Joan N. Feeney, United States Bankruptcy Judge.
The matter before the Court is the Motion of East Boston Savings Bank for Relief from the Automatic Stay pursuant to 11 U.S.C. § 362(d)(1) and (d)(2) (the "Lift Stay Motion"). Specifically, East Boston Savings Bank ("EBSB") seeks to foreclose on real property located at 173B Norfolk Avenue, Boston, Massachusetts; 30-40 Batterymarch Street, Boston, Massachusetts; 261 Marlborough Street, Unit 5, Boston, Massachusetts; and 239 Commonwealth
The Court heard the Lift Stay Motion on September 16, 2015 and on October 7, 2015 and directed the parties to file supplemental documents. Having reviewed the Lift Stay Motion and the Debtor's Response, as well as the parties' supplemental submissions, the Court concludes that the material facts necessary to determine whether EBSB has sustained its burden with respect to the Lift Stay Motion are not in dispute, although circumstances surrounding the stalled development of the property located at 20 Parmenter Street and 244-246 Hanover Street, Boston, Massachusetts (the "Project") have raised, and likely will continue to raise, considerable controversies among EBSB, Whipple Construction ("Whipple"), Hanover Parmenter Union LLC ("Hanover Parmenter"), and the Debtor because the Four Properties owned by the Debtor are pledged to secure its guaranty of Hanover Parmenter's debt to EBSB.
The material facts needed to resolve the Lift Stay Motion are either admitted by the Debtor in its Response to the Lift Stay Motion or set forth in the Verified Complaint and Request for Injunctive Relief it filed against EBSB in the Suffolk Superior Court, Department of the Trial Court on July 30, 2015. The denial of injunctive relief by the Superior Court precipitated the filing of the Debtor's Chapter 11 case on August 4, 2015.
In 2008, Twenty P. Realty Trust, 244 VFW Trust, and Joseph F. Perroncello ("Perroncello"), who holds a 99% interest in the Debtor and who was the trustee of the two trusts, borrowed $9,570,000.00 from EBSB to finance the Project, which at the time was to consist of 2 buildings located at 20 Parmenter Street and 244-246 Hanover Street and to include 18 residential units, 6-7 retail spaces, and 25 underground parking spaces. Permitting delays in connection with an underground lift for the parking areas and other issues delayed the Project, and Perroncello and the two trusts defaulted on their obligations. The loan matured in 2011 before completion of the Project.
EBSB agreed to refinance the Project, but conditioned the refinancing upon the engagement of Whipple and the conveyance of the Project to a new entity, Hanover Parmenter, whose members are Silvermine Development Partners, LLC ("Silvermine") and the Debtor. Alyson Toombs Worthington ("Toombs") is the Manager of Hanover Parmenter; Geoffrey Evancic ("Evancic"), an officer of Whipple, was until recently the manager of the Debtor.
On April 13, 2012, EBSB entered into an agreement with Hanover Parmenter for a loan in the amount of $16,423,000.00, some of the proceeds were used to pay off the existing loan. In addition, the two Perroncello controlled trusts transferred title to the Project to Hanover Parmenter. Hanover Parmenter signed a promissory note in favor of EBSB in the amount of $16,423,000.00, which note was secured by a mortgage on the Project, i.e., the properties located at 244-246 Hanover Street and 20 Parmenter Street.
The Debtor's April 13, 2012 Guaranty of the Hanover Parmenter note was executed by Evancic as "Manager and authorized signatory," and provides in pertinent part the following:
(emphasis supplied).
According to the Debtor, EBSB "ran the construction project," but at present only the building located on Parmenter Street is partially completed and the real estate on Hanover Street is a vacant lot. In September of 2013, due to EBSB's alleged mismanagement of the Project, Hanover Parmenter and the Debtor demanded that Whipple be terminated and that Hanover Parmenter be allowed to manage the Project, a demand EBSB rejected. Nevertheless, on December 30, 2013, the Debtor executed an "Amendment of Unlimited Guaranty of BB Island Capital LLC." The amendment contained the parties' alleged recognition that the loan amount was to be increased from $16,423,000.00 to $18,700,000.00. EBSB submitted the affidavit of Evancic who, while noting that a formal Consent of Members document had not been executed, represented the following:
Perroncello, in his affidavit, stated that "I was never made aware of or participated in any vote to amend the Guaranty ... or to modify the underlying loan." He also stated that no vote took place and that he was not aware of, or signed, any written Consent to amend the Guaranty. In response, EBSB filed another affidavit executed by Evancic to which he attached an email chain demonstrating Perroncello's awareness that the amount of the loan to Hanover Parmenter was to be increased, although no formal written consent was executed.
The Debtor failed to pay sums due under the April 20, 2012 and May 4, 2012 notes and, on December 8, 2014, EBSB accelerated the loans and demanded full payment. When the Debtor failed to pay, it sent the Debtor notices of its intent to foreclose and to conduct foreclosure auctions. The Debtor and EBSB dispute whether the Debtor paid $600,000 to postpone the auctions of the Four Properties for sixty days.
On July 30, 2015, the Debtor filed its Verified Complaint in the Suffolk Superior Court. Based upon its claims that EBSB controlled and mismanaged the Project, it formulated four counts as follows: Count I — Breach of Fiduciary Duty; Count II — G.L. c. 93A; Count III — Equitable Estoppel; and Count IV — Injunctive Relief. Specifically, it alleged that EBSB should be estopped from foreclosing on the additional collateral, namely the Four Properties, because of its representations that it would complete the Project. The Superior Court heard the request for preliminary injunctive relief. Its denial of that request precipitated the filing of the Debtor's bankruptcy petition.
In its Lift Stay Motion, EBSB states Hanover Parmenter defaulted on its obligations to EBSB by, among other things, failing to make payment as and when due, adding that the Hanover Parmenter loan matured on May 1, 2015. According to EBSB, the total amount due as of the Debtor's filing date of the petition was $16,899,549.27, a sum in excess of the face amount set forth in the original Guaranty ($16,423,000.00 - $16,899,549.27 = $476,549.27). EBSB also contends that the Debtor is liable to it for the full amount due under the April 20, 2012 and May 4, 2012 loans in the amount of $1,342,737.95 ($1,317,041.16 + $15,696.79). In its view, the Debtor is liable for a total of $18,242,287.22.
The Debtor takes issue with EBSB's calculation of the amount due under the April 20, 2012 loan.
EBSB, based upon appraisals it obtained for the Four Properties, asserts that the Four Properties have a combined value of $3,465,000, which the Debtor admits. It also contends that the Four Properties are encumbered by tax liens totaling approximately $170,000, which the Debtor also admits and, with respect to one property, a condominium lien, which the Debtor disputes. In addition, EBSB contends, based upon comprehensive appraisals prepared by Cushman & Wakefield, one dated December 17, 2014 for 20 Parmenter Street, and the other dated April 2, 2015 for 244 Hanover Street, that the Project
The Debtor argues that EBSB is not entitled to relief from stay, asserting that "the overall collateral package to the Bank indicates that they [sic] are oversecured," that it will provide adequate protection to EBSB, and that "[a] confirmable plan will be filed." It did not outline the adequate protection that it would provide EBSB, although it has been permitted to use cash collateral on an interim basis, nor did it set forth the contours, by way of an offer of proof, of a feasible Chapter 11 plan in prospect or indicate when such a plan would be filed.
The Debtor also challenges the Amendment to the Unlimited Guaranty pointing to a discrepancy in the amendment to the original Guaranty in which its date was referenced as April 13, 2013, instead of April 13, 2012. It adds, based upon Perroncello's affidavit, that the amendment was not authorized.
Section 362(d) provides in relevant part:
11 U.S.C. § 362(d). Section 362(g) provides: "In any hearing under subsection (d) or (e) of this section concerning relief from the stay of any act under subsection (a) of this section — (1) the party requesting such relief has the burden of proof on the issue of the debtor's equity in property; and (2) the party opposing such relief has the burden of proof on all other issues."
The Court finds that Hanover Parmenter owes EBSB at least $16,330,162.34 in principal and $312,943.15 in interest, for a total of $16,643,105.49 pursuant to its Guaranty and the amendment thereto, excluding default interest, late charges, legal fees, and all other fees and charges. In addition, the Debtor owes EBSB $1,139,118.77 in principal, plus $52,255.61 in interest, for a total of $1,191,374.38, under the April 20, 2012 note, excluding default interest, late charges and auction fees and other fees challenged by the Debtor. Finally, the Debtor owes EBSB $15,696.79 under the May 4, 2012 note, a sum the Debtor does not dispute. Thus, the Court finds that the Debtor owes EBSB $ 1,207,021.17 pursuant to the notes it executed on April 20, 2012 and on May 4, 2012, and at least $16,643,105.49 pursuant to its Guaranty as amended. If the sum due under the Guaranty is capped at the face amount set forth in the April 13, 2012 Guaranty, i.e, $16,423,000.00, thereby obviating a determination of the validity of the December 30, 2013 amendment,
Because the Debtor has no equity in the Four Properties, it had the burden of demonstrating that a plan of reorganization is in prospect. It did not sustain its burden.
In United Sav. Assoc. of Texas v. Timbers of Inwood Forest Assocs., Ltd, 484 U.S. 365, 108 S.Ct. 626, 98 L.Ed.2d 740 (1988), the Supreme Court stated:
484 U.S. at 375-76, 108 S.Ct. 626 (footnotes omitted). In In re Souza, No. 12-13341, 2012 WL 8441318 (Bankr.E.D.Ca. Nov. 26, 2012), the bankruptcy court observed the following with respect to the standard set forth by the Supreme Court:
In re Souza, 2012 WL 8441318 at *3 (emphasis supplied). "When the exclusivity period has not yet run, courts apply a lesser standard of proof "to benefit debtors who have a realistic chance of reorganization but who have not had sufficient time to formulate a confirmable plan." In re Morton, No. 3:15-bk-30892, 2015 WL 4396719 at *4 (Bankr.E.D.Tenn. July 17, 2015) (quoting Am. Network Leasing, Inc. v. Apex Pharm., Inc. (In re Apex Pharm., Inc.), 203 B.R. 432, 442 (N.D.Ind.1996) ("During the early stages of a bankruptcy case, the court `must work with less evidence than might be desirable and should resolve issues in favor of the reorganization where the evidence is conflicting' to ensure that the debtor is given the `breathing room' Congress intended the stay to provide.").
Even if this Court were to adopt the lenient standard applicable to the burden of proof under 11 U.S.C. § 362(d)(2)(B) articulated by the court in Souza because the Debtor's case was filed approximately three months ago, the Debtor merely relied upon the conclusory assertion that "[a] confirmable plan of reorganization will be filed." That statement is insufficient to meet the burden articulated by the Supreme Court in Timbers. The Debtor owns the Four Properties and a minority interest in Hanover Parmenter. It did not even attempt to indicate how it could refinance its assets to satisfy its outstanding obligations and reorganize its financial affairs.
To the extent that the Debtor relies upon the argument that the amendment to the Guaranty was faulty, the Court concludes that a determination of the merits of the Debtor's argument as to the lack of authority for the execution of the amendment on December 30, 2013 does not affect the April 13, 2012 Guaranty. Moreover, any assertion that the Lift Stay Motion should be denied because of the pendency of the Superior Court action is without merit in view of the decision of the United States Court of Appeals for the First Circuit in Grella v. Salem Five Cent Savs. Bank, 42 F.3d 26 (1st Cir.1994). In Grella, the United States Court of Appeals for the First Circuit stated:
Grella, 42 F.3d at 32. In view of the Debtor's failure to draw even a faint out-line of a plan of reorganization, coupled with the absence of equity in the Four Properties, the Court concludes that EBSB has established a colorable claim to relief under 11 U.S.C. § 362(d)(2).
In view of the foregoing, the Court shall enter an order granting EBSB's Lift Stay Motion.
i. Principal $1,139,118.77
ii. Interest 52,255.61
iii. Default Interest 64,947.59
iv. Late Charges 6,316.92
v. Legal Fees 27,506.34
vi. Environmental Fees 445.00
vii. Auction Fees 11,580.00
viii. Escrow Balance 14,870.93
Total $1,317.041.16
i. Principal $16,330,162.34
ii. Interest 312,943.15
iii. Default Interest 215,467.42
iv. Late Charges 17,467.36
v. Legal Fees 13,759.00
vi. Appraisal Fees 9,750.00
Total $16,899,549.27
