Broadfoot v. Jamestown Mgmt. Corp. (In re Int'l Biochemical Indus., Inc.)

• Decision Date: 06 October 2014
• Docket Number: No. 04–92814–BEM.,04–92814–BEM.
• Citation: 521 B.R. 395
• Parties: In re INTERNATIONAL BIOCHEMICAL INDUSTRIES, INC., f/d/b/a BioShield Technologies, Inc., Debtor. Herbert C. Broadfoot, II, as Chapter 7 Trustee for International BioChemical Industries, Inc., f/d/b/a BioShield Technologies, Inc., Movant, v. Jamestown Management Corporation, as Managing Agent for Cologne Investors, Inc. & Irving Walter Graebner, Respondent.
• Court: U.S. Bankruptcy Court — Northern District of Georgia

521 B.R. 395

In re INTERNATIONAL BIOCHEMICAL INDUSTRIES, INC., f/d/b/a BioShield Technologies, Inc., Debtor.Herbert C. Broadfoot, II, as Chapter 7 Trustee for International BioChemical Industries, Inc., f/d/b/a BioShield Technologies, Inc., Movant

v.Jamestown Management Corporation, as Managing Agent for Cologne Investors, Inc. & Irving Walter Graebner, Respondent.

No. 04–92814–BEM.

United States Bankruptcy Court, N.D. Georgia, Atlanta Division.

Signed Oct. 6, 2014.

Filed Oct. 7, 2014.

Robert A. Bartlett, Herbert C. Broadfoot, II, Ragsdale, Beals, Seigler, et al., James R. Schulz, Merritt Watson, LLP, Atlanta, GA, for Trustee.

Jesse Blanco, Jr., San Antonio, TX, Herbert C. Broadfoot, II, Ragsdale, Beals, Seigler, et al., Atlanta, GA, for Debtor.

R. Jeneane Treace, U.S. Trustee, Atlanta, GA, for U.S. Trustee.

ORDER

BARBARA ELLIS–MONRO, Bankruptcy Judge.

This case came before the Court on the Chapter 7 Trustee's “Objection to Claims of Creditor Jamestown Management Corporation” [Doc. No. 180], the “Amended Objection to Claims of Creditor Jamestown Management Corporation” [Doc. No. 184], and the “Response Of Jamestown Management Corporation As Managing Agent For Cologne Investors, Inc. & Irving Walter Graebner, To Trustee's Claim Objections” [Doc. No. 181]. The Court has jurisdiction over this matter pursuant to 28 U.S.C. § 158(b)(2)(B). The Court held a hearing on the objection on April 23, 2014. Having considered the evidence and legal arguments presented by the parties, the Court concludes that Jamestown is entitled to an unsecured claim capped by § 502(b)(6).

FACTS

The facts of this case are generally undisputed. Debtor and Jamestown entered into a Lease agreement on July 6, 1999, in which the Debtor rented the premises at 5655 Peachtree Parkway in Norcross, Georgia, for commercial purposes for a ten-year term. (the “Lease”) Respondent's Exhibit 3 (hereinafter referred to as “R. Ex. ––––”); Trustee's Exhibit 3 (hereinafter referred to as “T. Ex. ––––”). Under the Lease, Jamestown had multiple options in the event of a default, including: (1) terminate the Lease and accelerate the amounts due under the Lease; or (2) without terminating, retake possession of the property and seek indemnification from the Debtor for all costs and expenses, including damages for any inability to re-let the property or for losses sustained from re-letting the property at a lower rate. Id., see also, R. Ex. 6.

In December 2000, the Debtor vacated the property and stopped making Lease payments. R. Ex. 4, 6. Shortly thereafter, Jamestown initiated a dispossessory action against the Debtor in the State Court of Gwinnett County. R. Ex. 4, 6. On January 19, 2001, Jamestown received a default judgment in which it was awarded a writ of possession and unpaid rent for December 2000 and January 2001 in the amount of $151,706.10 (the “First Judgment”). R. Ex. 1, 2, 6. Thereafter, Jamestown attempted to re-let the property. R. Ex. 4, 6. In December 2001, after failing to find new tenants, Jamestown again sued the Debtor in the State Court of Gwinnett County to recover unpaid rent, late fees, and attorney fees. The state court granted summary judgment to Jamestown. R. Ex. 1, 2. The Debtor unsuccessfully appealed the order, and the Georgia Court of Appeals held that under the terms of the Lease and Georgia law, the Lease had not been terminated and Jamestown was entitled to judgment. International Biochemical Ind., Inc. v. Jamestown Mgmt. Corp., 262 Ga.App. 770, 774, 586 S.E.2d 442, 446 (Ga.App.2003). R. Ex. 6. On October 31, 2003, the state court entered a final judgment awarding Jamestown damages in the total amount of $3,109,099.76, consisting of $2,826,454.33 for unpaid rent from February 2001 to October 2003 and $282,645.43 for attorney fees pursuant to O.C.G.A. § 13–1–11 (the “Second Judgment,” and with the First Judgment, the “Judgments”). R. Ex. 1, 2.

Thereafter, on November 5, 2003, Jamestown recorded the Judgments with the United States Trademark and Patent Office against certain patents previously owned by the Debtor (the “Patents”). R. Ex. 1, 2. Apparently unbeknownst to Jamestown, the Debtor transferred all or part of its interest in the Patents to Nova Biogenetics, Inc. in July 2002. T. Ex. 11.

The Debtor filed a Chapter 11 petition on January 17, 2004, in the Bankruptcy Court for the Southern District of Texas. The case was transferred to the Northern District of Georgia on April 7, 2004, and converted to Chapter 7 on July 21, 2004. On January 13, 2006, the Trustee commenced an adversary proceeding to recover the Debtor's interest in the Patents for the benefit of the estate. T. Ex. 6. The Court ruled in favor of the Trustee, and the Patents were returned to the estate free and clear of any encumbrances. T. Ex. 11; see also, Case No. 06–6035, Doc. No. 40.

On June 16, 2004, Jamestown filed a proof of claim asserting an unsecured claim in the amount of $3,260,805.86 based on the Lease. R. Ex. 1. On January 8, 2007, Jamestown filed an amended proof of claim asserting a secured claim in the amount of $3,395,631.21 based on the Judgments. R. Ex. 2. The Trustee objected to Jamestown's claim on the basis that it (i) is not a secured claim, (ii) is disallowed under 11 U.S.C. § 502(d) because any interest Jamestown has in the Patents is avoidable, and (iii) is subject to the rent cap in § 502(b)(6). At the April 23, 2014 hearing, Jamestown conceded that if the Debtor had no interest in the Patents at the time it filed the Judgments with the Patent Office, it does not have a lien on the Patents. Jamestown further agreed to give up its lien on account of the Judgments to the extent it is avoidable by the Trustee. Finally, Jamestown indicated that it miscalculated the interest on its claim and conceded that the claim should be reduced to $3,309,910.58.

LEGAL ARGUMENTS AND ANALYSIS

1. Classification of Jamestown's Claim as Secured and Applicability of § 502(d).

Jamestown filed its proof of claim in accordance with 11 U.S.C. § 501(a) and Federal Rule of Bankruptcy Procedure 3001, and the proof of claim is prima facie evidence of the validity and amount of the claim. Fed. R. Bankr.P. 3001(f). Therefore, the burden is on the Trustee, as the objecting party, to overcome the prima facie validity of the claim. If the Trustee succeeds, the burden of proof shifts back to Jamestown to prove its claim by a preponderance of the evidence. See 4 Collier on Bankruptcy ¶ 502.02[3][f] (16th ed.).

The Trustee argues that Jamestown's claim should be disallowed under § 502(d), which provides as follows:

Notwithstanding subsections (a) and (b) of this section, the court shall disallow any claim of any entity from which property is recoverable under section 542, 543, 550, or 553 of this title or that is a transferee of a transfer avoidable under section 522(f), 522(h), 544, 545, 547, 548, 549, or 724(a) of this title, unless such entity or transferee has paid the amount, or turned over any such property, for which such entity or transferee is liable under section 522(i), 542, 543, 550, or 553 of this title.

11 U.S.C. § 502(d).

In this case, Jamestown asserted a secured claim based on the judgment liens represented by the Judgments which it recorded against the Patents in the United States Patent and Trademark Office on November 5, 2003. The Trustee contends that no lien rights attached to the Patents because the Debtor transferred the Patents prior to the recording date. Jamestown has conceded that, to the extent the Debtor transferred its interest in the Patents prior to November 5, 2003, Jamestown did not acquire a lien in the Patents.

In addition, the Trustee contends any lien held by Jamestown is avoidable as a preference under § 547 because the Judgments were filed in the patent office within 90 days of the January 17, 2004 petition date.¹ Jamestown does not dispute that the lien, to the extent it exists, is avoidable under one or more of the sections listed in § 502(d). However at the April 23, 2014 hearing, Jamestown agreed to give up its lien in the Patents. Having, in effect, turned over the property at issue, § 502(d) does not operate to disallow Jamestown's claim.

The Trustee contends Jamestown's concessions are too little, too late and that Jamestown should have amended its proof of claim when first alerted to the problems with its lien. The Trustee offers no authority for his position. Section 502(d) contains no deadlines for the claimant to turnover property, and the Court declines to create one in this case. See Nordberg v. Arab Banking Corp. (In re Chase & Sandborn Corp.), No. 83–000889, AP No. 86–0493, 1991 WL 26596, at *2 (giving a preference creditor a reasonable time after entry of the § 502(d) order to pay the amount of the preference) (citing Fed. R. Bankr.P. 3002(c)(3) ).

Based on the representations of counsel for Jamestown at the April 23, 2014 hearing, to the extent Jamestown obtained any lien rights in the Patents it has turned over those rights. Therefore, for purposes of the Debtor's bankruptcy case, Jamestown holds a general unsecured claim that is not subject to disallowance under § 502(d).

2. Applicability of § 502(b)(6).

The trustee contends further that Jamestown's claim should be limited by § 502(b)(6),² which provides as follows:

(b) ... the court ... shall allow such claim in such amount, except to the extent that—

...

(6) if such claim is the claim of a lessor for damages resulting from the termination of a lease of real property, such claims exceeds—

(A) the rent reserved by such lease, without acceleration, for the greater of one year, or 15 percent, not to exceed three years, of the remaining term of such lease, following the earlier of—

(i) the date of the filing of the petition; and (ii) the date on which such lessor repossessed or the lessee surrendered, the leased property; plus

(B) any unpaid rent due under such lease, without acceleration, on the earlier of such dates[.]

11 U.S.C. § 502(b)(6).

The Trustee does not argue that the Lease terminated...