In re Omni Lion's Run, L.P.
578 B.R. 394 (2017)
Premium Feature
Subscribe to Lexplug to listen to the Case Podcast.
Rule of Law:
The automatic stay will not be lifted for cause or lack of necessity for reorganization if a debtor, even in a single asset real estate case with a history of mismanagement, demonstrates a credible prospect for reorganization through tangible post-petition actions such as installing competent management, infusing new capital, making adequate protection payments, and proposing a viable plan.
Facts:
- Omni Lion’s Run, L.P. and Omni Lookout Ridge, L.P. ('Debtors'), controlled by Gregory Hall, own adjacent apartment complexes financed by notes held by the 'Lenders'.
- In January 2016, a fire destroyed a building at the Lookout Property, resulting in over $1,000,000 in insurance proceeds.
- The Lender for the Lookout Property refused to release the insurance proceeds, even after a contractor, Belfor, completed the rebuilding work.
- Belfor, left unpaid, filed a mechanic's lien against the property.
- Prior to the bankruptcy filings, the properties were mismanaged, with rent proceeds being used to pay Gregory Hall's personal mortgage.
- Around the time of the bankruptcy filing, Hall hired a new, highly qualified property manager, Brian Blaylock, who began making significant improvements to the properties.
- Hall, the guarantor on the notes, also invested over $250,000 of his personal funds into the properties after the bankruptcy cases began.
Procedural Posture:
- Belfor, a contractor, filed a state court lawsuit against Omni Lookout Ridge, L.P. in Bell County, Texas.
- The Lender for the Lion's Property accelerated its note, obtained a receiver in state court, and posted the property for foreclosure.
- The Lender for the Lookout Property accelerated its note and posted the property for foreclosure.
- Omni Lion’s Run, L.P. filed a Chapter 11 bankruptcy petition in the U.S. Bankruptcy Court on May 2, 2017, to stop the foreclosure.
- Omni Lookout Ridge, L.P. filed its second Chapter 11 bankruptcy petition on June 6, 2017.
- The Lenders filed Motions for Relief from the Automatic Stay in June 2017.
- The bankruptcy court jointly administered the two cases and held hearings on the Lenders' motions from June to October 2017.
Premium Content
Subscribe to Lexplug to view the complete brief
You're viewing a preview with Rule of Law, Facts, and Procedural Posture
Issue:
Does cause exist to lift the automatic stay under 11 U.S.C. § 362(d) where debtors in a single asset real estate case demonstrate a credible prospect for reorganization through new management, capital investment, and a proposed plan, despite a history of mismanagement?
Opinions:
Majority - King, J.
No. Cause does not exist to lift the stay because the Debtors have demonstrated a reasonable possibility of a successful reorganization. The court analyzed the Lenders' request under both § 362(d)(1) for 'cause' and § 362(d)(2) for lack of equity and necessity for reorganization. Under § 362(d)(1), the court found no bad faith in the filings, as the Debtors were proactively working towards a plan, not merely delaying creditors. It also found the Lenders were adequately protected because the new management was increasing the collateral's value and the Debtors were making substantial monthly adequate protection payments. Under § 362(d)(2), the court found the properties were indispensable to any reorganization, as they are the Debtors' only meaningful assets. Crucially, the court concluded that a reorganization was reasonably in prospect, citing the 'credible story' presented by the Debtors, which included the excellent new property manager, significant capital infusions from the guarantor, an approved disclosure statement, and a filed plan of reorganization.
Analysis:
This case illustrates that a debtor's post-petition conduct can overcome pre-petition mismanagement to defeat a motion for relief from the automatic stay. The court's emphasis on the 'credible story' for reorganization highlights that tangible actions, such as hiring competent management and infusing new capital, are highly persuasive. The decision serves as a guide for single asset real estate debtors, often viewed with skepticism, on how to demonstrate that reorganization is a reasonable prospect and not just 'terminal euphoria.' It reinforces the principle that the automatic stay is meant to provide a meaningful opportunity to reorganize, provided the debtor uses that opportunity productively.
Unlock the full brief for In re Omni Lion's Run, L.P.