LAMAR W. DAVIS, JR., Bankruptcy Judge.
Chatham Parkway Self Storage, LLC ("Debtor") filed its Chapter 11 case on November 2, 2012. Dckt. No. 1. On November 1, 2013, Debtor filed this Motion to Compel Execution of Loan Documents ("Motion") as contemplated by its plan of reorganization. Dckt. No. 264. After a hearing on the merits on December 11, 2013, followed by extensive negotiations and a second hearing on February 3, 2014, I enter the following Findings of Fact and Conclusions of Law.
On November 2, 2012 (the "Petition Date"), Debtor filed a voluntary petition under Chapter 11. Dckt. No. 1. Debtor is a Georgia limited liability corporation owned by Ben and Julie Farmer. Amended Disclosure Statement, Dckt. No. 161. Debtor owns a 4.92 acre tract of land in Chatham County, Georgia (the "Property"). Stipulation of Undisputed Facts, Dckt. No. 157, Exh. A. Since the Petition Date, Debtor has operated as a debtor-in-possession, collecting rents from a self-storage facility located on the Property. Dckt. No. 4. Ameris Bank ("Ameris" or the "Bank"), successor in interest to Darby Bank & Trust Co. ("Darby"), is the transferee and assignee of a loan document executed by Debtor in favor of Darby and holds a first-priority interest in the Property. Dckt. No. 57.
Debtor filed its first Plan of Arrangement on February 6, 2013. Dckt. No. 94. Ameris filed an objection to the plan on March 12, 2013. Dckt. No. 128. Debtor filed an Amended Plan of Arrangement on April 19, 2013, to which Ameris also filed an objection. Dckt. Nos. 160, 201. The parties submitted to mediation on June 4, 2013, with the Honorable John S. Dalis, at which time a settlement was reached. Dckt. No. 215. Debtor incorporated the mediated settlement through an addendum attached to its Second Amended Plan of Arrangement filed June 19, 2013. Dckt. No. 218. The Second Amended Plan was later withdrawn by Debtor on June 26, 2013, and resubmitted with minor changes that same day. Dckt. Nos. 223, 225. The resubmitted Second Amended Plan of Arrangement (the "Plan") was ultimately confirmed by the Court on July 22, 2013. Dckt. No. 242.
Paragraph Five (5) of the Addendum to Second Amended Plan of Reorganization (the "Addendum") states:
Addendum to Second Amended Plan of Reorganization, Dckt. No. 225. Pursuant to the terms of the Plan, the effective date of the Plan, and therefore the deadline for executing the Secured Loan Documents ("Loan Documents"), was September 6, 2013. Dckt. No. 256. The Court extended the deadline for Debtor to execute the Loan Documents from the effective date to September 13, 2013, due to Ameris providing the Loan Documents for review on August 27, 2013, some five (5) days after the August 22, 2013, deadline. Id.
Sometime after reviewing the Loan Documents provided by Ameris, Debtor submitted its own version of the Loan Documents to the Bank for execution. Dckt. No. 264. Because the parties could not agree on all the specific terms included in the Loan Documents, Debtor filed this Motion on November 1, 2013. Id. In the Motion Debtor asks the Court to compel Ameris to execute the Loan Documents as drafted by Debtor, or in the alternative, direct further mediation with Judge John S. Dalis, or in the alternative, hold a hearing and determine the appropriate terms to be included in the Loan Documents. Id.
11 U.S.C. § 1142 governs implementation of a Chapter 11 plan, and subsection (b) of that section states in relevant part:
"[P]ostconfirmation jurisdiction pursuant to § 1142(b) is generally restricted to protecting the confirmation order, ... and aiding in the plan's execution." Beal Bank, S.S.B. v. Jack's Marine, Inc. (In re Beal Bank, S.S.B.), 201 B.R. 376, 379 (E.D.Pa.1996)(citing In re Greenley Energy Holdings of Pennsylvania, Inc., 110 B.R. 173, 180 (Bankr.E.D.Pa.1990); In re Dilbert's Quality Supermarkets, Inc., 368 F.2d 922, 924 (2d Cir.1966)). One example of an application of § 1142 is "if the plan provides that a claim is to be secured by property of the estate, the court can order the debtor or such other person as may be necessary to execute a security agreement, mortgage, or similar instrument." 8 Collier on Bankruptcy ¶ 1142.03 (16th ed. rev. 2013). Clearly if a court has the authority to order a party to execute an instrument simply because the plan calls for a claim to be secured by property of the estate, it would have that same authority to aid in a plan's consummation by ordering the execution of an instrument expressly called for by the plan. As mentioned supra, the Addendum expressly states that Debtor will execute the Loan Documents in favor of Ameris based on the terms of repayment set forth in the Plan.
However, there are instances where courts refused to order the execution of an agreement referred to in the plan because the material terms of the agreement were not included in the plan. In re Modern Steel Treating Co., 130 B.R. 60, 65 (Bankr. N.D.Ill.1991) ("Neither the Plan itself, nor usage and custom aid the Court in determining
Modern Steel is easily distinguishable from the case before the Court. Here, Debtor drafted four iterations of the Plan and an Addendum before the terms of repayment were sufficiently detailed and acceptable to both Ameris and Debtor. Moreover, the final terms and conditions were the direct result of a mediated settlement between the parties. The Addendum and other provisions of the Plan set forth the material terms of the loan repayment. They include such items as the secured claim amount, retention of the existing lien, treatment of the twelve (12) initial interest only payments, treatment of the remaining amortized payments, payment due dates, interest rates, final balloon payment, effects of prepayment, responsibilities of the guarantors, and consequences of default. Dckt. No. 225. Including such detailed material terms of repayment in the Plan coupled with a provision requiring the parties to execute Loan Documents based on these terms sufficiently demonstrates to the Court what understanding the parties reached. Therefore, I find that the Court has the authority under § 1142(b) to direct the parties to execute the Loan Documents to protect the confirmation order and aid in the plan's execution.
The Court will now address the disputed terms and conditions contained in the exchanged versions of Loan Documents which are the subject of this Motion. As discussed supra, the confirmed Plan contains sufficient agreed-upon material terms to infer a meeting of the minds between the parties and a willingness to be bound by Loan Documents incorporating these terms. However, it is not reasonable to expect a plan of reorganization in bankruptcy to contain the amount of minute detail that is typically found in commercial loan documents. Presumably, this is why the Addendum called for the parties to execute Loan Documents after confirmation.
"[A] bankruptcy court may clarify a plan where it is silent or ambiguous." Beal Bank, 201 B.R. at 380 (citing United States for the Internal Revenue Service v. APT Industries, Inc., 128 B.R. 145, 146 (W.D.N.C.1991)). Moreover, "[b]ankruptcy courts can also use this authority to `interpret' plan provisions to further equitable concerns." Beal Bank, 201 B.R. at 380. In Beal Bank, the debtor and Resolution Trust Corporation ("RTC") began negotiations to modify the terms of repayment of its claim shortly after the bankruptcy court confirmed the debtor's plan of reorganization. Id. at 378. During the negotiations, RTC agreed to assign its mortgage to Bombardier, a third party, upon satisfaction of its claim by Bombardier and the debtor, yet nothing from the negotiations was incorporated into the confirmed plan. Id. Before repayment of the claim, RTC sold the loan documents to Beal Bank. Id. Later, there was some dispute regarding the agreed-upon terms from the negotiations, and Beal Bank refused to assign the mortgage to Bombardier. Id.
"The dispute over the terms of the agreement had already delayed payment of the claim; without court intervention the confirmed plan ... would have failed." Id. at 379. In affirming the bankruptcy court's order requiring Beal Bank to assign its mortgage interest to Bombardier upon payment of its claim, the district court held that the order was "an exercise
Here, the Plan is silent on the disputed terms and conditions that are the subject of this Motion. A court order supplying these missing terms and conditions would in no way alter a material term or provision of the confirmed Plan. "A confirmed plan of reorganization operates as a contract between a reorganized debtor and its creditors." In re Friedman's, Inc., 356 B.R. 758, 765 (Bankr.S.D.Ga. 2005)(Davis, J.). What is clear from this contract between Debtor and Ameris is that the parties desired and expected to execute Loan Documents, which at a minimum, contain the specific material terms outlined in the Plan. Moreover, because the extended deadline for executing the Loan Documents has passed, the parties are arguably in default of the Plan/contract. Therefore, I find that in order to protect the confirmation order and aid in the Plan's execution, the Court has the authority to supply commercially reasonable terms and conditions to the Loan Documents where the Plan is silent and which do not alter any provision of the Plan.
I conclude that the Court has the authority under § 1142(b) to direct the parties to execute Loan Documents based on the agreed-upon terms and conditions included in Debtor's confirmed Plan. The Court will resolve the remaining disputed terms and conditions where the Plan is silent as is necessary for consummation of the Plan.
Each party submitted drafts of the documents they respectively wish to employ. Debtor's documents were dramatically different from those of the Bank, not in the sense that they are not fair, workable, and professionally drafted, but in the sense that the Bank's preferred forms are uniformly used and familiar to it. The Bank urges that its "standard forms" be adopted, and while I reject the notion that they must be employed without change, I do agree that what it represents to be its standard forms is the better starting point for an item-by-item ruling.
Initially there were a dozen or more terms and provisions that the parties seemed intractably at odds over. As negotiations progressed and pre-trial conferences occurred, the parties, to their credit, narrowed the issues to four. The parties collaborated, drafted, and delivered to the Court an annotated version of the Commercial Promissory Note (the "Note"). A copy of that document is attached to this Order as Exhibit A. It illustrates the remaining issues with this explanatory note.
Exh. A, pg. 1. The first issue highlighted in the document relates to the provision entitled "Late Payment Charge."
Exh. A, pg. 2, ¶ LATE PAYMENT CHARGE.
Ameris objects to the suggestion that a "grace period" for payments be imposed on it. Debtor insists that there should be a period during which no default can be declared. Debtor proposes that a grace period, matching the time frame during which no late payment fee is assessed, be inserted to protect it from a technical default. Because of the tortured history between the parties, Debtor feels itself at risk if a nominal delay in receipt of payment occurs, even if the cause is out of Debtor's control, for example, a delay in the mail service. I agree with Debtor. While it seems highly unlikely that Ameris would act in the event of a very short delay, it is possible; therefore, I find that the grace period language suggested by Debtor shall be included in the final Note.
The remaining issues arise in the paragraph entitled "Events of Default."
Exh. A, pg. 4, ¶ c.
A similar provision was part of the Darby Note. Debtor contends however that this is overreaching by Ameris. Because both guarantors have considerable business acumen, and because at any time Debtor's owners could replace the current manager, who is also a guarantor, with professional management at a rate comparable to that of insider compensation, Debtor contends that the death of a guarantor would not ipso facto place Ameris at risk.
There is some evidence to support this argument. On the other hand, Ameris, like any lender, will have some justifiable
Notwithstanding the foregoing, other Events of Default provisions, particularly the Material Adverse Change provision discussed infra, remain applicable throughout, regardless of whether Paragraph (c) is ever triggered.
Exh. A, pg. 4, ¶ g.
Debtor's expert's testimony that in some cases he has experienced delays in excess of thirty days by governmental officials in clearing up disputes over tax compliance was persuasive; therefore, I rule that the ninety day period is reasonable and shall be incorporated into the Note.
Exh. A, pg. 4, ¶ j.
First, it is important to set out the similar terms that were part of the original Darby Note. It reads in relevant part:
Promissory Note, Claim No. 4, Exh. A, pg. 1. The Adverse Change language in the proposed Note is similar to that of the Darby Note. However, the proposed Note deletes the "Insecurity" clause in its entirety. Debtor is concerned that the Adverse Change language as written may grant unfettered discretion to Ameris to declare Debtor in default based on a change in its situation that the Bank subjectively considers to be materially adverse. There is no evidence to presume that Ameris would behave in this manner, but given the troubled history between the parties, I find that the proposed language should be qualified with a standard of "reasonable belief" or "in good faith." Indeed, this qualification is consistent with the parameters of the "Insecurity" clause of the Darby Note. Therefore, the provision shall be amended to read:
The final issue argued at the hearing in this matter was Debtor's principal, Ben Farmer's, objection to inclusion of the phrase "without duress" in the "Agreement of Guarantors" portion of the Note. The provision reads:
Exh. A, pg. 7 (emphasis added).
Considerable attention was devoted to this issue at the hearing. Ameris insisted that this phrase was necessary to ensure that no defense of duress could later be asserted if it had to enforce the Note. The Court had significant concern that ordering the "without duress" phrase to be retained and forcing Mr. Farmer to sign the Note in light of the concerns he expressed would be coercive. Mr. Farmer's testimony on this point established the intense stress and financial pressure he has experienced. He described his state of mind as one of extreme duress. Yet, he stated that he would sign the Note as drafted if the Court so required. Ameris, of course, wanted to erase any possibility that Mr. Farmer could later claim duress as vitiating his obligations.
The hearing concluded without any resolution of this impasse. However, on February 5, 2014, Debtor's counsel filed an affidavit from Mr. Farmer. Dckt. No. 277. In it he acknowledges that he misunderstood the legal implications of a claim of duress and now is agreeable to inclusion of the phrase "without duress" after consultation with his attorney.
From his testimony and the history of this case, it is clear that Mr. Farmer has faced a financial crisis of immense proportions. He and Mrs. Farmer have navigated this case and their personal case, both of which have been difficult and contested
Duress is codified under O.C.G.A. § 13-5-6, which states:
The Georgia Court of Appeals has held,
Compris Techs., Inc. v. Techwerks, Inc., 274 Ga.App. 673, 682, 618 S.E.2d 664 (2005)(emphasis omitted)(quoting Cooperative Resource Center, Inc. v. Southeast Rural Assistance Project, Inc., 256 Ga.App. 719, 720-21, 569 S.E.2d 545 (2002)). Because there has been no evidence of wrongful or unlawful conduct, imprisonment, threats, or any other acts of that nature, clearly, the stress Mr. Fanner is feeling falls outside the scope of legal "duress." At trial Mr. Farmer testified that he could not agree to the inclusion of the phrase "without duress" in the Note because of the adversarial relationship he has with the Bank. He further stated that the parties have been fighting over this language for months, and he felt missing the significance of every term in the Note could be detrimental to him. Certainly no one envies Debtor's bargaining position, being in Chapter 11 and owing $6,000,000 to Ameris on a secured claim; however, "[o]ne may not void a contract on grounds of duress merely because he entered into it with reluctance, the contract is very disadvantageous to him, the bargaining power of the parties was unequal or there was some unfairness in the negotiations preceding the agreement." Tidwell v. Critz, 248 Ga. 201, 204, 282 S.E.2d 104 (1981) (citation omitted) (internal quotation marks omitted); see also Chouinard v. Chouinard, 568 F.2d 430, 434 (5th Cir. 1978) ("[T]he mere fact that a person enters into a contract as a result of the pressure of business circumstances, financial embarrassment, or economic necessity is not sufficient [to establish economic duress].").
To establish a claim for economic duress, Debtor must show that the acts or conducts of Ameris were wrongful or illegal. Frame v. Booth, Wade & Campbell, 238 Ga.App. 428, 429, 519 S.E.2d 237 (1999) ("[An economic] duress claim ... must be based upon acts or conducts of the opposite party which are
Finally, Mr. Fanner testified that he has been in business for over forty years. With such vast experience, I find that Mr. Farmer is sophisticated in business matters. He has obtained the advice of skillful, experienced, and competent counsel and financial professionals. Accordingly, because Mr. Farmer has now, after consultation with his counsel, agreed that his concept of "duress" was legally imperfect and that the phrase can properly be included in the Note, and because on the merits I independently find that the circumstances do not amount to "duress," 1 conclude that the phrase shall be included in the Note.
Pursuant to the foregoing Findings of Fact and Conclusions of Law, it is the ORDER of this Court that Ameris amend the Note to incorporate the changes as set forth herein. Once the Note is amended, it is further ORDERED that Debtor and Ameris execute the Note within a reasonable period of time, not to exceed fourteen (14) days from the date the amended Note is presented to Debtor.
