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In re Fiorano Tile Imports, Inc.

United States District Court, E.D. New York

September 12, 2014

In re: FIORANO TILE IMPORTS, INC., Debtor

Page 410

For Cherry Valley Associates, LLC, Appellant: Richard V. Kanter, Esq., Melville, NY.

For Fiorano Tile Imports, Inc., Appellee: John H. Hall, Jr., Esq., Scott L. Swanson, Esq., Of Counsel, Pryor and Mandelup, L.L.P., Westbury, NY.

OPINION

Page 411

MEMORANDUM OF DECISION AND ORDER

ARTHUR D. SPATT, United States District Judge.

This case comes before the Court on an appeal filed by the Appellant Cherry Valley Associates, LLC (the " Appellant" ) from a June 20, 2013 Order of United States Bankruptcy Judge Alan S. Trust, which confirmed the Seventh Amended Chapter Eleven Plan of Reorganization (the " Seventh Amended Plan" ) entered by the Debtor Fiorano Tile Imports, Inc. (the " Debtor" ) pursuant to Rule 7052(a) of the Federal Rules of Bankruptcy Procedure (the " Confirmation Order" ). The Appellant challenges the Confirmation Order on the grounds that the Bankruptcy Court erred and abused its discretion in finding that the Seventh Amended Plan was (1) feasible under § 1129(a)(1)) of Title 11 of the United States Code (the " Bankruptcy Code" ); (2) proposed in good faith under 11 U.S.C. § 1129(a)(3); and (3) complied with 11 U.S.C. § 1129(a)(5). Moreover, the Appellant contends that the Bankruptcy Court erred and abused its discretion by failing to enforce its previous Order, dated February 5, 2013, which dismissed or, in the alternative, converted the Debtor's case to one under Chapter 7 of the Bankruptcy Code. Accordingly, the Appellant seeks reversal of the Bankruptcy Court's Confirmation Order and dismissal of the Debtor's case.

In opposition, the Debtor argues that the Seventh Amended Plan has been substantially consummated, thus creating a rebuttable presumption of equitable mootness, to which it contends Appellant has no defense. The Debtor also asserts that the Appellant lacks standing to bring this appeal. In this regard, according to the Debtor, the Appellant is not an aggrieved person, since it has not alleged that it would receive more in a conversion or dismissal of the case than it would under the confirmed Seventh Amended Plan.

For the reasons that follow, the Court denies the Appellant's appeal and affirms the Confirmation Order on the ground that this appeal is equitably moot.

I. BACKGROUND

The Debtor is a tile supplier for the construction business, which filed a voluntary

Page 412

petition for relief under Chapter 11 of the Bankruptcy Code on September 21, 2010. Its principal shareholders are Jerry Tudisco, John Tudisco and Joseph Tudisco (collectively, the " Debtor's Principal Shareholders" ). On that same date, September 21, 2010, the Debtor's Affiliate, Fiorano Tile Showcase at Bellmore LLC (the " Debtor-Affiliate" ), also filed a voluntary petition for relief pursuant to Chapter 11. The Debtor-Affiliate is owned by Santa Tudiscio, who is the mother of the Debtor's Principal Shareholders.

The Appellant was the Debtor's former landlord and is an unsecured creditor that holds a pre-petition claim for unpaid rent in the sum of $55,460. The Appellant also has a claim for lease rejection damages under 11 U.S.C. § 502(b)(6)(A)(i), in the sum of $96,124.27. As such, the Appellant claims the Debtor owes it a total of $151,584.27.

On January 31, 2012, the Debtor and the Debtor-Affiliate filed a joint disclosure statement for approval with a proposed Chapter Eleven reorganization plan that called for one percent repayment to unsecured creditors (the " First Plan" ). The Appellant objected to this plan based on (1) a lack of adequate information in the joint disclosure statement and (2) the inability of the First Plan to comply with the confirmation requirements under the Bankruptcy Code.

In particular, the Appellant inquired into who owned and operated an entity known as Fiorano Realty Company (" Fiorano Realty" ), which was the Debtor's new landlord. Fiorano Realty owns real property from which the Debtor operated its business and is a creditor of the Debtor, holding one of the twenty largest unsecured claims. Although the Debtor claimed that it was not making rental payments to Fiorano Realty, operating reports indicated that it was in fact making payments to Fiorano Realty. At the time, it appeared that these payments amounted to at least $17,350 from October of 2011 to January of 2012.

The Appellant also challenged the feasibility of the Debtor being able to meet the eight-year financial projections that it submitted in support of the First Plan, suggesting that said projections were speculative in light of the fact that the Debtor had been experiencing several months of below-expected earnings. In addition, the Appellant pointed out the Debtor's administrative insolvency, in that total administrative claims were estimated by the Debtor as being $175,000, but yet the Debtor had only $11,000 escrowed for administrative expenses.

In response to the Appellant's objections, the Debtor filed an amended Chapter Eleven reorganization plan (the " First Amended Plan" ), a second amended Chapter Eleven reorganization plan (the " Second Amended Plan" ) and a third amended Chapter Eleven reorganization plan (the " Third Amended Plan" ). In amending its Chapter Eleven reorganization plan, the Debtor included amended joint disclosure statements, which divulged that Santa Tudisco actually owned Fiorano Realty, but made no disclosure concerning the affiliations of the Debtor's officers to Fiorano Realty or any other non-debtor entity. It was further revealed that the purported rent payments made by the Debtor to Fiorano Realty were not actually rent payments and that they apparently amounted to a total of $34,650, as opposed to $17,350. Specifically, Jerry Tudisco, who was also one of the principal officers of the Debtor, stated that the Debtor would not pay rent to Fiorano Realty under their lease agreement. Accordingly, because the Debtor had failed to pay rent for years, Fiorano Realty's mortgagee had initiated a foreclosure action.

Page 413

Despite the Debtor's submission of three amended joint disclosure statements and plans, the Appellant maintained many of its objections to the Debtor's Chapter Eleven reorganization plan. In this regard, the Appellant contended that issues regarding the pre-existing non-disclosures and the reorganization plan's feasibility were still not adequately addressed by any of the Debtor's modifications. The Appellant further emphasized the Debtor's wrongful diversion of funds to Fiorano Realty for usages unrelated to the bankruptcy proceedings.

Subsequently, the Debtor filed a fourth amended Chapter Eleven reorganization plan (the " Fourth Amended Plan" ) followed by a fifth amended Chapter Eleven reorganization plan (the " Fifth Amended Plan" ), both of which were accompanied by amended joint disclosure statements. The Fourth Amended Plan and the Fifth Amended Plan raised the proposed distribution from one cent on the dollar to one-and-a-half cents on the dollar for the claims of general unsecured creditors, including the Appellant, for a period of eight years. On July 27, 2012, the Bankruptcy Court approved the Debtor's fifth amended joint disclosure statement and set a confirmation hearing for the Fifth Amended Plan, which was eventually adjourned to October 9, 2012.

On October 6, 2012, the Appellant filed a written objection based on its discovery that the Debtor had allegedly wrongfully transferred even more than $34,650 to Fiorano Realty. Consequently, the October 9, 2012 ...


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