JOHN P. GUSTAFSON, Bankruptcy Judge.
This case is before the court on Creditor Pender Capital Asset Based Lending Fund I, LP's ("Pender") Motion to Dismiss ("Motion") [Doc. #20], filed on December 12, 2019. Debtor California Palms, LLC, Non-Debtor California Palms Addiction Recovery Campus, Inc., and Interested Party Sebastian Rucci ("California Palms
In its Motion, Pender argues that dismissal of California Palms' Chapter 11 case is warranted for three reasons: (1) the filing of the present Chapter 11 case is barred by this court's order that dismissed California Palms' earlier Chapter 11 case ("Prior Dismissal Order") [Case No. 19-40267, Doc. #120]; (2) this present Chapter 11 case should be dismissed for cause pursuant to 11 U.S.C. § 1112(b); and (3) the present Chapter 11 case is prohibited by the Rooker-Feldman doctrine. In its Response, California Palms disputes all three of Pender's claims, arguing that: (1) the Prior Dismissal Order did not bar the filing of the present case; (2) this second Chapter 11 case is a legitimate attempt at maximizing the value of California Palms' estate such that there is not cause for dismissal under § 1112(b); and (3) the Rooker-Feldman doctrine is not applicable. The court held a hearing on Pender's Motion on December 30, 2019 at which Pender and California Palms further argued in favor of their respective positions.
Upon review of the facts of this case and the arguments of the parties, the court finds that dismissal is warranted pursuant to the 11 U.S.C. § 1112(b) "bad faith" factors set forth in Trident Assocs. Ltd. P'ship v. Metropolitan Life Ins. Co. (In re Trident Assocs. Ltd. P'ship), 52 F.3d 127, 131 (6th Cir. 1995). Thus, the court will grant Pender's Motion and dismiss California Palms, LLC's second Chapter 11 case. The court will remand the removed foreclosure action, Adv. Pro. No. 19-04040, back to the Mahoning County Court of Common Pleas by separate order.
The relevant factual background for the court's decision on Pender's Motion to Dismiss includes both this Chapter 11 case and California Palms' prior Chapter 11 case, Case No. 19-40267. Accordingly, the court will address the facts of each case that are relevant to determining whether or not the court should dismiss the present case.
On February 27, 2019, Debtor California Palms, LLC filed its first petition for Chapter 11 relief, averring that it was a health care business
On March 11, 2019, twelve days after commencement of the Chapter 11 case, California Palms filed an adversary proceeding against Pender. [Adv. Pro. No. 19-04010, Doc. #1]. In its Complaint, California Palms alleged that, in connection with a mortgage financing arrangement between the two entities, Pender was charging California Palms criminally usurious interest and violating the Ohio Mortgage Loan Act. [Id., pp. 10-14]. To remedy those alleged injuries, California Palms sought rescission of its mortgage loan and November 8, 2018 Settlement
On March 19, 2019, Pender filed a Motion to dismiss or, alternatively, for relief from stay [Case No. 19-40267, Doc. #20], arguing that California Palms' Chapter 11 case should be dismissed for cause, or that relief from the automatic stay should be granted so that Pender could proceed with the Austintown Property foreclosure action
Though it would eventually be remanded and stricken from the docket on Pender's unopposed motion, on May 28, 2019 California Palms filed a Notice of Removal, ostensibly causing the transfer of the Mahoning County Court of Common Pleas foreclosure action against the Austintown Property,
California Palms filed the present Chapter 11 case, its second within 165 days,
On December 2, 2019, California Palms initiated Adv. Pro. No. 19-04040 by filing a Notice of Removal [Adv. Pro. No. 19-04040, Doc. #1], which again transferred the still ongoing Mahoning County Court of Common Pleas foreclosure action, Case No. 2018-CV-01015, to this court. Attached to the Notice of Removal were the following documents taken from the state court docket: State Court Complaint [Id., Ex. 1], Foreclosure and Answer [Id., Ex. 2], Consent Order Holding Case in Abeyance [Id., Ex. 3], Consent Judgment Against Guarantor Rucci [Id., Ex. 4], Consent Order On Settlement [Id., Ex. 5], Consent Judgment of Foreclosure [Id., Ex. 6], Stipulated Order Appointing Receiver [Id., Ex. 7], Order Setting Contempt Hearing [Id., Ex. 8], Motion to Continue [Ex. 9], Agreed Contempt Judgment [Id., Ex. 10], and Motion for New Trial [Id., Ex. 11].
Pursuant to the Stipulated Order Appointing Receiver, which was part of the June 18, 2019 Settlement approved by this court, the Mahoning County Court of Common Please appointed John K. Lane as Receiver ("Receiver") over California Palms, LLC on August 22, 2019. [Adv. Pro. No. 19-04040, Doc. #1, Ex. 7]. The Receiver filed a Request for Instructions on December 3, 2019 [Case No. 19-42174, Doc. #10], asking this court court for guidance in light of California Palms' second Chapter 11 filing. On December 12, 2019, Pender filed the present Motion to Dismiss [Id., Doc. #20], which was set for hearing on December 30, 2019. The court held a hearing on the Receiver's Request for Instructions on December 16, 2019, after which the court issued an Order outlining the Receiver's limited continuing duties. Those duties were actions necessary to preserve the status quo
On December 23, 2019, the Receiver filed a Status Report, confirming that the Austintown Property was covered by an appropriate in-force insurance policy [Doc. #33, p. 3] and that California Palms had paid the Receiver the $25,000.00 discussed at the December 16th hearing. [Id., p. 6]. However, the Receiver reported that, while he was not given access to California Palms' utilities accounts, he was provided with a copy of the Austintown Property's gas and water bill. [Id., Ex. A]. Based on the limited information available, the Receiver reported that utilities at the Austintown Property appeared "in imminent danger of being shut off" and that "[l]ack of payment of the utilities bills appears to have been an ongoing issue with the Debtor." [Id., p. 4]. The Receiver also reported that, given the incomplete information provided by California Palms, he was "uncertain of the actual census of patients on site at the Austintown Property" and had concerns regarding admission of "scholarship patients" that appeared to be receiving treatment free of charge. [Id., p. 5]. Nevertheless, the Receiver reported that he was "aware of no actions or inactions causing immediate crisis." [Id., pp. 5-6].
At the December 30th hearing on Pender's Motion to Dismiss, counsel for Pender, counsel for California Palms, counsel for the United States Trustee, and Sebastian Rucci attended. Both Pender and California Palms presented arguments on the Motion to Dismiss, and Pender submitted certified copies of docket items taken from the Mahoning County Court of Common Pleas foreclosure action, which were admitted as evidence without objection. Pender objected to the evidentiary value of the Amended Declaration of Sebastian Rucci Doc. #5], noting that it contained both unsubstantiated allegations and statements that only an expert would be qualified to speak to. After a brief recess, counsel for California Palms stated that the Debtor would be willing to withdraw its Notice of Removal and remand the foreclosure action back to state court, but that it still intended to pursue its second Chapter 11 case even if the state court foreclosure action were remanded and allowed to proceed. Unreceptive to that offer, Pender elected to stand on its Motion to Dismiss. The matter was subsequently submitted for decision.
On January 14, 2020, 15 days after the court heard arguments on Pender's Motion to Dismiss, California Palms filed a Notice Withdrawing Rule 60(b) Motion and Request for Sua Sponte Remand [Adv. Pro. No. 19-04040, Doc. #16]. However, as of the date of this Memorandum Decision, the court has not ruled on California Palms' Request, and the foreclosure action that originated in the Mahoning County Court of Common Pleas remains before this court as an adversary proceeding. Also on January 14, 2020, California Palms filed a Motion to Reject Lease or Executory Contract. [Case No. 19-42174, Doc. #41].
Pender offers three theories regarding why this Chapter 11 case should be dismissed: (1) res judicata stemming from this court's orders in California Palms first Chapter 11 case; (2) "for cause" dismissal under § 1112(b); and (3) application of the Rooker-Feldman doctrine to this case. However, the court finds that Pender's res judicata and Rooker-Feldman arguments are insufficient standing alone. However, these arguments implicate concerns that are built into and addressed by the Sixth Circuit's "bad faith" factors set forth in Trident. Thus, the court will couch its analysis primarily in terms of whether California Palms filed the present case in bad faith such that cause to dismiss exists under § 1112(b).
Section 1112(b)(1) of the Bankruptcy Code states in relevant part:
Whether cause for dismissal under § 1112(b) exists turns on "a case-specific, factual inquiry which `focuses on the circumstances of each debtor.'" In re Creekside Sr. Apartments, L.P., 489 B.R. 51, 60 (6th Cir. BAP 2013) (quoting United Savs. Ass'n of Texas v. Timbers of Inwood Forest Assocs., Ltd (In re Timbers of Inwood Forest Assocs., Ltd.), 808 F.2d 636, 371-72 (5th Cir. 1987) (en banc), aff'd, 484 U.S. 365, 108 S.Ct. 626, 98 L.Ed.2d 740 (1988)). "The party seeking dismissal carries the burden of proving that cause exists by a preponderance of the evidence." In re Althaus Investors Ltd., 2019 WL 5588828 at *4, 2019 Bankr. LEXIS 3399 at *12 (Bankr. N.D. Ohio October 29, 2019) (citing Creekside, 489 B.R. at 60); see also, In re Lee, 467 B.R. 906, 917 (6th Cir. BAP 2012).
Pender specifically alleges that California Palms' second Chapter 11 case should be dismissed for having been filed in bad faith under § 1112(b). The Sixth Circuit Court of Appeals has set forth the following eight factors for courts to consider when deciding whether a bad faith dismissal is appropriate under § 1112(b):
Trident Assocs. Ltd. P'ship v. Metropolitan Life Ins. Co. (In re Trident Assocs. Ltd. P'ship), 52 F.3d 127, 131 (6th Cir. 1995) (quoting Laguna Assocs. Ltd. P'ship v. Aetna Casualty & Surety Co. (In re Laguna Assocs. Ltd. P'ship), 30 F.3d 734, 738 (6th Cir. 1994)).
The eight Trident factors are not exhaustive, nor is any single factor dispositive with regard to whether bad faith exists. Id. (quoting Laguna Assocs., 30 F.3d at 738); see also, Lee, 467 B.R. at 917 ("No single test exists for determining whether a bankruptcy petition was filed in good faith.") (citation omitted). Instead, a court determining whether a case was filed in bad faith "must look at the factors together and determine whether the petitioner sought to achieve objectives outside the legitimate scope of the bankruptcy laws when filing for protection under Chapter 11." In re Four Wells Ltd., 2016 WL 1445393 at *14, 2016 Bankr. LEXIS 1673 at *40 (6th Cir. BAP April 12, 2016) (citing Primestone Inv. Partners, L.P. v. Vornado PS, L.L.C. (In re Primestone Inv. Partners, L.P.), 272 B.R. 554, 557 (D. Del. 2002) (citation omitted)). In other words, a bad faith analysis under § 1112 is a "`fact-specific and flexible determination' that must be made on a case-by-case basis by looking to a totality of the circumstances." Lee, 467 B.R. at 917 (quoting Alt v. United States (In re Alt), 305 F.3d 413, 419 (6th Cir. 2002)).
In addition to the eight Trident factors described above, courts deciding whether a Chapter 11 petition was filed in bad faith have also looked to "whether the debtor has filed previous bankruptcy petitions; whether the debtor is generating any cash or income; whether there is pressure from non-moving creditors; whether the case is a two (2) party dispute which can be resolved in pending non-bankruptcy court litigation; and whether the debtor was formed immediately prior to the petition." In re Four Wells Ltd., 2016 WL 1445393 at *11, 2016 Bankr. LEXIS 1673 at *32 (citing Primestone Inv., 272 B.R. at 557); see, Lee, 467 B.R. at 918 (noting that tentative prospects of future income, and serial Chapter 11 filings, can both be indicative of bad faith).
The court will address each of the Trident factors, and then the additional Four Wells Ltd. considerations in turn.
The first Trident factor, which asks whether California Palms is a single asset debtor, is satisfied here. California Palms described itself as a single asset real estate debtor on its Petition that initiated this case [Doc. #1, p. 2] and listed only one piece of real or personal property on its Schedules, the Austintown Property. [Id., Ex. 1, pp. 1-8]. While California Palms also listed a litigation claim against third-parties described as "civil RICO" with an estimated value of one million dollars, a yet-to-be commenced cause of action with an unproven value is of marginal relevance to California Palms' overall status as a debtor. Further, in California Palms' first Chapter 11 case, the court entered an order expressly finding that California Palms, LLC was a single asset real estate debtor as defined in § 101(51B). [Case No. 19-40267, Doc. #50]. Thus, the court finds that California Palms, LLC essentially has only one asset, the Austintown Property.
California Palms argues that the first Trident factor only applies when the debtor is a newly formed business entity, described in case law as "new debtor syndrome." Therefore, because California Palms, LLC is not a recently formed corporation, it asserts that the first factor is not present, and should not weigh in favor of dismissal here. However, the court finds that this argument overlooks the extent to which each and every Trident factor must be viewed through the lens of the facts of the case at hand. See, Lee, 467 B.R. at 917 (quoting Alt, 305 F.3d at 419). While it is true that both Laguna and Trident discussed a debtor that had been formed "at the eleventh hour," those cases set forth a bad faith analysis that was to be applied on a case-by-case basis. See, Trident, 52 F.3d at 131 (quoting Laguna, 30 F.3d at 737). Here, California Palms may not be a new debtor, but it is a single asset real estate debtor, satisfying the plain language of the first Trident factor.
California Palms relies heavily on Althaus Investors, arguing that this court should find that the first Trident factor is not met here on the same grounds described in that case. However, Althaus Investors dealt with a very different set of facts. In Althaus Investors, the court emphasized the fact that the landlord debtor's case was inextricably intertwined with a related, separate Chapter 11 case that involved the landlord debtor's tenant, a custom metal stamper that owned a substantial amount of machinery and employed numerous employees. 2019 WL 5588828 at **1, 5, 2019 Bankr. LEXIS 3399 at **2, 14-16.
Here, the tenant occupying the Austintown Property is not a Chapter 11 debtor, and the business information regarding California Palms Addiction Recovery Campus, Inc.'s is sparse. The Amended Declaration of Sebastian Rucci makes some unsubstantiated claims, but he is an insider (at least of California Palms) whose advocacy is of questionable value. Further, this case is a second Chapter 11 filing, whereas Althaus Investors dealt with a debtor that had not previously filed for Chapter 11 relief previously. 2019 WL 5588828 at *6, 2019 Bankr. LEXIS 3399 at *16. In light of that factual dissimilarity, the court finds that Althaus Investors is of limited relevance as to whether the first Trident factor supports a finding that this case was filed in bad faith.
Though the court finds that the first Trident factor is met here, that factor weighs only slightly towards dismissal when considered standing alone, particularly given that the Bankruptcy Code expressly allows the filing of single asset real estate Chapter 11 cases as defined in § 101(51B).
With regard to the second Trident factor, the court finds that California Palms has engaged in at least some conduct that can be characterized as "improper", weighing in favor of a finding of bad faith. At the time this second Chapter 11 case was filed, California Palms was in civil contempt of the Mahoning County Court of Common Pleas by failing to comply with the terms of the June 18, 2019 Settlement [Adv. Pro. No. 19-04040, Doc. #1, Ex. 10, p. 2], a settlement approved by both this court [Case No. 19-40267, Doc. #117] and the state court. [Adv. Pro. No. 19-04040, Doc. #1, Ex. 5]. Rather than vacating the Austintown Property in accordance with the terms of a settlement it entered into before this court, California Palms stalled and then consented to a state court order finding it in contempt.
And this is not the first time that California Palms has sought to avoid the consequences of a settlement with Pender. In the first Chapter 11 case and its companion adversary proceeding, California Palms attempted to set aside the earlier November 8, 2018 Settlement or avoid its consequences in a variety of ways, from rescission on a theory of criminal usury [Adv. Pro. No. 19-04010, Doc. #1, pp. 10-14] to rejection of the settlement as an executory contract under § 365(a) [Case No. 19-40267, Doc. #47] to a sale of the Austintown Property free and clear of Pender's interest. [Id., Doc. #49]. Considered in isolation, none of those acts would constitute improper pre-petition conduct and each relied on arguably colorable legal theories. But, taken as a whole, California Palms' conduct in the first Chapter 11 case and during the leadup to this second case exhibits a pattern of attempting to undo freely-entered-into, court-supervised agreements shortly after they were reached. The court finds that this conduct was improper for purposes of the second Trident factor.
California Palms argues that Pender is the party that committed prepetition misconduct, averring that Pender refused to entertain refinancing deadline extensions and demanded an increased payoff when California Palms again defaulted on its mortgage obligations under the June 18, 2019 Settlement. However, California Palms fails to connect Pender's alleged misconduct with any of the terms contained in either the November 8, 2018 Settlement or the June 18, 2019 Settlement. Further, Pender and California Palms are sophisticated business entities that have only a debtor-creditor relationship with one another. [Case No. 19-40267, Doc. #117, p. 16]; see also, supra n.4. In short, Pender was not obligated to renegotiate when California Palms failed to abide by the terms of a court-supervised settlement for at least the second time. In fact, the June 18, 2019 Settlement expressly stated that Pender had "sole and absolute discretion" to extend the August 15, 2019 deadline [Id., p. 12], discretion it utilized when it declined to entertain California Palms' request. Accordingly, the fact that Pender pursued its remedies against California Palms during the lead-up to this second Chapter 11 case does not alter the court's conclusion that the second Trident factor weights in favor of a bad faith dismissal.
The third Trident factor, which asks if the debtor has only a few unsecured creditors, weighs in favor of a finding of bad faith here. California Palms scheduled only two unsecured creditors, both of which appear related to legal debts incurred in relation to its dispute with Pender. [Doc. #1, Ex. 1, p. 12]. California Palms does not dispute that this factor weighs in favor of dismissal. [Case No. 19-42174, Doc. #37, p. 30]. Thus, the court finds that the third Trident factor weighs in favor of dismissal here.
The fourth, fifth, and sixth Trident factors all contemplate the status of related state foreclosure actions and compliance with court orders, so the court will address these three factors together. The Austintown Property is the subject of the Mahoning County foreclosure action that has been removed to this court, and California Palms remains subject to a live contempt judgment, albeit one that is currently stayed under § 362(a). Rather than purge that contempt by complying with the state court's orders, California Palms filed a second Chapter 11 case, removed the Mahoning County foreclosure action to this court for the second time [Adv. Pro. No. 19-04040, Doc. #1], and filed a motion under Federal Rule of Civil Procedure 60(b)(3) seeking relief from the state court's Agreed Contempt Judgment. [Id., Doc. #9].
Thus, California Palms' primary asset is in foreclosure
While debtors regularly file bankruptcy petitions in connection with adverse state court actions, few file a second Chapter 11 case to undo a settlement approved in a prior bankruptcy case. Fewer still seek to utilize the Federal Rules to undo the standing contempt orders of a state court by way of removal. Taken together, those acts on the part of California Palms suggest that this second Chapter 11 case was filed as a litigation tactic intended to evade both the June 18, 2019 Settlement and the Agreed Contempt Judgment. See, Four Wells Ltd., 2016 WL 1445393 at *14, 2016 Bankr. LEXIS 1673 at *40 (courts analyzing bad faith under § 1112(b) "must determine whether the petitioner sought to achieve objectives outside the legitimate scope of the bankruptcy laws when filing for protection under Chapter 11."). Thus, the court finds that the plain language of the fourth, fifth, and sixth Trident factors weighs in favor of a finding of bad faith in this case.
The seventh Trident factor, which looks to whether the debtor has ongoing business or employees, and the eighth Trident factor, which looks to whether the debtor lacks the possibility of reorganization, also point towards a finding of bad faith. Despite Debtor California Palms, LLC's insistence that its connection with Non-Debtor California Palms Addiction Recovery Campus, Inc. constitutes a valid business relationship, facts set forth bv the Debtor in its own submitted documents point the other way. For example, Debtor California Palms, LLC's Statement of Financial Affairs in both Chapter 11 cases stated that the Debtor earned $0.00 in gross revenue [Case No. 19-40267, Doc. #1, Ex. 4, p. 1; Case No. 19-42174, Doc. #1, Ex. 3, p. 1] and did not have an interest in any accounts receivable. [Case No. 19-40267, Doc. #1, Ex. 1, p. 2; Case No. 19-42174, Doc. #1, Ex. 1, p. 2]. In other words, Debtor California Palms, LLC has not been charging and/or collecting rent from its tenant,
Moreover, there is little credible evidence that Debtor California Palms, LLC and Non-Debtor California Palms Addiction Recovery Campus, Inc. are engaged in a legitimate contract-based business relationship. Importantly, the only submitted lease document outlining the alleged lessor-lessee relationship between the Debtor and the Non-Debtor tenant appears to have been executed by Sebastian Rucci on behalf of both parties. [Case No. 19-40267, Doc. #11, Ex. 1, pp. 143-150]. Additionally, the evidence for California Palms' averments regarding Non-Debtor California Palms Addiction Recovery Campus, Inc. are based on the Amended Declaration of Sebastian Rucci. That Amended Declaration cannot overcome the sworn statements in the Schedules, or the objections based on Sebastian Rucci's status as an insider, a co-debtor on the Pender debt, an advocate (he filed the Petition in California Palms' first Chapter 11, and filed the early pleadings in that case), and a lack of foundation for many of the statements made in his Amended Declaration, particularly those that would require qualification as an expert witness.
Accordingly, the court rejects the argument that the employees of Non-Debtor California Palms Addiction Recovery Campus, Inc. should be counted as employees of Debtor California Palms, LLC for purposes of the seventh Trident factor.
California Palms' ability to effectuate a reorganization under Chapter 11 in this case also raises unique concerns of comity with state courts given the posture of the removed foreclosure action. Whether or not California Palms is able to reorganize turns primarily on the outcome of Pender's foreclosure action on the Austintown Property,
In light of the unique jurisdictional posture of the removed state court action, now an adversary proceeding, that goes to the heart of the merits of this second Chapter 11 case, the court finds that principles of comity with state courts weigh in favor of dismissal. That is because California Palms' attempt to obtain relief from a state court judgment under Rule 60(b)(3) in an adversary proceeding premised solely on "related to" jurisdiction appears to be, in effect, analogous to an appeal of the Agreed Contempt Judgment of the Mahoning County Court of Common Pleas directly to this lower federal court.
This tactic appears to violate principles of comity underlying the Rooker-Feldman doctrine, a doctrine that prohibits state court losers from filing suit in federal court after state court proceedings have ended, seeking redress of an injury stemming from an adverse state court judgment. Exxon Mobil Corp. Saudi Basic Indus. Corp., 544 U.S. 280, 291-92, 125 S.Ct. 1517, 1526, 161 L.Ed.2d 454 (2005). Although, arguably, the Rooker-Feldman doctrine may not be controlling because there is no final judgment in the Mahoning County proceedings, the court finds that the principles underlying the doctrine weigh in favor of dismissal of this case given the direct tie between California Palms' ability to reorganize and the impact of the standing Agreed Contempt Judgment, a state court order California Palms has asked this court to vacate under the Federal Rules.
Accordingly, the court finds that both the seventh and eighth Trident factors weigh in favor of dismissal because California Palms has no ongoing business or employees and lacks the possibility of reorganization See, Lee, 467 B.R. at 918 ("A debtor with no current income and whose prospects for future income are tentative at best will have difficulty demonstrating that he has any good faith ability to effectuate a plan of reorganization under Chapter 11") (quotation and citation omitted). Further, granting California Palms the relief it requests in the removed state court proceeding, relief that plays a central role in the likelihood of the Debtor's reorganization, implicates concerns of comity with the Mahoning County Court of Common Pleas' foreclosure and contempt processes.
Lastly, three additional considerations taken from Four Wells Ltd. deserve mention. At the risk of belaboring these points, this is California Palms' second Chapter 11 case, it has filed two successive Statements of Financial Affairs stating that it receives $0.00 in gross revenue, and both this Chapter 11 and its companion removed state court proceeding figure as little more than a prolonged two-party dispute between Pender and California Palms, all of which further weigh in favor of the court dismissing this case as a bad faith filing.
In sum, in applying the Trident factors, the additional Four Wells Ltd. considerations, and looking to the circumstances of this case as a whole, the court finds that this Chapter 11 case was filed in bad faith under § 1112(b) and should be dismissed.
At this stage in the lengthy dispute between Pender and California Palms, the court concludes that this Chapter 11 case should be dismissed, and Adversary Proceeding No. 19-04040 should be remanded back to the state court in which it originated. Had California Palms elected to pursue the legal theories that it claims justify this second case when it first filed for Chapter 11 relief, the outcome here may have been different. Instead, California Palms made business decisions to enter into multiple arms-length legal agreements with Pender,
One final note regarding California Palms' last minute filings: a request for remand of the Mahoning County foreclosure action [Adv. Pro. No. 19-04040, Doc. #16], a request that was filed on the last day of the 15-day period this court is given to rule on a Motion to Dismiss under § 1112(b)(3), and a Motion to Reject Lease or Executory Contract.
[Adv. Pro. No. 19-04010, Doc. #1. Ex. 6, pp. 1, 5].
A supplement to the Joint Motion was filed on June 13, 2019, making minor changes to various provisions of the settlement agreement. [Id., Doc. #112]. None of those alterations have any bearing on the legal impact of the settlement agreement.
The June 18, 2019 Settlement also acknowledged that California Palms was in default on its mortgage debt to Pender as of April 19, 2018, was in default of the November 8, 2018 Settlement as of January 30, 2019, and reiterated that the November 8, 2018 Settlement released Pender from liability for all claims arising out of its mortgage transaction with California Palms. [Id., p. 9].
In light of the history of the single asset real estate legislation, the first Trident factor and its emphasis on whether the debtor has only one asset may be viewed as a judicially created predecessor to the Code's exacting treatment of single asset real estate cases. In any case, the evolution of single asset real estate legislation makes clear that those cases receive increased scrutiny, and shorter deadlines, under the Code.
Here, California Palms has not submitted a proposed Chapter 11 plan, and the plan it submitted in its first Chapter 11 case relied on court findings that Pender committed a litany of bad acts [Case No. 19-40267, Doc. #2], findings that neither this court nor the Mahoning Court of Common Pleas have made. Further, given that California Palms has listed $0.00 in gross revenue [Case No. 19-42174, Doc. #1, Ex. 3, p. 1] and no accounts receivable [Id., Ex. 1, p. 2], it seems highly unlikely that California Palms would be able to make the monthly payments required in lieu of a confirmable plan.
Second, the court finds that, upon preliminary review, the elements of economic duress are not present here, particularly given California Palms pattern of attempting to undo agreements shortly after it consents to them. For example, instead of consenting to the June 18, 2019 Settlement, California Palms could have submitted its claims against Pender for decision by this court during the pendency of its first Chapter 11 case. Thus, California Palms had an alternative to entering into the June 18, 2019 Settlement, rendering its economic duress argument unpersuasive.
Third, Ohio law entertains challenges to consent judgments by way of direct appeal where a party alleges fraud or a lack of consent. See, Smith v. Hilt, 72 72 N.E.3d 1108, 1112 (Ohio Ct. App. 2016). Thus, California Palms' economic duress argument aimed at the Agreed Contempt Judgment heightens the Rooker-Feldman concerns already present in this case because it is raising an argument in federal court that could have been brought in state court on direct appeal. See, Launder v. Doll, 585 B.R. 446, 461 (Bankr. N.D. Ohio 2018) ("Generally speaking, the Rooker-Feldman doctrine prohibits lower federal courts from engaging in appellate review of state court decisions.") (citation omitted).
For those three reasons, the court finds California Palms' economic duress argument unavailing here, although it is free to raise that issue in state court on remand.
