BBB Acquisition, LLC

In re
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF WYOMING
BBB ACQUISITION, LLC,
Debtor.
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Case No. 	10-21002
Chapter 11
OPINION ON THE UNITED STATES TRUSTEE'S AND DILLARD FAMILY
TRUST'S MOTIONS TO CONVERT TO A CHAPTER 7 CASE
On June 1, 2011, this matter came before the court for an Evidentiary hearing on
the Dillard Family Trust's ("Dillard Trust") Motion to Convert Case to Chapter 7, the
BBB Acquisition, LLC's ("Debtor") objection, the objection filed by Fifth Third Bank
("Bank"), and the joinder in the objections filed by Mercer Reynolds ("Reynolds") and
Linger Longer West ("LLW"). 	Upon the motion by the Dillard Trust and no objections
by any of the parties, the court combined the evidentiary hearing with the United States
Trustee's ("UST") Motion to Convert this Chapter 11 Case to a Chapter 7 Case, the
Debtor's objection, the objection filed the Bank and the joinder in objections filed by
Reynolds and LL W. The parties were represented as stated on the record. The court
having reviewed the file, testimony and evidence is prepared to rule.
Jurisdiction
This court has jurisdiction under 11 U.S.C. § 1334. 1 This is a core proceeding
pursuant to 28 U.S.C. § 157(b ). These motions are brought under§ 1112 and related case
law.
1 Unless otherwise indicated, all future statutory references are to the Bankruptcy Code, Title 11 of the
United States Code.
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Facts
The circumstances that brought the Debtor into bankruptcy are well known to the
court. Briefly, the Debtor and the Dillard Trust entered into an contract, whereas, the
Dillard Trust purchased real property in Teton County from the Debtor. The contract
contained an option that required the Debtor to re-purchase the property from the Dillard
Trust. The Dillard Trust invoked the option. The Debtor alleged that it did not have to
re-purchase the property. The parties litigated their claims in the United States Federal
District Court for the District of Wyoming ("District Court"). The District Court found
for the Dillard Trust and ordered specific performance which required the Debtor to re-
purchase the real property. Not able to perform per the District Court judgment,
combined with other circumstances, the Debtor filed for bankruptcy protection. After
relief from stay was granted, by agreement between the parties, both have appealed the
District Court's judgment to the Tenth Circuit Court of Appeals.
Mr. James M. Reynolds ("Reynolds") testified that the Debtor develops "high end"
real estate parcels for sale in Teton County. Mr. Reynolds has an ownership interest in
the Debtor and is also the project manager. As project manager, Reynolds has been the
"point person" for the development of the parcels, including creation and implementation
of the development plan, marketing through the Sothebys agency; pricing, getting letters
of interests, closing on the sale of properties, supervising subcontractors, and negotiating
and complying with the Teton County zoning commission. Mr. Reynold's testified about
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the complexity of selling these parcels and the extensive time that is required to close on a
sale. Mr. Reynolds also testified that although there have been no offers on any parcels
since the summer of2007 due to the economy, there has been interest in parcels owned by
LLW. 2 Mr. Reynolds and Mr. David Spackman ("Spackman") 3 each testified that the
conversion of the case to a Chapter 7 would have a detrimental effect on the prices of the
parcels currently offered for sale. Mr. Spackman testified that, based upon his experience
as a realtor, if the case was convert to a chapter 7, current potential buyers would be
inclined to delay or terminate a purchase and the properties would sell at "much reduced
prices."
Mr. Reynolds testified regarding the Debtor's current financial status. He testified
that LL W owes money to the Debtor based upon a promissory note and those funds are
being used to fund the estate's expenses, while the Debtor markets the parcels. Mr.
Reynolds described the errors in paying estate bills and the steps taken to correct those
errors.
Discussion
Both the Dillard Trust and the UST allege that the Debtor's Chapter 11 bankruptcy
case should be converted to a Chapter 7 case, relying on § 1112(b ). 	Specifically, the UST
alleges that cause exists under§ 1112 (B)(4)(A) and (B) for the case to be converted.
Additionally, the Dillard Trust alleges the Debtor's filing of its petition, administration of
2 LL W is an affiliated entity to the Debtor.
3 David Spackman is an Associated Broker ofSotheby's International Realty, having been retained to sell
the real property.
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its case and the proposed plan violates the Bankruptcy Code's good faith requirement and
constitutes additional grounds for conversion.
The court shall convert a chapter 11 case to a chapter 7 case, absent unusual
circumstances specifically identified by the court that establish that the requested
conversion is not in the best interest of creditors and the estate, if the movant establishes
cause. 4 Cause includes "substantial or continuing loss to or diminution of the estate and
the absence of a reasonable likelihood of rehabilitation;" 5 and, "gross mismanagement of
the estate." 6 The Dillard Trust alleges that cause also exists to convert the case based
upon the Debtor's lack of good faith in filing its Chapter 11 petition, administration of its
case and the contents of the proposed Chapter 11 Plan.
1. 	§ 1112 (B)( 4)(A) conversion based upon substantial or continuing loss to or
diminution of the estate and the absence of a reasonable likelihood of
rehabilitation.
The court's review of the docket, financial statements, testimony and evidence
shows that the Debtor is using its asset of the promissory note with LL W as the source of
funding for the estate during the pendency of this bankruptcy case. 	This is a diminution
of the estate. This asset is being depleted. The Debtor had a plan pending at the time of
this hearing, which was subsequently withdrawn. However, the court finds that the
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4 § 1112(b)(l).
5 § 1112 (b)(4)(A).
6 §1112(b)(4)(B).
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unusual circumstances exception applies and conversion should not be granted on these
grounds. The Debtor is marketing "high end" parcels in Teton County. The sale of these
parcels is complex and complicated by the requirements necessary to sell the property and
the economy. The overall benefit to the estate and creditors is best served by not
converting this case to a Chapter 7 case at this time.
2. 	§ 1112 (B)(4)(B) conversion based upon gross mismanagement of the estate.
The Debtor, through the testimony of Mr. Reynolds, admitted that mistakes were
made in paying bills. These mistakes were corrected. The court finds that Mr. Reynolds'
testimony indicates, that during a difficult time, all efforts are being made to properly
administer the estate and market the estate's assets.
3. 	Conversion based upon Debtor's lack of good faith in filing its petition.
administration of the estate and the proposed plan
The relationship between the Debtor and the Dillard Trust has been and continues
to be, contentious. The Dillard Trust alleges that the Debtor filed for bankruptcy
protection to halt its efforts to execute on the judgment entered in the District Court.
However, the court finds that there appears to be other circumstances, when taken in its
totality, that also contributed to the Debtor filing for bankruptcy protection including, the
economy and the Debtor's loss of its line of credit. The court does not find that the
Debtor's filing for bankruptcy protection shows a lack of good faith.
As stated previously, the Debtor subsequently withdrew the plan pending at the
time of this hearing. Since that time the court has entered orders that allow for other
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parties to file proposed plans.
Considering the best interests of the Debtor and the creditors, including the Dillard
Trust, the court finds that conversion is not in their best interests at this time. Therefore,
the UST's and Dillard Trust's motions to convert the Chapter 11 case to a Chapter 7 shall
be denied without prejudice.
This opinion constitutes the Court's findings of fact and conclusions oflaw.
Separate orders shall be entered pursuant to Fed. R. Bankr. P. 9021.
DATED this ___&____ day of September, 2011.
Service to:
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Brent Cohen
James Belcher
John Patton
Alan Statman
John Smiley
Daniel Morse
By the Court
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