Menorah Congregation & Religious Ctr. v. Feldman (In re Menorah Congregation & Religious Ctr.)

• Decision Date: 05 August 2016
• Docket Number: Case No. 13–23976 RDD,Adv. Pro. No. 15–08217 RDD
• Parties: In re: Menorah Congregation and Religious Center d/b/a Camp Menorah, Debtor. Menorah Congregation and Religious Center d/b/a Camp Menorah, Plaintiff, v. Ezra Feldman and Vladimir Loos, Defendants.
• Court: United States Bankruptcy Courts. Second Circuit. U.S. Bankruptcy Court — Southern District of New York

554 B.R. 675

In re: Menorah Congregation and Religious Center d/b/a Camp Menorah, Debtor.Menorah Congregation and Religious Center d/b/a Camp Menorah, Plaintiff

v.Ezra Feldman and Vladimir Loos, Defendants.

Case No. 13–23976 RDD

Adv. Pro. No. 15–08217 RDD

United States Bankruptcy Court, S.D. New York.

Signed August 5, 2016

Leo Fox, Esq., for the Debtor/Plaintiff

David Maho, Esq., for Defendants

MEMORANDUM OF DECISION AFTER TRIAL ON OBJECTION TO DEFENDANTS' SECURED CLAIMS

Hon. Robert D. Drain, United States Bankruptcy Judge

In this adversary proceeding, the debtor/plaintiff, Menorah Congregation and Religious Center (the “Debtor” or “Menorah”) seeks an order (a) pursuant to Fed. R. Bankr.P. 3007(a) and 7001(2), determining the extent of the judicial liens held by the defendants, Ezra Feldman and Vladimir Loos (the “Creditors”) on Menorah's real property located at 425 Old Falls Road, Woodbridge, New York 12789 (the “Real Property”) (specifically, Menorah contends that most of the bungalows on the Real Property are personalty and, therefore, not subject to the Creditors' judicial liens), and (b) pursuant to 11 U.S.C. § 506(a),¹ fixing the allowed amount of the Creditors' secured claims in this case after taking into account the Real Property's value, the allowed amount of claims secured by a senior lien on the Real Property, and costs chargeable against Creditors' interests in the Real Property under 11 U.S.C. § 506(c).² See Pre–Trial Order pursuant to Fed.R.Civ.P. 16, dated January 8, 2016, at ¶ I [Dkt. No. 21].

This memorandum of decision explains the basis for the Court's conclusion, after trial and review of the parties' post-trial submissions, that the Creditors' judicial liens extend to the bungalows, which are not personalty and, therefore, are part of the Real Property, and that the aggregate amount of the Defendants' allowed secured claims in this case as of the date that Menorah's chapter 11 plan was confirmed is $42,587.31, the remaining amount being unsecured.

Jurisdiction

The Court has jurisdiction over this adversary proceeding pursuant to 28 U.S.C. §§ 157(a) -(b) and 1334(b) and the reservation of post-confirmation jurisdiction in Article XIV of Menorah's Second Amended Plan of Reorganization, dated October 3, 2014 (the “Plan”) [Dkt. No. 72], and ¶ 7 of the Court's Order, dated January 22, 2015, confirming the Plan [Dkt. No. 96]. The parties' dispute concerns the allowance under 11 U.S.C. § 506 of the Defendants' secured claims in this case, which are treated in ¶ 3.2 of the Plan to the extent that they are secured and in ¶ 3.3 of the Plan to the extent that they are undersecured. The dispute thus arises under the Bankruptcy Code and bears a close nexus to the Plan, which reserves this Court's power to decide such issues, warranting the Court's exercise of post-confirmation subject matter jurisdiction. Cohen v. CDR Creances S.A.S. (In re Euro–American Lodging Corp.), 549 Fed.Appx. 52, 54 (2d Cir.2014) ; Ace Am. Ins. Co. v. DPH Holdings Corp. (In re DPH Holdings Corp.), 448 Fed.Appx. 134, 137 (2d Cir.2011), cert. denied, ––– U.S. ––––, 133 S.Ct. 51, 183 L.Ed.2d 677 (2012) ; SP Special Opportunities, LLC v. LightSquared, Inc. (In re LightSquared, Inc.), 539 B.R. 232, 240–42 (S.D.N.Y.2015).

Although consent is unnecessary given the fundamentally core nature of this claim objection issue, the parties have expressly consented to the Court's final determination of the dispute. See Pre–Trial Order pursuant to Fed.R.Civ.P. 16, dated January 8, 2016, at ¶ II (Menorah's consent); transcript of trial on February 8, 2016, at 5 (Creditors' consent).

Wellness Int'l Network, Ltd. v. Sharif, ––– U.S. ––––, 135 S.Ct. 1932, 1944–45, 1948–49, 191 L.Ed.2d 911 (2015).

Facts

The Court's findings of fact are based on the trial testimony, which comprised the expert testimony of three real estate appraisers—Menorah's expert, Brian Amiel; the Creditors' expert, Robert Buckles; and Michael E. Holenstein, called by the Creditors, who provided appraisals to a lender to Menorah, Presidential Bank—and Menorah's manager/principal Abraham Tabak,³ as well as the exhibits admitted into evidence and the parties' stipulations. Each of the witnesses was generally credible, although problems with certain aspects of their testimony are noted below.

The Creditors assert secured claims in this case in the aggregate amount of $573,139.73, and, if such claims are oversecured, accrued postpetition interest and other amounts to the extent allowed under 11 U.S.C. § 506(b).⁴ Their claims stem from judgments entered against Menorah by the Supreme Court, State of New York, Sullivan County, on August 23, 2013.⁵ It is not disputed that the judgments were recorded in Sullivan County, New York, creating judicial liens on the Real Property. There is no evidence that the Creditors have a lien on any other property of the Debtor's estate, such as rents, other cash or personal property.

The parties have stipulated to the amount of the secured claim of Presidential Bank, which has a superior lien on the Real Property: $1,785,325.69.⁶ In addition, Menorah has asserted, without objection by the Creditors, that it owes $12,087 of prepetition “landfill charges” to Sullivan County that are senior to the Creditors' judicial liens.⁷ Thus, the value of the Real Property must exceed $1,797,412.69, plus any amounts properly chargeable against the Creditors' collateral under 11 U.S.C. § 506(c), for the Creditors to have an allowed secured claim under 11 U.S.C. § 506(a).

Menorah is a bungalow colony in Sullivan County, New York that caters to the Jewish community. It operates only during the summer season. Located on 15.89 acres, the Real Property has 42 bungalows added between 1995 and 2010 (seven two bedroom units and 35 three bedroom units) and 23 one or two bedroom bungalows dating from the early 1940s. It also has a schul, or synagogue, a meeting house, referred to as a “casino,” some small buildings used for school classes, an in-ground swimming pool and a basketball court/playground, as well as some laundry, storage and utility sheds. The buildings on the Real Property are wood frame construction with asphalt shingle roofs and are not winterized.⁸

The 23 bungalows dating from the early 1940s are in poor condition and nearing the end of their useful life⁹ unless the Debtor invests substantial sums ($3,000 - $5,000 per unit) in them, which it does not plan to do and apparently lacks the funds for even if it wanted to update them.¹⁰ Moreover, by letter dated August 6, 2015, the Code Enforcement Officer for the Village of Woodridge, New York informed Menorah that

several buildings are condemned or will be condemned prior to next season.... A minimum of 2 buildings need to be removed prior to April 2016. The agreement also needs to include a schedule for Mr. Tabak to adhere to, of demolition of the remainder of the old bungalows. The unit numbers to be considered are Unit 1A, 1/2, 2A, 3/4, 3A, 5/6, 7, 8, 9, 10, 11, 11A, 12, 13, 13A, 14, 15, 38, 39, 40, 40A 46, 47, 48, 49, 50, 51, 52. There is also a unit that is already condemned and has been for 2 years. I do not know the unit number of this unit.

The letter that you provide to my office will be a timeline that will be reviewed for approval and that will be strictly enforced in order for the community to be open next year. Should the approved timeline not be followed then Menorah congregation will not be able to use the bungalow units listed above for the 2016 season.¹¹

There is a January 8, 2016 letter¹² from the same Code Enforcement Officer stating that “An agreement was signed 8/20/15 with Menorah Congregation which included a schedule of demolition and replacement of several units over the course of the next seven years,” although that agreement was not introduced into evidence. Mr. Tabak testified that Menorah was planning to open for the 2016 season, which suggests that the conditions in the August 6, 2015 letter were met for 2016. He also testified that Menorah rented 58 of its 65 units in 2015,¹³ the vacant units presumably being among the older ones, and stated that “maybe you can squeeze another season out of some of them,”¹⁴ again referring to the 23 older units.

A plan, the so-called “Youngblood Plan,” was prepared in 2009 for the proposed replacement of the older bungalows slated to be destroyed, but, as noted above, Menorah lacks the wherewithal to implement it.¹⁵ Considering all of the foregoing, reliance on material income from more than the 42 newer units after 2016 is highly speculative. As noted above, Mr. Holenstein opined in June, 2014 that one should not assume income from the older bungalows and, moreover, factored in a significant cost for their demolition.¹⁶ Without the admission of the August 20, 2015 agreement into evidence, it is, in fact, next to impossible to determine the amount of any income to be generated by the older units after 2016, because we do not know which are slated for demolition, and when, or are prohibited by the Village of Woodridge from being occupied. This raises a significant problem with Mr. Buckles' May 22, 2014 valuation, which assumes seasonal income of $5,000 per unit for the 23 older bungalows,¹⁷ as well as describes those units as being in “fair to average condition”¹⁸ and states that “no functional or external obsolescence was observed at the time of inspection.”¹⁹ It also raises an issue with Mr. Holenstein's revised June 2014 valuation relied on by the Creditors because, as discussed below, it used aggregate income projections provided to him by Presidential Bank which, notwithstanding Mr. Holenstein's view that one should assume no income from the 23 older units, apparently included substantial income from them.

Based on Menorah's monthly operating reports,²⁰ required to be filed under penalty of perjury and prepared by Menorah's outside accountants,²¹ Menorah had gross income of $365,305.24 and net income of $59,841.70 in 2014, and gross income of $405,076.30...