Bertram Communications LLC v. Netwurx Inc

Filing 7

ORDER signed by Judge J P Stadtmueller on 11/13/09 denying 3 appellant's motion for a temporary restraining order. See Order. (cc: all counsel) (nm)

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UNITED STATES DISTRICT COURT EASTERN DISTRICT OF WISCONSIN ____________________________________________ B E R T R A M COMMUNICATIONS LLC, Appellant, v. N E T W U R X , INC., A p p e lle e . ____________________________________________ C a s e No. 09-CV-1037 ORDER T h e present case is brought forth before this court on appeal from the United S ta te s Bankruptcy Court for the Eastern District of Wisconsin. The appellant, B e rt r a m Communications LLC ("Bertram"), has moved this court to grant a T e m p o ra r y Restraining Order (TRO), prohibiting any sale of the appellee, Netwurx, In c . ("Netwurx"). The court will briefly recount the facts animating the appellant's m o tio n before resolving the legal question the motion begs. F AC T U AL BACKGROUND O n June 5, 2008, Netwurx, an internet wholesaler operating out of Hartford, W is c o n s in , filed a voluntary petition for Chapter 11 reorganization. Its petition re ve a le d that among its creditors was the appellant, Bertram, another internet p ro vid e r who had sold its services to the debtor and had entertained purchasing N e tw u rx prior to the bankruptcy filing.1 Nearly four months later, on October 2, 2008, The record of the proceedings in the bankruptcy court reveal that Bertram was Netwurx's m a in c o m p e tito r and that the relationship between the two com p a n ie s was anything but sm o o th . 1 the debtor filed a Chapter 11 Small Business Plan ("plan"), providing a basic fra m e w o rk for how the business would be reorganized. After several disputes re g a rd in g the amount that the debtor owed the appellant, Netwurx filed an amended p la n on February 25, 2009. A little over a month later, the debtor again amended a n d submitted its plan to the bankruptcy court on March 31, 2009, with an implicit d e a d lin e to confirm the plan by May 15, 2009. In the wake of Netwurx submitting its second amended plan and c o rre s p o n d in g disclosure statement, several creditors raised concerns regarding the va lu e s of the debt the appellee disclosed to the court. As a result, on May 8, 2009, th e debtor submitted another amendment, attempting to clarify its previous plan. On th a t same date, the bankruptcy court entered an order extending the time in which it could confirm a proposed plan to June 17, 2009. On June 2, 2009, Bertram re q u e s te d that the bankruptcy court delay the confirmation of the plan pending re s o lu tio n of the claims made by another of Netwurx's creditors. Three days later, th e bankruptcy court, acting on the requests of Bertram and other creditors, moved th e confirmation hearing to June 25, 2009, noting that the delay was "due to the a d jo u rn m e n t of a major claim objection dispute and at the request of certain c re d ito rs ." On June 10, 2009, the debtor moved the court to further extend the d e a d lin e to confirm its latest plan to July 24, 2009, as the debtor and its major c re d ito rs were actively resolving disputed claims. The court, for the same reasons g ive n for the first extensions of the confirmation date, granted the debtor's motion -2- o n June 11, 2009. On July 10, 2009, Netwurx informed the court that the two major o u ts ta n d in g claims, which were previously disputed, had been settled amongst the re le va n t parties, clearing the way for the final resolution of the case. N o tw ith s ta n d in g the resolution of the disputed claims, the bankruptcy process b e c a m e significantly more complicated on July 29, 2009, with Bertram's filing of a c o m p e tin g plan to allow the appellant to purchase Netwurx. The debtor immediately o b je c ted to Bertram's plan as being untimely. The bankruptcy court, however, re je c te d the debtor's objections and allowed, with the glowing approval of Bertram's a tto rn e y, 2 to have both the debtor's plan and the appellant's plan be subject to c o n firm a tio n . As a result of the recent settlement of the major claims against the d e b to r and because of the new Bertram plan, the court, on July 13, 2009, pushed b a c k the schedule in the case, setting a hearing for August 11, 2009, to allow for the a p p ro va l of disclosure statements, solicitation letters, and ballot forms to facilitate the p ro p e r consideration of both plans. Bertram voiced no objection to the new deadline s e t by the bankruptcy court. At the August 11, 2009 hearing, the court, rejecting Bertram's desire for a late S e p te m b e r or October confirmation date, opted to set a confirmation hearing for S e p te m b e r 17, 2009, allowing for the debtor to resolve a major application for a d m in is tra tive expenses submitted by another claimant the day before the hearing. O n September 9, 2009, for the first time in the course of the litigation, Bertram 2 At the hearing, Bertram 's counsel m a in t a in e d that "both plans should stand." -3 - a rg u e d that Netwurx's proposed plan was invalid because it was untimely under the s tric ture s of 11 U.S.C. §§ 1121(e)(3) & 1129(e). A week later and one day before th e confirmation hearing, Netwurx submitted a modification on its plan, allowing an a n g e l investor to receive 51% of Netwurx's equity, leaving the existing equity holders w ith 49% of the business. At the confirmation hearing on September 17, 2009, the b a n k ru p tc y court approved the debtor's plan over Bertram's plan. In confirming N e tw u rx's plan, the court found that the debtor's plan, like Bertram's plan, would pay a ll of the debtor's creditors, with having the added benefit3 of allowing the current N e tw u rx equity holders to retain a near majority share of the business. Under B e rtra m 's plan, Netwurx's current equity holders would have no remaining stake in th e company following the reorganization. On September 25, 2009, the bankruptcy c o u rt rejected Bertram's contentions that the debtor's plan was untimely under 11 U .S .C . §§ 1121(e)(3) & 1129(e). At a hearing on November 4, 2009, the bankruptcy court indicated that B e r tra m 's motion to stay the final confirmation of Netwurx's plan pending appeal p u rs u a n t to Bankruptcy Rule 8005 would be denied at a hearing on November 13, 2 0 0 9 . As such, Bertram has opted to appeal the decision of the bankruptcy court to th is court. The appellant has moved this court to issue a TRO preventing the sale o f Netwurx until the court can entertain the underlying issues propelling the appeal. In their motions to the court, Bertram argues that the bankruptcy court was 3 The appellee estim a t e s that the angel investor's offer is worth $800,000 m o r e than Bertram 's offer. -4 - p ro h ib ite d by law from accepting the debtor's plan because the plan was submitted b e yo n d the deadlines prescribed by law and that a TRO is necessary to prevent the s a le of Netwurx and the mooting of Bertram's appeal. D IS C U S S I O N T h is court has jurisdiction over the appeal pursuant to 28 U.S.C. § 158. M o re o ve r, a bankruptcy court's "findings of fact are reviewed for clear error, and its c o n c lu s io n s of law are reviewed de novo." In re Midway Airlines, 383 F.3d 663, 668 (7 th Cir. 2004). The ultimate issue this court must resolve is whether a TRO in the fo rm of a stay of the sale of Netwurx pending appeal is warranted. W hen c o n s id e rin g whether to grant a stay pending appeal pursuant to Bankruptcy Rule 8 0 0 5 ,4 the court must consider the following: (1) whether the movant is likely to s u c c e e d on the merits of the appeal; (2) whether the movant will suffer irreparable in ju ry absent a stay; (3) whether a stay would substantially harm other parties to the litig a tio n ; and (4) whether a stay is in the public interest. In re Forty-Eight In s u la tio n s , Inc., 114 F.3d 1294, 1300 (7th Cir. 1997). However, "applicants for p re lim in a ry relief have threshold burdens to demonstrate the first two factors: they m u s t show that they have some likelihood of success on the merits and that they will s u ffe r irreparable harm if the requested relief is denied" before the court will entertain th e other factors. Id. Given that the TRO requested is for a stay of sale, the court will proceed using the Seventh Circuit's c a s e law on the issuance of stays of sales in bankruptcy litigation. 4 -5 - A. Likelihood of Success on the Merits T h e only argument raised by Bertram on appeal is that the plan submitted by N e tw u rx was not done in a timely manner and, thus, should not have been approved b y the bankruptcy court. Both sides concur that Netwurx is a "small business debtor" a s defined by 11 U.S.C. § 101(51C). As such, the debtor is subject to the re s tric tio n s set forth in 11 U.S.C. § 1121(e). That section, in relevant part, requires th a t in a "small business case" a "plan and a disclosure statement" must be filed "no la te r than 300 days after the date of the order for relief." 11 U.S.C. § 1121(e)(2). Here, the debtor submitted its plan in a timely fashion, as it submitted a plan o n March 31, 2009, a day before the 300-day deadline prescribed by § 1121(e) e xp ire d . W h ile the debtor submitted amendments to its plan after the 300-day d e a d lin e , the appellant has provided no relevant case law to indicate that the debtor c a n n o t amend its plan after the 300-day deadline has passed, let alone provided this c o u rt with any indication as to the relief that should be afforded if the debtor violates th e Bankruptcy Code by filing an amended plan after deadline prescribed by § 1121(e). Courts have been very willing to allow amended plans to be filed after the 3 0 0 day deadline, with one court equating the standard for allowing an amended p la n to be filed after the Bankruptcy Code's deadline to the relatively minimal s ta n d a rd for allowing an amended complaint to be filed after the deadline imposed b y a statute of limitations has passed. In re Fla. Coastal Airlines, Inc., 361 B.R. 286, 2 9 1 (Bankr. S.D. Fla. 2007) (holding that, if the amended plan arose from the "same -6- fa c tu a l occurrence" as the original plan, the debtor's amendment would not violate th e Code's 300-day deadline). As the court in Florida Coastal Airlines noted, it w o u ld be "peculiar indeed if the ability to amend a reorganization plan to deal with c h a n g e d circumstances [after the 300-day deadline has passed] had been prohibited b y Congress." Id. As such, because the debtor's amendments related to its original p la n , Netwurx submitted its plan in a timely fashion. The strict timeline imposed in small business bankruptcy cases is not solely re la te d to the filing of a reorganization plan. A bankruptcy court is also required to c o n firm "a plan that . . . is filed in accordance with section 1121(e) not later than 45 d a ys after the plan is filed." 11 U.S.C. § 1129(e). However, the 45-day time period c a n be extended if: (A) the "debtor, after providing notice to the parties in interest . . . demonstrates by a preponderance of the evidence that it is more likely than not th a t the court will confirm a plan within a reasonable period of time"; (B) "a new d e a d lin e is imposed at the time the extension is granted"; and (C) the order e xten d in g time is "signed before the deadline has expired." 11 U.S.C. § 1121(e)(3). H e re , the confirmation of the debtor's plan conformed with the requirements o f the Bankruptcy Code. The debtor's plan was submitted on March 31, 2009, a llo w in g for a deadline for confirmation of May 15, 2009. However, before the May 1 5 , 2009 deadline occurred, the court, finding by a preponderance of the evidence th a t the court would confirm the plan within a reasonable period of time, imposed a n e w deadline for confirmation on June 17, 2009. Admittedly, the bankruptcy court -7- a p p ro v e d several new confirmation deadlines, pushing back previously set dates, b u t no deadline was ever changed after the prior date had passed. Moreover, the a p p e lla n t does not contest that a preponderance of the evidence continually d e m o n s tra te d that the bankruptcy court would be able to confirm a plan in a re a s o n a b le period of time. In fact, the only argument that the appellant makes is that th e debtor did not file a motion to request the extensions of time to confirm the plan. H o w e v e r, the appellant is reading into § 1121(e)(3) a requirement that simply does n o t exist. The Bankruptcy Code does not require that a debtor file a motion to e xte n d the confirmation deadline; rather, the Code merely insists that the debtor d e m o n s tra te that the court will be able to confirm a plan. Here, the issue of whether a plan would be confirmed was never an issue at all, as multiple parties were c o m p e tin g to try to acquire Netwurx's business.5 Section 1121(e)(3) itself does not s p e c ify how the debtor must "demonstrate" that the court will confirm a plan within a reasonable period of time, nor does the appellant direct this court to any case law 6 in d ica tin g that the court cannot find, sua sponte, that the debtor has demonstrated The appellee rightfully notes that the purpose of the stringent requirem e n ts of the sm a ll business p r o v is io n s of the Bankruptcy Code are to ensure that bankruptcy courts take an active role in providing o v e r s ig h t in sm a ll business bankruptcy cases, "which are often the least likely to reorganize successfully." In re Darby Gen. Contr., Inc., 410 B.R. 136, 143 (Bankr. E.D.N.Y. 2009). Judicially creating a requirem e n t th a t the debtor m u s t actually file a m o t io n to extend the tim e needed for confirm a t io n in a case where s u c c e s s f u l reorganization was all but assured would not only be an abuse of this court's powers, but would a ls o underm in e the purpose of the sm a ll business provisions of the Code. The appellant repeatedly cites to In re Save Our Springs (S.O.S.) Alliance, Inc., 388 B.R. 202, 226 ( B a n k r . W .D . Tex. 2008) to support its contention. However, in that case, the court m e r e ly stated that "filing a n d obtaining" a hearing was the usual route for a debtor to obtain an extension of tim e to confirm the r e o r g a n iz a t io n plan, not the exclusive route. Id. ("Thus, in most instances the debtor will have to act so that th e confirm a tio n hearing itself can be scheduled, conducted and concluded, and an order entered, within 45 d a ys of the date the plan is filed") (em p h a s is added). Nothing in that opinion indicates that the court cannot f in d sua sponte that the debtor has m e t its burden of proving that the confirm a t io n is likely. 6 5 -8- th a t the court will be able to confirm a restructuring plan. In fact, the Bankruptcy C o d e is quite explicit that a bankruptcy court may "issue any order . . . necessary or a p p ro p ria te to carry out the provisions of this title" and that "no provision of [the C o d e ] providing for the raising of an issue . . . shall be construed to preclude the c o u rt from, sua sponte, taking any action or making any determination necessary or a p p ro p ria te to enforce or implement court . . . rules, or to prevent an abuse of p ro c e s s ." 11 U.S.C. § 105(a). As such, confirmation occurred within the strictures o f the Bankruptcy Code, and there is no likelihood that Bertram will succeed on the m e rits of its appeal.7 B. Irreparable Injury B e r tr a m argues that it will suffer irreparable injury from the sale of Netwurx, in that allowing a sale to proceed would effectively moot Bertram's appeal. However, th e court agrees with the appellee that Bertram's harm is illusory, at best. If the c o n firm a tio n of the sale of Netwurx is reversed, all this means is that the debtor's p la n will not be confirmed. This does not guarantee the confirmation of Bertram's p la n . Such a confirmation seems unlikely in light of the bankruptcy court's July 13, 2 0 0 9 order allowing outside competing plans to be submitted post the 300-day d e a d lin e and in light of the existence of an angel investor who is willing to invest far m o re money than Bertram has offered to acquire Netwurx. W h a te v e r harm would Moreover, the court is persuaded that even if Bertram 's creative interpretation of the Bankruptcy C o d e 's deadlines for subm it t in g and confirm in g a reorganization plan is correct, that Bertram has waived its a r g u m e n t by repeatedly failing to raise the issue of the tardiness of the debtor's plan. See In re Chicago, M., S . P. & P. R. Co., 756 F.2d 508, 513 (7th Cir. 1985) (holding that a party waives any objection to a party's c o m p lia n c e with bankruptcy deadline by not raising it in a tim e ly m a n n e r ) . 7 -9- re s u lt for Bertram from the sale of Netwurx to the angel investor is purely wishful and s p e c u la tiv e . D u e to the findings and rationale discussed herein, the court finds that B e r tra m has failed to meet its burden of showing a substantial likelihood of success o n the merits or of irreparable injury absent a stay to warrant issuing a stay of the s a le of Netwurx. Because of the lack of any reason to issue the stay, the court need n o t inquire into the harm imposed on other parties by the stay or whether the stay is in the public's interest. In re Forty-Eight Insulations, 115 F.3d at 1301 ("However, if the movant does not make the requisite showings on either of these two factors, th e court's inquiry into the balance of harms is unnecessary, and the stay should be d e n ie d without further analysis.") Accordingly, IT IS ORDERED that the appellant's motion for a temporary restraining order (D o c k e t #3) be and the same is hereby DENIED. D a te d at Milwaukee, W is c o n s in , this 13th day of November, 2009. BY THE COURT: J .P . Stadtmueller U .S . District Judge -10-

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