RAIN TREE HEALTHCARE OF WINSTON SALEM, LLC v. J&F PARTNERS, LLC et al
Filing
33
MEMORANDUM OPINION AND ORDER signed by JUDGE WILLIAM L. OSTEEN, JR on 05/01/2018, that the Order of the Bankruptcy Court (Doc. 5 -4) is AFFIRMED. (Garland, Leah)
IN THE UNITED STATES DISTRICT COURT
FOR THE MIDDLE DISTRICT OF NORTH CAROLINA
In re:
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)
RAIN TREE HEALTHCARE OF
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WINSTON-SALEM, LLC,
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Debtor,
)
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________________________________)
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RAIN TREE HEALTHCARE OF
)
WINSTON-SALEM, LLC,
)
)
Appellant,
)
)
v.
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J & F PARTNERS, LLC, and
)
WILLIAM P. MILLER,
)
)
Appellees.
)
1:17CV546
MEMORANDUM OPINION AND ORDER
OSTEEN, JR., District Judge
Appellant Rain Tree Healthcare of Winston-Salem, LLC (“Rain
Tree”) filed a voluntary petition for Chapter 11 Bankruptcy in
the United States Bankruptcy Court for the Middle District of
North Carolina. (Bankruptcy R. on Appeal pt. 1, Attach. 10,
Voluntary Pet. (Doc. 5-10).) On June 1, 2017, the Bankruptcy
Court announced its ruling on the motion to dismiss. (Tr. of
June 1, 2017 Hr’g before Judge Benjamin A. Kahn (Doc. 9).) The
Bankruptcy Court then entered a written order adopting its oral
findings and formally dismissing the case. (Bankruptcy R. on
Appeal pt. 1, Attach. 4, Order (Doc. 5-4) at 1.) Rain Tree then
filed a motion to stay, (Bankruptcy R. on Appeal pt. 1, Attach.
26, Mot. to Stay Pending Appeal (Doc. 5-26)), which was denied,
(Opp’n Br. of Appellee J & F Partners, LLC (“Appellee’s Br.”),
Ex. 19, Mem. Order Denying Mot. for Stay Pending Appeal (Doc.
28-33) at 7, 29). Rain Tree then appealed the order dismissing
the case to this court. (Doc. 1.)
Appellant Rain Tree has filed its brief, (Doc. 12), to
which Appellee J & F Partners, LLC (“J & F”), responded in
opposition, (Doc. 28), and Appellee William P. Miller,
Bankruptcy Administrator, also responded in opposition, (Doc.
31). No reply was filed. This court has jurisdiction over this
appeal pursuant to 28 U.S.C. § 158. This matter is ripe for
adjudication and, for the reasons stated below, this court finds
that the Bankruptcy Court’s order dismissing the case should be
affirmed.
I.
PROCEDURAL HISTORY AND FACTUAL BACKGROUND
The relevant procedural history of this case goes back to
December 2016, and is outlined below.
A.
Western District Bankruptcy Petition
Rain Tree first filed a voluntary petition for Chapter 11
Bankruptcy in the United States Bankruptcy Court for the Western
District of North Carolina on December 30, 2016. (Bankruptcy R.
– 2 –
on Appeal pt. 2, Attach. 1, Amendment to Voluntary Pet. (Doc.
7-1) at 1.) 1 On January 13, 2017, the bankruptcy trustee moved to
dismiss this case for failure to provide proof of adequate
insurance. (Bankruptcy R. on Appeal pt. 2, Attach. 3, Mot. to
Dismiss (Doc. 7-3).) On March 1, 2017, J & F moved to dismiss
this case for cause under 11 U.S.C. § 1112(b). (Bankruptcy R. on
Appeal pt. 2, Attach. 11, Mot. to Dismiss Case (Doc. 7-11) at
1.) On March 15, 2017, the Western District Bankruptcy Court
held a hearing on the motions, and on March 31, 2017, it issued
a written order dismissing the case. (Bankruptcy R. on Appeal
pt. 1, Attach. 5, Order on Mots. to Dismiss (Doc. 5-5) at 5-6.)
As relevant to this case, the Western District Bankruptcy
Court found that
it is clear to this Court that the Debtor has violated
the Chapter 11 Operating Order of this Court. While,
typically, each one of the cited violations is not, in
and of itself, sufficient to warrant a dismissal of a
case, in this case all of the violations and
deficiencies taken together are undoubtedly enough to
warrant a dismissal. . . . The Debtor has been playing
“catch-up” since the beginning of the case and this
Court has made it clear that such would not be
tolerated. All of these deficiencies taken together
establish a basis for granting the [Bankruptcy
Administrator’s] Motion to Dismiss.
1
All citations in this Memorandum Opinion and Order to
documents filed with the court refer to the page numbers located
at the bottom right-hand corner of the documents as they appear
on CM/ECF.
– 3 –
(Appellee’s Br., Ex. 11, Order on Mots. to Dismiss (Doc. 28-15)
at 5.) The Western District Bankruptcy Court further found that
cause exists for dismissal based on substantial
continuing loss to the estate and the absence of a
reasonable likelihood of reorganization. The budget
presented by the Debtor reflects a net operating loss
for February through April, 2017. In addition, the
budget includes payments of only $6,500 per month for
Chapter 11 payments yet the Debtor offered no evidence
that this payment amount would be sufficient under a
Plan of Reorganization. Furthermore, this Court does
not believe there is reason to believe that the
numbers are realistic.
(Id. at 6.) The relevant factual findings leading to these legal
conclusions will be addressed as necessary hereafter in this
court’s analysis. No appeal was taken from the Western District
Bankruptcy Court order, and that order is final.
B.
Middle District Bankruptcy Petition
Rain Tree filed a second voluntary petition for Chapter 11
Bankruptcy in the United States Bankruptcy Court for the Middle
District of North Carolina on April 1, 2017, (Bankruptcy R. on
Appeal pt. 1, Attach. 10, Voluntary Pet. (Doc. 5-10)), just one
day after the Western District’s written order was entered. On
April 4, 2017, J & F filed a motion to dismiss arguing that
dismissal was warranted on grounds of res judicata and further
arguing that reorganization was objectively futile and the
filing was in bad faith. (Bankruptcy R. on Appeal pt. 1, Attach.
13, Mot. to Dismiss (Doc. 5-13) at 1.) On April 5, 2017, the
– 4 –
Bankruptcy Administrator filed his motion to dismiss on similar
grounds, arguing, inter alia, that no changed circumstances
existed to justify the second Chapter 11 petition. (Bankruptcy
R. on Appeal pt. 1, Attach 17, Mot. to Dismiss Case (Doc. 5-17)
at 1.)
The Middle District Bankruptcy Court held an evidentiary
hearing on the motions to dismiss on May 4, 2017, and following
that hearing, took the matter under advisement. (Tr. of May 4,
2017 Hr’g before Judge Benjamin A. Kahn (Doc. 8) at 192-93.) On
June 1, 2017, the Bankruptcy Court issued oral findings,
concluding that the case should be dismissed. (Tr. of June 1,
2017 Hr’g before Judge Benjamin A. Kahn (Doc. 9) at 13-14.) The
Bankruptcy Court found that (1) Rain Tree failed to establish a
sufficient change in circumstances to avoid the res judicata
effect of the dismissal order of the Western District; (2) that
there were adequate grounds to dismiss the case for “cause”
under Section 1112(b) of the Bankruptcy Code due to continuing
loss and diminution of the estate and an absence of the
reasonable likelihood of reorganization; and (3) further support
for dismissal existed given a finding of bad faith. (Id. at 519.) On June 16, 2017, the Bankruptcy Court issued its written
order dismissing the case and barring Rain Tree from refiling
– 5 –
for 180 days. (Bankruptcy R. on Appeal pt. 1, Attach. 4, Order
(Doc. 5-4) at 1.)
On June 16, 2017, Appellant filed a Notice of Appeal to
this court. (Notice of Appeal (Doc. 1).) The Bankruptcy Court’s
Record on Appeal was docketed on August 28, 2017. (See Docs. 37.)
C.
State Court Proceedings
One of the assets Rain Tree listed in its Voluntary
Petition before the Middle District Bankruptcy Court was a lease
agreement with J & F. (Bankruptcy R. on Appeal pt. 1, Attach.
10, Voluntary Pet. (Doc. 5-10) at 12.) According to Debtor’s
schedule that lease “provides the Debtor with a 5 year Right of
Renewal and a Right of First Refusal.” (Id.) No value was
listed. (Id.)
Following dismissal of the case in the Western District,
J & F filed a Motion for Relief from Automatic Stay, which the
Western District Bankruptcy Court granted. (Bankruptcy R. on
Appeal pt. 2, Attach. 2, Mot. for Relief from the Automatic Stay
(Doc. 7-2)); Bankruptcy R. on Appeal pt. 1, Attach. 7, Order
Granting Relief (Doc. 5-7).) After the Western District
Bankruptcy Court entered its order granting relief from the
automatic stay on January 30, 2017, J & F filed a Complaint in
Summary Ejectment in the Forsyth County, North Carolina General
– 6 –
Court of Justice on January 31, 2017. (Br. in Supp. of Mot. to
Dismiss Appeal (“Appellee’s Mot. to Dismiss Br.”), Ex. A,
Ejectment Complaint (Doc. 18-1).) This Complaint asserted that
Rain Tree failed to pay rent, was holding over, and demanded,
among other things, to be put into possession of the premises.
(Id.)
Following dismissal of the second bankruptcy case in the
Middle District Bankruptcy Court on June 16, 2017, (Bankruptcy
R. on Appeal pt. 1, Attach. 4, Order (Doc. 5-4) at 1), J & F
filed a Motion for Summary Judgment in the summary ejectment
action on September 18, 2017, (Appellee’s Mot. to Dismiss Br.,
Ex. B, Motion for Summary Judgment (Doc. 18-2)). On October 4,
2017, the Honorable Denise S. Hartsfield, North Carolina
District Court Judge, granted the Motion for Summary Judgment on
J & F’s claim for summary ejectment. (Id., Ex. C, Ejection Order
(Doc. 18-4).) On October 16, 2017, a Writ of Possession was
entered directing the Forsyth County Sheriff’s Office to remove
Rain Tree from the 5100 Lansing Drive, Winston Salem, North
Carolina premises. (Id., Ex. D, Writ of Possession (Doc. 18-5).)
According to J & F, on October 18, 2017, the Forsyth County
Sheriff’s Office executed on the Writ of Possession, removing
Rain Tree from the premises and returning possession to J & F.
(Appellee’s Br. (Doc. 28) at 13.)
– 7 –
II.
STANDARD OF REVIEW
On appeal from the Bankruptcy Court, this court functions
as an appellate court and reviews the Bankruptcy Court’s
findings of fact for clear error and conclusions of law de novo.
In re Merry-Go-Round Enters., Inc., 400 F.3d 219, 224 (4th Cir.
2005). Mixed questions of law and fact are reviewed de novo. In
re Litton, 330 F.3d 636, 642 (4th Cir. 2003).
III. ANALYSIS
Rain Tree raises eleven issues on appeal. 2 (See Appellant’s
Br. (Doc. 12) at 4-5.) One of these issues is whether the
Bankruptcy Court erred in dismissing Rain Tree’s case for cause
under § 1112(b). (Id. at 5, 7.) In dismissing the case, the
Bankruptcy Court listed three independent bases for its
decision: res judicata, cause under § 1112(b), and bad faith.
(Tr. of June 1, 2017 Hr’g before Judge Benjamin A. Kahn (Doc. 9)
at 5-19.) This court finds that cause for dismissal existed
under § 1112(b) for both substantial or continuing loss to or
diminution of the estate and bad faith and will accordingly
affirm the Bankruptcy Court. In light of this conclusion, this
court will not reach Rain Tree’s other assignments of error.
2
This court notes that many of the issues Rain Tree raises
on appeal overlap in a confusing manner but primarily boil down
to complaints surrounding the three bases for dismissal
identified by the Bankruptcy Court.
– 8 –
A.
Legal Framework
Under 11 U.S.C. § 1112(b)(1), “on request of a party in
interest, and after notice and a hearing, the court shall
convert a case under this chapter to a case under chapter 7 or
dismiss a case under this chapter, whichever is in the best
interests of creditors and the estate, for cause . . . .”
Section 1112(b)(4) then provides a non-exhaustive list of
circumstances constituting “cause,” including: “substantial or
continuing loss to or diminution of the estate and the absence
of a reasonable likelihood of rehabilitation[.]” Dismissal for
cause on this basis “requires Movants to demonstrate the
existence of both components: 1) the ‘substantial or continuing
loss or diminution of the estate’ and 2) ‘the absence of a
reasonable likelihood of rehabilitation.’” In re Landmark Atl.
Hess Farm, LLC, 448 B.R. 707, 713 (Bankr. D. Md. 2011) (footnote
omitted); see also In re Paterno, 511 B.R. 62, 66 (Bankr.
M.D.N.C. 2014).
Additionally, the Fourth Circuit has interpreted § 1112(b)
to include a good faith filing requirement, holding “that the
broad language of § 1112(b) ‘supports the construction that a
debtor’s lack of “good faith” may constitute cause for dismissal
of a petition.’” Carolin Corp. v. Miller, 886 F.2d 693, 699 (4th
Cir. 1989) (quoting In re Albany Partners, Ltd., 749 F.2d 670,
– 9 –
674 (11th Cir. 1984).) “[B]oth objective futility and subjective
bad faith [must] be shown in order to warrant dismissals for
want of good faith in filing.” Id. at 700-01. In outlining its
two-part test, the Fourth Circuit explained:
The overall aim of the twin-pronged inquiry must
of course be to determine whether the purposes of the
Code would be furthered by permitting the Chapter 11
petitioner to proceed past filing.
The objective futility inquiry is designed to
insure that there is embodied in the petition “some
relation to the statutory objective of resuscitating a
financially troubled [debtor].” It should therefore
concentrate on assessing whether “there is no going
concern to preserve . . . and . . . no hope of
rehabilitation, except according to the debtor’s
‘terminal euphoria.’”
The subjective bad faith inquiry is designed to
insure that the petitioner actually intends “to use
the provisions of Chapter 11 . . . to reorganize or
rehabilitate an existing enterprise, or to preserve
going concern values of a viable or existing
business.” Put obversely, its aim is to determine
whether the petitioner’s real motivation is “to abuse
the reorganization process” and “to cause hardship or
to delay creditors by resort to the Chapter 11 device
merely for the purpose of invoking the automatic stay,
without an intent or ability to reorganize his
financial activities.”
Id. at 701-02 (citations omitted).
B.
The Bankruptcy Court’s Reasoning
In the present case, the Bankruptcy Court found cause to
dismiss the case under § 1112(b)(4)(A), stating that “there is a
substantial continuing loss to or diminution of the estate, and
that there is an absence of any likelihood of reorganization.”
– 10 –
(Tr. of June 1, 2017 Hr’g before Judge Benjamin A. Kahn (Doc. 9)
at 14.) In support of this finding, the court found that “the
circumstances underlying [the Western District’s] order still
exist[,]” including: the disputed lease with existing nonpayment
of rent, the non-curable nature of the lease, a net operating
loss, and “nothing left for the plan payments outside of a
projected budget that the debtor has repeatedly failed to meet
in light of the operation of this business.” 3 (Id.) The court
went on to note additional evidence since provided:
that the license in this case had been denied a
renewal . . . .
There are many budget shortfalls. The debtor had
not escrowed for property taxes. The debtor had not
paid utilities. The debtor did not catch up with the
3
The Western District Bankruptcy Court also dismissed Rain
Tree’s previous case for cause, finding “substantial continuing
loss to the estate and the absence of a reasonable likelihood of
reorganization.” (Bankruptcy R. on Appeal pt. 1, Attach. 5,
Order (Doc. 5-5) at 6.) In support of this finding, the Western
District similarly noted:
The budget presented by the Debtor reflects a net
operating loss for February through April, 2017. In
addition, the budget includes payments of only $6,500
per month for Chapter 11 payments yet the Debtor
offered no evidence that this payment amount would be
sufficient under a Plan of Reorganization.
Furthermore, this Court does not believe there is
reason to believe that the numbers are realistic.
In addition the budget does not include any
amount to catch up the arrearages under the lease.
(Id.)
– 11 –
Medicaid patients for their deficient payments
promptly, and that a successful reorganization is not
just a cure in this case, but it’s a purchase and
sale, which means that the debtor has to both have a
right to exercise the option, and even if the option
is available, the debtor needs to have the means to
exercise the option.
(Id. at 14-15.)
The Bankruptcy Court further found there to be “cause to
dismiss the case for bad faith . . . .” (Id. at 15.) Applying
the Carolin two-pronged inquiry, the Bankruptcy court stated:
“For objective [f]utility, the Court has already discussed the
likelihood of reorganization and finds the same with respect to
objective [f]utility under the Carolin[] case. With respect to
subjective bad faith, the Court must determine that the debtor
filed for some impermissible purpose.” 4 (Id. at 16.) Citing In re
Premier Automotive Services, Inc., 492 F.3d 274 (4th Cir. 2007),
the Bankruptcy Court explained that bad faith could be found
where bankruptcy was invoked for the purpose of the automatic
stay, with motivations of halting or delaying an eviction. (Tr.
of June 1, 2017 Hr’g before Judge Benjamin A. Kahn (Doc. 9) at
17.) Citing In re Little Creek Development Co., 779 F.2d 1068
Having reviewed the entire transcript from this hearing
and considered this quote in context with the issues before the
Bankruptcy Court, this court concludes that typographical errors
exist in the transcript. This quote is modified to correct said
errors.
4
– 12 –
(5th Cir. 1986), the Bankruptcy Court outlined facts which
“indicate what a typical subjective bad-faith case looks
like[.]” 5 (Tr. of June 1, 2017 Hr’g before Judge Benjamin A. Kahn
(Doc. 9) at 17.)
These factors were, one, whether the debtor had a
single asset, whether the assets are totally
encumbered, whether there are any employees other than
the principal, whether the cash flow is inadequate,
whether there are only a few unsecured claims in
relatively small amounts, whether the property is in
foreclosure, whether the bankruptcy is the only way of
forestalling loss of the property.
(Id.) The Bankruptcy Court then noted which indicia of bad
faith filing were present in this case:
In this case, the debtor’s asset is essentially
the license to operate an adult care facility, which
has now been denied on appeal after its revocation.
The debtor has accumulated significant arrearages
on its lease with J&F, and J&F claims in a pending
state court proceeding that the lease has expired.
Based on the revenue that’s been listed in the
debtor’s budget, cash flow is and has been inadequate
throughout debtor’s operation. The primary unsecured
claims in this case are held by the employment
security commission and the IRS. J&F has attempted to
use its save-all release to evict the debtor from the
facility, but has been forestalled by successive
filings of the two bankruptcies.
5
In re Little Creek has been repeatedly cited favorably on
this point of law by the Fourth Circuit. See, e.g., Carolin
Corp., 886 F.2d at 696 (referring to “‘indicia’ of bad faith
filings recognized by the Little Creek court”); In re Belair
301-50 S.W. Quadrant Commercial Props., Inc., No. 92-1233, 1992
WL 200849, at *3 (4th Cir. 1992) (unpublished table decision).
– 13 –
Furthermore, determinative – especially
determinative in this case is the previous bankruptcy
case in the [W]estern [D]istrict. The debtor
vigorously challenged successfully the transfer to the
[M]iddle [D]istrict. The debtor then filed a petition
in the [M]iddle [D]istrict a mere one day after the
dismissal of the case in the Western District, 6 and
this is to forum shopping in an attempt of the debtor
to further delay J&F in state court.
The context within which this petition was filed
is indicative of exactly the subjective bad-faith
contemplated by Carolin[] and Premier. As such, the
Court will dismiss this case for bad faith indicated
under 1112(b).
(Id. at 18-19.)
6
Both parties state that Rain Tree’s first Bankruptcy case
in the Western District was dismissed by an oral order during a
March 15, 2017 hearing, (Appellant’s Br. (Doc. 12) at 6;
Appellee’s Br. (Doc. 28) at 9), and that a subsequent written
order dismissing the case was entered on March 31, 2017,
(Appellee’s Br., Ex. 11, Order on Mots. To Dismiss (Doc. 28-15)
at 6). The present bankruptcy case was filed in the Middle
District on April 1, 2017. (Bankruptcy R. on Appeal pt. 1,
Attach. 10, Voluntary Pet. (Doc. 5-10).) Thus, approximately
seventeen days elapsed between the oral order dismissing the
prior case and re-filing while only one day elapsed between the
written order dismissing the prior case and re-filing.
The Bankruptcy Court for the Middle District made clear
that “the date of the entry of the order is determinative for
purposes of res judicata[,]” (Tr. of June 1, 2017 Hr’g before
Judge Benjamin A. Kahn (Doc. 9) at 7), and accordingly, found
that one day elapsed between dismissal of the first bankruptcy
case and filing of the present case, (id. at 5). Under 11 U.S.C.
§ 102(6), it is clear that use of the term “order for relief”
means entry of an order for relief. Thus, “if the time for
taking action or determining rights extends from the order for
relief, the period begins at the time of entry of the order for
relief and not from any other time, such as when the court
orally announced that an order for relief would be entered
. . . .” 2 Collier on Bankruptcy ¶ 102.07 (16th ed. rev. Apr.
2018).
– 14 –
C.
Substantial or Continuing Loss to or Diminution
of the Estate
Arguing that the Bankruptcy Court erred in dismissing its
case for cause under 11 U.S.C. § 1112(b)(4)(A), Rain Tree first
contends that the court improperly “relied on [the] perceived
inability of Appellant to cure its lease with J & F Partners”
when § 365(d)(4) of the Bankruptcy Code “affords the Debtor one
hundred and twenty (120) days to assume of [sic] reject a
commercial lease with an additional ninety (90) day extension
for cause.” (Appellant’s Br. (Doc. 12) at 14-15 (footnote
omitted).) In so arguing, Rain Tree suggests that its case was
improperly dismissed at too early a stage of the bankruptcy
proceedings. (See id.)
Rain Tree has not presented any authority supporting its
contention that bankruptcy cases may not be dismissed under
§ 1112 prior to the expiration of the 120-day time frame for
rejection or assumption of a lease under § 365. Given that
11 U.S.C. § 1112(b)(3) contemplates decisions on motions to
convert or dismiss being rendered within forty-five days of
filing, without reference to the age of the case, it seems that
Rain Tree’s argument is without merit. However, this court need
not definitively resolve this question for two reasons. First,
even if the Bankruptcy Court improperly dismissed Rain Tree’s
case prior to the 120-day period provided by § 365, Rain Tree
– 15 –
has presented no evidence sufficient to convince this court
that, in light of the substantial continuing losses to its
business, that Rain Tree could have successfully cured the
arrearage under the lease with more time. Both bankruptcy
courts, in dismissing Rain Tree’s case, commented on Rain Tree’s
continual failure to pay rent. (Appellee’s Br., Ex. 11, Order on
Mots. To Dismiss (Doc. 28-15) at 4; Tr. of June 1, 2017 Hr’g
before Judge Benjamin A. Kahn (Doc. 9) at 14, 19.) During this
period, Rain Tree was unable to catch up on rent payments, as
evidenced by its eventual eviction for nonpayment. (Appellee’s
Mot. to Dismiss Br., Ex. D, Writ of Possession (Doc. 18-5).) 11
U.S.C. § 365(d)(3) requires a debtor to continue paying rent
during the pendency of a bankruptcy case, which did not occur in
this case. Further, as a practical matter, Rain Tree enjoyed
more than 120 days of Bankruptcy protection given the prior
iteration of this case in the Western District. (See Bankruptcy
R. on Appeal pt. 2, Attach. 1, Amendment to Voluntary Pet. (Doc.
7-1) at 1 (filing in Western District December 30, 2016);
Bankruptcy R. on Appeal pt. 1, Attach. 4, Order (Doc. 5-4) at 1
(dismissal from Middle District on June 16, 2017).) Second, an
independent basis for dismissing Rain Tree’s case for cause, bad
faith, is present, resulting in the same outcome regardless.
– 16 –
Rain Tree next argues that “its license to operate was
active at the time of its filing and had not been suspended” and
that “the Bankruptcy Court erred when it found that Appellant’s
license was suspended and therefore the reorganization was
futile.” (Appellant’s Br. (Doc. 12) at 15.) With respect to this
argument, J & F concedes that the Bankruptcy Court “may have
incorrectly reached a conclusion that the Appellant was
operating without a license” but argues that this “fact alone
has no bearing on the ultimate rulings . . . because the
dismissal under Section 1112(b)(4)(A) was also based on a
multitude of other facts.” (Appellee’s Br. (Doc. 28) at 21.)
This court agrees with J & F that the Bankruptcy Court’s
determination that cause existed under § 1112(b)(4)(A) rested on
many grounds other than the state of Rain Tree’s license. Even
assuming, arguendo, that the Bankruptcy Court’s factual finding
as to Rain Tree’s license was incorrect, the remaining grounds
constituting cause identified by the Bankruptcy Court
independently support dismissal for cause. (See Tr. of June 1,
2017 Hr’g before Judge Benjamin A. Kahn (Doc. 9) at 14-15
(listing the disputed lease with nonpayment of rent, non-curable
nature of the lease, net operating loss, failure to meet plan
payments, budget shortfalls, non-escrow of property taxes,
nonpayment of utilities, and Medicare payment deficiencies).)
– 17 –
Accordingly, this court concludes that the Bankruptcy Court
did not err in dismissing Rain Tree’s case for cause under
§ 1112(b)(4)(A).
D.
Bad Faith
With respect to the Bankruptcy Court’s finding of bad
faith, Rain Tree argues that it was not engaged in forum
shopping as both the Western District and the Middle District
were appropriate fora. (Appellant’s Br. (Doc. 12) at 16.) Rain
Tree then repeats the arguments listed above, suggesting that it
is improper for the Bankruptcy Court to have relied upon similar
facts in support of its finding of both substantial continuing
losses to the estate and bad faith. (Id.)
A bankruptcy court’s ultimate finding that a filing is not
in good faith is “one of fact subject to the clearly erroneous
standard.” Carolin Corp., 886 F.2d 693, 702 (4th Cir. 1989). As
the Bankruptcy Court explained, in the Western District case,
Rain Tree was successful in “vigorously challeng[ing]” transfer
to the Middle District, and then filed in the Middle District
just one day after its case was dismissed in the Western
District. (Tr. of June 1, 2017 Hr’g before Judge Benjamin A.
Kahn (Doc. 9) at 18.) This court does not find the Bankruptcy
Court’s finding that Rain Tree was engaged in forum shopping
indicative of bad faith to be clearly erroneous.
– 18 –
Again contending that its case was dismissed at too early a
juncture, Rain Tree cites to Carolin, 886 F.2d at 700, and
contends that “any dismissal based on the Appellant[’s]
inability to cure the commercial lease arrearages was premature
at best and resulted in denying the Appellant access at the very
portals of bankruptcy, before its ongoing proceeding had even
begun to develop the total shape of the Appellant’s situation.”
(Appellant’s Br. (Doc. 12) at 15.) This argument ignores the
procedural history of this case. While the Carolin court did
emphasize that dismissing a bankruptcy case for lack of good
faith at the time of filing, prior to a full development of the
debtor’s situation, was a drastic determination not to be made
lightly, that case did not consider successive filings. 886 F.2d
at 700. The concern regarding dismissal of cases at an early
stage is simply not present in instances of repeat filings. See
In re Carter, 500 B.R. 739, 745-46 (Bankr. D. Md. 2013) (“That
rationale would not seem to apply where a debtor has had
numerous opportunities to reorganize successfully through
several prior cases and has failed to do so. Here, for example,
given his history in this court, in no way can the Debtor be
said to be ‘at the very portals of bankruptcy,’ and his
financial and personal situation has been fully developed
through numerous hearings and proceedings.”).
– 19 –
Ultimately, this court agrees with the Bankruptcy Court’s
finding of both objective futility and subjective bad faith in
this case. See In re Premier Automotive Servs., 492 F.3d at 28081; Carolin Corp., 886 F.2d at 699. The objective futility of
Rain Tree’s case is evidenced by those same facts indicating
that there is not a likelihood of reorganization. (See Tr. of
June 1, 2017 Hr’g before Judge Benjamin A. Kahn (Doc. 9) at 1415 (listing the disputed lease with nonpayment of rent, noncurable nature of the lease, net operating loss, failure to meet
plan payments, budget shortfalls, non-escrow of property taxes,
nonpayment of utilities, and Medicare payment deficiencies).)
Subjective bad faith is evidenced by Rain Tree’s use of
bankruptcy proceedings to stall its inevitable eviction from the
commercial facility and engagement in forum shopping. For this
reason, this court concludes that the Bankruptcy Court
appropriately dismissed Rain Tree’s case for cause due to a lack
of good faith.
IV.
CONCLUSION
For the reasons set forth above, IT IS HEREBY ORDERED that
the Order of the Bankruptcy Court (Doc. 5-4) is AFFIRMED.
This the 1st day of May, 2018.
______________________________________
United States District Judge
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