- JPMCC 2007-C1 Grasslawn Lodging, LLC v. Transwest Resort Properties Inc.; Southwest Value Partners Fund XV, LLP; SWVP LA Paloma LLC; SWVP Hilton Head, LLC (In re Transwest Resort Properties, Inc.), -- F.3d. -- (9th CA September 15, 2015)
- The Ninth Circuit Court of Appeal ("Panel") withdrew its Opinion and Dissent filed on July 1, 2015, appearing at 791 F.3d 114. Even though the Chapter 11 plan had been implemented, a lender's colorable objection to the plan was not equitably moot because the lender had diligently sought a stay, and it would be possible to devise an equitable remedy to at least partially address the lender's objection without impacting third parties or entirely unraveling the plan. The district court's ruling was reversed and the case was remanded for further proceedings.
- Procedural context:
- On July 1, 2015, the Panel issued its opinion. The Panel granted a petition for panel rehearing, withdrew its prior opinion and dissent, filed a new superseding opinion and dissent, and denied as moot a petition for rehearing en banc in a bankruptcy case
- "In 2007, five related entities acquired the Westin Hilton Head Resort and Spa and the Westin La Paloma Resort and Country Club. The five entities (collectively “Debtors”) were: Transwest Hilton Head Property, LLC, and Transwest Tucson Property, LLC (collectively “Operating Debtors”); Transwest Hilton Head II, LLC, and Transwest Tucson II, LLC (collectively “Mezzanine Debtors”); and Transwest Resort Properties, Inc. (“Holding Company Debtor”). The Holding Company Debtor was the sole owner of each of the Mezzanine Debtors. The Mezzanine Debtors, in turn, were each the sole owners of the Operating Debtors, which owned and operated the respective hotels." The purchase of these hotels was financed through "two loans: first, a $209 million loan to the Operating Debtors secured by liens on the two hotels (the “mortgage loan”); and, second, a $21.5 million loan to the Mezzanine Debtors secured by liens on the ownership interests in the Operating Debtors (the “mezzanine loan”). JPMCC 2007-C1 Grasslawn Lodging, LLC (“Lender”) acquired the mortgage loan pre-petition, and PIM Ashford Subsidiary I, LLC ("PIM") acquired the mezzanine loan. Both loans were in default, and all of the Debtors filed Chapter 11 bankruptcy, which were later jointly administered. Debtors filed a joint plan of reorganization, that proposed to cancel the Mezzanine Debtors' equity interest in the Operating Debtors, and dissolve the Mezzanine Debtors. Additionally, Southwest Value Partners Fund XV, LP (“SWVP”) would invest $30 million and become the sole owner of the Operating Debtors. Lender timely made its 11 U.S.C. Sec. 1111(b)(2) election, but the Chapter 11 plan proposed to reinstate the loan and restructure it with monthly interest payments and a balloon payment after 21 years. The proposed restructured loan also included a provision wherein in the event of any sale or refinance, Lender would receive the full value of claim immediately, but between years 5 and 15, the hotels could be sold or refinanced and the buyer would be required to take on the loan obligations. Thus, the full amount would not be immediately due to Lender. Both loans were separately classified, and PIM's treatment was based on whether it accepted / rejected the proposed plan. If PIM accepted it would get a small percentage of surplus cash flow; however, if it rejected it would not receive any distributions. Lender acquired the mezzanine loan and voted both positions (its original claim and PIM's) against the plan. The plan was confirmed despite the Lender's two objections: first, the "ten-year exception to the due-on-sale" should be removed as it "negated" its Sec. 1111(b) election; and, second: the bankruptcy court misapplied 11 U.S.C. Sec. 1129(a)(10) because there was not an impaired class in each case that accepted the proposed plan.
- J. Clifford Wallace, Milan D. Smith, Jr., and Michelle T. Friedland, Circuit Judges
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