216 B.R. 386 (Bkrtcy.D.Md. 1998), 97-2-0999, In re Shady Grove Tech Center Associates Ltd. Partnership

• Citation: 216 B.R. 386, 10 Fourth Cir. & D.C. Bankr. 16
• Party Name: . In re SHADY GROVE TECH CENTER ASSOCIATES LIMITED PARTNERSHIP, Debtor.
• Case Date: January 07, 1998
• Court: United States Bankruptcy Courts, Fourth Circuit

Page 386

216 B.R. 386 (Bkrtcy.D.Md. 1998)

10 Fourth Cir. & D.C. Bankr. 16

.

In re SHADY GROVE TECH CENTER ASSOCIATES LIMITED PARTNERSHIP, Debtor.

Bankruptcy No. 97-2-0999-DK.

United States Bankruptcy Court, D. Maryland, at Greenbelt.

January 7, 1998

Page 387

David R. Kuney, Jeffrey L. Tarkenton, David, Hagner, Kuney & Davison, P.C., Washington, DC, for Debtor.

David Rice, Venable, Baetjer & Howard, Baltimore, MD, for Massachusetts Mutual Life Insurance Company.

Reed Sexter, Dicketein, Shapiro, Morin & Oshinsky, L.L.P., Washington, DC, for Diversified Investment Associates, Inc.

MEMORANDUM OPINION

DUNCAN W. KEIR, Bankruptcy Judge.

On October 21, 1997, a Massachusetts Mutual Life Insurance Company (hereinafter "Lender") filed a motion seeking relief from the automatic stay imposed by 11 U.S.C. § 362(a) in this Chapter 11 case. Lender asserts two grounds for relief from stay, "cause" under § 362(d)(1) and that the Debtor holds no equity in its property and does not need it for an effective reorganization under 11 U.S.C. § 362(d)(2). ¹

The Debtor is a limited partnership holding as its sole asset a business office building located in Montgomery County, Maryland

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(the "Property"). Debtor's creditors consist of the Lender which holds a First Deed of Trust upon the Property; trade creditors which at the date of the petition, September 30, 1997, were owed for debts arising during the last month of pre-petition operation; Diversified Investment Associates, Inc. ("Diversified"), a "mezzanine lender" pursuant to a loan arrangement made on the fourth day prior to the bankruptcy petition; unpaid management fees to Guardian Management, Inc.; ² tenant security deposits; and obligations to shareholders.

Lender asserts that cause for relief from stay arises from the totality of circumstances under which this case was filed and is pending. Those circumstances include a pre-petition waiver of the right to contest a motion for relief from stay, the allegation that the bankruptcy case is essentially a two-party dispute between the equity interest holders of the Debtor and the Lender concerning the future potential for increase in value of the subject property, the fact that Debtor has no equity in its sole asset, and the alleged non-confirmability of Debtor's plan.

Lender, at times in its motion, has referred to these asserted facts as "bad faith" circumstances. In response, the Debtor argues that Lender must prove both subjective bad faith and objective futility under the holding of the United States Court of Appeals for the Fourth Circuit in the case of Carolin Corp. v. Miller, 886 F.2d 693 (4th Cir.1989). ³ According to Debtor's view, the court may not grant relief from stay for cause because Debtor's assertion that it has a reasonable prospect of a reorganization within a reasonable time defeats a finding of objective futility. Debtor also argues that there is no subjective bad faith in its filing.

However, an examination of the grounds asserted by Lender as constituting cause for relief from stay and of the facts proven in the three days of evidentiary hearings, discloses that Lender's motion cannot be so narrowly construed, nor can the holdings in Carolin Corp. be so broadly applied. In effect, Debtor's argument would limit "cause" under 11 U.S.C.§ 362(d)(1) to either lack of adequate protection or bad faith motive for filing. Thus, to gain relief from stay for cause in cases where adequate protection exists, a movant would be required to prove both prongs of the Carolin Corp. definition of bad faith motive.

This court holds that cause for relief from stay is not limited to a lack of adequate protection or a finding of bad faith motive for filing the bankruptcy case. As stated by the Fourth Circuit in In re Robbins, 964 F.2d 342, 345 (4th Cir.1992), "[b]ecause the [Bankruptcy] Code provides no definition of what constitutes 'cause,' courts must determine when discretionary relief is appropriate on a case-by-case basis." This court has similarly interpreted Section 362(d)(1): "11 U.S.C. § 102(3) construes the term "including" to not be limiting. Thus it is clear that cause, other than a lack of adequate protection, may be the basis for relief from the automatic stay." In re Internal Revenue Service v. Bacha, 166 B.R. 611, 612 (Bankr.D.Md.1993). It follows, that while circumstances which form cause for relief from stay may include a bad faith filing of the case, a finding of bad faith is not a prerequisite to a finding of cause.

An examination of the facts proven by the evidence is necessary to evaluate the circumstances which in the aggregate, Lender asserts, constitute cause. The first of these is the pre-petition waiver by the Debtor of rights concerning the automatic stay.

In May, 1993, the original loan made by the Lender to the Debtor and secured by the Property was in default. After negotiations, in which the Debtor was represented by the firm of Whiteford, Taylor & Preston, L.L.P., a law firm having recognized expertise in the area of real-estate lending and bankruptcy, a detailed restructuring agreement was entered into by and between Lender and Debtor. The general partner of the Debtor at all

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relevant times ⁴ was Marvin Lang, a sophisticated real estate investor ⁵ and former president of Standard Federal Savings Bank.

The terms of the restructuring agreement include "(1) financing of $310,509.22 in past-due interest, (2) an advance of approximately $307,760.00 of new money, (3) an advance for delinquent real property taxes of $115,507.37, (4) deferral of certain payments, (5) a reduced interest rate, and (6) an extension on the maturity of its indebtedness to [Lender] through October 1, 1997." ⁶ Among the agreements made by the Debtor in the restructuring, is a three-tiered waiver of the right to protection against foreclosure through the filing of a bankruptcy case. The agreement provides, in essence, that the Debtor promises not to file a petition in bankruptcy before November 1, 1998. Second, the agreement provides that if the Debtor should become a debtor in bankruptcy, notwithstanding the aforesaid promise, that the stay imposed by 11 U.S.C. § 362(a) is waived as to actions by the Lender against the property. Finally, the agreement provides that if the stay does apply as against foreclosure by the Lender, the Debtor waives the right to defend against a motion for relief from the stay.

Lender does not assert the enforceability of the first and second parts of the agreement but asserts that the waiver of the right to defend against the motion for relief from stay by the Debtor, in the context of a pre-petition restructure agreement, is part of the factual circumstances which justify relief from stay for cause.

The courts have uniformly held that a waiver of the right to file a bankruptcy case is unenforceable. See Fallick v. Kehr, 369 F.2d 899 (2nd Cir.1966); In re Heward Bros., 210 B.R. 475 (Bankr.D.Idaho 1997); In re Madison, 184 B.R. 686 (Bankr.E.D.Pa.1995); In re Freeman, 165 B.R. 307 (Bankr.S.D.Fla.1994); In re Adana Mortgage Bankers, Inc., 12 B.R. 989, (Bankr.N.D.Ga.1980), vacated by joint motion of parties, 687 F.2d 344 (11th Cir.1982). Further, courts have not permitted pre-petition waivers of protection afforded by a bankruptcy case to be self-executing. In re Darrell Creek Assocs. Limited Partnership, 187 B.R. 908 (Bankr.D.S.C.1995); In re Powers, 170 B.R. 480 (Bankr.D.Mass.1994). However, there is a split in the reported decisions as to whether or not a pre-petition agreement to relief from stay should be afforded any weight in determining the motion...