So it looks like the only thing that might hold up the GGP exit from Chapter 11 are the Hughes Heirs, fortunately, they are not getting a sympathetic ear from the Judge..
The roots of the dispute with the Hughes heirs date to 1976, when the billionaire aviator, industrialist and filmmaker died at 70, childless and without a will. Rouse Co., a mall owner based in Columbia, Maryland, bought Hughes’s remaining assets, including about 22,500 acres of Nevada land, in 1996 for $520 million in cash, stock and assumed debt. Hughes had acquired 25,000 acres in western Las Vegas in the 1950s that eventually became Summerlin — named for his paternal grandmother.
General Growth bought Rouse in 2004 for $11.3 billion and assumed the obligation to the Hughes heirs. His heirs over the years have been receiving payments from General Growth, subsidiaries The Howard Hughes Corp. and Howard Hughes Properties Inc., and their corporate predecessors as Summerlin land was sold off and developed. The heirs were to get a portion of profits from future land sales under the agreement. Under the deal, any land remaining by the end of 2009 was to be appraised and the heirs paid.
The Hughes heirs are owed about half of the value of unsold property at the Summerlin master-planned community near Las Vegas, which was estimated at $430 million for tax purposes and given a $1.1 billion book value by Chicago-based General Growth.
GGP has proposed 3 separate estimates be used to determine the value of the land and that the Heir be paid in GGP stock.
The Hughes Heirs raise three primary arguments in opposition to the Estimation Motion:
(1) estimation cannot proceed as quickly as the Debtors propose;
(2) the Debtors have not yet objected to the smaller components of the Hughes Heirs proofs of claims; and
(3) estimation of the Hughes Heirs Obligations will result in impairment, making the treatment proposed by the plan of reorganization untenable if the Court concludes the Hughes Heirs are creditors.
Full Hughes Filing (click to open .pdf)
GGP and the Equity responded
(1)An estimation proceeding can be completed by the week of September 13, 2010. In support of their argument that the Debtors’ estimation timeline is infeasible, the Hughes Heirs’ primary contention is that they have not been provided with certain information necessary for valuation of the Summerlin MPC. This simply is not true. For many months, the Debtors have provided extensive information to the Hughes Heirs’ appraiser and to their counsel. The Debtors have provided access to the Summerlin property for site visits, made employees available for consultation, and promptly furnished voluminous documents in response to requests.
(2)The Debtors’ proposal is that the Court estimate for purposes of allowance and distribution all of the Hughes Heirs Obligations that are payable under the Contingent Stock Agreement in shares of GGP common stock. This includes any contention by the Hughes Heirs that they are entitled to stock distributions for 2008 and 2009, years when the applicable business units generated virtually no sales and for which the Debtors believe no distributions are due to the Hughes Heirs. These alleged obligations, and the remaining assertions in the Hughes Heirs proofs of claim, are discrete issues that the Court can resolve easily in an estimation proceeding. Although the Hughes Heirs identify in lengthy fashion the various disputes, none of them are overly complex
(3)The assertion that estimation will “impair the claims of the Hughes Heirs” by avoiding the panel appraisal process and arbitration is without merit. . The Hughes Heirs are not being asked to give up a substantive right to payment, and they will have a impartial, qualified, and efficient forum in which to settle their dispute without resorting to a full-blown litigation. Through estimation, the Hughes Heirs are essentially getting the process they bargained for under the CSA – three separate appraisers will provide appraisals, and the parties have an opportunity to resolve the obligations through settlement rather than litigation. In addition, it is well established that invocation by a debtor of substantive or procedural statutory rights under the Bankruptcy Code does not impair a creditor who otherwise is receiving full value on its claim.
GGP response (click to open .pdf)
Equity Committee Response (click to open .pdf)
So, what is the problem? The Hughes Heirs have been trying to throw a wrench into the proceeding since day one and thus far have been rebuffed all the way by two separate Judges. Their strategy is simple; file enough court briefs and try to delay the process as long as possible at each important juncture so GGP is forced to give a more advantageous deal to them in order to beat the 12/31/2010 deadline set by the BAM/Fairholme/Pershing group. In its simplest form and for lack of a better term, they are attempting legal extortion. “Give us what we want or we will keep litigating and delaying until you run up against your deadline and have no choice”. Unfortunately legal as repugnant as it may be……
But, fortunately, Judge Gropper as one would expect sees right through that strategy.
Gropper rightfully disagreed with the Heirs saying:
ORDERED that, with respect to all claims set forth in the Proofs of Claim filed by the Hughes Heirs other than with respect to the Final Valuation Date Payment, the Stay Relief Motion and the Estimation Motion are both DENIED without prejudice; and it is further
ORDERED that, with respect to the Final Valuation Date Payment: (i) the Stay Relief Motion is GRANTED; and (ii) the Estimation Motion shall be, and is hereby, adjourned until further order of the Court or renewal of the Estimation Motion by the Debtors; and it is further
ORDERED that relief from the automatic stay imposed by 11 U.S.C. § 362(a) is hereby granted pursuant to 11 U.S.C. § 362(d)(1) to the full extent necessary to quantify and determine the amount of the Final Valuation Date Payment in accordance with the procedures set forth in the CSA, including, without limitation, the appointment of appraisers to the Appraisal Panel; and it is further
ORDERED that the parties are directed to proceed forthwith with the Appraisal Panel process pursuant to the terms of the CSA and the directions of this Court placed on the record at the Hearing, including without limitation the forthwith appointment by the parties of appraisers