Summary:
Deertrack Investors, L.L.C. ("Deertrack") was a South Carolina limited liability company, whose sole asset is a golf course located in Horry County, South Carolina. Deertrack and this golf course have been "mired" in litigation for several years. Synovus holds a Deed of Trust against the golf course and had obtained a court order for the property to be sold at a foreclosure auction on July 5, 2011. Shortly before the foreclosure, Deertrack merged with Woodend, L.L.C., a North Carolina corporation with common owners. Woodend then filed Chapter 11, eight days prior to the Synovus foreclosure.
Synovus moved to dismiss the Chapter 11 case of Woodend, arguing that it was filed in bad faith. The bankruptcy court held that although there is no specifical "good faith filing" requirement applicable in Chapter 11, it is well recognized that such a requirement is implicit. See In re Carolin Corp., 886 F.2d 693, 698-99 (4th Cir. 1989) (citations omitted).
The party seeking dismissal under the "good faith" requirement, must satisfy a two-prong test- first it must demonstrate "the objective futility of any possible reorganization." See Carolin, 886 F.2d at 694. Secondly, the Movant must show subjective bad faith. "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.'" See id. at 702 (citations omitted).
Applying these tests, the bankruptcy court found that regarding Deertrack there was "[q]uite simply ... nothing to reorganize." Further, the merger of Deertrack and Woodend and subsequent bankruptcy on the eve of foreclosure and removal of the matter to North Carolina, was, in a "twist on ‘the new-debtor syndrome'", clear evidence of subjective bad faith by Woodend/Deertrack. Accordingly, the case was dismissed. Commentary:
For a copy of the opinion, please see:
Woodend, L.L.C.- Dismissal of Chapter 11 for Bad Faith.pdf
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