First Union Baptist Church of the Bronx v. TD Capital Grp. LLC (In re First Union Baptist Church of the Bronx)

• Decision Date: 04 August 2017
• Docket Number: <span>Case No. 12–14099 (MEW)</span>,<span>Adv. Proc. 16–01065 (MEW)</span&gt
• Citation: 572 B.R. 79
• Parties: IN RE the FIRST UNION BAPTIST CHURCH OF the BRONX, Debtor. The First Union Baptist Church of the Bronx, Plaintiff, v. TD Capital Group LLC and 2064 Grand Concourse LLC, Defendants.
• Court: U.S. Bankruptcy Court — Southern District of New York

572 B.R. 79

IN RE the FIRST UNION BAPTIST CHURCH OF the BRONX, Debtor.The First Union Baptist Church of the Bronx, Plaintiff,

v.TD Capital Group LLC and 2064 Grand Concourse LLC, Defendants.

Case No. 12–14099 (MEW)

Adv. Proc. 16–01065 (MEW)

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

Filed August 4, 2017

KASOWITZ BENSON TORRES LLP., New York, New York, Co–Counsel for First Union Baptist Church of the Bronx, By: David J. Abrams, Andrew H. Elkin, Isaac S. Sasson, Emily L. Kuznick, Andrew R. Kurland

THE LEGAL AID SOCIETY, New York, New York, Co–Counsel for First Union Baptist Church of the Bronx, By: Seymour James, Susan H. Chase

RAVERT PLLC, New York, New York, Co–Counsel for Defendants, By: Gary O. Ravert

LAW OFFICES OF LALEH HAWA, Great Neck, New York, Co–Counsel for Defendants, By: Laleh Hawa

MEMORANDUM OPINION

MICHAEL E. WILES, UNITED STATES BANKRUPTCY JUDGE

The First Union Baptist Church of the Bronx ("First Union ") is a New York not-for-profit religious corporation. First Union is the plaintiff in the above-captioned adversary proceeding and is the moving party in a motion that is described below. TD Capital Group LLC ("TD Capital ") and 2064 Grand Concourse LLC ("2064 Grand Concourse ") are New York limited liability companies who are defendants in the adversary proceeding and who are the opposing parties to the pending motion. 2064 Grand Concourse is wholly owned by TD Capital.

This opinion follows a trial that was held on April 24 and 25, 2017. The witnesses included Doctor James Wilson (Reverend and Senior Pastor of First Union), Nancy Bokhour (manager of TD Capital and 2064 Grand Concourse), Robert Smith (former financial advisor to First Union) and Thomas Campbell (managing member of Thorobird Companies LLC). The Court has considered the stipulated facts, the testimony and exhibits offered at trial, and the credibility of the witnesses in making the factual findings set forth in this opinion.

Jurisdiction and Ability to Render Final Decisions

The parties have agreed that this Court has subject matter jurisdiction over this adversary proceeding and the motion, and personal jurisdiction over the parties. The parties have also consented to the entry of a final decision and judgment by the Court. It is not necessary to consider whether the Court would have had the authority to enter a final judgment without that consent, as the consent provides the necessary authority. See 28 U.S.C. § 157(c)(2) ; Wellness Int'l Network, Ltd. v. Sharif , ––– U.S. ––––, 135 S.Ct. 1932, 1939, 1942, 1949, 191 L.Ed.2d 911 (2015).

Background

First Union filed a chapter 11 bankruptcy petition on October 1, 2012. At that time First Union was a defendant in a foreclosure action that related to property that First Union owned at 2064 Grand Concourse in the Bronx (the "Property "). A judgment of foreclosure had been entered on July 17, 2012, and a foreclosure sale had been scheduled for October 1, 2012. However, the bankruptcy filing stayed further actions in the foreclosure case.

The plaintiff in the state court foreclosure case was Carver Federal Savings Bank, which had originally made the underlying mortgage loan to First Union. At some time after October 2012, and during the course of the bankruptcy case, Carver assigned its rights to TD Capital.

First Union and TD Capital subsequently reached an agreement that was memorialized in a stipulation executed on or about May 16, 2014 (the "Stipulation "). See DX 4. The Stipulation provided that First Union would continue to own the Property and would continue to have the right to refinance or to sell the Property until the end of June 2015, at which time a payment of $1.5 million would be due (unless that amount had been paid earlier). The parties also agreed that First Union would continue to make monthly payments to TD Capital. The monthly payments were described as ‘use and occupancy’ payments in the Stipulation, but the evidence at trial made clear that in form and function they were revised interest payments on the debt.

Monthly payments were due at the beginning of each month. Paragraph 6(d) of the Stipulation gave First Union a ten day "grace period" within which to make payment, and paragraph 6(e) provided that payment could be made after the expiration of the grace period, so long as it was received on or before the last day of the month and also included a late payment charge. Paragraph 6(f) stated that First Union would be considered to be in default if any monthly payment was not "received" by TD Capital "by the last day of the month at 3:00 pm."

A missed payment had different consequences, depending on when the missed payment occurred. The Stipulation provided that if First Union failed to make a payment that was due during the first 180 days after the agreement took effect, then TD Capital would have the right to pursue a sale of the Property under the prior foreclosure judgment. First Union waived defenses to such a foreclosure sale, but it retained its right of redemption with respect to the Property and the right to exercise that right of redemption at any time before the conclusion of a sale. However, the Stipulation provided for a different potential consequence if a default occurred more than 180 days after the Stipulation took effect. First Union agreed to deliver a deed that purported to transfer the Property to TD Capital and that would be held in escrow; if a payment default occurred more than 180 days after the agreement became effective, then TD Capital had the option either to proceed with its foreclosure and sale remedies, or (if it so chose) simply to record the deed and thereby transfer ownership to itself.

Rule 9019 of the Federal Rules of Bankruptcy Procedure requires debtors to obtain permission from the court to enter into settlements. Fed. R. Bankr. P. 9019. Section 363 of the Bankruptcy Code similarly requires court permission for any use of property outside the normal course of business. 11 U.S.C. § 363. First Union sought court approval, and Judge Gropper authorized First Union to enter into the Stipulation on June 27, 2014.

In the months that followed the execution of the Stipulation, First Union made the payments that were required of it, though it often did so only within the "grace" periods or "late payment" periods to which the parties had agreed. DX 43. First Union did not sell the Property and did not refinance it. However, the evidence at trial showed that an entity named Thorobird Companies, LLC ("Thorobird ") expressed interest in the Property and interest in helping First Union to satisfy the obligations owed to TD Capital. The parties have stipulated that Thorobird and First Union entered into a Development Agreement on May 31, 2015. PX 6. The Development Agreement contemplated that Thorobird would advance the monies to repay the debt owed to TD Capital, and then would redevelop the Property. The redeveloped site was to include space for the First Union Church plus 50 apartment units. First Union was to own the Church space in exchange for only a nominal payment; Thorobird, in return, would have the right to develop the Property and to receive the profits associated with the apartment units. Id.

At trial, there was some contention by TD Capital that Thorobird's plans were not realistic or that funding was not actually available. The Court has considered the evidence that was offered, including the testimony of Mr. Campbell of Thorobird. The Court finds that the proposal was a serious one, and that the developer had sufficient capital to make the contemplated payment to TD Capital and to complete the project. No credible evidence was offered as to any other issue that might have blocked the development plans.

The parties have stipulated that First Union informed TD Capital of Thorobird's interest and authorized TD Capital's representatives to speak with representatives of Thorobird in May 2015. They have also stipulated that two representatives of Thorobird attempted to reach Ms. Bokhour, the representative of TD Capital. It is not clear exactly how much Ms. Bokhour knew about the agreement with Thorobird, and there is no evidence that she knew the full details of the arrangements that First Union and Thorobird had discussed. However, the evidence showed, and the Court so finds, that she knew of Thorobird's interest in the project.

The evidence also showed that as of May 31, 2015 the remaining amount owed to TD Capital consisted of the payoff that would have been due June 30, 2015 (in the amount of $1.5 million), plus the May monthly payment ($9,360), the June monthly payment ($9,360), and a small late charge for the May payment. The Court finds that Mr. Campbell testified credibly when he stated that in light of the development opportunities, and the interest expressed by Thorobird itself, the Property had a value, in May and June 2015, that was well in excess of the remaining amount owed to TD Capital.

Events in May and June 2015

First Union made payments to TD Capital from First Union's operating account. At least two authorized signatures were required on any check above $500 in amount. The monthly payment for May 2015, in the amount of $9,360, was due on May 1, 2015. The payment was not made on or before May 1, 2015 and was not made within the ten-day grace period.

At some point in mid-May, Dr. Wilson learned that his nephew had died. He was understandably upset by this news and made plans to drive to South Carolina to attend the funeral and to be with his family. On May 18 or 19, 2015, Dr. Wilson traveled to South Carolina. He did not make arrangements, before he left, to have a check sent to TD Capital. Dr. Wilson testified that between the time he learned of the need to go to South Carolina, and the time he began that trip, he was unable to arrange the dual signatures required on such a check. When asked why he did not sign a check himself, and leave the check behind so that an additional signature could be added, Dr. Wilson testified that h...