LCGI Fairfield, LLC

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1The Debtors contend that GE Capital lacks standing to bring
this motion. 	They note that secured creditors scheduled are GE
Capital Franchise Finance Corporation CEF Funding IV, LLC. 	None of
these entities has filed a proof of claim. 	The Court notes that
the motion describes the moving parties as General Electric Capital
Asset Business Funding Corporation f/k/a GE Capital Franchise
Finance Corporation, on behalf of itself as sub-servicer and agent
for CEF Funding IV, LLC, together with GE Capital. 	Therefore, even
if GE Capital has no standing to bring the motion, the other two
entities do. 	The Court will refer to the moving party as GE
Capital for convenience.
UNITED STATES BANKRUPTCY COURT
NORTHERN DISTRICT OF CALIFORNIA
In re 	No. 09-48466 T
Chapter 11
LCGI FAIRFIELD, LLC,
Debtor-in-Possession.
_______________________________/
In re 	No. 09-48617 T
Chapter 11
LCGI VICTORVILLE, LLC, (Jointly Administered)
Debtor-in-Possession.
_______________________________/
MEMORANDUM OF DECISION
The 	motion 	of 	General 	Electric 	Asset 	Business 	Funding
Corporation (“GE Capital”) 1 to dismiss the above-captioned chapter 11
cases 	came 	before 	the 	Court 	on 	February 	16, 	2010. 	The 	above-
Signed: February 22, 2010
________________________________________
LESLIE TCHAIKOVSKY
U.S. Bankruptcy Judge
________________________________________
Entered on Docket
February 23, 2010
GLORIA L. FRANKLIN, CLERK
U.S BANKRUPTCY COURT
NORTHERN DISTRICT OF CALIFORNIA
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2The facts summarized here do not appear to be in dispute.
The Court has drawn these facts from GE Capital’s motion to dismiss
and the Debtors’ disclosure statement.
3The Fairfield Property and Victorville Property are referred
to collectively as the “Properties.”
2
captioned 	debtors 	(the 	“Debtors”) 	opposed 	the 	motion. 	At 	the
conclusion 	of 	the 	hearing, 	the 	Court 	took 	the 	motion 	under
submission. 	Having considered the issues, the Court concludes that
the motion should be denied.
SUMMARY OF FACTS AND PROCEDURAL BACKGROUND2
In 	2002, 	GE 	Capital 	loaned 	the 	former 	owner 	of 	real 	property
located 	in 	Fairfield, 	California 	(the 	“Fairfield 	Property”)
approximately 	$1.7 	million, 	payable 	over 	ten 	years, 	secured 	by 	a
first 	deed 	of 	trust. 	Interest 	was 	to 	accrue 	at 	the 	rate 	of 	3.5
percent per annum above the one month London Interbank Offered Rate
(“LIBOR”) published in the 	Wall Street Journal on the last business
day of each month.
In 	2004, 	Imperial 	Capital 	Bank 	(“Imperial”) 	loaned 	the 	former
owner 	of 	real 	property 	located 	in 	Victorville, 	California 	(the
“Victorville Property”) approximately $2 million, payable over twenty
years, secured 	by a first deed of trust. 3 	Interest was to accrue at
the rate of 5 percent per annum above the six month London Interbank
Offered 	Rate 	(“LIBOR”) 	published 	in 	the 	Wall 	Street 	Journal 	on
certain quarterly Interest Change Dates, as defined in the promissory
note 	evidencing 	this 	loan. 	Sometime 	thereafter, 	Imperial 	assigned
the loan obligation to GE Capital.
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3
The 	Properties 	were 	each 	leased 	to 	an 	entity 	that 	operated 	a
“Johnny 	Carino’s” 	themed 	restaurant. 	The 	principal 	behind 	each
restaurant 	entity 	as 	well 	as 	the 	former 	owner 	of 	the 	Properties 	is
an individual named John Gantes (“Gantes”). 	GE Capital made working
capital 	loans 	to 	Gantes 	in 	connection 	with 	his 	various 	business
activities. 	On 	a 	date 	or 	dates 	that 	have 	not 	been 	disclosed,
additional loans were made to the former owners of the Properties by
LGCI 	Mortgage 	(“LGCI 	Mortgage”), 	and 	the 	loan 	obligations 	were
secured by junior deeds of trust.
In 	mid-2008, 	GE 	Capital 	filed 	a 	civil 	action 	to 	enforce 	the
working 	capital 	loans 	and 	obtained 	appointment 	of 	a 	receiver 	(the
“Receiver”) to take control of and operate the restaurant businesses
located on the Properties. 	The Receiver collected the gross proceeds
of the businesses and paid wages, taxes, and costs of goods but did
not 	pay 	rent 	to 	the 	owners 	of 	the 	Properties. 	As 	a 	result, 	the
owners 	were 	unable 	to 	pay 	debt 	service 	to 	GE 	Capital 	or 	to 	LCGI
Mortgage.
Early 	in 	2009, 	LGCI 	Mortgage 	issued 	notices 	of 	default. 	When
the 	defaults 	were 	not 	cured, 	it 	issued 	notices 	of 	sale, 	scheduling
foreclosure 	sales 	for 	May 	2009. 	In 	April 	2009, 	GE 	Capital 	issued
notices 	of 	default 	and, 	when 	the 	defaults 	were 	not 	cured, 	issued
notices 	of 	sale, 	scheduling 	foreclosure 	sales 	for 	September 	2009.
The LGCI Mortgage foreclosure sales were concluded prior to the sales
scheduled by GE Capital. 	The Properties were sold to LGCI Mortgage
pursuant 	to 	credit 	bids. 	However, 	title 	to 	the 	Fairfield 	Property
was taken in the name of LCGI Fairfield, and title to the Victorville
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4The Debtors have sequestered these rents which are cash
collateral and could only be used with GE Capital’s consent or
Court order, neither of which has been obtained.
4
Property 	was 	taken 	in 	the 	name 	of 	LCGI 	Victorville. 	Both 	LCGI
Fairfield and LCGI Victorville are wholly owned subsidiaries of LCGI
Mortgage. 	All three entities are affiliated with Lafayette Capital
Group, 	Inc. 	(“Lafayette”), 	a 	commercial 	mortgage 	lender, 	which
manages LCGI Mortgage.
LCGI 	Fairfield 	filed 	a 	chapter 	11 	petition 	on 	September 	10,
2009. 	LCGI Victorville filed a chapter 11 petition on September 14,
2009. 	The chapter 11 filings stayed the foreclosure sales scheduled
by 	GE 	Capital. 	The 	GE 	Capital 	receivership 	was 	terminated 	on 	or
about 	September 	25, 	2009, 	and 	Gantes, 	through 	two 	of 	his 	entities,
resumed 	control 	of 	the 	operation 	of 	the 	restaurants. 	The 	Debtors
permitted Gantes to continue to lease the Properties upon payment of
$15,000 per month rent on a triple net basis. 4
On 	October 	7, 	2009, 	an 	order 	was 	entered 	providing 	for 	joint
administration of the two chapter 11 cases. 	Schedules of Assets and
Liabilities 	were 	filed 	in 	each 	case 	on 	September 	16, 	2009. 	The
Schedules of Assets and Liabilities filed in Case No. 09-48466 T (the
“Fairfield 	Case”) 	valued 	the 	Fairfield 	Property 	at 	$2.5 	million
subject to a secured claim totaling approximately $1.3 million. 	No
priority 	debts 	were 	scheduled, 	and 	only 	approximately 	$26,000 	in
general, 	unsecured 	claims 	were 	scheduled. 	The 	Schedules 	of 	Assets
and Liabilities filed in Case No. 09-48617 T (the “Victorville Case”)
valued the Victorville Property at $2.75 million subject to a secured
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5
claim 	totaling 	approximately 	$2 	million. 	No 	priority 	debts 	were
scheduled 	and 	only 	approximately 	$17,000 	in 	general, 	unsecured
claims. 	The moving party, GE Capital, holds all of the secured debt
of any significance in each case.
A status conference was conducted in the two cases on November
2, 	2009. 	On 	October 	29, 	2009, 	the 	Debtors 	filed 	a 	joint 	status
conference statement, acknowledging that the cases are “single asset
real 	estate” 	cases. 	See 	11 	U.S.C. 	§ 	101(51B). 	A 	joint
reorganization 	plan, 	unaccompanied 	by 	a 	disclosure 	statement, 	was
filed 	on 	October 	30, 	2009. 	At 	the 	conclusion 	of 	the 	status
conference, 	the 	Court 	set 	a 	December 	15, 	2009 	deadline 	for 	the
Debtors 	to 	file 	a 	disclosure 	statement 	and 	to 	submit 	it 	for
conditional approval. 	The Debtors filed a joint disclosure statement
on 	December 	9, 	2009 	and 	submitted 	a 	proposed 	order 	conditionally
approving it. 	The Court had some minor problems with the disclosure
statement and denied conditional approval, giving the Debtors 30 days
to amend the plan and disclosure statement.
An 	amended 	plan 	and 	disclosure 	statement 	and 	a 	motion 	for
conditional approval were filed on December 23, 2009. 	On January 7,
2010, the Court issued an order conditionally approving the amended
disclosure 	statement 	and 	scheduling 	a 	confirmation 	hearing 	on
February 	16, 	2010. 	On 	January 	26, 	2010, 	GE 	Capital 	filed 	a 	motion
to 	dismiss 	the 	two 	chapter 	11 	cases. 	The 	motion 	was 	noticed 	for
hearing on February 16, 2010. 	On January 27, 2010, the Debtors filed
an 	adversary 	proceeding 	against 	GE 	Capital, 	alleging, 	inter 	alia,
that 	GE 	Capital 	had 	lost 	its 	security 	interest 	in 	the 	Properties
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5A second amended plan was filed on January 28, 2010 and a
third amended plan was filed on February 10, 2010. 	These
amendments made minor changes to the Plan which are not relevant to
the dispute presented here.
6In Marsch, the Ninth Circuit upheld the bankruptcy court’s
dismissal of a chapter 11 case as a bad faith filing where a
judgment debtor had filed a chapter 11 petition to avoid posting an
appeal bond from a state court judgment. 	The Marsch court observed
that bad faith constituted cause for dismissal pursuant to 11
6
through its pre-petition collection activities. 	On February 8, 2010,
GE 	Capital 	filed 	an 	objection 	to 	confirmation 	of 	the 	amended 	plan
(the “Plan”). 5
At the conclusion of the confirmation hearing and hearing on GE
Capital’s 	motion 	to 	dismiss, 	the 	Court 	took 	the 	motion 	to 	dismiss
under 	submission. 	The 	Court 	indicated 	that, 	if 	it 	decided 	not 	to
dismiss the case, the confirmation hearing would have to be set for
an evidentiary hearing.
DISCUSSION
GE 	Capital 	advances 	three 	grounds 	for 	its 	motion 	to 	dismiss.
First, it contends that the bankruptcy case was filed in bad faith.
Second, it contends that there are independent grounds to dismiss the
case 	under 	11 	U.S.C. 	§ 	1112(b). 	Third, 	it 	contends 	that 	the 	Court
should 	abstain 	from 	hearing 	the 	case 	under 	11 	U.S.C. 	§ 	305. 	The
Debtors 	respond 	to 	these 	arguments 	and 	also 	assert 	that 	the 	motion
is barred by laches. 	Each of these arguments is addressed below.
1. 	Bad Faith Filing
GE Capital asserts that the above-captioned chapter cases were
filed in bad faith and that this constitutes grounds for dismissal.
See 	In 	re 	Marsch, 	36 	F.3d 	825 	(9th 	Cir. 	1994). 6 	It 	notes 	that 	the
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U.S.C. § 1112(b). 	Marsch, 36 F.3d at 828.
7
two chapter 11 cases are admittedly “single asset real estate” cases
filed by entities which were created and took title to the Properties
shortly 	before 	filing 	the 	chapter 	11 	cases. 	It 	notes 	that 	the
monthly 	operating 	reports 	demonstrate 	that 	the 	Debtors 	have 	no
ongoing 	business 	operations 	and 	no 	employees. 	Between 	the 	two 	of
them, 	the 	Debtors 	have 	less 	than 	$47,000 	in 	unsecured 	claims. 	GE
Capital 	contends 	that 	these 	are 	classic 	indicia 	of 	a 	bad 	faith
filing.
GE 	Capital 	also 	asserts 	that 	reorganization 	of 	the 	Debtors 	is
not 	feasible. 	It 	notes 	that 	the 	Plan 	provides 	for 	only 	a 	one-time
capital 	infusion 	of 	$100,000. 	Otherwise, 	the 	Debtors’ 	sole 	source
of 	income 	is 	from 	rents, 	which 	are 	GE 	Capital’s 	cash 	collateral.
However, 	according 	to 	GE 	Capital, 	the 	amount 	of 	the 	rents 	is
inadequate 	to 	service 	GE 	Capital’s 	secured 	claim. 	Moreover,
according 	to 	GE 	Capital, 	the 	rents 	have 	not 	been 	paid 	with
consistency since the filing of the case. 	GE Capital contends that
the Plan presents it with an unacceptable risk.
Finally, 	GE 	Capital 	asserts 	that 	the 	cases 	are 	two 	party
disputes 	between 	the 	Debtors 	and 	GE 	Capital 	and 	are 	not 	proper
chapter 11 cases for that reason. 	It contends that the sole purpose
of 	the 	filings 	was 	to 	stop 	GE 	Capital’s 	foreclosure 	sales 	and 	to
attempt 	to 	force 	GE 	Capital 	to 	accept 	lower 	payments 	calculated 	at
a 	lower 	interest 	rate 	than 	required 	by 	GE 	Capital’s 	existing 	loan
obligations. 	GE 	Capital 	contends 	that 	bankruptcy 	was 	not 	intended
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7In Van Owen, the bankruptcy court noted that the sole asset
of the estate was a lawsuit against the former business associates
of the principal of the debtor. 	It found that the real motivation
for the filing “was the fear of the corporate insiders that the IRS
would successfully move against them on their individual liability
for unpaid withholding taxes of...[the debtor].” 	The court found
that filing for this purpose was in bad faith and dismissed the
case. 	Van Owen, 82 B.R. at 673.
8In ACI Sunbow, the debtor owned vacant land which it planned
to develop as a subdivision. 	Ten years after the loan was made, a
final map had not yet been recorded, and the tentative map was due
to expire. 	Facing a foreclosure by the senior secured creditor,
the principals of the owner bought the note secured by the junior
deed of trust, foreclosed, and filed a chapter 11 petition. 	The
debtor’s chapter 11 plan proposed to stretch the secured creditor’s
obligation out six more years. 	These facts, taken together, caused
the bankruptcy court to conclude that the case was a bad faith
filing that should be dismissed. 	ACI Sunbow, 206 B.R. at 217-25.
8
as an “alternate forum for private disputes,” citing In re Van Owen
Car Wash, Inc., 82 B.R. 671, 673 (Bankr. C.D. Cal. 1988). 7
GE 	Capital 	argues 	that, 	if 	the 	Court 	were 	to 	countenance 	this
type of filing, there would be a flood of filings by junior secured
creditors, attempting to gain an unfair advantage over senior secured
creditors. 	It 	notes 	that, 	in 	In 	re 	ACI 	Sunbow, 	LLC, 	206 	B.R. 	213
(Bankr. S.D. Cal. 1997), a similarly motivated chapter 11 filing was
found to be in bad faith by the bankruptcy court. 8
In 	response, 	the 	Debtors 	dispute 	GE 	Capital’s 	contention 	that
the cases were filed in bad faith. 	They contend that no bankruptcy
filings were contemplated when the Debtors were created and acquired
title to the Properties. 	To the contrary, it was Lafayette’s normal
procedure 	to 	take 	title 	in 	a 	separate 	entity 	when 	acquiring 	real
property 	through 	a 	foreclosure 	sale. 	The 	purpose 	of 	the 	procedure
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9
was 	to 	protect 	investors 	in 	unrelated 	projects 	from 	exposure 	to
claims not arising from their investment.
To the contrary, the Debtors assert, it is GE Capital that has
acted 	in 	bad 	faith. 	First, 	prior 	to 	the 	commencement 	of 	the
bankruptcy cases, the Receiver collected all of the proceeds from the
restaurant 	businesses, 	paid 	none 	of 	the 	proceeds 	as 	rent 	to 	the
owners 	or 	debt 	service 	to 	the 	Debtors, 	and 	has 	never 	accounted 	for
the 	application 	of 	the 	funds. 	Second, 	despite 	having 	lost 	its
security interest in the Properties through its pre-petition conduct,
GE Capital initiated foreclosure proceedings against the Properties.
Third, 	after 	the 	Debtors 	filed 	their 	initial 	reorganization 	plan,
which 	relied 	upon 	rent 	to 	be 	paid 	by 	entities 	owned 	by 	Gantes, 	GE
Capital apparently induced Gantes to stop paying rent to the Debtors
and 	to 	refuse 	to 	enter 	into 	a 	lease 	for 	the 	Properties. 	This 	has
forced 	the 	Debtors 	to 	agree 	to 	increase 	their 	capital 	infusion 	to
fund the Plan to $500,000.
The 	Debtors 	assert 	that 	a 	“single 	asset 	real 	estate” 	case 	is
not, by definition, a bad faith filing. 	They note that, in response
to 	a 	wave 	of 	such 	filings, 	in 	the 	early 	90s, 	Congress 	enacted 	11
U.S.C. 	§ 	362(d)(3). 	Section 	362(d)(3) 	sets 	a 	prompt 	deadline,
requiring either payments on the secured debt to begin or a plan to
be 	filed 	that 	can 	be 	confirmed 	within 	a 	reasonable 	period 	of 	time.
This statutory device eliminates the perceived abuse of such filings.
The Debtors cite two bankruptcy court decisions in which motions to
dismiss 	and 	for 	relief 	from 	the 	automatic 	stay 	were 	denied 	on 	this
basis. 	See In re Cambridge Woodbridge Apartments, LLC, 292 B.R. 832,
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9In Cambridge Woodbridge, in which the debtor owned a 15
building, 180 unit apartment building, the court noted that, by
enacting § 362(d)(3), Congress indicated that it did not intend “to
preclude debtors involved in...[“single asset real estate” cases]
from the relief afforded by Chapter 11....” 	292 B.R. at 838. 	A
similar comment was made by the court in Jacksonville Riverfront,
in which the debtor leased the subject real property to third
parties at a positive cash flow but did not have sufficient funds
to pay a balloon payment on the secured debt. 	215 B.R. at 241-44.
This does not mean that the indicia of bad faith filings
established by case law in “single asset real estate” cases filed
before the enactment of § 362(d)(3) are no longer relevant. 	See In
re State Street Houses, Inc., 356 F.3d 1345, 1347 (11th Cir. 2004).
10 In N.R.G. Investments, a creditor with a junior security
interest on a shopping center, described by the court as an
“albatross,” filed for chapter 11 after obtaining title to the
property at the foreclosure sale. 	99 B.R. at 476.
10
838 (Bankr. N.D. Ohio 2003); In re Jacksonville Riverfront Dev., 215
B.R. 239, 244 (Bankr. M.D. Fla. 1997). 9
The 	Debtors 	also 	deny 	that 	these 	are 	classic 	“new 	debtor
syndrome” 	cases. 	They 	note 	that, 	in 	Matter 	of 	N.R.G. 	Investments,
Inc., 99 B.R. 475, 476 (Bankr. M.D. Fla. 1989), the court concluded
that 	a 	chapter 	11 	case 	filed 	by 	a 	foreclosing 	junior 	lienholder 	to
preserve 	its 	equity 	in 	its 	collateral 	did 	not 	qualify 	as 	a 	“new
debtor syndrome” filing. 10 	They also note that the Debtors were not
formed on the eve of bankruptcy. 	They were formed four months before
the 	chapter 	11 	filings 	and 	for 	business 	reasons 	independent 	of 	the
bankruptcy filing.
Finally, 	the 	Debtors 	argue, 	the 	filings 	are 	not 	merely 	futile
efforts to delay foreclosure. 	The Debtors’ principals have committed
up to $500,000 to fund the Plan. 	Even before 11 U.S.C. § 362(d)(3)
was 	enacted, 	“single 	asset 	real 	estate” 	cases 	were 	permitted 	to
reorganize 	through 	chapter 	11 	when 	there 	were 	sufficient 	funds
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11 In Beach Club, the real property subject to the chapter 11
case was transferred to a newly created limited partnership shortly
before filing to avoid jeopardizing other development projects.
The Beach Club court noted that, while an eve-of-bankruptcy
transfer will cause the court to “raise its eyebrows,” it will not
necessarily result in a finding of bad faith where there is equity
in the real property, the objecting lender is not prejudiced, and
there is a reasonable chance of reorganization. 	22 B.R. at 599-
600. 	In Victory Construction, the bankruptcy court granted relief
from stay to a secured creditor in a “single asset real estate”
case, based on the finding that the case was filed in bad faith,
but granted a stay of the order pending appeal, provided the debtor
performed certain acts comparable to adequate protection of the
security interest. 	The appellate court reversed and remanded,
finding that, after the appeal was filed, during the ongoing
administration of the estate, the debtor had “‘purged’ itself of
bad faith” by proposing a feasible confirmation plan. 	37 B.R. at
226-28.
11
available 	to 	make 	adequate 	protection 	payments. 	See 	In 	re 	Beach
Club, 	22 	B.R. 	597 	(Bankr. 	N.D. 	Cal. 	1982); 	In 	re 	Victory
Construction, Inc., 37 B.R. 222 (Bankr. 9th Cir. 1984). 11
Based on the foregoing, the Court is unable to conclude that the
above-captioned cases were filed in bad faith. 	The Court agrees with
cases 	cited 	above 	that 	the 	enactment 	of 	§ 	362(d)(3) 	infers 	that
“single 	asset 	real 	estate” 	cases 	are 	not 	per 	se 	impermissible. 	By
definition, 	these 	cases 	usually 	involve 	few 	unsecured 	creditors.
Frequently, 	the 	debtors 	themselves 	have 	no 	business 	operations 	and
no 	or 	few 	employees. 	Based 	on 	the 	values 	placed 	in 	the 	Debtors’
Schedules 	of 	Assets 	and 	Liabilities, 	the 	Debtors 	appear 	to 	have
equity 	in 	each 	of 	the 	Properties. 	GE 	Capital 	has 	presented 	no
evidence 	that 	these 	values 	are 	inflated. 	Moreover, 	the 	Debtors
propose to advance substantial new funds to permit a reorganization
plan to be confirmed. 	While the Properties were transferred to newly
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12 As stated in Beach Club: “To find bad faith here would be
tantamount to saying that it would be preferable to wreck...[the
assignor of the real property interest] to obtain for plaintiff a
similar if not identical disposition that is obtainable here, and
would further award plaintiff a substantial windfall of property
equity.” 	22 B.R. at 600.
12
created entities, there is no evidence that GE Capital would have had
any 	greater 	rights 	had 	the 	former 	holder 	of 	the 	junior 	security
interest filed for chapter 11 itself. 12
2. 	Factors Established by 11 U.S.C. § 1112(b)
GE 	Capital 	also 	contends 	that 	the 	cases 	should 	be 	dismissed
based 	on 	other 	factors 	identified 	in 	11 	U.S.C. 	§ 	1112(b). 	Section
1112(b) 	requires 	the 	Court 	to 	convert 	a 	chapter 	11 	case 	to 	chapter
7 or to dismiss it, on request of a party in interest, if one of a
list of factors is established. 	One of those factors is the debtor’s
inability 	to 	confirm 	a 	plan. 	GE 	Capital 	contends 	that 	the 	Debtors
are 	unable 	to 	confirm 	a 	plan 	because 	the 	proposed 	treatment 	of 	its
claim in the Plan does not satisfy 11 U.S.C. § 1129(a)(7). 	Section
1129(a)(7) provides that any creditor whose claim is impaired and has
voted against the plan must receive or retain property of a value not
less than what the creditor would receive in a chapter 7 case.
GE Capital notes that the Plan proposes to make payments to it
from rents paid by the tenants of the Properties. 	It contends that
the Debtors have no other assets to fund the Plan. 	GE Capital notes
that 	it 	holds 	a 	security 	interest 	in 	the 	rents 	as 	well 	as 	the
Properties. 	Therefore, 	the 	Plan 	simply 	gives 	GE 	Capital 	the 	right
to receive or retain money or property which it already has the right
to receive or retain with no risk of a future default. 	It contends
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13At the hearing on the motion, it represented that it would
pay the unsecured creditors after dismissal and foreclosure
(presumably on a voluntary basis) because “it was the right thing
to do.” 	The Court finds this comment disingenuous and unreliable.
13
that there is no plan that the Debtors could propose that would put
GE 	Capital 	in 	a 	better 	position 	than 	it 	would 	be 	in 	a 	chapter 	7
liquidation.
This 	argument 	fails 	for 	at 	least 	two 	reasons. 	If 	the 	Plan 	is
confirmed, 	the 	rents 	will 	not 	be 	the 	sole 	source 	of 	payments 	to 	GE
Capital. 	The Debtors have a commitment for a $500,000 cash infusion
to 	assist 	in 	paying 	debt 	service 	to 	GE 	Capital. 	Second, 	to 	be
confirmed, the Plan need not put GE Capital in a better position than
it 	would 	enjoy 	in 	a 	chapter 	7 	case. 	It must merely propose to pay
GE Capital at least as much as it would receive in a chapter 7 case.
3. 	Abstention Under 11 U.S.C. § 305
Finally, GE Capital asks the Court to abstain from these chapter
11 	cases 	pursuant 	to 	11 	U.S.C. 	§ 	305(a)(1) 	on 	the 	ground 	that 	the
cases 	are 	simply 	two 	party 	disputes 	and 	that 	the 	interests 	of
creditors would be better served by dismissal. 	GE Capital contends
that it is the sole creditor impacted by the bankruptcy proceedings.
Clearly, its interests would be better served by dismissal. 	The only
other 	secured 	creditors, 	the 	property 	tax 	claimants, 	are 	senior 	to
GE 	Capital 	and 	would 	not 	be 	affected 	by 	GE 	Capital’s 	foreclosure
proceedings. 	GE 	Capital 	contends 	that 	the 	Debtors’ 	interests 	are
illegitimate because they were acquired from another entity shortly
before the bankruptcy filing. 13
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GE Capital’s final argument is unpersuasive. 	If these cases are
two 	party 	disputes, 	which 	the 	Court 	should 	abstain 	from 	hearing,
virtually every “single asset real estate” case is likewise subject
to abstention. 	As discussed above, this is not the natural inference
from the enactment of § 362(d)(3). 	Clearly, abstention would not be
in 	the 	Debtors’ 	best 	interests 	nor 	in 	the 	best 	interests 	of 	the
unsecured creditors. 	There appears to be substantial equity in the
Properties, and the Court cannot conclude at this time that the Plan,
or some amendment of it, is unconfirmable. 	As a result, the motion
will be denied.
4. 	Laches
The Debtors contend that the motion should be denied because GE
Capital 	has 	waited 	too 	long 	to 	file 	it. 	They 	note 	that 	the 	cases
were 	filed 	early 	last 	fall. 	Since 	then, 	they 	have 	expended
substantial 	time 	and 	energy 	to 	formulate 	a 	plan 	and 	disclosure
statement and bring it to the point of confirmation. 	If GE Capital
had wanted to bring a motion to dismiss on the grounds of bad faith,
the 	motion 	should 	have 	been 	filed 	promptly 	after 	the 	cases 	were
filed.
The Court agrees that GE Capital’s motion would have been more
persuasive if filed at an earlier time. 	Given the grounds stated for
the 	motion, 	the 	delay 	is 	puzzling. 	However, 	the 	Court 	concludes
that, without regard to the timing of its filing, the motion does not
state a sufficient ground for dismissal. 	Therefore, the Court does
not base its denial of the motion on this ground.
CONCLUSION
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The 	Court 	concludes 	that, 	based 	on 	the 	evidence 	presented 	to
date, these chapter 11 cases do not appear to have been filed in bad
faith and will not be dismissed on that ground. 	Moreover, the Plan
does not appear to violate 11 U.S.C. § 1129(a)(7). 	The Court is not
persuaded 	that 	the 	cases 	are 	merely 	two 	party 	disputes 	which 	it
should 	abstain 	to 	hear 	pursuant 	to 	11 	U.S.C. 	§ 	305. 	The 	Debtors’
argument 	that 	the 	motion 	is 	barred 	by 	laches 	has 	some 	merit.
However, 	the 	Court 	does 	not 	base 	its 	denial 	of 	the 	motion 	on 	this
ground.
Debtors’ counsel are directed to submit a proposed form of order
denying the motion to dismiss. 	Counsel for the Debtors and counsel
for 	GE 	Capital 	are 	directed 	to 	meet 	and 	confer 	concerning 	an
appropriate 	date 	for 	the 	evidentiary 	hearing 	on 	confirmation 	and
other appropriate deadlines. 	A telephone conference may be scheduled
if the Court’s intervention is required to establish these matters.
END OF DOCUMENT
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COURT SERVICE LIST
John H. MacConaghy
MacConaghy and Barnier
645 1st St. W #D
Sonoma, CA 95476
Mike C. Buckley
Reed Smith LLP
101 Second St., Ste. 1800
San Francisco, CA 94105-3659
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