor filed his second Motion to Extend Time to File Responsive Pleading (ECF No. 198), this time requesting an additional five-week extension to May 8, 2020, asserting that his continuing health issues, Covid-19, and the lack of "urgency to press the case at this time" (based on the Town's alleged inability to obtain the relief it sought) justified his request. In its Limited Objection (ECF No. 203), the Town argued that an extension to April 24, and not May 8, should be sufficient given that at the time of the Debtor's second request to extend time the Motion to Convert already had been pending for eight weeks. These arguments were ultimately taken up at the hearing on the Motion to Convert on April 9, 2020, at which time the Debtor stated that, save for citing legal authorities, he had otherwise fully argued in support of his second Motion to Extend Time and responded to the Town's Objection thereto.

At the same April 9 hearing, the Court also heard argument on the Debtor's Request for Evidentiary Hearing (ECF No. 201), his Application for Subpoenas (ECF No. 202), and the Town's Objection thereto (ECF No. 216). Through the Debtor's interrelated filings and the corresponding arguments advanced during oral argument before this Court, the Debtor contends that in response to the Town's Motion to Convert there is a need to have an evidentiary hearing in order to establish: the value of the estate, the extent of his efforts to obtain financing, whether the filing of his monthly operating reports was in fact untimely, whether the taxes due and owing are valid, and whether the Town allegedly interfered with his plan of reorganization. In response, the Town objected, arguing that these issues are either irrelevant or immaterial to the Motion to Convert, or that they are matters of record or are facts that the Court has taken judicial notice of, and thus do not warrant a further evidentiary hearing.

At the April 9th hearing, the United States Trustee ("UST") noted that there are several grounds warranting conversion or dismissal of the Debtor's case, including the diminution of the estate due to the Debtor's demonstrated inability to pay the continuing build-up of administrative expenses and the unlikely prospect of reorganization in light of various circumstances, including the course of the case heretofore, the Debtor's inability to secure credible, enforceable financing, and his lack of any demonstrable capital to fund his Chapter 11 plan. At the conclusion of the April 9 hearing, the Court took the matters under advisement. For the reasons set forth below, the Town's Motion to Convert is hereby GRANTED, the Debtor's Motion to Extend Time is hereby DENIED, the Debtor's Request for Evidentiary Hearing is hereby DENIED, and the Debtor's Application for Subpoenas is hereby DENIED.

II. KEY RULINGS OF THIS COURT PRECEDING THIS MOTION²

A. Order Denying Debtor's Motion for Extension of Time to Assume or Reject Lease, ECF No. 129

The Debtor filed a Motion for Extension of Time to Accept or Reject Lease (ECF No. 85), wherein he sought, pursuant to 11 U.S.C. § 365(d)(4)(B)(i), to extend the time to assume or reject a ground lease (the "Lease") of certain commercial property owned by A & F Main Street Associates, LLC ("A & F"). At the hearing on this motion, the Court was presented with sufficient legal authority and uncontested facts to determine that the threshold question was whether there was, in fact, a lease to assume or reject. The relevant findings by this Court included:

1. The Debtor defaulted under the Lease by failing to timely pay rent;

2. Pursuant to the terms of the Lease, A & F sent the Debtor a notice of default, a notice of termination of the Lease, and a notice to quit;

3. The Debtor neither vacated nor surrendered the subject property upon receipt of either the notice of termination or the notice to quit;

4. A & F commenced a summary process action in the Connecticut Superior Court to evict the Debtor and obtain a judgment of possession;

5. In lieu of a trial in the summary process action, the Debtor and A & F entered into a stipulation (the "Stipulation") approved by the court, whereby the Debtor agreed to pay A & F $97,500.00 by a date certain so as to cause A & F to reinstate the Lease;

6. The Debtor did not timely (and has yet to) make this payment; and

7. The Debtor subsequently commenced the instant bankruptcy case and has since made no further payments under the Lease or the Stipulation.

Upon these facts, the Court concluded that the Lease, and the Debtor's rights thereunder, terminated pursuant to Connecticut law upon the service of the notice to quit and was not subsequently revived by the existence of the Stipulation. Because the Court found that the Lease terminated prepetition and could thus not be assumed under 11 U.S.C. § 365(c)(3), and because the Court lacked the power to revive a terminated lease, the Debtor's Motion was denied.

Thereafter, the Debtor filed a Motion to Reconsider (ECF No. 155) requesting that the Court reconsider its prior ruling denying the Debtor's Motion for Extension of Time to Assume or Reject Lease (ECF No. 129),³ arguing that the Order contains errors of law pertaining to the threshold issue of whether the Debtor's ground lease terminated prepetition.⁴ The Debtor also filed a Notice of Appeal to the District Court, ECF No. 162, related to the Court's ruling denying his Motion for Extension of Time.⁵

B. Order Granting Amended Motion for Relief from Stay for A & F Main Street Associates, LLC, ECF No. 150

A & F filed an Amended Motion for Relief from Stay (ECF No. 59), seeking relief as to certain commercial property leased to the Debtor, so that A & F may pursue its eviction proceedings against the Debtor in state court to secure a judgment of possession. Relying upon the same facts delineated in its Order Denying Debtor's Motion for Extension of Time to Assume or Reject Lease, ECF No. 129, and the uncontested facts presented at the hearing on A & F's Motion for Relief from Stay, the Court determined that because the Lease terminated prepetition, it was not subject to the automatic stay pursuant to the express provisions of 11 U.S.C. § 362(b)(10). The Court also found that even in the absence of section 362(b)(10), cause existed to lift the automatic stay on the basis of the Debtor's patent inability to assume a terminated lease under 11 U.S.C. § 365(c)(3).⁶ Accordingly, the Court granted A & F's Amended Motion for Relief from Stay (ECF No. 150). The Court's ruling on this motion was again the subject of a...