IN THE UNITED STATES BANKRUPTCY COURT IN AND FOR THE SOUTHERN DISTRICT OF FLORIDA WEST PALM BEACH DIVISION

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1 Case PGH Doc 428 Filed 04/01/09 Page 1 of 8 IN THE UNITED STATES BANKRUPTCY COURT IN AND FOR THE SOUTHERN DISTRICT OF FLORIDA WEST PALM BEACH DIVISION IN RE: MERCEDES HOMES, INC., et. al., Debtors. / Case No PGH Chapter 11 OBJECTION TO DEBTOR S MOTION TO SELL PROPERTY FREE AND CLEAR OF LIENS (DOC. 17) AND TO INTERIM ORDER GRANTING MOTION AUTHORIZING THE DEBTORS TO SELL HOMES FREE AND CLEAR OF LIENS, CLAIMS, ENCUMBRANCES AND OTHER INTERESTS (DOC. 52) SUOJANEN ENTERPRISES, INC. ( Objector ), by and through its undersigned counsel, pursuant to Paragraph 22 of this Court s Interim Order Granting Motion (a) Authorizing the Debtors to Sell Homes Free and Clear of Liens, Claims, Encumbrances and Other Interest, (b) Establishing Escrow for Post-Petition Customer Deposits to Purchase Homes, and (c) Establishing Procedures for the Resolution and Payment of Lien Claims (Doc. 52) (hereinafter Interim Order ), files this objection to the Debtors motion and the relief granted in the Interim Order and for cause alleges: 1. The Debtors filed a Petition under Chapter 11 of the Bankruptcy Code on January 26, The Objector is an Operational Lien Claimant as that term is defined in the Debtors Motion (Doc. 17) and the Interim Order (Doc. 52). 3. The Interim Order was entered on January 28, 2009, but Objector did not receive a copy of same until March 25, 2009 to the best of undersigned s knowledge, information and belief.

2 Case PGH Doc 428 Filed 04/01/09 Page 2 of 8 4. The Interim Order temporarily grants authority to the Debtors under 11 U.S.C. 363(f) to sell property free and clear of liens and continues the final hearing on the motion until April 9, Objector objects to Debtors motion to sell property free and clear of liens and to the Interim Order and states that the Court s order following the final hearing should not continue to allow sales free and clear of liens. Objector is entitled to an evidentiary hearing establishing the value of the property and the priority of the liens. The Procedures requested by Debtors allow it to operate outside the ordinary course of business and do not provide adequate protection to Objector. 5. While the Debtors could be allowed to conduct operations in the ordinary course of business, the Debtors should not be allowed to summarily eliminate the protections afforded the Operational Lien Claimants while doing so. Absent a bankruptcy, a business such as the Debtors may close on sales of houses under sale contracts in the ordinary course of business, but vendors such as Objector have certain recourse to seek payment for the labor and goods supplied in the construction of the homes. The Bankruptcy Code recognizes those rights and affords creditors such as Objector protection of its perfected construction liens under such provision as 365(d) 546(c) and 503(b)(9). 6. Objector objects to the procedure set forth in 15(c) of Doc. 52 to the extent it could be construed as not being a known Operational Lien Claimant. Objector submits that it is a known Operational Lien Claimant by virtue of this filing and demands that all Home Closing notices be timely served upon it by fax transmission to Objector and transmission to John H. Rains, III at garnold@johnrains.com so that Objector timely receives same. Objector objects to the extent the procedures on 15(c) of Doc. 52 could allow for a lag time in service. 7. Under the requested procedures, as temporarily allowed by the Interim Order, Debtors are allowed to close on property free and clear of any and all liens without providing any

3 Case PGH Doc 428 Filed 04/01/09 Page 3 of 8 prior notice to perfected Operational Lien Claimants of the closing. Under the Debtors procedure, Objector will not be given notice that the sale even occurred until 20 days after the month in which the home is sold a potential period of 53 days. Thus, Objector would have no opportunity to question the price at which the home is being sold. 8. In the ordinary course of business, however, perfected claims of lien applicable to particular real property would be identified by Debtors Title Insurers before any closing on the real property. It would not be an undue burden on Debtors to provide perfected lien claimants with actual notice of anticipated closings, as they would be required to do in the ordinary course of business. Objector should be entitled to notice of the sale of homes in which Objector holds a construction Lien and the proposed distribution of sale proceeds therefrom before the Debtors actually sell the homes and transfer title free and clear of liens and interests. 9. The requested procedures also fail to provide the Operational Lien Claimants with sufficient information to determine whether their claims are being treated fairly by the Debtors. The information required under the Interim Order is insufficient to allow the Operational Lien Claimants to determine whether the property being sold by the Debtors is at fair market value or some other value. If the Property is being sold for less than fair market value or for a price that will result in no Net Sales Proceeds, then it would appear that the Debtors are using this Chapter 11 proceeding to liquidate assets for the benefit of the First and Second Lien Lenders to the detriment of the Unsecured or Undersecured Creditors. Thus, there would be no benefit to the Estate which would justify allowing the Debtors to sell homes free and clear of the Operational Lien Claims. 10. Debtors have represented in their motion that the potential sale prices, or values, of its homes are less than the amounts owed to the Lenders. The Debtors inconsistently

4 Case PGH Doc 428 Filed 04/01/09 Page 4 of 8 acknowledge, however, (Doc. 17, 14), that they would in the ordinary course of business satisfy the Operational Lien Claims out of sale proceeds. Accordingly, in the ordinary course of business, Debtors payments to its lenders for each sale should result in Net Sale Proceeds. 11. Many factors converge to determine the fair value of an asset, whether such asset is being sold in or out of bankruptcy. The Court should guard against giving the Debtors full reign to sell homes for an amount insufficient to satisfy all liens on the property. 12. Moreover, the Debtors are not required to set forth the real estate commissions paid, the costs of closing, and the amounts paid to the Lien Lenders in each closing. 13. Further, the Interim Order contemplates a lien against Net Sale Proceeds. The order does not define the term Net Sale Proceeds; however, the Debtors motion indicates that Net Sale Proceeds consists of Gross Sale Proceeds less payments on account of first and second mortgage claims, including a payment of a second mortgage that is owned or controlled by insiders. payments. 14. The Interim Order provides no mechanism to review or object to the insider The Debtors do not meet the requirements of 11 U.S.C. 363(f) because there is no benefit to the Estate U.S.C. 363(f) permits a sale to be free and clear of liens where equitable considerations dictate that necessity even though the creditors receive less than full satisfaction of their interests. In re Wing, 63 B.R. 83 (Bankr. M.D. Fla. 1986). However, if there is no benefit to the Estate, the right to sell free and clear should be denied. Id. 16. The Debtors admitted in their Emergency Motion to sell homes free and clear of liens (Doc. 17) that the sale proceeds may not be sufficient to satisfy any portion of the Operational Lien Claims. True to their word, of the 50 home sales that occurred between

5 Case PGH Doc 428 Filed 04/01/09 Page 5 of 8 January 26, 2009, and January 31, 2009, not one single sale reflects any Net Sale Proceeds. Clearly, there has been no benefit to the Estate from the first 50 sales that closed under the Interim Order as reported by the Debtors between January 26, 2009, and January 31, If the Debtor is receiving ANY funds in any form, the Operational Lien Claimants are entitled to be paid. The Debtors do not meet the requirements of 363(f) (3), (4) or (5). 17. Debtors claim in their motion that the requirements of 363(f) subsections three and five are met and that subsection 4 will be met in some cases. 18. Debtors have made no showing that Objector s liens are in dispute. Accordingly, subsection four is not applicable. 19. Section 363(f)(3) requires that the price of which such property is to be sold is greater than the aggregate value of all liens on such property. Section 363(f)(3), by Debtors own admission, would not likely be satisfied. Debtors state that the sale proceeds of homes may not be sufficient to satisfy any portion of Operational Lien Claims. Doc. 17, 21 (emphasis added). 20. Debtors cite In re Beker Industries Corp., 63 B.R. 474 (Bankr. S.D.N.Y. 1986) for the proposition that the value under 363(f)(3) means economic value as opposed to the face value of the liens asserted against the property. The Bankruptcy Appeal Panel of the Ninth Circuit has recently issued a more reasoned opinion concluding that indeed the aggregate value of all liens under 363(f)(3) means the face value of all claims with a lien on the assets being sold. Clear Channel Outdoor, Inc. v. Nancy Knupfer, 391 B.R. 25 (B.A.P. 9th Cir. 2008). Other courts around the country agree with this conclusion. See In re Feinstein Family P ship, 247 B.R. 502 (Bankr. M.D. Fla. 2000); Scherer v. Fed. Nat l. Mortgage Ass n. (In re Terrace Chalet

6 Case PGH Doc 428 Filed 04/01/09 Page 6 of 8 Apartments, Ltd.), 159 B.R. 821 (N.D. Ill. 1993); In re Canonigo, 276 B.R. 257 (Bankr. N.D. Cal. 2002). Further as set forth in Canonigo, several major treatises also interpret the term value as used in 363(f)(3) as meaning the face value of the liens. 276 B.R. at Accordingly, Debtors have failed to satisfy 363(f)(3). 21. Section 363(f)(5) permits sales free and clear of an interest if the entity holding the interest could be compelled, in a legal or equitable proceeding, to accept a money satisfaction of such interest. 22. The Court in Beker held that 363(f)(5) does not apply to liens at all. 63 B.R. at 478. This conclusion was also reached by the Canonigo court. 276 B.R. at Even if 363(f)(5) does apply to liens, Debtors have failed to satisfy the requirements of that section as well. Section 363(f)(5) states that a sale may be made free and clear if such entity could be compelled, in a legal or equitable proceeding, to accept a money satisfaction of such interests. Debtors claim that it is axiomatic that the Operational Lien Claimants could be compelled by this Court to accept a money satisfaction of their liens that is less than the amount of the Operational Lien Claims under the cram-down provisions of 1129(b)(2) of the Bankruptcy Code. Doc. 17, This reliance on the cram-down provisions is misplaced. In Clear Channel, the court provided a very narrow role for 363(f)(5) and rejected the arguments made by Debtors. 391 B.R. at The court stated that use of the cram-down mechanism to allow a sale free and clear under 363(f)(5) uses circular reasoning it sanctions the effect of cram-down without requiring any of the 1129(b) s substantive and procedural protections and that Congress did not intend under 363(f)(5) that nonconsensual confirmation be a type of legal or equitable proceeding to which ( 363(f)(5)) refers. Id. at 46. Debtors have not offered any other legal or

7 Case PGH Doc 428 Filed 04/01/09 Page 7 of 8 equitable proceeding in which Objector could be compelled to accept money satisfaction of its interest. Accordingly, Debtors have failed to satisfy 363(f)(5). There has been no determination of the priority of the liens, and the requested procedures are inconsistent with the Rules for determining the extent of a lien or interest in property. 25. Objector objects to the extent that the Interim Order could be construed to subordinate its lien rights to any other claimants to the extent that Florida or federal law would provide otherwise. 26. There has been no determination as to priority of liens, and Objector objects to the entry of an order allowing the sale of liens free and clear without an evidentiary hearing and finding by the Court that Objector s claims of lien are junior and inferior to the lenders claims. 27. In 24(c) and (d) of the Motion, Debtors seek to avoid the existence, validity, priority and extent of a lien in property based upon negative notice. Pursuant to the Debtors requested procedure, a holder of a valid lien in a house that has been sold must respond within ten (10) business days or the Operational Lien Claimant will have no other claim against, or interest in, any of the sale proceeds. Debtors proposed procedure may be in violation of Federal Rule of Bankruptcy Procedure 7001(2) which prescribes that an action to determine the validity, priority, or extent of a lien or other interest in property, other than a proceeding under Rule 4003(d) must be brought as an adversary proceeding. The requested procedure making Objector s liens junior and inferior to the replacement liens of Lenders in inconsistent with the Orders in this case and with applicable law. 28. Objector further objects to the requested procedure in 24(e) of the Motion wherein Unresolved Liens will attach to the Net Sale Proceeds (if any) junior to any replacement liens of the Lenders under the Cash Collateral Motions. The provisions of (e) are inconsistent

8 Case PGH Doc 428 Filed 04/01/09 Page 8 of 8 with the Cash Collateral Motions filed in this case and with applicable law. The Debtors have not sought in their Cash Collateral Motions (Doc. 38 and 39), and the Court has not granted in its Stipulated Interim Cash Collateral Orders (Doc. 50 and 51), priming liens for the benefit of the Lenders; i.e., a lien that primes and takes priority over other pre-petition liens. Moreover, the Cash Collateral Motions, and Stipulated Interim Orders specifically state that the Replacement Liens granted the Lender shall be subject and subordinate in priority to any liens, security interests and other encumbrances, existing as of the Petition Date. See Cash Collateral Motions (Doc. 38, 23(c) & Doc. 39, 24(c)) and Stipulated Interim Orders (Doc. 50, 9(e) and Doc. 51, 9(e)). Operational Lien Claimants such as Objector hold priority liens that cannot be made junior to the replacement liens of the Lenders. CERTIFICATE OF SERVICE I HEREBY CERTIFY that a true copy of the foregoing Response to Motion has been filed electronically via CM/ECF and a copy has been furnished by U.S. Mail this 1st day of April, 2009, to Craig D. Hansen, Esq. and Sean T. Cork, Esq., Two Renaissance Square, 40 N. Central Ave. #2700, Phoenix, AZ 85004; Tina M. Talarchyk, Esq., 777 S. Flagler Drive #1900, West Palm Beach, FL 33401; United States Trustee, c/o Heidi A. Feinman, 51 SW 1 Ave. #1204, Miami, FL 33130; and Glenn D. Moses, Esq. and Paul J. Battista, Esq., 100 SE 2 St #4400, Miami, FL /s/ John H. Rains, III John H. Rains, III FBN John H. Rains III, P.A. Suite 750, 501 East Kennedy Boulevard Tampa, FL Phone: (813) Fax (813) garnold@johnrains.com Attorneys for Suojanen Enterprises, Inc.

Case AJC Doc 10 Filed 02/26/13 Page 1 of 7. UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF FLORIDA Miami Division

Case AJC Doc 10 Filed 02/26/13 Page 1 of 7. UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF FLORIDA Miami Division Case 13-13954-AJC Doc 10 Filed 02/26/13 Page 1 of 7 UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF FLORIDA Miami Division www.flsb.uscourts.gov In re: BANAH INTERNATIONAL GROUP, INC. Case No. 13-13954-AJC