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United McGill Corp. v. Milo Ridge Resort & Executive Conference Center (In re Milo Ridge Resort & Executive Conference Center)
Citations: 26 B.R. 277; 1982 Bankr. LEXIS 2936Docket: Bankruptcy No. 3-82-02467; Adv. No. 3-82-0391
Court: District Court, W.D. Kentucky; November 11, 1982; Federal District Court
Milo Ridge Resort, Executive Conference Center, represented by George Dumstorf, filed for Chapter 11 bankruptcy on November 8, 1982. On the same day, United McGill Corporation initiated an adversary proceeding requesting to lift the automatic stay under 11 U.S.C. § 362(d)(1). United McGill holds a perfected security interest in a flotation system (docks, marinas, and boat slips) valued at approximately $150,000, with an outstanding balance of $321,611, including unpaid principal, interest, and taxes. The security agreement was established on March 10, 1981, and filed with the Oldham County Clerk on April 15, 1981. A writ of possession was issued by Oldham Circuit Court on November 4, 1982, allowing United McGill to reclaim the property upon posting a $500,000 bond. Following the bankruptcy filing, United McGill attempted to enforce the writ but was met with the automatic stay. During a hearing on November 9, 1982, evidence established that the property depreciates in value, and the debtor was unable to post the required bond or make further payments, except for a potential payment of $35,000 contingent on retaining possession until June 1983. The debtor’s reliance on the automatic stay was deemed insufficient for adequate protection, as no additional collateral could be offered. Defendant claims that retaining the disputed property is crucial for its business operations; however, this is only one aspect of its overall activities. The plaintiff has met its burden of proof under 11 U.S.C. 362(g), placing the burden on the defendant to demonstrate adequate protection as required by 11 U.S.C. 362. This statute allows for relief from an automatic stay if the creditor's property interest is not adequately protected, which can include periodic cash payments, additional liens, or other relief measures. To justify lifting the stay, the defendant must show that it has equity in the property or that the creditor's security will not be at risk. As a bankruptcy court acts in equity, it must weigh the impact of the stay on both parties. In this case, the defendant can achieve adequate protection by complying with 11 U.S.C. 361 or by posting a bond in the state court, which it chose not to do. The request to retain possession comes after the plaintiff has incurred significant expenses and is prepared to remove the collateral. An emergency hearing was held to provide the defendant an opportunity to justify retention. The court found that the defendant has no equity in the secured property and must rely on adequate protection for the plaintiff. The court concluded that the defendant failed to meet the burden of proof to show that the plaintiff would not suffer irreparable harm due to the stay. Furthermore, the defendant's proposed payment of $35,000 does not account for accruing interest, which would surpass this amount before payments are expected to resume. As a result, the court ordered the automatic stay lifted, amending a prior order from November 10, 1982.