Bankr. L. Rep. P 67,034 in the Matter of Gardens of Cortez, Debtor-Appellant. Gardens of Cortez, Debtor-Appellant v. John Hancock Mutual Life Insurance Company, Creditor-Appellee, 585 F.2d 975, 10th Cir. (1978)
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2d 975
Bankr. L. Rep. P 67,034
In the Matter of Gardens of Cortez, Debtor-Appellant.
GARDENS OF CORTEZ, Debtor-Appellant,
v.
JOHN HANCOCK MUTUAL LIFE INSURANCE
COMPANY, Creditor-Appellee.
No. 77-1825.
United States Court of Appeals,
Tenth Circuit.
Submitted Oct. 17, 1978.
Decided Oct. 26, 1978.
Joel L. Wohlgemuth of Prichard, Norman, Reed & Wohlgemuth, Tulsa,
Okl. and Robert N. Meals and Paul W. Bonapfel of Nicholson & Meals,
Atlanta, Ga., for debtor-appellant.
James R. Waldo and Gary A. Bryant of Crowe, Dunlevy, Thweatt,
Swinford, Johnson & Burdick, Oklahoma City, Okl., for creditor-appellee.
Before LEWIS, McWILLIAMS and LOGAN, Circuit Judges.
PER CURIAM.
This is a bankruptcy case. Gardens of Cortez is a partnership which operates a
257-unit apartment complex in Tulsa, Oklahoma. John Hancock Mutual Life
Insurance Company is the owner of the ground on which the complex is
located, together with the improvements located thereon. Hancock entered into
a long-term lease of the property with Gardens of Cortez, and in connection
therewith Cortez executed a note and mortgage, as well as a ground lease, in
favor of Hancock.
On April 28, 1976, Hancock filed in the District Court of Tulsa County, State
of Oklahoma, a petition seeking judgment on the note, mortgage and ground
lease and asking for foreclosure of the mortgage covering the leasehold interest
on the ground that Cortez was in default. A hearing in connection with
Hancock's request for the appointment of a receiver was continued from time to
time, and was finally set for hearing on September 24, 1976. On the preceding
day, September 23, 1976, Cortez filed the present petition for a real property
arrangement under Chapter XII of the Bankruptcy Act, 11 U.S.C. 801, et seq.,
and in connection therewith obtained a stay of the state foreclosure action
theretofore brought by Hancock. On October 21, 1976, Hancock, in an effort to
proceed with its foreclosure action in state court, filed in the bankruptcy court a
complaint seeking relief from the stay order imposed on it by the filing of the
Chapter XII proceeding. On November 26, 1976, Cortez answered the Hancock
complaint and counterclaimed against Hancock for alleged tortious interference
with its right to conduct normal business operations. Hearing on Hancock's
request to lift the stay order and on Cortez' counterclaim was held on March 7
and 8, 1977, at the conclusion of which the matter was taken under advisement.
3
In the meantime, the bankruptcy court on January 26, 1977, ordered Cortez to
file its plan of arrangement on or before March 1, 1977. Such plan was filed,
and by further order of the bankruptcy court the creditors were given until
March 22, 1977, to accept or reject the plan. By March 23, 1977, it became
evident that Cortez' plan was rejected by all classes of creditors, both unsecured
as well as secured. These were approximately thirty unsecured creditors, and
two secured creditors. As concerns the latter, Cortez' debt to Hancock
constituted about 90% Of Cortez' secured indebtedness, the remaining 10%
Being held by another secured creditor who also rejected the plan. In this
setting the bankruptcy court gave notice that a hearing would be held on April
15, 1977, for the purpose of considering the entry of an order dismissing the
Chapter XII proceeding or adjudicating the debtor a bankrupt, whichever might
be in the best interest of the estate. Hearing was held on April 15, 1977, and
then continued to April 21, 1977, at which time the bankruptcy court dismissed
the Chapter XII proceeding for the reason that the plan submitted by Cortez
had not been accepted by the requisite number of creditors as required by the
Act, 11 U.S.C. 868. By this time Cortez had apparently satisfied the claims of
all unsecured creditors, and it became clear that for all practical purposes this
was in reality a one-on-one dispute between Cortez and Hancock, and that the
plan could not be confirmed without the acceptance of Hancock.
Cortez next filed an appeal from the order of the bankruptcy judge dismissing
its petition for an arrangement. On such appeal the district judge affirmed the
dismissal order entered by the bankruptcy judge. Cortez now seeks review of
the judgment of the district court. We affirm.
On appeal in this Court, Cortez' main argument is that the bankruptcy judge
erred in dismissing the petition without giving Cortez the opportunity to present
an alternate arrangement plan. * In thus arguing, Cortez relies heavily on Rader
v. Boyd, 267 F.2d 911 (10th Cir. 1959). We do not believe that Rader is
supportive of Cortez' position.
6
In Rader the bankruptcy court rejected a petition for a real property
arrangement and then without notice or hearing adjudicated the petitioner
bankrupt. On appeal we held that such summary adjudication that the debtor
was bankrupt was in direct violation of 11 U.S.C. 881(2), and that in such
circumstance the adjudication of bankruptcy was void. Remanding the case for
further proceedings, we directed the district court as follows:
7 remand the trial court should proceed in conformity with 881(2). This does not
On
preclude another arrangement meeting the requirements of Chapter XII. There is
nothing in Chapter XII which prevents the proposal of an altered or modified
arrangement prior to dismissal or adjudication in bankruptcy. While an adjudication
of bankruptcy may not be unreasonably deferred by the submission of successive
plans, the court in the wise exercise of its discretion should afford fair opportunity
for the submission of an arrangement which satisfies Chapter XII. It is for the trial
court to determine whether the statutory requirements are met or whether the matter
must be concluded by dismissal or adjudication.
8
Cortez seizes upon this language from Rader and asserts that such precluded
the bankruptcy court in the instant case from dismissing the petition for
arrangement until Cortez was afforded the opportunity to present an alternate
plan of arrangement. We do not agree. The bankruptcy court in the instant case
proceeded in accord with 11 U.S.C. 881(2). In this regard it should be noted
that as of the date of the dismissal order Cortez had satisfied the claims of all
unsecured creditors, and that its principal secured creditor, Hancock, was
unalterably opposed to any plan and preferred to pursue its foreclosure rights in
the state court. In such circumstance, submitting an alternate plan would be
useless. Dismissal of a plan for real property arrangement has been held proper
where the sole affected creditor declined to accept the plan. Owners of "SW 8"
Real Estate v. McQuaid, 513 F.2d 558 (9th Cir. 1975) and Taylor v. Wood, 458
F.2d 15 (9th Cir. 1972). In our view, the bankruptcy court in the instant case
did not, under the circumstances, violate either the letter or spirit of Rader in
dismissing Cortez' petition.
Cortez argues, alternatively, that, notwithstanding the objections of Hancock,
the so-called "cram down" provisions of 11 U.S.C. 861(11) should have been
invoked by the bankruptcy court. In our view, 11 U.S.C. 861(11) has no
application to the present case. In support of our determination, see Meyer v.
Rowen, 195 F.2d 263, 266 (10th Cir. 1952), where the following pertinent
comment appears:
10 petition for arrangement proposed to modify or alter the Rowens' rights as
The
secured creditors by deferring the time for payment of the debt. And, it might be
said to provide "adequate protection" under Section 461, sub. 11, by retention of the
property subject to the secured debt. But, it was obviously not the purpose of Section
461, sub. 11 to dispense with an arrangement when no creditors can be found to
consent to it; nor does it authorize the bankruptcy court to force secured creditors,
unanimously opposed to the plan, to accept it simply because adequate protection is
provided. In re Herweg, 7 Cir., 119 F.2d 941; In re Hamburger, 6 Cir., 117 F.2d 932.
11
As concerns the intent of 11 U.S.C. 861(11), see also Sumida v. Yumen, 409
F.2d 654 (9th Cir. 1969).
12
Having determined that the bankruptcy court did not err in dismissing the
petition, the other matters raised in this Court by Cortez are in our view
rendered moot. Certainly Hancock's request that the stay order be lifted became
moot when the bankruptcy judge dismissed the petition. And by the same
token, having dismissed the petition, the bankruptcy court lost jurisdiction to
proceed further with Cortez' counterclaim.
13
Judgment affirmed.
In this regard we cannot find in the record before us any specific request by
Cortez for an opportunity to present an alternate plan, although some reference
to such was made by the bankruptcy judge
