In re: Ponce de Leon 1403, Inc.

• Court: United States Bankruptcy Court, D. Puerto Rico
• Decided: November 20, 2012
• Docket: 11-07920
• Status: Unknown

Opinion

1 UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF PUERTO RICO 2 IN RE: | 3 | PONCE DE LEON 1403, INC. | CASE NUMBER 11-07920- ESL 4 | | CHAPTER 11 5 DEBTOR | | 6 ____________________________________| 7 OPINION AND ORDER 8 This case is before the court upon PRLP 2011 Holdings, LLC (“PRLP”) motion to stay 9 proceedings pending appeal (Docket No. 144) filed on October 25, 2012. PRLP requests the stay 10 of two (2) Orders entered on June 19, 2012 (dkt. #105) and June 25, 2012 (dkt. #107) respectively.. 11 The first Order (Dkt. No. 105) extended a previous Order (Docket No. 94) authorizing the uses of 12 cash collateral up to and including the date of the plan confirmation hearing. The second Order 13 approved the Disclosure Statement (Docket Nos. 75 & 82) and was entered on June 25, 2012 14 (Docket No.107). Both Orders were appealed jointly on July 3, 2012 to the United States District 15 Court for the District of Puerto Rico (“District Court”) (Docket Nos. 112). PRLP filed a motion for 16 leave to appeal these two (2) Orders to the United States District Court on July 3, 2012 (Docket No. 17 115) and Ponce de Leon 1403, Inc. (“Debtor”) filed its opposition on July 16, 2012 (Docket No. 18 121). The District Court acknowledged PRLP’s appeal on July 23, 2012 (Docket No. 128). The 19 District Court on October 2, 2012 granted PRLP’s leave to appeal (Case No. 12-01577 (JAF), 20 Docket No. 8). PRLP alleges that both Orders contain clear factual findings and/or clear errors of 21 law. PRLP alleges that the court erred in granting the Order extending the use of the cash collateral 22 because Debtor failed to evince the “equity cushion” under the fair market value approach pursuant 23 to 11 U.S.C. §363(e) and (p). As to the second Order approving the Disclosure Statement, PRLP 24 alleges that the court erred because the Debtor failed to demonstrate the value of the Metro Plaza 25 collateral pursuant to the fair market value approach contrary to the provisions of 11 U.S.C. 26 §1125(a)(1). For the reasons set forth below the motion is hereby denied. 27 Background 28 Ponce de Leon 1403, Inc. filed a bankruptcy petition under Chapter 11 of the Bankruptcy 1 Authorization of (1) the Interim and Permanent Use of Cash Collateral; and (2) Entry of a 2 Scheduling Order Regarding Continued Use of Cash Collateral (Docket No. 6). On September 21, 3 2011, the court granted Debtor’s motion requesting interim use of cash collateral until the hearing 4 date of October 7, 2011 in which it will consider the motion for permanent use of cash collateral 5 (Docket No. 7). On September 30, 2011, Debtor filed a motion to submit Amended Petition, 6 Summary of Schedules and Schedules, Statement of Financial Affairs, Amended 20 Largest 7 Unsecured Creditors and Amended Master Address List, which included in its Schedule D-Creditors 8 Holding Secured Claims, Banco Popular de Puerto Rico, predecessor to PRLP, as a secured creditor 9 with a claim of $14,723,989 secured by Metro Plaza Towers Condominium Apartments, 47 10 apartments, commercial area and parkings (Docket No. 14, Schedule D-Creditors Holding Secured 11 Claims). On October 5, 2011, PRLP filed a Notice of Transfer of Claim pursuant to Fed. R. Bankr. 12 P. 3001(e)(2) by which it informed the court that Banco Popular de Puerto Rico’s claim had been 13 transferred to PRLP (Docket No. 23). 14 On October 7, 2011, a hearing was held in which the court ordered the following: “1. Parties 15 have agreed to the use of the following amounts constituting cash collateral of PRLP 2011 16 $61,280.44; under the same terms of the [O]rder entered on 09/21/11 (#7), up to October 14, 2011, 17 and in addition to the $26,745 already approved. The court so approves. 2. The parties shall file an 18 agreement on or before October 14, 2011; or move the court informing their respective positions. 19 3. Debtor’s request for authorization to pay pre-petition claims (#9) is hereby granted in the amounts 20 and under the conditions in the [O]rder authorizing use of cash collateral. Order due by 10/14/2011 21 (Docket No. 24). Subsequently, on October 27, 2011, the parties filed a joint Stipulation on the Use 22 of Cash Collateral and Adequate Protection in which the parties agreed that the limited use of certain 23 of PRLP’s cash collateral would be solely for the “Permitted Expenditures” listed in the Budget 24 (Docket No. 38, Exhibit I) for the months of October, November and December 2011, ending on 25 December 31, 2011 and the parties also detailed the adequate protection Debtor had to provide to 26 PRLP (Docket No. 38). On December 14, 2011, the Order approving the stipulation was granted 27 (Docket No. 47). 28 On February 15, 2012, the parties jointly filed a Second Stipulation on the Use of Cash 1 Collateral and Adequate Protection by which PRLP has authorized Debtor to use certain of PRLP’s 2 cash collateral until April 30, 2012 under the terms and conditions of adequate protection detailed 3 in the stipulation (Docket No. 60). On March 13, 2012, a hearing was held in which the court 4 Ordered the following: “(1) There being no opposition, the request for use of cash collateral and 5 adequate protection (docket #60) is hereby granted. (2) Motion to extend exclusivity period (docket 6 #65) is hereby granted (Docket No. 66). On April 13, 2012, Debtor filed its Disclosure Statement 7 (Docket No. 75) and its Chapter 11 Plan of Reorganization (Docket No. 76). On May 8, 2012, the 8 Debtor filed a Motion to Supplement and Clarify Disclosure Statement and Plan (Docket No. 82). 9 On June 8, 2012, PRLP filed its Objection to Approval of Debtor’s Disclosure Statement by which 10 it argued that; (i) the Disclosure Statement does not contain adequate information regarding the type 11 of financing involved to distribute 100% to the allowed unsecured claims, given that Debtor will 12 only derive monies from the sale of apartment units and commercial spaces; (ii) Disclosure 13 Statement fails to inform creditors that for the Plan to be feasible, PRLP needs to consent to the use 14 of its collateral for that purpose; (iii) the Disclosure Statement does not contain sufficient 15 information regarding the value of the tax credits the Debtor wants to sell; (iv) it fails to disclose and 16 provide documentation regarding the value of the real property determined by Debtor in Exhibit 3, 17 which is fully encumbered by PRLP; (v) Debtor does not disclose the “activities” that will fully fund 18 the Plan; (vi) the court does not need to consider or approve a Disclosure Statement for a Plan that 19 is unconformable on its face since it fails to satisfy the feasibility requirements of 11 U.S.C. 20 §1129(a)(11) due to the following: (a) the feasibility of the Plan hinges on two items; namely (1) 21 the cash derived from the sale of PRLP’s collateral, the real property and (2) the proceeds of the sale 22 of the tax credits. Debtor has failed to show that these two strategies (mechanisms) are available 23 (viable) to fund the Plan; and (vii) the Plan discriminates unfairly because the three (3) proposed 24 alternatives (scenarios) do not provide fair and equitable treatment on PRLP’s secured claims and 25 violates the absolute priority rule (Docket No. 88). On June 12, 2012, debtor filed a Motion for the 26 Authorization of (1) the Permanent Use of Cash Collateral; and (2) Request that Hearing to Consider 27 Use of Cash Collateral be Held on June 19, 2012 (Docket No. 90). On June 12, 2012, the Debtor 28 filed an Urgent Motion Requesting Order Authorizing Expedited and Limited Discovery in 1 Preparation for the Disclosure Statement Hearing to Held on June 19, 2012 (Docket No. 91). On 2 June 13, 2012, the court granted Debtor’s request for limited discovery in preparation for the 3 Disclosure Statement hearing (Docket No. 93). On June 14, 2012, the court granted debtor’s request 4 for interim cash collateral in its Interim Order Authorizing Debtor-in-Possession to Use Cash 5 Collateral, Granting Replacement Liens and Other Adequate Protection, Setting Final Hearing, and 6 Affording Other Related Relief in which the court’s relief was premised on the finding that; “[a]n 7 immediate and critical need exists for the Debtor to obtain access to funds in order to continue the 8 operation of its business. Without such funds, the Debtor will not be able to pay its payroll and other 9 operating expenses and obtain goods and services needed to carry on its business. Accordingly, 10 interim authorization to use cash collateral is appropriate under Bankruptcy Rule 4001(b)(2), in 11 order to avoid immediate and irreparable harm to the estate pending a final hearing” (Docket No. 12 94, pg. 2). 13 On June 14, 2012, Debtor filed its Reply to Objection to Approval of Disclosure Statement 14 Filed by PRLP arguing that: (i) PRLP’s argument regarding the alleged violation of the absolute 15 priority rule is unfounded because the general unsecured creditors are included in the Plan under 16 Class 3 and pursuant to the Plan they will be paid after the secured claim owed to PRLP is fully 17 paid; (ii) PRLP alleges that the Debtor’s Disclosure Statement should not be approved because 18 Debtor’s Plan is fatally flawed and is unconfirmable on its face, but has failed to provide evidence 19 to rebut the financial information and projections that were included as part of the Disclosure 20 Statement; (iii) Article XIV of the Disclosure Statement details that the source of funding for the 21 Plan will be generated by the following; (a) mostly from the sale of the apartment units and 22 commercial spaces of the Metro Plaza Towers Projects and (b) as an additional component the 23 revenue obtained from the tax credits will be used to accelerate the payment to creditors; (iv) to 24 provide sufficient information to the creditors regarding the feasibility of the Plan the Debtor 25 included in its Disclosure Statement the following exhibits; (a) Exhibit 3: Price List for the 26 residential units which was prepared using the historical sales data of the Debtor and the existing 27 prices for the apartment units which are comparable to the sales prices of the apartment units; (b) 28 Exhibit 5A-Projected Statement of Cash Flows submitted in support of the feasibility of the plan by 1 which Debtor establishes that if the post-petition sales pattern is maintained it will be able to fully 2 pay all of its claims in conformity with the Plan provisions; (v) PRLP has not offered any evidence 3 that establishes that Debtor’s price list is inadequate or misleading. “On the contrary, PRLP knows 4 first hand that the Debtor has been able to sell the residential units at relatively the sales prices it is 5 proposing. The Debtor has already submitted three budgets for the use of cash collateral which 6 provide the actual sales price of the units the Debtor has consistently sold post-petition. These 7 budgets were not premised on assumptions, but on options for purchase received by the Debtor. 8 Therefore, the sales prices proposed by the Debtor are fairly accurate and consistent with the offers 9 and sales achieved post-petition” (Docket No. 95, pg. 7, paragraph #17) ;(vi) the three (3) different 10 scenarios proposed by Debtor to satisfy PRLP’s claim is a confirmation issue that is premature at 11 this time; and (vi) since the filing of Debtor’s bankruptcy petition, Debtor has paid PRLP over $2 12 million dollars due to its consistent sales patterns of which PRLP has been the direct beneficiary of 13 the reorganization process (Docket No. 95). 14 On June 18, 2012, PRLP filed its Opposition to Request for Permanent Use of Cash 15 Collateral arguing that; (i) the Debtor has the burden under 11 U.S.C. §363(p) on the issue of 16 sufficient adequate protection to prove that the value of its collateral exceeds the amount of its 17 allowed claim; (ii) Debtor has failed to disclose any evidence of valuation of collateral, such as a 18 reliable real estate appraisal report, an appraiser’s testimony to substantiate the $19 million value 19 assigned to its real estate property assets and PRLP’s collateral; and thus the alleged “equity 20 cushion;” and (iii) PRLP’s lien already extends to Debtors’post-petition cash collateral and is also 21 part of its replacement liens pursuant to the First and Second Stipulation for the use of cash 22 collateral (Docket No. 102). On June 19, 2012, a hearing was held to consider Debtor’s Disclosure 23 Statement and its request to use cash collateral. 24 Order entered on June 19, 2012 (Docket No. 105) which is on Appeal 25 The court held the following: 26 1. After considering the disclosure statement filed by the Debtor (dkt. #75), as supplemented by information on tax credits (dkt. #82), and the testimony of Ms. Barroso, the court 27 concludes that the disclosed value of the properties pending to be sold (34 units) is adequate as the same is based on actual post petition sales, albeit with a minimal difference of 1%, and finds that 28 there is adequate information. Therefore, the disclosure statement, as supplemented, and clarified 1 in open court is hereby approved. A separate Order will be entered. 2 2. There being no opposition, the Debtor’s motion requesting clarification of Order (dkt. #96) is hereby granted. The amount owed to PRLP should have stated as being $14,600,000 and not 3 $45,000,000. 4 3. After considering the range of value of the properties pending to be sold ($15-$18 million), the amount of secured debt owed to PRLP ($11.5 to $11.7 million), the history of post- 5 petition sales (13, that is, one per month), the statutory requirements that maintenance fees be paid, and the amount of critical expenses outlined in the budget submitted by the Debtor in its motion for 6 use of cash collateral (dkt. #90), the court finds that payment to PRLP of 70% of the sale of individual units constitutes adequate protection. Consequently, the order authorizing the use of cash 7 collateral (dkt. #94) is hereby extended up to and including the date of the hearing on confirmation to be scheduled. 8 4. Audio record to be filed.” (Docket No. 105). 9 Standard Under Fed. R. Bankr. P. 8005 10 A motion for a stay pending appeal under Fed. R. Bankr. P. 8005 is determined pursuant to 11 the four-part test for granting preliminary relief, that is, 12 (1) there is a likelihood of success on the merits of the appeal; 13 (2) the movant will suffer irreparable harm if a stay is not granted; 14 (3) the harm to the movant if the stay is not granted is greater than the injury to the opposing 15 party if the stay is granted; and 16 (4) the public interest would not be affected by the issuance of the stay. 17 Pye v. Excel Case Ready, 238 F.3d 69 (1st Cir. 2001); In re Alfaro, 221 B.R. 927 (B.A.P. 1st Cir. 18 1998). 19 A motion for stay pending appeal is an extraordinary remedy and requires a substantial 20 showing on the part of the movant. In re Lickman, 301 B.R. 739 (Bankr. M.D. Fla. 2003). In order 21 to grant the motion for stay pending appeal all four prongs must be satisfied. In re Handel, 242 B.R. 22 789, 791 (Bankr. D. Mass. 1999). Failure to meet the four prongs dooms the motion. Eck v. Dodge 23 Chemical Co. (In re Power Recovery Sys., Inc.) 950 F. 2d 798, 804 ( 1st Cir. 1991). 24 25 Discussion 26 To find that there is a likelihood that PRLP will prevail on appeal based on the same 27 arguments presented to this court would mean that the court should vacate both Orders; namely the 28 1 Order granting the Disclosure Statement and the Order granting the use of cash collateral until the 2 confirmation hearing. The court is not convinced by PRLP that it should vacate its Orders. 3 Order approving the Disclosure Statement 4 The court’s findings that the use by Debtor of actual post-petition sales which is similar to 5 the comparable sales approach; and thus provides adequate information as the value of the 6 residential properties is in conformity with 11 U.S.C. §1125(b)(1). Section 1125(b)(1) provides in 7 pertinent part that; “[t]he court may approve a disclosure statement without a valuation of the debtor 8 or an appraisal of the debtor’s assets.” 11 U.S.C. §1125(b)(1). At the time of the hearing regarding 9 the Disclosure Statement, there were 34 residential units (8 of which are pent houses whose average 10 unit price is $700,000) whose approximately average unit price is calculated in the amount of 11 $352,000. The Debtor at the hearing informed the court that of the last three units sold, two 12 residential units sold for $350,000. According to the Debtor the value of the commercial space is 13 approximately $3,174,300 (Docket No. 75, Exhibit 5). The court notes that PRLP did not present 14 any type of valuation rebutting Debtor’s valuation of the real estate properties based on post-petition 15 sales. 16 As to the second prong, PRLP argues that it will suffer irreparable harm if Debtor’s Plan 17 were to be confirmed prior to the District’s Court ruling regarding the Order confirming the 18 Disclosure Statement since it would render the appeal moot and “it will have the effect of ‘bind[ing] 19 the debtor... and any creditor... whether or not such creditor... has accepted the plan’” (Docket No. 20 144, pg. 7). The court finds that PRLP’s argument is unfounded and undermines the importance of 21 the plan confirmation process and simply assumes that there will be a secured creditor cramdown 22 under 11 U.S.C. §1129(b)(2)(4). Moreover, “the inadequacy of disclosure can only injure a creditor 23 if the plan is eventually confirmed. But, just because the bankruptcy court has approved the 24 disclosure statement doesn’t mean the plan will be approved. The creditors still have to vote, and 25 the bankruptcy court still must determine that the plan complies with the Code...Before the 26 bankruptcy court passes on the plan, there is no way of knowing whether the allegedly inadequate 27 disclosure prejudices anyone.” In re Worldcom, Inc., 2003 U.S. Dist. Lexis 11160, at *16 (S.D.N.Y. 28 June 30, 2003) citing Everett v. Perez (In re Perez), 30 F. 3d 1209, 1216 (9th Cir. 1994). The court 1 || finds that PRLP has failed to satisfy the first two (2) prongs of the test regarding the motion for stay 2 || pending appeal of the Order approving the Disclosure Statement; thus it need not go any further with 3 |] its analysis. 4 || Order granting the Use of Cash Collateral until Plan Confirmation Hearing 5 The court’s ruling that payment to PRLP of 70% of the sale of the individual units constitute 6 || adequate protection pursuant to 11 U.S.C. §$363(e) and 361 is based on its findings regarding the 7 || range of value of the properties pending to be sold ( $15 -$18 million), the amount of secured debt 8 || owed to PRLP ($11.5 to 11. 7 million), the history of post-petition sales (13 units, one per month), 9 || the statutory requirement that maintenance fees be paid, and the amount of critical expenses outlined 10 || in the budget submitted by the Debtor (Docket No. 90). Thus, the court found that PRLP was 11 |} adequately protected due to its finding of a sufficient equity cushion in the real estate properties 12 || which was partly based on actual post-petition sales. The court notes that PRLP did not present any 13 || type of evidence contradicting (rebutting) Debtor’s valuation of the real estate properties pending 14 || to be sold. 15 As to the second prong of the test for a motion for a stay pending appeal, PRLP did not 16 || present any argument as to why it will suffer irreparable harm if the stay is not granted. The court 17 || finds that PRLP has failed to satisfy the first two (2) prongs of the test regarding the motion for stay 18 || pending appeal of the Order approving the use of the cash collateral until the confirmation hearing; 19 |] thus it need not go any further with its analysis. 20 Conclusion 21 In view of the foregoing, the court finds that the PRLP has failed to establish a likelihood 22 || to succeed on the merits or show irreparable harm. Lastly, the court does not find public policy to 23 || be an issue at this juncture. 24 Therefore, PRLP’s motion for stay pending appeal is hereby denied. 25 SO ORDERED. 26 Dated this 20" of November, 2012, in San Juan, Puerte-Rico. 27 Aarne 28 Unit cates ankeptey Court -8-