JAG Group, LLC

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UNITED STATES BANKRUPTCY COURT
SOUTHERN DISTRICT OF OHIO
EASTERN DIVISION

In re : Case No. 06-50157
JAG Group, LLC, : Chapter 11
Debtor. : (Judge Caldwell)
In re : Case No. 06-50158 255
Brownstone Investments, LLC, : Chapter 11
Debtor. : (Judge Caldwell)

MEMORANDUM OPINION AND ORDER REGARDING
THE HUNTINGTON NATIONAL BANK’S MOTION
TO DISMISS OR CONVERT (NO. 76)

The Huntington National Bank (“Creditor”) filed a Motion to Dismiss or Convert the jointly
administered chapter 11 cases of JAG Group, LLC and Brownstone Investments, LLC (“Debtors”).
Based upon the evidence, review of the pleadings and statements of counsel, the Court has
determined that the Creditor has established cause for conversion or dismissal. 11 U.S.C. §1112(b).
The Creditor, however, has not established that its preferred disposition of conversion, rather than
dismissal, is in the best interests of creditors and the estate. Dismissal is the appropriate
disposition, subject to conditions detailed in this Order. A brief history illustrates the bases.

The business of the Debtors is the operation of the Brownstone on Main restaurant in
downtown Columbus, Ohio. JAG Group, LLC (“JAG”) operates the facility. Brownstone
Investments, LLC (“Brownstone”) owns the building, and is JAG’s landlord. OnJ anuary 18, 2006,
this chapter 11 case was filed. The Creditor has filed a claim in the amount of $1,378,930.88

secured by the building and the restaurant equipment and inventory, etc. Its claim is subject to the

AUTHENTICATED
U.S. GOVERNMENT
INFORMATION

GPO

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guarantee of Mr. Jeffrey A. Gilliam, (““Mr. Gilliam”), the managing investor of the Debtors. The
Debtors have also detailed an obligation in the amount of $48,855.00 related to the purchase of the
business from the former owner, Out on Main, Ltd., that is also subject to Mr. Gilliam’s guarantee.

At the conclusion of a November 28, 2006, hearing the Court denied confirmation of the
Debtors’ plans based upon lack of feasibility. In order to give the Debtors a further opportunity to
confirm plans, the Court instructed the Debtors to identify additional sources of capital. As of the
conversion or dismissal hearing, the Court has been advised that a total of $130,000.00 has been
committed by investors, including Robert F. Berry ($30,000.00), Mr.Gilliam ($50,000.00) and
Gregory L. Provo ($50,000.00). The Court has determined that these commitments, as of the
conversion or dismissal hearing, are not sufficient to render the reorganization plans feasible. Four
factors have been most persuasive.

First, although Mr. Gilliam has diligently met with investors to detail the Debtors’ needs and
future plans, as of the date of the conversion or dismissal hearing, only the sum of $130,000.00 had
been produced to continue the business. Since the conversion or dismissal hearing the Debtors have
reported some additional funding and a possible refinancing in a year, however, they have not filed
amended plans to present that information in a manner that could be scrutinized and voted on by
creditors, as directed by the Court in its May 1, 2007, Order.

Second, in reviewing the subscription agreements provided at the conversion or dismissal
hearing, the payment obligations do not commence until 45 days after confirmation. There does
not appear to be any guarantee that the obligations will be funded in whole or part, such as through
a significant non-refundable deposit. Further, financial statements have not been provided to

substantiate the investors’ ability to fund their commitments. Third, a significant portion of the

-2-

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capital ($50,000.00) will come from the managing investor, Mr. Gilliam, who has been the subject
of collection litigation related to his guarantees.

Fourth, JAG is the primary funding source for the plans. According to JAG’s Second
Amended Plan monthly revenues projected for years 1-6 after confirmation are as follows: Year 1
($134,000.00); Year 2 ($145,160.00); Year 3 ($158,082.80); Year 4 ($173,106.88); Year 5
($190,638.01); and, Year 6 ($211,162.65). In reviewing the financial reports filed by JAG
between February 2006 and April 2007, however, it has never generated monthly income even in
the amount projected just for the first year after confirmation ($134,000.00). The closest JAG has
come is the sum of $129,060.00 as reported in the December 2006 operating report. Reported
income, however, has been as low as $91,550.00 as detailed in the July 2006 operating report.

Given this financial performance, the limited amount of additional capital presented at the
hearing on the instant Motion ($130,000.00) and its speculative nature, the Court has concluded that
cause for conversion or dismissal has been established. The dilemma at this juncture is what is in
the best interests of creditors and the estates, as contemplated by section 1112 (b)(1) of the United
States Bankruptcy Code.

In this endeavor the Court is required to consider the interests of all creditors, and it should
evaluate which option may yield the best recovery given the economic conditions. In re
OPTINREALBIG.COM, LLC, et. al, 345 B.R. 277, 287 and 290 (Bankr. Colo. 2006). Further, the
Court should consider to what extent can the interests of the secured party be protected in state

foreclosure or other liquidation proceedings. In Re Nugelt, Inc., et al., 142 B.R. 661, 669 and 670

(Bankr. Del. 1992).

a

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At the conclusion of the hearing on the Creditor’s Motion, it expressed a preference for
conversion to chapter 7 rather than dismissal. The record indicates that the Creditor was told that
upon dismissal the Debtors would simply file again. The Creditor asserts that such a result thwarts
the collection interest of all creditors. Also, the Creditor states that although it originally preferred
dismissal, given the apparent lack of equity, this view has changed based upon the appraisal
presented by the Debtors at the conversion or dismissal hearing.

The Creditor offers that based upon the appraised value of $1,5 82,500.00, that there may be
as much as $400,000.00 in equity for unsecured creditors and to pay administrative expenses. The
Creditor has expressed a willingness to fund reasonable costs of sale, trustee fees and expenses, and
legal fees and trustees fees related to the sale. Finally, the Creditor anticipates that the assets can
be liquidated expeditiously by auction or otherwise. The Court is not as optimistic. Four factors have
been most persuasive.

First, the appraisal appears to be premised upon the conversion of some portion of the space
to office condominiums. While the appraisal does suggest that the necessary renovation costs may
be in the range of $130,000.00, it is not clear how these funds would be generated, and whether there

is a viable market. Second, according to the claims register summary, the total of all claims is

$2,598,703.51, including $1,638,057.33 in secured claims and $233,619.44 in priority claims. The
Creditor itself has filed a proof of claim in the amount of $1,378,930.88, secured by the real estate,

equipment and inventory, etc. Under these circumstances, it is difficult to conclude that there will

be a recovery sufficient to provide even a modest dividend.

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Third, as the Creditor has asserted a secured claim, its interests can be protected through state
foreclosure or other liquidation proceedings. Fourth, in view of the supplemental reports filed by
the Debtors after the conversion or dismissal hearing, it appears that they are still engaged in efforts
to bring in additional capital or to refinance during the next twelve months. The Debtors have made
significant efforts to increase revenues and reduce expenses. Conversion would result in an
immediate cessation of operations. This would preclude the possibility that the Debtors may be able
in the immediate future to come forward with plans that are financially viable. The Court can not
find that conversion would be in the best interests of the creditors.

It is apparent that the Creditor and the Debtors have divergent views as to the viability of the
business and the appropriate disposition. The common element, however, is the need for some
finality and a balanced resolution of the dispute. Such concerns lead the Court to impose conditions
to dismissal that account both for the Debtors’ desire to present confirmable plans and the Creditor’s
interest in being able to foreclose on its security prior to any further dissipation.

In this spirit, the following conditions are imposed. First, the dismissal of the cases will not
be effective until November 30, 2007. If by that date the Debtors have been unable to confirm plans,
a separate dismissal order will be entered without further notice or hearing. This will allow the
Debtors a final opportunity to forthwith raise additional capital that is immediately available or take
other action to establish feasibility.

On the other hand, if the Creditor determines that its interests may be diminished in the

interim, it may pursue modification of the stay. Any such motion will be given expedited

consideration. Further, in the event that the Creditor establishes cause for modification of the stay,

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the Court will consider whether any modification should be deemed effective in any bankruptcy
proceedings that may follow.
Finally, the Court will enter a separate scheduling order to expedite the disposition of the

related stay extension adversary proceeding (06-2335).

IT IS SO ORDERED.

Ln th Cibel

Charles M. Caldwell
United States Bankruptcy Judge

Date: July 20, 2007
Copies to:

Grady L. Pettigrew, Esq. (electronic service)

Stephanie D. Champ, Esq. (electronic service)

JAG Group, LLC, 1290 Pond Hollow Lane, New Albany, Ohio 43054

Brownstone Investments, LLC, 1290 Pond Hollow Lane, New Albany, Ohio 43054
The Huntington National Bank, 41 South High Street, Columbus, Ohio 43215-6101
Assistant United States Trustee (electronic service)

Andrew M. Malek, Esq. (electronic service)

Michael T. Gunner, Esq. (electronic service)

Ralph E. Dill, Esq. (electronic service)

Kathleen Tourgeman, Courtroom Deputy