BDC Capital, Inc. v. Thoburn Ltd. Partnership

Citations: 508 B.R. 633; 59 Bankr. Ct. Dec. (CRR) 99; 2014 U.S. Dist. LEXIS 51402; 2014 WL 1416567Docket: No. 1:13-cv-01594-GBL-JFA

Court: District Court, E.D. Virginia; April 14, 2014; Federal District Court

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BDC Capital Inc. filed a Motion for Stay Pending Appeal regarding the Bankruptcy Court's Order confirming the Fifth Amended Reorganization Plan for the Thoburn Limited Partnership and John M. Thoburn. The Court denied BDC's motion, determining that BDC did not meet the criteria necessary for a stay, which includes demonstrating a likelihood of success on appeal, the potential for irreparable harm, a favorable balance of equities, and the public interest in granting a stay.

The background reveals that the Thoburn Entities, which own 74.54 acres of property valued at $34.1 million, have been involved in multiple Chapter 11 bankruptcy filings, including BDC’s own filing in 2011 and the Thoburn Entities’ filings in 2012. BDC had issued loans to the Thoburn Entities, securing them against notes and deeds of trust, and subsequently filed claims in multiple related bankruptcy cases. The Bankruptcy Court ruled on voting rights for creditors, establishing that BDC’s claims were held by other banks based on loan documents stipulating payment directions upon default.

The Fifth Amended Reorganization Plan was filed by the Thoburn Entities and John M. Thoburn (the "Debtors") on November 8, 2013, based on a Purchase and Sale Agreement with Pulte Home Corporation from March 7, 2013. The property involved may be sold for $52 million, and it will be rezoned and developed as part of the Plan. The Debtors plan to refinance existing secured obligations on the property on the Effective Date, with remaining obligations to be settled upon the sale to Pulte. Dashco, Inc. and G.G., Inc. will provide the financing for the Plan through a Refinance Loan. Payments due on BDC's loans will be directed to TD Bank and First Virginia Community Bank, with specific amounts allocated to HMI and BDC. While all creditors, including TD Bank and HMI, supported the Plan, BDC opposed it and filed objections. The Bankruptcy Court confirmed the Plan on December 2, 2013, leading BDC to appeal the decision in the District Court for the Eastern District of Virginia and seek a stay pending appeal. The Bankruptcy Court denied BDC's motion to stay, citing BDC's low likelihood of success on appeal, overstated harm, potential substantial harm to other parties, and public interest in proceeding with the Plan. Subsequently, BDC filed a motion for a stay in the District Court, which was heard on February 28, 2014. The standards for a stay pending appeal mirror those for a preliminary injunction, requiring a clear showing of entitlement to relief.

To grant injunctive relief, a movant must demonstrate four criteria: (1) a likelihood of success on the merits of the appeal, (2) irreparable injury if the stay is denied, (3) a favorable balance of equities, and (4) that the injunction serves the public interest. The Court denied BDC's Motion for Stay Pending Appeal due to failure to meet these requirements. BDC did not provide authority indicating a likelihood of success on appeal and failed to show irreparable harm from the denial of the stay. Additionally, a stay could delay the Pulte sale, adversely affecting other parties, and hinder public interest by delaying development at the intersection.

Specifically, the Court found BDC unlikely to succeed on the merits for two reasons: lack of supporting case law and the rights of BDC’s creditors to vote on the Plan, as collateral agreements grant them control in the event of default. The Court noted that to secure a stay, BDC must convincingly demonstrate potential success on appeal. BDC argued various reasons for the Bankruptcy Court's alleged errors regarding the Fifth Amended Reorganization Plan, including claims of unfairness and improper classification of claims, but the Court emphasized that the core issue is whether the Bankruptcy Court correctly identified BDC’s secured creditors. The Court deemed BDC's concerns as tangential to the central ruling that BDC lost control over its claims against the Debtors.

The Court highlights that BDC has failed to provide case law or authority to substantiate its claims of error or abuse of discretion by the Bankruptcy Court. BDC must demonstrate a likelihood of success on appeal, which it has not done, as being "just as likely" as other parties is insufficient. Creditors TD Bank, First Virginia Community Bank, and HM Investments, LC have the right to vote on the Plan due to their claims on the collateral, as established by Federal Rule of Bankruptcy Procedure 3001(e)(3). A claim is defined as a “right of payment” under 11 U.S.C. 101(5)(A), and a claim holder can accept or reject a plan under 11 U.S.C. 1126(a). Each assignment of collateral gives BDC’s creditors the authority to control the collateral upon BDC's default. Specific agreements with TD Bank and First Virginia Community Bank outline the creditors' rights to release or compromise obligations without BDC's consent. The Court interprets these contracts to mean that BDC's creditors can act in BDC’s stead regarding the pledged collateral in the event of default, which includes the right to vote on the Plan. Given BDC's longstanding default since 2011 and its inability to refinance or pay creditors, the Court concludes that BDC is unlikely to succeed on appeal. Consequently, BDC's remaining arguments, which stem from the creditors’ vote on the Plan, are also likely to fail.

BDC is unlikely to suffer irreparable harm for several reasons. Firstly, the harm claimed by BDC is quantifiable and thus not considered irreparable. Secondly, BDC’s claims are already unsecured, and the Plan's implementation would increase the likelihood of full recovery. Thirdly, the dispersal of funds to various parties does not amount to irreparable injury. Lastly, the concern that the appeal could become equitably moot is not recognized as irreparable harm. Courts generally do not find irreparable harm if the moving party can be compensated with monetary damages. The two exceptions recognized are where a business cannot survive without a stay or where there is a permanent loss of customers or goodwill. BDC's claims regarding irreparable harm due to its relegation to an unsecured position have not demonstrated that such harm cannot be compensated monetarily. Furthermore, BDC did not indicate that its business would fail without a stay, nor did it assert that the Debtors would become insolvent before a judgment could be collected. Although BDC is now an unsecured creditor, the Plan ensures full payment to all unsecured creditors following the Pulte sale. A stay would delay this process and potentially harm all parties involved, including BDC. Additionally, under 11 U.S.C. 506(a)(1), BDC's claims are already unsecured because the value of the property is less than the debt owed. The authority cited by BDC from the Second and Ninth Circuits is not binding and is distinguishable from BDC’s situation, particularly as it pertains to foreign proceedings.

The Ninth Circuit's standard for irreparable harm requires only a "possibility" of harm, as established in Rubin v. Pringle, where asset dissipation constituted irreparable harm. However, in this case, all parties are domestic creditors and debtors, necessitating a "likelihood" standard instead. The Debtors did not dissipate funds before the proceedings, and the mere potential for an appeal to become moot does not equate to irreparable harm. Consequently, the Court concludes that BDC will not face irreparable harm without a stay.

Regarding the balance of equities, the Court finds it unfavorable to BDC, as other parties would experience significant harm if the Assemblage is not sold. A stay would delay the Plan's consummation, leading to accrued interests and possibly diminishing the Assemblage's value. The Court must weigh the likelihood of harm to BDC against the substantial harm to non-movants. BDC's argument that the stay would not prevent the sale to Pulte Home Corporation and that creditors would receive adequate protection payments is insufficient. The ongoing bankruptcy proceedings have already lasted over a year with four failed reorganization attempts, indicating that further delays could adversely affect all parties involved.

The public interest also weighs against granting a stay. Delaying the process would hinder area development and reduce public access to the new Metro Silver Line, which is crucial for transportation infrastructure and real estate development. The proposed Plan includes necessary improvements, and BDC has not identified a public interest that would be served by a stay.

In conclusion, the Court denies BDC Capital's Motion for Stay Pending Appeal, determining that BDC has not met the necessary criteria for injunctive relief, including likelihood of success on appeal, irreparable harm, balance of equities, and public interest. Thus, the motion is formally denied.