SRCR, LLC

UNITED STATES BANKRUPTCY COURT
EASTERN DISTRICT OF NORTH CAROLINA
WILMINGTON DIVISION
IN RE:
SRCR, LLC,
DEBTOR.
CASE NO. 12-01339-8-JRL
CHAPTER 11
ORDER
This matter came before the court on Park Sterling Bank’s (“Park Sterling”) motion for
relief from the automatic stay and the debtor’s motion for contempt and sanctions for violation of
the automatic stay. A hearing was held on March 22, 2012, in Raleigh, North Carolina.
BACKGROUND
The debtor, SRCR, LLC, is a North Carolina corporation engaged in the business of
owning and leasing construction equipment. The debtor filed a voluntary petition for relief
pursuant to chapter 11 of the Bankruptcy Code on February 21, 2012. Member-manager J. Keith
Stark (“Mr. Stark”) has a 90% ownership interest in the debtor, with the remaining 10%
belonging to Mr. Stark’s wife. Virtually all of the debtor’s business is with Cape Fear Paving,
LLC and B&K Coastal, LLC, both of which are substantially owned by Mr. Stark (“sister
corporations”).
SO ORDERED.
SIGNED this 05 day of April, 2012.
________________________________________
J. Rich Leonard
United States Bankruptcy Judge
____________________________________________________________
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On June 7, 2007, the debtor executed a promissory note for the benefit of Park Sterling,
pursuant to which the debtor borrowed $555,000.00. The promissory note obligated the debtor
to make monthly payments of approximately $5,100.00. The debtor also executed a business
loan agreement and an aircraft security agreement, pledging a Piper Navajo Airplane, Serial No.
31-8112036 (“airplane”) as collateral for the debtor’s obligation under the promissory note. On
July 15, 2010, the debtor and Park Sterling entered into a change in terms agreement that
extended the maturity date of the promissory note to July 15, 2013, and in conjunction with that
agreement, the parties executed a second business loan agreement. Park Sterling is the current
owner and holder of all of the aforementioned documents (collectively “loan documents”). As of
the petition date, Park Sterling’s claim was approximately $423,102.14.
On or about December 14, 2011, the debtor received a notice of default from Park
Sterling, informing the debtor of its defaults under the loan documents and demanding that they
be cured. The defaults were not cured, and on February 3, 2012, Park Sterling repossessed the
airplane. Several weeks later on February 21, 2012, the debtor filed a petition for relief pursuant
to chapter 11 of the Bankruptcy Code. After Park Sterling denied several requests for the return
of the airplane, the debtor moved the court to hold Park Sterling in contempt and impose
sanctions for violation of the automatic stay on February 27, 2012. On March 8, 2012, Park
Sterling simultaneously filed a response to the debtor’s motion for contempt and sanctions and a
motion for relief from the automatic stay.
At the hearing, Mr. Stark testified that the airplane was necessary for his travel to
prospective and active job sites of the debtor’s sister corporations, i.e., the corporations that lease
equipment from the debtor. Furthermore, Mr. Stark testified that given the current economic
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1 See 1 Keith M. Lundin, Chapter 13 Bankrupty § 75.1 (3d ed. 2000 & Supp. 2004), for a
discussion of the current divide in the courts on how to proceed when a secured creditor
repossesses collateral prior to the petition date. Although this particular text focuses on chapter
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climate, it has been necessary for the sister corporations to expand the geographic area in which
they conduct business. While the vast majority of the airplane’s flights were business-related,
Mr. Stark admitted that he had used the airplane for personal reasons on various occasions. Mr.
Stark also testified that at the time of the notice of default, the debtor was only fifteen days
delinquent on its monthly payment to Park Sterling, and that the debtor has the present ability to
come current on its payments. Park Sterling introduced a receipt from Oak Island Aviation,
evidencing that when Park Sterling repossessed the airplane, it was required to pay $1,000.00 for
an unpaid maintenance bill.
DISCUSSION
A. Motion for contempt and sanctions
The debtor contends that the repossessed airplane is property of the estate in bankruptcy,
and because Park Sterling refused to turnover the airplane, it is in violation of the automatic stay
pursuant to 11 U.S.C. § 362(a)(3). Furthermore, the debtor argues that a finding of contempt and
imposition of sanctions are particularly appropriate given the extended delay between the
debtor’s demand for turnover and Park Sterling’s motion for relief from the automatic stay. Park
Sterling contends that the appropriate legal procedure for return of the airplane—having been
repossessed prior to the petition date—is a motion for turnover pursuant to 11 U.S.C. § 542(a).
The jurisprudence in this district is clear that if a creditor refuses to turnover property that
was repossessed prior to the petition date, the creditor must ensure that the issue of rightful
possession is promptly placed before the court.1 In most cases, creditors comply with this
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13, the discussion is equally applicable to chapter 11 as well.
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requirement by moving the court for relief from the automatic stay. In this case, the court finds
that the issue was placed before the court in sufficient time so that sanctions will not be imposed
against Park Sterling. Although Park Sterling did not file a motion for relief from the automatic
stay until March 8, 2012, the court finds that Park Sterling could rely on the debtor’s motion for
contempt and sanctions as placing the issue of rightful possession of the airplane before the
court.
B. Motion for relief from the automatic stay
Park Sterling claims that it is entitled to relief from the automatic stay pursuant to 11
U.S.C. § 362(d)(2). Section 362(d)(2) provides that the court shall grant relief from the
automatic stay if (1) the debtor has no equity in the subject property and (2) the subject property
is not necessary for an effective reorganization. 11 U.S.C. § 362(d)(2). The parties stipulated
that the debtor has no equity in the airplane, so the only relevant issue is whether the airplane is
necessary for an effective reorganization.
In support of its motion for relief from the automatic stay, Park Sterling takes the position
that it is implausible to consider the airplane necessary for an effective reorganization of the
debtor, because the debtor’s only function is leasing construction equipment—a function that
does not require air travel. Instead, Park Sterling contends that the airplane serves more as a
personal luxury for Mr. Stark than a necessary business expense of the debtor. Furthermore,
even if the airplane is used solely for transporting Mr. Stark to the job sites of sister corporations,
Park Sterling argues that the airplane is nevertheless an unnecessary expense when the
alternatives are considered. For example, project foremen are present at a majority of the job
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sites, and these individuals could be charged with the duties that supposedly require Mr. Stark’s
presence.
Opposing Park Sterling’s motion, the debtor contends that the airplane is and will
continue to be necessary for the debtor’s effective reorganization. The debtor acknowledges that
the airplane is used to obtain and manage jobs for the debtor’s sister corporations, rather than the
debtor directly. However, the debtor’s sole function is leasing construction equipment to the
sister corporations, making the debtor’s business completely dependent on the sister
corporations. Furthermore, Mr. Stark testified that the airplane is necessary for the sister
corporations to serve an ever-widening geographic area. Therefore, the debtor concludes that
because the airplane is necessary to the sister corporations’ businesses, it is also necessary for an
effective reorganization of the debtor.
Based on the evidence presented, the court finds that the airplane is necessary for an
effective reorganization of the debtor. Although Mr. Stark admittedly used the airplane for
personal reasons on occasion, the clear evidence is that the vast majority of the airplane’s flights
were for business purposes. The airplane is used by Mr. Stark to procure and maintain business
for the sister corporations, which is necessary for the function the debtor’s business.
Furthermore, in this case, the monetary default was extraordinarily slight and all the evidence
supports that the airplane has been well maintained.
CONCLUSION
Based on the foregoing, the debtor’s motion for contempt and sanctions for violation of
the automatic stay is DENIED, and Park Sterling’s motion for relief from the automatic stay is
DENIED. However, the debtor must come current on all payments presently due to Park
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Sterling, including payments that have come due since the airplane was seized. In addition, the
debtor must pay Park Sterling $1,000.00 as reimbursement for the unpaid maintenance bill.
When these certified funds are received by Park Sterling, it is to deliver the airplane—at its own
expense—back to the place where the airplane was seized.
END OF DOCUMENT
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