In re Ahern

Citations: 40 B.R. 850; 1984 Bankr. LEXIS 5425Docket: Bankruptcy No. 82-250

Court: United States Bankruptcy Court, D. New Hampshire; June 25, 1984; Us Bankruptcy; United States Bankruptcy Court

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On April 2, 1984, the court held a hearing regarding Motions to Dismiss the Chapter 11 proceedings filed by secured creditors Ashuelot National Bank and L.F. Trottier and Sons, Inc., along with various complaints for relief from the automatic stay. The court deferred all motions for thirty days to allow the debtors to submit a revised Chapter 11 reorganization plan, which they did on April 28, 1984. During a subsequent hearing on May 3, 1984, creditors argued that the revised plan was unconfirmable and merely a tactic to delay their rights. The presiding judge, who was new to the case, reviewed all testimony, evidence, and the full record, including related adversary proceedings. The debtors filed their Chapter 11 petition on May 3, 1982, for their farm, “Great Meadows Farms,” in New Hampshire, reporting liabilities of $222,150.00 against assets valued at $726,950.00. Despite apparent solvency, the case has experienced prolonged delays due to the debtors' refusal to accept outcomes from prior state court litigations involving secured creditors. Notably, a dispute with Ashuelot National Bank dates back to 1975, culminating in a judgment against the debtors shortly before their Chapter 11 filing. Another significant controversy involves a judgment from 1980 against the debtors by William F. Tempel, which has accrued interest and totals over $81,000.00, contested by the debtors on the grounds of prior full payment through collateral foreclosure.

Debtors faced a $12,500 debt to Ashuelot National Bank, which they did not dispute but resisted payment by alleging the Bank interfered with their business and through realizations on other assets. They argued in an adversary proceeding that the Bank should not be paid until it sought payment from assets foreclosed by Tempel, claiming a novel application of the marshaling doctrine. However, this argument lacked support in both state and federal courts, with precedents indicating that marshaling cannot cause undue delays or expenses for senior creditors. 

In November 1982, the debtors filed a plan of reorganization but later claimed they had discharged their counsel and did not authorize the plan. At a June 21, 1983 hearing, the court noted a pattern of discharging lawyers before hearings, which resulted in delays. The court allowed time for the debtors to obtain new counsel and file an amended plan. By the July 19, 1983 hearing, the debtors had not complied, prompting the court to appoint a Chapter 11 trustee, finding it unfeasible for Patricia Ahern to maintain control over the case. The debtor's claims of collusion between secured creditor counsel and state courts were dismissed, and the court warned against contempt for insulting the integrity of state judgments.

The debtors appealed the trustee appointment, but the appeal was dismissed for lack of prosecution. Following this, secured creditors sought relief from the automatic stay and moved to dismiss the Chapter 11 proceedings. The appointed trustee attempted to create a new reorganization plan but found the debtors unwilling to consider asset liquidation to fund it. As of an April 2, 1984 hearing, no amended plan had been filed, and the debtors had not secured new legal representation.

The court informed the debtors that due to their significant asset surplus over liabilities, any confirmed plan must prioritize the creditors' best interests. Under Section 1129(a)(7) of the Bankruptcy Code, a Chapter 11 plan cannot be confirmed if creditors would receive less than they would in a Chapter 7 liquidation. The proposed plan failed to provide immediate cash distributions to creditors, favoring delayed payouts instead, leading the court to suggest immediate liquidation as a more beneficial option for creditors. The court granted the debtors a final opportunity to amend their plan, scheduling a hearing for February 3, 1984. The revised plan filed on April 28, 1984, did not adequately address previous deficiencies and proposed payouts over one to six years at interest rates of 8-10%. The debtors' disclosure statement detailed $1,000 in administrative expenses, secured claims of $146,000, and unsecured claims of $40,000, against total assets of $737,000. Despite potential market value realizations being lower in liquidation, it was believed that creditors could still be fully paid. The debtors did not plan to infuse new capital or refinance their assets but intended to fund payments from projected farming and logging operations. They admitted a lack of a solid track record in logging, attributing their inactivity to alleged interference by creditors and relatives, a claim the court found unsubstantiated as no credible evidence was presented. The court concluded that these allegations appeared to be a tactic to delay proceedings, and there was insufficient evidence to suggest that the logging operations could generate the necessary income to support the reorganization plan.

The court determined that the debtors' revised reorganization plan could not be confirmed under Section 1129 of the Bankruptcy Code, rendering further proceedings on the plan futile. Additionally, there was sufficient cause for dismissal under Section 1112 due to the debtors' inability to implement a plan and unreasonable delays impacting creditors. The court expressed concern that the debtors were not taking the final opportunity to propose a viable plan involving asset liquidation or refinancing to settle their debts. Instead, the debtors opted to revisit previously settled matters. Despite their claims of asserting rights under the Bankruptcy Code, the record indicated they had been afforded ample opportunities to manage their debts. Continuing the proceedings would unjustly delay creditors, some of whom have awaited repayment for up to ten years. Consequently, the court ordered the dismissal of the Chapter 11 case, rendering all related adversary matters moot.