UNITED STATES DISTRICT COURT 

EASTERN DISTRICT OF MICHIGAN 

SOUTHERN DIVISION 

In re SHEFA, LLC, 

 Debtor, 

_____________________________/ 

 Civil Case No. 15-10665 

SHEFA, LLC, Honorable Linda V. Parker 

 

 Appellant/Counter-Appellee, Bankruptcy Case No. 14-42812 

 

v. 

OAKLAND COUNTY TREASURER, 

 Appellee/Counter-Appellant. 

______________________________/ 

OPINION AND ORDER 

 This matter is before the Court as an appeal from the United States Bankruptcy 

Court for the Eastern District of Michigan. Debtor and Appellant/Cross-Appellee, 

Shefa, LLC (hereafter “Debtor”), appeals the following decisions entered by the 

Honorable Phillip J. Shefferly: (A) a January 20, 2015 “Opinion (1) Sustaining in Part 

Debtor’s Objection to Proof of Claim; (2) Denying Confirmation of Debtor’s Plan of 

Reorganization; and (3) Granting Motion for Relief from the Automatic Stay”; (B) a 

January 20, 2015 order consistent with that opinion; and, (C) a February 9, 2015 

“Order Denying Motion for Reconsideration and For Other Relief.” Claimant and 

Appellee/Counter-Appellant, Oakland County Treasurer (hereafter “Oakland 

County”), has filed a cross-appeal. Debtor filed an initial appeal brief on April 2, 

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2015 (ECF No. 8); Oakland County filed a responsive brief on April 16, 2015. (ECF 

No. 9.) Debtor filed a reply brief on April 30, 2015. (ECF No. 10.) Debtor has 

requested oral argument “because of the fact-intensive issues presented on appeal.” 

(ECF No. 8 at Pg ID 752.) The Court, however, finds the facts and legal arguments 

sufficiently presented in the parties’ pleadings and in the bankruptcy court’s January 

20, 2015 decision. Therefore, the Court is dispensing with oral argument pursuant to 

Eastern District of Michigan Local Rule 7.1(f). 

I. Standard of Review 

 The bankruptcy court’s findings of fact are reviewed under the clearly 

erroneous standard. Fed. R. Bankr. P. 8013. “A finding of fact is clearly erroneous 

‘when although there is evidence to support it, the reviewing court, on the entire 

evidence, is left with the definite and firm conviction that a mistake has been 

committed.’ ” United States v. Mathews (In re Matthews), 209 B.R. 218, 219 (B.A.P. 

6th Cir. 1997) (quoting Anderson v. City of Bessemer City, 470 U.S. 564, 573 (1985)). 

The bankruptcy court’s conclusions of law are reviewed de novo. Nuvell Credit Corp. 

v. Westfall (In re Westfall), 599 F.3d 498, 501 (6th Cir. 2010). This means the Court 

reviews the law independently and gives no deference to the conclusions of the 

bankruptcy court. Myers v. IRS (In re Meyers), 216 B.R. 402, 403 (B.A.P. 6th 

Cir.1998). “[I]f a question is a mixed question of law and fact, then [the reviewing 

court] must break it down into its constituent parts and apply the appropriate standard 

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of review for each part.” Investors Credit Corp. v. Batie (In re Batie), 995 F.2d 85, 88 

(6th Cir. 1993). 

II. Factual and Procedural Background 

 Debtor filed this Chapter 11 bankruptcy case on February 25, 2014. Debtor’s 

sole asset is a vacant hotel located at 16400 J.L. Hudson Drive, Southfield, Michigan 

(“Hotel”). Oakland County is Debtor’s largest creditor, having filed a proof of claim 

on February 26, 2014 for real property taxes and water and sewerage charges for the 

Hotel totaling $3,665,155.82, which Oakland County identified as a secured claim. 

Debtor identified few additional creditors on its bankruptcy schedules. On June 4, 

2014, Debtor filed an objection to the Oakland County claim. 

 Prior to that time, Oakland County moved for relief from the automatic stay 

and Debtor filed a Disclosure Statement and Combined Plan of Reorganization. 

The bankruptcy court concluded that an evidentiary hearing was necessary to resolve 

disputed issues of fact relevant to the matters before the court. A two-day hearing 

ensued. On January 20, 2015, the bankruptcy court issued a decision. In re Shefa 

LLC, 524 B.R. 717 (Bankr. E.D. Mich. Jan. 20, 2015). This Court will not restate the 

facts found by the bankruptcy court in that decision except to the extent relevant to the 

present appeal. The Court assumes the reader’s familiarity with those facts, however. 

Sidney Elhadad, an attorney from Montreal, Canada, is Debtor’s sole member. 

Elhadad formed Debtor to purchase the first mortgage on the Hotel from Grand 

Pacific Finance Corporation (“Grand Pacific”), which had an outstanding balance of 

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over $10.3 million. Debtor purchased the mortgage from Grand Pacific for 

$165,000.00. Debtor then completed a foreclosure sale on the Hotel, with a sheriff’s 

deed for the Hotel executed and delivered to Debtor on November 10, 2009. 

At that time, there were substantial delinquent taxes and water and sewerage 

charges owed by the Hotel to the City of Southfield (“City”). Taxes for the Hotel had 

not been paid since 2005. The last payment on water and sewerage charges occurred 

in July 2009. Elhadad hoped that he could negotiate a deal with the City to make a 

discounted lump sum payment for the outstanding amounts. He was unsuccessful in 

reaching such an agreement, however. 

In addition, the Hotel experienced higher vacancy rates and poorer collections 

than Elhadad had anticipated. Elhadad personally contributed approximately $1.5 

million to fund the Hotel’s operating losses, but it was not enough. The Hotel closed 

in October 2010, and was subsequently boarded up. 

Under Michigan law, cities turn over unpaid taxes and water and sewerage 

charges to the local counties for collection after one year of delinquency. Oakland 

County therefore held the City’s claim against the Hotel. Oakland County moved to 

foreclose on the Hotel pursuant to its statutory authority under Michigan law. Debtor 

then filed this Chapter 11 case. 

As mentioned, Debtor listed few creditors on its bankruptcy schedules. Four 

secured claims were identified: (1) the Oakland County claim listed in an unknown 

amount; (2) Elbaz Building in the amount of $269,800.00; (3) Professionally Driven, 

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LLC in the amount of $3,500.00; and (4) Fernand Soultan in the amount of $3 million. 

Two unsecured creditors were identified: (1) Ieshula Ishakis for $189,541.00; and (2) 

King Solomon Properties, LLC for $282,000.00. 

Based on testimony of a certified commercial real estate appraiser, the 

bankruptcy court concluded that the Hotel’s value was $690,000.00 as of two months 

after the petition date. The Hotel’s value had decreased significantly since December 

31, 2008 (from $1.57 million) due to its deteriorating condition and location in a 

declining area. The appraiser opined that the highest and best use of the Hotel would 

be for senior housing and medical facilities. 

The Combined Disclosure Statement and Plan of Reorganization (hereafter 

“Plan”) submitted by Debtor prior to the evidentiary hearing proposes renovating and 

reopening the Hotel for use as a combined upper mid-scale limited service hotel, 

upper mid-scale extended stay hotel, and independent living facility. The Plan states 

that financing would be provided by SMi ENERPRO, consisting of approximately $2 

million of financing, together with a Small Business Administration guaranteed loan. 

The Plan also proposes that Elhadad would provide funding either individually or 

through one of his entities. 

By the time of the evidentiary hearing before the bankruptcy court, however, 

the Plan had been modified in that Debtor proposed that the financing to renovate the 

Hotel and make Plan payments would be provided by KFG Southfield, LLC. KFG 

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was formed by Salomon Knafo, a long-time acquaintance of Elhadad, who is involved 

in investing, purchasing, and selling distressed real properties. 

In November 2014, KFG entered into two agreements with Debtor: a loan 

agreement and a letter of intent. The loan agreement provides for KFG to loan up to 

$50,000.00 to Debtor for repairs to the Hotel. The letter of intent provides that KFG 

would contribute a total of $2 million of equity in consideration for a 60% partnership 

interest in the Hotel. Knafo indicated at the evidentiary hearing, however, that KFG is 

not presently committed to provide any funds to Debtor under either agreement. The 

terms of the loan agreement and letter of intent also reflect that both are non-binding. 

The Plan specifies three classes of claims and one class of equity interests, with 

the class one claim consisting of the Oakland County claim. Based on Debtor’s 

objection to the Oakland County claim, the Plan states that the allowed amount of the 

claim is limited to $690,000.00. The Plan provides for a lump sum payment in that 

amount to Oakland County on the effective date of the Plan, which the Plan defines as 

eleven days after the order confirming the Plan becomes a final order. 

Class two of the Plan consists of a secured claim in the amount of $3,5000.00 

held by Professionally Driven. The Plan provides for payment in full of this claim by 

35 monthly installments with no interest. Professionally Driven voted to accept the 

Plan. 

The Plan identifies class three as consisting of general unsecured claims, which 

the Plan describes as aggregating $3,741,341.00. The Plan lists four creditors in this 

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class: Ieshula Ishakis and King Solomon Properties, LLC (listed on Debtor’s 

schedules as unsecured creditors) and Elbaz Building and Fernand Soultan (listed as 

secured creditors). The Plan provides for payment of 2% to class three claims, 

without interest, in 120 monthly installments beginning on the effective date of the 

Plan. By the time of the evidentiary hearing, however, Debtor had modified this 

aspect of the Plan to now pay 30% to class three creditors, thereby increasing 

payments to those creditors from $74,826.82 to $1,122,402.30. This resulted in an 

increase in Debtor’s monthly payments to class three creditors from $623.56 to 

$9,353.35. Ishakis, Elbaz Building, and Soultan voted to accept the Plan. Debtor did 

not receive a ballot form King Solomon Properties. 

The Plan does not contain a class four or class five, but specifies that class six 

consists of the equity interest in the Debtor. 

At the evidentiary hearing, Elhadad acknowledged that he does not have a 

commitment from anyone to provide the funds necessary to implement the Plan if 

KFG does not provide the funds. Elhadad admitted that he has expended all of his 

funds and presently has no funds of his own with which to fund the Plan. 

In the January 20, 2015 decision, the bankruptcy court (1) sustained in part 

Debtor’s objection to the Oakland County claim; (2) denied confirmation of Debtor’s 

Plan, as amended; and (3) granted Oakland County’s relief from the automatic stay. 

With respect to Debtor’s objection to the Oakland County claim, the bankruptcy court 

concluded that the water and sewerage charges totaling $1,870.198.12 did not 

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constitute a tax, although the charges were secured by property of the estate. In re 

Shefa, 524 B.R. at 731. The bankruptcy court disallowed the amount claimed for 

property taxes exceeding the $690,000 value of the Hotel under § 502(b)(3) of the 

Bankruptcy Code, 11 U.S.C. § 502(b)(3). Id. at 731-32. The bankruptcy court held 

that the remaining balance ($1,226,781.57) is disallowed under § 502(b)(3) and 

extinguished,1

 and that 11 U.S.C. § 1111(b)(1)(A) does not apply to that amount 

although it does apply to the water and sewerage charges.2

 Id. at 737, 739-40. 

The bankruptcy court found no other liens or interests superior to the liens 

securing Oakland County’s claim. Id. at 732. Between the two Oakland County liens, 

 

1 In reaching this conclusion, the bankruptcy court rejected Oakland County’s 

argument that whatever portion of its claim is disallowed under § 502(b)(3) should 

be entitled to treatment as an unsecured pre-petition priority claim under 11 U.S.C. 

§ 507(a)(8). In re Shefa, 524 B.R. at 732-33. The bankruptcy court found Oakland 

County’s argument contrary to the plain language of § 507(a)(8). Id. 2 Section 1111(b)(1)(A) provides: 

A claim secured by a lien on property of the estate shall be allowed or 

disallowed under section 502 of this title the same as if the holder of 

such claim had recourse against the debtor on account of such claim, 

whether or not such holder has such recourse, unless-- 

(i) the class of which such claim is a part elects, by at least two-thirds 

in amount and more than half in number of allowed claims of such 

class, application of paragraph (2) of this subsection; or 

(ii) such holder does not have such recourse and such property is sold 

under section 363 of this title or is to be sold under the plan. 

11 U.S.C. § 1111(b)(1)(A). 

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the bankruptcy court concluded that Michigan law grants the tax line priority over the 

lien for water and sewerage charges. Id. 

The bankruptcy court denied confirmation of Debtor’s Plan, as amended, 

concluding that it was not feasible. Id. The bankruptcy court therefore found it 

unnecessary to address Oakland County’s additional objections to the Plan, including 

its argument that the Plan should not be confirmed due to Debtor’s bad faith in filing 

the bankruptcy case and proposing the Plan. Id. Finding no prospective 

reorganization after denying confirmation of the Plan and finding that Debtor has no 

equity in the Hotel, the bankruptcy court found grounds to grant Oakland County’s 

motion to lift the automatic stay under 11 U.S.C. § 362(d). Id. at 743-44. 

On February 3, 2015, Debtor filed a motion for reconsideration and for a stay 

of the January 20, 2015 decision pending appeal. The bankruptcy court denied the 

motion on February 9, 2015. 

On February 23, 2015, Debtor filed a notice appealing the bankruptcy court’s 

January 20 and February 3, 2015 decisions. Debtor identifies the following as issues 

raised on appeal: 

1. Did the Bankruptcy Court erroneously deny confirmation to 

Debtor’s Combined Disclosure Statement and Plan, as amended? 

2. Did the Bankruptcy Court erroneously grant relief from stay to 

Oakland County? 

3. Did the Bankruptcy Court erroneously not apply 11 U.S.C. section 

502(b)(3) to the water portion of Oakland County’s proof of 

claim? 

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4. Did the Bankruptcy Court erroneously deny Debtor’s motion for 

reconsideration? 

5. Did the Bankruptcy Court erroneously not fully grant Debtor’s 

objection to Oakland County’s proof of claim? 

6. Did the Bankruptcy Court erroneously find Debtor’s plan not 

feasible? 

7. Did the Bankruptcy Court erroneously find that Debtor’s 

financing was not sufficiently definite? 

8. Did the Bankruptcy Court erroneously look to whether Debtor had 

financing for the period of time subsequent to when it would have 

paid off Oakland County’s proof of claim? 

Many of these issues overlap. Oakland County filed a cross-appeal on March 9, 2015. 

Oakland County raises the following issue on appeal: “Did the Bankruptcy Court err 

when it disallowed a portion of the Oakland County Treasurer’s Claim for delinquent 

real property taxes?” 

III. Applicable Law and Analysis 

A. The Bankruptcy Court’s Analysis of the Oakland County Claim

 Debtor argues that the bankruptcy court erred in not applying § 502(b)(3) to the 

water and sewerage portion of the Oakland County claim and thereby not fully 

granting Debtor’s objection to the claim. Oakland County contends that the 

bankruptcy court erred when it disallowed the portion of its claim for delinquent real 

property taxes that exceeded the value of the Hotel, specifically $1,226,781.57. This 

Court finds no error in the bankruptcy court’s analysis of the Oakland County Claim. 

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 As the bankruptcy court explained: 

Section 501 of the Bankruptcy Code governs the filing of proofs of 

claims. Section 502(a) provides that a proof of claim filed under § 501 

is deemed allowed unless a party in interest objects. Section 502(b) 

provides that if an objection to a claim is made, the Court, after notice 

and a hearing, shall determine the amount of the claim and shall allow 

the claim in such amount except to the extent that one of the grounds for 

disallowance set forth in § 502(b)(1) through (9) applies. 

In re Shefa, 524 B.R. at 729. Debtor objected to the Oakland County claim based on 

§ 502(b)(3), which provides that a claim shall not be allowed to the extent that “if 

such claim is for a tax assessed against the property of the estate, such claim exceeds 

the value of the interest in such property.” 11 U.S.C. § 502(b)(3). The bankruptcy 

court was correct in holding as a matter of law that the water and sewerage portion of 

the Oakland County claim is not a tax and therefore not disallowed under § 502(b)(3). 

 By its plain terms, § 502(b)(3) applies only to “tax[es] assessed against 

property of the estate.” Therefore, “[n]ot all charges and fees assessed on a debtor’s 

property by a taxing authority are subject to the provision. Instead, § 502(b)(3) only 

applies to ad valorem taxes, with state law dictating the scope of that term.” In re 300 

Washington St. LLC, 528 B.R. 534, 548 (Bankr. E.D.N.Y. 2015). As the bankruptcy 

court correctly found, under Michigan law, the portion of Oakland County’s claim 

based on water and sewerage charges is not “a tax assessed against property of the 

estate” based on the operation of Michigan’s Revenue Bonding Act, Michigan 

Compiled Laws Section 141.121(3). 

Michigan’s Revenue Bonding Act reads, in relevant part: 

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Charges for services furnished to a premises may be a lien on the 

premises, and those charges delinquent for 6 months or more may be 

certified annually to the proper tax assessing officer or agency who shall 

enter the lien on the next tax roll against the premises to which the 

services shall have been rendered, and the charges shall be collected and 

the lien shall be enforced in the same manner as provided for the 

collection of taxes assessed upon the roll and the enforcement of the lien 

for the taxes. The time and manner of certification and other details in 

respect to the collection of the charges and the enforcement of the lien 

shall be prescribed by the ordinance adopted by the governing body of 

the public corporation. 

Mich. Comp. Laws § 141.121(3). Nothing in the plain language of this provision 

defines the charges for water or sewerage services as a tax. As such, this case is 

distinguishable from In re Van Beckum, No. 07-28650, 2009 WL 122754 (Bankr. E.D. 

Wis. Jan. 15, 2009), relied upon by Debtor. 

In re Van Beckum involved Wisconsin law, which expressly provides that 

unless municipal public utility charges are paid by a specific date, “the arrears and 

penalty will be levied as a tax against the lot or parcel of real estate to which utility 

service was furnished and for which payment is delinquent.” Wis. Stat. § 66.0809 

(emphasis added). Michigan’s statute, in comparison, does not define delinquent 

water and sewerage charges as a tax. Instead, section 141.121(3) does the following 

only: (1) provides that water and sewerage charges, when delinquent for six months or 

more, may be a lien on the property; and (2) grants authority to the proper tax 

assessing officer or agency (here, Oakland County) to act as a collecting agent for 

those charges, using the same manner provided for the collection of taxes. See supra. 

Moreover, the Michigan Supreme Court has held that water and sewerage charges are 

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not a tax. Ripperger v. City of Grand Rapids, 62 N.W.2d 585, 587 (Mich. 1954) 

(holding that sewage charges are not taxes by applying the reasoning stated previously 

by the Michigan Supreme Court to reach the same conclusion with respect to water 

service charges in Jones v. Board of Water Commission of Detroit, 34 Mich. 273 

(1876)). 

 Debtor points out that Oakland County, on its Proof of Claim form, listed only 

“[t]axes” as the basis for the claim. The Debtor offers no legal argument, however, 

for why this designation controls or impacts the Court’s analysis. 

 Oakland County takes no issue with the bankruptcy court’s conclusion that the 

portion of its claim for water and sewerage charges is not subject to § 502(b)(3). 

Oakland County contends, however, that no portion of its claim should be subject to 

this provision. On appeal, Oakland County asserts two arguments in support of this 

contention. First, Oakland County argues that the bankruptcy court’s ruling is 

contrary to the Tax Injunction Act. Second, it argues that the ruling is contrary to 

congressional intent.3

With respect to its first argument, Oakland County contends that the 

bankruptcy court was bound by the Tax Injunction Act to the total tax amount for the 

 

3 In the bankruptcy court, Oakland County argued that § 1111(b)(1)(a) of the 

Bankruptcy Code applies in this case, where Debtor plans to retain the property on 

which a lien has attached, such that Oakland County should be allowed a secured 

claim in the amount of the value of the Hotel and an unsecured claim for the 

remaining portion of the obligation. Oakland County does not mention 

§ 1111(b)(1)A) of the Bankruptcy Code anywhere in its appeal brief. This Court 

therefore assumes that it has abandoned its argument based on this section. 

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2008-2011 tax years ($799,659.57) established through proceedings involving Debtor 

in the Michigan Tax Tribunal (“MTT”). Stated differently, Oakland County contends 

that its claim for taxes should have been allowed in the amount of $799,659.57 

pursuant to the Tax Injunction Act. 

The Tax Injunction Act provides: 

The district courts shall not enjoin, suspend or restrain the assessment, 

levy or collection of any tax under State law where a plain, speedy and 

efficient remedy may be had in the courts of such State. 

28 U.S.C.A. § 1341. “It is well established, however, that the Tax Injunction Act does 

not prevent a Bankruptcy Court from enforcing the provisions of the Bankruptcy Code 

that affect the collection of state taxes.” In re Hechinger Inv. Co. of Delaware, Inc., 

335 F.3d 243, 247 (3d Cir. 2003) (citing cases). Courts have held “that the 

bankruptcy court may exercise jurisdiction over proceedings that would otherwise 

violate the [Tax Injunction] Act where the relief sought was necessary to the 

enforcement of specific Bankruptcy Code provisions.” In re Wilshire Courtyard, 729 

F.3d 1279, 1292 (9th Cir. 2013). 

Section 505 of the Bankruptcy Code grants the bankruptcy court authority to 

“determine the amount or legality of any tax . . .” unless “the amount . . . was 

contested before and adjudicated by a judicial or administrative tribunal of competent 

jurisdiction before the commencement of the case . . ..” 11 U.S.C. § 505(a)(1), (2). 

However, neither this provision nor the Tax Injunction Act precluded the bankruptcy 

court from applying § 502(b)(3) to disallow the amount of the tax claimed to the 

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extent the claim exceeds the value of the Hotel. In concluding that § 502(b)(3) applies 

to Oakland County’s tax claim, the bankruptcy court did not “enjoin, suspend or 

restrain the assessment, levy or collection of any tax under State law.” Nor did it set 

aside or attack the tax valuations reached through the MTT. 

In its second argument, Oakland County contends that the bankruptcy court’s 

application of § 502(b)(3) in this case is contrary to the legislature’s intent in enacting 

the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 

(“BAPCPA”). Specifically, Oakland County contends that application of § 502(b)(3) 

conflicts with the intent of Congress, as articulated in In re NVF Co, 394 B.R. 33 

(Bankr. Del. 2008), “to prevent a windfall to mortgagees and other lienors who would 

unfairly benefit from the payment of property taxes that would otherwise remain 

charges on the property” and to “prevent an injustice to unsecured creditors.” Id. at 40 

(internal quotation marks and citation omitted). The bankruptcy court in In re NVF

elaborated: 

The expansive amendment was Congress’s response to a situation that 

often saw estates almost entirely depleted by taxes to the detriment of 

unsecured creditors-- in spite of the fact that the property was often 

thereafter abandoned to mortgagees or the taxing authorities. This was so 

because the taxes were construed, under many state statutes, to be taxes 

legally due and owing by the bankrupt personally although such tax debt 

might result in liens on the real estate. 

It sought to prevent the injustice where [t]he payment of taxes 

from the bankrupt estate would have the effect of clearing away tax 

claims which otherwise would have remained charges on the real estate 

in the hands of the mortgagees or the tax sales purchasers. 

. . . 

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The windfall intended to be denied by § 502(b)(3) is easily 

perceived. A delinquent real estate tax can result in the tax being a lien 

against the real estate. Of course, the tax is also a claim against the 

property owner. If the property is abandoned or foreclosed upon by a 

mortgage holder, the mortgage holder or any other subsequent owner 

(such as in foreclosure) takes the property subject to the tax lien. Absent 

the application of § 502(b)(3), the taxing unit can collect from the debtor 

along with the unsecured creditors. To the extent the tax is paid to the 

taxing unit in that fashion, there will be a reduction or elimination of the 

tax lien on the property to the benefit of the successor owner. The 

application of the provision precludes that windfall to the successor 

owner. 

394 B.R. at 40 (internal quotation marks and citation omitted). 

 In In re NVF, the debtor owed approximately $1.4 million in real estate taxes 

and approximately $220,000 in unpaid utility charges, both secured by the debtor’s 

mill. 394 B.R. at 35. The mill was dilapidated and significantly damaged by fire and 

environmental contamination. Id. at 38. The debtor had abandoned the property. Id. 

at 40. The city in which the property was located had marketed the property for years, 

with no serious offers due to the substantial tax lien, as well as substantial hazardous 

waste remediation costs of $1.2 million, substantial repairs costs of $2.6 million, and 

substantial demolition costs of $1.6 million. Id. at 38. The Bankruptcy Court for the 

District of Delaware concluded that, as a result of these circumstances, “this [was] one 

of those rare cases where . . . strict application [of a statute] would produce a result 

that is demonstrably at odds with the legislative intent.” Id. at 39. Specifically, the 

court concluded that the property had negative market value and no potential 

purchasers and thus no party stood to suffer a hardship or gain a windfall if 

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§ 502(b)(3) was found inapplicable. Id. at 41. The court further noted the priority 

given to tax liens for valuable municipal services and relied on “ ‘Congress’ historic 

concern for the collection of taxes due and owing to national, states and local 

governments’ ” in concluding that § 502(b)(3) should not apply. Id. at 41-42. The 

court distinguished the cases relied upon by the debtor to argue that § 502(b)(3) 

should apply in that, in those cases, “the taxing authority had some other avenue to 

recover their claims beside the estate” (i.e. foreclosure). Id. at 42. 

The court’s reasoning in In re NVF is not applicable in the present matter where 

the property has value, has not been abandoned by the debtor, and is marketable. 

Unlike the municipality in In re NVF, Oakland County is not faced with recovering 

nothing for the services provided for the property. Only a portion of its tax claim was 

disallowed by the bankruptcy court under § 502(b)(3). Debtor proposed to pay in full 

the appraised value of the Hotel against which the tax was assessed. In short, this 

Court does not find this to be “one of those rare cases where [] a strict application [of 

§ 502(b)(3)] would produce a result that is demonstrably at odds with the legislative’s 

intent.” In re NVF, supra. According to its plain language, the applicability of 

§ 502(b)(3) is not dependent on whether the property is retained by the estate and 

therefore the Court concludes that the bankruptcy court did not err in rejecting 

Oakland County’s second argument. 

B. The Bankruptcy Court’s Decision to Deny Confirmation of Debtor’s 

Plan, As Amended

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Pursuant to the Bankruptcy Code, in order to confirm a plan of reorganization, 

the bankruptcy court must find that “[c]onfirmation of the plan is not likely to be 

followed by the liquidation, or the need for further financial reorganization, of the 

debtor or any successor to the debtor under the plan, unless such liquidation or 

reorganization is proposed in the plan.” 11 U.S.C. § 1129(a)(11). Although this 

provision “does not use the term ‘feasible’ or ‘feasibility,’ the requirement imposed 

by § 1129(a)(11) is commonly known as the ‘feasability’ test for confirmation.” In re 

Trenton Ridge Investors, LLC, 461 B.R. 440, 478 (Bank. S.D. Ohio 2011) (internal 

quotation marks, citation, and brackets omitted). It is the debtor’s burden to prove, by 

a preponderance of the evidence, that the plan is not likely to fail. In re Griswold 

Bldg., LLC, 420 B.R. 666, 697 (Bankr. E.D. Mich. 2009) (internal quotation marks 

and citation omitted). 

“Feasibility is fundamentally a factual question since it necessarily depends 

upon a determination of the reasonable probability of payment.” In re Brice Road 

Devs., LLC, 392 B.R. 274, 283 (B.A.P. 6th Cir. 2008) (quotation marks and citation 

omitted). The factors relevant to a finding of feasibility are: 

“(1) the adequacy of the capital structure; (2) the earning power of the 

business; (3) economic conditions; (4) the ability of management; (5) the 

probability of the continuation of the same management; and (6) any 

other related matter which determines the prospects of a sufficiently 

successful operation to enable performance of the provisions of the 

plan.” 

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Id. (quoting Teamsters Nat’l Freight Indus. Negotiating Comm. v. U.S. Truck Co., (In 

re U.S. Truck Co.), 800 F.2d 581, 589 (6th Cir. 1986)). These factors are not 

exhaustive. Id. Courts also have considered “the past financial performance of the 

debtor, the availability of credit if the plan is dependent on additional financing, and 

the term of the plan.” Id. 

 When considering the feasability of Debtor’s Plan, the bankruptcy court found 

it significant that Debtor has neither any capital of its own nor any income from any 

business operations. In re Shefa, 524 B.R. at 741. Thus the bankruptcy court found 

Debtor’s ability to pay Oakland County’s secured claim of $690,000.00 dependent 

upon its receipt of funds from an outside source. Nevertheless, Debtor had no 

commitment from KFG, or any other source, to pay this amount or the additional 

amounts needed to renovate and rehabilitate the Hotel. Id. at 741-42. The bankruptcy 

court concluded that neither an expression of interest from an investor nor a nonbinding letter of intent is sufficient to demonstrate a plan’s feasibility. Id. at 742. 

Thus the bankruptcy court found that Debtor failed to show that there is a reasonable 

probability that it will make the lump sum payment of $690,000.00 to Oakland 

County as proposed in the Plan. Id. 

 The bankruptcy court found it even less likely that Debtor would be able to 

make the monthly payments of $9,353.35 to the unsecured claims in class three, as 

required under the proposed amended plan. Id. Moreover, as the bankruptcy court 

pointed out, the proposed monthly payment did not even account for Oakland 

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County’s $1,870,198.12 water and sewerage charges which the bankruptcy court 

concluded also needed to be included in Debtor’s class three unsecured claims. Id. 

Assuming the thirty percent distribution to class three claims proposed in Debtor’s 

modified plan, Debtor would have to pay $14,028.85 per month to class three 

claimants. 

 On appeal, Debtor contends that “the [b]ankruptcy [c]ourt erred by applying 

too high of a standard for finding feasibility” and not giving sufficient deference to the 

opinion of sophisticated investors who expressed a belief that the business plan for the 

Hotel would succeed. (ECF No. 8 at Pg ID 781-83.) Debtor argues that “ ‘[t]he Code 

does not require the debtor to prove that success is inevitable, and a relatively low 

threshold of proof will satisfy § 1129(a)(11) so long as adequate evidence supports a 

finding of feasability.’ ” (Id. at Pg ID 780, quoting Alan N. Resnick & Henry J. 

Sommer, 7 Collier on Bankruptcy ¶ 1129.03[11] (15th ed. 2004).) Debtor points out 

that bankruptcy courts demand less and less specific proof to prove feasibility as one 

moves further away from the time of confirmation. (Id. at Pg ID 782 (quoting In re 

DBSD N. Am., Inc., 634 F.3d 79, 106-08 (2d Cir. 2010).) Debtor accurately states the 

law. Nevertheless, this Court finds no error in the bankruptcy court’s application of 

the law or feasibility analysis. 

 Responding to a claimant’s argument that a bankruptcy court cannot confirm a 

plan unless the debtor proves “specifics”, the Second Circuit stated in In re DBSD 

North America Inc.: 

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That is true at some level of generality, but exactly how specific those 

“specifics” must be depends on the circumstances. In most situations, the 

time immediately following bankruptcy will call for fairly specific proof 

of the company’s ability to meet its obligations-- as here, where it was 

“undisputed that the Debtors have commitments for working capital 

financing for the next two years.” DBSD I, 419 B.R. at 203. As one 

moves further away from the time of confirmation, however, the proof 

will necessarily become less and less specific. 

634 F.3d at 107. The problem for Debtor is the absence of “fairly specific proof of 

[its] ability to meet its obligations” in “the time immediately following bankruptcy[,]” 

regardless of the specificity the bankruptcy court may have sought with respect to the 

future. Debtor has not shown that the bankruptcy court erred in finding that Debtor 

lacked the financial wherewithal to make the payments required under the Plan or that 

it lacked a firm commitment by KFG or anyone to provide financing for the Plan-- 

including the financing required in the short term to pay creditors. 

Knafo did testify that KFG had sufficient funds to fund the plan. As the 

bankruptcy court pointed out, however, Knafo also emphasized during his testimony 

that KFG is not presently committed either to make the loan described in the loan 

agreement or provide the equity described in the letter of intent to Debtor. In fact, 

Elhadad, Knafo, and Eric Aouizerats (a consultant hired by Elhadad) conceded that 

neither KFG, nor any other investor or lender, is obligated to put any money into the 

project. Knafo and Aouizerats may have testified that the proposed renovation and 

redevelopment of the Hotel could be successful. However, they had prepared no 

projections of future operations for the Hotel once it was renovated and redeveloped. 

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As the bankruptcy court indicated, “[t]he purpose of the feasibility requirement 

of § 1129(a)(11) ‘is to protect creditors against unrealistic plans that have little or no 

chance of success.’ ” In re Shefa, 524 B.R. at 741 (quoting In re Adelphia Bus. 

Solutions, Inc., 341 B.R. 415, 421 (Bankr. S.D.N.Y. 2003)). “[C]reditors should not 

be expected to be bound by the terms of plans entailing visionary schemes which 

promise creditors more than the debtor can possibly deliver.” In re Arts Dairy, LLC, 

432 B.R. 712, 716-17 (Bankr. N.D. Ohio 2010) (citing In re Danny Thomas Props. II 

Ltd. P’ship, 241 F.3d 959, 963 (8th Cir. 2001)). Therefore, while “the proponent of a 

Chapter 11 plan need not show that success is guaranteed[,]” it must demonstrate that 

there is “a reasonable assurance of commercial viability,” id. at 717, and “a 

‘reasonable probability’ that the debtor will be able to make all of the payments to 

creditors according to the terms provided in the plan.” In re Waterford Hotel, Inc.

497 B.R. 255, 263 (Bankr. E.D. Mich. 2013) (quoting Trenton Ridge Investors, 461 

B.R. at 478). The bankruptcy court did not err in finding that Debtor failed to make 

these showings. 

 Oakland County alternatively argues on appeal that the Plan was properly 

rejected because Debtor has not acted in good faith in filing the bankruptcy case or in 

proposing the plan. Whether Debtor has acted in good faith is a question of fact, 

Society Nat’l Bank v. Barrett (In re Barrett), 964 F.2d 588, 591 (6th Cir. 1992), which 

is dependent on a multitude of factors. See In re Laguna Assoc. Ltd. P’ship, 30 F.3d 

734, 738 (6th Cir. 1994) (providing a list of eight non-exhaustive factors relevant to 

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whether the debtor acted in bad faith). The bankruptcy court declined to engage in a 

good-faith analysis, having concluded that the Debtor’s Plan is not feasible. 

A district court may address “any issue presented by the lower court record, 

even if not addressed in the bankruptcy court.” Eastland Mortgage Co. v. Hart (In re 

Hart), 923 F.2d 1410, 1414 (10th Cir. 1991). “A reviewing court may not, however, 

decide factual issues not addressed by the bankruptcy court.” Robinson v. Tenantry 

(In re Robinson), 987 F.2d 665, 669 (10th Cir. 1993) (citing In re Love, 957 F.2d 

1350, 1361 (7th Cir. 1992)). Therefore, this Court will not address in the first 

instance whether Debtor filed for bankruptcy or submitted its plan in bad faith. 

C. The Bankruptcy Court’s Decision to Lift the Automatic Stay

 Debtor contends that the bankruptcy court erred in granting Oakland County’s 

request to lift the automatic stay.4

 The Bankruptcy Code authorizes the bankruptcy 

court to grant relief from the automatic stay on request of a party in interest and after 

notice and a hearing under certain circumstances, including: 

(1) for cause, including the lack of adequate protection of an interest in 

property of such party in interest; 

 

4 In its brief on appeal, Oakland County contends that Debtor has waived its 

challenge to the bankruptcy court’s decision to grant Oakland County’s motion for 

relief from the automatic stay due to Debtor’s failure to address the issue in its 

opening appeal brief. Debtor indicates in reply, however, that it did not waive the 

issue because the bankruptcy court’s rationale for lifting the stay was based on its 

conclusion that the plan should not be confirmed and thus both issues are 

intertwined. In other words, by arguing that the bankruptcy court erred in not 

confirming the plan, Debtor maintains that it argued why the bankruptcy court 

erred in granting Oakland County’s motion for relief from the automatic stay. 

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(2) with respect to a stay of an act against property under subsection (a) 

of this section, if-- 

(A) the debtor does not have an equity in such property; and 

(B) such property is not necessary to an effective reorganization[.] 

11 U.S.C. § 362(d). The bankruptcy court found justification to lift the stay under 

subsections (1) and (2). 

 With respect to subsection (1), the bankruptcy court concluded that sufficient 

cause to lift the automatic stay was supported by the following facts: (1) Debtor’s 

Chapter 11 case had been pending already for nearly a year; (2) the Hotel was not 

being operated since that time; (3) Debtor had not paid property taxes on the Hotel; 

(4) the Hotel’s condition had continued to deteriorate during the pendency of the 

bankruptcy case; (5) Debtor provided Oakland County with no protection for its 

interest in the Hotel during the Chapter 11 case; and (6) the court denied confirmation 

of the Plan. In re Shefa, 524 B.R. at 743. Aside from contending that the bankruptcy 

court erred in denying confirmation of the Plan, Debtor fails to indicate why the 

remaining facts did not provide cause for lifting the automatic stay. For the reasons 

discussed in the previous section, this Court finds no error in the bankruptcy court’s 

decision to deny confirmation of the Plan. It therefore finds no error in the decision to 

lift the stay under subsection (1). In any event, subsection (2) also provides grounds 

to lift the stay and Debtor fails to show that the bankruptcy court erred in concluding 

that the stay should be lifted under this provision. 

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 In order to lift the stay under subsection (2), the bankruptcy court had to find 

that Debtor did not have any equity in the Hotel and that the Hotel is not necessary to 

an effective reorganization. 11 U.S.C. § 362(d)(2). Debtor does not have any equity 

in the Hotel as the value of the Hotel is less than Debtor’s secured claims. See 

Stephens Indus., Inc. v . McClung, 789 F.2d 386, 392 (6th Cir. 1986) (citing In re 

Mellor, 734 F.2d 1396, 1400 n.2 (9th Cir. 1984) (“ ‘Equity,’ . . . is the value, above all 

secured claims against the property, that can be realized from the sale of the property 

for the benefit of the unsecured creditors.”). Where the debtor lacks equity in the 

property, the debtor bears the burden of showing that the property is necessary for an 

effective reorganization. See 11 U.S.C. § 362(g)(2) (providing that the party 

requesting relief from the automatic stay under subsection (d) has the burden of proof 

on the issue of the debtor’s equity in the property, and that the debtor “has the burden 

of proof on all other issues.”). 

To satisfy this burden, it is not enough for the debtor to show “that if there is 

conceivably to be an effective reorganization, this property will be needed for it[.]” In 

re Plastech Engineered Prods., Inc., 382 B.R. 90, 109 (Bankr. E.D. Mich. 2008). 

Instead, the debtor must show “that the property is essential for an effective 

reorganization that is in prospect. This means . . . that there must be a reasonable 

possibility of a successful reorganization within a reasonable time.” United Sav. 

Assoc. of Texas v. Timbers of Inwood Forest Assoc., Ltd., 484 U.S. 365, 375-86 

(1988)) (emphasis in original). Again, for the reasons discussed in the preceding 

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section, the Court finds no error in the bankruptcy court’s conclusion that there is not 

“a reasonable possibility of a successful reorganization within a reasonable time.” 

Therefore, the Court finds no error in the bankruptcy court’s decision to lift the 

automatic stay pursuant to § 362(d)(1) or (2). 

D. Conclusion

In short, the Court holds that the bankruptcy court did not err by concluding 

that 11 U.S.C. § 502(b)(3) does not apply to the portion of Oakland County’s claim 

representing water and sewerage charges and by disallowing the portion of Oakland 

County’s claim for unpaid taxes exceeding the value of the Hotel. The Court further 

holds that the bankruptcy court did not err in denying confirmation to Debtor’s 

Combined Disclosure Statement and Plan, as amended, as the Plan was not shown to 

be feasible. Nor did the bankruptcy court err in granting Oakland County’s request for 

relief from the automatic stay. As such, the bankruptcy court also did not err in 

denying Debtor’s motion for reconsideration. 

 Accordingly, 

IT IS ORDERED that the bankruptcy court’s January 20, 2015 Opinion and 

Order and February 9, 2015 Order are AFFIRMED. 

 s/ Linda V. Parker 

 LINDA V. PARKER 

 U.S. DISTRICT JUDGE 

Dated: July 22, 2015 

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I hereby certify that a copy of the foregoing document was mailed to counsel of 

record and/or pro se parties on this date, July 22, 2015, by electronic and/or U.S. First 

Class mail. 

 s/ Richard Loury 

 Case Manager 

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