In re Tara Retail Grp., Inc.

583 B.R. 324
CourtUnited States Bankruptcy Court, N.D. West Virginia
DecidedJanuary 18, 2018
DocketCase No. 17–bk–57
StatusPublished

This text of 583 B.R. 324 (In re Tara Retail Grp., Inc.) is published on Counsel Stack Legal Research, covering United States Bankruptcy Court, N.D. West Virginia primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
In re Tara Retail Grp., Inc., 583 B.R. 324 (W. Va. 2018).

Opinion

Patrick M. Flatley, United States Bankruptcy Judge

On January 3, 2018, the court entered an order approving the resolution of a disputed claim filed in this case by Dollar Tree Stores, Inc ("Dollar Tree"). The court delivered its findings and legal conclusions in that regard during a telephonic status conference on December 19, 2017. On January 17, 2018, COMM 2013 CCRE12 Crossings Mall Road, LLC ("Comm2013"), filed a notice of appeal of the court's order. In order to create a more robust record for the District Court, the court issues this written memorandum opinion restating its justification for approving the Debtor's resolution of its objection to Dollar Tree's proof of claim.

I. BACKGROUND

The background of this case, and the Debtor's relationship with Comm 2013, is long and tortured. Relevant, however, to the extant appeal are the following facts. The Debtor is a single-purpose entity who owns and operates a real estate development commonly known as, among other things, the Elkview Crossings Shopping Mall in Elkview, West Virginia. Dollar Tree is one of many tenants at the retail center; others include Kmart Corporation, Kroger Limited Partnership I, and The Elswick Company, LLC, dba Anytime Fitness.

Prepetition, each of the above-identified tenants leased space from the Debtor at the Crossings Mall. In June 2016, a catastrophic flood washed away the sole commercially reasonable access to the Crossing Mall. The tenants at the Crossings Mall were therefore unable to operate for a significant time. Despite that, they continued to pay rent for some time. Specifically, Dollar Tree asserts in its proof of claim filed in this case that it paid $26,969.28 from June 2016 through November 2016. Based upon that amount, combined with other damage claims against the Debtor, Dollar Tree filed a proof of claim in this case totaling $276,969.28.

On June 29, 2017, the Debtor filed an omnibus objection to the proofs of claim filed by Dollar Tree, Kmart, Kroger, The Elswick Co., and Bob Evans Restaurants, LLC. By stipulations entered August 1 and September 8, 2017, the Debtor and Dollar Tree extended the deadline by which Dollar Tree had to respond to the Debtor's objection. In the interim, the Debtor resolved its objection to the proof of claim filed by Bob Evans. Among other things, the Debtor recognized Bob Evans's proof of claim, which it filed in an amount of at least $17,500, in the amount of $217,500, including $200,000 as the estimated expense to repair the condition of the property leased by Bob Evans. Notably, however, Bob Evans agreed to receive a total pro rata distribution of not more than $1,000 under the Debtor's plan. On August 16, 2017, the court signed the agreed order resolving the Debtor's objection to Bob Evans's proof of claim. No appeal followed. Later, the Debtor and Dollar Tree resolved the claim dispute between them by stipulation filed October 31, 2017. Per the stipulation, as is relevant here, the Debtor agreed to recognize the full amount of Dollar Tree's proof of claim, *326which was filed in the amount of $276,969.28, and Dollar Tree agreed to accept a reduced payment of $26,969.28 on its proof of claim. On the night before the hearing to consider the stipulation, which the court held on November 14, 2017, Comm 2013 filed its written objection to the stipulation and proposed agreed order.

During the hearing, Comm 2013 noted its objections to the proposed resolution, including that the Debtor should have sought approval under Federal Rule of Bankruptcy Procedure ("Rule") 9019, that the proposed resolution improperly included the assumption of a lease, and that the voting rights of a claimant must be tied to the allowed amount of its claim. On the record, the court found that the creditor body had sufficient notice of the proposed resolution and effectively transmogrified the proceeding into one under Rule 9019. Ultimately, the court concluded that the proposed resolution was the product of the Debtor's sound business judgment. A lingering issue, however, was whether the court should countenance that aspect of the settlement that allowed Dollar Tree to vote the full amount of its proof of claim in conjunction with the plan process when the distribution to Dollar Tree on its proof of claim is significantly less. On November 20, 2017, the court entered an order reflecting its findings but reserving a decision upon the issue regarding the voting rights of Dollar Tree. Additional briefing by the parties on the issue was ordered.

II. ANALYSIS

Comm 2013 asserts two principal reasons why the court should not approve the Debtor's proposed resolution of its objection to the proof of claim filed by Dollar Tree: first, because Dollar Tree can vote only the amount of its allowed claim, which Comm 2013 asserts is $26,969.28 under the propose resolution; and second, because the proposed resolution constitutes a solicitation in violation § 1125(b) of the Bankruptcy Code. In support of its first contention, Comm 2013 relies upon In re SK Foods, L.P. , Case No. 09-29162, 2011 WL 10715382 (Bankr. E.D. Cal. Jan. 27, 2011). According to Comm 2013, SK Foods stands for the proposition that a creditor's voting rights in Chapter 11 must be identical to that creditor's distribution rights. Specifically, Comm 2013 cites the following from SK Foods :

At the initial hearing, the court expressed its concern that allowing the claims at one amount for distribution purposes but at an amount more than six times higher for voting purposes appeared designed to manipulate the voting process; that is, it appeared to give these claimants voting power disproportionate to their true economic interests in the case and unfairly greater than the voting power of other unsecured creditors.

Id. at *1, n.3. According to Comm 2013, "[t]he SK Foods Court refused to approve the settlement until the parties modified their agreement to make voting rights identical to distribution rights."

In support of its second argument, Comm 2013 asserts that because the court has not yet approved a disclosure statement, the Debtor's proposed resolution of its dispute with Dollar Tree constitutes a solicitation barred by § 1125(b). Specifically, Comm 2013 contends that the following language binds Dollar Tree to accept the Debtor's anticipated proposed plan of reorganization: "The Debtor agrees to assume the Lease pursuant to a plan of reorganization to be filed with this Court and Dollar Tree agrees to vote in support of the Debtor's plan of reorganization so long as it incorporates such assumption." Comm 2013 believes that the inclusion of such language in the proposed resolution of the *327claim objection constitutes a binding agreement for Dollar Tree to vote in favor of the Debtor's anticipated plan before there has been an approved disclosure statement.

The Debtor disagrees on both points. First, the Debtor contends that SK Foods is not controlling, is of little persuasive value, and ultimately does not stand for the proposition advanced by Comm 2013.

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Cite This Page — Counsel Stack

Bluebook (online)
583 B.R. 324, Counsel Stack Legal Research, https://law.counselstack.com/opinion/in-re-tara-retail-grp-inc-wvnb-2018.