Robert P. Greene v U.S. Bank N.A., et al.
Filing
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MEMORANDUM AND ORDER... IT IS HEREBY ORDERED that the Appeal filed by Robert P. Greene (ECF No. 1 ) is DENIED. IT IS FURTHER ORDERED that the Order of the United States Bankruptcy Court for the Eastern District of Missouri, dated April 18, 2014 is AFFIRMED. Signed by District Judge Ronnie L. White on 3/26/2015. (NEB)
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF MISSOURI
EASTERN DIVISION
InRe:
GANNON INTERNATIONAL, LTD.,
Debtor,
ROBERTP. GREENE,
Appellant,
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No. 4:14CV842 RLW
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v.
U.S. BANK, N.A. and
GANNON INTERNATIONAL, LTD.,
Appellees.
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MEMORANDUM AND ORDER
This matter is before the Court on Appellant Robert P. Greene ' s Appeal of the
Bankruptcy Court's Order granting U.S. Bank' s Motion to Dismiss and dismissing the Debtor' s
Chapter 11 case, Case No. 13-46321. Upon careful consideration of the briefs, the Court will
affirm the bankruptcy court's order dismissing the Chapter 11 case.
Procedural Background 1
Debtor Gannon International, Ltd. ' s ("Debtor") bankruptcy case commenced on July 9,
2013 upon the filing of an involuntary Chapter 7 petition in the United States Bankruptcy Court
for the Eastern District of Missouri. (Chapter 7 Involuntary Petition, ECF No. 1) Three
independent creditors, Connell Brothers Co., Ltd. ("Connell Brothers"), R.S. Bacon Veneer, Inc.
("R.S. Bacon"), and Robert P. Greene ("Greene") filed the petition based on each party' s
independent judgment against Debtor. (Id.) Debtor initially opposed involuntary bankruptcy
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Unless otherwise noted, the facts and document references are from the underlying bankruptcy
proceedings, Case No. 13-46321.
proceedings and sought dismissal of the involuntary petition, which the court denied after a
hearing. (Mot. to Dismiss, ECF No. 22; Order Denying Mot. to Dismiss, ECF No. 33) Debtor
then filed a motion to reconsider the court' s denial of the motion to dismiss, and the court also
denied that motion on October 22, 2013. (Mot. to Alter or Amend Order, for Relief from Order
and for Reconsideration, ECF No. 37; Order Denying Motion, ECF No. 41) Debtor later
consented to the entry of an order for relief on the condition that the court convert the case to a
Chapter 11 proceeding, which the court then converted on October 31 , 2013. (Request for
Conversion to Chapter 11 , ECF No. 46; Order, ECF No. 50)
On January 30, 2014, Greene filed a Motion to Convert the Case to Chapter 7 and also
requested an expedited hearing. (Mot. to Convert, ECF No. 97; Mot. to Expedite Hearing, ECF
No. 99) The court granted the motion to expedite the hearing and set the hearing for February
18, 2014. (Order Granting Mot. to Expedite Hearing, ECF No. 101) Debtor objected to the
motion and asked that the court appoint an Examiner to investigate Debtor and its assets.
(Debtor' s Objection to Mot. to Convert, ECF No. 110; Debtor' s Plan of Reorganization, ECF
No. 111) On February 25, 2014, the court granted the request for an order appointing an
Examiner and accepted the offer to pay the Examiner' s fees by Debtor' s principal, William
Franke ("Franke"). (Order Granting Request for an Order Appointing an Examiner, ECF No.
114) The court also continued the hearing on the Motion to Convert until March 26, 2014. (Id)
The bankruptcy court further ordered the Examiner to investigate "any allegations of fraud,
dishonesty, incompetence, misconduct, mismanagement, or irregularity in the management of the
affairs of the Debtor .... " (Id) This investigation included Debtor' s subsidiaries and affiliates,
including but not limited to, companies and assets located in Asia. (Id)
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On March 3, 2014, the court appointed Steven E. Holtshouser as the Examiner in the
case. (Order Approving Appointment of Chapter 11 Examiner, ECF No. 118) The Examiner
presented a fee estimate, and on March 26, 2014, the court ordered Mr. Franke to transfer funds
to the Examiner' s trust account. (Examiner' s First Reasonable Estimate of Fees, ECF No. 127;
Order, ECF No. 130) Mr. Franke did not comply with the court' s order, and after a hearing held
on April 2, 2014, the court ordered a payment schedule for Mr. Franke to deposit funds into the
Examiner' s trust account. (Order, ECF No. 138) The order further stated that if Mr. Franke did
not timely comply with the funding schedule, the Examiner would notice the court and parties,
and the court would set Greene' s motion to convert for a hearing date and time on an expedited
basis. (Id.)
On April 9, 2014, the Examiner notified the court that Mr. Franke failed to comply with
the payment schedule, although the Examiner indicated he had made significant progress in the
investigation. (Examiner' s Notice, ECF No. 141) The following day, Creditor U.S. Bank filed a
Motion to Dismiss and Motion to Expedite Hearing, indicating that dismissal was preferred to a
conversion to Chapter 7 because it was in the best interests of creditors. (Mot. to Dismiss, ECF
Nos. 142, 143) On April 14, 2014, the court held a hearing on Greene' s Motion to Convert from
Chapter 11 to Chapter 7, the Examiner' s notices regarding wire transfers, and Creditor U.S.
Bank' s Motions to Expedite Hearing and to Dismiss. (Transcript of 4/ 14/14, ECF No. 160)
After hearing oral arguments, the court orally granted the motion to dismiss and denied the
motion to convert. (Id. at p. 40) Specifically, the court stated:
The outline of the case that was given is correct. There was vigorous
opposition by the debtor initially to being in bankruptcy, then they consented to
the bankruptcy and converted to Chapter 11 .
Mr. Franke said that he would fund the examiner, and the creditors were
all in agreement except for Mr. Greene. The Greene parties brought the
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agreement to the Court, including Mr. Franke' s agreement to fund the examiner,
and I entered an order regarding that agreement.
Mr. Franke didn' t live up to his agreement to fund the examiner. And then
I attempted to rework the funding agreement. Again, Mr. Franke could not live
up to that, as well.
I'll also note for the record that there are no creditors that are willing to
fund the investigation of assets by the examiner or by a Chapter 7 trustee.
Therefore, I will grant the motion to dismiss the case and deny the motion to
convert the case.
(Id. at pp. 39-40) The attorney for Greene responded that some creditors may be willing to fund
a trustee, but the court noted that no one stepped up to the plate. The court continued:
Nobody stepped up to the plate. If somebody's stepping up to the plate- I
don' t mean to be ugly, Mr. Hall. You know I served as a Chapter 7 trustee, so I
know what it's like to have a case and there appear to be some assets out there,
and you can' t find them, and there' s no money to fund them.
But I have a hard time in a case like this, where we know there are foreign
assets, appointing one of our fine trustees from our Chapter 7 panel to kind of run
with nothing there. So I will leave it at that at this point.
(Id. at pp. 40-41 )
The court entered a written order on April 18, 2014 dismissing Debtor Gannon' s Chapter
11 bankruptcy case and denying the motion to convert. (Order on U.S. Bank National
Association' s Mot. to Dismiss, ECF No. 147) Greene filed a Notice of Appeal to the United
States District Court for the Eastern District of Missouri on May 1, 2014. (Notice of Appeal,
ECF No. 149) In response to Appellant's Brief, Debtor Gannon filed an Appellee Brief.
Factual Background2
Debtor Gannon International, Ltd. is a Missouri corporation, with William Franke as the
founder and principal investor. Debtor operates primarily as a holding company of a number of
subsidiary and affiliate companies, including The Gannon Management Co. of Missouri, the
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The relevant background facts of this case are not ·i n dispute, and the Court sets forth the facts
as stated in the briefs.
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Gannon Management Co. of Florida, the Gannon Services Company, The Gannon Equities
Company, and the Gannon Pacific Company ("Gannon Pacific"). Debtor owned and managed
numerous apartment complexes in Missouri and Florida, most of which had been sold prior to
2008. Gannon Pacific' s business operations, by and through its subsidiaries, are or were based in
Southeast Asia, specifically Hong Kong and Vietnam. These interests include a milk processing
facility in Vietnam, which Debtor sold for a profit in 2011 ; a leasehold on a small office in
Vietnam; and a business license and partial interest in Long Ahn Brewery located in Vietnam.
The Examiner in the bankruptcy proceedings indicated that getting assets out of Vietnam would
be difficult.
Standard of Review
The Court has jurisdiction over this bankruptcy appeal pursuant to 28 U.S .C. § 158(a)(l ).
On appeal, "the district court reviews the bankruptcy court' s legal conclusions de novo and its
findings of fact for clear error." In re Tasic, No. 4:1~CV00474 ERW, 2013 WL 2425130, at *4
(E.D. Mo. June 4, 2013) (citing In re O 'Brien, 351F.3d832, 836 (8th Cir. 2003)). Further, the
Court reviews issues committed to the bankruptcy court' s discretion for an abuse of that
discretion. Id. (citing In re Zahn , 526 F.3d 1140, 1142 (8th Cir. 2008)). "An abuse of discretion
occurs when the bankruptcy court fails to apply the proper legal standard or bases its order on
findings of fact that are clearly erroneous." Id.
Discussion
Appellant Greene raises two points on appeal: 1) the bankruptcy court failed to apply the
proper standard in reviewing U.S . Bank' s motion to dismiss, resulting in an abuse of discretion;
and 2) the bankruptcy court failed to consider the motions to convert and dismiss under the
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standard of the best interests of all creditors and of the estate. Upon review of the briefs, the
Court will affirm the decision of the bankruptcy court.
This appeal stems from the granting of U .S. Bank' s motion to dismiss and the denial of
Greene' s motion to convert to Chapter 7 proceedings. This Court reviews the decision to dismiss
the Chapter 11 case for an abuse of discretion. In Re Hedquist, 450 F.3d 801 , 804 (8th Cir. 2006)
(citation omitted). Dismissal is appropriate where cause exists and if dismissal is in the best
interest of both the creditors and the estate. In re Midland Marina, Inc., 259 B.R. 683 , 686 (8 1h
Cir. BAP 2001). The bankruptcy court has broad discretion in determining whether a Chapter 11
bankruptcy case should be dismissed. Id. " [W]here sufficient factors exist to justify either a
decision to convert or one to dismiss a case, the exercise of its discretion by the bankruptcy court
should be respected." In re Mazzocone, 183 B.R. 402, 417 (Bankr. E.D. Pa. 1995).
Section 1112(b)(4) of the Bankruptcy Code sets forth examples of cause justifying the
dismissal of a Chapter 11 case. 11U.S.C. §1112(b)(4)(A)-(P). "Thelistisnotexhaustiveand
court may find cause for other equitable reasons." Loop Corp. v. US. Trustee , 290 B.R. 108,
112 (Bankr. D . Minn. 2003). In the present case, the bankruptcy court' s stated reason for
dismissing the Chapter 11 bankruptcy case was an inability to reorganize. (Order on US. Bank
National Association' s Mot. to Dismiss, Appellant's Ex. A, ECF No. 9-1) In its oral ruling, the
bankruptcy court specified that the Debtor was unable to pay the examination fees ; none of the
creditors had offered to pay either the examiner or trustee fees; and, even if someone agreed to
pay, appointing a trustee to investigate and obtain foreign assets would be difficult and costly.
(Bankruptcy Transcript of 4/ 14/ 14, pp. 40-41 , Case No. 13-46321 , ECF No. 160) Testimony
from the hearing revealed that the Examiner required $78,000 to investigate, and that figure did
not cover recovery of the assets. (Id. at p. 29) A Chapter 7 trustee would require funding as well.
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(Id. at pp. 25-26) Additionally, the Missouri assets did not have much value, and the other assets
were located in Vietnam, a country that would not enforce a judgment. (Id. at pp. 16, 31-32)
Indeed, Greene' s attorney stated at the hearing that the assets were located in Vietnam and parts
of Asia and acknowledged that there was a challenge in pursuing those assets. (Id. at p. 20)
The Court finds that the bankruptcy court applied the correct legal standard in addressing
the motion to dismiss. The bankruptcy court evaluated the motion under§ 1112(b) and indicated
its reasoning for finding cause for dismissal, which included failure to comply with court orders
to fund the Examiner, the inability to pay a Trustee, and the difficulty dealing with foreign
assets. (Id. at pp. 39-41; Appellant' s Brief, Ex. A, ECF No. 9-1)
Likewise, as shown above, the facts contained in the designated record and stated by the
bankruptcy court support the court' s finding of cause for dismissal. "If the trial court identified
the correct legal rule to apply to the relief requested, the reviewing court must then determine
whether the trial court' s 'resolution of the motion resulted from a factual finding that was
illogical, implausible, or without support in inferences that may be drawn from the facts in the
record. "' In re YBA Nineteen, LLC, 505 B.R. 289, 301 , 303 (Bankr. S.D. Cal. 2014) (quoting
United States v. Hinkson , 585 F.3d 1247, 1263 (9th Cir. 2009) (finding failure to comply with
scheduling order was sufficient cause to justify dismissal)). The factual findings of the
bankruptcy court were plausible and were supported by the oral arguments advanced on the
record. As a result, the bankruptcy court applied the correct standard under 11 U.S .C. § 1112(b)
in addressing the motion to dismiss and finding the existence of sufficient cause.
However, Greene also argues that the bankruptcy court abused its discretion by failing to
consider the best interests of the creditors and the estate. The undersigned disagrees. "[W]hen
deciding between dismissal and conversion under 11 U.S.C. § 1112(b), 'the court must consider
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the interests of all the creditors.'" In re Owens, 552 F.3d 958, 961 (8th Cir. 2008) (quoting In re
Superior Siding & Windows, Inc., 14 F.3d 240, 243 (4th Cir. 1994)). The record shows that the
bankruptcy court heard extensive oral argument from the Debtor, several creditors, and the
Examiner regarding the best interests of the creditors and the estate. Specifically, the testimony
demonstrated the availability of some assets in Vietnam but the near impossibility of recovering
those. (Bankruptcy Transcript of 3/26/14 pp. 7-8, Case No. 13-46321 , ECF No. 158) Indeed,
the Examiner testified that "to be able to produce anything out of Vietnam in an adversarial
manner in any time period that's going to be beneficial to what this Court has to do, I think, is
unrealistic." (Id at p. 8) Additionally, much of Debtor' s money-making ventures were no
longer taking place. (Id at p. 9) Finally, the Examiner required $78,000 to investigate Debtor' s
activities, and Mr. Franke was financially unable to make such payments. (Order, Case No. 1346321 , ECF No. 130; Bankruptcy Transcript of 4/ 14114 p. 10, ECF No. 160)
The facts in the record demonstrate the enormous expense to the estate if the bankruptcy
court converted the case to a Chapter 7 case and involved a trustee. "Where a trustee would
impose an unaffordable burden, dismissal may well be in the estate' s interests ... But where
there is a prospect of the recovery of assets, conversion may be in the best interests of the estate
and the creditors despite these costs." In re DB Capital Holdings, LLC, No. , 2011 WL 5520439,
at *4 (Bankr. D. Co. Nov. 14, 2011) Here, the record demonstrated, and bankruptcy court took
into account, the time, expense, and difficulty in finding and recovering foreign assets as support
for its decision to dismiss instead of convert the case. (Bankruptcy Transcript of 4/14/14, pp. 4041 , Case No. 13-46321 , ECF No. 160); see also In re Midwest Props. ofShawano, LLC, 442
B.R. 278, 286 (Bankr. D. Del. 2010) (finding dismissal in the best interest of creditors and the
estate where debtor' s operations did not generate sufficient funds to pay expenses, and a trustee
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administering real estate in other states would be impractical, costly, and would burden the
estate).
While Greene cites In re Mitan in support of his argument that conversion is appropriate
to investigate alleged hidden overseas assets, the Court notes that the decision to dismiss or
convert a Chapter 11 case is within the sound discretion of the bankruptcy court and will be
reversed only for an abuse of discretion. 573 F.3d 237, 247 (6th Cir. 2009). Further, " [t]he
standard for choosing conversion or dismissal based on the best interest of creditors and the
estate implies a balancing test to be applied through case-by-case analysis. " In re Gateway
Ethanol, L.L.C. , No. 08-22579, 2011 WL 597059, at *2 (Bankr. D. Kan. Feb. 11 , 2007) (internal
quotation and citation omitted). Here, in light of the arguments proffered in the record, as well
as the court' s careful review of the record and oral statements, the undersigned finds that the
bankruptcy court did not abuse its discretion in finding that dismissal was in the best interest of
the creditors and the estate.
Further, although Greene relies heavily on In re Superior Siding & Windows, Inc., the
facts are not analogous. In that case, the bankruptcy court' s stated reason for dismissing instead
of converting the case to Chapter 7 was a consensus of a majority of creditors favored dismissal.
14 F.3d at 242. Here, however, the bankruptcy court set forth properly supported reasons for
choosing dismissal over conversion; namely, the failure of Franke to pay the examiner; the
absence of an offer to pay for a Trustee; the inability of the estate to pay a Trustee; and the
difficulty and expense in investigating and recovering foreign assets. This is particularly
compelling in light of the fact that the alleged assets are in Vietnam, and neither the Examiner
nor a Trustee would have the ability to compel evidence or documents. Although Greene finds
the bankruptcy court' s analysis of and factual findings regarding the best interests of the
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creditors and estate to be lacking, the determination is adequate under the law. In re Mazzacone ,
183 B.R. at 417 (noting "considerable authority for the proposition that a bankruptcy court is not
required to explain the reasons for dismissal or conversion in detail"); see also Loop Corp. v.
US. Trustee , 379 F.3d 511 , 519 (8th Cir. 2004) (finding oral explanation sufficient findings of
fact to support conversion order); In re Fossum, 764 F.2d 520, 522 (8th Cir. 1985) (stating that
while the court' s findings could have been more detailed, in light of the evidence in record,
bankruptcy court' s one line statement that reorganization was not feasible was a sufficient
finding of fact supporting dismissal). The undersigned finds that the bankruptcy court' s decision
to dismiss the case "did not result from a factual finding that was illogical, implausible, or
without support in inferences that may be drawn from the record." In re YBA Nineteen, LLC,
505 B.R. at 304. As such, the Court concludes that the bankruptcy court did not abuse its
discretion in ordering dismissal of Debtor' s case, and the decision of the bankruptcy court is
affirmed.
Accordingly,
IT IS HEREBY ORDERED that the Appeal filed by Robert P. Greene (ECF No. 1) is
DENIED.
IT IS FURTHER ORDERED that the Order of the United States Bankruptcy Court for
the Eastern District of Missouri, dated April 18, 2014 is AFFIRMED.
Dated this 26th day of March, 2015 .
RONNIE L. WHITE
UNITED STATES DISTRICT JUDGE
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