Lead Case No.: 2:13-bk-21601-VZ Jointly administered

Transcription

Case 2:13-bk-21601-VZ
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Attorneys for Debtors and Debtors in Possession
UNITED STATES BANKRUPTCY COURT
CENTRAL DISTRICT OF CALIFORNIA
LOS ANGELES DIVISION
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DAVID B. GOLUBCHIK (State Bar No. 185520)
KURT RAMLO (State Bar No. 166856)
J.P. FRITZ (State Bar No. 245240)
LEVENE, NEALE, BENDER, YOO & BRILL L.L.P.
10250 Constellation Boulevard, Suite 1700
Los Angeles, California 90067
Telephone: (310) 229-1234
Facsimile: (310) 229-1244
Email: [email protected]; [email protected]; [email protected]
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Doc 426 Filed 09/02/14 Entered 09/02/14 17:55:08
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In re:
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SHILO INN, TWIN FALLS, LLC,
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Debtor and Debtor in Possession.
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____________________________________
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In re:
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SHILO INN, BOISE AIRPORT, LLC,
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SHILO INN, NAMPA BLVD, LLC,
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SHILO INN, NEWBERG, LLC,
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SHILO INN, SEASIDE EAST, LLC,
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SHILO INN, MOSES LAKE, INC.,
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SHILO INN, ROSE GARDEN, LLC,
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Debtors and Debtors in Possession. )
____________________________________
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Affects All Debtors
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Affects SHILO INN, TWIN FALLS, LLC
Affects SHILO INN, BOISE AIRPORT, LLC )
Affects SHILO INN, NAMPA BLVD, LLC )
Affects SHILO INN, NEWBERG, LLC
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Affects SHILO INN, SEASIDE EAST, LLC )
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Affects SHILO INN, MOSES LAKE, INC.
Affects SHILO INN, ROSE GARDEN, LLC )
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Debtors and Debtors in Possession
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Lead Case No.: 2:13-bk-21601-VZ
Jointly administered with:
Case No. 2:13-bk-21603-VZ
Chapter 11 Cases
MOTION
FOR
ORDER
(A)
AUTHORIZING SALE OF ASSETS OF
NAMPA BLVD., LLC AND NEWBERG,
LLC FREE AND CLEAR OF ALL
LIENS, CLAIMS, ENCUMBRANCES
AND OTHER INTERESTS PURSUANT
TO 11 U.S.C. § 363 (B) APPROVING
THE
ASSUMPTION
AND
ASSIGNMENT OF CERTAIN LEASES
AND EXECUTORY CONTRACTS;
AND (C) AUTHORIZING DEBTORS
TO EMPLOY AND COMPENSATE
REAL
ESTATE
BROKERS;
MEMORANDUM OF POINTS AND
AUTHORITIES; DECLARATION OF
MARK S. HEMSTREET IN SUPPORT
THEREOF
Hearing
Date: September 23, 2014
Time: 11:00 a.m.
Place: Courtroom 1368
255 East Temple Street
Los Angeles, CA 90012
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Shilo Inn, Nampa Blvd, LLC (“Nampa”), and Shilo Inn, Newberg, LLC (“Newberg”),
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(collectively, the “Debtors”), two of the debtors and debtors in possession in the above-
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captioned, jointly administered chapter 11 bankruptcy cases, hereby file the Debtors’ Motion For
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Order (A) Authorizing Sale Of Assets Of Nampa Blvd., LLC and Newberg, LLC Free And Clear
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Of All Liens, Claims, Encumbrances And Other Interests Pursuant To 11 U.S.C. § 363; (B)
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Approving the Assumption and Assignment Of Certain Leases And Executory Contracts; and
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(C) Authorizing Debtors To Employ and Compensate Real Estate Brokers.
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I.
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STATEMENT OF RELEVANT FACTS
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A.
Background
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Mark S. Hemstreet has been the proud owner and president of the Shilo Inn Suites Hotel
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chain since 1974. Today, there are 35 company-owned Shilo Inn hotels across nine (9) western
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states plus Texas.
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On May 1, 2013 (the “Petition Date”), the Debtors and their related affiliates each filed a
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bankruptcy petition under Chapter 11 of the Bankruptcy Code (the “Code”). The Debtors are
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operating their businesses and managing their affairs as debtors in possession.
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Nampa operates a 61-room, two-story, limited-service hotel in Nampa, Idaho (the
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“Nampa Blvd Hotel”), on fee title land, operated pursuant to a franchise agreement with Shilo
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Franchise International, Inc. (“SFI”) and managed by Shilo Management Corporation (“SMC”).
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The Nampa property has an outdoor pool, spa, and steam and sauna room. The Nampa Blvd
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Hotel has 10 employees.
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confirmation and the Disclosure Statement, the Debtors’ stipulated to use a neutral appraiser’s
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valuation of the Nampa Blvd Hotel at $1,150,0001.
During the Debtors’ bankruptcy cases, for purposes of plan
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Newberg operates a 61-room, all-suites, three-story, limited-service hotel in Newberg,
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Oregon (the “Newberg Hotel”), on fee title land, operated pursuant to a franchise agreement
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with SFI and managed by SMC. The Newberg property has an outdoor pool, spa, steam and
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CBT’s asserted valuation was $1,000,000.
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sauna room, fitness and business center, and meeting room.
The Newberg Hotel has 14
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employees. During the Debtors’ bankruptcy cases, for purposes of plan confirmation and the
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Disclosure Statement, the Debtors’ stipulated to use CBT’s appraiser valuation of the Newberg
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Hotel at $2,450,000. However, the Debtors maintain that the real value of the Newberg Hotel is
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much higher.
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B.
Marketing Efforts and Sale Contracts
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During the pendency of these cases, the Debtors have been working diligently to
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effectuate successful reorganizations to allow for preservation of jobs for the Debtors’
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employees, preservation of affordable quality lodging for guests and to provide for repayment to
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creditors. Such efforts included formulating plans of reorganizations while, at the same time,
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marketing the properties for sale. Based on prior experience, the Debtors determined that it
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would impair values if it was made public that the Debtors’ assets are for sale in connection with
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their bankruptcy cases, which would result in expressions of interests primarily from distressed
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investors and not allow the properties to generate true market values. Based on the foregoing,
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the Debtors worked with their extensive network of contacts, including investors, operators and
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brokers, to expose their assets to the marketplace. Based on such extensive and focused efforts,
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the Debtors began receiving expressions of interest in their properties.
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negotiations between the interested parties and Mr. Hemstreet, relying on his decades of
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experience in buying hotel properties and, more importantly, selling hotel properties at values
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substantially higher values than opined by lenders and appraisers, agreements were reached, as
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discussed below.
After extensive
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Avtar Jassal (“Nampa Buyer”) and Nampa have entered into a Real Estate Sales
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Agreement with respect to the sale of the Nampa Blvd Hotel (“Nampa Contract”). A true and
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correct copy of the Nampa Contract is attached hereto as Exhibit “A”. Pursuant to the Nampa
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Contract, Nampa Buyer has agreed to pay to Nampa $1,350,000 for the Nampa Blvd Hotel and
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related property, subject to the provisions in the Nampa Contract and approval of the
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Bankruptcy Court. The proposed purchase price is $200,000 more than opined by the neutral
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appraiser and $350,000 more than opined by CBT, equating to an increase of 17% and 35%,
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respectively, in value over such valuations.
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The foregoing transaction was brought to the Debtors by Abe Bhagat of Western U.S.
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Hotel Broker & Developer, Inc. (the “Nampa Broker”). A condition of the Nampa Contract is
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that a commission of 4% of the sale price be paid to the Nampa Broker.
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Buggsi Hospitality Group, LLC (Newberg Buyer”) and Newberg have entered into a
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Real Estate Sales Agreement with respect to the sale of the Newberg Hotel (“Newberg
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Contract”). A true and correct copy of the Newberg Contract is attached hereto as Exhibit “B”.
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Pursuant to the Newberg Contract, Newberg Buyer has agreed to pay to Newberg $3,175,000
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for the Newberg Hotel and related property, subject to the provisions in the Newberg Contract
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and approval of the Bankruptcy Court. The proposed purchase price is $725,000 more than
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opined by CBT’s appraiser, equating to an increase of approximately 30% in value over such
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valuation.
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The foregoing transaction was brought to the Debtors by Brian Resendez of Sperry Van
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Ness (the “Newberg Broker”). A condition of the Newberg Contract is that a commission of 4%
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of the sale price be paid to the Newberg Broker.
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As discussed above, the Debtors determined, based on prior experience, that public
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retention of a broker to market properties in pending bankruptcies undermines the ability to
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generate a true market price.
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continued to work with their network of professionals to generate interest in the properties,
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which have resulted in the current Nampa Contract and the Newberg Contract.
Although a broker was not formally retained, the Debtors
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Both contracts provide for a commission to the brokers of 4% of the sale prices. As part
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and parcel of this Motion, the Debtors seek authority to employ the Nampa Broker and the
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Newberg Broker provided that the two transactions discussed herein close.
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For purposes of disclosure, attached hereto as Exhibits “C” and “D” are true and
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correct copies of professional resumes of the Nampa Broker and the Newberg Broker,
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respectively. Additionally, attached hereto as Exhibit “E” is a true and correct letter discussing
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the marketing efforts.
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To the best of the Debtors’ knowledge, the Nampa Broker and the Newberg Broker are
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not creditors of these estates and do not hold any interests adverse to the Debtors’ estates or the
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properties sought to be sold pursuant to this Motion. The Debtors believe that the employment
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of the brokers herein, for the purposes of these transactions only, is appropriate and in the best
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interest of the estates.
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C.
Secured Claims and Sale Proceeds
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In April 2005, the Debtors and their related entities entered into loan agreements with
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Vineyard Bank, a California Bank (“Vineyard”). Mark S. Hemstreet, founder of Shilo Inns, was
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a guarantor of the loans. In April 2005, Vineyard issued an additional unsecured $5 million
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revolving operating credit line loan to Mark Hemstreet, individually (the “Hemstreet Loan”).
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The Debtors and Mr. Hemstreet made timely payments on the loans and Hemstreet Loan until
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the historic recession that began in late 2007. In July 2009, like many other banks, Vineyard
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went into FDIC receivership, and California Bank and Trust, a California Bank (“CBT”)
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acquired the loans.
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Numerous disputes exist between the Debtors and CBT with respect to pre-petition and
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post-petition conduct and the Debtors believe that they hold substantial claims against CBT. In
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the interest of efficiency, in connection with the proposed sale transactions, the Debtors will not
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restate their positions, which are adequately set forth in the Debtors’ respective plans and
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pending adversary proceeding before this Court.
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The Debtors understand that CBT asserts a secured claim against both Debtors in the
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approximate amount of $3,696,106, based on the fact that the obligation is cross-collateralized
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by both the Nampa Blvd Hotel and the Newberg Hotel, which amount is strongly disputed by the
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Debtors and the Debtors believe should be $2,828,885. In addition, senior statutory property
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taxes for Nampa and Newberg total approximately $15,461.00 and $8,207.00, respectively.
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Finally, the Hemstreet Loan was also collateralized by the Debtors’ properties. The status of
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such loan is uncertain at this time based on the fact that there is an adversary proceeding to avoid
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the transfer of the security interest and CBT only recently filed its answer to the complaint.
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Based on a Nampa sale price of $1,350,000 and Newberg sale price of $3,175,000, the
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gross consideration to be received by the estates totals $4,525,000, The Debtors anticipate that
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the sale proceeds will be utilized as follows:
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Gross proceeds
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$4,525,000
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Less cost of sales (approx. 5%)
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<$226,250>
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$4,298,750
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<$$23,668>
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$4,275,082
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<$2,828,885>
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$1,446,197
Subtotal
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Less Property Taxes (est.)
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Subtotal
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Less Undisputed CBT Obligation
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Subtotal
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Subject to resolution of the disputes with respect to the secured claims, these funds will
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be available for distribution to unsecured creditors. In order to maximize value for unsecured
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creditors, as set forth in the accompanying Declaration of Mark S. Hemstreet, the insiders of the
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Debtors have agreed to subordinate their interest in the proceeds of the sale to all other non-
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insider creditors of the Debtors’ estates.
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A true and correct copy of Nampa’s preliminary title report is attached hereto as Exhibit
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“F”. A true and correct copy of Newberg’s preliminary title report is attached hereto as Exhibit
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“G”. All disclosed creditors on the respective preliminary title reports will receive notice of this
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Motion.
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D.
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Sales Are In The Best Interest of the Estates
From the outset of these cases, CBT has argued that the value of the Debtors’ assets was
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non-existent.
Notwithstanding the foregoing, the Debtors continued to operate under Mr.
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Hemstreet’s guidance and leadership and have operated successfully. The Debtors have paid to
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CBT over $1,215,000 in adequate protection payments, while remaining current with all their
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other Shilo debtor obligations related to hotel operations. In addition, as has occurred on
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countless occasions in the past, Mr. Hemstreet once again has shown his experience and
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expertise in the hotel industry by obtaining sale transactions substantially in excess of values
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opined by CBT and the neutral appraiser. Based on the fact that Nampa and Newberg sale prices
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are approximately 17% and 30%, respectively, above the neutral values, the Debtors believe that
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the sales are fair and reasonable and in the best interest of the estates and all creditors.
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Based on prior discussions between the Debtors and CBT, the Debtors understand that
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CBT will consent to the sales free and clear of liens. The Debtors further do no dispute CBT’s
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right to credit bid for either property, or both properties, pursuant to 11 U.S.C. § 363(k).
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II.
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DISCUSSION
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A.
The Court Should Authorize the Debtors to Sell the Hotels Free and Clear of All
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Liens, Claims, Interests, and Encumbrances
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1.
The Debtors Have Complied With All Notice Requirements Under the
Bankruptcy Code, Federal Rules of Bankruptcy Procedure, and Local
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Bankruptcy Rules Governing the Sale.
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Section 363(b)(1) provides that the Debtor, “after notice and a hearing, may use, sell or
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lease, other than in the ordinary course of business, property of the estate."
11 U.S.C.
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§ 363(b)(1). Section 102(1) defines “after notice and a hearing” as after such notice as is
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appropriate in the particular circumstances, and such opportunity for hearing as is appropriate in
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the particular circumstances. 11 U.S.C. § 102(1)(A).
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Rule 6004(a) of the Federal Rules of Bankruptcy Procedure provides in pertinent part that
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notice of a proposed sale not in the ordinary course of business must be given pursuant to
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Bankruptcy Rule 2002(a)(2), (c)(1), (i) and (k), and, if applicable, in accordance with section
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363(b)(2) of the Bankruptcy Code. FED.R.BANKR.P. 6004(a). Rule 2002(a)(2) requires at least
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21 days’ notice by mail of a proposed sale of property of the estate other than in the ordinary
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course of business, unless the Court for cause shown shortens the time or directs another method
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of giving notice. FED.R.BANKR.P. 2002(a)(2). Rule 2002(c)(1) requires that the notice of a
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proposed sale include the date, time and place of any public sale, the terms and conditions of any
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private sale, and the time fixed for filing objections. It also provides that the notice of sale or
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property is sufficient if it generally describes the property. FED.R.BANKR.P. 2002(c)(1). Rule
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2002(i) requires that the notice be mailed to committees elected pursuant to 11 U.S.C. § 705 or
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appointed pursuant to 11 U.S.C. § 1102.2 FED.R.BANKR.P. 2002(i). Rule 2002(k) requires that
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As of the date of this Motion, no official committee of unsecured creditors has been appointed in this case.
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the notice be given to the United States Trustee. FED.R.BANKR.P. 2002(k).
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Rule 6004(c) provides that a motion for authority to sell property free and clear of liens or
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other interests must be made in accordance with Rule 9014 and must be served on the parties
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who have liens or other interests in the property to be sold. FED.R.BANKR.P. 6004(c).
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Local Bankruptcy Rule 9013-1(d)(2) requires that a notice of motion and motion be
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served at least 21 days before the hearing on the date specified in the notice. L.B.R. 9013-
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1(d)(2).
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In addition, Local Bankruptcy Rule 6004-1(f) requires that an additional copy of the
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Notice be submitted to the Clerk of the Bankruptcy Court together with a document Form 6004-2
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at the time of filing for purposes of publication. L.B.R. 6004-1(f).
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The Debtors have complied with all of the above provisions of the Bankruptcy Code, the
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Federal Rules of Bankruptcy Procedure and the Local Bankruptcy Rules. The Debtors have
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complied with Bankruptcy Rules 6004(a) and 2002(a)(2), (c)(1), (i) and (k), because the Notice
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that has been filed contemporaneously herewith, which includes the date time and place of the
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sale and the deadline for objecting thereto, was served on the United States Trustee, all of the
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Debtors’ known creditors, and all parties requesting special notice. The Debtors have complied
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with Bankruptcy Rule 6004(c) because the Notice and the Sale Motion were also served upon the
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parties who have alleged liens or interests in the properties. The Debtors have complied with the
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requirements of Local Bankruptcy Rule 6004-1(f) because the Debtors have filed the Notice and
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Form 6004-2 with the Clerk of the Bankruptcy Court.
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2.
The Motion Should Be Approved Because Good Business Reasons Exist to
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Grant the Motion and the Proposed Sales are in the Best Interests of the
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Creditors and the Estates.
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As a general matter, a Court considering a motion to approve a sale under Section 363(b)
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should determine from the evidence presented before it that a “good business reason” exists to
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grant such a motion. In re Lionel Corp., 722 F.2d 1063, 1071 (2d Cir.1983). In addition, the
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Court must further find it is in the best interest of the estate. To make this determination, a Court
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should consider whether:
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(1)
the sale is fair and reasonable, i.e., the price to be paid is adequate;
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(2)
the property has been given adequate marketing;
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(3)
the sale is in good faith, i.e., there is an absence of any lucrative deals with
insiders, and
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(4)
adequate notice has been provided to creditors.
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In re Wilde Horse Enterprises, Inc., 136 B.R. 830, 841-2 (Bankr.C.D.Cal.1991); In re The
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Landing, 156 B.R. 246, 249 (Bankr.E.D.Mo.1993); In re Mama’s Original Foods, Inc., 234 B.R.
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500, 502-505 (C.D.Cal.1999). The Debtors submit that the proposed sales of the Hotels free and
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clear of liens, claims, and interests satisfies each of these requirements.
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a.
Sound Business Purpose.
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The Ninth Circuit Bankruptcy Appellate Panel in Walter v. Sunwest Bank (In re
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Walter), 83 B.R. 14, 19 (9th Cir.B.A.P.1988) has adopted a flexible case-by-case test to
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determine whether the business purpose for a proposed sale justifies disposition of property of
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the estate under Section 363(b).
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substantiate the Debtors’ business decision that the contemplated sale of the Hotels serves the
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best interests of the estates’ creditors and merits the approval of this Court. As set forth above,
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the Debtors’ reorganization efforts included restructuring operations and debts, while at the
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same time seeking to sell their assets at fair market values, as opposed to distressed prices. The
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Debtors have achieved that by obtaining contracts with sales prices that are 17% (and 35% and
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30% above those opined by the neutral and CBT appraisers. The sales will ensure prompt
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monetization of assets and distribution of funds to creditors.
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payment to creditors of the estates through the proposed sales is strong and sound business
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purpose for pursuing and consummating the proposed sales.
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b.
The facts pertaining to the sales at issue here amply
The certainty of immediate
Fair and Reasonable Price.
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In order for a sale to be approved under Section 363(b), the purchase price must be fair
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and reasonable. See generally, In re Canyon Partnership, 55 B.R. 520 (Bankr.S.D.Cal.1985).
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The trustee (or debtor in possession) is given substantial discretion in this regard. Id. In
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addition, Courts have broad discretion with respect to matters under section 363(b). See Big
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Shanty Land Corp. v. Comer Properties, Inc., 61 B.R. 272, 278 (Bankr.N.D.Ga.1985). In any
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sale of estate assets, the ultimate purpose is to obtain the highest price for the property sold.
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Wilde Horse Enterprises, Inc., 136 B.R. at 841 (citing In re Chung King, Inc., 753 F.2d 547 (7th
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Cir.1985)), In re Alpha Industries, Inc., 84 B.R. 703, 705 (Bankr.Mont.1988).
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As discussed above, the Debtors have achieved what the neutral appraiser and CBT
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thought was not achievable - obtaining contracts with sales prices that are 17% (35% over CBT
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valuation)) and 30% above those opined by the neutral and CBT appraisers. Between the
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marketing efforts by the Brokers and substantially higher sale prices than opined by the neutral
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and CBT appraisers, the Debtors believe that the prices are fair and reasonable.
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c.
Adequate Marketing.
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As discussed above, during the pendency of these cases, the Debtors have been working
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diligently to effectuate successful reorganizations to allow for preservation of jobs for the
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Debtors’ employees, preservation of affordable quality lodging for guests and to provide for
14
repayment to creditors. Such efforts included formulating plans of reorganizations while, at the
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same time, marketing the properties for sale. Based on prior experience, the Debtors determined
16
that it would impair values if it was made public that the Debtors’ assets are for sale in
17
connection with their bankruptcy cases, which would result in expressions of interests primarily
18
from distressed investors and not allow the properties to generate true market values. Based on
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the foregoing, the Debtors worked with their extensive network of contacts, including investors,
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operators and brokers, to expose their assets to the marketplace. Based on such extensive and
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focused efforts, the Debtors began receiving expressions of interest in their properties. After
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extensive negotiations between the interested parties and Mr. Hemstreet, relying on his decades
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of experience in buying hotel properties and, more importantly, selling hotel properties at values
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substantially higher values than opined by lenders and appraisers, agreements were reached, as
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discussed below.
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A detailed discussion of the respective marketing efforts is set forth in Exhibit “E”
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hereto. In addition, based on the fact that the notice of this Motion is being published on the
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Bankruptcy Court’s website, it is possible that additional interest and bidding may result in
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connection with the hearing on the Motion. However, based on a comparison of the proposed
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sale prices herein to the appraisal reports of the neutral appraiser and CBT’s appraiser, the
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Debtors believe that their marketing efforts have been sufficient to generate the interest herein.
d.
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Good Faith.
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When a bankruptcy Court authorizes a sale of assets pursuant to Section 363(b)(1), it
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is required to make a finding with respect to the “good faith” of the purchaser. In re Abbotts
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Dairies, 788 F.2d at 149. Such a procedure ensures that Section 363(b)(1) will not be
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employed to circumvent the creditor protections of Chapter 11, and as such, it mirrors the
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requirement of Section 1129 that the Bankruptcy Court independently scrutinizes the debtor’s
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reorganization plan and makes a finding that it has been proposed in good faith. Id. at 150.
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With respect to the Debtors’ conduct in conjunction with the sale of the Hotels, the good faith
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requirement focuses principally on whether there is any evidence of “fraud, collusion between
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the purchaser and other bidders or the trustee, or an attempt to take grossly unfair advantage
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of other bidders.” Abbotts Dairies, 788 F.2d at 147; Wilde Horse Enterprises, 136 B.R. at
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842.
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With respect to the Nampa Buyer and the Newberg Buyer, the Debtors have
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negotiated the sale contract at arm’s length, and the proposed buyers are not “insiders” of the
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Debtors as that term is defined in the Bankruptcy Code. 11 U.S.C. § 101(31). There has been
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no fraud or collusion in connection with the proposed sales. The Debtors have not given
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special treatment to the respective buyers. Based on the foregoing, the Debtors submit that
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any prospective buyer is a “good faith” purchaser and entitled to all of the protections
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afforded by 11 U.S.C. § 363(m).
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e.
Accurate and Reasonable Notice.
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The purpose of the notice is to provide an opportunity for objections and hearing
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before the Court if there are objections. In re Karpe, 84 B.R. 926, 930 (Bankr.M.D.Pa.1988).
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A notice is sufficient if it includes the terms and conditions of the sale and if it states the time
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for filing objections. Id.
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As set forth above, the Debtors served the Notice on the United States Trustee, all of
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the Debtors’ known creditors and all parties requesting special notice. The Notice includes
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the date, time and place of the sale and the time fixed for filing objections thereto. The Notice
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and Motion were served upon the parties who have liens against, or interests in, the assets, and
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the Debtors filed the Notice and Form 6004-2 with the Clerk of the Bankruptcy Court, as
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required by Local Bankruptcy Rule 6004-1(f), so that the Clerk of the Bankruptcy Court can
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publish information regarding the proposed sales. Thus, the Debtors submit that this notice
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should be deemed adequate, accurate and reasonable by the Court.
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3.
The Sale of the Hotels Should be Free and Clear of All Liens, Claims, Interests
and Encumbrances Under 11 U.S.C. §363(f).
Bankruptcy Code §363(f) provides that a debtor may sell property of the estate “free
and clear of any interest in such property” if:
(1)
applicable non-bankruptcy law permits the sale of such property free
and clear of such interest;
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(2)
such entity consents;
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(3)
such interest is a lien and the price at which such property is to be sold
is greater than the aggregate value of all liens on such property;
17
18
(4)
such interest is in bona fide dispute; or
19
(5)
such entity could be compelled, in a legal or equitable proceeding, to
accept a money satisfaction of such interest.
20
21
11 U.S.C. §363(f). Because Section 363(f) is in the disjunctive, the Debtor must only meet
22
one of the five subsections of Section 363(f) in order to sell the Units free and clear of all
23
liens, claims, interests and encumbrances.
24
(Bankr.D.Or.1984).
25
a.
In re Whittemore, 37 B.R. 93, 94
The Sales Should Be Approved Under 11 U.S.C. § 363(f)(2).
26
Section 363(f)(2) of the Bankruptcy Code authorizes a sale to be free and clear of an
27
interest if the interest holder consents to the sale. The Debtors understand and believe that
28
CBT will consent to the proposed sale transactions.
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As discussed above, CBT asserts a claim secured by bother properties in the
3
approximate amount of $3.6 million, while the Debtors dispute any amounts in excess of $2.8
4
million. Nevertheless, the proposed consideration to be paid is over $4.5 million, which is
5
substantially higher than the asserted amount. Based on the foregoing, sales free and clear of
6
liens under Section 363(f)(3) is appropriate.
c.
7
8
A discussed above, CBT asserts a claim of over $5 million based on the Hemstreet
9
Loan. Such claim is subject to an adversary proceeding to set aside the transfer of the security
10
interest. CBT previously filed a motion to dismiss the complaint, which motion was denied.
11
Recently, CBT filed its answer to the complaint. Based on the fact that the adversary
12
proceeding is pending, and survived CBT’s motion to dismiss, the Debtors assert that the
13
obligation stemming from the Hemstreet Loan is in bona fide dispute and, therefore, a sale
14
free and clear of such obligation may be approved.
15
Notwithstanding any of the foregoing, the Debtors propose that any and all liens attach
16
to the proceeds of the sales with the same validity, priority and extent as they were entitled to
17
prior to the sale transactions.
18
B.
The Court Should Authorize Employment of the Broker.
19
Although an exclusive broker has not been employed, the Debtors utilized their extensive
20
web of contacts to expose the properties to the marketplace. A broker that brings the best offer
21
would be entitled to commission on the sale. The Debtors believed that this methodology was a
22
lot more advantageous to the estate, created healthy competition, and resulted in the Nampa
23
Contract and the Newberg Contract, all at substantially higher values than opined by the neutral
24
appraiser and CBT’s appraiser.
25
The Debtors seek to employ both brokers under 11 U.S.C. § 328(a), with their
26
compensation to be set at 4% of the sale price, payable at close of escrow without the need for
27
fee applications. In the event that a sale or sales do not close, the broker will not be entitled to
28
commission.
13
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1
Attached hereto as Exhibits “C” and “D” are true and correct copies of professional
2
resumes of the Nampa Broker and the Newberg Broker, respectively. Additionally, attached
3
hereto as Exhibit “E” is a true and correct letter discussing the marketing efforts which have
4
resulted in the contracts sought to be approved herein. The Debtors submit that such efforts
5
were necessary and substantial.
6
7
8
9
10
11
12
13
14
The Debtors submit the following additional disclosures with respect to the Nampa
Broker and the Newberg Broker:
1.
Neither broker is a creditor, an equity security holder or an insider of the
Debtors.
2.
Neither broker is or was an investment banker for any outstanding security of
the Debtors.
3.
Neither broker has been within three years before the Petition Date an
investment banker for a security of the Debtors.
4.
Neither broker, nor any member of either broker is, was, within two years
15
before the Petition Date, a director, officer or employee of the Debtors or of any investment
16
banker for any security of the Debtors.
17
5.
To the best of the Debtors’ knowledge, both brokers do not hold or represent
18
any interest materially adverse to the interest of the estates or of any class of creditors or
19
equity security holders, by reason of any direct or indirect relationship to, connection with, or
20
interest in, the Debtors or an investment banker for any security of the Debtors, or for any
21
other reason.
22
Based on the foregoing, the Debtors believe that the employment of the Nampa Broker
23
and the Newberg Broker upon the terms and conditions set forth above is in the best interests of
24
the estates.
25
III.
26
CONCLUSION
27
WHEREFORE, the Debtors respectfully request that the Court enter an order:
28
(i)
finding that notice of the Motion was adequate and appropriate under the
14
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circumstances;
2
(ii)
granting the Motion in its entirety;
3
(iii)
Authorizing the sale processes with respect to the Hotels to proceed;
4
(iv)
Authorize the Debtors to take any and all steps necessary and proper to
consummate the respective transactions;
5
6
(v)
of 11 U.S.C. § 363(m);
7
8
(vi)
11
12
13
14
15
16
17
18
19
20
21
22
23
Approving the Debtors’ employment of the Brokers and compensation of the
Brokers in connection with sale closings;
9
10
finding the respective buyers to be good faith purchasers with all the protections
(vii)
authorizing the Debtors to take all necessary and reasonable steps to consummate
the sale transactions; and
(viii) granting such other and further relief as may be necessary or appropriate under
the circumstances.
Dated: September 2, 2014
SHILO INN, TWIN FALLS, LLC;
SHILO INN, BOISE AIRPORT, LLC;
SHILO INN, NAMPA BLVD, LLC;
SHILO INN, NEWBERG, LLC;
SHILO INN, SEASIDE EAST, LLC;
SHILO INN, MOSES LAKE, INC.;
SHILO INN, ROSE GARDEN, LLC
By:__/s/ David B. Golubchik___
DAVID B. GOLUBCHIK
J.P. FRITZ
LEVENE, NEALE, BENDER, YOO
& BRILL L.L.P.
Attorneys for Debtors and
Debtors in Possession
24
25
26
27
28
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DECLARATION OF MARK S. HEMSTREET
1
I, Mark S. Hemstreet, declare under penalty of perjury under the laws of the United States
2
3
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of America that the following statements are true and based upon personal knowledge.
1.
4
I am the founder and majority member of the Shilo Inn Suites Hotel chain, which
5
I founded in 1974. I have over 48 years of business experience in the hotel management and
6
hospitality industry. I started my education in the hospitality industry when I was 16 years old,
7
managing a motel during the summer of 1966. After graduating from Beaverton High School in
8
1968 and then putting myself through two years of College at Portland State University, I
9
decided that I wanted to devote myself fulltime to learning all aspects of the construction,
10
development and hospitality business and started working fulltime with my father until I
11
branched out on my own to start my independent Shilo Inn hospitality company in 1974.
2.
12
Based on my extensive experience in the hotel hospitality industry, commercial
13
real estate industry, and development of undeveloped land into commercial properties, and
14
especially in developing and operating the Shilo Inn hotels, I believe that I possess expertise in
15
determining the value of hotels, undeveloped land, and commercial real estate, as well as
16
marketing strategies to maximize values of the hotels.
3.
17
On May 1, 2013 (the “Petition Date”), the Debtors and their related affiliates each
18
filed a bankruptcy petition under Chapter 11 of the Bankruptcy Code (the “Code”). The Debtors
19
are operating their businesses and managing their affairs as debtors in possession.
4.
20
Nampa operates a 61-room, two-story, limited-service hotel in Nampa, Idaho (the
21
“Nampa Blvd Hotel”), on fee title land, operated pursuant to a franchise agreement with Shilo
22
Franchise International, Inc. (“SFI”) and managed by Shilo Management Corporation (“SMC”).
23
The Nampa property has an outdoor pool, spa, and steam and sauna room.
24
Hotel has 10 employees.
25
confirmation and the Disclosure Statement, the Debtors’ stipulated to use a neutral appraiser’s
26
valuation of the Nampa Blvd Hotel at $1,150,0003.
During the Debtors’ bankruptcy cases, for purposes of plan
27
28
3
The Nampa Blvd
CBT’s asserted valuation was $1,000,000.
16
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Newberg operates a 61-room, all-suites, three-story, limited-service hotel in
2
Newberg, Oregon (the “Newberg Hotel”), on fee title land, operated pursuant to a franchise
3
agreement with SFI and managed by SMC. The Newberg property has an outdoor pool, spa,
4
steam and sauna room, fitness and business center, and meeting room. The Newberg Hotel has
5
14 employees. During the Debtors’ bankruptcy cases, for purposes of plan confirmation and the
6
Disclosure Statement, the Debtors’ stipulated to use CBT’s appraiser valuation of the Newberg
7
Hotel at $2,450,000. However, I maintain that the real value of the Newberg Hotel is much
8
higher.
9
6.
During the pendency of these cases, my staff and I have been working diligently
10
to effectuate successful reorganizations to allow for preservation of jobs for the Debtors’
11
employees, preservation of affordable quality lodging for guests and to provide for repayment to
12
creditors. Such efforts included formulating plans of reorganizations while, at the same time,
13
marketing the properties for sale. Based on my prior experience, I determined that it would
14
impair values if it was made public that the Debtors’ assets are for sale in connection with their
15
bankruptcy cases, which would result in expressions of interests primarily from distressed
16
investors and not allow the properties to generate true market values. Based on the foregoing,
17
my staff and I worked with our extensive network of contacts, including investors, operators and
18
brokers, to expose their assets to the marketplace. Based on such extensive and focused efforts,
19
we began receiving expressions of interest in their properties. After extensive negotiations with
20
interested parties, relying on my decades of experience in buying hotel properties and, more
21
importantly, selling hotel properties at values substantially higher values than opined by lenders
22
and appraisers, agreements were reached, as discussed below.
23
7.
Avtar Jassal (“Nampa Buyer”) and Nampa have entered into a Real Estate Sales
24
Agreement with respect to the sale of the Nampa Blvd Hotel (“Nampa Contract”). A true and
25
correct copy of the Nampa Contract is attached hereto as Exhibit “A”. Pursuant to the Nampa
26
Contract, Nampa Buyer has agreed to pay to Nampa $1,350,000 for the Nampa Blvd Hotel and
27
related property, subject to the provisions in the Nampa Contract and approval of the Bankruptcy
28
Court. The proposed purchase price is $200,000 more than opined by the neutral appraiser and
17
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1
$350,000 more than opined by CBT, equating to an increase of 17% and 35%, respectively, in
2
value over such valuations.
3
8.
The foregoing transaction was brought to the Debtors by Abe Bhagat of Western
4
U.S. Hotel Broker & Developer, Inc. (the “Nampa Broker”). A condition of the Nampa Contract
5
is that a commission of 4% of the sale price be paid to the Nampa Broker.
6
9.
Buggsi Hospitality Group, LLC (Newberg Buyer”) and Newberg have entered
7
into a Real Estate Sales Agreement with respect to the sale of the Newberg Hotel (“Newberg
8
Contract”). A true and correct copy of the Newberg Contract is attached hereto as Exhibit “B”.
9
Pursuant to the Newberg Contract, Newberg Buyer has agreed to pay to Newberg $3,175,000 for
10
the Newberg Hotel and related property, subject to the provisions in the Newberg Contract and
11
approval of the Bankruptcy Court. The proposed purchase price is $725,000 more than opined
12
by CBT’s appraiser, equating to an increase of approximately 30% in value over such valuation.
13
10.
The foregoing transaction was brought to the Debtors by Brian Resendez of
14
Sperry Van Ness (the “Newberg Broker”). A condition of the Newberg Contract is that a
15
commission of 4% of the sale price be paid to the Newberg Broker.
16
11.
As discussed above, the Debtors determined, based on prior experience, that
17
public retention of a broker to market properties in pending bankruptcies undermines the ability
18
to generate a true market price. Although a broker was not formally retained, the Debtors
19
continued to work with their network of professionals to generate interest in the properties,
20
which have resulted in the current Nampa Contract and the Newberg Contract.
21
12.
Both contracts provide for a commission to the brokers of 4% of the sale prices.
22
As part and parcel of this Motion, the Debtors seek authority to employ the Nampa Broker and
23
the Newberg Broker provided that the two transactions discussed herein close.
24
13.
For purposes of disclosure, attached hereto as Exhibits “C” and “D” are true and
25
correct copies of professional resumes of the Nampa Broker and the Newberg Broker,
26
respectively. Additionally, attached hereto as Exhibit “E” is a true and correct letter from the
27
Newberg Broker discussing the marketing efforts which have resulted in the contracts sought to
28
be approved herein.
18
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To the best of my knowledge, the Nampa Broker and the Newberg Broker are not
2
creditors of these estates and do not hold any interests adverse to the Debtors’ estates or the
3
properties sought to be sold pursuant to this Motion. I believe that the employment of the
4
brokers herein, for the purposes of these transactions only, is appropriate and in the best interest
5
of the estates.
6
15.
In April 2005, the Debtors and their related entities entered into loan agreements
7
with Vineyard Bank, a California Bank (“Vineyard”). I was the guarantor of the loans. In April
8
2005, Vineyard issued an additional unsecured $5 million revolving operating credit line loan to
9
Mark Hemstreet, individually (the “Hemstreet Loan”).
The Debtors and I made timely
10
payments on the loans and Hemstreet Loan until the historic recession that began in late 2007. In
11
July 2009, like many other banks, Vineyard went into FDIC receivership, and California Bank
12
and Trust, a California Bank (“CBT”) acquired the loans.
13
16.
Numerous disputes exist between the Debtors and CBT with respect to pre-
14
petition and post-petition conduct and the Debtors believe that they hold substantial claims
15
against CBT. In the interest of efficiency, in connection with the proposed sale transactions, I
16
will not restate the Debtors’ and my positions, which are adequately set forth in the Debtors’
17
respective plans and pending adversary proceeding before this Court.
18
17.
I understand that CBT asserts a secured claim against both Debtors in the
19
approximate amount of $3,696,106, based on the fact that the obligation is cross-collateralized
20
by both the Nampa Blvd Hotel and the Newberg Hotel, which amount is strongly disputed and I
21
believe should be $2,828,885.
22
Newberg total approximately $15,461.00 and $8,207.00, respectively. Finally, the Hemstreet
23
Loan was also collateralized by the Debtors’ properties. The status of such loan is uncertain at
24
this time based on the fact that there is an adversary proceeding to avoid the transfer of the
25
security interest and CBT only recently filed its answer to the complaint.
26
18.
In addition, senior statutory property taxes for Nampa and
Based on a Nampa sale price of $1,350,000 and Newberg sale price of
27
$3,175,000, the gross consideration to be received by the estates totals $4,525,000, I anticipate
28
that the sale proceeds will be utilized as follows:
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1
Gross proceeds
-
$4,525,000
2
Less cost of sales (approx. 5%)
-
<$226,250>
-
$4,298,750
-
<$$23,668>
-
$4,275,082
-
<$2,828,885>
-
$1,446,197
Subtotal
3
4
Less Property Taxes (est.)
Subtotal
5
6
Less Undisputed CBT Obligation
Subtotal
7
8
19.
Desc
Subject to resolution of the disputes with respect to the secured claims, these
9
funds will be available for distribution to unsecured creditors. In order to maximize value for
10
unsecured creditors, I can and do represent and agree that the insiders of the Debtors will
11
subordinate their interest in the proceeds of the sale to all other non-insider creditors of the
12
Debtors’ estates.
13
20.
A true and correct copy of Nampa’s preliminary title report is attached hereto as
14
Exhibit “F”. A true and correct copy of Newberg’s preliminary title report is attached hereto as
15
Exhibit “G”. All disclosed creditors on the respective preliminary title reports will receive
16
notice of this Motion.
17
21.
From the outset of these cases, CBT has argued that the value of the Debtors’
18
assets was non-existent. Notwithstanding the foregoing, the Debtors continued to operate under
19
my guidance and leadership and have operated successfully. The Debtors have paid to CBT over
20
$1,215,000 in adequate protection payments, while remaining current with all their other Shilo
21
debtor obligations related to hotel operations.
22
occasions in the past, I once again showed my experience and expertise in the hotel industry by
23
obtaining sale transactions substantially in excess of values opined by CBT and the neutral
24
appraiser. Based on the fact that Nampa and Newberg sale prices are approximately 17% and
25
30%, respectively, above the neutral values, I believe that the sales are fair and reasonable and in
26
the best interest of the estates and all creditors.
27
28
20
In addition, as has occurred on countless
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Based on prior discussions between the Debtors and CBT, I understand that CBT
2
will consent to the sales free and clear of liens. The Debtors further do no dispute CBT’s right to
3
credit bid for either property, or both properties, pursuant to 11 U.S.C. § 363(k).
23.
4
In order to effectuate the sale transactions, the Debtors must also have the
5
authority to compensate the Nampa Broker and the Newberg Broker. Both contracts provide for
6
a commission to the brokers of 4% of the sale prices. As part and parcel of this Motion, the
7
Debtors seek authority to employ the Nampa Broker and the Newberg Broker provided that the
8
two transactions discussed herein close.
24.
9
I have utilized the services of the Nampa Broker and the Newberg Broker to
10
market and sell other properties, including the properties herein. However, neither broker was
11
employed as of the Petition Date or thereafter and neither broker was owed any moneys by the
12
Debtors herein in connection with past services rendered.
13
25.
Neither broker is a creditor, an equity security holder or an insider of the Debtors.
14
26.
Neither broker is or was an investment banker for any outstanding security of the
15
Debtors.
27.
16
17
Neither broker has been within three years before the Petition Date an investment
banker for a security of the Debtors.
28.
18
Neither broker, nor any member of either broker is, was, within two years before
19
the Petition Date, a director, officer or employee of the Debtors or of any investment banker for
20
any security of the Debtors.
29.
21
To the best of the Debtors’ knowledge, both brokers do not hold or represent any
22
interest materially adverse to the interest of the estates or of any class of creditors or equity
23
security holders, by reason of any direct or indirect relationship to, connection with, or interest
24
in, the Debtors or an investment banker for any security of the Debtors, or for any other reason.
30.
25
Based on the foregoing, I believe that the employment of the Nampa Broker and
26
the Newberg Broker upon the terms and conditions set forth above is in the best interests of the
27
estates.
28
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I declare under penalty of perjury under the laws of the United States of America that the
foregoing is true and correct to the best of my knowledge.
Executed on this 2nd day of September 2014, at Rancho Mirage, California.
4
5
6
Desc
/S/ Mark S. Hemstreet
MARK S. HEMSTREET
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PROOF OF SERVICE OF DOCUMENT
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I am over the age of 18 and not a party to this bankruptcy case or adversary proceeding. My business
address is: 10250 Constellation Boulevard, Suite 1700, Los Angeles, CA 90067
A true and correct copy of the foregoing document entitled: MOTION FOR ORDER (A) AUTHORIZING
SALE OF ASSETS OF NAMPA BLVD., LLC AND NEWBERG, LLC FREE AND CLEAR OF ALL
LIENS, CLAIMS, ENCUMBRANCES AND OTHER INTERESTS PURSUANT TO 11 U.S.C. § 363 (B)
APPROVING THE ASSUMPTION AND ASSIGNMENT OF CERTAIN LEASES AND EXECUTORY
CONTRACTS; AND (C) AUTHORIZING DEBTORS TO EMPLOY AND COMPENSATE REAL ESTATE
BROKERS will be served or was served (a) on the judge in chambers in the form and manner required
by LBR 5005-2(d); and (b) in the manner stated below:
1. TO BE SERVED BY THE COURT VIA NOTICE OF ELECTRONIC FILING (NEF): Pursuant to
controlling General Orders and LBR, the foregoing document will be served by the court via NEF and
hyperlink to the document. On September 2, 2014, I checked the CM/ECF docket for this bankruptcy
case or adversary proceeding and determined that the following persons are on the Electronic Mail
Notice List to receive NEF transmission at the email addresses stated below:
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Natalie B. Daghbandan [email protected],
[email protected];[email protected]
John-Patrick M Fritz [email protected]
David B Golubchik [email protected], [email protected];[email protected]
Mary D Lane [email protected], [email protected]
Hal M Mersel [email protected], [email protected]
Kelly L Morrison [email protected]
Kerry A. Moynihan [email protected],
[email protected];[email protected]
Terence A Pruit [email protected]
Kurt Ramlo [email protected]
United States Trustee (LA) [email protected]
Sharon Z. Weiss [email protected], [email protected]
2. SERVED BY UNITED STATES MAIL: On September 2, 2014, I served the following persons and/or
entities at the last known addresses in this bankruptcy case or adversary proceeding by placing a true
and correct copy thereof in a sealed envelope in the United States mail, first class, postage prepaid, and
addressed as follows. Listing the judge here constitutes a declaration that mailing to the judge will be
completed no later than 24 hours after the document is filed.
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Service information continued on attached page
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3. SERVED BY PERSONAL DELIVERY, OVERNIGHT MAIL, FACSIMILE TRANSMISSION OR
EMAIL (state method for each person or entity served): Pursuant to F.R.Civ.P. 5 and/or controlling LBR,
on September 2, 2014, I served the following persons and/or entities by personal delivery, overnight mail
service, or (for those who consented in writing to such service method), by facsimile transmission and/or
email as follows. Listing the judge here constitutes a declaration that personal delivery on, or overnight
mail to, the judge will be completed no later than 24 hours after the document is filed.
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Served via Attorney Service
The Honorable Vincent P. Zurzolo
United States Bankruptcy Court
Edward R. Roybal Federal Building and Courthouse
255 E. Temple Street, Suite 1360 / Courtroom 1368
Los Angeles, CA 90012
I declare under penalty of perjury under the laws of the United States of America that the foregoing is
true and correct.
September 2, 2014
Stephanie Reichert
/s/ Stephanie Reichert
Date
Type Name
Signature
This form is mandatory. It has been approved for use by the United States Bankruptcy Court for the Central District of California.
June 2012
F 9013-3.1.PROOF.SERVICE
Case 2:13-bk-21601-VZ
Avtar Jassal
1298 E. Palermo St.
Meridian, ID 83642
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Buggsi Hospitality Group LLC
8840 SW Holly Lane
Wilsonville, OR 97070
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Lead Case No.: 2:13-bk-21601-VZ Jointly administered

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