Phoenix Piccadilly, LTD. v. Life Insurance Company Co. of Virginia (In re Phoenix Piccadilly, Ltd.)

Phoenix-Piccadilly, Ltd. (Piccadilly) (debtor) owned apartments in Louisville, Kentucky. Piccadilly had secured mortgages on the apartments with three creditors. One of the secured creditors started mortgage foreclosure proceedings in Kentucky state court. One day before a hearing to appoint a receiver for the property in the foreclosure action, Piccadilly filed a Chapter 11 bankruptcy petition in Florida, more than 700 miles from Louisville. Piccadilly’s creditors filed for relief from the Bankruptcy Code’s automatic stay of certain collection actions against a debtor and ultimately filed for dismissal of Piccadilly’s bankruptcy case, claiming that Piccadilly had filed the bankruptcy petition in bad faith. At an evidentiary hearing, the bankruptcy court received evidence that Piccadilly’s plan to fight the foreclosure included filing a Chapter 11 petition. The court also heard that one of Piccadilly’s agents had threatened to delay the foreclosure “for years” by filing for bankruptcy somewhere “far from Louisville,” and that that Piccadilly had minimal unsecured debt and few employees. The bankruptcy court found that Piccadilly’s petition was filed in bad faith, granted relief from the automatic stay, and dismissed the case. Piccadilly appealed, arguing that the bankruptcy court had not properly considered Piccadilly’s possible equity in the secured property and the possibility of a successful reorganization in determining that Piccadilly had not filed its bankruptcy petition in good faith.