Case bjh11 Doc 7 Filed 09/13/11 Entered 09/13/11 18:48:12 Desc Main Document Page 1 of 10

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1 Document Page 1 of 10 Stephen A. McCartin (TX ) Holland Neff O Neil (TX ) Virgil Ochoa (TX ) GARDERE WYNNE SEWELL LLP 3000 Thanksgiving Tower 1601 Elm Street Dallas, TX Telephone: (214) Facsimile: (214) smccartin@gardere.com honeil@gardere.com vochoa@gardere.com and Jeffrey C. Krause (CA 94053) Gregory K. Jones (CA ) STUTMAN, TREISTER & GLATT PROFESSIONAL CORPORATION 1901 Avenue of the Stars, 12th Floor Los Angeles, CA Telephone: (310) Facsimile: (310) jkrause@stutman.com gjones@stutman.com PROPOSED COUNSEL FOR DEBTORS AND DEBTORS IN POSSESSION In re: R.E. LOANS, LLC, Debtor. IN THE UNITED STATES BANKRUPTCY COURT FOR THE NORTHERN DISTRICT OF TEXAS DALLAS DIVISION Chapter 11 Case No BJH ADMINISTRATION OF CHAPTER 11 CASES R.E. Loans, LLC, a California limited liability company ( R.E. Loans ), debtor and debtor-in-possession in the above-captioned case, hereby files the Motion for Order Authorizing Joint Administration of Chapter 11 Cases (the Motion ) and respectfully requests as follows. ADMINISTRATION OF CHAPTER 11 CASES Page - 1

2 Document Page 2 of 10 I. RELIEF REQUESTED 1. R.E Loans hereby requests that the Court enter an order, pursuant to Rule 1015(b) of the Federal Rules of Bankruptcy Procedure ( Bankruptcy Rules ) granting the joint administration of its chapter 11 case with the chapter 11 cases of Capital Salvage, a California corporation ( Capital Salvage ) and R.E. Future, LLC, a California limited liability company ( R.E. Future ) (R.E. Loans, Capital Salvage and R.E. Future collectively, the Debtors ). R.E. Loans requests that all pleadings relating to the Debtors' cases be filed and maintained by the Clerk of the Court under a single pleading docket in the chapter 11 case for R.E. Loans, and using a single caption, substantially in the form attached as Exhibit This Motion is further supported by the Declaration Of James Weissenborn In Support Of First Day Emergency Motions (the Weissenborn Declaration ) filed concurrently herewith, and the record in these cases. II. JURISDICTION AND VENUE 3. This Court has jurisdiction over these chapter 11 cases and the Motion pursuant to 28 U.S.C and 157(b). Venue is proper in this District pursuant to 28 U.S.C and A. The Indebtedness III. GENERAL BACKGROUND. 4. R.E. Loans, Capital Salvage, and R.E. Future each filed a voluntary chapter 11 petition on September 13, 2011 (the Petition Date ). Pursuant to Bankruptcy Code sections 1107(a) and 1108, the Debtors are continuing to operate their respective businesses and managing their respective financial affairs as debtors in possession. ADMINISTRATION OF CHAPTER 11 CASES Page - 2

3 Document Page 3 of R.E. Loans is a California limited liability company, and B-4 Partners, LLC ( B- 4 ) is a California limited liability company. B-4 is currently the sole member and it was the manager of R.E. Loans until the Petition Date, subject to the terms of the Management Motion (as defined below). Capital Salvage and R.E. Future are entities that own certain real property obtained by such entities following foreclosure proceedings initiated by R.E. Loans. R.E. Loans is the sole shareholder of Capital Salvage and the sole member and was, until the Petition Date, the sole manager of R.E. Future, subject to the terms of the Management Motion (as defined below). 6. Further, B-4 was the sole member and the manager of R.E. Loans. Effective as of the Petition Date, and subject to this Court s approval of the Management Motion (as defined below), B-4 will resign as the sole manager of R.E. Loans and will elect Mackinac Partners as the sole manager of R.E. Loans. The Debtors have filed a motion (the Management Motion ) with this Court for authority to approve Mackinac Partners as R.E. Loans' and R.E. Future's manager during these chapter 11 cases. Further, pursuant to the Management Motion, the Debtors seek approval to appoint James Weissenborn as the sole director of Capital Salvage. 7. R.E. Loans originally raised the capital to fund loans to real estate owners and developers by selling membership interests in R.E. Loans. In November 2007, R.E. Loans engaged in an exchange offer designed to bring it into compliance with applicable provisions of ERISA and applicable securities laws. Pursuant to the exchange offer, the members of R.E. Loans (other than B-4) received promissory notes in exchange for their membership interests (the Exchange Notes ). The Exchange Notes issued to the former members are secured by a second priority security interest in substantially all of R.E. Loans' assets, subject to the first- ADMINISTRATION OF CHAPTER 11 CASES Page - 3

4 Document Page 4 of 10 priority security interests in and liens on all of the Debtors' assets in favor of Wells Fargo Capital Finance, LLC ( WFCF ). 8. The first priority security interests and liens on all of the Debtors' assets is held by WFCF. WFCF provided a working capital line of credit to the Debtors beginning in 2007 (the WFCF Loan ). The balance owing to WFCF as of the Petition Date was approximately $68 million. B. Events Leading to the Bankruptcy Filings 9. In 2008 the United States economy in general and real estate development in particular entered into the worst economic downturn since the Great Depression. Virtually all of the borrowers to whom R.E. Loans had outstanding loans in 2008 have since defaulted. As a result, the Debtors have no regular cash flow. R.E. Loans has worked with many of its borrowers in an effort to maximize the recovery on the defaulted loans, but in other instances it has been forced to foreclose. 10. The Debtors have been unable to dispose of the troubled assets that comprise the WFCF collateral to satisfy the WFCF Loan and as a result the balance on the WFCF Loan has increased over the past few years. In many instances, the fact that the asset that R.E. Loans owns is a note secured by a mortgage, not the underlying real property, has made the sale process far more challenging. See Weissenborn Declaration 13. Attempting to liquidate promissory notes payable to R.E. Loans by its borrowers, who are currently in default, could in most instances generate far less value than might be generated by first foreclosing on the real property collateral and then taking appropriate steps to maximize the orderly liquidation value of the underlying real estate collateral. See id. 13. The Debtors do not, however, have sufficient cash flow to pay ADMINISTRATION OF CHAPTER 11 CASES Page - 4

5 Document Page 5 of 10 their current operating expenses to engage in this activity in the absence of a debtor-inpossession facility from WFCF (the DIP Credit Facility ). See id Although the Debtors do not have current appraisals of all of the Debtors' assets, based on the appraisals that the Debtors do have, the Debtors believe that the value of the Debtors' assets is greater than the sum of the real property taxes secured by such property (approximately $10 million) and the balance owing to WFCF (approximately $68 million), but substantially less than the aggregate balance owing on the Exchange Notes (approximately $743 million). If the Debtors were to liquidate their assets, including the illiquid notes that are currently in default, on an expedited basis, the Debtors believe that they would be able to satisfy the ad valorem tax lien claims against such properties and the WFCF secured obligations. Such a liquidation would, however reduce the ultimate recoveries available to the holders of the Exchange Notes. ADMINISTRATION OF CHAPTER 11 CASES Page - 5 IV. AUTHORITIES 12. Under Bankruptcy Rule 1015(b), this Court may order the joint administration of the estates of related debtors. See Fed. R. Bankr. P. 1015(b). Joint administration is common when a group of related business entities with intertwined affairs file for chapter 11 relief. See 9 Collier on Bankruptcy (Rev. 15th ed. 2009). As explained in the Official Committee Note to Bankruptcy Rule 1015(b), joint administration expedites cases and reduces their overall cost: Joint administration as distinguished from consolidation may include combining the estates by using a single docket for the matters occurring in the administration, including the listing of filed claims, the combining of notices to creditors of the different estates, and the joint handling of other purely administrative matters that may aid in expediting the cases and rendering the process less costly.

6 Document Page 6 of Courts have liberally allowed joint administration of related cases to promote procedural convenience and cost efficiencies. SeeInreAvery, 377 B.R. 264, 271 (Bankr. D. Alaska 2007) ( Joint administration is a procedural tool permitting use of a single docket for administrative matters... that may aid in expediting the cases. (quoting In re Reider, 31F.3d 1102, 1109 (11th Cir. 1994))); In re Brookhollow Assocs., 435 F. Supp. 73 (D. Mass. 1977) (joint administration help[s] the bankruptcy court to administer economically and efficiently different estates with substantial interests in common ), aff'd, 575 F.2d 1003 (1st Cir. 1978); In re McKenzie Energy Corp., 228 B.R. 854, 857 (Bankr. S.D. Tex. 1998); In re Steury, 94 B.R. 553, (Bankr. N.D. Ind. 1988). 14. Joint administration is appropriate in these cases because of the following facts: a. The Debtors are closely related entities, sharing common management and ownership. Capital Salvage and R.E. Future hold the property previously owned by R.E. Loans as a result of foreclosure proceedings; b. There is a overlap in the Debtors' creditors. The Debtors are joint borrowers or guarantors under the WFCF Loan, and their obligations thereunder are secured by substantially all of the Debtors' assets, which include the assets of each Debtor. Jointly administering the estates will eliminate the unnecessary and expensive duplication of effort and paper that would be caused by requiring the Debtors to prepare and serve the same creditors with duplicative sets of differently captioned, but substantively identical papers; and c. Due to the integrated manner in which the Debtors operate their businesses, some creditors may be uncertain as to which Debtor is their obligor. Joint administration of the estates would provide each creditor with notice of all matters relating to all of the Debtors, thereby insuring that creditors are fully informed of all matters potentially affecting their claims. ADMINISTRATION OF CHAPTER 11 CASES Page - 6

7 Document Page 7 of Joint administration will greatly reduce the cost of administering the Debtors' cases and would eliminate the substantial waste, unnecessary paperwork, duplication, and confusion that would otherwise be created by maintaining separate pleadings dockets for these related cases. Most motions and other pleadings filed in these cases will concern all the Debtors. If such motions (and the related responses and other pleadings) were required to be filed separately in each affected Debtor's case, it is likely that the only material difference among each set of pleadings would be the caption. Thus, requiring each Debtor to file separate pleadings in each matter would entail considerable duplication and additional paperwork at substantial cost, without generating any additional benefit to creditors. 16. Joint administration of the Debtors' cases will also benefit creditors, because creditors who respond to motions affecting any of the Debtors, or who file their own motions affecting multiple Debtors, will not be forced to prepare and file multiple sets of papers that may be identical except for the captions. 17. No creditor will be prejudiced by joint administration. Joint administration is merely procedural; it has no impact on creditors' substantive rights. See Avery, 377 B.R. at 271 ( Joint administration is a procedural tool.... Used as a matter of convenience and cost saving, it does not create substantive rights (quoting Reider, 31 F.3d at 1109)); In re Parkway Calabasas, Ltd., 89 B.R. 832, 836 (Bankr. C.D. Cal. 1988) ( The purpose of joint administration is to make case administration easier and less expensive than in separate cases, without affecting the substantive rights of creditors.... ); In re N.S. Garrott & Sons, 63 B.R. 189, 191 (Bankr. E.D. Ark. 1986); In re Blair, 226 B.R. 502, 505 (Bankr. D. Me. 1998). Nothing in this Motion is intended nor should be construed as seeking substantive consolidation of any kind. Further, the ADMINISTRATION OF CHAPTER 11 CASES Page - 7

8 Document Page 8 of 10 Debtors are not requesting that the Court maintain a joint claims register; the Debtors intend for each Debtor to have a separate claims register unless the Court orders otherwise. ADMINISTRATION OF CHAPTER 11 CASES Page - 8 V. NOTICE 18. No trustee, examiner or statutory creditors committee has been appointed in these chapter 11 cases. This Motion has been provided to: (i) the Office of the United States Trustee for the Northern District of Texas; (ii) a combined list of the twenty largest unsecured creditors of the Debtors, and the twenty largest Noteholders, as defined in the Motion for Order Establishing Notice Procedures and Permitting Debtors in Possession to Serve Insured Depository Institutions by First-Class Mail; (iii) counsel to Wells Fargo Capital Finance, LLC; (iv) the Internal Revenue Service; (v) the U.S. Securities and Exchange Commission; and (vi) all parties in interest who have requested notice. The Debtors respectfully submit that no further notice of this Motion is required. 19. The Pleadings in these cases and supporting papers are available on the Debtors website and on the Bankruptcy Court s website at ecf.txnb.uscourts.gov. You can request any pleading you need from counsel for the Debtors at the following addresses: (a) Stutman, Treister & Glatt PC, c/o Kendra Johnson, 1901 Avenue of the Stars, 12 th Floor, Los Angeles, California (kjohnson@stutman.com), or (b) Gardere Wynne Sewell LLP, c/o Sharon Hawthorne, 1601 Elm Street, Suite 3000, Dallas, Texas, (shawthorne@gardere.com). WHEREFORE, based on the arguments and authorities set forth herein, R.E. Loans respectfully requests that the Court enter an order, pursuant to Federal Rule of Bankruptcy Procedure 1015(b), (a) authorizing the joint administration of its case with the cases of Capital Salvage and R.E. Future, (b) ordering that all pleadings relating to any of the Debtors' cases bear

9 Document Page 9 of 10 a joint caption and be maintained by the court clerk under a single pleading docket in the R.E. Loans bankruptcy case, and (c) granting such other and further relief that the Court deems justified. DATED: September 13, 2011 Respectfully submitted by: /s/ Holland N. O Neil Stephen A. McCartin (TX ) Holland Neff O Neil (TX ) Virgil Ochoa (TX ) GARDERE WYNNE SEWELL LLP 3000 Thanksgiving Tower 1601 Elm Street Dallas, TX Telephone: (214) Facsimile: (214) smccartin@gardere.com honeil@gardere.com vochoa@gardere.com and Jeffrey C. Krause (CA 94053) Gregory K. Jones (CA ) STUTMAN, TREISTER & GLATT PROFESSIONAL CORPORATION 1901 Avenue of the Stars, 12th Floor Los Angeles, CA Telephone: (310) Facsimile: (310) jkrause@stutman.com gjones@stutman.com PROPOSED COUNSEL FOR DEBTORS AND DEBTORS IN POSSESSION ADMINISTRATION OF CHAPTER 11 CASES Page - 9

10 Document Page 10 of 10 EXHIBIT 1 In re: R.E. LOANS, LLC, R.E. FUTURE, LLC and CAPITAL SALVAGE, a California corporation, Debtors. Chapter 11 Case No BJH Jointly Administered ADMINISTRATION OF CHAPTER 11 CASES Page - 10