In re Skymark Props. Ii, LLC

597 B.R. 391

IN RE: SKYMARK PROPERTIES II, LLC, et al.,¹ Debtors.

Case No. 19-40211 Jointly Administered

United States Bankruptcy Court, E.D. Michigan, Southern Division.

Signed February 21, 2019

Anthony J. Kochis, Scott A. Wolfson, Rachel Walton, Wolfson Bolton PLLC, Troy, Michigan, Attorneys for the Debtors.

Robert A. Weisberg, Christopher A. Grosman, Carson Fischer, P.L.C., Bloomfield Hills, Michigan, Attorneys for Southfield Metro Center Holdings LLC.

John Polderman, Simon PLC, Bloomfield Hills, Michigan, Attorney for Receiver, NAI Farbman.

Marc M. Bakst, J. Adam Behrendt, Bodman PLC, Troy, Michigan, Attorneys for Tenneco Inc.

Kay Standridge Kress, Sean P. McNally, Pepper Hamilton LLP, Southfield, Michigan, Attorneys for Stefanini, Inc.

Douglas C. Bernstein, Plunkett Cooney, Bloomfield Hills, Michigan, Attorney for Morteza Katebian.

Jonathan B. Frank, Maddin, Hauser, Roth & Heller, P.C., Southfield, Michigan, Attorney for Laila Alizedah, Troy Wilson, and Arash Missaghi.

OPINION REGARDING THE MOTIONS TO DISMISS THESE JOINTLY-ADMINISTERED BANKRUPTCY CASES

Thomas J. Tucker, United States Bankruptcy Judge

I. Introduction

These jointly-administered cases came before the Court for a hearing on February 6, 2019, on three motions, namely:

(1) the joint motion by state court receiver NAI Farbman (the "Receiver") and secured creditor Southfield Metro Center Holdings, LLC (the "Lender") entitled "Joint Motion by Receiver NAI Farbman and Secured Creditor Southfield Metro Center Holdings LLC (I) to Dismiss or Suspend the Bankruptcy Case, or in the Alternative, (ii) for Relief under Section 543(c) and (d) of the Bankruptcy Code" (Docket # 32 in Case No. 19-40248, the "Joint Dismissal Motion");

(2) the motion by the Lender entitled "Motion by Secured Creditor Southfield Metro Center Holdings LLC to Dismiss or Suspend the Bankruptcy Case" (Docket # 24 in Case No. 19-40211, the "Dismissal Motion"); and

(3) the motion by the Debtor Skymark Properties SPE, LLC entitled "Debtors' Motion for Entry of an Interim and Final Order Permitting the Use of Cash Collateral" (Docket # 60 in Case No. 19-40248, the "Cash Collateral Motion").

In the Joint Dismissal Motion, the Receiver and the Lender jointly seek an order dismissing the case of the Debtor Skymark Properties SPE, LLC ("SPE") (Case No. 19-40248) under 11 U.S.C. § 1112(b) for cause; or in the alternative, for an order dismissing or suspending the case under 11 U.S.C. § 305(a)(1), or in the alternative, for an order excusing the Receiver from complying with the turnover provisions of 11 U.S.C. § 543(d)(1) and for certain relief under 11 U.S.C. § 543(c).

In the Dismissal Motion, the Lender seeks an order dismissing the case of the Debtor Skymark Properties II, LLC ("Skymark II") (Case No. 19-40211), under § 1112(b) for cause; or in the alternative, for an order dismissing or suspending the case under § 305(a)(1).

The Debtors SPE and Skymark II objected to the Joint Dismissal Motion and the Dismissal Motion (collectively, the "Dismissal Motions"). Several other parties filed either a concurrence in or an objection to one or both of the Dismissal Motions. Concurrences were filed by the Debtor SPE's two major tenants, Stefanini, Inc. ("Stefanini") and Tenneco, Inc. ("Tenneco"); and by Morteza Katebian ("Katebian").² An objection was filed jointly by Laila Alizadeh, Troy Wilson, and Arash Missaghi.³ The Court heard oral argument from all of the foregoing parties, through their attorneys, during the February 6, 2019 hearing.

Confirming action taken by the Court at the conclusion of the February 6, 2019 hearing, on February 7, 2019, the Court entered an order requiring certain parties to supplement the record in specific ways (the "February 7 Order").⁴ The required supplements have been filed.⁵ The Court has reviewed the motions, the briefs in support of the motions, the responses to the motions, the replies in support of the motions, all exhibits attached to the pleadings, the supplements filed in response to the February 7 Order, and the entire record, and concludes that no further hearing is required, and that the Cash Collateral Motion must be denied, and the Joint Dismissal Motion and the Dismissal Motion should be granted. This opinion concerns the Joint Dismissal Motion and the Dismissal Motion. Today the Court is filing a separate opinion regarding the Cash Collateral Motion.

II. Jurisdiction

This Court has subject matter jurisdiction over this bankruptcy case and this contested matter under 28 U.S.C. §§ 1334(b), 157(a) and 157(b)(1), and Local Rule 83.50(a) (E.D. Mich.). This is a core proceeding under 28 U.S.C. §§ 157(b)(2)(A), 157(b)(2)(E), and 157(b)(2)(O).

This proceeding also is "core" because it falls within the definition of a proceeding "arising under title 11" and of a proceeding "arising in" a case under title 11, within the meaning of 28 U.S.C. § 1334(b). Matters falling within either of these categories in § 1334(b) are deemed to be core proceedings. See Allard v. Coenen (In re Trans–Industries, Inc. ), 419 B.R. 21, 27 (Bankr. E.D. Mich. 2009). This is a proceeding "arising under title 11" because it is "created or determined by a statutory provision of title 11," see id. , including Bankruptcy Code §§ 1112, 543, and 305. And this is a proceeding "arising in" a case under title 11, because it is a proceeding that "by [its] very nature, could arise only in bankruptcy cases." See id. at 27.

III. Background

In its opinion filed today regarding the Cash Collateral Motion, the Court described at length the background and the events leading to the Debtors' bankruptcy filings. See Part III of the Court's opinion entitled "Opinion Regarding the Debtor's Cash Collateral Motion," filed today. Because that background also is relevant to the Dismissal Motions discussed in this opinion, the Court incorporates it into this opinion by reference.

IV. Discussion of the Dismissal Motions

A. Standards under the applicable provisions of the Bankruptcy Code

1. Section 1112(b) dismissal for "cause"

The Receiver, the Lender, Stefanini, Tenneco, and Katebian all seek an order dismissing the Debtors' bankruptcy cases "under Bankruptcy Code § 1112(b) based on lack of good faith and for cause shown. " Section 1112(b)(1) states:

(b)(1) Except as provided in paragraph (2) and subsection (c), on request of a party in interest, and after notice and a hearing, the court shall convert a case under this chapter to a case under chapter 7 or dismiss a case under this chapter , whichever is in the best interests of creditors and the estate, for cause unless the court determines that the appointment under section 1104(a) of a trustee or an examiner is in the best interests of creditors and the estate.

11 U.S.C. § 1112(b)(1) (emphasis added). " Section 1112(b)(4) contains a nonexhaustive list of examples of "cause" justifying dismissal of a Chapter 11 case. These examples include ‘substantial or continuing loss to or diminution of the estate and the absence of a reasonable likelihood of rehabilitation[.]’ 11 U.S.C. § 1112(b)(4)(A)."

In re Creekside Sr. Apartments, L.P. , 489 B.R. 51, 60 (6th Cir. BAP 2013).

In determining whether cause exists to dismiss a case under § 1112(b), a court must engage in a "case-specific" factual inquiry which "focus[es] on the circumstances of each debtor." United Savs. Ass'n of Tex. v. Timbers of Inwood Forest Assocs., Ltd. (In re Timbers of Inwood Forest Assocs., Ltd. ), 808 F.2d 363, 371–72 (5th Cir.1987) (en banc), aff'd , 484 U.S. 365, 108 S.Ct. 626, 98 L.Ed.2d 740 (1988) ; In re Great Am. Pyramid Joint Venture , 144 B.R. 780, 791 (Bankr.W.D.Tenn.1992).

Id.

2. Section 543

This Court discussed Bankruptcy Code § 543 in In re Packard Square LLC , 575 B.R. 768 (Bankr. E.D. Mich. 2017), aff'd. , 586 B.R. 853 (E.D. Mich. 2018). The Court now reiterates what it said in Packard Square :

Section 543 of the Bankruptcy Code states:

(a) A custodian with knowledge of the commencement of a case under this title concerning the debtor may not make any disbursement from, or take any action in the administration of, property of the debtor, proceeds, product, offspring, rents, or profits of such property, or property of the estate, in the possession, custody, or control of such custodian, except such action as is necessary to preserve such property.

(b) A custodian shall--

(1) deliver to the trustee any property of the debtor held by or transferred to such custodian, or proceeds, product, offspring, rents, or profits of such property, that is in such custodian's possession, custody, or control on the date that such custodian acquires knowledge of the commencement of the case; and

(2) file an accounting of any property of the debtor, or proceeds, product, offspring, rents, or profits of such property, that, at any time, came into the possession, custody, or control of such custodian.

(c) The court, after notice and a hearing, shall--

(1) protect all entities to which a custodian has become obligated with respect to such property or proceeds, product, offspring, rents, or profits of such property;

(2) provide for the payment of reasonable compensation for services rendered and costs and expenses incurred by such custodian; and

(3) surcharge such custodian, other than an assignee for the benefit of the debtor's creditors that was appointed or took possession more than 120 days before the date of the filing of the petition, for any improper or excessive disbursement, other than a disbursement that has been made in accordance with applicable law or that has been approved, after notice and a hearing, by a court of competent jurisdiction before the commencement of the case under this title.

(d) After notice and hearing, the bankruptcy court–

(1) may excuse compliance with subsection (a), (b), or (c) of this section if the interests of creditors and, if the debtor is not insolvent, of equity security holders would be better served by permitting a custodian to continue in possession, custody, or control of such property, and(2

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