In re Meruelo Maddux Properties

Meruelo Maddux Properties, Inc. (MMP) managed a network of subsidiary companies that owned and developed pieces of property. One of those subsidiaries was Meruelo Maddux Properties-760 S. Hill Street LLC (MMP Hill) (debtor). MMP Hill owned one piece of real estate, an apartment complex, and MMP Hill’s sole purpose was to own and manage the complex. MMP Hill obtained a loan from Bank of America, N.A. (bank) (creditor) to renovate the complex. Before the loan was repaid, MMP and all its subsidiaries, including MMP Hill, each filed Chapter 11 bankruptcy petitions. By statute, the bankruptcy petitions automatically stayed all efforts by creditors to collect debts from the debtor companies. The bank moved to lift the automatic stay against MMP Hill so that the bank could take actions to collect its outstanding loan. The bank based its motion on a Bankruptcy Code provision requiring bankruptcy courts to lift the automatic stay for creditors whose security qualified as single-asset real estate. Because MMP Hill derived its entire income from a single parcel of real estate, the definition of single-asset real estate applied to MMP Hill’s apartment complex. However, the bankruptcy court found that although MMP Hill was technically a separate legal entity, in reality, MMP Hill was merely a part of MMP’s larger business enterprise, which owned many real estate assets. The bankruptcy court ruled that Congress did not intend for the single-asset real estate provision to apply to situations involving entire business enterprises and denied the bank’s motion to lift the automatic stay on creditor actions against MMP Hill. The bank appealed. The district court reversed the bankruptcy court, finding that the single-asset real estate provision did not contain an exception for debtors who were part of a larger business enterprise and that the stay should be lifted. MMP Hill appealed to the Ninth Circuit. While the case was on appeal, the bankruptcy court confirmed a reorganization plan, and the stay was lifted with the plan’s confirmation. However, the Ninth Circuit agreed to still review the issue because it could arise again in a later proceeding or a separate case.