Meruelo Maddux Properties-760 S. Hill Street LLC v. Bank of America, N.A. (In re Meruelo Maddux Properties, Inc.)

Summarized by Laury Macauley , Macauley Law Group, a Professional Corporation
14 years 1 month ago

Citation:

--F.3d-- (9th Cir. 2012); case no. 10-56128

Tag(s):

Ruling:

The Ninth Circuit Court of Appeals affirmed the holding of the U.S. District Court and reversed the Bankruptcy Court, finding that there is no "whole enterprise exception" to the application of the single asset real estate provisions of the Bankruptcy Code found in 11 U.S.C. Sections 101(51B) and 362(d)(3).

Procedural context:

Appeal from the U.S. District Court for the Central District of California , reversing an order of the U.S. Bankruptcy Court for the Central District of California.

Facts:

The Chapter 11 Debtor, Meruelo Maddux Properties - 760 S. Hill Street LLC ("Debtor"), is one of fifty (50) separate subsidiaries of Meruelo Maddux Properties, Inc. ("MMPI") which owns and develops real property in the Los Angeles area. MMPI operates a network of subsidiaries (including the Debtor) with a centralized management team and consolidated operations. The Debtor filed a motion seeking a determination by the Bankruptcy Court that the single asset real estate provisions of 11 U.S.C. Section 101(51B) and 362(d)(3) did not apply to it, which motion was opposed with a cross motion by its creditor, Bank of America. After argument, the Bankruptcy Court decided not to apply the single asset real estate provisions to the Debtor's case, because of the consolidated, interrelated nature of the business operations of the Debtor, MMPI, and its other subsidiaries, described as a "whole business enterprise." Bank of America filed an appeal, and the District Court reversed the determination of the Bankruptcy Court. On appeal to the Ninth Circuit, the Court affirmed the District Court and reversed the Bankruptcy Court, finding that the plain meaning of Bankruptcy Code Section 101(51B), which sets forth the requirements for what constitutes a "single asset real estate case," contains no basis for a "whole enterprise exception." The definition of a "single asset real estate case" found in Bankruptcy Code Section 101(51B) requires only: (1) a single project or property...; (2) that generates substantially all of the gross income of the debtor; and (3) that's only substantial business is operating the real property and work incidental to that operation. If the provisions of Section 101(51B) apply, then Bankruptcy Code Section 362(d) allows for stay relief if the debtor does not take certain actions within ninety (90 days) after filing or thirty (30) days after a "single asset case" determination. The Ninth Circuit specifically found that the mere receipt of funds by the Debtor from MMPI , in the absence of evidence that those funds were given in exchange for labor or otherwise qualified as income, was insufficient to bring the Debtor out from under the application of the single asset real estate provisions. Absent a substantive consolidation of the bankruptcy cases, the Debtor is a distinct legal entity from that of MMPI and the other subsidiaries, subject to the single asset procedural requirements.

Judge(s):

The Honorable Dorothy W. Nelson, the Honorable Ronald M. Gould, and the Honorable Sandra S. Ikuta, Circuit Judges.

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