In re Desai, 02-10238.

Citation282 B.R. 527
Decision Date25 July 2002
Docket NumberNo. 02-10238.,02-10238.
PartiesIn re Rohit N. DESAI, Debtor. Southwest Georgia Bank, Movant, v. Rohit N. Desai, Respondent.
CourtUnited States Bankruptcy Courts. Eleventh Circuit. U.S. Bankruptcy Court — Middle District of Georgia

Walter W. Kelley, Kelley, Lovett & Mullis, P.C., Albany, GA, for Debtor.

MEMORANDUM OPINION

JOHN T. LANEY, III, Bankruptcy Judge.

On April 24, 2002, the court held a hearing on the motion of SouthWest Georgia Bank ("SWGA") for relief from the automatic stay and SWGA's motion to dismiss the case. At the conclusion of the hearing, the court took the matters under advisement. The parties were given an opportunity to submit briefs. The court has considered the evidence, the parties' briefs and oral arguments, and the statutory and case law. The court will deny both motions.

FACTS

The pertinent facts are not disputed. On or about February 5, 1997, Rohit N. Desai ("Debtor") executed a Security Deed and Agreement and a UCC-1 financing statement in exchange for SWGA's loan to Debtor. (See Exhs. M-B & M-C). SWGA's loan is secured by Debtor's real and personal property used in connection with Debtor's hotel operation which is located at 600 U.S. Highway 19 South in Camilla, Georgia. The hotel is operated by Desai Enterprises, Inc. ("Desai Enterprises").

Between 1998 and 1999, Debtor's hotel operation began to decline. This decline in business resulted in Debtor's default to, among others, the Small Business Administration ("SBA") and SWGA, the two largest secured creditors of Debtor's hotel operation. Debtor and Desai Enterprises' attempts to negotiate with SBA and SWGA were unsuccessful.

On or about December 6, 1999, Debtor and Desai Enterprises filed voluntary petitions under Chapter 11 of the Bankruptcy Code ("Code") in the Bankruptcy Court for the Northern District of Georgia.1 Although those cases were not consolidated, Debtor and Desai Enterprises filed a Joint Chapter 11 Plan of Reorganization ("plan") on March 6, 2000. The proposed plan reflected SWGA's secured claim as an impaired claim on which settlement was being negotiated. (See Exh. "A" of Exh. M-D).

On or about October 16, 2000, Debtor and Desai Enterprises entered into a Commercial Installment Promissory Note and Security Agreement with SWGA thereby restructuring the debt. According to the terms of the restructured debt, Debtor and Desai Enterprises were to pay to SWGA a principal amount of $883,153.38 at 10% per annum. The principal and interest was to be paid over 59 months in monthly installments of $8522.25. On October 16, 2005, a balloon payment equal to the amount of the remaining unpaid principal and interest would be due. (See Exh. M-A).

On October 23, 2000, the terms of this restructured debt agreement were incorporated into the plan by the plan's Fifth Amendment. (See Exh. "F" of Exh. M-D). Also incorporated into the Fifth Amendment of the plan was the following language:

In addition, for a period of time from the Confirmation Date through the fifth (5th) anniversary of the Confirmation Date, the [Debtor and Desai Enterprises], separately or together, do not oppose and consent to a lifting of the automatic stay in any other bankruptcy or insolvency case or proceeding affecting the collateral subject to [SWGA's] Security Deeds and other security documents ...

... [Debtor and Desai Enterprises] agree that neither [Debtor] nor [Desai Enterprises] shall commence, or cause or assist in the commencing of, a proceeding under the Bankruptcy Code within one hundred eighty (180) days from the Confirmation Date.

(See id. at § 5.5(A)(5))

On November 9, 2000, the bankruptcy court confirmed the plan by a consent order which was consented to by Debtor, Desai Enterprises, SWGA, SBA, and the United States Trustee. (See id.). On February 5, 2002, the bankruptcy court entered a Final Decree in Debtor's individual case. No evidence was presented as to when a final decree was entered in Desai Enterprises' case.

Debtor defaulted on his obligations under the confirmed plan and SWGA commenced foreclosure proceedings. On February 5, 2002, Debtor filed in this court the instant case under Chapter 11 of the Code.

The parties stipulate that Debtor is currently indebted to SWGA in an amount of $905,035.76. However, the issue before the court is whether the above language in Debtor's plan from his prior case is enforceable against Debtor in his current case.

SWGA argues that the terms of the plan's language in Debtor's prior case were negotiated and consented to by Debtor. Because these terms specifically contemplated what would happen in a future bankruptcy filing, SWGA contends that these terms should be enforced in the instant case. SWGA further argues that Debtor's current case should be dismissed as a bad faith filing. In addition to the terms of the plan, SWGA points out that Debtor filed the current case the day before the foreclosure sale was to take place. Also, this was the same day the final decree was entered in his prior case.

Debtor, however, disagrees that the terms in the plan in his prior case are enforceable in this case. Debtor concedes that "prepetition waivers" such as those in his prior plan may be enforced. Nevertheless, Debtor argues that such waivers cannot be enforced per se; certain factors must be present in order for them to be enforced. Moreover, prepetition waivers are especially unenforceable when they affect third-party creditors who were not party to the original agreement. In support of this latter contention, Debtor cites Lewis Autry, a pro se creditor who appeared at the hearing and opposed SWGA's motions.

In responding to the court's inquiry, Mr. Autry stated that he held claims against Debtor based on some notes which he signed with Debtor. Mr. Autry indicated that he signed one note for approximately $45,000.00 whereby he was jointly liable for money that was loaned to Debtor. On clarification from the court, Mr. Autry agreed that he had a contingent claim against Debtor for any loss the creditor on this note may incur. Presumably, this creditor is Family Bank. (See Schedule "F"). Family Bank is secured by a second lien on the real property used in Debtor's hotel operation. In addition, Mr. Autry stated he has an unsecured claim against Debtor in the amount of approximately $50,000.00 for a "couple of notes" Debtor signed.

Although Mr. Autry responded to the court questions when he appeared, he never testified under oath nor did any party call him as a witness. Therefore, this is not evidence. The only evidence in the record regarding Mr. Autry's claim is Debtor's plan from his prior case. (See Exh. M-D, § 3.6). The plan provides that Mr. Autry is a Class 6 secured creditor holding a claim of approximately $13,000.00. This claim is secured by Debtor's automobile. (See id.) Morever, Debtor's schedules in his present case show Mr. Autry as a secured creditor on the automobile loan and as a co-debtor. (See Schedules "D" & "H").

DISCUSSION

A number of courts have addressed the issue of the enforceability of prepetition waivers. However, research has produced no cases by the Eleventh Circuit or Middle District of Georgia courts addressing this point. Accordingly, this is an issue of first impression in this district.

While some courts have held that such waivers are valid, other courts have held to the contrary. See In re Excelsior Henderson Motorcycle Mfg. Co., 273 B.R. 920 (Bankr.S.D.Fla.2002) (enforcing prepetition agreement); In re Shady Grove Tech Ctr. Assoc. Ltd. P'ship, 216 B.R. 386 (Bankr.D.Md.1998) (setting forth several factors whether cause exists to warrant relief from stay); In re Atrium High Point Ltd. P'ship, 189 B.R. 599 (Bankr.M.D.N.C.1995) (holding that prepetition waivers are enforceable in appropriate cases); In re Priscilla Cheeks, 167 B.R. 817 (Bankr.D.S.C.1994) (enforcing prepetition forbearance agreement); In re Jenkins Court Assoc. Ltd. P'ship, 181 B.R. 33 (Bankr.E.D.Pa.1995) (holding that prepetition agreement would not enforced without further development of the facts); In re Sky Group Int'l, Inc., 108 B.R. 86 (Bankr.W.D.Pa.1989) (holding that prepetition waiver was not self-executing or per se enforceable); In re Club Tower, L.P., 138 B.R. 307 (Bankr.N.D.Ga.1991) (holding that prepetition waivers are enforceable).

The court finds that the facts in the Excelsior and Atrium cases are most analogous to the facts in the instant case. The debtors in Excelsior and Atrium entered into prepetition agreements as a result of a negotiated provision of a plan of reorganization in a prior bankruptcy case.2

In Atrium, the debtor managed and leased commercial office space in a two-story building. After several years of this operation, the debtor encountered difficulty in servicing its mortgage on the building. Although the debtor's mortgage holder allowed the debtor to modify its obligation several times, the debtor nevertheless ended up in Chapter 11. As a part of the plan in its Chapter 11 case, the debtor and its mortgage holder entered into an agreement whereby the debtor would not oppose relief from the stay to the mortgage holder in any subsequent case that the debtor might file. See Atrium at 602-03.

Just as before, the debtor was unable to meet its expenses and defaulted on its obligation to its mortgage holder. Soon thereafter, the debtor filed a second Chapter 11 case. Based on the plan provision in the prior case, the mortgage holder promptly moved for relief from stay. However, the debtor opposed the motion and presented affidavits of third-party creditors who objected to the mortgage holder's motion. The court noted that all but one of these objecting third-party creditors assented to the debtor's plan in its prior case. See id. at 604, n. 2.

After a thorough review of the authority on both sides of the issue, the court held that "prepetition waivers are enforceable in appropriate cases." Id. at 607. First, the court discounted the notion that prepetition waivers in single asset...

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