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IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF COLUMBIA
In re:
TERRACE MANOR, LLC,
Debtor

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Case No. 17-00175
(Chapter 11)

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DISTRICT OF COLUMBIA’S MOTION TO DISMISS CHAPTER 11
CASE PURSUANT TO SECTION 1112(b) OF THE BANKRUPTCY CODE
The District of Columbia (“District”), through the Office of the Attorney General for the
District of Columbia, respectfully moves the Court to dismiss the Chapter 11 case (the “Case”)
of debtor and debtor in possession Terrace Manor, LLC (“Debtor”) for cause pursuant to section
1112(b) of title 11 of the United States Bankruptcy Code (the “Bankruptcy Code”). Debtor, the
owner of one of the most notorious slum properties in Washington, D.C. (“D.C.”), commenced
this bankruptcy action as part of an ongoing effort to sell the investment property for millions
more than its debts without paying to provide its tenants habitable apartments.
Since it purchased the 11 building apartment complex in Southeast Washington D.C.
(“Terrace Manor”) in 2012, Debtor, along with related entities not under the jurisdiction of the
Bankruptcy Court, have allowed the property to deteriorate, ignoring repeated attempts from
tenants and District agencies to force Debtor to follow the law. At the time it purchased the
property in 2012, Debtors and its affiliates promised to maintain Terrace Manor in a safe and
habitable condition. More recently, in January of 2017, Debtor and its affiliates again promised
to make repairs to address health and safety issues as part of a court-approved Abatement Plan
that Debtor agreed to in order to avoid the appointment of a receiver in an enforcement action
brought by the District in Superior Court. During the time it has owned Terrace Manor, Debtor
has been cited more than 100 times by the District’s Department of Consumer and Regulatory

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Affairs for housing code violations involving basic health and safety issues, many of which
remain unabated. Since agreeing to the Abatement Plan this past January, Debtor has continued
to disregard its commitments to address health and safety issues tenants face at Terrace Manor.
Debtor has now strategically filed for bankruptcy to further evade its obligations as a
landlord to provide safe and habitable housing to its tenants. It does not appear as if Debtor has
filed this action in order to reorganize. Debtor’s financial status has not changed since it agreed
to the Abatement Plan in January of 2017. Rather, this action, conspicuously filed by Debtor
near in time to the District moving for contempt in the Superior Court proceeding (and shortly
after the District moved to add Debtor’s main officer as a Defendant), is a thinly veiled effort to
obstruct and delay the District’s ongoing enforcement action, evade the commitments made in
the Abatement Plan, frustrate the rights of Debtor’s tenants under the District’s Tenants
Opportunity to Purchase Act (“TOPA”), D.C. Code § 42-3404.01, et seq., and allow the Debtor
to sell Terrace Manor apparently in order to make millions of dollars while its tenants go without
utilities and live in slum-like conditions. Accordingly, Debtor has not filed this action in good
faith.
Further evidencing Debtor’s bad faith are the misstatements and omissions Debtor made
with the filing of its Petition. Debtor not only failed to inform this Court of the District’s
ongoing enforcement action concerning the property it intends to sell through the instant
bankruptcy, it also informed the Court in section 12 of its Voluntary Petition that there were no
ongoing issues with Terrace Manor, including issues concerning any hazard to health or public
safety.

Presently, Debtor is not only facing an action for receivership and a contempt

proceeding, but it still has numerous outstanding housing code violations.
For these reasons, which are more fully set forth in the attached memorandum in support,

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the Court should find that the Case was filed in bad faith and should be dismissed pursuant to
Section 1112(b) of the Bankruptcy Code.

Dated: April 6, 2017

Respectfully submitted,
KARL A. RACINE
Attorney General for the District of Columbia
ROBYN BENDER
Deputy Attorney General, Public Advocacy Division
DAVID FISHER [325274]
Deputy Attorney General, Commercial Division
NANCY L. ALPER [414324]
Assistant Attorney General, Commercial Division
PHILIP ZIPERMAN [429484]
Director, Office of Consumer Protection
JANE LEWIS
Chief, Housing and Community Justice Section
/s/ Jimmy R. Rock
JIMMY R. ROCK [493521]
Deputy Director, Office of Consumer Protection
/s/ Benjamin M. Wiseman
BENJAMIN M. WISEMAN [1005442]
Assistant Attorney General
441 4th Street, N.W. Suite 600-S
Washington, D.C. 20001
(202) 741-5226 (phone)
(202) 741-8949 (e-fax)
Email: Benjamin.Wiseman@dc.gov
Attorneys for the District of Columbia

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IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF COLUMBIA
In re:
TERRACE MANOR, LLC,
Debtor

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Case No. 17-00175
(Chapter 11)

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DISTRICT OF COLUMBIA’S MEMORANDUM OF LAW IN SUPPORT OF MOTION
TO DISMISS CHAPTER 11 CASE PURSUANT TO SECTION 1112(b) OF THE
BANKRUPTCY CODE
Debtor Terrace Manor, LLC (“Debtor”) is seeking refuge under the protections of the
Bankruptcy Code to avoid responsibility for years of failing to provide habitable housing to its
tenants, and to thwart the District’s efforts to enforce a court-approved Abatement Plan that
Debtor agreed to a little more than two months ago, so that it can sell its apartment complex
located in Southeast Washington, D.C. (“Terrace Manor”) for a profit of millions of dollars.
Simply put, Debtor should not be rewarded with a reorganization plan so that it can profit instead
of providing what it had promised to provide its tenants—habitable homes.
Since 2012, Debtor has operated Terrace Manor, one of the more notorious slum
properties in the District of Columbia. For years, the company has ignored tenant complaints
and regulatory infractions, and failed to honor its own promises to repair the property. When it
first purchased Terrace Manor, Debtor signed a Memorandum of Understanding (“MOU”)
promising to abate existing Housing Code violations at Terrace Manor and to provide habitable
premises. Since its purchase, Debtor has done nothing to provide habitable housing and, instead,
has incurred more than a hundred new housing code violations, many of which remain unabated.
The District therefore brought an enforcement action in October 2016 under its police and
regulatory power to force Debtor to maintain the property in a safe and habitable manner. Under
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the threat of being placed into receivership, Debtor and two of its affiliates agreed in January
2017 to a court-approved Abatement Plan to address all housing code violations and rehabilitate
two buildings at the property for the current tenants. Some two months later, without any change
in its underlying financial situation, Debtor strategically filed this bankruptcy action. In fact,
Debtor has admitted to this Court that it has access to capital infusions from its parent company,
Sanford Capital, LLC (“Sanford Capital”), and that it has a buyer willing to purchase Terrace
Manor for $5.8 million, more than twice the amount of its outstanding liabilities. Far and away
the Debtor’s largest debt is the $2.82 million it owes to Eagle-Bank, which financed Debtor’s
investment in Terrace Manor.
Debtor does not have a good faith basis for Chapter 11 reorganization, especially given
its representations that its sole asset is worth more than double its liabilities and its access to
ready capital from its parent. The totality of the circumstances in this case indicates that Debtor
is acting in bad faith to avoid its legal obligations in order to quickly reap millions of dollars
from its investment. Further evidencing bad faith is Debtor’s attempt to hide the District’s legal
proceeding by failing to identify it to this Court and representing that there are, indeed, no
actions pending that concern the health and safety of its tenants. The timing of Debtor’s filing
also appears questionable, given that its Petition was filed not only within months of agreeing to
the Abatement Plan with no apparent change in its financial condition, but also shortly after the
District (i) sought to add its main officer to its enforcement action and (ii) advised it would seek
to have Debtor held in contempt of court. For these reasons, the District believes there is
compelling evidence that Debtor’s bankruptcy filing was made in bad faith and therefore its
Voluntary Petition should be dismissed.

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Statement of Facts
A.

The Terrace Manor Apartments

Debtor is the owner of Terrace Manor, an 11 building apartment complex located in
Southeast Washington, D.C.1 It acquired the property on December 24, 2012. As part of its
purchase, Debtor entered into a Memorandum of Understanding (“MOU”) with the tenants at the
property (See Exhibit 1, MOU.) The MOU required Debtor to make specific repairs to the
property and to “ensure all buildings and units are in compliance with the D.C. Housing Code
within 6 months of closing on the Property.” (Id., at ¶C.) The MOU further required that upon
closing, Debtor “will operate and manage the Property in a first class manner.” (Id., at ¶D.)
Debtor has consistently failed to live up to its promises and obligations to maintain the
property. Many of the repairs that tenants identified in the MOU remain unaddressed and those
that were addressed have since deteriorated. Debtor has also failed to make additional repairs to
other problems at Terrace Manor that have been identified by tenants and District agencies. In
2014, the District’s Department of Housing and Community Development (“DHCD”) inspected
Terrace Manor and identified numerous housing code violations that posed a serious risk to the
health, safety, and security of the tenants. (See Exhibit 2, 2014 DHCD Inspection Report.)
Later, in 2016, the Department of Consumer and Regulatory Affairs (“DRCA”) performed
inspections at Terrace Manor and identified 129 housing code violations, including failure to
eliminate roach and vermin infestations and failure to provide adequate hot water and heat. (See
Exhibit 3, 2016 DCRA Inspection Reports.)

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Terrace Manor has 11 buildings with 12 discrete addresses: 2270 Savannah Street, SE; 2272
Savannah Street, SE; 2276 Savannah Street, SE; 3341 23rd Street, SE; 3343 23rd Street, SE;
3345 23rd Street, SE; 3347 23rd Street, SE; 3349 23rd Street, SE; 3351 23rd Street, SE; 3353
23rd Street, SE; 3371 23rd Street, SE; and 3373 23rd Street, SE.
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Despite the repeated efforts of the tenants, DHCD, and DCRA to identify problems at
Terrace Manor and require their remediation, Debtor has continued to allow conditions at the
property to deteriorate. Indeed, many of the same types of housing code violations identified
over a year ago at the property are still present today.
B.

The District’s Pending Enforcement Action

On October 24, 2016, the District filed an enforcement action against Debtor and other
related entities2 in the Superior Court of the District of Columbia (“Superior Court”) in
connection with Debtor’s long-standing failure to maintain its property in a habitable condition
and in a manner consistent with the District’s laws and regulations. (See District of Columbia v.
Terrace Manor, LLC, et al., 2016 CA 7767 (D.C. Super. Ct. 2016); see also Exhibit 4, Petition
and Complaint.) As set out in the District’s Complaint and supporting exhibits, during the four
and a half years that Debtor has owned the property, it and its affiliates have operated Terrace
Manor in a manner that demonstrates a pattern of neglect and complete disregard for the
individuals that live there. In particular, the Complaint alleges that Debtor’s conduct is grounds
for the appointment of a receiver pursuant to D.C. Code §§ 42-3651.02(a)-(b), that the conditions
at the property constitute a public nuisance pursuant to 14 DCMR § 101, and that the Debtor and
its affiliates have violated multiple sections of the Consumer Protection Procedures Act
(“CPPA”), D.C. Code §§ 28-3901, et seq. (See Ex. 4, at 8-13.) This enforcement action is not
the first time the Sanford Capital group of entities has drawn the attention of District regulators
for failing to maintain low income housing in the city. In District of Columbia v. Sanford

2

The District also brought its action against Debtor’s parent company, Sanford Capital, LLC, as
well as a property management company, Oakmont Management Group, LLC, which is another
subsidiary of Sanford Capital, LLC. Neither of these entities has filed for bankruptcy. The
District also has a pending Motion for Leave to Amend its Petition to add two individual officers
of those entities as Defendants.
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Capital, LLC, 2016 CA 00162 (D.C. Super. Ct. 2016), the District sued Sanford Capital and
related entities when it failed to address housing code violations at its Congress Heights
property. Sanford Capital owns other properties in the District that have also been plagued with
housing code violations affecting the health and safety of its tenants. E.g., Fenit Nirappil,
Sanford Capital faces $539,500 in fines after D.C. inspects some of its buildings, WASHINGTON
POST, April 3, 2017.3
During the course of the Superior Court proceedings, Debtor and its affiliates requested
that they be permitted to address the conditions at Terrace Manor through a court-monitored
Abatement Plan instead of having a receiver appointed. Accordingly, on January 26, 2017,
Judge John M. Mott of the Superior Court entered an agreed-upon Abatement Plan that required
Debtor and its affiliates, all of which are under common control and ownership, to swiftly
address all housing code violations. (See Exhibit 5, Abatement Plan.) The Abatement Plan was
carefully negotiated by the parties, and Aubrey Carter Nowell, the individual who controls both
Sanford Capital, LLC, and its subsidiary, the Debtor, was heavily involved in those negotiations
and signed the Abatement Plan. (See Ex. 5, at 12.) Mr. Nowell, who appears to control capital
infusions from Sanford Capital to Debtor, agreed to a long term rehabilitation of two buildings at
the property so that current tenants living in substandard housing could move into renovated
units. (See Ex. 5, at ¶10.) The parties agreed that this phase of the Abatement Plan would
involve significant construction and other costs given the dilapidated state of the property.
On February 17, 2017, and March 16, 2017, the District conducted additional inspections
at the property pursuant to the terms of the Abatement Plan. These inspections identified over 50

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Available at https://www.washingtonpost.com/local/dc-politics/sanford-capital-faces-539500in-fines-after-dc-inspects-its-buildings/2017/03/31/10237796-0f21-11e7-9d5aa83e627dc120_story.html?utm_term=.437f6be3e9a8 (last checked April 6, 2017).
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housing code violations that remained unabated at the property. (See Exhibit 6, 2017 DCRA
Inspection Reports; Exhibit 7, Affidavit of Inspector Michael Lampro.)

In particular, the

inspections identified two units that had been cited on multiple occasions for not having heat.
(See Ex. 7, at ¶¶5, 13.) During one of the coldest weeks of the year, residents in those units were
using their ovens as a heating source. (Id.) Other health and safety issues identified in these
inspections included (i) a ruptured pipe leaking raw sewage and leaving water, mold and stench,
(ii) a failure to provide adequate electric power to units, (iii) a failure to maintain a secure front
door, and (iv) a failure to eliminate rodent and vermin infestations. (See Id., at ¶¶5, 8-10, 12; see
also Ex. 6.)
In light of Debtor’s continued refusal to maintain the property consistent with the
District’s laws and its disregard for the court-approved Abatement Plan, on March 2, 2017, the
District sent Debtor and its affiliates a Notice of Default. (See Exhibit 8, Notice of Default.)
The Notice informed Debtor that the District intended to file motions for civil contempt and for
the appointment of a receiver if repairs consistent with the Abatement Plan did not occur. (Id.)
On March 3, 2017, Mr. Nowell, on behalf of Sanford Capital and Debtor, responded that “[w]e
have staff at Terrace Manor this morning to address any remaining deficiencies.” (See Exhibit 9,
C. Nowell 3/3/17 Email). Of course, like so many prior promises, this was not fulfilled. On
March 31, 2017, the District filed a Motion for Contempt and Motion for the Appointment of a
Receiver because of the continuing failure of Debtor and its affiliates to provide their tenants a
safe place to live. (See Exhibit 10, District’s Motion for Contempt; Exhibit 11, District’s Motion
to Appoint a Receiver.) Given that the District’s Superior Court enforcement action is exempt
from the automatic stay pursuant to 11 U.S.C. § 362(b)(4), the District is continuing with that
case.

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C.

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Debtor’s Attempts To Sell The Property Pursuant To TOPA

For nearly a year, Debtor has been engaged in an attempt to sell the property to
Equilibrium Terrace Manor, LLC (“Equilibrium”). On June 14, 2016, Debtor and Equilibrium
entered into a Short Form Real Estate Purchase Agreement with a purchase price of $5.865
million. (See Exhibit 12, DHCD 8/5/16 Letter to Terrace Manor LLC with Attachments.) On
July 21, 2016, Debtor submitted paperwork to DHCD pursuant to its obligations under the
District’s TOPA laws, which provide tenants protections when a landlord wishes to sell a
housing accommodation. (Id.) Among other things, TOPA requires that landlords send tenants
and DHCD written notice of the offer of sale.

Debtor failed to include an offer of sale notice

with its filing to DHCD and was therefore informed on August 5, 2016, that its filing was
deficient under TOPA. (Id.)
Instead of immediately refiling, Debtor waited over four months, until December 6, 2016,
before it submitted an amended offer of sale notice to DHCD and notified tenants of the sale of
the property. (See Exhibit 13, Terrace Manor LLC 12/6/16 TOPA Filing.) In January 2017,
tenants at the property formed a tenants association and sent notice that they intend to pursue
their rights under TOPA. Debtor, however, has failed to take any additional steps required under
TOPA, further delaying the sale of the property. Important in this context, bankruptcy sales are
exempt from the requirements of TOPA. (See D.C. Code § 42–3404.02(c)(2)(E) (excluding
bankruptcy sales under TOPA).)
D.

Debtor’s Bankruptcy Filing

On March 30, 2017, Debtor filed a voluntary petition for protection under Chapter 11 of
the Bankruptcy Code, 11 U.S.C. § 101 et seq. (See Docket Entry No. 1.) Aubrey Carter Nowell,
as the authorized manager of Sanford Capital, LLC, the sole member of Debtor, executed the

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Chapter 11 petition for bankruptcy protection. (Id.) As part of its filing, Debtor filed its
Corporate Resolution certifying that the Members of Debtor consented to the filing of a
voluntary petition for relief under Chapter 11 of the Bankruptcy Code and authorized Mr.
Nowell to execute and verify a Chapter 11 petition and cause the petition to be filed in
Bankruptcy Court. (Id., at 18-19.) Debtor’s voluntary petition identifies numerous creditors
with unsecured claims, including tenants who reside at Terrace Manor. (Id., at 6.) Curiously, the
District’s pending enforcement action is not identified in Debtor’s filing.
On March 30, 2017, Debtor also filed a Motion for Interim and Final Orders Authorizing
Use of Cash Collateral and Granting Adequate Protection (“Cash Collateral Motion”) (See
Docket Entry No. 3) and a Motion for Entry of Interim and Final Orders Pursuant to Sections
105(a) and 366 of the Bankruptcy Code (See Docket Entry No. 4). The Court held a hearing
regarding Debtor’s Cash Collateral Motion on April 3, 2017. At the hearing, counsel for Debtor
represented to this Court that it received infusions of capital from Sanford Capital, and that
Sanford Capital stood ready to make more such infusions as necessary during the pendency of
this bankruptcy proceeding.
On March 31, 2017, Debtor filed a Suggestion of Bankruptcy in the enforcement action
pending in the Superior Court. (See Exhibit 14, Suggestion of Bankruptcy.) In its filing, Debtor
stated that those proceedings were subject to the automatic stay provisions in 11 U.S.C. § 362.
(Id.) Later that day, the District filed a Praecipe in response, explaining that the exception to the
automatic stay for “the commencement or continuation of an action or proceeding by a
governmental unit’s police or regulatory power” applied to the District’s enforcement action.
See 11 U.S.C. § 362(b)(4) (See Exhibit 15, District’s Praecipe in Response.) The District also
argued that proceedings against entities not under the jurisdiction of the Bankruptcy Court were

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not subject to the stay.4 (Id.)
Legal Standards
Under Section 1112(b), a court may dismiss a case under chapter 11 “for cause.” 11
U.S.C. § 1112(b). “Cause” includes the filing of a case in bad faith. See In re Franklin Mortg.
& Inv. Co., Inc., 143 B.R. 295, 299 (Bankr. D.D.C. 1992); In re 15375 Mem’l Corp. v. Bepco,
L.P., 589 F.3d 605, 618 (3d Cir. 2009) (“Chapter 11 bankruptcy petitions are subject to dismissal
under 11 U.S.C. § 1112(b) unless filed in good faith and the burden is on the bankruptcy
petitioner to establish good faith.”) (internal citation omitted). With respect to determining bad
faith, “[t]he court must look to the totality of all the facts and circumstances.” In re Franklin
Mortg. & Inv. Co., Inc., 143 B.R. at 299; see also Carolin Corp. v. Miller, 886 F.2d 693, 701
(4th Cir. 1989) (explaining that “a totality of circumstances inquiry is required; that any
conceivable list of factors is not exhaustive; and that there is no single factor that will necessarily
lead to a finding of bad faith.”) (internal marks omitted); In re Bowers Inv. Co., LLC, 553 B.R.
762, 769 (Bankr. D. Alaska 2016) (“In determining bad faith, courts look to the totality of the
circumstances surrounding the case in an effort to ascertain whether the debtor has filed the
bankruptcy for tactical reasons unrelated to reorganization.”). Indeed, “courts may consider any
factors which evidence an intent to abuse the judicial process and the purposes of the
reorganization provisions or … factors which evidence that the petition was filed to delay or
frustrate the legitimate efforts of secured creditors to enforce their rights.”

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In re Phoenix

Importantly, the Abatement Plan—and the District’s filings regarding Debtor’s noncompliance
with the Abatement Plan—address only the District’s claims under the Tenant Receivership Act
and 14 DCMR § 101. They do not address the consumer protection claims brought by the
District under the CPPA. Those claims are proceeding in discovery. On March 21, 2017, the
District moved for leave to amend its Complaint to add Aubrey Carter Nowell, Debtor’s
managing member, and Todd Fulmer, a corporate officer of an affiliated entity, as Defendants in
the District’s Complaint in order to hold them personally liable under the CPPA.
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Piccadilly, Ltd., 849 F.2d 1393, 1394 (11th Cir. 1988) (internal marks and citation omitted).
Among the factors that courts often consider in determining whether a case was filed in bad faith
include whether the case is or has: “(1) [a] single asset case, (2) few unsecured creditors, (3) no
operating business or employees, (4) [a] petition filed on eve of foreclosure, (5) [a] two party
dispute which a state court action can resolve, (6) no cash or income, (7) no possibility of
reorganization, (8) [a] filing solely to create automatic stay.” In re PEM Thistle Landing Tic 23,
LLC, No. 13-13273(KG), 2014 WL 1319183, at *2 (Bankr. D. Del. Apr. 2, 2014) (internal
citation omitted); see also In re Franklin Mortg. & Inv. Co., Inc., 143 B.R. at 299–300
(identifying similar factors).
Argument
Debtor has filed its voluntary petition for bankruptcy in bad faith, and thus cannot
establish the requisite good faith basis for pursuing reorganization under Chapter 11. According
to Debtor’s own admissions to the Court, it has a sufficient cash flow to continue to operate its
business and its assets are far more valuable than its present liabilities. Moreover, Debtor’s
filing plainly was intended to obstruct the District’s ongoing enforcement action against it and its
commonly-controlled related affiliates, the primary purpose of which is to force Debtor to
provide habitable housing to its tenants. Debtor filed for bankruptcy at the moment it faced a
motion to add its managing member as a defendant to the District’s consumer protection claims
in the Superior Court action and a motion to hold it in civil contempt. Perhaps the most curious
aspect of Debtor’s bankruptcy filing is that its financial condition remains unchanged since the
end of January, when it agreed to a court-approved Abatement Plan that it has since ignored.
The fact that Debtor has sought an expedited sale of Terrace Manor, without informing this
Court of the District’s lawsuit in its petition, so that it can make millions of dollars at the expense

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of its tenants, establishes that Debtor is improperly seeking the refuge of this Court in order to
profit on the backs of its long-ignored tenants. This type of abuse of the bankruptcy system
should not be tolerated. Accordingly, the District asks that this Court find that Debtor’s Case
was filed in bad faith and dismiss it.
A.

Debtor’s Bankruptcy Filing Has No Objective Purpose.

Debtor cannot demonstrate a good faith basis for its Chapter 11 bankruptcy filing. To the
contrary, Debtor’s representations in multiple filings and during the April 3, 2017, hearing on
Debtor’s Cash Collateral Motion suggest that it has access to sufficient funds to continue to
operate and effectuate the sale of Terrace Manor without the need to reorganize.
First, Debtor states that its single asset is worth over $5.8 million and that it has secured a
buyer of the property, Equilibrium. Debtor estimates secured and unsecured claims of less than
$2.95 million, conceding that the “Sale Price is substantially greater than the debt owed” to
creditors. (See Cash Collateral Motion, Docket Entry No. 3, at 4-5.) Debtor further concedes
that after the sale of the property, “approximately $3 million in equity remains in the property
after the payment” of the secured claim. (See Docket Entry No. 4, at 2.) In these circumstances,
there is no justification for bankruptcy protection, where Debtor’s assets far outweigh any
reported liabilities and Debtor cannot explain the need for reorganization at this time. Indeed,
Debtor has an outstanding purchase agreement in place for the property with Equilibrium that
makes no mention of a potential bankruptcy proceeding. (See Ex. 13.) There is simply no
reason why the sale of the property cannot proceed outside of these bankruptcy proceedings.
Second, Debtor’s financial condition remains unchanged since it agreed, in late-January,
to a court-approved Abatement Plan. If the Debtor negotiated and entered that plan in good faith
in January, the Debtor cannot now justify evading this commitment while seeking to reorganize.

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Third, Debtor has conceded that its parent company, Sanford Capital, has sufficient
capital to provide it with funding until the sale of the property can be completed. At the April 3,
2017, hearing, counsel for Debtor represented that Sanford Capital will continue to provide a
limited amount of cash to Debtor until a sale is finalized. Moreover, counsel represented that
Debtor has previously operated on a negative cash flow and that Sanford Capital infused cash
into the business as necessary so that it could operate. Again, Debtor has failed to show why it
requires reorganization to effectuate the sale of the property. Debtor’s counsel’s representations
suggest the opposite: that Sanford Capital can continue to provide capital to Debtor to operate
until it is able to effectuate a sale of the property outside of bankruptcy.
B.

Debtor’s Bankruptcy Was Commenced In Bad Faith.

In addition to lacking any objective bankruptcy purpose, Debtor’s filing also appears to
have been made in bad faith. The totality of the evidence and circumstances demonstrate that
Debtor’s filing is primarily intended to obstruct the District’s ongoing enforcement action and to
avoid the commitments Debtor has made going back to 2012 when it purchased the property. Its
filing is also a blatant attempt to expedite the sale of the property without having to proceed in
accordance with TOPA.

In these circumstances, dismissal pursuant to Section 1112(b) is

warranted.
1. Debtor’s Filing For Bankruptcy Is An Improper Effort To Stay The
District’s Enforcement Case.
Debtor’s bankruptcy filing comes on the eve of several key motions filed in the District’s
Superior Court enforcement action. Presently pending before the Superior Court are motions to
(i) hold Debtor in civil contempt for failing to make necessary repairs at the property as required
by court order; (ii) appoint a receiver to oversee remediation of the property; and (iii) amend the
District’s Complaint and hold Debtor’s sole managing member personally liable under the
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District’s consumer laws.
Debtor was notified that these motions would be brought (or they were actually filed)
before filing its Voluntary Petition in this Case. (See Ex. 8.) The conspicuous timing of
Debtor’s filing—as well as its corresponding and unsupported arguments in the Superior Court
that the District’s entire action must be stayed in its entirety as to all defendants in that case—
strongly supports a finding that this action was commenced in bad faith to obstruct the District’s
enforcement efforts.
2. Debtor’s Financial Situation Has Not Changed.
At the time Debtor agreed to the Abatement Plan at the end of January 2017, its financial
condition was no different from what it is today. Mr. Nowell continues to control both Debtor
and its parent, Sanford Capital. The Abatement Plan was carefully negotiated by Debtor’s
counsel, its sole managing member—Mr. Nowell, and attorneys for the District. In addition to
the requirements that Debtor maintain the property in the short-term, the Abatement Plan also
called for the rehabilitation of two buildings to be fully funded by Debtor and its related entities.
(See Ex. 5, at ¶10.) The rehabilitation project was expected to be extensive and include new
drywall, new flooring, new appliances, new HVAC systems, updated laundry facilities and
updated mail facilities. (See Ex. 5, at ¶ ¶10.h, 10.i.) The Abatement Plan also required Debtor
to pay for all tenants to relocate to the rehabilitated buildings. (See Ex. 5, at ¶10.j.) Debtor
agreed to these provisions in the Abatement Plan only two months before its filing of this Case.
Nothing in Debtor’s bankruptcy filings suggests that its financial situation changed since
the time it signed the Abatement Plan that was entered by the Superior Court. Accordingly, it
either agreed to the Abatement Plan in bad faith, knowing that it did not have access to sufficient
funds to pay for it, or, more likely, filed the instant case in bad faith in an attempt to thwart the

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District’s enforcement proceedings and avoid the commitments to which it had agreed in the
Abatement Plan. Simply put, the bankruptcy system should not be used by a landlord in order to
sell its building as quickly as possible for millions of dollars of profit while ignoring a court
order, and failing to provide housing with heat and free of rats, mice, and roaches.
3. Debtor Made Several Material Omissions In Its Bankruptcy Petition.
Debtor has also demonstrated bad faith in certain statements made in its Voluntary
Petition. (See Docket Entry No. 1.) As an initial matter, Debtor failed to identify the District’s
enforcement action against it relating to Terrace Manor. The District is not identified as a
creditor in connection with that enforcement action, even though that action seeks costs,
penalties and restitution under the District’s consumer laws.
In addition, in response to Question No. 4, Debtor makes a misleading statement by
stating that its principal assets are located at 3341-3353 23rd Street, S.E., Washington DC 20020.
(See Docket Entry No. 1, at 1.) Debtor’s property, however, consists of 11 buildings with the
discrete addresses set forth in footnote 1, supra, including certain buildings that are not
specifically included in the addresses of 3341-3353 23rd Street. Notably, by omitting other
addresses, the Debtor omits from its filing other buildings at the property with serious housing
code violations.
Finally, in response to Question No. 12, Debtor reports that it does not own “any real
property . . . that needs immediate attention,” which includes property that “poses or is alleged to
pose a threat of imminent and identifiable hazard to public health or safety.” (See Docket Entry
No. 1, at 3.) This is a striking omission given the ongoing (and well-publicized) dispute between
the Debtor and the District. Indeed, Debtor was in receipt of reports documenting inspections
conducted by the District in February of this year that identified dozens of housing code

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violations, including violations that the law classifies as “serious and have an immediate and
substantial impact on the health, safety, or welfare,” of the tenants. (See Ex. 6; see also 16
DCMR § 3200.1(c).) These violations include, but are not limited to: failure to provide adequate
electric power, failure to maintain smoke detectors and emergency lights in an operable
condition, failure to maintain steps in common areas, and failure to eliminate roach and mouse
infestations. (See Ex. 6.)
In sum, Debtor’s failure to (i) identify the District’s enforcement action proceedings
against it, and (ii) disclose that the property has numerous housing code violations that require
immediate attention and that threaten the public health and safety, is strong evidence that its
bankruptcy filing was made in bad faith.
C.

Debtor’s Petition Should Be Dismissed Under Section 1112(b).

Simply put, taking into account the Debtor’s financial condition, the timing of the filing
of Debtor’s Chapter 11 petition, the material omissions in Debtor’s petition, its lengthy history of
failing to provide habitable housing to its tenants, and the tactical advantages that Debtor is
seeking to gain in both the context of the District’s enforcement action and under TOPA, the
only reasonable conclusion is that Debtor filed for bankruptcy primarily as a litigation tactic.
This is an impermissible purpose for invoking bankruptcy protection and Debtor’s petition
should be dismissed for bad faith. See In re SGL Carbon Corp., 200 F.3d 154, 165 (3d Cir.
1999) (citing courts that have held that petitions may be dismissed in similar contexts and
explaining that “filing a Chapter 11 petition merely to obtain tactical litigation advantages is not
within the legitimate scope of the bankruptcy laws.”).
Moreover, many of the “factors” or “badges of bad faith” that courts look to when
determining whether a petition was filed in bad faith are present here. In re Franklin Mortg. &

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Inv. Co., Inc., 143 B.R. at 299; see also In re PEM Thistle Landing Tic 23, LLC, No. 1313273(KG), 2014 WL 1319183, at *2. Debtor’s bankruptcy includes a single property asset;
there are few unsecured creditors and their claims are small; it does not appear to have any
employees other than its corporate officers; there are allegations of wrongdoing; the petition was
filed on the eve of a motion for contempt and for appointment of a receiver; and the filing was
solely for the purpose of obtaining an automatic stay.
In these circumstances, looking at all factors and the totality of the facts and
circumstances, there simply is no good faith basis to support permitting Debtor to use the
protections of the Bankruptcy Code to sell its property and profit. Debtor’s case was filed in bad
faith and should be dismissed.
Conclusion
For the foregoing reasons, the District prays that this Court dismiss Terrace Manor,
LLC’s, Chapter 11 petition under § 1112(b) as it has not been filed in good faith.

Dated: April 6, 2017

Respectfully submitted,
KARL A. RACINE
Attorney General for the District of Columbia
ROBYN BENDER
Deputy Attorney General, Public Advocacy Division
DAVID FISHER [325274]
Deputy Attorney General, Commercial Division
NANCY L. ALPER [414324]
Assistant Attorney General, Commercial Division
PHILIP ZIPERMAN [429484]
Director, Office of Consumer Protection
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JANE LEWIS
Chief, Housing and Community Justice Section
/s/ Jimmy R. Rock
JIMMY R. ROCK [493521]
Deputy Director, Office of Consumer Protection
/s/ Benjamin M. Wiseman
BENJAMIN M. WISEMAN [1005442]
Assistant Attorney General
441 4th Street, N.W. Suite 600-S
Washington, D.C. 20001
(202) 741-5226 (phone)
(202) 741-8949 (e-fax)
Email: Benjamin.Wiseman@dc.gov
Attorneys for the District of Columbia

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CERTIFICATE OF SERVICE
I hereby certify that a copy of the foregoing District of Columbia’s Motion to Dismiss
Pursuant Section 1112(b) of the Bankruptcy Code and Proposed Order were filed electronically
and mailed, first class postage prepaid, this 6th day of April, 2017, to:
Attached Matrix
Brent C. Strickland, Esq.
WHITEFORD, TAYLOR & PRESTON L.L.P.
7501 Wisconsin Avenue
Suite 700W
Bethesda, MD 20814-6521
Bradley Jones, Esq.
U. S. Trustee's Office
115 South Union St.
Suite 210 Plaza Level
Alexandria, VA 22314

/s/ Benjamin M. Wiseman
BENJAMIN M. WISEMAN
Assistant Attorney General

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