Albany Partners, Ltd., In re

Decision Date26 December 1984
Docket Number83-8704,Nos. 83-8701,s. 83-8701
Citation12 B.C.D. 787,749 F.2d 670
Parties12 Collier Bankr.Cas.2d 244, 12 Bankr.Ct.Dec. 787, Bankr. L. Rep. P 70,184 In re ALBANY PARTNERS, LTD., Debtor. ALBANY PARTNERS, LTD., Plaintiff-Appellant, v. W.P. WESTBROOK, Jr., et al., Defendants-Appellees. In re ALBANY PARTNERS, LTD., Debtor. W.P. WESTBROOK, Jr., W.W. Forehand and Gordon C. Varn, Plaintiffs-Appellees, v. ALBANY PARTNERS, LTD., Defendant-Appellant.
CourtU.S. Court of Appeals — Eleventh Circuit

John P. Whittington, Ann Robertson, Birmingham, Ala., for plaintiff-appellant, defendant-appellant.

Sherman Willis, Jesse C. Stone, Albany, Ga., for defendants-appellees, plaintiff-appellees.

Appeals from the United States District Court for the Middle District of Georgia.

Before FAY and JOHNSON, Circuit Judges, and YOUNG, * District Judge.

GEORGE C. YOUNG, District Judge:

Following a trial in these proceedings, the bankruptcy court issued findings of fact and conclusions of law, together with an order which (1) dismissed the Chapter 11 Petition for Reorganization filed by Albany Partners, Ltd. ("Albany Partners"), (2) annulled the automatic stay, and (3) denied Albany Partners' complaint to set aside a foreclosure sale conducted by the appellees and to adjudicate the appellees in contempt. Albany Partners unsuccessfully appealed these rulings in the district court below, and now appeals the district court's order confirming the order of the bankruptcy court. For the reasons discussed below, we affirm. 1

Facts and Proceedings

Appellees Westbrook, Forehand and Varn were shareholders of Almada, Inc., a Georgia corporation, which on February 1, 1982 sold the Ramada Inn in Albany, Georgia to Ocean View Associates ("Ocean View"), a South Carolina limited partnership. As part of the transaction, Ocean View gave Almada two notes, each secured by deeds to secure debt covering the Ramada Inn property. Almada, Inc. subsequently dissolved, and the notes and security deeds were assigned to the appellees. One of the notes was for $3,600,000, and provided for principal and interest to be paid in monthly installments of $42,176.63 over ten years with the remaining balance due in the final payment. The other note was for $450,000, with principal and interest due in full on February 1, 1983.

Ocean View made timely payments to appellees through January of 1983, but thereafter defaulted under the terms of the notes. 2 Consequently, in April, 1983, appellees commenced non-judicial foreclosure proceedings under the powers of sale contained in their security deeds, and advertised a foreclosure sale to be held on May 3, 1983. See O.C.G.A. Secs. 44-14-60 et seq. Simultaneously, appellees filed a petition for writ of possession and for appointment of a receiver in the Superior Court of Dougherty County, Georgia. On April 14, 1983, the Superior Court entered an order appointing a temporary receiver of the Ramada Inn premises and requiring Ocean View to show cause why the relief sought by the appellees should not be granted.

Ocean View filed an answer, dated April 27, 1983, alleging, inter alia, that it conveyed the collateral property by a warranty deed dated February 1, 1982 to Albany Partners, Ltd., a North Carolina limited partnership and the debtor in this bankruptcy case, that Albany Partners had possession and control of the collateral, and that revenues from the premises were being received by Albany Partners and not by Ocean View. However, at an evidentiary hearing before the Superior Court on April 27, 1983, Ocean View did not produce a copy of the deed showing the transfer allegedly made to Albany Partners. In addition, appellees searched the records of Dougherty County and could not find any evidence of the alleged transfer. Even though it had counterclaimed to enjoin the foreclosure, Ocean View made no attempt to join Albany Partners as a party to the action; nor did Albany Partners seek to intervene, even though it clearly was aware of the action because the two general partners in Albany Partners were also among the three general partners in Ocean View Associates. The Dougherty County Superior Court rejected Ocean View's allegations and contentions, and accordingly granted a writ of possession and appointed a receiver on April 27, 1983. (See Superior Court Order, dated May 2, 1983; Creditor Exhibit 13).

On May 2, 1983, the eve of appellees' foreclosure of the Ramada Inn, Albany Partners filed this Chapter 11 petition claiming to be the owner and operator of the said Ramada Inn. Although they were notified of appellant's bankruptcy filing, appellees consumated the foreclosure sale on May 3, and ten days thereafter filed a complaint in the bankruptcy court seeking relief from the automatic stay. Meanwhile, Albany Partners filed a complaint to set aside the foreclosure and moved to have the appellees held in contempt.

An evidentiary hearing on these matters was held before the bankruptcy judge on May 25, 1983. At that time, appellant produced an unrecorded warranty deed, dated February 1, 1982, purporting to convey the Ramada Inn property from Ocean View Associates to Albany Partners. 3 Appellant conceded that this was the first time appellees had seen the deed (Record, Vol. 3, pp. 18, 32). Albany Partners argued that appellees knew or should have known of the conveyance by virtue of a provision in their security deeds permitting Ocean View to transfer its interests in the Ramada Inn premises to Albany Partners within six months 4, and by virtue of Ocean View's allegation in the state court proceedings that it had transferred the property to Albany Partners. Appellees countered that the alleged transfer to Albany Partners was never disclosed to appellees prior to initiation of the foreclosure proceedings, and that Ocean View, through its general partner and agent, Gordon McMeen, continued to deal directly with appellees as if it still retained title to the property. Appellees further stressed that the Dougherty County Superior Court rejected the claim that Albany Partners owned the Ramada Inn property.

The bankruptcy court found the Ramada Inn to be valued at $2,200,000, whereas on the date the bankruptcy petition was filed the outstanding debt to appellees on the two notes from Ocean View was $4,185,190. On this basis, the bankruptcy court determined that the debtor lacked equity in the subject property. Albany Partners' offer of protection to appellees was a monthly payment of $30,000 and assurances that the property would be properly insured, taxes would be paid, etc., which were obligations already imposed on the debtor by the security deed. The bankruptcy court found this offer to be inadequate, and concluded that Albany Partners was unable to provide adequate protection to appellees. The court noted that the debtor was then in default to appellees of payments totalling $633,625, and that the debtor's Ramada Inn franchise was in jeopardy, as approximately $100,000 in capital improvements were required. 5 The court further rejected Albany Partners' proposal to raise funds through outside investors, citing a previous lack of success in such endeavors. The court thus found it unlikely that Albany Partners could complete an effective Chapter 11 reorganization. Based on these findings, the bankruptcy court concluded that appellees were entitled to relief from the automatic stay.

With respect to Albany Partners' complaint to have the foreclosure set aside and to have appellees held in contempt, the bankruptcy court concluded that under the circumstances appellees had not violated the stay. 6 Finding that Albany Partners' petition for reorganization was not filed in good faith, the bankruptcy court ordered that the automatic stay be annulled so as to allow the state court proceedings to continue "as if this Chapter 11 case had never been filed", and that Albany Partners' Chapter 11 petition be dismissed with prejudice.

Relief From Automatic Stay

We begin our review by considering whether the appellees were properly granted relief from the automatic stay. The governing provision of the bankruptcy code is 11 U.S.C. Sec. 362(d) which states:

"On request of a party in interest and after notice and a hearing, the court shall grant relief from the stay provided under subsection (a) of this section, such as by terminating, annulling, modifying, or conditioning such a stay--

(1) for cause, including the lack of adequate protection of an interest in property of such party in interest; or

(2) with respect to a stay of an act against property, if--

(A) the debtor does not have an equity in such property; and

(B) such property is not necessary to an effective reorganization."

The bankruptcy court and the district court below found that Albany Partners lacked equity in the subject property and had no realistic prospect of an effective reorganization. These findings were amply supported in the record and entitled appellees to relief from the stay pursuant to Sec. 362(d)(2). 7 We thus need not consider whether relief was also justified under Sec. 362(d)(1), based on "lack of adequate protection" or on some other ground constituting "cause".

Dismissal for Lack of Good Faith

The bankruptcy court also found that Albany Partners did not file this Chapter 11 petition in good faith, and concluded that the case therefore should be dismissed. In connection with its finding of lack of good faith, the court noted that Albany Partners chose not to intervene in appellees' possessory action in state court, and had given no indication to appellees prior to those proceedings that it acquired the Ramada Inn from Ocean View. Furthermore, the debtor waited until the eve of the foreclosure sale to file this Chapter 11 petition, and did not present the unrecorded deed which purportedly conveyed the property from Ocean View to Albany Partners until the hearing on May 25, 1983, twenty-three days after the Chapter 11 petition was filed. 8 In addition, the court...

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