Memorandum of Decision Re: Relief from Stay

FOR THE NORTHERN DISTRICT OF CALIFORNIA In re TMI GROWTH PROPERTIES - '82                                       No. 1-88-01073      Debtor.                                                                                R.S. No. 89-6 ___________________________/
Memorandum of Decision
     Debtor TMI Growth Properties - '82 owns and operates a Sheraton Hotel in Santa Rosa, California. Since the hotel began operating in 1984, it has never made a profit and has always had a negative cash flow. Even while in Chapter 11 and relieved of the need to pay prepetition debt, TMI has not been able to make ends meet.      Movant Great Western Bank now seeks relief from the automatic stay in order to foreclose on its first priority deed of trust to 1the hotel property. Great Western is now owed about $14.5 million; the property is worth only $12.3 million. The Court denied a similar motion brought in August, 1988, when the case was only two months old, finding that a reorganization of the debtor was feasible notwithstanding the lack of equity in the property. Now, nine months after TMI filed its Chapter 11 petition, the Court must reexamine the facts and determine if cause now exists to modify the stay.      The parties are in agreement that relief from the stay is not appropriate if the property is necessary to an effective reorganization, notwithstanding lack of equity, and that the burden of proof is on TMI. United Savings Assn. of Texas v. Timbers of Inwood Forest Assoc., Ltd. (1988) 108 S.Ct. 626; 11 U.S.C. section 362(g)(2). The only dispute over the applicable law involves the meaning of the phrase "necessary to an effective reorganization." Great Western argues that it means necessary to a plan of reorganization with a reasonable possibility of success within a reasonable time, citing Timbers at page 362. TMI argues for a lesser standard, that there can be no effective reorganization without the property. The Court believes that Great Western has stated the law correctly.      It is clear from the evidence that reorganization of the debtor is problematical, to say the least. Any reorganization will require an influx of new capital from a new partner, additional funds from the limited partners of TMI, and restructuring of the Great Western obligation. Obtaining a new partner is difficult for TMI because of threatened RICO litigation by the debtor's former management company, which has already queered one deal. There has been no call for additional funds from the limited partners, even though TMI has been in serious financial trouble for almost two years. Great Western has expressed a disinterest in negotiating at all with present TMI management. While none of these problems is by itself insurmountable, taking them all into account it appears that while reorganization is possible, it is more likely than not that the effort to reorganize will fail unless TMI quickly starts making all the right moves. So far, TMI has not demonstrated this ability.      The Bankruptcy Code does not restrict the court to an all-or- nothing approach to automatic stay litigation. Even where relief is mandated, section 362(d) gives the court discretion to terminate, annul, modify, or condition the stay. Since each case is different, the court has wide discretion to fashion an appropriate order. 2 Collier on Bankruptcy (15th Ed.), p. 362-54.      In this case, it appears that if reorganization is going to happen at all, it will happen in the next few months. If no reorganization is forthcoming within that time, the chances for reorganization thereafter are too remote to justify continuance of the automatic stay. The Court will base its order on this finding.      The automatic stay will be modified on September 15, 1989, so as to permit Great Western to enforce its security interest in the debtor's property unless, on or before that date, an order confirming a plan of reorganization has been entered. This ruling will be without prejudice to Great Western's right to seek such relief at an earlier date if TMI's attempts to reorganize have clearly collapsed or if TMI fails to promptly pay any secured real property tax which first became due after the petition date.      Counsel for Great Western shall submit an appropriate form of order which counsel for TMI has approved as to form.
Dated: March 21, 1989                                                                              _______________________                                                                                                                      Alan Jaroslovsky                                                                                                                      U.S. Bankruptcy Judge

     1. This figure includes postpetition interest and charges not allowable to undersecured creditors. It appears that Great Western has a secured claim for $12.3 million and an unsecured claim for about $1.3 million, subject to 1111(b) ri