Trident Associates Ltd. Partnership, In re

• Decision Date: 25 May 1995
• Docket Number: No. 93-2469,93-2469
• Citation: 52 F.3d 127
• Parties: 33 Collier Bankr.Cas.2d 708, 27 Bankr.Ct.Dec. 217, Bankr. L. Rep. P 76,479 In re TRIDENT ASSOCIATES LIMITED PARTNERSHIP, Debtor. TRIDENT ASSOCIATES LIMITED PARTNERSHIP, a Michigan Limited Partnership, d/b/a Beztak of Tri Atria Limited Partnership, Plaintiff-Appellant, v. METROPOLITAN LIFE INSURANCE COMPANY, Defendant-Appellee.
• Court: U.S. Court of Appeals — Sixth Circuit

Page 127

52 F.3d 127

33 Collier Bankr.Cas.2d 708, 27 Bankr.Ct.Dec. 217,

Bankr. L. Rep. P 76,479

In re TRIDENT ASSOCIATES LIMITED PARTNERSHIP, Debtor.

TRIDENT ASSOCIATES LIMITED PARTNERSHIP, a Michigan Limited Partnership, d/b/a Beztak of Tri Atria Limited Partnership, Plaintiff-Appellant, v. METROPOLITAN LIFE INSURANCE COMPANY, Defendant-Appellee.

No. 93-2469.

United States Court of Appeals, Sixth Circuit.

Argued Jan. 26, 1995.

Decided May 1, 1995.

Rehearing and Suggestion for Rehearing En Banc Denied May 25, 1995.

Sheldon S. Toll (argued and briefed) and Seth D. Gould, Honigman, Miller, Schwartz & Cohn, Detroit, MI, for plaintiff-appellant.

Judith G. Miller (argued and briefed) and Michael S. Khoury, Clark, Klein & Beaumont, Detroit, MI, for defendant-appellee.

Before: CONTIE, RYAN, and SILER, Circuit Judges.

RYAN, Circuit Judge.

Trident Associates Limited Partnership, a Michigan limited partnership, appeals from the district court's judgment affirming the bankruptcy court's dismissal of Trident Associates' petition under Chapter 11. Trident Associates assigns one error: The bankruptcy court abused its discretion when it lifted the automatic stay and dismissed Trident Associates' petition on the ground that it filed its petition in bad faith.

Trident Associates makes two arguments, one legal and the other factual: 1) the Supreme Court has sub silentio overruled this court's precedent establishing that a Chapter 11 filing may be dismissed for bad faith; and 2) the bankruptcy court clearly erred when it found that Trident Associates filed its petition in bad faith. Because we reject both of these arguments, we conclude that Trident Associates' assignment of error is without merit and we therefore affirm the decision of the bankruptcy court.

I.

This case involves Metropolitan Life Insurance Company's attempts to foreclose its mortgage in the Tri Atria Office Center building and the 13 acres on which it sits in Farmington Hills, Michigan. On October 13, 1987, MetLife loaned $23 million to Tri Atria Company, a Michigan co-partnership. Tri Atria Company was the first identity that this debtor had. The debtor has had several identities all the while representing the interests of the Beznos and the Luptak families.

On December 27, 1990, the principals of Tri Atria Company co-partnership formed a new entity, Beztak of Tri Atria Limited Partnership. On the same day, Beztak of Tri Atria was reorganized. The next day, all assets from Tri Atria Company were transferred by quit claim deed to Beztak of Tri Atria Limited Partnership. The mortgage Tri Atria had given to MetLife required that such transactions be approved by MetLife, and MetLife gave its approval through its agent's signature on a letter agreement the agent signed on July 31, 1991. The letter agreement contained numerous requirements, including that the general partners of Beztak of Tri Atria always maintain at least a 28.43% interest in the partnership.

Beztak of Tri Atria failed to make two tax payments on the property, the winter 1990 and the 1992 property taxes. The outstanding taxes totaled $972,693.11. This failure constituted a default under the mortgage. Based on this default and consistent with the terms of the mortgage, MetLife accelerated the debt and provided the appropriate notice and recording. This acceleration was effective May 1, 1993. On May 10, 1993, the Oakland County Treasurer conducted a forced sale of its tax lien interest for the 1990 winter taxes. MetLife purchased this lien for $314,066.

On May 14, 1993, MetLife advertised notice of its proposed foreclosure sale of the property. The foreclosure sale was scheduled for June 15, 1993. On May 21, 1993, MetLife filed suit against Beztak of Tri Atria in the United States District Court for the Eastern District of Michigan seeking the appointment of a receiver, declaratory and injunctive relief, and recovery of converted funds, amongst other relief. The foreclosure sale was then postponed from June 15th to the 22nd so that a hearing could be held in the district court. In this proceeding, Beztak of Tri Atria was represented by the law firm of Evans & Luptak of which Mr. Luptak and Mr. Beznos, who were general partners of Beztak of Tri Atria, were principals.

On or before June 14, 1993, one day before the scheduled hearing in the district court, Mr. Toll, an attorney from a firm other than Evans & Luptak, prepared a Chapter 11 petition for a debtor called Trident Associates Limited Partnership. This petition was signed on June 14th by a person who represented himself to be the vice-president of Trident General Inc., Trident Associates' general partner. However, at the time this petition was signed, neither Trident Associates nor Trident General existed.

On June 15, 1993, four significant events took place. First, MetLife heard a rumor that Beztak of Tri Atria was preparing to file a Chapter 11 petition. MetLife took advantage of the prior assignment from Beztak of Tri Atria and notified all of the tenants of the Tri Atria Office Center to pay their rent to MetLife rather than Beztak.

The second event of the day was that the district court conducted a hearing on MetLife's request for the appointment of a receiver and for injunctive relief. At this hearing, Beztak of Tri Atria was represented by attorneys from Evans and Luptak, including Kenneth Clarkston, whose presence is important because of what followed. At this hearing, the district court denied MetLife's requests and instructed the parties to continue their negotiations. MetLife advised the court of the rumors it had heard concerning Beztak of Tri Atria filing a bankruptcy petition. The court was critical of any attempt to delay or seek a different forum. Mr. Moran of the Evans and Luptak firm assured the court that he was unaware of any intention to file a bankruptcy petition, but told the court that he would have to confirm that with the client.

The third event of June 15th was the incorporation of Trident General, the entity listed on the bankruptcy petition that was later filed as general partner of the debtor, Trident Associates. The incorporator of Trident General was Kenneth Clarkston, the lawyer of the Evans and Luptak firm who was present at the hearing when Mr. Moran stated that he was unaware of any possible bankruptcy filing.

The last event of the day was perhaps the most significant: the total restructuring of Beztak of Tri Atria. Through a Certificate of Amendment of Limited Partnership, Beztak of Tri Atria changed its name to Trident Associates Limited Partnership. In addition, the structure was changed so that Trident General became the only general partner of the partnership and held only a 1% interest in the partnership. All the other general partners became limited partners. These transactions violated the letter agreement, and so constituted default under the mortgage, in two ways: first, the agreement requested that the general partners of Beztak of Tri Atria maintain at least 28.43% interest in the partnership, and second, any restructuring of this nature required the consent of MetLife.

On June 21, 1993, one day before the foreclosure sale, Mr. Moran of Evans and Luptak filed a suit in the Circuit Court for the County of Oakland, Michigan. This suit was filed in the name of Beztak of Tri Atria Limited Partnership against MetLife. Beztak of Tri Atria had been renamed and restructured six days earlier, so when this suit was filed, Beztak of Tri Atria was no longer a legal entity. This suit asked for a temporary restraining order to enjoin the foreclosure sale. In support of this motion was an affidavit from attorney Jerry Luptak dated June 21, 1993. In that affidavit, Luptak asserted that he was a principal of "Beztak of Tri Atria Limited Partnership," which he claimed was the owner of the property subject to foreclosure. This sworn statement was false in that Beztak of Tri Atria was then Trident Associates Limited Partnership and Luptak was no longer a principal, but only a limited partner. The request for the TRO was denied.

The next day, June 22, 1993, was the day scheduled for the foreclosure sale. It was to take place at 10:00 a.m. Prior to 10:00 a.m., a lawyer from Mr. Toll's firm called the persons conducting the foreclosure sale and told them that a bankruptcy petition had been filed and so the sale should not be conducted. The foreclosure sale took place nevertheless, and MetLife was the high bidder, buying the property for $19.5 million. At 10:09 a.m., the Chapter 11 bankruptcy petition in the name of Trident Associates Limited Partnership was filed with the bankruptcy court clerk. There is a factual dispute concerning the exact time that the foreclosure sale took place, whether it was at 10:00 a.m. or 11:00 a.m. Because the bankruptcy court lifted the automatic stay and dismissed the petition for bad faith, this disputed fact has become moot.

On July 2, 1993, Trident Associates filed a plan for reorganization. MetLife filed a motion to lift or annul the automatic stay so that it could proceed with its foreclosure of the Tri Atria Office Center in the state court. On July 15, 1993, the bankruptcy court held a hearing on the issue of lifting the automatic stay. At that time, counsel stipulated to the admissibility and authenticity of the documents that make up the record and counsel offered arguments for and against the motion. The bankruptcy court found that Trident Associates had filed its bankruptcy petition in bad faith and so granted MetLife's motion to lift the automatic stay. The court also dismissed Trident Associates' Chapter 11 petition. Trident Associates appealed to the district court, which affirmed. This appeal followed.

II.

This court has recently identified the standards that are applied when it reviews decisions of the bankruptcy court. First, this court directly reviews the bankruptcy decision, not the district court's review of the bankruptcy court's decision....