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In re Data Systems, Inc.

United States District Court, D. Oregon

March 14, 2017

In re Data Systems, Inc., Debtor,
AMY E. MITCHELL, Trustee, Defendant-Appellee. WILLIAM F. HOLDNER, Plaintiff-Appellant, No. 16-30477-rld11

         Chapter 11

          William F. Holdner Plaintiff-Appellant Pro Se

          Justin D. Leonard Timothy A. Solomon Attorney for Defendant-Appellee

          Sandra S. Gustitus Brian D. Chenoweth Shawn P. Ryan Attorneys for Interested Party Richard Kreitzberg

          OPINION & ORDER

          Marco A. Hernandez United States District Judge

         On February 11, 2016, debtor Data Systems, Inc., filed a petition for bankruptcy under Chapter 11 of the Bankruptcy Act. On December 7, 2016, the Bankuptcy Court entered an Order confirming the First Amended Plan of Organization proposed by Defendant-Appellee Amy Mitchell, who was the duly-appointed Chapter 11 Trustee. Plaintiff-Appellant William F. Holdner is the debtor's President and a director. He also owns approximately 22% of the debtor's stock.

         On December 20, 2016, Holdner appealed the Bankruptcy Court's December 7, 2016 Confirmation Order to this Court. Holdner seeks to reverse the Confirmation Order. Pl.-Appnt Reply 4-5, ECF 33. Alternatively, he seeks an Order requiring an "independent appraisal of the debtor'(s)-shareholders interests value of the shares under the company's proposed 5 year Plan of Liquidation." Id. Because the Bankruptcy Court committed no error, there is no basis for reversing the Confirmation Order or requiring the requested appraisal. Therefore, I affirm the Bankruptcy Court's December 7, 2016 Confirmation Order. I. Background and the Confirmation Order The Confirmation Order expressly states that it is based on the Bankruptcy Court's Findings of Fact and Conclusions of Law as set forth in the Bankruptcy Court's December 6, 2016 Amended Memorandum Opinion. Dec. 7, 2016 Conf. Ord., ECF 5-1 at 21[1].

         The Amended Memorandum Opinion sets forth the factual background, including the debtor's early history, its operations, and its assets. Dec. 6, 2016 Am. Mem. Op. 2-9. Although Holdner presents his own factual history in his Opening Memorandum, he points to no error by the Bankruptcy Court in its factual background recitation. Thus, I rely on the factual background as set forth in the December 6, 2016 Amended Memorandum Opinion and incorporate it by reference here.

         In issuing the December 7, 2016 Confirmation Order, the Bankruptcy Court relied on (1) the testimony, evidence, and argument presented at the Confirmation Hearing; (2) pleadings filed by Mitchell, including the Memorandum in Support of Confirmation of the Plan which included Mitchell's Declaration in Support of Confirmation of Trustee's First Amended Plan of Reorganization Dated September 30, 2016; (3) the Summary of Acceptances and Rejections; (4) the Report of Administrative Expenses; (5) the Trustee's First Amended Plan of Reorganization Dated September 30, 2016 ("the Reorganization Plan"), Bankr. ECF 155; (6) the Second Amended Disclosure Statement Regarding Trustee's Plan of Reorganization Dated September 30, 2016, ("the Disclosure Statement"), Bankr. ECF 156, which the Bankruptcy Court approved on October 6, 2016 (and which Order approving was not appealed); (7) the objecting shareholders' filings; and (8) the entire record before the Bankruptcy Court. Dec. 7, 2016 Conf. Ord. 1-2. The Bankruptcy Court heard testimony at the November 22, 2016 Confirmation Hearing from proposed buyer/interested party Richard Kreitzberg, Robert J. McGaughey who was the Trustee's securities law counsel, Holdner, and Mitchell. Id. at 2. Exhibits admitted at the Confirmation Hearing and considered by the Bankruptcy Court in consideration of the Confirmation Order included exhibits from both Mitchell and Holdner. Id.; see also Dec. 6, 2016 Am. Mem. Op. 1, 10-14 (noting the testimony adduced at the November 22, 2016 Confirmation Hearing and setting forth the evidence and arguments presented).

         In the Amended Memorandum Opinion, the Bankruptcy Court noted the basis for its jurisdiction of the matter and the standards for confirmation under 11 U.S.C. § 1129. Dec. 6, 2016 Am. Mem. Op. 9-10. It then described the evidence and testimony presented. Id. at 10-15. Finally, it addressed the confirmation standards and arguments for and against the proposed Reorganization Plan. Id. at 15-21. In the end, the Bankruptcy Court concluded that Mitchell met her burden of proof with respect to all applicable standards for confirmation of the Reorganization Plan. Id. at 21.

         Based on that Opinion, the Bankruptcy Court entered the Confirmation Order. There, the Court overruled all objections to the Reorganization Plan, confirmed the Reorganization Plan in all respects except as otherwise set forth in the Confirmation Order, and authorized and empowered Mitchell and all other parties in interest to take all actions necessary, useful, or appropriate, to implement, effectuate, and consummate the Plan and the transactions contemplated by the Reorganization Plan and the Plan Documents, and to perform their respective obligations. Dec. 7, 2016 Conf. Ord. 2.

         In entering the Conformation Order, the Bankuptcy Court rejected Holdner's argument that the debtor should be liquidated rather than reorganized. Instead, under the Reorganization Plan, holders of "Allowed Claims" against the debtor will be paid in full, in cash. Reorg. Plan. 1, Bankr. ECF 155 ("Plan Summary"). Holders of interests in the debtor may choose either to retain those interests, or alternatively, may sell them at a price of $7 per share which was estimated to be greater than their value in a liquidation. Id. Thus, all creditors will be paid in full and all shareholders may choose whether to have their interests purchased immediately or continue as investors in the reorganized debtor. Id. The Reorganization Plan is to be funded by the debtor's issuance and sale of approximately 160, 000 - 170, 000 shares of new stock, which Kreitzberg agreed to purchase for not less than $7 per share, subject to overbids which may result in a higher per-share purchase price. Id. II. Post-Confirmation Order Events

         On the day the Bankruptcy Court filed its Confirmation Order, Mitchell filed and served a Notice of Right to Submit Bid to Purchase Shares of Data Systems, Inc., notifying Holdner and all other parties entitled to such notice that they had a right to submit a bid to purchase the debtor's shares under the Reorganization Plan at a price higher than the $7 per share bid provided in the Reorganization Plan by Kreitzberg, and that the deadline to submit a bid was December 17, 2016. Bankr. ECF 212. No other bids were submitted and thus, on December 21, 2016, the Bankruptcy Court entered an Order Authorizing Issuance and Sale of Common Stock of the Debtor, Pursuant to Confirmed Chapter 11 Plan (the "Stock Sale Approval Order"). Bankr. ECF 226.

         On or about December 23, 2016, Mitchell, now in the post-confirmation role of "Plan Agent, " completed the sale of 170, 000 newly-issued shares of common stock, at $7 per share, receiving $1, 190, 000 for the bankruptcy estate. Def.-Appee. Resp. 16. She then caused to be filed and served to all shareholders the following two notices: (1) notice of the right to elect to sell shares of common stock of the debtor for $7 per share, or instead to retain the shares, as well as the February 2, 2017 offer expiration date; and (2) notice of a special meeting of shareholders to elect a new board of directors for the reorganized debtor to be held February 16, 2017. Bankr. ECF 232, 233. The deadline to appeal the Stock Sale Approval Order was January 4, 2017 and no appeal was filed, making that Order final. To this Court's knowledge, as of this date, shareholders have either retained their shares or sold them by February 2, 2017, and the special shareholders meeting at which a new board of directors was elected, has occurred.

         III. Jurisdiction

         This Court has jurisdiction to hear this appeal under 28 U.S.C. § 158(a)(1).

         IV. Standard of Review

         Generally, a bankruptcy court's decision whether to confirm a Chapter 11 plan is reviewed for abuse of discretion. Marshall v. Marshall (In re Marshall), 721 F.3d 1032, 1045 (9th Cir. 2013). The bankruptcy court "abuses its discretion if it applies the law incorrectly or if it rests its decision on a clearly erroneous finding of material fact." Computer Task Group, Inc. v. Brotby (In re Brotby), 303 B.R. 177, 184 (B.A.P. 9th Cir. 2003) (citing United States v. Peninsula Commc'ns, Inc., 287 F.3d 832, 839 (9th Cir. 2002); Gonzalez v. Gottlieb (In re Metro Fulfillment, Inc.), 294 B.R. 306, 309 (B.A.P. 9th Cir. 2003)); see also Beal Bank USA v. Windmill Durango Office, LLC, (In re Windmill Durango Office, LLC), 481 B.R. 51, 64 (B.A.P. 9th Cir. 2012) (court uses two-part test to determine if bankruptcy court abused its discretion by first, determining de novo if the bankruptcy court identified the correct legal rule to apply to the relief requested, and second, to examine if the factual findings were clearly erroneous).

         A bankruptcy court's determinations of feasibility, good faith, and the value of property are all findings of fact reviewed for clear error. In re Windmill Durango Office, LLC, 481 B.R. at 64; United States v. Arnold & Baker Farms (In re Arnold & Baker Farms), 177 B.R. 648, 653 (B.A.P. 9th Cir. 1994), aff'd, 85 F.3d 1415 (9th Cir. 1996). The bankruptcy court's factual findings must be affirmed unless they are "(1) illogical, (2) implausible, or (3) without support in inferences that may be drawn from the facts in the record." In re Windmill Durango Office, 481 B.R. at 64 (internal quotation marks omitted).

         IV. Bankruptcy Rule 8014

         Federal Rule of Bankruptcy Procedure 8014 sets forth several requirements for an Appellant's Opening Brief, including (1) a table of contents, with page references; (2) a table of authorities with references to the pages of the brief where they are cited; (3) a jurisdictional statement, including the basis for the bankruptcy court's subject-matter jurisdiction and the basis for the district court's jurisdiction, with citations to applicable statutory provisions and stating relevant facts establishing jurisdiction as well as an assertion that the appeal is from a final judgment, order, or decree; (4) a statement of the issues presented and, for each one, a concise statement of the applicable standard of appellate review; (5) a concise statement of the case setting out the facts relevant to the issues submitted for review, describing the relevant procedural history, and identifying the rulings presented for review, with appropriate references to the record; (6) a summary of the argument, which must contain a succinct, clear, and accurate statement of the arguments made in the body of the brief, and which must not merely repeat the argument headings; (8) the argument, which must contain the appellant's contentions and the reasons for them, with citations to the authorities and parts of the record on which the appellant relies; and (9) a short conclusion stating the precise relief sought. Fed.R.Bankr.P. 8014.

         Holdner's "Memorandum in Support [of] Review of Confirmation of Plan, " ECF 7, complies with few, if any, of these requirements. There is no table of contents, no table of authorities (in fact, not a single case is even cited), no jurisdictional statement, no statement of issues, no standard of review, and no summary of the argument. Instead, Holdner's Opening Memorandum presents a factual history with no citation to any support, and then includes six arguments, designated A through F, which are unclear and require interpretation and guesswork to determine the nature of his contentions. Pl.-Appnt Op. Mem. 1-12. Finally, his "Conclusion" fails to state the precise relief ...

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