Easthaven Marina Group, LLC

UNITED STATES BANKRUPTCY COURT
EASTERN DISTRICT OF NORTH CAROLINA
WILMINGTON DIVISION
IN RE:
EASTHAVEN MARINA GROUP, LLC,
Debtor. 	CASE NO. 08-05453-8-JRL
Chapter 11
____________________________________________________________________________
ORDER
This case comes before the court on the emergency motion for authority to use cash
collateral. The court conducted a preliminary hearing on this matter on February 25, 2009 in
Raleigh, North Carolina.
BACKGROUND
On March 1, 2007, SHM Marina Group, LLC executed a note and purchase money deed
of trust and security agreement (“Deed of Trust”) securing property consisting of a marina on
Scotts Hill Loop Road in Pender County, North Carolina (the “Marina Property”). The
beneficiary of the Deed of Trust was B&M Holdings, LLC (“B&M”). On November 9, 2007,
SHM Marina Group, LLC executed a general warranty deed conveying the Marina Property to
David White, a member of the debtor. On February 8, 2008, Mr. White conveyed the Marina
SO ORDERED.
SIGNED this 26 day of February, 2009.
________________________________________
J. Rich Leonard
United States Bankruptcy Judge
____________________________________________________________
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Property to the debtor. Both conveyances were made subject to the Deed of Trust. In addition to
the Marina Property, the Deed of Trust purported to secure:
“[A]ll and singular the tenements, hereditaments, easements, privileges and
appurtenances thereunto belonging or in anywise appertaining to the Land, and the
reversion or reversions, remainder and remainders, rents, issues, and profits thereof, and
also all the estate, right, title, interest, claim and demand whatsoever of Grantor of, in and
to the same and of, in and to every part and parcel of the Land; and
. . .
TOGETHER with any and all rents and security deposits which are now due or hereafter
become due by reason of the renting, leasing and bailment of the Land, the improvements
or the Equipment . . . .”
Deed of Trust, Book 3176, P. 110, Pender County Register of Deeds (March 1, 2007).
The debtor filed for relief under Chapter 11 of the Bankruptcy Code on August 13, 2008.
Subsequently, B&M filed a proof of claim in the amount of approximately $10,077,398.00. On
October 22, 2008, the debtor filed an adversary proceeding against B&M in which the debtor
challenged the validity of B&M’s claim. On November 21, 2008, the debtor filed a motion for
summary judgment and the court conducted a hearing on January 28, 2009. At the conclusion of
the hearing, the court orally confirmed the validity of B&M’s claim and denied the debtor’s
motion. On February 17, 2009, the debtor filed an emergency motion for authority to use cash
collateral.
DISCUSSION
The debtor requests permission for the interim use of cash collateral. Under § 363 of the
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Bankruptcy Code, in a Chapter 11 case, the debtor-in-possession may not “use, sell, or lease cash
collateral . . . unless . . . (B) the court, after notice and a hearing, authorizes such use, sale or
lease in accordance with the provisions of this section.” 11 U.S.C. § 363(c)(2). In addition, the
debtor-in-possession must “segregate and account for any cash collateral in the [debtor’s]
possession, custody, or control.” Id. § 363(c)(4). In a preliminary hearing for the use of cash
collateral, the court “may authorize the use of only that amount of cash collateral as is necessary
to avoid immediate and irreparable harm to the estate pending a final hearing.” FED R. BANKR .
P. 4001(b)(2).
The debtor requests permission to use cash collateral and contends that such use is
necessary in order to continue its operations. At hearing, David White, the principal of the
debtor, testified before the court. Mr. White projected that the debtor would earn approximately
$10,260.00 from the collection of boat slip rental fees between February 16 and March 17, 2009.
The parties concede that the revenue from boat slip rental fees is rent from property secured by
the Deed of Trust and is therefore cash collateral. Mr. White established that the debtor’s
additional projected income during this 30-day period included receipts from store sales in the
amount of $3,323.32 and parking and ramp fees totaling $1,060.00. Unlike the boat slip rental
fees, the court finds that the debtor’s income from store sales and parking and ramp fees is not
secured by the Deed of Trust and does not constitute cash collateral. Mr. White further
established that the debtor’s projected expenses for February 16, 2009 through March 17, 2009
totaled $33,523.26.
B&M Holdings objects to the debtor’s motion and argues that the debtor’s use of cash
collateral is not required for its continued operation. In addition, B&M Holdings contends that
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the use of cash collateral is not necessary to avoid immediate and irreparable harm. In support of
its position, B&M established that the debtor’s operating account had a positive balance of
$58,497.29 on February 16, 2009. Thus, B&M contends that the debtor has cash on hand
sufficient to maintain its business operations through at least March 17, 2009.
The court agrees with B&M and finds that the use of cash collateral is not necessary for
the debtor to continue operations over the next fifteen days.
Based on the foregoing, the debtor’s interim request to use cash collateral is DENIED.
Going forward, the debtor is required to segregate cash collateral by placing the revenue from
boat slip rental fees in escrow, pending a final hearing on the use of cash collateral. The debtor’s
remaining revenue, in the form of receipts from store sales and parking and ramp fees, does not
constitute cash collateral and may be used for the debtor’s operating expenses.
“END OF DOCUMENT”
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