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In re Civic Partners Sioux City, LLC

United States Bankruptcy Appellate Panel of the Eighth Circuit

July 19, 2016

In re: Civic Partners Sioux City, LLC Debtor
v.
Main Street Theatres, Inc.; Main Street-Sioux City, Inc.; Steven Semingson; Northwest Bank, successor by merger with First National Bank; City of Sioux City Objectors - Appellees Civic Partners Sioux City, LLC Debtor - Appellant

          Submitted: May 19, 2016

         Appeal from United States Bankruptcy Court for the Northern District of Iowa - Sioux City

          Before KRESSEL, SCHERMER, and NAIL, Bankruptcy Judges.

          NAIL, Bankruptcy Judge.

         Civic Partners Sioux City, LLC appeals the July 8, 2015 order of the bankruptcy court dismissing its chapter 11 bankruptcy case. We reverse and remand.

         BACKGROUND

         Civic Partners Sioux City, LLC ("Civic Partners") owns commercial real estate, known as the Promenade, in the Historic Fourth Street Redevelopment District of Sioux City, Iowa ("City"). Northwest Bank ("Bank") holds a mortgage against the Promenade and an assignment of rents to secure a promissory note executed by Civic Partners. City also holds a mortgage against the Promenade to secure a promissory note executed by Civic Partners. Main Street Theatres, Inc. ("Main Street") leases and occupies the majority of the space in the Promenade.

         Soon after entering into the lease with Civic Partners in 2004, Main Street fell behind on its lease payments. This in turn caused Civic Partners to fall behind on its loan payments to Bank and to City. In 2009, Civic Partners, Main Street, Bank, and City mediated their various disputes.[1] The mediation sessions led to a tentative resolution of the parties' disputes, which was memorialized in a settlement agreement. The settlement agreement was subject to ratification by the city council.

         In the settlement agreement, Bank agreed to restructure Civic Partners' loan, City agreed to reduce the Promenade's tax assessment value, and City further agreed to address certain construction defects in public works adjacent to the Promenade. In return, Civic Partners agreed to enter into an amended lease with Main Street that would lower Main Street's annual rent and forgive the back rent owed by Main Street.

         In November 2009, Civic Partners and Main Street entered into the amended lease contemplated by the settlement agreement. Civic Partners' obligations under the amended lease were conditioned on Civic Partners' formalizing the agreements with Bank and City described in the settlement agreement on or before January 15, 2010. In the event Civic Partners was unable to do so, the amended lease gave Civic Partners the right to declare the amended lease null and void on or before January 31, 2010.

         That same month, Civic Partners was able to formalize the agreement with Bank. Bank's obligations under the parties' restructure agreement were conditioned on, inter alia, Civic Partners' formalizing the agreement with City and entering into the amended lease with Main Street described in the settlement agreement on or before December 31, 2009. In the event Civic Partners was unable to do so, the restructure agreement provided the loan modification would be void and without effect.

         Civic Partners was not able to formalize the agreement with City: In December 2009, the city council declined to ratify the settlement agreement. Civic Partners and Main Street nevertheless agreed to several extensions of the January 31, 2010 deadline for Civic Partners to declare the amended lease null and void. The last such extension pushed the deadline to March 31, 2011.

         In the meantime, in December 2010, Bank commenced a state court lawsuit against Civic Partners. In January 2011, City followed suit.

         On March 30, 2011, Civic Partners notified Main Street it was terminating the amended lease. Fifteen days later, Civic Partners filed a petition for relief under chapter 11 of the bankruptcy code.

         In July 2012, on Civic Partners' motion to determine whether the original lease or the amended lease controlled, the bankruptcy court concluded the amended lease was still in effect and controlled Civic Partners' relationship with Main Street. The bankruptcy court held Iowa rescission law prevented Civic Partners from terminating the amended lease without returning a $200, 000.00 "restructuring payment" it had received from Main Street. Alternatively, the bankruptcy court held Civic Partners could not terminate the amended lease without Bank's consent.

         In January 2013, on Civic Partners' motion to reconsider its earlier ruling, the bankruptcy court again held the amended lease was still in effect and controlled Civic Partners' relationship with Main Street. Civic Partners appealed both orders. Because the bankruptcy court's orders were interlocutory, we dismissed the appeal in early February 2013.[2]

         In the meantime, in September 2012-after the bankruptcy court first held the amended lease was still in effect, but before it reiterated its holding-Civic Partners filed a "Second Amended and Substituted Plan of Reorganization (Dated September 26, 2012)."[3] While Civic Partners continued to argue the amended lease had been terminated, the plan was predicated on the amended lease, in compliance with the bankruptcy court's earlier rulings. In early October 2013, the bankruptcy court denied confirmation of the plan, in large part because the bankruptcy court determined it was not feasible.

         Four days later, Bank filed a motion to dismiss Civic Partners' bankruptcy case. The matter was held in abeyance while Civic Partners again appealed several of the bankruptcy court's orders, including its orders regarding the amended lease and its order denying confirmation of Civic Partners' plan. Because the bankruptcy court's orders were interlocutory, we dismissed the appeals in late October 2013. On Civic Partners' further appeal, the Eighth Circuit Court of Appeals did likewise in March 2015.

         After the Eighth Circuit Court of Appeals denied Civic Partners' motion for rehearing and for rehearing en banc in April 2015, the bankruptcy court held a continued hearing on Bank's motion to dismiss. The bankruptcy court took the matter under advisement and on July 8, 2015, entered ...


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