In re A & B Assocs., L.P.

• Decision Date: 26 September 2018
• Docket Number: Number 17-40185-EJC
• Parties: IN RE: A & B ASSOCIATES, L.P., Debtor.
• Court: United States Bankruptcy Courts. Eleventh Circuit. U.S. Bankruptcy Court — Southern District of Georgia

593 B.R. 27

IN RE: A & B ASSOCIATES, L.P., Debtor.

Number 17-40185-EJC

United States Bankruptcy Court, S.D. Georgia, Savannah Division.

Signed September 26, 2018

Tiffany Elizabeth Caron, C. James McCallar, Jr., McCallar Law Firm, Savannah, GA, for Debtor.

OPINION ON MOTION TO CONVERT TO CHAPTER 7

Edward J. Coleman, III, Judge

I. INTRODUCTION

A & B Associates, L.P. (the "Debtor") filed this Chapter 11 single asset real estate case on February 3, 2017. (Dckt. 1). The Debtor, a limited partnership organized under the laws of the State of Georgia, owns and operates a 96-unit apartment complex in Beaufort County, South Carolina, known as August on Southside (the "Property"). The Debtor's principal creditor is FCRE REL, LLC ("FCRE"), which holds a first priority lien in the Property. FCRE has been an active creditor, both before and after the filing of this case.

Pending before the Court is FCRE's Motion Pursuant to 11 U.S.C. § 1112(b) to Convert this Case to a Case under Chapter 7 and for the Appointment of a Chapter 7 Trustee (the "Motion to Convert"), which was filed on June 13, 2017. (Dckt. 161). In the Motion to Convert, FCRE only requested conversion to Chapter 7, not dismissal of the case. However, in its second supplemental brief,¹ filed on February 2, 2018, FCRE appeared to request, in the alternative, dismissal of the case. (Dckt. 358). At a hearing on April 16, 2018, FCRE clarified through counsel that it only seeks conversion, not dismissal. (Transcript,² p. 13).³

In its Motion to Convert (dckt. 161) and supplemental briefs (dckt. 333, 358, 388, 418, 475), FCRE essentially makes two arguments concerning the Debtor's eligibility to proceed with reorganization under Chapter 11 based on its limited partnership status under Georgia law. First, FCRE contends that the entity that filed the petition, ABGP, Inc., ostensibly the Debtor's general partner as of 2010, lacked authority to do so because it was never properly admitted as a general partner. Second, FCRE contends that the Debtor cannot be a debtor under 11 U.S.C. § 109(d) because the limited partnership was dissolved, or at least rendered moribund, by the administrative dissolution in 2005 of its erstwhile general partner, also called ABGP, Inc.

Although this case has been proceeding toward confirmation,⁴ the Court must not further delay a resolution of these fundamental questions. Accordingly, at a status conference held on February 21, 2018, the Court advised counsel that an evidentiary hearing would be scheduled as to the narrow issues surrounding the organization of the Debtor and whether certain alleged defects in its general partner's status would prevent this case from moving forward. The Court directed the parties to stipulate to as many facts (and there are dozens, if not hundreds, bearing on these issues) as possible, and to stipulate to the admissibility of as many documents (and there are dozens of these, as well) as possible, so that any evidence that may be needed to supplement an otherwise replete record could be received with a minimum of time. (Dckt. 370, p. 9).

This matter was scheduled for hearing on April 16, 2018. (Dckt. 375). The parties failed to accommodate the Court's request regarding factual stipulations and instead submitted separate "stipulations." (Dckt. 385, 390). Prior to the hearing, however, the parties did stipulate to the admissibility of numerous documents.⁵ (Transcript, pp. 17, 28-30). At the hearing, the Court heard testimony from L. Christopher Kettles ("Mr. Kettles"), the authorized representative of ABGP, Inc., the Debtor's "managing" general partner. The Court also admitted certain additional exhibits into evidence. The parties were given an opportunity to brief the Court on the issues, and the matter is now ripe for ruling.

As set forth below, the Court finds that the limited partnership formed in 1976 known as A & B Associates, L.P. remains a viable limited partnership under Georgia law, eligible to be a debtor under Chapter 11 pursuant to 11 U.S.C. § 109(d), and that the petition in this case was filed by its general partner with authority to do so. Accordingly, the Court will deny the Motion to Convert (dckt. 161) as to this narrow ground. By separate order the Court will also deny the Motion to Convert on all other grounds asserted by FCRE, and this case will proceed to confirmation. This Opinion constitutes the Court's Findings of Fact and Conclusions of Law. To the extent that any findings of fact herein are construed to be conclusions of law, they are hereby adopted as such. To the extent that any conclusions of law herein are construed to be findings of fact, they are hereby adopted as such.

II. JURISDICTION

This Court has subject-matter jurisdiction pursuant to 28 U.S.C. § 1334(a), 28 U.S.C. § 157(a), and the Standing Order of Reference signed by then Chief Judge Anthony A. Alaimo on July 13, 1984. This is a "core proceeding" within the meaning of 28 U.S.C. § 157(b)(1).

III. FINDINGS OF FACT

As a preliminary matter, the sources of information regarding the Debtor's formation and subsequent history are limited to the stipulated documents and to the testimony of Mr. Kettles. No other witness with personal knowledge has testified in this case as to matters relating to the limited partnership agreement, amendments to the same, the admission and withdrawal of limited and general partners from the inception of the limited partnership, or the intentions of those parties to the limited partnership agreement.

A number of attorneys participated in the preparation of amendments to the limited partnership agreement, the formation of corporate general partners over the years, and efforts to resurrect administratively-dissolved entities. None of those attorneys appeared as witnesses. Moreover, Mr. Kettles himself did not become a party to the limited partnership until 1990. Thus, the Court has heard no testimony regarding the initial formation of the limited partnership in November of 1976 or regarding the initial financing for the construction of the apartment complex. Nevertheless, the Court can make certain limited findings regarding the history of the limited partnership prior to Mr. Kettles' acquisition (through one or more entities) of an interest in the Debtor.⁶

A. Formation of the Limited Partnership and Identity of Early General Partners

As set forth in the Limited Partnership Agreement of A & B Associates, L.P. (the "Limited Partnership Agreement") (FCRE Ex. 1)⁷ , the Debtor is a limited partnership organized under Georgia law on November 1, 1976, for the purpose of "developing and operating 96 two-story garden type apartments known as the Versailles Apartments⁸ ... on approximately 10.2 acres ... located in Beaufort County, [South Carolina]." (FCRE Ex. 1, p. 1). The original general partner was PHB, Inc. ("PHB"), the name of which apparently was later changed to The Uniflex Corporation ("Uniflex")⁹ (FCRE Ex. 6, p. 1), which owned a 25.03% interest.¹⁰ (FCRE Ex. 1, p. 13). The limited partnership interests were acquired by a variety of individuals and trusts.

The Limited Partnership Agreement was amended several times between 1976 and 2015. Many of these are minor changes, reflecting a realignment of limited partnership interests. Other amendments reflect changes in the identity of general partners for this limited partnership and the ownership interests held by such general partners. Still other amendments to the Limited Partnership Agreement were made as a condition of obtaining financing from various lenders. Apart from these amendments to the Limited Partnership Agreement, the record is devoid of information about the Debtor's activities until Mr. Kettles became involved in 1990. His history with the Debtor requires some elaboration.

Mr. Kettles began working as a corporate officer for Uniflex in the late 1970s. (Transcript, pp. 68, 74). In the mid-1980s, Mr. Kettles left Uniflex and began working as a certified public accountant. (Transcript, p. 79). On February 2, 1988, an entity called Montgomery Management Corp. ("MMC") was incorporated by H. Bruce Montgomery ("Mr. Montgomery") and Bette F. Montgomery. (FCRE Ex. 15). Although Mr. Kettles and Mr. Montgomery shared office space, Mr. Kettles testified that he was not involved with MMC. (Transcript, p. 88). On October 3, 1990, an entity called Montgomery Management Corp. II ("MMC II") was incorporated. (FCRE Ex. 16). Mr. Kettles testified that both he and Mr. Montgomery had ownership interests in MMC II. (Transcript, p. 89).

On December 27, 1990, a Certificate of Limited Partnership, executed by Mr. Montgomery, was filed with the Georgia Secretary of State identifying MMC II as the general partner of the Debtor. (FCRE Ex. 17). The record contains no documentation as to how or when MMC II became the general partner. Mr. Kettles, however, testified that MMC II acquired its interest as general partner from Uniflex. (Transcript, p. 89).

On October 1, 1993, an entity called The August Group, Inc. (the "August Group") was incorporated under Georgia law. (FCRE Ex. 18). According to Mr. Kettles, the August Group came about as a result of a conversation he had with Mr. Montgomery in August¹¹ of 1993 in which they decided to create a corporation for the purpose of replacing MMC II as general partner of the Debtor. (Transcript, pp. 93-95). Mr. Kettles could not recall whether Mr. Montgomery initially owned any interest in the August Group. (Transcript, pp. 92, 94). If so, Mr. Kettles bought out such interest early on, leaving Mr. Kettles as the August Group's sole owner. (Transcript, p. 92).

Mr. Kettles testified that on January 1, 1996,¹² he bought out (either in his individual capacity or through the August Group¹³ ) Mr. Montgomery's interest in MMC II, leaving Mr. Kettles as the sole shareholder of that entity, as well. (Transcript, p. 90). Although Mr. Kettles made reference to the existence of a transfer document evidencing this January 1, 1996 transaction, no such...