MOHAMMED GHORI, GHORI NO. 1 CAB CORPORATION, INF CAB CORPORATION, AND UBOO CAB CORPORATION, Appellants,
GHORI NO. 1 CAB CORPORATION c/o CH. 7 TRUSTEE FRANCES GECKER LLP, OFFICE OF U.S. TRUSTEE, RASOOL KHAN, TRANSIT FUNDING ASSOCIATION, LLC, et al., Appellees.
MEMORANDUM OPINION & ORDER
JOAN B. GOTTSCHALL, District Judge.
On March 1, 2013, Ghori No. 1 Cab Corporation, INF Cab Corporation, and Uboo Cab Corporation (collectively, "Debtors") filed petitions for chapter 11 bankruptcy in the Bankruptcy Court for the Northern District of Illinois. The three cases were then substantively consolidated into one. On November 6, 2013, the bankruptcy court entered an order converting that case to chapter 7. Debtors then filed a motion to reconsider that order, which the bankruptcy court denied. Debtors now move this court for an emergency stay of enforcement of the bankruptcy court's order converting the case, pursuant to Federal Rule of Bankruptcy Procedure 8005. For the reasons stated below, the motion is denied.
In 1999, Mohammed Ghori ("Ghori") and Rasool Khan ("Khan") entered into an oral agreement to create and manage three taxicab businesses in Chicago: Ghori No. 1 Cab Corporation, INF Cab Corporation, and Uboo Cab Corporation. Ghori's family owns a 75% share of each of these three companies, and Khan owns the remaining 25% share.
Two years later, in 2001, the relationship between Ghori and Khan deteriorated, and Khan withdrew from managing the three companies, though no action was taken to eliminate his 25% interest. Ghori continued to manage the three companies until 2010, when he entered into a contract with Steve Newman to sell the primary assets of the companies-three taxi cab medallions-for $200, 000 each. Ghori's deal with Newman did not ultimately go through, however, because the City of Chicago (the "City") needed to approve the transfer of the medallions before the sale could be completed. The City did not approve the transfer because the parties had failed to obtain Khan's consent to transfer the medallions to Newman.
Newman and Khan then each filed a lawsuit against Ghori in state court. Newman alleged that Ghori breached the agreement to sell him the medallions, and he sought specific performance and damages. Khan's lawsuit sought to enjoin the sale to Newman and recover damages for years of undistributed profits. After these two lawsuits were filed, Debtors filed for chapter 11 bankruptcy.
On October 22, 2013, Khan filed a motion to convert the chapter 11 case to chapter 7. In support of his motion, Khan argued that the bankruptcy case had been filed in bad faith, noting that Debtors had grossly mismanaged the estate and had been operating at a loss since filing for bankruptcy protection. On November 2, 2013, four Secured Creditors-Transit Funding Associates 5 LLC, Signature Financial LLC, Transit Funding Associates LLC, and Capital One Taxi Medallion Finance (collectively, "Secured Creditors")-also filed a motion to convert. They argued that conversion was necessary because the estate was suffering substantial and continuing losses and there was no reasonable likelihood of rehabilitation.
On November 6, 2013, both motions were presented at a motion hearing before the bankruptcy court. At the hearing, counsel for Debtors stated that he had not had an opportunity to submit a response to either motion and requested additional time to do so. The court noted that it was urgent that the court decide the motions because the medallions needed to be sold by the end of the year in order to ensure that the City would not revoke them. The court found that Debtors were operating at a negative cash flow, that it was unlikely that continued operation would benefit the estate, and that it was unlikely that any plan other than liquidation would be confirmed. Accordingly, the bankruptcy court granted Khan's motion to convert.
On November 10, 2013, Debtors filed a motion to reconsider the bankruptcy court's order. Debtors argued that the order had been entered without providing them with notice and a hearing, in violation of 11 U.S.C. § 1112(b). That statute contemplates that debtors will be provided twenty-one days' notice of a motion to convert. Debtors here were given only two days' notice of the Secured Creditors' motion. Debtors also claimed that had the bankruptcy court considered the arguments and evidence presented in their motion to reconsider, the court would have denied the motion to convert.
In an eight-page oral ruling, the bankruptcy court rejected Debtors' arguments and denied their motion to reconsider. The court found that, assuming additional notice should have been given, Debtors' motion to reconsider and its briefing in support of that motion set out its position, which constituted an adequate opportunity to be heard. The court also reaffirmed its finding that there was cause to convert the case to chapter 7 because of the substantial and continuing losses to the estate and the lack of a reasonable likelihood of rehabilitation.
Debtors then filed their appeal in this court, as well as an emergency motion to stay the bankruptcy court's order pending the resolution of their appeal.
II. LEGAL STANDARD
"On a motion to stay an order of the Bankruptcy Court pending appeal pursuant to Bankruptcy Rule 8005, the movant bears a heavy burden to prevail." In re A&F Enters., Inc. II, No. 13 C 7020, 2013 WL 5548911, at *1 (N.D. Ill. Oct. 8, 2013). In considering whether to grant a stay pending appeal under Bankruptcy Rule 8005, courts consider the following factors: (1) whether the appellant is likely to succeed on the merits of the appeal; (2) whether the appellant will suffer irreparable injury absent a stay; (3) whether a stay would substantially harm other parties in the litigation; and (4) whether a stay is in the public interest. In re Forty-Eight Insulations, 115 F.3d 1294, 1301 (7th Cir. 1997). With respect to the first factor, the appellant must "demonstrate a substantial showing of likelihood of success, not merely the possibility of success, because [it] must convince the reviewing court that the lower court, after having the benefit of evaluating the relevant evidence, has likely committed reversible error." Id. The appellant also bears the burden to prove that it will suffer irreparable injury. Id. at 1300. If the appellant does not meet its burden with respect ...