KEVIN J. CAREY, Bankruptcy Judge.
All Land Investments, LLC (the "Debtor") filed a petition for relief under chapter 11 of the United States Bankruptcy Code on October 29, 2009 (the "Petition Date"). On that same date, the Debtor filed a plan of liquidation and disclosure statement, which (among other things) proposed to deed certain real property to its secured creditors in a "dirt-for-debt" swap.
On January 13, 2012, Citizens filed the "Motion to Allow the Admission of Additional Evidence with Respect to the Objection of RBS Citizens to Debtor's Amended Plan of Liquidation and the Motion of RBS Citizens for Relief from the Automatic Stay" (the "Motion for Additional Evidence") (D.I. 232). The Debtor filed an objection to the Motion for Additional Evidence on February 7, 2012 and a hearing on the Motion for Additional Evidence was held on February 14, 2012.
The following matters are before the Court for consideration:
For the reasons that follow, the request for confirmation of the Amended Plan, the Motion to Change Ballot, and the Motion for Additional Evidence will be denied. The Stay Relief Motion will be granted.
The Debtor is a Delaware limited liability company that was formed in November 2004 for the specific purpose of purchasing the real property known as the Old Country Farm Subdivision located in Clayton, Kent County, Delaware. (Discl. St. at 9). The Debtor planned to develop the Old Country Farm Subdivision in eight phases.
On May 30, 2006, Citizens extended two loans to the Debtors. The first was a land acquisition loan in the original principal amount of Eleven Million Nine Hundred Twenty-Five Thousand Dollars ($11,925,000.00) (the "Land Acquisition Loan"). The second loan included a loan for land acquisition and site improvements in the original principal amount of Four Million Eight Hundred Fifty Thousand Dollars ($4,850,000.00) (the "Second Land Acquisition Loan"), and a letter of credit line of credit (the "Line of Credit") in the amount of One Million Five Hundred Thousand Dollars ($1,500,000.00).
The Land Acquisition Loan is secured by a first priority mortgage (the "Land Acquisition Mortgage") on the Old Country Farm Subdivision (sometimes referred to as the "Mortgaged Premises"), the Debtor's primary asset. (See Citizens' Ex. 10; Tr. 10/21 at 48:22-25). The Second Land Acquisition Loan also is secured by, among other things, a mortgage against the Old Country Farm Subdivision ("Second Land Acquisition Mortgage"). (See Citizens Ex. 13; Tr. 10/21 at 49:20-25).
The original letter of credit issued by Citizens under the Line of Credit has been replaced with three Irrevocable Standby Letters of Credit issued on April 8, 2009 in the aggregate face amount of $1,043,966.50 (the "Letters of Credit").
The Debtor defaulted on its obligations under the Loan Documents prior to March 2009. (See Tr. 10/21 at 54:5-11). With the Debtor's consent, on June 23, 2009, the Superior Court of the State of Delaware in and for Kent County entered final judgments in favor of Citizens and against Debtor in the amounts of $11,470,386.67 and $3,086,975.70. (See Tr. 10/21 at 54:13-18; Citizens' Exs. 7, 14).
As of the confirmation hearing, the principal owing to Citizens under both Loans was $12,498,520.36. (Tr. 10/21 at 64:21-65:8). However, Citizens asserts that after adding in various fees (including, but not limited to, attorney fees, late fees, and appraisal fees) and interest due as of the confirmation hearing, the total amount owed by the Debtor to Citizens exceeds $14.7 million. (See Tr. 10/21 at 17:11-17, 51:4-53:20).
The Debtor's Amended Plan classifies claims and interests into six classes:
Class 1 Pre-Petition Real Estate Tax
Claims and Other Secured Claims of
Governmental Units,
Class 2 Secured Claim of Citizens,
Class 3 Secured Claim of KSJS Investment
Associates, LLC ("KSJS"),
Class 4 Priority Non-Tax Claims,
Class 5 Allowed General Unsecured
Claims, and
Class 6 Holders of Interests.
The Amended Plan classifies Classes 1, 2, 3 and 5 as impaired under the terms of the plan. (Ex. D-1, Art. II). Class 1 includes the $3,000 claim of the City of Clayton. (Ex. D-1, Ex. D-5). The City of Clayton holds an escrow account from the Debtor in the amount of $5,084.26 (D.I. 70, Amended Schedule B).
The Amended Plan proposes to pay Citizens' Class 2 secured claim by giving Citizens an option: (i) the Debtor will surrender the Citizens Collateral to Citizens by delivery of a deed on the Effective Date, or (ii) the Debtor will authorize Citizens to foreclose on the Citizens Collateral on the Effective Date.
The Amended Plan provides that KSJS's Class 3 secured claim also will receive a deed to its collateral in satisfaction of its secured claim.
The Class 5 unsecured creditors of the Debtor, other than Citizens' deficiency claim, include Frank Zeccola, Lawrence A. Zeccola, Sr., FLZ Development, LLC, Zeccola Building, Inc. and Huntington Development, LLC. (Ex. D-5). The relationships between the Debtor and these Class 5 unsecured creditors is as follows:
Solicitation packages containing the ballot, the Solicitation Procedures Order dated March 4, 2010 (D.I. 103), the Disclosure Statement, the Amended Plan, and a transmittal letter were sent to all classes. Under the terms of the Solicitation Procedures Order, the deadline for creditors to accept or reject the Plan was April 12, 2010.
Classes 1 and 3 voted to accept the Amended Plan. Moreover, all Class 5 unsecured claims, except Citizens and Crouse Brothers, Inc., voted to accept the Amended Plan. (Ex. D-5). Citizens submitted two Class 5 general unsecured claim ballots, in the amounts of $3,086,975 and $4,970,386.67, rejecting the Amended Plan. (Id). However, because the Amended Plan provides that the amount of Citizens deficiency claim would be determined at the Confirmation Hearing, the Debtor listed the amount of Citizens Class 5 claim as "unknown." (Id.).
On April 9, 2010, Crouse Brothers, Inc. ("Crouse"), holder of a Class 5 unsecured claim in the amount of $77, 267.60, submitted
Prior to the Confirmation Hearing, the parties stipulated to the qualifications of two experts offering appraisal testimony related to the value of Citizens Collateral: (i) Citizens' expert, Michael J. Acquaro-Mignogna ("Mignogna"), and (ii) the Debtor's expert, Vincent D. Quinn ("Quinn"). Mignogna testified that the market value of Citizens Collateral as of March 19, 2010 is Six Million Five Hundred Thousand Dollars ($6,500,000). (Citizens Ex. 18). Quinn testified that the market value of Citizens Collateral as of January 21, 2010 is Sixteen Million Five Hundred Fifty Thousand Dollars ($16,500,000). (Ex. D-8). Based on the experts' testimony, I find as follows.
The Old Country Farm Subdivision is a 412-lot, single-family residential subdivision located on Underwoods Corner Road in Clayton, Kent County, Delaware. (Citizens Ex. 18, Mignogna Report, at 2 (the "Mignogna Report")). From 2006 through 2008, the Debtor sold a total of seventeen (17) lots. (Tr. 10/21 at 23:1-7.) In 2009, only two lots sold were sold, which lots were subject to KSJS's liens. (Tr. 10/21 at 23:8-17.) The Debtor sold no lots in 2010. (Tr. 10/21 at 24:20-24.)
The Old Country Farm Subdivision currently has an unsold inventory of 392 lots. (Mignogna Report at 2). Of the 392 remaining lots, 62 are "approved-improved" lots, and the remaining 330 lots are "approved-unimproved" lots. (Id.; Tr. 10/6 at 76).
The Debtor purchased the Old Country Farm Subdivision in 2005 as evidenced by a deed dated September 30, 2005, (Mignogna Report at 9; Tr. 10/6 at 76), reflecting consideration of $16,980,000.00 for the Mortgaged Premises, which equates to $41,214.00 per lot. (Tr. 10/6 at 76-77).
The Debtor offered fourteen model homes at the Old Country Farm Subdivision with prices ranging from $210,900.00 to $271,900.00 exclusive of options, upgrades and premiums. (Quinn Report, Ex. D-8, at 4). The Debtor sold its first home at Old Country Farm in March 2007 and continued marketing homes until late 2009. (Tr. 10/6 at 46 (Quinn)). During this period of time, the Debtor sold a total of 19 homes representing less than 5% of the available lots at Old Country Farm. (Id.)
Old Country Farm is surrounded by the following competing residential subdivisions, most located within a three-mile radius. As of the date of the expert reports, the competing residential subdivisions had large inventories of unsold lots:
(Tr. 10/6 at 47-50 (Quinn); Quinn Report, at 20-36).
The competitive developments identified by the Debtor's appraiser have a total of 762 unsold lots. (Tr. 10/6 at 50(Quinn)). When the 392 unsold lots at the Old Country Farm Subdivision are added to this total, it results in a total of 1,143 unsold lots within a three-mile radius of and including the Mortgaged Premises. (Id.).
The median effective household buying income or disposable income after federal taxes in Kent County was estimated to be $38,828, which was well below the state-wide average of $44,520. (Quinn Report, at 10). Further, the reported unemployment rate for Kent County in January 2010 was 9.7%, which was higher than the Delaware state-wide average of 9.0%. (Mignogna Report, at 20).
The residential housing market has experienced a severe and unprecedented decline with limited sales activity in the area of the Mortgaged Premises over the last three years. (Tr. 10/6 at 42, 57 (Quinn)). Consistent with this decline in the housing market, the competitive housing developments within a three mile radius of the Mortgaged Premises showed limited sales activity over the last twelve months. (Quinn Report, at 32; Tr. 10/6. at 57-58(Quinn)).
The competitive housing developments identified above had per month sales over the last twelve months as follows: Hickory Hollow (1.25); Providence Crossing (.67); Hickory Hollow # 2 (1.42); Jockey Hollow (.92); and Willowwood (.77). (Id.).
Both appraisers agree that the highest and best use for the property is for continued residential development of improved lots and future residential development of unimproved lots when market conditions warrant. (Mignogna Report, at 68-69, Tr. 10/6 at 83-84 (Mignogna), Quinn Report at 47-49).
Mignogna prepared a written appraisal dated March 19, 2010 for the Old Country Farm Subdivision, utilizing both a sales comparison approach and a subdivision development analysis.
Mignogna's report assumes the overall cost to complete the infrastructure at the Old Country Farm Subdivision will be $8,403,000.00 which would be paid by any future purchaser of the property. (Mignogna Report at 2; Tr. 10/6 at 82-83 (Mignogna)). The anticipated costs to complete the infrastructure were provided by a representative of Zeccola Builders. (Id.).
Mignogna utilized the sales comparison approach in assessing the fair market value of the Mortgaged Premises. The sales comparison approach to market value is predicated upon prices paid and actual market transactions and current listings for comparable properties. (Mignogna Report at 71). The sales comparison approach is the most reliable approach to land value when a sufficient number of reliable, comparable sales are available. (Id. at 71, Tr. 10/6 at 85 (Mignogna)).
Mignogna examined sales of approved/unimproved lots at six comparable developments as part of his sales comparison analysis:
-----------------------------------------------------------------------------------Date of Sale Location Total Price Price per lot ----------------------------------------------------------------------------------- August 2009 Whitetail Run Kenton $805,000 (23 lots) $35,000 Hundred, DE ----------------------------------------------------------------------------------- July 2007 Greene Hill Farms $7.3 million (138 lots) $52,899 Estate Smyrna, DE ----------------------------------------------------------------------------------- Feb 2006 Hickory Hollow Smyrna, $13 million (325 lots) $40,000 DE ----------------------------------------------------------------------------------- listing (1½ years) Briarbush Road North $1.63 million (56 lots) $17,000 Murderkill Hundred, DE ----------------------------------------------------------------------------------- listing since Aug 2006 Tower Hill Estates $1.9 million (65 lots) $29,231 South Murderkill Hundred, DE ----------------------------------------------------------------------------------- listing (1 year) Chestnut Grove Farms $4.9 million (179 lots) $27,374 Dover, DE -----------------------------------------------------------------------------------
(Mignogna Report at 75-83, Tr. 10/6 at 85-91 (Mignogna)).
Mignogna also reviewed other multiple subdivision listings in Kent County, Delaware, and determined that an appropriate "asking price per lot" ranges between $16,204 and $37,500. (Mignogna Report at 84). After identifying the comparable properties, Mignogna further analyzed the comparable sales using a number of factors including financing terms, conditions of sale, market conditions, location, project size, property density and other factors. (Mignogna Report at 85-86; Tr. 10/6 at 92-94 (Mignogna)). Mignogna concluded that the appropriate unit rate for the 392 subject lots on the Mortgaged Premises is approximately $17,500.00 per lot under the sales comparison approach. (Mignogna Report at 88, Tr. 10/6 at 94-95 (Mignogna)). This results in a land value of $6,860,000.00 for the 392 lots at Old Country Farm. (Id.).
Mignogna also utilized a second methodology known as the subdivision development analysis to value the Mortgaged Premises. He described this approach as:
(Mignogna Report at 103).
The first step in a development analysis is to determine the income that will be generated by the development. (Tr. 10/6 at 102 (Mignogna)). Based upon an analysis of the local housing market, Mignogna
Mignogna also calculates an absorption rate for sale of homes at the Mortgaged Premises. Mignogna calculates sales of.67 units per month in year one. His projected absorption rate increases to one sale per month for the second year of the project, gradually increases to two sales per month in year four, four sales per month in year eight and in each remaining year of the projected selling period. (Mignogna Report at 105; Tr. 10/6 at 105 (Mignogna)).
Mignogna also applies a discount rate to the projected cash flows from the Mortgaged Premises. The discount rate is the rate of return necessary to attract capital, and is influenced by the degree of risk, future inflation assumptions and the rates of return available from other investments. (Mignogna Report at 108). After reviewing industry discount rates in the Korpacz Real Estate Investor Survey and rates published in a Developer Survey found on realty.rates.com, Mignogna applies a discount rate of 16% for the Mortgaged Premises. (Id. at 109-110).
Mignogna's discounted cash flow analysis results in an "as is" fair market value for the remaining 392 lots at Old Country Farm of $6,470,000.00, which equates to a per lot price of $16,505. (Id. at 111; Tr. 10/6 at 110 (Mignogna)).
Based upon the results from the sales comparison approach ($6,860,000) and subdivision development approach ($6,470,000), Mignogna concludes that the fair market value of the 392 remaining lots at Old Country Farm, including both improved and unimproved lots, is $6,500,000.00. (Mignogna Report at 118, Tr. 10/6 at 111 (Mignogna)).
Mignogna also analyzed the liquidation value of the Mortgaged Premises, assuming a limited marketing effort of only 90 days is allowed for the completion of a sale. Mignogna testified that the liquidation value of the Mortgaged Premises is $3,900,000.00. (Citizens Ex. 17, Tr. 10/6 at 112-113 (Mignogna)).
Quinn also testified about the value of the Old Country Farms Subdivision at the hearing in this matter on October 6, 2010. Quinn did not use the sales comparison approach in his report because, in his opinion, there was insufficient market data over the last three years to perform the necessary analysis. (Quinn Report at 50, Tr. 10/6 at 24 (Quinn)).
Instead, Quinn relied upon a subdivision development analysis. Quinn performed a market analysis and determined that homes in Old Country Farms Subdivision would sell at a weighted average sale price of $250,700, before adjustments, with an increase in the average sale price each year. (Tr. 10/6 at 25-27 (Quinn), Quinn Report at 52-54). He acknowledged that the weak market in the first year of the analysis would require the developer to provide discounts to buyers, which he calculated at approximately $13,400 per home, resulting in an average home price
Quinn's development analysis also projects sales over a period of 13 years, with an absorption rate of 12 units in year one, 18 units in year two and 24 units in year three. (Quinn Report at 52, 54-55, Tr. 10/6 at 30-31 (Quinn)).
Quinn applies a discount rate of 12% to the projected cash flows from the Mortgaged Premises. (Quinn Report at 57, Tr. 10/6 at 33-35 (Quinn)). Quinn testified he relied upon the Korpacz Investor Survey in setting his discount rate. (Tr. 10/6 at 64 (Quinn)). However, Quinn relied upon the national apartment market in the Korpacz Survey, which he acknowledged contains lower discount rates because apartments are considered less risky investments than a typical residential subdivision. (Id.).
Quinn's subdivision development analysis assigned a value of $16,550,000.00 to the Mortgaged Premises as of January 21, 2010. (Quinn Report at 59, Tr. 10/6 at 37 (Quinn)).
Citizens recently filed the Motion for Additional Evidence seeking Court permission to submit an updated appraisal of the Old Country Farm Subdivision, which it claims will demonstrate that the property has significantly decreased in value since the Mignogna Report was prepared. The Debtor objected to the Motion, arguing that reopening the record at this time would cause undue prejudice to, and a place a substantial burden upon, the Debtor. The Debtor argues that granting the Motion for Additional Evidence would be an unnecessary expenditure of estate and judicial resources.
Whether the record should be reopened to allow a party to submit additional evidence is within the discretion of the trial court. Zenith Radio Corp. v. Hazeltine Research, Inc., 401 U.S. 321, 331-32, 91 S.Ct. 795, 802-03, 28 L.Ed.2d 77 (1971). In deciding whether to reopen a case, the court should consider (i) the burden, if any, on the parties and their witnesses, (ii) whether undue prejudice may result if the relief is not granted, and (iii) concerns about judicial economy. Rochez Bros., Inc. v. Rhoades, 527 F.2d 891, 894 n. 6 (3d Cir.1975). See also Joy Tech., Inc. v. Flakt, Inc., 901 F.Supp. 180, 181 (D.Del. 1995) quoting 6A James Wm. Moore et al., Moore's Federal Practice, § 59.04[13] (2d ed. 1995) ("The trial court should consider the motion to reopen `in light of all the surrounding circumstances and either grant or deny it in the interest of fairness and substantial justice.'")
It is not appropriate to reopen the record in this case for additional appraisal information. The record has been closed for quite some time and the estate should not be required to bear the costs of procuring additional expert testimony on valuation. More importantly, denying the Motion for Additional Evidence will not prejudice Citizens. Citizens' proposed new evidence would reinforce the record already made by providing cumulative evidence of the depressed value of the Collateral, and would not alter my decision in this matter. This matter is ripe for adjudication and there is no benefit to expend additional judicial resources or estate resources
The Debtor's Amended Plan can be confirmed only if it complies with the requirements of Bankruptcy Code § 1129. Citizens voted to reject the Amended Plan and filed an objection to confirmation.
The Debtor argues that the Amended Plan meets the requirements for confirmation under the "cramdown" provision of § 1129(b), which provides in pertinent part:
11 U.S.C. § 1129. The proponent of a "cram down" plan bears the burden of establishing the plan's compliance with each of the requirements set forth in § 1129(a), except § 1129(a)(8),
Section 1129(a)(10) provides that "[i]f a class of claims is impaired under the plan, at least one class of claims that is impaired under the plan has accepted the plan, determined without including any acceptance of the plan by any insider." 11 U.S.C. § 1129(a)(10). Before a debtor can use the "cram down" provisions to achieve plan confirmation over the objection of impaired classes, it must satisfy § 1129(a)(10) by garnering a vote in favor of the plan by at least one class of impaired claims. As the Third Circuit has explained:
In re Combustion Eng'g, Inc., 391 F.3d 190, 243-44 (3d Cir.2004) (internal punctuation omitted).
"Impairment" is defined in Bankruptcy Code § 1124, which provides, in part, that a class of claims is impaired under a plan unless the plan "leaves unaltered the legal, equitable, and contractual rights to which such claim or interest entitles the holder of such claim or interest." 11 U.S.C. § 1124.
Id. The Combustion Engineering Court noted that courts have split over the issue of artificial impairment. One line of cases concludes that the plain language of § 1129(a)(10) does not prevent a debtor from artificially impairing claims.
Combustion Eng'g, 391 F.3d at 244.
Here, the Debtor's Amended Report of Plan Voting (Ex. D-5) (the "Voting Report") asserts that Class 1 (real estate tax claims) and Class 3 (the secured claim of KSJS) are impaired classes that have voted to accept the Amended Plan. The Voting Report further notes that seven creditors in Class 5 (general unsecured claims), which is also impaired, voted in favor of the Amended Plan. Citizens, however, voted against the Amended Plan with two Class 5 ballots representing its deficiency claims in the aggregate amount of $8,057,361.67. The Debtor noted that the amount of Citizens' deficiency claims (if any) would be determined at the Confirmation Hearing and, therefore, whether Class 5 had accepted the Amended Plan was an open issue.
Citizens argues that Classes 1 and 3 are not impaired or are artificially impaired under the Amended Plan and, therefore, those votes do not satisfy § 1129(a)(10). Citizens further argues that the amount of its deficiency claims controls the vote of Class 5, and its vote against the Amended Plan prevents Class 5 from satisfying the § 1129(a)(10) requirement.
I conclude that it is appropriate to consider whether Classes 1 and 3 were artificially impaired; that is, are Classes 1 and 3 impaired for a proper business purpose or solely to satisfy § 1129(a)(10)? See Beal Bank, 248 B.R. at 691, Daly, 167 B.R. at 736-37.
Class 1 consists of the pre-petition real estate tax claims and other secured claims of governmental units. The Class 1 claimants will retain their liens against the appropriate building lots and, as each lot is conveyed, the conveyance will be subject to the lien, unless the Class 1 claimant is paid in cash at the time of the conveyance. (Ex. D-1, § 3.1.1). The record does not reveal how the Class 1 claimants' rights have been altered, if at all. "[A] plan which `leaves unaltered' the legal rights of a claimant is one which, by definition, does not impair the creditor." Solow v. PPI Enter. (U.S.), Inc. (In re PPI Enter. (U.S.), Inc.), 324 F.3d 197, 204 (3d Cir. 2003).
The Amended Voting Report states that Class 1 accepted the Plan through a vote by the City of Clayton, which holds a $3,000 claim against the Debtor that is secured by an escrow account in the amount of $5,084.26. (Ex. D-5, D.I. 70 Amended Schedule B). The record shows that the Debtor has the ability to pay the modest amount of the City of Clayton's claim in full on the effective date, and the claim would be deemed unimpaired. See PPI Enter., 228 B.R. at 355.
Class 3 consists of the secured claim of KSJS in the amount of $119,514.00, which is secured by collateral with a value of $185,900.00 (Ex. D-5, D.I. 1, Schedule A Supp, Ex. A-2). The Amended Plan proposes that KSJS will receive a deed to its collateral in full satisfaction of its secured claim. Under these facts, it is does not appear that KSJS is in fact impaired.
The Debtor has not provided any evidence of a valid business purpose for "impairing" the Class 1 and Class 3 claims. Together, the circumstances indicate that Classes 1 and 3 are impaired solely to obtain the requisite vote to permit confirmation by cram down. See In re Fur Creations by Varriale, Ltd., 188 B.R. 754, 760 (Bankr.S.D.N.Y.1995) (deciding that the debtor failed to meet its burden of
In sum, the Court finds that Classes 1 and 3 have been artificially impaired and their votes must be disqualified for purposes of determining whether the Debtor has obtained the affirmative vote of an impaired class as required by § 1129(a)(10). This leads to an analysis of whether the votes of Class 5 can satisfy the § 1129(a)(10) requirement.
Section 1129(a)(10) provides that the votes of insiders cannot be counted in determining whether a class has accepted the Plan. Class 5 includes the votes of Frank Zeccola and Lawrence Zeccola, Sr., whose votes cannot be counted since—as officers and directors of the Debtor—they are insiders pursuant to Bankruptcy Code § 101(31)(B)(i) and (ii). Class 5 also includes the votes of FLZ Development, LLC, Zeccola Builders, Inc. and Huntington Development, Inc. These entities are "affiliates" of the Debtor pursuant to Bankruptcy Code § 101(2)(B) and, therefore, insiders of the Debtor pursuant to § 101(31)(E).
This leaves the votes of three entities in Class 5: Davis Bowen & Friedel, Inc. (with a claim of $14,119.85), Crouse (with a claim of $77,267.60), and Citizens (with a claim in an undetermined amount). (Ex. D-5). I now examine the valuation testimony to determine the amount of Citizens' Class 5 unsecured deficiency claim.
At the confirmation hearing, I noted that Citizens' appraisal of the Mortgaged Premises appeared to be too low, while the Debtor's appraisal appeared too high. (Tr. 10/21 at 80:19-81:2). Although both appraisers did their best in good faith to reach their conclusions, after further consideration of the two experts' testimony, I conclude that Mignogna's valuation is more in line with the current market conditions and, therefore, is more reliable for purposes of determining Citizen's unsecured deficiency claim. Mignogna relied upon both a Sales Comparison Approach and Subdivision Development Approach. I disagree with Quinn's statement that there was insufficient market data to support a sales comparison approach, especially with the plethora of comparable residential developments surrounding the Old Country Farm Subdivision. Mignogna reasonably examined sales at comparable developments and analyzed those sales based on location, project size, property density, financing terms and market conditions. Moreover, in comparing both experts' Subdivision Development Approach, Mignogna's projections regarding anticipated market conditions appear more realistic. Finally, Quinn acknowledged that the discount rate he applied to his projected cash flows was lower because it was based upon a rate used in analyzing the market for apartments, rather than residential subdivisions.
Bankruptcy Code § 1126 provides that a class has accepted a plan if the plan is accepted by creditors that hold at least two-thirds in amount and more than one-half in number of allowed claims held by voting creditors. 11 U.S.C. § 1126(c). If Crouse's vote, based on a claim in the amount of $77,267.60, was changed to vote in favor of the Amended Plan, the claim is not enough to change Class 5's rejection of the Amended Plan. Because the size of Citizens' deficiency claim controls overwhelmingly the vote of Class 5 and prevents acceptance by two-thirds in amount, the Motion to Change Vote becomes meaningless. Therefore, the Motion to Change Vote will be denied as moot.
Citizens seeks relief from the automatic stay pursuant to Bankruptcy Code § 362(d)(1) and (2) to allow Citizens to exercise its remedies against its collateral. Section 362(d)(1) and (2) provide as follows:
11 U.S.C. § 362(d). Citizens argues that it lacks adequate protection of its interest in the Old Country Farm Subdivision because there is no equity and the Debtor has not made any payments on the debt. Citizens also argues that the property is not necessary for the Debtor's reorganization because the Debtor's Amended Plan cannot be confirmed. Based upon the record made at the confirmation hearing, I conclude that Citizens has met its burden of proof under § 362(g)(1) and the Debtor has failed to meet its burden of proof under § 362(g)(2). Citizens is entitled to relief from the automatic stay pursuant to § 362(d)(1) and § 362(d)(2). Consequently, the Stay Relief Motion will be granted.
For the reasons stated herein, the Court concludes that (1) the Motion for Additional Evidence will be denied; (2) confirmation of the Amended Plan will be denied because the no impaired class of claims has accepted the Amended Plan as required by § 1129(a)(10), (3) the Motion to Change Vote will be denied as moot, and (4) Citizen's Stay Relief Motion will be granted.
An appropriate order follows.
AND NOW, this 9th day of March, 2012, upon consideration of the following:
and the objections and responses filed thereto, and after hearings held on October 6, 2010, October 21, 2010, and February 7, 2012, and for the reasons set forth in the foregoing Memorandum, it is hereby
(1) the request for confirmation of the Amended Plan of Liquidation is
(2) the Motion to Change Ballot is
(3) the Motion for Additional Evidence is
(4) the Stay Relief Motion of RBS Citizens, N.A. is
Citizens provided the Second Land Acquisition Loan and the Line of Credit to the Debtor pursuant to the terms of the Land Acquisition, Site Improvement, and Letter of Credit Loan Agreement (the "Second Land Acquisition Loan Agreement") (see Citizens' Ex. 12; Tr. 10/21 at 49:16-19), and evidenced by the Debtor's mortgage note dated May 30, 2006, in the original principal amount of $4,850,000.00 (the "Second Land Acquisition Note") (see Citizens Ex. 2).
The Land Acquisition Note and the Second Land Acquisition Note are referred to jointly as the "Mortgage Notes." The Land Acquisition Loan and the Second Land Acquisition Loan are referred to jointly as the "Loans." All of the documents evidencing the Loans, including but not limited to the Mortgage Notes, the Letters of Credit (described below), the Land Acquisition Loan Agreement, the Second Land Acquisition Loan Agreement, the Land Acquisition Mortgage, the Second Land Acquisition Mortgage, and any guaranties, are referred to herein as the "Loan Documents."
At the February 14, 2012 hearing on the Motion for Additional Evidence, Citizens advised the Court that the Letters of Credit had expired without any draw by DelDOT. The parties agreed to submit a fact stipulation as a supplement to the record now before the Court reflecting the expiration of the Letters of Credit. However, in a telephone conference among the parties and the Court held on the record on March 7, 2012, Citizens advised that, subsequent to February 14, 2012, DelDOT attempted to draw on the Letters of Credit and, although Citizens' position is that the claim was made after the Letters of Credit expired, the possibility of litigation made it impossible for Citizens to stipulate that there are no obligations owing under the Letters of Credit.
However, even if Citizens' claim amount was either increased or reduced by the face amount of the Letters of Credit, the adjusted claim amount would not change my decision.
Daniel J. Bussel and Kenneth N. Klee, Recalibrating Consent in Bankruptcy, 83 Am. Bankr. L.J. 663, 725 (Fall, 2009).
11 U.S.C. § 1124.
Combustion Eng'g, 391 F.3d at 243 n. 61.
