In Re: 461 7th Avenue Market, Inc.

Background

The debtor appealed two orders issued by Judge Robert D. Drain of the U.S. Bankruptcy Court for the Southern District of New York. The first order granted the creditor’s request to convert the bankruptcy proceeding from Chapter 11 to Chapter 7. The second order denied the debtor’s request for reconsideration.

The district court had previously denied the debtor’s request for a stay during the appeal. The Second Circuit later affirmed that decision. After the Second Circuit’s mandate was filed, the district court asked the parties to explain the effect of that ruling on the underlying appeal. The debtor then advised that it would not file a reply, and the court treated the appeal as fully submitted.

Issues and Analysis

The debtor argued that the bankruptcy judge abused his discretion in three ways: by misapplying 11 U.S.C. § 1112(b), by holding the conversion hearing on a date the debtor said was scheduled for another matter, and by failing to disqualify Commissioner Raine or reject the Department of Buildings’ determination because of an alleged conflict of interest.

Under § 1112(b), a bankruptcy court may convert a Chapter 11 case to Chapter 7, or dismiss it, for cause when doing so is in the best interests of the creditors and the estate. The statute lists examples of cause but does not require the bankruptcy court to analyze every listed factor. The district court held that the bankruptcy judge reasonably found cause based on substantial or continuing loss to the estate, no reasonable likelihood of rehabilitation, and the debtor’s repeated failure to confirm a reorganization plan. The conversion decision was therefore not an abuse of discretion.

The district court also rejected the debtor’s due-process argument. The creditor had given notice of the conversion hearing, the debtor filed opposition, the creditor responded, and the bankruptcy judge set procedures and deadlines before holding the hearing. The district court concluded that the debtor had a meaningful opportunity to be heard and that the hearing was within the bankruptcy judge’s permissible discretion.

Regarding Commissioner Raine and the Department of Buildings’ determination, the district court held that the bankruptcy judge correctly recognized that he lacked authority to overturn the Department of Buildings’ determination. The court agreed that the debtor first had to pursue the available administrative process before seeking judicial review. It found no abuse of discretion in the bankruptcy judge’s handling of that issue.

The district court separately reviewed the order denying reconsideration. It found no abuse of discretion because the debtor repeated arguments that had already been presented and rejected. The court also stated that, to the extent the debtor raised a new waiver argument, reconsideration was not a proper opportunity to present a new theory.

Disposition

The court concluded that Judge Drain did not abuse his discretion in granting the creditor’s motion to convert the proceeding to Chapter 7 or in denying the debtor’s motion for reconsideration. The bankruptcy orders were AFFIRMED, and the clerk was directed to close the case.