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Golf 255, Inc. v. Eggmann

March 14, 2007

GOLF 255, INC., DEBTOR, APPELLANT,
v.
ROBERT EGGMANN, TRUSTEE IN BANKRUPTCY FOR GOLF 255, INC., APPELLEE.



The opinion of the court was delivered by: Herndon, District Judge

MEMORANDUM & ORDER

I. INTRODUCTION & BACKGROUND

Golf 255, Inc. ("Golf 255" or "Debtor"), has filed an Emergency Motion to Stay Pending Appeal, pursuant to Bankruptcy Rule 8005 (Doc. 1). This matter arises from Bankruptcy Case 06-31728, pending in the United States Bankruptcy Court for the Southern District of Illinois, the Honorable Judge Meyers presiding. On October 12, 2006, an involuntary petition under Chapter 11 of the United States Bankruptcy Code was filed against Golf 255 by several of its creditors. The Bankruptcy Court authorized the appointment of Robert Eggman to serve as the Chapter 11 Trustee for the Golf 255 matter. After a lengthy hearing on January 8, 2007, Judge Meyers entered an Order for Relief against Golf 255 (the Debtor) under Chapter 11, nunc pro tunc, dated January 9, 2007.*fn1

Golf 255 is a corporation which operates a public golf course, known as Arlington Golf Course. Thus, the major assets comprising the Bankruptcy Estate in this matter are the golf course itself and the club house (the "Property"). There is a considerable lien on the Property and certain other of Golf 255's assets, held by the Bank of Edwardsville (the "Bank"), in the amount of approximately $2,100,000.00. In fact, the Property was the subject of a foreclosure sale, stayed only due to the involuntary petition filed against Golf 255, roughly one hour before the sale was set to commence.

A Motion to Sell Assets of the Estate Free and Clear of Liens and Encumbrances and to Assume and Assign Certain Executory Contracts Pursuant to 11 U.S.C. §§ 363 and 365, was filed by the Trustee on January 19, 2007. In the Motion, the Trustee sought to sell substantially all of Debtor's assets, including the Property, to the Collinsville Area Recreation District ("CARD"), for the purchase price of $5,000,000.00 (hereinafter, the "Sale"). As the Sale is set to close prior to the confirmation of a Chapter 11 reorganization plan and disclosure statement, the Trustee made this Motion pursuant to 11 U.S.C. § 363(b) and (f), used for sale of assets outside the ordinary course of business and free and clear of liens, claims and encumbrances. This Motion was granted, over objection, by the Bankruptcy Court on February 23, 2007. Debtor also appealed this Order, and filed with the Bankruptcy Court a Motion to Stay the Order Pending Appeal,*fn2 which was denied on March 1, 2007. The Sale is set to close on March 15, 2007. Thus, upon denial of its Motion to Stay (the Sale) by the Bankruptcy Court, Bankruptcy Rule 8005 permits the Debtor to file an Emergency Motion to Stay Pending Appeal with the District Court.

Due to the pendency of the Sale's closing, a hearing was conducted on March 13, 2007, in which all interested parties who chose to attend were able to argue their positions either favoring or opposing the Sale. Taking these arguments under advisement, this Order sets forth the Court's reasoning why it finds a stay unwarranted.

II. DISCUSSION

The Court has jurisdiction pursuant to 28 U.S.C. § 158. Further, the Court reviews the findings of fact of the Bankruptcy Court for clear error, however, conclusions of law are reviewed de novo. In re Midway Airlines, 383 F.3d 663, 668 (7th Cir. 2004); FED.R.BANKR. P. 8013. The ultimate issue the Court must determine is whether a stay of the Sale pending Golf 255's appeal is warranted, which hinges upon the determination of certain sub-issues. The crux of Golf 255's opposition of the Sale is that it believes it will prevail on its pending appeal, arguing that the Bankruptcy Code does not give the Trustee proper authority to sell substantially all of its assets through a § 363 sale in this case (Doc. 9). Golf 255 believes that allowing the Sale to close without a confirmed plan of reorganization obviates the purpose of the a Chapter 11 bankruptcy -- after all, what is the point of reorganizing a golf course business if there is no longer a golf course left to operate? Both the Trustee and the Bank have filed opposing Responses (Docs. 6 & 7), countering with the assertion that in certain circumstances (such as this case), if the requisite factors are met and approved by the Court, a sale pursuant to § 363 of the Property, prior to obtaining a confirmed reorganization plan, is entirely appropriate and in line with the current state of bankruptcy law.

A. Legal Standard

When considering whether to grant a stay pending appeal, pursuant to Bankruptcy Rule 8005, the Court must consider the following: (1) whether the movant is likely to succeed on the merits of the appeal; (2) whether the movant will suffer irreparable injury absent a stay; (3) whether a stay would substantially harm other parties to the litigation; and (4) whether a stay is in the public interest. In re Forty-Eight Insulations, Inc., 115 F.3d 1294, 1300 (7th Cir. 1997). The moving party has the burden of proof. In re Wire Rope Corp. of America, Inc., 302 B.R. 646, 648 (W.D. Mo. 2003). Movant should also make a "substantial showing of likelihood of success . . . because [movant] must convince the reviewing court that the lower court, after having the benefit of evaluating the relevant evidence, has likely committed reversible error." In re Forty-Eight Insulations, 115 F.3d at 1301 (citing Mich. Coalition of Radioactive Material Users, Inc. v. Griepentrog, 945 F.2d 150, 153 (6th Cir. 1991)). If movant fails to make this showing or to meet threshold burden that movant will suffer irreparable harm if stay is denied, the Court need not conduct a balance of harms analysis and can deny the stay at that point. Id. (citing Green Riv. Bottling Co. v. Green Riv. Corp., 997 F.2d 359, 361 (7th Cir. 1993); Abbot Lab. v. Mead Johnson & Co., 971 F.2d 6, 11 (7th Cir. 1992)).

B. Elements of a Stay

1. Likelihood of Success

Golf 255 has appealed the Bankruptcy Court's Order, authorizing the Sale of the Property pursuant to 11 U.S.C. § 363. Specifically, Golf 255 argues that the Chapter 11 Trustee does not have authority to sell substantially all of its assets prior to a confirmed reorganization plan. Moreover, Golf 255 distinguishes the cases cited by the Trustee in support of his authority to pursue the Sale, under § 363, in that those cases involve the Chapter 11 debtor in possession moving to sell the assets -- not an appointed trustee (Doc. 9, p. 2). Thus, Golf 255 asserts that the Bankruptcy Code does not specifically give the Chapter 11 Trustee authority to sell substantially all of the assets in the bankruptcy estate prior to establishing a confirmed reorganization plan. Golf 255 does not offer case law to support its assertion, but instead, looks to the Code itself.*fn3

Also looking at the Code, the Court finds convincing the Bank's explanation of Chapter 11 authority (Doc. 7, pp. 7-8). Although Golf 255's observations regarding Chapter 11 duties under § 1106 and § 704 (via incorporation) are true, the Code provides that Chapter 3 is applicable to Chapter 11 bankruptcy cases. See 11 U.S.C. § 103(a). Further, § 363 (part of Chapter 3 of the Code) specifically provides that "[t]he trustee, after notice and a hearing, may use, sell, or lease, other than in the ordinary course of business, property of the estate . . . ." 11 U.S.C. § 363(b)(1) (emphasis added). Section 363 does not specifically exclude a Chapter 11 trustee from the scope of its use of ...


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