In re Alliance Consulting Grp. LLC

588 B.R. 169
CourtUnited States Bankruptcy Court, S.D. Mississippi
DecidedMarch 19, 2018
DocketCASE NO. 13–51937–KMS
StatusPublished
Cited by5 cases

This text of 588 B.R. 169 (In re Alliance Consulting Grp. LLC) is published on Counsel Stack Legal Research, covering United States Bankruptcy Court, S.D. Mississippi primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
In re Alliance Consulting Grp. LLC, 588 B.R. 169 (Miss. 2018).

Opinion

Judge Katharine M. Samson, United States Bankruptcy Judge

Before the Court is the Motion to Reopen Chapter 11 Bankruptcy Case (ECF No. 1204) by Plant Materials LLC ("Plant Materials"); with objections by Richard Cryar ("Trustee"), former Chapter 11 Trustee and current Plan Agent of Alliance Consulting Group LLC ("Debtor"), and interested party Drying Facilities Assets Holding LLC ("DFAH"). Motions to reopen a case are within the bankruptcy court's core jurisdiction as "matters concerning the administration of the estate," 28 U.S.C. § 157(b)(2)(A).

Plant Materials was hired to install equipment on the site of the Debtor's business and on that basis considers itself a creditor that should have been given notice of proceedings in the case. Now, nearly three years after the effective date of the chapter 11 plan ("Plan"), Plant Materials asserts that the case should be reopened so it can seek the relief to which it believes itself entitled. According to the Motion, appropriate relief upon the reopening of the case might consist of any of eight possible remedies.1 (ECF No. 1204 at 13.) At hearing, however, Plant Materials argued most vigorously for two: relief from the free-and-clear sale of the Debtor's assets conducted under 11 U.S.C. § 363(f) or a claim for substantial contribution under 11 U.S.C. § 503(b)(3)(D).

But Plant Materials has no standing to bring the Motion. And even if it did, cause to reopen does not exist. The Motion is therefore denied.

FINDINGS OF FACT

The factual narrative begins prepetition, when the Debtor was in the business of producing "frac sand," a material used by the petroleum industry in the extraction process commonly known as "fracking." The Debtor operated two separate facilities, one where the raw frac sand was mined ("Mine") and the other where the sand was dried, sorted, and prepared for transport ("Drying Facility"). The events on which the Motion is based all occurred postpetition at the Drying Facility, which was situated on property owned by an affiliate of the Debtor.

*172The Debtor bought the Mine and built the Drying Facility with a loan of approximately $30 million from Elle Investments LLC ("Elle") and Stonehill Institutional Partners LP (together, "Lenders") in May 2012. Elle owned 50% of the Debtor and was itself wholly owned by an individual, Michael Moreno, and his wife. The other 50% of the Debtor was owned by another individual, Ryan Hess. Thus, Hess and Moreno (through Elle) controlled the Debtor prepetition.

By January 2013, the Debtor had developed funding problems, and the management of the Mine and the Drying Facility was assumed by Shale Support Services LLC ("S3"), an entity also controlled by Moreno. On October 1, 2013, the Lenders through their administrative agent foreclosed on the Mine and then bought it at the foreclosure sale with a credit bid. The Mine was then conveyed to another entity controlled by Moreno, Mine Assets Holding LLC. Two days after the foreclosure sale, on October 3, 2013, Hess and other creditors filed an involuntary petition, thereby commencing this bankruptcy case. The Lenders filed a motion for appointment of a trustee, citing the acrimonious relationship between Hess and Moreno as cause. Ultimately, the Court appointed the Trustee.

Postpetition, S3 continued as manager of the Drying Facility. In May 2014, S3 entered into an agreement with the Trustee ("Agreement") that authorized S3 to perform repairs and production improvements to the Drying Facility, including installation of a second sand screener ("Screen"), with all expenses to be paid by S3.

S3 owned the Screen and contracted with Plant Materials to install it and to make the other modifications. S3 agreed to pay Plant Materials an estimated $162,535.00 per week for this work, which was projected to take approximately three weeks to complete. In fact, Plant Materials worked at the Drying Facility for three months, beginning in June 2014, and billed S3 for an amount that far exceeded the initial estimate.

Meanwhile, the bankruptcy case was proceeding. The Order Granting Motion to Approve Procedures for Joint Marketing of the Mine and the Drying Facility (ECF No. 569) was entered on July 3, 3014. Then, on August 22, 2014, the Confirmation Order (ECF No. 862) approved the free-and-clear sale ("Sale") of the Drying Facility to the administrative agent for the Lenders for a $16.3 million credit bid-the exact amount of the appraised value of the assets of the Drying Facility as improved by the installation of the Screen.

But the value of the Screen was included only because it was the Lenders and not some other prospective purchaser that bought the Drying Facility. If any other bidder bought the Drying Facility, S3 would remove its Screen. For that reason, the appraiser evaluated the Drying Facility under two scenarios: one "as is" without the Screen and the other "as improved" with the Screen.

The administrative agent for the Lenders assigned its right to buy the Drying Facility to DFAH, another entity controlled by Moreno, which still owns the Drying Facility and has objected to reopening the case. Because the Screen belonged to S3, it was not included in the asset purchase agreement. DFAH acquired the Screen, along with other related personal property, after the sale closed.

In support of the global settlement required for a confirmable plan, the Lenders made the following concessions:

• provided $2.25 million in exit financing to pay designated allowed claims and *173• agreed to payment of approximately $1.6 million to unsecured creditors in preference to their own $13.9 million deficiency that remained after the credit bid.

In addition, Elle (one of the Lenders), Mine Assets Holding LLC (which owned the Mine), and S3 voluntarily subordinated to other unsecured creditors over $8 million in additional unsecured claims.

S3 paid Plant Materials $773,395.66 for work that was initially projected to cost less than $500,000.00. Plant Materials now asserts it is owed almost $1 million more.

Plant Materials believes that S3 is no longer in operation and has no assets. The Drying Facility is now managed by another Moreno-controlled entity, Shale Support Holdings LLC (SSH), which was formed on October 10, 2014-four days after the effective date of the Plan. The real property on which the Drying Facility is situated is now owned by an entity with no connection to Moreno or to the other affiliated entities.

The bankruptcy estate was fully administered and closed nearly a year before the Motion was filed. (Final Decree/Order Closing Case, ECF No. 1187.) The Trustee will not receive any additional funds.

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Bluebook (online)
588 B.R. 169, Counsel Stack Legal Research, https://law.counselstack.com/opinion/in-re-alliance-consulting-grp-llc-mssb-2018.