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Reserve Capital Corp. v. Levine

January 30, 2007

RESERVE CAPITAL CORPORATION; HAWKINS DEVELOPMENT LLC; JAMES W. HAWKINS; LORI JO HAWKINS; HAWKINS FAMILY LLC; HAWKINS MANUFACTURED HOUSING, INC.; FOREST VIEW, INC.; WOODED ESTATES, LLC; AND TIOGA PARK, LLC, APPELLANTS,
v.
PAUL A. LEVINE, CHAPTER 11 TRUSTEE; SOUTHERN TIER ACQUISITION, LLC; ASOLARE II, LLC; BSB BANK & TRUST CO.; AND UNITED STATES TRUSTEE, APPELLEES.



DECISION AND ORDER

Appellants/DebtorsReserve Capital Corporation, Hawkins Development LLC, James W. and Lori Jo Hawkins, Hawkins Family LLC, Hawkins Manufactured Housing, Inc., Forest View, Inc., Wooded Estates, LLC, and Tioga Park, LLC ("Appellants/Debtors") appeal the March 7, 2005 Decision and Order of the United States Bankruptcy Court for the Northern District of New York (Gerling, Chief B.J.) authorizing the Trustee to enter into certain settlements (as will be explained in more detail infra), and denying Appellants/Debtors' Motions to disallow the claim of Asolare II, LLC, to remove the Trustee, and to compel compliance with the terms of the March 5, 2004 consulting agreement.

I. FACTS

Appellants/Debtors include eight separate entities and individuals. Reserve Capital Corporation is a corporation that was engaged in the business of construction and installment contract financing of mobile homes. Hawkins Development, LLC was engaged in real estate development. Hawkins Family, LLC acted as a real estate holding company. Hawkins Manufactured Housing, Inc. was engaged in the selling and financing of mobile homes. Wooded Estates, LLC and Forest View, Inc., owned and operated mobile home communities. Tioga Park, LLC owned a horse racing track.

BSB Bank & Trust Company ("BSB") was a secured creditor of the Debtors, holding mortgages and assignments of rent on much of the real property owned by Debtors. BSB also held security interests in certain personal property owned by Debtors. Each of the Debtors sought protection under Chapter 11 of the Bankruptcy Code by filing petitions in January 2003. The Bankruptcy Court subsequently granted Debtors' motion to jointly administer the estates. BSB filed proofs of secured claims in each case in an amount totaling $6,563,349.00.

By Agreement dated September 24, 2003, BSB agreed to assign the secured portion of its claims to Asolare Corporation ("Asolare"). BSB retained its interest in deficiencies as an unsecured claimant. On that same date, Asolare II, LLC was formed ("Asolare II"). On October 1, 2003, BSB received final payment on the assignment. On October 30, 2003, Asolare executed a Bill of Sale and Assignment to Asolare II of all of Asolare's right, title, and interest in the September 24, 2003 agreement with BSB.

On January 8, 2004, Asolare II filed a Notice of Transfer of Proof of Claim pursuant to Bankruptcy Rule 3001(e)(2). This notice indicated that BSB's interests had been transferred to Asolare II. On August 27, 2004, Asolare II filed an amended Notice of Transfer of Proof of Claim. This notice advised the Bankruptcy Court and the parties of the assignment of BSB's interest to Asolare, and Asolare's assignment of those same interests to Asolare II. Asolare II filed amended Proofs of Claim alleging a secured claim of $4,845,221.64. The Debtors objected to BSB and Asolare II's claims.

Meanwhile, on June 1, 2004, the Bankruptcy Court confirmed the Joint Chapter 11 Plan of Tioga Park, LLC. As is relevant hereto, the Joint Plan provided that the estate of James Hawkins was to receive: (1) 55% of the $100,000 consulting fee due to him under a five year consulting agreement previously negotiated by the parties; and (2) a 2% equity interest in the post confirmation transferee of the assets of Tioga Park, LLC. The Joint Plan further provided that the personal residence of James and Lori Hawkins would be conveyed to Asolare II in partial satisfaction of its secured claim. Asolare II was to then sell the property back to James and Lori Hawkins for $100,000. Under the approved plan, Southern Tier Acquisitions and Jeffrey Gural were to provide funding to James Hawkins to facilitate the purchase of his home and to satisfy certain priority tax claims. The approved plan further required Debtors to discontinue their adversary proceeding against BSB in which they sought to limit the amount of BSB's secured claim based upon allegations of deficiencies in the loan documents.

On August 12, 2004, the United States Trustee moved to covert the pending cases to Chapter 7 or, in the alternative, appoint a Trustee pursuant to 11 U.S.C. § 1104. By Order dated September 16, 2004, the Bankruptcy Court appointed Appellee Paul Levine, Esq. as the Chapter 11 Trustee. In November 2004, the Trustee filed a motion to compromise. In the motion, the Trustee sought to liquidate three sources of money to help fund the bankruptcy estates: (1) a present value lump sum payment of the estate's share of the consulting fee;*fn1 (2) a payment in exchange for the estates' conveyance of their 2% equity interest in Tioga Downs, LLC; and (3) a payment on account of the agreement to fund money into the bankruptcy estates in recognition of priority tax claims.

On March 7, 2005, the Bankruptcy Court issued an Order: (1) denying Debtors' motion to remove the Trustee; and (2) finding the compromises proposed by the Trustee to be fair and reasonable and to be in the best interests of the creditors of the estate and, therefore, allowing the Trustee to enter into the settlements proposed in his motion to compromise. Debtors now appeal the March 7, 2005 Order.

II. STANDARD OF REVIEW

Bankruptcy Rule 8013 provides, inter alia, that a bankruptcy court's findings of fact "shall not be set aside unless clearly erroneous, and due regard shall be given to the opportunity of the bankruptcy court to judge the credibility of witnesses." FED. R. BANKR. P. 8013. See also R.M. 18 Corp. v. Aztex Assocs., L.P (In re Malease 14FK Corp.), 351 B.R. 34, 40 (E.D.N.Y. 2006). "A finding is 'clearly erroneous' when although there is evidence to support it, the reviewing court on the entire evidence is left with the definite and firm conviction that a mistake has been committed." United States v. Mitchell, 966 F.2d 92, 98 (2d Cir. 1992). A bankruptcy court's legal conclusions are subject to de novo review. Capital Commc'n Fed. Credit Union v. Boodrow (In re Boodrow), 126 F.3d 43, 47 (2d Cir. 1997).

Matters left to the discretion of the bankruptcy court are reviewed for an abuse of discretion. Id.

III. DISCUSSION

A. Denial of the Motion to Disallow the Claim of ...


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