EL COMANDANTE MANAGEMENT COMPANY LLC

OCR transcription for search; preserved printed pages are authoritative

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AUTHENTICATED
U.S. GOVERNMENT
INFORMATION

GPO

Document Page 1 of 16

IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF PUERTO RICO

IN RE: CASE NO. 04-10938(ESL)

EL COMANDANTE MANAGEMENT CHAPTER 11
COMPANY, LLC, et als.,

Debtors.

OPINION AND ORDER

This case came before the court on December 29, 2005, for an evidentiary hearing to consider
the motions for appointment of a Chapter 11 trustee, and the oppositions thereto. The following
motions were considered: “The Horse Racing Administrator’s Urgent Motion For Appointment Of
A Chapter 11 Trustee” (Docket entry No. 635); the “Supplement To The Horse Racing
Administrator’s Urgent Motion For Appointment Of A Chapter 11 Trustee”(Docket entry No. 649);

the “Motion Joining Request For Appointment Of Chapter 11 Trustee” filed by Confederacion
Hipica de Puerto Rico, Inc. (Docket entry No. 655); the “Opposition To The Horse Racing
Administrator’s Urgent Motion For Appointment Of Chapter 11 Trustee And Request For Order
Extending Provisional License” filed by the debtors (Docket entry No. 661); the “Addendum To
Opposition To the Horse Racing Administrator’s Urgent Motion For Appointment Of Chapter 11
Trustee And Request For Order Extending Provisional License” filed by the debtors (Docket entry
No. 662); and, the “Official Unsecured Creditors’ Committee’s Opposition To The Horse Racing
Administrator’s Urgent Motion For Appointment Of A Chapter 11 Trustee” (Docket entry No. 647).

Allegations of the Parties

A. The Horse Racing Administrator of the Puerto Rico Horse Racing Industry and Sport
Administration

On December 23, 2005, the Horse Racing Administrator (the Administrator) filed an

urgent motion requesting the appointment of a chapter 11 trustee, on the grounds that, the

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1 || Administrator is a party in interest because the horse racing business is regulated by the Government

z of Puerto Rico (the Government) through the Puerto Rico Horse Racing Industry and Sport
Administration (the Agency); the debtors are operating a horse racing business under a provisional
5 license issued by the Agency which will expire on December 31, 2005; the license is one of the most
6 || valuable assets of the debtors’ estate, and without the license, the debtors will not be able to continue
7 || operating, and the racing operation is the only source of income of the debtors. On December 20,
8 2005, the Agency, through its Board, denied the debtors’ application to extend the provisional
? license after December 31, 2005, forcing the debtors to close down their business thereafter. On that
, same date, the Board also denied the debtors’ application for permanent license. The Administrator

12 alleges that it is likely that the debtors’ business will face a shutdown after December 31, 2005, due
13 || to the fact that the plan proposed by Wells Fargo which does contemplate the continued operation
14 | of the business, “is not at an advanced enough stage to be approved at a hearing and effectuated by

1 January 1,2006.” The Administrator also alleges that the disclosure statement on the plan proposed

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by the Indenture Trustee was just recently approved, and that the confirmation hearing has been
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18 scheduled for February 21, 2006. The Racing Administrator also alleges that the plan proposed by

19 || the debtors is not feasible as it contemplates the continued operation of the business by Caribbean

20 || Thoroughbred Racing Company, Inc. (Caribbean), and the Board has already denied Caribbean’s

21 application for a license.

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The Administrator voiced the interest of the Government, as well as the responsibility

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DA to maintain and ensure the continuity of the horse racing industry in Puerto Rico, which can only be

25 || done through operating El Comandante facilities. The Administrator acknowledged that the closing
26 || of debtors’ operations will have a negative impact in the Puerto Rico economy, such as, the lay-off
27 | of about 8,000 employees, as well as the Government’s risk of losing $30 million annually in taxes.
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1 The Administrator moved the court to appoint a chapter 11 trustee to operate the debtors’
? business until a plan of reorganization is confirmed in the instant case. The appointment ofa trustee
will enable the continued operation and an orderly transition until a qualified licensed entity is
5 confirmed under the provisions of the plan of reorganization. The Administrator also recommends,
6 || that in order to ensure a smooth transition, attorney Wigberto Lugo Mender, be appointed as
7 || chapter 11 trustee, to avoid the closing of debtors’ business after December 31, 2005, and to carry
8 Il the debtors through the confirmation of the plan. The Administrator supplemented its position by
° issuing a resolution on December 28, 2005, wherein a temporary license is granted to Mr. Lugo
| Mender to operate the debtors’ business or to whoever is appointed as trustee by the bankruptcy

12 || court. The Board’s resolution states that the appointment of the trustee to be made by the bankruptcy
13 || court is subject to ratification by the Board. The provisional license approved by the Board on

14 || December 28, 2005, will expire on February 21, 2006. The Board also scheduled an administrative

15 . . . .
hearing on this matter for January 26, 2006 at 1:30 p.m., and directed the parties to appear
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accompanied by their legal representatives.
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18 The Administrator further recommends that current management be maintained,

19 || including the debtors’ General Manager, Mr. Alex Fuentes, who is the person in charge and

20 || knowledge of the Rules and Regulations of the horse racing industry. Likewise, the services

21 provided by the current accounting firm of Rodriguez, Ocasio & Cuevas, through the supervision

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of Ms. Doris Barroso, should also be maintained. Thus, Mr. Lugo Mender’s role will be “to oversee

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>A the day to day management of the debtors’ business affairs,” and his monthly compensation “will

5 || never exceed the total monthly compensation of $25,000 received by the current CEO of the
26 || debtors.” The Administrator alleges that under the above circumstances, the appointment of a
27 chapter 11 trustee is warranted. The Administrator’s request is based on the provisions of
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section 1104(a) of the Bankruptcy Code, either the appointment is warranted for cause, or in the
interest of creditors. “Cause” is shown by the debtors’ gross misjudgment by failing to timely apply
for a license; by failure to timely make payments on post-petition rent; by failure to comply with the
Federal Rules of Bankruptcy Procedure, such as, to protect debtors’ exclusivity period by filing a
plan of reorganization within the time provided by the Bankruptcy Code; by the conflict of interest
between management and Caribbean; and, debtors’ failure to have a confirmed plan after fourteen
months since the filing of the bankruptcy petition.

The Administrator’s further alleges that the appointment ofa trustee will be beneficial
for the debtors’ estates to preserve the value of the estates, and will clearly benefit the creditors. Said
appointment will also “protect the public interest which is entrusted to the Government in ensuring
and protecting the continuity of the horse racing industry in Puerto Rico.”

B. Confederacién Hipica de Puerto Rico, Inc.

Confederacién Hipica de Puerto Rico, Inc. (Confederacion) alleges that it represents
356 of the approximately 360 horse owners involved in the debtors’ business operation. It is also
a creditor of the debtors’ estate who holds a $3.4 million claim, and it is a party'to an executory
contract not yet assumed or rejected by the debtors. Confederacion joins the Administrator’s request
for appointment of a chapter 11 trustee; it joins the recommendation that Mr. Lugo Mender be
appointed as trustee; it joins the recommendation made by the Administrator that whoever is
appointed as trustee to retain the services of Alejandro Fuentes Fernandez as General Manager in
charge of the daily operations of the racetrack. Confederacién argues that the appointment of
Mr. Lugo Mender would solve a “crisis” due to the fact that the operations’ license will expire on
December 31,2005, and said appointment will guarantee the continuation of the business operation.

Confederacion also states that the debtors have not presented any alternative upon which it may

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continue operating after December 31, 2005. Confederacion stands to lose a substantial amount if
debtors’ business is closed. Confederacién also stated that its ultimate interest is to keep the
business operating.
C. El Comandante Management Company, LLC and related corporations.

Debtors allege that the Administrator is not a party in interest within the definition
provided by section 1109(b) of the Bankruptcy Code, insofar as the Administrator does not have a
financial or legal stake in debtors’ business, is not a creditor, is not an equity participant. If the
Administrator is not a party in interest, then the Administrator lacks standing to move the court for
the appointment of a trustee, particularly when the Board’s refusal to extend the provisional license
to the debtors was triggered by the Administrator’s petition to deny said request. The debtors also
plead that, even if the court finds that the Administrator is a party in interest, the request for
appointment of a chapter 11 trustee should be denied based on the documents presented before the
Racing Board concerning the application for a permanent license, and the extension of the
provisional license. Debtors further explain the corporations’ pre-petition relation with Equus
Entertainment Corporation (Equus) and Codere of Puerto Rico, Inc. (Codere), and why Codere filed
arequest for a permanent license to operate El] Comandante instead of the now debtors’ corporations.

Debtors alleges that their license was to expire on December 14, 2004, and that this
fact was informed to the court in the status conference held on December 20, 2004. When the
debtors’ license was about to expire, debtors’ immediately moved the Board for the issuance of
temporary license to operate thereafter. The Board approved debtors’ request and issued atemporary
license for 90 days, conditioned to certain restrictions, amongst them that the Administrator be
appointed as a special monitor of debtors’ operations.

Debtors argue that other entities also filed applications for permanent licenses, such as,

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Camarero Racetrack Corporation (Camarero), the Puerto Rico Horses Racetrack, Inc. (Puerto Rico
Horses), and Intralot Puerto Rico, Inc. (Intralot). Debtors moved the Board for the dismissal of such
petitions, insofar as they failed to comply with the requirements to obtain a license. Debtors allege
that the Board took the matter under advisement and has never ruled upon it. Instead, on
February 24, 2005, the Board established a bar date to file applications for permanent license.
Debtors allege that the Board has been informed, at all times, that if Codere was not successful in
its application for license, or if it was withdrawn at any time, debtors or another entity would request
the permanent license. Racing Management Corporation filed an application for license after the bar
date. A hearing was held by the Board, and a determination was made denying the license to Racing
Management Corporation because the application was filed after the bar date, and the evidence failed
to show that the corporation had the corporate structure and/or the required financing to request the
license.

Thereafter, on November 30, 2005, the Board approved Codere’s request to withdraw its
application for license, and the debtors filed their application on December 1, 2005. Meanwhile, the
debtors’ current administration had been successful, and the improvement in their finances have
allowed the debtors to make all the post-petition payments, including taxes, insurance, pre-petition
payments as allowed by the court, payment in the amount of $7.2 millions to Wells Fargo, the
remodeling of debtors’ facilities, and the undertaking of other capital improvements totaling an
estimated amount of $1.5 millions. Debtors supported their allegations of the increase in their
earnings before interest and taxes (EBITA) for the years 2004 and 2005, and submitted an appraisal
report that shows that the valuation of debtors’ assets has increased from $62 millions on
October 15, 2004 to $68 millions, as of July 1, 2005.

On December 20, 2005, the Board denied the debtors’ request for an extension of the

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temporary license to continue operating the race track business. Said determination is subject to an
administrative appeal, thus, the decision is not yet final.

Debtors further allege that the appointment of a trustee is subject to the provisions
of section 1104 of the Bankruptcy Code. A trustee may be appointed for cause, including fraud,
dishonesty, incompetence, or gross mismanagement of the debtors’ affairs by the current
management. Debtors allege that in the Administrator’s urgent motion there are no allegations of
fraud, dishonesty or incompetence. Even in the worst case scenario, if the Administrator challenges
the debtors’ request for permanent license, there is no reason why the extension of the temporary
license cannot be granted. Even more so, when there are no allegations of fraud, dishonesty, or
incompetence.

Debtors argue that the Administrator’s request to appoint a trustee should be denied
because the Board’s taking of debtors’ license should be considered as a violation of the stay.
Debtors stand for the proposition that a license is property of the estate, and cites case law in support.
Debtors allege that depriving them of the license to operate the business in this critical stage when
there are two competing plans before the bankruptcy court is a violation of the automatic stay, and
moved the court to deny the request for appointment of a trustee, and extends the debtors’ temporary
license for three months until a plan is confirmed.

Debtors raised the question that Caribbean’s request for permanent license was also
denied by the Board for filing the application after the bar date of March 31, 2005, notwithstanding
the fact that the Board has been informed at all times, that if Codere withdrew its application for
license, either the debtors or another entity would moved for apermanent license. The Administrator
still blames the debtors for failure to timely file the application for permanent license, and

categorized it as gross negligence and gross mismanagement.

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The Administrator also alleges that the debtors’ current management has incurred in
a conflict of interest, referring to that Mr. Cuprill’s role as CEO of debtors’ corporations, and as
Caribbean’s officer and shareholder.

D. Official Unsecured Creditors’ Committee.

The Creditors’ Committee (the Committee) alleges that the reasons set forth by the
Administrator to move for the appointment ofa chapter 11 trustee have always existed, but no action
was taken until now. The Committee also alleges that “[a]ny emergency which may exist is entirely
of the Administrator’s own creation, and is within the Administrator’s ability to solve.” The
grounds cited by the Administrator’s as “cause” have been pending for fourteen months, such as, the
debtors’ failure to timely apply for a permanent license; allowing the land lease to be rejected, and
management’s alleged conflict of interest. The Administrator, however, failed to explain why these
previous actions, which now constitute “cause,” did not do so before.

The Committee raised the fact of the Board’s refusal to extend the provisional license
for two months necessary to reach the confirmation of the plan, and the debtors’ expectation that
such request would be granted based on the Board’s prior decisions.

As to the Administrator’s allegation that the value of the estate will be preserved by
appointing a trustee, the Committee alleges that it is unclear how it would do so. By ousting the
current management, it is unlikely that there will be any competitive bids for the racetrack, and it is
unlikely that the unsecured creditors will recover more than the “miserly one currently offered by
the bondholders.”

The Administrator claims that the appointed trustee will be able to operate debtors’
business and to keep the current operational status by continuing to employ all of the managers of

the racetrack except for Mr. Cuprill. The Committee alleges that the Administrator had not taken

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into consideration that current management may not wish to keep their employment if a trustee is
appointed due to loyal considerations to the current management.

Lastly, the Committee raised the fact that the Administrator has a created a problem,
which entails the possible closing of the debtors’ business, by refusing to extend a temporary license.
The Administrator is focused only in solving his problem through the appointment of a trustee
without considering the consequences that this appointment may have, such as, the elimination of
competitive bidding and the possibility of greater recovery for unsecured creditors. The Committee
considers the appointment of a trustee to be a mistake.

The following parties stated their positions orally at the December 29, 2005 hearing:

A. Caribbean Thoroughbred Racing Company, Inc.

Caribbean orally joined the debtors’ opposition to the appointment of a chapter 11
trustee.

B. Wells Fargo, the Indenture Trustee.

Wells Fargo, the Indenture Trustee, orally joined the motion requesting the
appointment of a trustee, with the clarification that Wells Fargo’s main concern is to avoid the
closing of the debtors’ operation in order to protect its interest in the debtors’ estate.

Cc. The United States Trustee

The U.S. Trustee, orally joined the Administrator’s motion to appoint a chapter 11
trustee, although no new evidence was presented to put the court in a position to appoint a trustee.
The U.S. Trustee stated that in view of the fact that the license to operate the business will expire

on December 31, 2005, the appointment of a chapter 11 trustee was justified to keep the business

as a going concern.

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NATURE OF PROCEEDINGS

A request for the appointment of a Chapter 11 trustee pursuant to 11 U.S.C. § 1104 (a) isa
core proceeding pursuant to 28 U.S.C. § 157 (b)(2)(A),(O). The same may be brought by any party
in interest. The Racing Administrator is a party in interest on account of his broad responsibilities
over the horse racing industry. 15 L.P.R.A. §§ 198) and 198k.. The motion is a contested matter,
Bankruptcy Rule 9014, requiring reasonable notice and opportunity for a hearing. Bankruptcy Rule
9006(d) requires at least five (5) days notice of the hearing, but the period may be shortened,
Bankruptcy Rule 9006(c). The court finds that the motion was filed by a party in interest and that
due notice and a hearing was afforded to the debtors in possession.

The grounds for the appointment of a trustee are specified in Section 1104 (a) of the
Bankruptcy Code. Ifthe grounds for appointment of a trustee are established by the moving party
bya preponderance of the evidence after considering the totality of the circumstances and all relevant
factors, then the court shall appoint a Chapter 11 trustee. Therefore, if the facts do establish that a
trustee should be appointed, then the court must appoint a Chapter 11 trustee. Subsection 1104
(a)(1) states that the court shall order the appointment of a trustee for cause, including (but not
limited to) fraud, dishonesty, incompetence, or gross mismanagement of the affairs of the debtor.
Subsection 1104 (a)(2) provides that the court shall appoint a trustee if such an appointment is in the
interests of creditors, any equity security holders, and other interests of the estates. The court notes
that the appointment must be in the best interests of all constituencies, not just one or some.

It is settled in the district of Puerto Rico and in the first Circuit that the U.S. Trustee is the
entity to appoint a Chapter 11 trustee and that the appointing authority does not lie in the bankruptcy

court. In re Plaza De Diego Shopping Center, Inc., 911 F.2d 820 (1* Cir. 1990). In this case the

movant in the motion to appoint the Chapter 11 trustee, the Racing Administrator, recommends and

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prays that Mr. Wigberto Lugo Mender' be appointed as Chapter 11 trustee. The Racing Board, upon
the request of the Racing Administrator has granted a temporary license to Mr. Lugo Mender to
operate the El Comandante Racetrack, subject to his appointment as a Chapter 11 trustee. The
authorization was granted on an expedited basis, that is, in less than one week. Although the
circumstances of this case warrant prompt action, the time within which Mr. Lugo’s license was
authorized, albeit provisionally, drastically contrasts with prior experiences in this case. Ifthe court
cannot interfere or usurp the U.S. trustee’s authority to appoint a Chapter 11 trustee, much less may
a state agency administrator. The Assistant U.S. Trustee has supported the motion for the
appointment of a Chapter 11 trustee, but did not, upon questions by this court at the December 29,
2005 hearing clearly define its position in light of the First Circuit case law. It is only noted, as
stated by counsel for the Creditors’ Committee, that the disparate treatment is suspicious.
Generally, the courts favor that the debtor in possession continues operating the business
unless “it is inappropriate to permit the debtor and its management to continue in possession.”
7 Lawrence P. King, Collier on Bankruptcy, J 1104.02[1] (15" Edition Revised 2005). Only when
extreme circumstances are present, such as, the debtor and/or management are “engaged in serious
fraud or dishonesty, or have grossly mismanaged the business” will warrant the appointment of a
trustee. Id. There is a presumption that the Chapter 11 debtor will be a debtor in possession.
However, if the grounds specified in subsection 1104 (a) are met, then the appointment of a Chapter

11 trustee will be ordered. Clearly, it is the movant’s burden to establish that the presumption that

'This court finds, based on its experience wherein Mr. Lugo Mender has been a trustee, debtor’s attorney, or
creditor’s attorney, in cases before this court, that his performance has always been excellent, and that he is eminently
qualified for an appointment as trustee in any complex case, including this one. Any decision on whether or not to
appoint a Chapter 11 trustee is not, in any way, a reflection on Mr. Lugo’s qualifications as a professional, or qualities
as an individual.

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a Chapter 11 debtor in possession should be divested ofits power to manage its business affairs, and
that the grounds in either subsections 1104 (a) (1) or (2) are met. It is within this court’s discretion
to determine whether or not the movant has established through a preponderance of the evidence if
cause exists, or if the appointment ofa Chapter 11 trustee is in the best interests of all constituencies.
DISCUSSION

The evidence presented by the movants, the Racing Administrator and Confederacién Hipica,
in summary, establishes two main facts. First, that the Racing Board has denied debtors’ request for
a license to operate El Comandante Racetrack. Second, that it is of critical importance that the
operations of El Comandante continue uninterrupted. Both facts are critical in the preservation of
the value of the estate for the benefit of all creditors, secured and unsecured. According to movants,
the only way to accomplish this is through the appointment of a Chapter 11 trustee. However, in
order to prevail in their request for an appointment of a trustee, the movant(s) must establish that
there is cause under 1104 (a) (1) or that the appointment is in the best interests of all constituencies.
They have failed to meet their burden.

The movants did not present any witnesses. The documentary evidence presented

substantially consists of the resolutions by the Horse Racing Board and pleadings before the same.

These documents establish that the Racing Board has denied the debtors’ request to extend the
license to operate El Comandante Racetrack. The denial of a license to operate, within the context
presented, addresses more the feasibility of debtors’ proposed plan than the existence of cause to
remove the current management from their responsibilities and appoint a Chapter 11 trustee. The
arguments presented by counsel for the Racing Administrator may lend support to the Racing
Board’s decision, made upon the Racing Administrator’s recommendation and/or request. Yet, the

decisions do not raise to the level of seriousness warranting the appointment of a Chapter 11 trustee,

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1 || Particularly, when the appeal process of the Racing Board’s decisions has not terminated. Moreover,

2 the soundness of the Racing Board’s decisions is not, at this juncture, within the province of this
court. This bankruptcy court will not judicially review the decisions of the Racing Board. Such
5 jurisdiction lies in the Puerto Rico “state” courts. This court will apply the Bankruptcy Code
6 || provisions over matters within its jurisdiction, which include the appointment ofa Chapter 11 trustee
7 || and safeguarding the value of property of the estate.

8 A perusal of the motion for appointment of a Chapter 11 trustee filed by the Racing
° Administrator reveals several noteworthy recommendations. First, it has recommended the person
, to be appointed. This is an usurpation of the U.S. trustee’s statutory powers. Also, the

12 recommendation was made without consulting with the creditors’ committee. Second, the motion
13 | recommends that the professionals already contracted by the debtor in possession continue working
14 || for the trustee recommended to be appointed. These professionals, as became apparent at the

1 . . . . .
> hearing, were not consulted, and most likely, will not accept working for a new employer for ethical

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reasons. Third, although recommendations only, the veiled inference is that the Racing
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18 Administrator, given his broad powers, will be dictating to the trustee what to be done in matters that

19 || are within his exclusive discretion, such as the hiring of professionals. This anomaly is highlighted

20 || by the likely possibility that the appointment of a Chapter 11 trustee will be for a period of less than

21 three months. Fourth, the only disruptive factor in debtors’ management appears to be, by logical

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deduction, the Chief Executive Officer, Mr. Charles A. Cuprill. The Racing Administrator
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74 recommends that all the management and professionals, except Mr. Cuprill be kept employed in

95 || order to provide continuity until a plan is confirmed and an entity can permanently operate the El

26 || Comandante Racetrack. The reasons are not clearly articulated in the motion, nor was there evidence
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presented to such effect at the evidentiary hearing.

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The only evidence presented at the hearing regarding Mr. Cuprill’s competence to manage
the debtors’ affairs was the testimony of Mr. Cuprill and that of the debtors’ independent auditors,
Horwath and Velez, through CPA José Benabas Lago. Their testimony showed that Mr. Cuprill is
qualified to manage debtors” affairs and that the debtors’ financial condition has improved since Mr.
Cuprill became CEO. The Racing Administrator also imputes a conflict of interests to Mr. Cuprill
as he is the CEO of ECMC, and is a director and shareholder of Caribbean Thoroughbred Corp., a
corporation that is bidding to purchase debtors’ assets. Such a conflict, assuming one exists, does
not warrant the appointment of a trustee to divest the management from the debtor in possession as
the same has been fully disclosed in all relevant documents and has been endorsed by debtors’
principal shareholder, Mr. James J. Wilson.

The court highlights the admittance by counsel for the Racing Administrator that Mr. Cuprill
has improved debtors’ finances. The thrust of the arguments for the appointment of a Chapter 11
trustee is that the debtors, under Mr. Cuprill’s management, did not submit a timely application for
a permanent license to operate the El Comandante Racetrack. However, upon questions at cross
examination Mr. Cuprill convincingly explained that debtors could not file a petition before the
Racing Board for a permanent license while Codere had an active petition for such a license on
account of their contractual commitments with Codere. To argue, on hindsight, that such a decision
constitutes gross negligence because Codere subsequently withdrew the application is hyperbolic.

Attempts to argue at the hearing as additional grounds for the appointment of a Chapter 11
trustee, that debtors’ disclosure statement does not contain adequate information or that the proposed
amended Chapter 11 plan is not feasible, are misplaced and specious. The hearing on approval of
debtors’ disclosure statement has been scheduled for a hearing on January 9, 2006, and any

objections, none of which have yet been filed in writing, will be heard on that date. Moreover,

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discussing feasibility of debtors’ amended Chapter 11 plan, as differentiated from the plan proposed
by the Indenture Trustee, is premature as the hearing on approval of disclosure statement has not
been held, a disclosure statement has not been approved, and a confirmation hearing to consider
confirmation of debtors’ amended Chapter 11 plan has not been scheduled. Any and all arguments
regarding the adequacy of the disclosure statement and the feasibility of the plan do not adequately
address the grounds for the appointment of a Chapter 11 trustee.

Confederacién Hipica de Puerto Rico (Confederacién) filed a motion joining the request
made by the Racing Administrator for the appointment of a trustee. The motion, as well as the oral
argument, stresses that the lack of a license to operate the El Comandante Racetrack is sufficient
cause for the appointment of a trustee. The U.S. Trustee supported the request for the appointment
of a Chapter 11 trustee on similar grounds. Because on this day the court has entered a temporary
restraining order as well as an order to show cause why a preliminary injunction should not be
issued, their position loses much, ifnot all ofits strength, at least at this time. Neither Confederacion
or the U.S. Trustee argued or presented any evidence of fraud, mismanagement or malfeasance.
Also, they did not present any evidence why the appointment of a Chapter 11 trustee would benefit
all constituencies. The court notes that Confederacion represents 356 of approximately 360 horse
owners and is a member of the Creditors’Committee, that has, as a Committee, opposed the
appointment of a Chapter 11 trustee in writing, as well as orally, arguing that the movants did not
present a prima facie case for an appointment of a trustee, particularly when there is no
mismanagement and debtors’ financial position has improved. The court also notes that all entities
that have shown an interest in purchasing debtors’ assets include horse owners.

The administrative costs to be incurred in appointing a Chapter 11 trustee are not a decisive

factor, but are relevant to a decision. Clearly, if a Chapter 11 trustee is to be appointed, and if the

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trustee is to responsibly discharge the responsibilities that such a position entails, professionals, that
is, attorneys, financial advisors, accountants and auditors must be retained. definitely, such
administrative expenses will dilute dividends to unsecured creditors. Such an additional expense,
under the circumstances, and for a only three months, is unwarranted. The court notes that the
professionals presently working for the debtor in possession may not work for a Chapter 11 trustee

for conflicts or appearance motives.

CONCLUSION

The movants have failed to establish through a preponderance of the evidence, based on the
totality of the circumstances and factors, that there is cause to appoint a Chapter 11 trustee under
subsection 1104 (a) (1), nor have they established that the interests of all constituencies would
benefit, as is required by subsection 1104 (a) (2). When the evidence shows that current
management is competent and capable and able to administer debtors’ financial and operational
affairs, there is no need to appoint a Chapter 11 trustee. Failure to timely file an application for a
permanent license and facing the denial of an extension of a temporary one, under the circumstances
of this case, does not warrant the appointment of a Chapter 11 trustee.

In view of the foregoing, the motions for the appointment of a Chapter 11 trustee are hereby
denied.

SO ORDERED. » Ih
In San Juan, Puerto Rico, thi day of December, 2005.
Ja, an

Eftrique S. Lamoutte
U.S. Bankruptcy Judge

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