Case 17-00175 Doc 68 Filed 04/27/17 Entered 04/27/17 18:33:57 Document Page 1 of 17 Desc Main IN THE UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF COLUMBIA In re: Case No. 17-00175-SMT TERRACE MANOR, LLC, Chapter 11 Debtor. Related Docket No. 21 TERRACE MANOR ORGANIZED FOR CHANGE TENANTS ASSOCIATION, INC.’S JOINDER TO THE DISTRICT OF COLUMBIA’S MOTION TO DISMISS CHAPTER 11 CASE PURSUANT TO SECTION 1112(B) OF THE BANKRUPTCY CODE The Terrace Manor Organized for Change Tenants Association, Inc. (the “Association”), by and through its undersigned attorneys, hereby files its joinder (the “Joinder”) to the D ist rictof C olum bia ’sM ot ion t o D ism issC h a pt er11C a sePursua ntt o Sect ion 1112(b) of t h eB a nkrupt cy C ode[Docket No. 21] (the “Motion to Dismiss”). In support of the Joinder, the Association respectfully represents as follows: JURISDICTION 1. This court has jurisdiction to consider this matter pursuant to 28 U.S.C. §§ 157 and 1334. This is a core proceeding pursuant to 28 U.S.C. § 157(b). Venue is proper before this court pursuant to 28 U.S.C. §§ 1408 and 1409. BACKGROUND 2. The Association is made up of tenants at the 11-building apartment complex, with 61 units, commonly known as Terrace Manor (the “Property”). The Property is subsidized through the low-income housing tax credit program (LIHTC).1 The tenants are all living on 1 “The program was added to Section 42 of the Internal Revenue Code in 1986 in order to provide private owners with an incentive to create and maintain affordable housing.” See ht t ps://nh lp.org /lih t cov erv iew . Case 17-00175 Doc 68 Filed 04/27/17 Entered 04/27/17 18:33:57 Document Page 2 of 17 Desc Main fixed incomes well below the District of Columbia’s median income level. Maintaining affordable and habitable housing is critically important to the Association. 3. The above-captioned debtor (the “Debtor”) has had a long-standing failure to maintain the Property in a manner that provides for habitable conditions for the tenants. The Debtor acquired the property in 2012. As part of its purchase, the Debtor entered into a Memorandum of Understanding (“MOU”) with the Association. SeeMotion to Dismiss, Exhibit 1. The Debtor was well-aware it was buying a Property subject to income restrictions, including LIHTC. I d. The MOU required the Debtor, int era lia , to ensure compliance with the D.C. Housing Code and to “operate and manage the Property in a first class manner.” I d. at 1.1(D). However, as discussed in the Motion to Dismiss, the Debtor has not abided by the MOU and has operated the Property in anything but a “first class manner.” SeeMotion to Dismiss, at 3. When the Debtor purchased the Property, almost all of the 61 units were occupied. SeeMOU, Exhibit A (listing residents). Now, of the 61 units, only 13 are occupied and the rest are vacant. Many of the vacant units are boarded up and/or gutted and these intentional vacancies by the Debtor are perpetuating the conditions at the Property. 4. As set forth in the Motion to Dismiss, “[i]n 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.” Motion to Dismiss, at 3. Those violations and other health, safety and security problems have—and continue to—plague the tenants, who continue to be forced to live in conditions that are not safe, habitable, or secure. The Debtor has preyed upon tenants with limited financial means; tenants who continue to fight for the habitable and safe conditions they deserve, despite the Debtor’s continued failure to maintain the Property. 2 Case 17-00175 5. Doc 68 Filed 04/27/17 Entered 04/27/17 18:33:57 Document Page 3 of 17 Desc Main In 2016, the Department of Consumer and Regulatory Affairs (“DRCA”), “performed inspections at Terrance Manor and identified 129 h ousing codev iola t ions, including fa iluret o elim ina t eroa ch a ndv erm in infest at ionsa ndfa iluret o prov idea dequa t eh otw a t era nd h ea t .” Motion to Dismiss, at 3 (emphasis added). Despite these violations, the Debtor continued to flagrantly ignore the Property and allow the conditions at the Property to rapidly deteriorate. 6. Recognizing the tenants’ right and need to live in safe, habitable and secure conditions, on or about October 24, 2016, the Office of the Attorney General for the District of Columbia (the “District”) filed an enforcement action in the Superior Court of the District of Columbia (the “Superior Court”) against the Debtor and other related entities in connection with the Debtor’s failure to maintain the Property. As set forth in more detail in the Motion to Dismiss, the Debtor agreed—as part of a Superior Court-approved Abatement Plan (the “Abatement Plan”)—to make repairs and to address the numerous, longstanding health and safety conditions affecting the tenants. Motion to Dismiss, at 4–6. In February and March 2017, the District conducted additional inspections at the property, and those “inspect ionsident ified ov er50h ousing codev iola t ions,”including la ckof h ea t , “a rupt uredpipelea king ra w sew a g e,” “m olda ndst ench ,”a nd“fa iluret o elim ina t erodenta ndv erm in infest at ions,” among others. I d. at 5–6 (emphasis added). However, instead of fixing these issues and rehabilitating the Property, the Debtor filed for bankruptcy. 7. On March 30, 2017 (the “Petition Date”), the Debtor filed a voluntary petition (the “Petition”) for relief under chapter 11 (the “Chapter 11 Case”) of title 11 of the United States Code (the “Bankruptcy Code”) with the United States Bankruptcy Court for the District of Columbia (the “Court”). 3 Case 17-00175 8. Doc 68 Filed 04/27/17 Entered 04/27/17 18:33:57 Document Page 4 of 17 Desc Main On the Petition—which was filed a mere few weeks after one of Inspector Michael Lampro’s visits to the Property where he found numerous violations2—the Debtor checked “No” to question 12, which asks “[d]oes the debtor own or have possession of any real property or personal property that needs immediate attention?” Petition, at 3. The Association disputes this statement and believes it is both misleading and inaccurate. 9. On April 6, 2017, the District filed the Motion to Dismiss, seeking to dismiss the Chapter 11 Case for cause because, int era lia , the “Debtor has now strategically filed for bankruptcy to further evade its obligations as a landlord to provide safe and habitable housing to its tenants.” Motion to Dismiss, at 2. The Association joins the District in believing that this was a bad-faith filing and that the bankruptcy should be dismissed. 10. On April 10, 2017, the Debtor filed the D ebt or’sPla n of Reorg a niza t ion [Docket No. 27] (the “Plan”) and D isclosureSt at em entPursua ntt o Sect ion 1125of t h eB a nkrupt cyC ode forD ebt or’sPla n of Reorg a niza t ion [Docket No. 28] (the “Disclosure Statement”). Under the Plan, the Debtor proposes that the confirmation order, int era lia , authorize the Debtor to take all actions to complete closing on the Property. SeePlan art. 6.4. However, neither the Disclosure Statement nor the Plan provide any information or details regarding how the Debtor or Equilibrium (as defined below) plans to rehabilitate the Property and make it safe and habitable for the tenants. 11. Contemporaneous with filing its Plan and Disclosure Statement, the Debtor filed the D ebt or’sM ot ion forE nt ryof a n O rder(A ) A pprov ing t h eD isclosureSt at em enton a n I nt erim B a sis, (B ) Sch eduling a Pla n C onfirm a t ion H ea ring a ndD ea dlineforF iling O bj ect ionst o F ina l A pprov a lof t h eD isclosureSt at em enta ndC onfirm a t ion of t h ePla n [Docket No. 29] (the 2 Motion to Dismiss, at 5–6; seealso Motion to Dismiss, Exhibit 7 (Affidavit of Inspector Michael Lampro). 4 Case 17-00175 Doc 68 Filed 04/27/17 Entered 04/27/17 18:33:57 Document Page 5 of 17 Desc Main “Motion to Approve”) seeking: (i) interim approval of the Disclosure Statement and (ii) scheduling of a hearing to consider final approval of the Disclosure Statement and confirmation of the Plan. The Motion to Approve seeks to fast-track confirmation of the Plan, even though there are significant disclosure issues that need to be addressed in the Chapter 11 Case. 12. According to the Disclosure Statement, the Debtor’s existing prepetition indebtedness includes Eagle-Bank’s (the “Secured Creditor”) claim against the Debtor, in the amount of approximately $2.82 million, which is secured by, int era lia , a first lien against the Property and Rents3 derived therefrom. SeeDisclosure Statement, at 5-6. Further, according to the Disclosure Statement, the Debtor intends to seek to sell the Property to Equilibrium Terrace Manor, LLC (“Equilibrium” or the “Buyer”) for a purchase price of $5,856,000 (the “Sale Price”), subject to higher and better offers. SeeDisclosure Statement, at 7–8. 13. On April 11, 2017, the Debtor filed its M ot ion t o E nforceA ut om a t ic St a yor A lt erna t iv elyt o I m poset h eA ut om a t ic St a yPursua ntt o § 105(a ) of t h eB a nkrupt cyC ode[Docket No. 30] (the “Stay Motion”), seeking, int era lia , an order “finding that the automatic stay prohibits the appointment of a receiver.” Stay Motion, at 6. 14. On April 14, 2017, the U.S. Trustee filed an objection to the Stay Motion [Docket No. 42] (the “Stay Objection”), stating, int era lia , that the U.S. Trustee has concerns regarding the Debtor’s bankruptcy and the Plan and Disclosure Statement. More specifically, the U.S. Trustee stated “it is unclear whether the bankruptcy filing will serve any purpose if the housing code violations issues are not addressed, since in order to be confirmed, ‘a plan must comply with those applicable nonbankruptcy laws that are not preempted by the Bankruptcy Code.’” Stay Objection, at 11 (internal citations omitted). 3 Capitalized terms used but not defined herein shall have the meanings ascribed to such terms in the Motion. 5 Case 17-00175 15. Doc 68 Filed 04/27/17 Entered 04/27/17 18:33:57 Document Page 6 of 17 Desc Main On April 14, 2017, the Association filed its objection to the D ebt or’sC onsent M ot ion forI nt erim a ndF ina lO rdersA ut h orizing Useof C a sh C olla t era la ndG ra nt ing A dequa t e Prot ect ion [Docket No. 44] (the “Cash Collateral Objection”), noting, int era lia , that the Association also has significant concerns regarding the legality and conduct of the Debtor’s bankruptcy filing. See, e.g ., Cash Collateral Objection ¶ 30. 16. On April 24, 2017, the Association,4 the U.S. Trustee5 and the District6 all filed objections to the Motion to Approve, citing, int era lia , inadequate information, the Debtor’s bad faith and the inability to confirm a plan. 17. On April 26, 2017, the Debtor filed its objection to the Motion to Dismiss [Docket No. 64] (the “Objection to the Motion to Dismiss”). Almost comically (and also patently offensive), the Debtor asserts in its objection that it is “seeking to improve the tenants’ living conditions, but, ironically, is being prevented from doing so by the District.” Objection to Motion to Dismiss, at 8.7 The District is the one who has been fighting to help the tenants, despite the Debtor putting up roadblocks at every turn. In stating its opposition to appointment of a receiver, the Debtor further had the audacity to state that “[t]he tenants undoubtedly do not wish to be provided the bare minimum accommodations.” Stay Motion, at 10. Of course, the tenants do not wish to be provided the “bare minimum accommodations”— they have been 4 5 6 7 Terra ceM a norO rg a nizedforC h a ng eTena nt sA ssociat ion, I nc.’sO bj ect ion t ot h eD ebt or’sM ot ion forE nt ryof a n O rder(A ) A pprov ing t h eD isclosureSt at em enton a n I nt erim B a sis, (B ) Sch eduling a Pla n C onfirm a t ion H ea ring a ndD ea dlineforF iling O bj ect ionst o F ina lA pprov a lof t h eD isclosure St at em enta ndC onfirm a t ion of t h ePla n [Docket No. 60] (the “Association’s DS Objection”). U.S. Trust ee’sO bj ect ion t o M ot ion t o A pprov et h eD isclosureSt at em enton a n I nt erim B asis[Docket No. 63] (the “U.S. Trustee’s DS Objection”). D ist rictof C olum bia ’sO bj ect ionst o D ebt or’sM ot ion forE nt ryof an O rder(A ) A pprov ing t he D isclosureSt at em enton a n I nt erim B a sis, (B ) Sch eduling a Plan C onfirm a t ion H ea ring a ndD ea dline forF iling O bj ect ionst o F ina lA pprov a lof t h eD isclosureSt at em entandC onfirm a t ion of Plan [Docket No. 62] (the “District’s DS Objection”). This assertion is made even more egregious by the fact that in the Stay Motion the Debtor sought to prevent the District from appointing a receiver for the Property, which the District only sought to protect the health and welfare of the tenants. 6 Case 17-00175 Doc 68 Filed 04/27/17 Entered 04/27/17 18:33:57 Document Page 7 of 17 Desc Main fighting for habitable conditions ever since the Debtor’s purchase of the Property—but frankly “even bare minimum” would be a vast and significant improvement from the current accommodations provided by the Debtor. 18. Given the Association’s long and tortured history with this Debtor, including, but not limited to, the Debtor’s failure to abide by the MOU and Abatement Plan and the Debtor’s long-standing and flagrant disregard for the rights of its tenants, the Association is offended the Debtor would even purport to suggest the Debtor is acting in the best interest of the tenants. Rather, the dismissal of the Chapter 11 Case—a case in which the Debtor has not acted in good faith and repeatedly makes misleading statements as a means of seeking advantages and misusing the bankruptcy process—is in the best interest of the tenants. RELIEF REQUESTED 19. By this Joinder, the Association joins the Motion to Dismiss and respectfully requests that this Court enter an order immediately dismissing the Chapter 11 Case. JOINDER AND BASIS FOR RELIEF 20. As set forth in the Motion to Dismiss, under section 1112(b) of the Bankruptcy Code, a chapter 11 case may be dismissed “for cause” on request of a party in interest. 11 U.S.C. § 1112(b). Reasons constituting “cause” for dismissal include enumerated ones in the statute, such as “the absence of a reasonable likelihood of rehabilitation,” as well as judicially construed ones such as bad faith, both of which are applicable here. 11 U.S.C. § 1112(b)(4); C a rolin C orp. v . M iller, 886 F.2d 693, 698 (4th Cir. 1989) (“We agree with the other courts that have so held and conclude that a good faith filing requirement is implicit in several specific provisions of the bankruptcy code, interpreted in light of established policy considerations underlying the code’s provision of bankruptcy protection.”). 7 Case 17-00175 21. Doc 68 Filed 04/27/17 Entered 04/27/17 18:33:57 Document Page 8 of 17 Desc Main The Fourth Circuit has articulated a two-prong test that bankruptcy courts must apply when a party seeks dismissal of a chapter 11 case for lack of good faith. Seeg enera lly C a rolin C orp. v . M iller, 886 F.2d at 693. The movant must show both: (i) the objective futility of any possible reorganization; and (ii) the subjective bad faith of the debtor. I d. at 694. As the court explained in C a rolin: The objective futility inquiry is designed to insure that there is embodied in the petition some relation to the statutory objective of resuscitating a financially troubled debtor. It should therefore concentrate on assessing whether there is no going concern to preserve and no hope of rehabilitation, except according to the debtor’s “terminal euphoria.” The subjective bad faith inquiry is designed to insure that the petitioner actually intends to use the provisions of Chapter 11 to reorganize or rehabilitate an existing enterprise, or to preserve going concern values of a viable or existing business. Put obversely, its aim is to determine whether the petitioner’s real motivation is to abuse the reorganization process and to cause hardship or to delay creditors by resort to the Chapter 11 device merely for the purpose of invoking the automatic stay, without an intent or ability to reorganize his financial activities. I d. at 701–02 (internal citations/quotations omitted). The Fourth Circuit noted that although separate inquiries into objective futility and subjective bad faith are required, proof will inevitably overlap. Seeid. at 701 (“Evidence of subjective bad faith in filing may tend to prove objective futility and v icev ersa .”). 22. Here, the circumstances suggest that the Debtor filed the Chapter 11 Case in bad faith. Several of the factors indicative of objective futility and subjective bad faith are present in this case. A. Th eD ebt or’sM isrepresent at ionsa ndI na dequa t eD isclosureA reM a t eria l 23. The Debtor’s misrepresentations in its Petition and its omissions regarding the Property in its other pleadings illustrate that it has not been forthcoming in representing facts to this Court. See, e.g ., D ubiosv . A t la sA cquisit ionsLLC (I n reD ubois), 834 F.3d 522, 526 (4th Cir. 2016) (“Being all-inclusive on the sch edulesis consistent with the Code’s principle of 8 Case 17-00175 Doc 68 Filed 04/27/17 Entered 04/27/17 18:33:57 Document Page 9 of 17 Desc Main honest and fulldisclosure.”) (internal citations/quotations omitted) (emphasis in original); K est ell v . K est ell(I n reK est ell), 99 F.3d 146, 149 (4th Cir. 1996) (“accuracy, honesty and full disclosure are critical to the functioning of bankruptcy, and are inherent in the bargain for the discharge”) (internal citations/quotations omitted). 24. By way of example, on its Petition, the Debtor checked “No” to question 12, which asks “[d]oes the debtor own or have possession of any real property or personal property that needs immediate attention?” Petition, at 3. Under the “Yes” response, reasons that the property may need immediate attention include that “[i]t poses or is alleged to pose a threat of imminent and identifiable hazard to public health or safety. I d. As detailed in the District’s DS Objection, A. Carter Nowell, as manager of Sanford Capital, the sole member of the Debtor, signed the Petition under penalty of perjury. SeePetition, at 4; District’s DS Objection ¶¶ 46–48. As the District noted, Mr. Nowell executed the Abatement Plan on behalf of the Debtor, and accordingly had direct knowledge of the Debtor’s long-standing failure to maintain the Property and violations of the District of Columbia’s housing and other code violations. District’s DS Objection ¶ 47. Despite direct knowledge of these issues, Mr. Nowell, under penalty of perjury, executed a petition certifying that the Property did not pose or is not alleged to pose a threat of imminent hazard to public health and safety. Petition, at 3–4. In its Objection to the Motion to Dismiss, the Debtor argues the Property did not need immediate repair. See, e.g ., Objection to Motion to Dismiss, at 10. The Debtor goes on to “contend[] that no further attention is needed and that its response is accurate and in good faith.” I d. The Association disputes that assertion and believes that such a statement shows the Debtor’s lack of candor to the Court. There can simply be no dispute that the Property is in immediate and desperate need of repair.8 Indeed, as 8 The problems at the Property are not only evidenced by the Association and District’s statements and filings, but also by impartial news reporting journals and other sources. See, e.g ., 9 Case 17-00175 Doc 68 Filed 04/27/17 Entered 04/27/17 18:33:57 Document Page 10 of 17 Desc Main shown in the mold inspection report (the “Mold Report”) conducted by William Spearman, which is attached hereto as Exhibit A and was filed in the Superior Court case on April 25, 2017, there can be no dispute that the conditions at the Property present a real health hazard. The Debtor has an obligation to comply with not only the D.C. Housing Code, but also other laws and regulations, including the D.C. mold law (seeD.C. Code §§8-241.01-241.09) and regulations (see20 DCMR §§3200-3299). 25. Similarly shocking, especially when considering a Debtor’s obligation of full disclosure to the Court, is that the Abatement Plan is not even referenced, let alone addressed, anywhere in the Plan or Disclosure Statement. See, e.g ., U.S. Trustee’s DS Objection, at 10 (“Despite the D.C. Government’s enforcement action being the precipitating event of this bankruptcy filing, the Disclosure Statement and Plan are nearly silent about how the Debtor intends to meet its obligations to comply with the requirements of local law and fulfill its obligations under the Abatement Plan.”). This is a material omission and underscores the Debtor’s lack of candor with this Court and its creditors. 26. In addition, the Objection to the Motion to Dismiss highlights additional discrepancies that further underscore the Debtor’s omissions and misstatements. For example, in the “Disclosure of Compensation” filed with the Debtor’s Petition, it was disclosed that the $25,000 prepetition retainer received by the Debtor’s proposed counsel was paid by Sanford Capital, LLC, yet in its Objection to the Motion to Dismiss, the Debtor asserts that was an Footnote continued from previous page https://www.washingtonpost.com/local/virginia-politics/2017/04/26/8a2aa3de-29ed-11e7-b60533413c691853_story.html?utm_term=.05c7f33c1eb4; https://www.washingtonpost.com/local/socialissues/dc-government-sues-real-estate-company-for-operating-blighted-low-income-apartmentcomplex/2016/10/24/64fda49e-9a2d-11e6-a0edab0774c1eaa5_story.html?utm_term=.c12c64233de7; http://www.washingtoncitypaper.com/news/housing-complex/article/20859416/repairs-are-finallycoming-to-one-of-sanford-capitals-deplorable-properties 10 Case 17-00175 Doc 68 Filed 04/27/17 Entered 04/27/17 18:33:57 Document Page 11 of 17 Desc Main expense of the Debtor. C om pa rePetition, at 20 (“Prior to the filing of this statement WTP received $25,000.00 from Sanford Capital, LLC”) to Objection to Motion to Dismiss ¶ 3, Exhibit B (listing the $25,000 in the March budget for the Debtor). Furthermore, in its Disclosure Statement, the Debtor asserts it owes its creditors approximately $125,000, yet in its Objection to the Motion to Dismiss, the Debtor asserts it “has approximately $1,530,000.00 in unsecured debt, the vast majority of which is owed to Sanford and its property manager, Oakmont Management Group.” C om pa reDisclosure Statement, at 6, to Objection to Motion to Dismiss ¶ 2. 27. Moreover, the Debtor has made an intentional and deliberate choice to partially demolish and leave the vast majority of the units vacant at the Property, which the Association believes is a flagrant attempt to empty the property of tenants and avoid the low income housing mandate of the Property.9 Accordingly, the Debtor cannot now claim its lack of rental income is a good faith basis for it being “cash flow insolvent.” Rather, since the Debtor is intentionally not filling the vacancies, using such vacancies as an excuse for its cash flow issues is bad faith. In this case, given these facts, allowing the Debtor to now utilize bankruptcy would be tantamount to sanctioning its bad behavior. B. Th eC h a pt er11C a seH a sN o O bj ect iv ePurpose 28. As the District noted in the Motion to Dismiss, the Debtor’s Chapter 11 Case has no objective purpose. SeeMotion to Dismiss, at 11. Rather, it appears that the filing was intended to: (i) negate the tenants’ rights under the Tenant Opportunity to Purchase Act, DC Code 3404.01 etseq. (“TOPA”); and (ii) frustrate the District’s enforcement action against the Debtor. Neither of these qualify as a good faith basis for filing for chapter 11 relief. 9 Notably absent from Exhibit A to the Debtor’s Objection to the Motion to Dismiss is any information regarding the “Move-Out” Date for the vacant units. 11 Case 17-00175 29. Doc 68 Filed 04/27/17 Entered 04/27/17 18:33:57 Document Page 12 of 17 Desc Main The Debtor allegedly entered into a purchase agreement with Equilibrium on June 14, 2016, well before the Petition Date. See, e.g ., Motion to Dismiss, at 7. As of the date of this Joinder, no purchase agreement has been filed with the Court, but upon information and belief, the Debtor intends to sell the Property to Equilibrium under that same agreement it entered into with Equilibrium almost one year ago. As discussed in more detail in the Motion to Dismiss, TOPA requires landlords to send tenants notice of the offer to sale, and tenants then have certain rights they can pursue under TOPA. Motion to Dismiss, at 7. In this case, the Debtor failed to properly comply with TOPA prepetition, and when it was informed of this failure in August 2016, rather than promptly correct the deficiencies, the Debtor waited until December 2016 before submitting an amended offer. I d. The Debtor then failed to take the additional steps required under TOPA, further delaying the process. I d. While a literal reading of the D.C. Code may provide that bankruptcy sales are exempt from the requirements of TOPA,10 there is nothing in that statute or otherwise that authorizes, endorses or allows a Debtor to intentionally frustrate applicable non-bankruptcy law, delay and cause harm to others, and then file bankruptcy. In this case, however, that is exactly what the Debtor did, further highlighting the bad faith nature of this Chapter 11 Case. 30. According to the Debtor, the Buyer, Equilibrium, is willing to purchase the Property for over $5.8 million, subject to higher and better offers. See, e.g ., Cash Collateral Motion ¶ 10. While the Association has concerns regarding the legitimacy of the proposed sale, the Debtor has asserted that “[t]he Sale Price is substantially greater than the debt owed to the Secured Creditor,” id. ¶ 11, and that it will be able to pay all creditors in full. See, e.g ., Motion to Approve ¶ 8 (“The Plan is a liquidating plan that creates the framework for the payment of all 10 On this issue, the Association reserves all of its rights and assumes this point a rg uendo only for the purpose of this filing. 12 Case 17-00175 Doc 68 Filed 04/27/17 Entered 04/27/17 18:33:57 Document Page 13 of 17 Desc Main claims in full.”); Disclosure Statement, at 8 (“The Debtor does not intend to investigate or pursue any potential Avoidance Actions because the Sale will enable the Debtor to pay all Creditors in full.”); Plan art. IV (all creditor classes are unimpaired and will be paid in full). In these circumstances, it does not appear that the Debtor is entitled to bankruptcy protection. Upon information and belief, the Debtor’s assets far outweigh its reported liabilities, and while it is unclear whether the Debtor is attempting to reorganize or liquidate under its Plan,11 the Debtor does not need the protection of this Court to do so. As the District stated, “[t]here is simply no reason why the sale of the [P]roperty cannot proceed outside of these bankruptcy proceedings.” Motion to Dismiss, at 11. C. Th eD ebt orH a sN otSh ow n A nyA bilit yt o beReh a bilit at ed 31. There is little evidence that the Debtor can emerge from chapter 11 rehabilitated. As discussed above, it is unclear whether the Plan is a liquidating plan or a reorganization plan. Either way, it is unclear how the Debtor can emerge from chapter 11 rehabilitated. Under a liquidating plan, the Debtor would liquidate all of its assets and no longer be a going concern. Under a reorganization plan, it is unclear what the Debtor would be reorganizing around. This is a single asset real estate case, namely, the Property. According to the various Plan documents, the Debtor intends to sell the Property. Once the sale closes, it appears the Debtor will no longer have any assets to reorganize around. Thus, there is no ability for the Debtor to emerge from chapter 11 rehabilitated. For that reason, it is unclear what the purpose of the bankruptcy is other than as a thinly-veiled attempt to circumvent TOPA and the District’s enforcement action. 11 It is unclear from the Motion to Approve and the Plan whether the Debtor intends to liquidate or reorganize. Article V of the Plan is entitled “Liquidation of the Debtor’s Estate.” However, there are multiple references throughout the Plan to the Reorganized Debtor being the surviving entity after the Effective Date and Article VI of the Disclosure Statement is entitled “Plan of Reorganization.” 13 Case 17-00175 32. Doc 68 Filed 04/27/17 Entered 04/27/17 18:33:57 Document Page 14 of 17 Desc Main In addition, the Debtor is not eligible for a chapter 11 discharge, even if it could show it was reorganizing. Section 1141(d)(3)(C) of the Bankruptcy Code provides that confirmation of a plan does not discharge a debtor if the debtor would be denied a discharge under section 727(a) of the Bankruptcy Code, if the case were filed under that chapter. See11 U.S.C. § 1141(d)(3)(C). Section 727(a)(4)(A), in turn, states that a debtor shall not receive a discharge if the debtor knowingly and fraudulently made a false oath or account. See11 U.S.C. § 727(a)(4)(A). As discussed above, the Debtor has not been forthcoming and honest in its court filings. Federal Rule of Bankruptcy Procedure 1008 requires that “petitions and accompanying papers must be verified.” FED. R. BANKR. P. 1008. The Debtor executed its Petition under penalty of perjury, and as evidenced by the various pleadings filed by the Association, the U.S. Trustee and the District in this Chapter 11 Case, as well as in the Superior Court Case, it did not fully-disclose all necessary information. Accordingly, the Debtor should not be entitled to a discharge under section 1141(d)(3)(A), (B) or (C). 33. Courts have also noted that “overlaying these specific provisions is the broad grant of judicial power set forth in 11 U.S.C. § 105(a),” which gives a court the authority to dismiss a bankruptcy case sua spont efor ineligibility or for lack of good faith. I n reK est ell, 99 F.3d at 148–49.12 34. For all the foregoing reasons, the Association respectfully submits that the Chapter 11 Case was filed in bad faith and should be dismissed. The Association fully supports 12 Section 105(a) authorizes bankruptcy courts to “issue any order, process, or judgment that is necessary or appropriate to carry out the provisions of this title. No provision of this title providing for the raising of an issue by a party in interest shall be construed to preclude the court from, sua spont e, taking any action or making any determination necessary or appropriate to enforce or implement court orders or rules, or to prevent an abuse of process.” 11 U.S.C. § 105(a). 14 Case 17-00175 Doc 68 Filed 04/27/17 Entered 04/27/17 18:33:57 Document Page 15 of 17 Desc Main the Motion to Dismiss and incorporates the Motion to Dismiss in its entirety as if fully set forth herein. [Rem a inderof pa g eint ent iona llyleftbla nk.] 15 Case 17-00175 Doc 68 Filed 04/27/17 Entered 04/27/17 18:33:57 Document Page 16 of 17 Desc Main WHEREFORE, for the reasons set forth herein, the Association respectfully joins the Motion to Dismiss and requests that this Court: (i) enter an order dismissing the Debtor’s Chapter 11 Case; and (ii) grant such other and further relief as the Court deems just and proper. Dated: April 27, 2017 Respectfully submitted, By: /s/ __Rosa J. E v erg reen_______________ Rosa J. Evergreen (DC Bar # 500227) ARNOLD & PORTER KAYE SCHOLER LLP 601 Massachusetts Avenue NW Washington, DC 20001 Telephone: (202) 942-5000 Facsimile: (202) 942-5999 Email: rosa.evergreen@apks.com -and Taylor Healy (DC Bar # 1009209; Admission to District Court pending) Bread for the City Legal Clinic 1640 Good Hope Road, SE Washington, DC 20020 Telephone: (202) 386-7618 Facsimile: (202) 587-0537 Email: thealy@breadforthecity.org At t orneysforTerra ceM a norO rg a nizedforC h a ng e Tena nt sA ssocia t ion, I nc. Case 17-00175 Doc 68 Filed 04/27/17 Entered 04/27/17 18:33:57 Document Page 17 of 17 Desc Main CERTIFICATE OF SERVICE I hereby certify that on this 27th day of April, 2017, a true and correct copy of the foregoing Terra ceM a norO rg a nizedforC h a ng eTena nt sA ssocia t ion, I nc.’sJoindert ot he D ist rictof C olum bia ’sM ot ion t o D ism issC h a pt er11C a sePursua ntt o Sect ion 1112(b) of t he B a nkrupt cyC odewas filed and served electronically using the Court’s ECF System. /s/ Rosa J. E v erg reen__ Rosa J. Evergreen