New Meatco Provisions, LLC

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NOT FOR PUBLICATION
UNITED STATES BANKRUPTCY COURT
CENTRAL DISTRICT OF CALIFORNIA
LOS ANGELES DIVISION
In re: ) Case No. 2:13-bk-22155-PC
)
NEW MEATCO PROVISIONS, LLC, ) Chapter 11
)
) MEMORANDUM DECISION
)
) Date: March 5, 2014
) Time: 9:00 a.m.
) Place: United States Bankruptcy Court
) Courtroom # 1468
Debtor. ) 255 East Temple Street
____________________________________) Los Angeles, CA 90012
Debtor, New Meatco Provisions, LLC (“New Meatco”) seeks a third extension of the
exclusivity periods provided in 11 U.S.C. § 1121(b) – (d). The Official Committee of Unsecured
Creditors (“Creditors’ Committee”) not only opposes New Meatco’s motion, but seeks by
competing motion a termination of the exclusivity periods so it can proceed with an alternative
plan. Having considered the papers, the evidentiary record, and arguments of counsel, the court
makes the following findings of fact and conclusions of law pursuant to F.R.Civ.P. 52(a),1 as
incorporated into FRBP 7052 and applied to contested matters by FRBP 9014(c).
1 Unless otherwise indicated, all “Code,” “chapter” and “section” references are to the
Bankruptcy Code, 11 U.S.C. §§ 101-1330 after its amendment by the Bankruptcy Abuse
FILED & ENTERED
MAR 10 2014
CLERK U.S. BANKRUPTCY COURT
Central District of California
BY DEPUTY CLERK	egarcia
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I. STATEMENT OF FACTS
On May 8, 2013, New Meatco filed its voluntary petition under chapter 11 of the
Bankruptcy Code in the above referenced case. New Meatco filed chapter 11 for the specific
purpose of conducting an orderly liquidation of its remaining assets to pay allowed claims in the
case. New Meatco was not operating on the petition date, having sold all of its operating assets,
including inventory and accounts receivable, to Harvest Meat Company, Inc. prior to bankruptcy.
In its schedules, New Meatco disclosed liabilities in excess of $33 million, and assets consisting
of cash and deposits totaling $891,836, office equipment valued at $3,051, and avoidance actions
of an unknown value. The Creditors’ Committee was appointed on June 3, 2013.
On September 4, 2013, New Meatco filed its first motion seeking an extension of the
exclusivity periods under § 1121. There was no opposition to the motion. On October 17, 2013,
an order was entered (1) extending the 120-day period in which New Meatco had the exclusive
right to file a plan from September 5, 2013 to and including October 31, 2013; and (2) extending
the 180-day period within which New Meatco had the exclusive right to obtain acceptance of a
plan from November 4, 2013 to and including December 31, 2013.
On November 1, 2013, the court approved a stipulation between New Meatco and the
Creditors’ Committee that provided for a second extension of New Meatco’s exclusivity periods
under § 1121. Under the stipulation, New Meatco’s exclusive right to file a plan was extended
from October 31, 2013 to and including November 5, 2013, and New Meatco’s exclusive right to
obtain acceptance of a plan was extended from December 31, 2013 to and including January 4,
2014.
On November 5, 2013, New Meatco filed its original disclosure statement and proposed
plan, and set a hearing on the disclosure statement for December 11, 2013. Before that hearing
Prevention and Consumer Protection Act of 2005, Pub. L. 109-8, 119 Stat. 23 (2005). “Rule”
references are to the Federal Rules of Bankruptcy Procedure (“FRBP”), which make applicable
certain Federal Rules of Civil Procedure (“F.R.Civ.P.”). “LBR” references are to the Local
Bankruptcy Rules of the United States Bankruptcy Court for the Central District of California
(“LBR”).
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was conducted, New Meatco filed a first amended disclosure statement and first amended plan
on November 27, 2013, which contained terms substantially different that those set forth in the
original disclosure statement and plan. The court declined to permit New Meatco to proceed to a
hearing on its first amended disclosure statement on December 11, 2013, and New Meatco
ultimately set a hearing on the adequacy of its first amended disclosure statement for January 22,
2014. On December 11, 2013, however, New Meatco again changed its mind by filing yet
another disclosure statement and proposed plan -- New Meatco’s Second Amended Disclosure
Statement and Second Amended Plan. The Creditors’ Committee responded by filing its motion
on December 18, 2013, seeking a termination of New Meatco’s exclusivity periods.2
By its motion filed on January 3, 2013, New Meatco seeks a further extension of the
exclusive period to obtain acceptance of a plan from January 4, 2014, to and including March 16,
2014. New Meatco asks that exclusivity be extended so that it can move toward confirmation
and resolve disputed issues existing between itself, the Creditors’ Committee and other
constituents through mediation, either voluntarily or pursuant to Court order.3 New Meatco
argues that “the prospect of competing third-party plans and confirmation litigation at this
juncture in the case, which would further delay the pending disclosure statement hearing, would
only serve as a distraction, with the potential to waste the resources of parties in interest as well
as this Court.”4
The Creditors’ Committee, on the other hand, points to the legislative purpose of the
exclusivity period, which it argues is to “strike a balance between debtors’ interests in successful
reorganization and the legitimate interest of creditors, whose money ‘is in the debtor’s
enterprise.’”5 The Creditors’ Committee not only opposes New Meatco’s request for a third
2 Motion for Order Terminating the Exclusive Periods in Which Only the Debtor May File a
Plan and Solicit Acceptances Thereof (“Creditors’ Committee’s Termination Motion”).
3 Motion for Third Order Extending the Debtor’s Exclusivity Period Pursuant to 11 U.S.C. §
1121(B)-(D) (“New Meatco’s Exclusivity Motion”), 2:1-5; 14:5-10.
4 Id. at 2:5-8; 14:10-12.
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exclusivity extension but seeks immediate termination of New Meatco’s remaining exclusivity
period because “(i) [New Meatco] has already received two exclusivity extensions and has failed
to propose a plan that has the support of the Committee, (ii) [New Meatco] is not operating a
business, has no assets to liquidate and is only seeking to recover the proceeds of claims and
causes of action, (iii) this case is not large or complex, and (iv) the creditors are the only parties
in interest that will receive anything under a confirmed plan and should thus have the
opportunity to file a plan that the creditors can support.”6
After the initial hearing on January 5, 2014, the court continued the competing motions to
February 5, 2014 -- the date scheduled for a hearing on New Meatco’s Second Amended
Disclosure Statement. However, all matters were continued to March 5, 2014, as the parties
sought unsuccessfully to reach a consensual resolution of the disputed issues. After a hearing on
March 5, 2014, the court took the matters under submission.
II. DISCUSSION
This court has jurisdiction over this contested matter pursuant to 28 U.S.C. §§ 157(b) and
1334(b). This matter is a core proceeding under 28 U.S.C. § 157(b)(2)(A) and (O). Venue is
appropriate in this court. 28 U.S.C. § 1409(a).
In chapter 11, a debtor in possession has the exclusive right to file a plan during the first
120 days following the filing of the petition. 11 U.S.C. § 1121(b). A debtor in possession also
has the exclusive right for a period of 180-days to obtain the acceptance of any plan filed within
the 120-day period. 11 U.S.C. § 1121(c)(3). The court may, on the request of a party in interest,
reduce or increase the 120-day period or the 180-day period. 11 U.S.C. § 1121(d)(1). The party
seeking such an extension or reduction must establish that there is cause for the court to do so
based upon the facts and circumstances of the particular case. See, e.g., In re Dow Corning
Corp., 208 B.R. 661, 663 (Bankr. E.D. Mich. 1997) (“[T]he party seeking to terminate or modify
5 Opposition to Motion for Third Order Extending the Debtor’s Exclusivity Period Pursuant to
11 U.S.C. § 1121(B)-(D), 2:2-3 (quoting H.R. Rep. No. 95-595, at 232 (1977), reprinted in 1978
U.S.C.C.A.N. 5963,6191) (emphasis added).
6 Id. at 3:13-18.
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a debtor’s exclusivity period bears the burden of proof since it is the moving party who seeks to
change the status quo.”); In re Newark Airport/Hotel Ltd. P’ship, 156 B.R. 444, 451 (Bankr.
D.N.J. 1993) (“Since the debtor seeks the extension, the burden is on it to demonstrate the
existence of good cause.”), aff’d, 155 B.R. 93 (D.N.J. 1993).
To divine whether there is cause to extend or reduce exclusivity, courts typically apply a
number of non-exclusive factors – the so-called Dow Corning factors, which include:
1. The size and complexity of the case;
2. The necessity of sufficient time to permit the debtor to negotiate a plan of reorganization
and prepare adequate information;
3. The existence of good faith progress toward reorganization;
4. The fact that the debtor is paying its bills as they come due;
5. Whether the debtor has demonstrated reasonable prospects for filing a viable plan;
6. Whether the debtor has made progress in negotiating with its creditors;
7. The amount of time which has elapsed in the case;
8. Whether the debtor is seeking an extension of exclusivity in order to pressure creditors to
submit to the debtor’s reorganization demands; and
9. Whether an unresolved contingency exists.
Dow Corning, 208 B.R. at 664-665; see Official Comm. of Unsecured Creditors v. Henry Mayo
Newhall Mem’l Hosp. (In re Henry Mayo Newhall Mem’l Hosp.), 282 B.R. 444, 452 (9th Cir.
BAP 2002) (“A variety of matters probative to § 1121(d) ‘cause’ are standardly applied.”). “A
decision whether to extend or terminate exclusivity for cause is within the discretion of the
bankruptcy court and is fact-specific.” In re Adelphia Communications Corp., 352 B.R. 578, 586
(Bankr. S.D.N.Y. 2006).
At this time, the totality of the Dow Corning factors weigh in favor of the Creditors’
Committee’s request that New Meatco’s Exclusivity Motion be denied and that exclusivity be
terminated. New Meatco is not an operating entity. There is no business to reorganize. This is a
liquidation case which is neither large or complex, but it has been pending for nearly a year
without a confirmed plan. New Meatco filed three plans in six weeks, but the court has yet to
proceed to the merits of a disclosure statement because of acrimony and finger-pointing between
New Meatco and the Creditors’ Committee which disrupted negotiations in November and
December and has been followed by protracted litigation between the parties. While New
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Meatco has made progress in negotiating with the Creditors’ Committee and other constituents
towards a consensual plan since the Creditors’ Committee filed its Temination Motion, those
negotiations continue to be acrimonious and have reached an impasse. There may be unresolved
avoidance actions, but there are no unresolved contingencies that would prevent New Meatco
from proposing a plan to distribute to creditors the liquidated funds of the estate. The court also
questions whether New Meatco thoroughly appreciates its fiduciary duties to the estate and its
creditors given its apparent intransigence over the current language of an Exculpation and
Limited Liability Clause contained in its proposed plan – the scope of which the Creditors’
Committee attacked at oral argument and will not accept. Finally, there is little credible
evidence upon which the court can base a finding that New Meatco will either make further
progress in negotiating with creditors or be able to present a plan of liquidation that has creditor
support and a prospect at confirmation within a reasonable period of time. The court agrees with
the Creditors’ Committee that it is time “the playing field [is] leveled so that all the players,
including the debtor, [have] an even chance in proposing a . . . plan which might be acceptable to
the creditors in the case.” In re General Bearing Corp., 136 B.R. 361, 367 (Bankr. S.D.N.Y.
1992).
At oral argument, the Creditors’ Committee advised the court that New Meatco had
threatened to convert the case to a case under chapter 7 rather than agree to modify the
Exculpation and Limited Liability Clause contained in its proposed plan, and asked that the court
order New Meatco to provide the Creditors’ Committee with 10-days notice of any request for
conversion made pursuant to § 1112 (a). The court declines to make such an order. However,
New Meatco is reminded that any dismissal of a chapter 11 case, or conversion of a chapter 11
case to a case under chapter 7, requires 21-days notice by mail under FRBP 2002(a)(4). Notice
under FRBP 2002(a)(4) has been interpreted by bankruptcy courts to include a motion by a
chapter 11 debtor in possession to convert to chapter 7. See, e.g., In re Modern Metal Prods.,
422 B.R. 118, 121 (Bankr. N.D. Ill. 2009) (“[A] Debtor’s request to convert does not have an
automatic or self-executing effect, but instead ‘shall be on motion filed and served as required by
Rule 9013’”); In re Adler, 329 B.R. 406, 409 (Bankr. S.D.N.Y. 2005) (“The fact that a motion
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pursuant to section 1112(a) must be noticed to creditors, pursuant to Bankruptcy Rule 2002 and
not by a simple filing of a notice to convert, evidences the Court’s continued authority to
determine the motion.”).
CONCLUSION
Based upon the foregoing, the court will deny New Meatco’s Exclusivity Motion and
grant the Creditors’ Committee’s Termination Motion. The Creditors’ Committee must not file
or serve a disclosure statement or proposed plan of reorganization earlier than 5:00 p.m. on
March 17, 2014. In the event a disclosure statement and proposed plan of reorganization is filed
by the Creditors’ Committee not later than March 21, 2014, a hearing on the adequacy of the
Creditors’ Committee’s disclosure statement may be set on shortened time for 9:00 a.m. on April
9, 2014, in the United States Bankruptcy Court, Courtroom # 1468, 255 E. Temple Street, Los
Angeles, CA 90012; and the Creditors’ Committee must serve notice of the date, time and place
of the hearing by fax, email, overnight mail, or personal service on New Meatco, New Meatco’s
counsel, the United States trustee, and any other party in interest entitled to notice under the
rules.
The court will enter separate orders consistent with this Memorandum Decision.
###
Date: March 10, 2014
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