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In the Matter of: Meruelo Maddux Properties, Inc., Debtor v. Bank of America

January 27, 2012

IN THE MATTER OF: MERUELO MADDUX PROPERTIES, INC., DEBTOR, MERUELO MADDUX PROPERTIES-760 S. HILL STREET, LLC; MERCO GROUP-SOUTHPARK, LLC, APPELLANTS,
v.
BANK OF AMERICA, N.A., APPELLEE.



Appeal from the United States District Court for the Central District of California Stephen V. Wilson, District Judge, Presiding D.C. No. 2:09-cv-05976-SVW

The opinion of the court was delivered by: Gould, Circuit Judge:

FOR PUBLICATION

OPINION

Argued and Submitted December 7, 2011-Pasadena, California

Before: Dorothy W. Nelson, Ronald M. Gould, and Sandra S. Ikuta, Circuit Judges.

Opinion by Judge Gould

OPINION

Chapter 11 debtor Meruelo Maddux Properties-760 S. Hill Street LLC ("MMP Hill"), one of more than 50 subsidiaries of Meruelo Maddux Properties, Inc. ("MMPI"), filed a motion seeking a determination that it and other subsidiaries were not subject to the single asset real estate provisions of the Bankruptcy Code, 11 U.S.C. §§ 101(51B) and 362(d)(3). Creditor Bank of America filed a cross motion seeking to apply the single asset real estate provisions to MMP Hill and another subsidiary not at issue in this case. The bankruptcy court concluded that MMP Hill "appears to have the characteristics of a [single asset real estate] case" but decided that it would not apply the single asset real estate provisions because of the consolidated, interrelated nature of the business operations of MMPI and its subsidiaries. Bank of America appealed to the district court, which reversed the bankruptcy court's determination regarding MMP Hill, holding that MMP Hill should be treated as a single asset real estate debtor because there is no "whole enterprise exception" to the single asset real estate provisions in the plain language of the statute. MMP Hill now appeals, arguing that Congress did not intend the single asset real estate provision to apply to debtors like MMP Hill and that the district court erred by holding that Bank of America was entitled to relief from the automatic stay. We have jurisdiction under 28 U.S.C. § 158(d), and we affirm the district court's holding that the single asset real estate provisions apply to MMP Hill.

I

MMPI owns and develops real property in the Los Angeles area through a network of subsidiaries. MMPI has a centralized management team that operates MMPI and its subsidiaries, including MMP Hill. The business is operated on a consolidated basis: revenues from operation of MMPI's subsidiaries' properties each day are swept into a single general operating account that is used to pay expenses for MMPI and its subsidiaries. MMPI and its subsidiaries file consolidated financial reports with the SEC and consolidated tax returns with the IRS. MMP Hill owns a 92-unit apartment complex commonly known as "Union Lofts." Bank of America loaned MMP Hill $28.72 million in 2006 to renovate Union Lofts, taking a security interest in the real estate. Bank of America is also an unsecured creditor of MMPI based on guaranty agreements in connection with the loan to MMP Hill and loans to other MMPI subsidiaries.

In March 2009, MMPI and fifty-three of its subsidiaries, including MMP Hill, each filed voluntary Chapter 11 petitions, which were jointly administered under Fed. R. Bankr. P. 1015, but not substantively consolidated,*fn1 by the bank- ruptcy court. The motions at issue here were first filed in April 2009 and were ruled on by the bankruptcy court in June 2009. Competing plans of reorganization were proposed that covered MMPI and all of its subsidiaries. On June 24, 2011 the bankruptcy court confirmed a plan proposed by Charles-town Capital Advisors, LLC and Hartland Asset Management Corporation ("the Charlestown Plan"), which (among other things) removed Richard Meruelo and John Maddux from management positions at the company. Meruelo and Maddux have appealed the Charlestown Plan's confirmation order. The bankruptcy court denied their motion to stay the confirmation order pending appeal, and the plan became effective on July 25, 2011.

II

The purpose of a single asset real estate determination is to allow for relief from the automatic stay under 11 U.S.C. § 362(d), but as a practical matter no relief is currently possible because the stay was lifted by plan confirmation. This raises a question of mootness, but we conclude that this case is not moot because it is capable of repetition yet evading review. Meyer v. Grant, 486 U.S. 414, 417 n.2 (1988). First, the nature of the bankruptcy appellate process makes it highly unlikely that appeals such as this one will be resolved before the confirmation of a plan. See Bussel, Daniel J., Power, Authority and Precedent in Interpreting the Bankruptcy Code, 41 UCLA L. Rev. 1063, 1092-93 (1994) (discussing the time required for disposition of appeals in bankruptcy cases). Second, the parties have a continued interest in resolving this question because Bank of America is still a secured creditor of MMP Hill, and the parties would be in an identical situation if the Charlestown Plan were to be overturned on appeal or if MMP Hill were again to seek relief by filing a successive petition for Chapter 11 bankruptcy protection. Also, the Charlestown Plan was not confirmed until briefing had been completed in this case. "To abandon the case at [this] advanced stage may prove more wasteful ...


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