Bank of New England, N.A. v. Mortgage Corp. of New England

• Decision Date: 30 April 1991
• Docket Number: No. 91-P-129,91-P-129
• Citation: 567 N.E.2d 961,30 Mass.App.Ct. 238
• Parties: BANK OF NEW ENGLAND, N.A. v. MORTGAGE CORPORATION OF NEW ENGLAND et al. 1 (and three companion cases 2 ).
• Court: Appeals Court of Massachusetts

Page 961

567 N.E.2d 961

30 Mass.App.Ct. 238

BANK OF NEW ENGLAND, N.A. v. MORTGAGE CORPORATION OF NEW ENGLAND et al. ¹ (and three companion cases ² ).

No. 91-P-129.

Appeals Court of Massachusetts Suffolk.

Argued March 7, 1991.

Decided March 14, 1991.

Further Appellate Review Denied

April 30, 1991.

Andrew C. Griesinger, Boston, for Bank of New England, N.A.

Douglas G. Moxham, Boston, for Harold Brown.

Before SMITH, JACOBS and GREENBERG, JJ.

SMITH, Justice.

A Superior Court judge dissolved preliminary injunctions by virtue of which the Bank of New England, N.A. (BNE) had held equitable liens on Harold Brown's ownership interests in certain limited partnerships. BNE filed a notice of appeal in the Superior Court under the second paragraph of G.L. c. 231, § 118, and also filed a petition for review in the single justice session of this court under the first paragraph of G.L. c. 231, § 118. The single justice denied relief but expedited the hearing of the appeal. See Demoulas Super Markets, Inc. v. Peter's Market Basket, Inc., 5 Mass.App.Ct. 750, 753, 370 N.E.2d 719 (1977). A panel of this court issued an order on March 12, 1991, and we now issue this opinion.

We summarize the facts necessary to frame the issues. Brown and the various limited partnerships, corporations, and trusts (entities) in which he holds a substantial interest, own approximately 3,000 residential units and 10,200,000 square feet of commercial space in New England. Of that total, 1,500 residential units and 4,000,000 square feet of commercial space are located throughout the Boston metropolitan area. At the present time, approximately 3,000 tenants live in the residential properties in Boston. The entities, holding title to all of the properties, owe $660,000,000 in mortgage loans and other obligations to various lending institutions throughout the country. Brown is a personal guarantor on $600,000,000 of those loans and obligations.

Because of the economic downturn throughout the region, the lenders have not received payments as scheduled in their various agreements with Brown and the entities. Sometime in 1990, Brown and his advisors began negotiations with the lenders to restructure these debts. Participants in the negotiations include BNE, Bank of Boston, Fleet National Bank (Fleet) and numerous other banks.

On December 14, 1990, BNE filed two related verified complaints in the Superior Court in Suffolk County, seeking to recover over $13,000,000 it claimed was owed on several loans guaranteed by Brown. One complaint named Mortgage Corporation of New England (MCNE), Brown and others as defendants, and sought over $7,000,000. The other complaint sought over $6,000,000 and named Hamilton Management Corporation (Hamilton), Brown, and others as defendants. Both complaints contained counts in the nature of statutory actions to reach and apply Brown's ownership interest in certain named limited partnerships. See G.L. c. 214, § 3(6). BNE requested preliminary injunctions in connection with its statutory reach and apply counts and filed appropriate affidavits. ³

Brown opposed BNE's requests for injunctive relief and filed a six-page affidavit. In it, he made a "falling domino" argument in support of his position. He claimed, among other things, that (a) the entities own or manage a substantial number of commercial buildings and residential apartment buildings; (b) he was engaged in "restructuring" negotiations with various of his bank creditors, including BNE; (c) "[t]he restructuring negotiations with the banks are in a critical stage [and] [i]f an injunction ... were to be granted ..., the other lenders will perceive the order as an attempt by BNE to improve its position in the restructuring efforts ... [and], any injunctive relief ... will surely result in the other lenders calling their loans and will destroy the restructuring efforts currently underway"; (d) "[i]f the restructuring negotiations fail due to the granting of an equitable lien to BNE, I [Brown] will have no choice but to file for protection under Chapter 11 of the Bankruptcy Code ...," and (e) "such relief [if granted] will have the effect of cutting off all services to tenants owned by the limited partnerships and causing Hamilton ... to lay off its employees and cease management services."

In his affidavit, Brown claimed that it was not in the public interest that the BNE's requests for injunctive relief be granted. He stated:

. . . . .

"14. Both the balance of harms and the public's interest weigh heavily against the granting of any equitable liens. As discussed above, any equitable lien will have the effect of destroying the restructuring negotiations and forcing the limited partnerships and myself into bankruptcy.

"15. In today's fragile economy, the public's interest can hardly be served by forcing one of New England's largest landlords into bankruptcy. Indeed, the public's interest will be better ... served by allowing me, the corporation and the limited partnerships to complete the restructuring currently under way and to continue the management and services provided to numerous Boston residents...."

. . . . .

We summarize Brown's arguments against the granting of the injunctions:

(1) The granting of the injunctions would create equitable liens in favor of BNE. Bank of Boston v. Haufler, 20 Mass.App.Ct. 668, 673-674, 482 N.E.2d 542 (1985). Nolan, Equitable Remedies § 382, at 460-462 (1975 & Supp.1990);

(2) Those liens would have priority over any subsequently created liens. Bank of Boston v. Haufler, supra at 674, 482 N.E.2d 542;

(3) Such liens, therefore, would improve BNE's position in the restructuring efforts and consequently might induce other lenders to call their loans. Such actions may destroy the restructuring efforts and force Brown into bankruptcy;

(4) The potential harm to the public of an unnecessary and premature bankruptcy would be catastrophic to the Boston real estate community, and include the possibility that many residential tenants' services would be adversely affected.

Although BNE's two actions were related, its request for a preliminary injunction in each case was heard by a different Superior Court judge. The results, however, were the same. On December 21, 1990, BNE's request for a preliminary injunction in the complaint naming Hamilton and Brown as defendants was granted. On December 24, 1990, another Superior Court judge granted BNE a preliminary injunction in its complaint against MCNE and Brown. Both judges expressly found that "the plaintiff [BNE] is likely to succeed on the merits, that the balance of hardships weighs in the plaintiff's favor, and that the plaintiff likely will be denied its damage remedy at law if injunctive relief is not granted."

As a result of the granting of a preliminary injunction on each complaint, equitable liens were created in BNE's favor on Brown's ownership interest in five limited partnerships. BNE's liens, as Brown had argued, had priority over any subsequently created liens. Bank of Boston v. Haufler, supra at 674, 482 N.E.2d 542. However, if Brown went into bankruptcy within ninety days of the issuance of the preliminary injunctions, BNE's priority would be extinguished. See 11 U.S.C. § 547 (1988).

On December 20, 1990, before the issuance of the preliminary injunctions, two other creditors of Brown, Fleet and Bank of Boston, brought actions against Brown and various of the entities. Both creditors also sought equitable liens against Brown's interests in the entities. The matters came before the same judge who granted BNE a preliminary injunction on its MCNE complaint. The judge issued an order consolidating the MCNE action, the Hamilton action, the Fleet action, and the Bank of Boston action and assigned the consolidated case to himself. He also scheduled a hearing for December 27, 1990, on the Fleet and Bank of Boston motions for preliminary injunction.

At the December 27, 1990, hearing, Fleet and Bank of Boston, instead of pressing their motions for preliminary injunctions, argued that BNE's equitable liens should be dissolved in order to help foster the "restructuring" negotiations and to prevent BNE from obtaining a priority over any other creditor. Brown joined in Fleet and Bank of Boston's arguments. The judge, who had previously granted BNE a preliminary injunction in the MCNE action, thereby creating an equitable lien in its favor, stated that he would dissolve all liens but that he would restrain Brown and his related entities from conveying their assets, subject to an ordinary course of business exception. He asked Brown's counsel to prepare an order consistent with the judge's oral directions.

On January 3, 1991, the judge heard objections to the proposed order which had been submitted by Brown's counsel. The judge orally gave the following reason for his decision to dissolve the preliminary injunctions that he and another judge had granted in favor of BNE:

. . . . .

"Resolution of these matters, either in whole or in part, can and almost certainly will have a significant effect on matters deeply affecting the financial and indeed the general well-being of large numbers of people in the Boston area.

"The matter becomes even more of public concern when one considers what would be the likely effect, or the certain risk were Mr. Brown's various holdings to come under something other than an orderly means of disposition....

"... I wish to underline this court's deep concern that we are dealing here with quintessential matters of public concern, not merely with matters involving a real estate developer who is unable for whatever reason to make payments on the debt which the real estate secures...."

The judge said nothing to indicate that he had reconsidered or changed his prior findings that BNE had demonstrated a likelihood of success and that the balance of hardships weighed in BNE's favor.

On January 4, 1991, the judge filed a document entitled "Findings and...