LSREF2 Baron LLC et al v. United States Trustee

Filing 4

ORDER denying 1 Motion for Leave to Appeal. Ordered by Judge Hugh Lawson on 11/7/2012. (nbp)

IN THE UNITED STATES DISTRICT COURT
FOR THE MIDDLE DISTRICT OF GEORGIA
VALDOSTA DIVISION
In re:
STAFFORD RHODES, LLC,
BEAUFORT CROSSINGS, LLC,
STAFFORD VISTA, LLC, and
STAFFORD WESLEY, LLC,

Case No. 7:12-cv-133 (HL)
Case No. 12-70859

Debtors.

ORDER
This Court undertakes a review of a Motion for Leave to Appeal an
Interlocutory Order Denying Motion to Dismiss Cases (Doc. 1), filed by LSREF2
Baron LLC (as to Vista), LSREF2 Baron 2, LLC (as to Wesley), and Wells Fargo
Bank, N.A. (as to Rhodes and Beaufort) (collectively, the “Lender”). For the
reasons stated more fully below, the Motion is denied.
I.

BACKGROUND
The Debtors in this case are four special purpose corporate entities that

each own a shopping center located in either Georgia or South Carolina. (Doc. 1,
p. 2.) Each of the Debtors borrowed money from the Lender’s predecessor 1
beginning in either 2006 or 2007, depending on the particular Debtor. Id. The
Lender is owed approximately $27 million by the Debtors. (Doc. 1, p. 5.) All four

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In the fall of 2011, the original lender sold the loans to the current Lender. The
details of the ownership transfer are not relevant for purposes of the present
Motion.

of the loans executed by the Debtors – the Vista Loan, the Wesley Loan, the
Rhodes Loan, and the Beaufort Loan – originally had maturity dates that were set
at various times not relevant to this Motion. However, all of the maturity dates
were extended at some point so that the maturity date for each loan was May 5,
2012. (Doc. 1, p. 3.)
In April 2012, shortly before the loans were set to mature, the Debtors’
agent sent the Lender a settlement offer. (Doc. 1, p. 3.) The Debtors informed the
Lender that if the settlement was not approved, there was a chance that the
Debtors would file bankruptcy. (Doc. 1, p. 3-4.) The Lender did not accept the
settlement offer, and on May 5, 2012, the Debtors failed to pay the outstanding
balance of the loans. (Doc. 1, p. 5.) On May 31, 2012, the Lender notified
Debtors Vista and Wesley of its intent to conduct a non-judicial foreclosure sale
of the Vista Collateral and the Wesley Collateral. (Doc. 1, p. 5.) On June 14,
2012, the Lender initiated an action against Debtors seeking judicial foreclosure
of the Rhodes Collateral and the Beaufort Collateral. (Doc. 1, p. 5.)
On June 29, 2012, the Debtors filed petitions for relief under chapter 11 of
Title 11 of the United States Code. These petitions were filed with the Bankruptcy
Court for the Middle District of Georgia. (Doc. 1, p. 5.) These petitions were filed
two days prior to the scheduled foreclosure sale of the Vista and Wesley
Collateral. Id.
The Lender alleges that the Debtors filed these bankruptcy proceedings in
bad faith in an attempt to thwart the Lender from acquiring the Debtors’ collateral.
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This allegation was originally presented to the Bankruptcy Court in the form of a
Motion to Dismiss. To resolve the Motion to Dismiss, the Honorable John T.
Laney, III, United States Bankruptcy Judge for the Middle District of Georgia,
held a three-day evidentiary hearing. (Doc. 2, p. 2.) On September 5, 2012, the
Bankruptcy Court held a telephonic hearing to further discuss the Motion to
Dismiss, and pursuant to Bankruptcy Rule 7052, the Bankruptcy Court made
detailed findings of fact and conclusions of law that resulted in the denial of the
Motion to Dismiss. Id. On September 11, 2012, the Bankruptcy Court entered an
Order Denying the Motion to Dismiss. Id. The Lender now asks this Court for
leave to file an interlocutory appeal on the Order Denying the Motion to Dismiss.
II.

ANALYSIS
An interlocutory appeal is not a matter of right, but a federal district court

may exercise discretion and permit the appeal of interlocutory orders entered by
a bankruptcy judge. Laurent v. Herkert, 196 Fed. Appx. 771, 772 (11th Cir.
2006); see also 28 U.S.C. § 158(a)(3). Discretionary interlocutory appeals are
governed by 28 U.S.C. § 1292(b), a statutory provision which sets the
parameters for this type of appeal.
While filing an interlocutory appeal is permissible under § 1292, this type of
appeal, which presents an issue to the appellate court before the entry of final
judgment, is not a preferred course of action. “Routine resort to § 1292(b)
requests would hardly comport with Congress’ design to reserve interlocutory
review for exceptional cases while generally retaining for the federal courts a firm
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final judgment rule.” Caterpiller Inc. v. Lewis, 519 U.S. 61, 74, 117 S. Ct. 467
(1996) (internal quotation marks omitted). The moving party has “the burden of
persuading the court that exceptional circumstances justify a departure from the
basic policy of postponing appellate review until after the entry of final judgment.”
Tobkin v. Calderin, 2012 WL 3609867 at *2 (S.D. Fla. Aug. 22, 2012) (quoting
Coopers Et Lyband v. Livesay, 437 U.S. 463, 475, 98 S. Ct. 2454 (1978)).
Under § 1292(b), an interlocutory appeal is only appropriate if the moving
party is able to demonstrate that: “(1) the order presents a controlling question of
law; (2) over which there is a substantial ground for difference of opinion among
courts; and (3) the immediate resolution of the issue would materially advance
the ultimate termination of the litigation.” Laurent, 196 Fed. Appx. at 772 (citing
28 U.S.C. § 1292(b)). A controlling question of law is one that involves pure legal
interpretation and not any finding of fact. “[W]hat the framers of § 1292(b) had in
mind is more of an abstract legal issue or what might be called one of ‘pure’ law,
matters the court of appeals ‘can decide quickly and cleanly without having to
study the record.’” McFarlin v. Conseco Servs., 381 F.3d 1251, 1258 (11th Cir.
2004) (quoting Ahrenholz v. Board of Trustees of the Univ. of Illinois, 219 F.3d
674, 677 (7th Cir. 2000)). A fact-intensive inquiry is not appropriate for
interlocutory appeal.
In this case, the Lender argues that the determination of whether the
Debtors filed their bankruptcy petition in bad faith can be determined through a
routine application of the factors found in In re Phoenix Piccadilly, 849 F.2d 1393,
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1394 (11th Cir. 1988). In that case, the Eleventh Circuit analyzed several factors
to determine if a bankruptcy petition was filed in bad faith. Those factors included
the following:
(i)

The Debtor has only one asset, the Property, in which it
does not hold legal title;

(ii)

The Debtor has unsecured creditors whose claims are small
in relation to the claims of Secured Creditors;

(iii)

The Debtor has few employees;

(iv)

The Property is the subject of a foreclosure action as a
result of arrerages on the debt;

(v)

The Debtor’s financial problems involve essentially a
dispute between the Debtor and the Secured Creditors
which can be resolved in the pending State Court Action;
and

(vi)

The timing of the Debtor’s filing evidences an intent to delay
or frustrate the legitimate efforts of the Debtor’s secured
creditors to enforce their rights.

Id. at 1394-95. The Lender argues that these factors can be applied without any
factual analysis, and thus, there is a controlling question of law that is appropriate
for an interlocutory appeal. This Court disagrees.
An application of the Phoenix Piccadilly factors is more involved than a
simple legal question that can be “decide[d] quickly and cleanly without having to
study the record.” McFarlin, 381 F.3d at 1258. To the contrary, courts have found
that an application of the Phoenix Piccadilly factors requires an intensive fact
analysis that cannot be done in a routine way. “Phoenix Piccadilly has not been
applied mechanically, because ‘[b]ad faith in the filing of a bankruptcy petition is
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a finding of fact not subject to any per se approach.’” In re Park Forest
Development Corp., 197 B.R. 388, 393 (Bkrtcy. N.D. Ga. 1996) (quoting In re
Clinton Fields, Inc., 168 B.R. 265, 269 (Bkrtcy. N.D. Ga. 1989)). The Middle
District of Florida noted that “[w]hile the Phoenix Piccadilly factors provide
guidance, the court must engage in a fact-intensive inquiry that focuses on
whether a debtor intended ‘to abuse the judicial process and the purposes of the
reorganization provisions’ or ‘to frustrate the legitimate efforts of secured
creditors to enforce their rights’, as well as evidence that may indicate the
legitimacy of a debtor’s Chapter 11 filing.” In re Harco Co. of Jacksonville, LLC,
331 B.R. 453, 456 (Bkrtcy. M.D. Fla. 2005) (quoting Phoenix Piccadilly, 849 F.2d
at 1394).
Further, the Eleventh Circuit has never suggested that the factors listed in
Phoenix Piccadilly serve as a rigid standard for determining bad faith. See In re
Harco Co., 331 B.R. at 456 (determining that “[w]hile the factors enunciated in
Phoenix Piccadilly are helpful in identifying bad faith, the Eleventh Circuit does
not appear to suggest that the factors, if applicable, mandate dismissal.”); see
also In re Venice-Oxford Assocs. Ltd. Partnership, 236 B.R. 805, 810 (Bkrtcy.
M.D. Fla. 1998) (stating that the Phoenix Piccadilly factors are not a “mandatory
and exclusive itemization of factors to be mechanically applied in every
determination of good or bad faith.”). These factors were, and still are,
considered only guideposts in deciding whether a party is acting in bad faith.

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The Lender suggests that an application of the Phoenix Piccadilly factors
to this case can be done without any analysis of the facts and can be resolved as
a question of law. As the case law cited above demonstrates, courts have
routinely recognized that an application of the Phoenix Piccadilly factors requires
a more in-depth analysis to make the determination of good or bad faith.
III.

CONCLUSION
Interlocutory appeals under § 1292(b) “were intended, and should be

reserved, for situations in which the court of appeals can rule on a pure,
controlling question of law without having to delve beyond the surface of the
record in order to determine the facts.” Simpson v. Carolina Builders Corp., 222
Fed. Appx. 924, 925 (11th Cir. 2007) (quoting McFarlin v. Conseco Servs., 381
F.3d 1251, 1259 (11th Cir. 2004)).
In this case, the moving party has been unable to show that there is a
controlling question of law that can be resolved without any fact analysis. Thus,
an interlocutory appeal is not appropriate. The Court exercises its discretion to
deny the motion for leave to appeal.
SO ORDERED, this 7th day of November, 2012.

s/ Hugh Lawson
HUGH LAWSON, SENIOR JUDGE
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