Litigation: No whole business enterprise exception to single asset real estate provisions

9th Circuit rules that subsidiary be considered a single asset real estate debtor

Parent company Meruelo Maddux Properties Inc. (MMPI) and 53 of its subsidiaries filed Chapter 11 petitions in March 2009. Upon the bankruptcy filings, the cases of all entities were jointly administered but not substantively consolidated.

The debtors owned and developed real property in the Los Angeles area through a network of subsidiaries. The debtors had a centralized management team and the business was operated on a consolidated basis: revenues from operations of the subsidiaries’ properties were swept each day into a single general operating account that was then used to pay expenses for the parent and its subsidiaries. The parent and its subsidiaries filed consolidated tax returns with the Internal Revenue Service and filed consolidated financial reports with the Securities and Exchange Commission.

The bankruptcy court concluded that MMPI appeared to have characteristics of a single asset real estate case, but determined that it was inappropriate to apply the single asset real estate provisions because of the consolidated and interrelated business operations of the parent and its subsidiaries.

BofA appealed to the district court, which reversed the bankruptcy court’s ruling as to MMPI. In reversing, the district court held that MMPI Hill should be treated as a single asset real estate debtor because there is no “whole enterprise” exception to the plain language of the Bankruptcy Code’s single asset real estate provisions. MMPI Hill appealed to the 9th Circuit, arguing that Congress did not intend to apply the single asset real estate to debtors like MMPI Hill.


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Randye Soref

Randye B. Soref is a shareholder and administrative chair of Buchalter Nemer’s Insolvency and Financial Solutions  practice group. She focuses her practice on bankruptcy and...

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