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Some Question If Judge Will Dismiss Greenbrier's Bankruptcy Case;
The Key is What Do the Creditor's Want

By George Hohmann, Charleston Daily Mail, W.Va.McClatchy-Tribune Regional News

May 15, 2009 - CHARLESTON, W.Va. -- Judges like Kevin Huennekens, who is overseeing The Greenbrier Resort's bankruptcy, have wide discretionary powers and often make multi-million-dollar decisions quickly, lawyers familiar with bankruptcy matters say.

The Greenbrier filed bankruptcy in March, signed a sales agreement with the Marriott, and asked Huennekens to hold an auction in June -- with the idea that there wouldn't be another buyer.

But in a surprise turn of events, coal baron Jim Justice last week announced that he is the new owner of The Greenbrier. Justice said he purchased stock of The Greenbrier's holding company from CSX Corp. for $20.1 million.

Last Friday the resort's lawyers asked the judge to dismiss the bankruptcy case. They also asked him to shorten the normal 20-day notice required before a hearing and asked him to decide on the dismissal motion next Tuesday. Interested parties have until today to object.

The lawyers said the only purpose for filing bankruptcy was "to facilitate a sale or restructuring that would ensure The Greenbrier continues operating as a going concern under new ownership for the benefit of all parties in interest." The sale to Justice achieves that goal so the bankruptcy no longer serves any necessary restructuring purpose, the lawyers argued. They said that everyone, including the creditors, would benefit by a quick dismissal.

Bill Pepper of the Charleston law firm of Pepper & Nason said that generally speaking, judges do have discretion to drop a bankruptcy case "if there's an appropriate reason and it's not to beat the system or cause undue harm to someone else."

John Rollins of the Charleston law firm of Lewis Glasser Casey & Rollins agreed that when it comes to dismissing a bankruptcy case, "that's one issue where a judge generally has a wide range of discretion. The key thing usually is, what do the creditors think?"

Rollins said he has not been following The Greenbrier case closely but from what he has read, "there are not a lot of creditors in the case. CSX is the big lender to the subsidiary company. I don't know that there are lots of creditors out there beside them. If the creditors are OK with the dismissal, the judge may be inclined to grant the relief, regardless of the rights of Marriott with the (sales) contract document. I know there's some dispute there. I don't know who's right or wrong."

"A district judge here said once on an appeal that bankruptcy practice is a rough-and-tumble process," Rollins said. "Things happen in bankruptcy court more quickly than they do in most other courts. If you look at state and federal courts, complex litigation often happens over months or years. In bankruptcy you can have multimillion-dollar issues settled in a matter of weeks."

Another veteran bankruptcy lawyer, who requested anonymity, said that if Marriott objects, the judge may tell The Greenbrier to deal with Marriott in state court over the alleged breach of contract.

"I'll be interested to hear what the U.S. trustee has to say," the lawyer added, explaining that the trustee "is there to look out for the good of the order. The court will listen to him. He will listen to creditors. If the creditors scream bloody murder, the judge probably won't do it.

"My guess is the unions will be afraid to say very much," the lawyer said. "They don't want to get off on a bad foot with the new owner."

In summary, the lawyer said, "If Marriott is the only party objecting, I think he (Judge Huennekens) is going to dismiss the case. But you never know."

The fact that Justice bought the stock of the company that owned The Greenbrier, rather than the resort itself, is an unusual twist. Pepper said, "Some of us local lawyers were scratching our heads" over that "because normally in bankruptcy, any type of sales or transfers are under the wing of the bankruptcy court and subject to the judge's approval."

One of the lawyers who requested anonymity said, "It's like walking in and throwing a piece of dynamite into the room. There's McGuire Woods, happily representing The Greenbrier, and all of a sudden they still represent the debtor but the debtor has new management. So they have a new boss they've never met before."

By purchasing the stock rather than the resort itself, Justice "just stepped into the shoes of CSX," said one of the lawyers. "He'll be bound by whatever agreements are binding on CSX. It's just a change in players."

Another lawyer who handles corporate bankruptcy cases also agreed to speak on the condition of anonymity. Huennekens "doesn't have to do it," he said of the dismissal request.

"Chapter 11 of the bankruptcy code, section 1112, says that after notice of hearing, the court can dismiss the case if it is in the best interest of creditors and the estate," the lawyer said. "That's the standard. I assume some creditors may want to keep it in bankruptcy to make sure their interests are protected under the structure of the code. That's what he's likely to follow -- whether dismissal is in the best interest of creditors."

The lawyer noted that in bankruptcy, "a debtor must file monthly reports and creditors can monitor your behavior and how you're going to restructure."

In their motion to dismiss, The Greenbrier's lawyers argue that under the resort's sales agreement with Marriott, Marriott's "sole remedy" is to receive the return of its deposit, a break-up fee, and reimbursement for expenses.

Marriott made a $3 million deposit when it agreed to purchase The Greenbrier. The resort agreed to pay a $2 million break-up fee if it was sold to anyone else; if another plan was developed that would continue the operation of the hotel; or if the resort's assets were liquidated. The Greenbrier also agreed to reimburse Marriott up to $600,000 for reasonable expenses.

Justice has said he will see to it that The Greenbrier pays the break-up fee.

In a bankruptcy case the so-called stalking horse -- in this case, Marriott -- has a break-up fee as part of the contract "to protect his investment in time and money," one of the anonymous lawyers said. "The stalking horse wants to set that fee as high as possible to deter competing bids. Then, if the Marriott is outbid at auction, they get the breakup fee. Well, Jimmy (Justice) didn't outbid them. He bought the stock of the debtor.

"He's now in the position of being the sole stockholder of the debtor that has a contract with Marriott. The sales contract probably does not say the debtor can pull out of the agreement if it pays the breakup fee. It probably says Marriott gets the fee if it is outbid.

"The court is going to have to go to Marriott and say, 'I know what this contract says you entered into with the debtor." But now the debtor doesn't want to honor the contract they entered into. That's a little bit of a stretch. It's as if I have 'Company A' and it enters into a contract to sell you a car for $10,000. Then Company A changes shareholders. That doesn't mean Company A can say it isn't going to sell you the car."

Contact writer George Hohmann at business@dailymail.com or 304-348-4836.

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Copyright (c) 2009, Charleston Daily Mail, W.Va.

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