Ria, LLC

UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF COLUMBIA
In re
RIA, LLC,
Debtor.
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Case No. 09-00588
(Chapter 11)
Not for Publication in
West’s Bankruptcy Reporter
MEMORANDUM DECISION RE MOTION TO CONVERT OR DISMISS
The United States Trustee has filed a motion to convert this
case to chapter 7, or in the alternative, to dismiss the case.
The motion will be granted, and the case will be converted to
chapter 7 for the following reasons.
I
The debtor, through counsel, has filed a response (Dkt. No.
62) opposing a conversion of this case, and although requesting
dismissal of the case, contends that conversion or dismissal is
not required. 	The debtor does not dispute that “cause” has been
established for purposes of § 1112(b)(1) (because grounds of
“cause” enumerated in § 1112(b)(2) exist). 	Although conversion
or dismissal is not automatically required when such “cause” is
The document below is hereby signed.
Signed: April 08, 2010.
_____________________________
S. Martin Teel, Jr.
United States Bankruptcy Judge
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established, the debtor’s response 1 demonstrates that this case
must either be converted to chapter 7 or dismissed.
A.
Once cause is established, dismissal or conversion generally
is required “absent unusual circumstances specifically identified
by the court that establish that the requested conversion or
dismissal is not in the best interests of creditors and the
estate. . . .” 	11 U.S.C. § 1112(b)(1). 	The debtor concedes that
“[t]here does not appear to be any unusual circumstances that
would permit this Court from finding that a dismissal or
conversion would not be in the best interests of the creditors”
and that “there is nothing left to reorganize.” 	Response at ¶¶
10 and 12. 2 	In any event, the debtor’s response fails to identify
specific unusual circumstances that establish that conversion or
dismissal is not in the best interests of creditors and the
estate.
1 	The debtor’s co-counsel has also filed a response which
only recites that the debtor consents to dismissal without
setting forth any ground (1) that rebuts the United States
Trustee’s position that the case must be either dismissed or
converted, and (2) that demonstrates that conversion (versus
dismissal) is not in the best interests of creditors and the
estate. 	The discussion that follows, therefore, addresses the
debtor’s original response.
2 	The debtor notes that its main asset has been foreclosed
upon, rendering the case unnecessary for the protection of the
debtor. 	Response at ¶ 3.
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B.
Section 1112(b)(2) can be read as setting forth a basis upon
which the court must deny dismissal or conversion, even when
cause exists for conversion or dismissal and the court is unable
specifically to identify unusual circumstances of the character
specified by § 1112(b)(1) that would justify such a denial. 	As
pertinent here, however, § 1112(b)(2) can be successfully invoked
by a debtor to obtain a denial of conversion only if:
(A) there is a reasonable likelihood that a plan
will be confirmed . . . within a reasonable period of
time; and
(B) the grounds for granting such relief include
an act or omission of the debtor other than under
paragraph (4)(A)--
(i) for which there exists a reasonable
justification for the act or omission; and
(ii) that will be cured within a reasonable
period of time fixed by the court.
11 U.S.C. § 1112(b)(2). 	For three reasons, the debtor cannot
successfully invoke § 1112(b)(2).
First, the debtor does not challenge the United States
Trustee’s assertion that conversion or dismissal is warranted
under § 1112(b)(4)(A), which sets forth as one of the causes for
dismissal or conversion “substantial . . . diminution of the
estate and the absence of a reasonable likelihood of
rehabilitation.” 	Indeed, the debtor recognizes that “the value
of the estate has been greatly diminished” (Response at ¶ 6), and
argues in support of its view that the case should be dismissed
instead of converted, that “the diminution of an estate and the
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absence of any likelihood of rehabilitation favor a dismissal of
the Chapter 11 case.” 	Response at ¶ 11. 	When § 1112(b)(4)(A)
applies, that renders § 1112(b)(2), by its own terms, unavailable
for the court to decide not to dismiss or convert the case.
Second, as required by § 1112(b)(2)(B)(i), the exception can
apply only if there is a “reasonable justification for the act or
omission” that forms the basis of the United States Trustee’s
motion. 	The debtor’s response fails to set forth any such
“reasonable justification.” 	The response merely alleges that the
debtor will remedy within a reasonable period of time the
debtor’s failure to pay quarterly fees and to file monthly
reports of income and expenses with the court since November of
2009. 	But curing a default within a reasonable period of time is
an additional requirement, set forth in § 1112(b)(2)(B)(ii),
independent of the requirement in § 1112(b)(2)(B)(i) of
“reasonable justification.”
Third, the exception of § 1112(b)(2) applies here only if
“there is a reasonable likelihood that a plan will be
confirmed . . . within a reasonable period of time.” 	11 U.S.C.
§ 1112(b)(2)(A). 	The debtor has not alleged that the requirement
of § 1112(b)(2)(A) can be satisfied. 	Indeed, the debtor concedes
that its current plan cannot be confirmed, that the bankruptcy
case is no longer needed for the protection of the debtor, and
that there is nothing to reorganize. 	This single asset real
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estate case has been pending since July 7, 2009, and there is no
reasonable likelihood that a plan will be confirmed within a
reasonable period of time.
II
The remaining issue is whether it is dismissal or conversion
of the case to chapter 7 that “is in the best interests of
creditors and the estate.” 	11 U.S.C. § 1112(b)(1). 	The United
States Trustee seeks conversion and, in the alternative,
dismissal. 	The only creditor who has responded to the motion has
sought conversion of the case.
In opposing conversion as not being in the best interest of
creditors, the debtor only contends that “[i]t cannot be deemed
favorable to creditors by subjecting them unnecessarily to the
automatic stay provisions of 11 U.S.C. § 362 when alternative
remedies of relief pursuant to state law are available.”
Response at ¶ 12. 	That argument fails to acknowledge one of the
key purposes of the automatic stay, which is to prevent a race of
creditors in collecting their claims from whatever assets of an
insolvent debtor remain. 	A chapter 7 case “provides a statutory
means for an orderly liquidation and equitable distribution of
the debtors’ assets.” 	In re the Great Am. Pyramid Joint Venture,
144 B.R. 780, 793 (Bankr. W.D. Tenn. 1992). 	The debtor’s
argument thus rings hollow.
In any event, conversion is warranted because it will ensure
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that an independent fiduciary, a chapter 7 trustee, is in place
to pursue assets and causes of action for the benefit of the
estate and creditors. 	See, e.g., In re Stokes, 2009 WL 3062314
at * 19 (Bankr. D. Mont. 2009) (conversion was in the best
interests of the creditors and the estate because, inter alia, a
trustee will be appointed “to investigate and evaluate the
[d]ebtor’s assets and lawsuits.”) 	Moreover, tools are available
in a chapter 7 case for the benefit of creditors that would be
unavailable outside of bankruptcy, including the use of
examinations under Fed. R. Bankr. P. 2004, and a trustee’s
avoidance powers under chapter 5 of the Bankruptcy Code. 	This
too weighs in favor of conversion. 	See In re Citi-Toledo
Partners, 170 B.R. 602, 609 (Bankr. N.D. Ohio 1994) (“[T]he fact
that creditors will likely enjoy greater rights in bankruptcy
court than they would enjoy in state court militates in favor of
conversion.”). 	Finally, once administration of a chapter 7 case
is completed, that will permit creditors to know that there
likely are no further assets of the debtor worth pursuing.
III
An order follows converting this case to chapter 7.
[Signed and dated above.]
Copies to: Counsel of record via electronic notification.
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