In re 231 Fourth Ave. Lyceum, LLC

• Decision Date: 28 February 2014
• Docket Number: Case No. 13-42125 (CEC)
• Citation: 506 B.R. 196
• Parties: In re: 231 Fourth Avenue Lyceum, LLC, Debtor.
• Court: U.S. Bankruptcy Court — Eastern District of New York

506 B.R. 196

In re: 231 Fourth Avenue Lyceum, LLC, Debtor.

Case No. 13-42125 (CEC)

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

Signed: February 28, 2014

David M. Blum, Esq., 286 Madison Avenue, Suite 2200, New York, New York 10017, Counsel for Debtor

William E. Curtin, Esq., United States Department of Justice, 201 Varick Street, Suite 1006, New York, New York 10014, Counsel for the United States Trustee

Glenn P. Warmuth, Esq., Stim & Warmuth, P.C., 2 Eighth Street, Farmingville, New York 11738, Counsel for P.B. #7 LLC

Chapter 11

DECISION

CARLA E. CRAIG, Chief United States Bankruptcy Judge

This matter comes before the Court on the motion of P.B. # 7 LLC (“P.B.”) to lift the automatic stay, pursuant to 11 U.S.C. § 362(d)(3)¹. Because 231 Fourth Avenue Lyceum, LLC has failed to file a plan of reorganization that has a reasonable possibility of being confirmed within a reasonable time, as required by § 362(d)(3), P.B.'s motion to lift the automatic stay is granted.

JURISDICTION

This Court has jurisdiction of this core proceeding pursuant to 28 U.S.C. §§ 157(b)(2)(A) and (G), 28 U.S.C. § 1334, and the Eastern District of New York standing order of reference dated August 28, 1986, as amended by order dated December 5, 2012. This decision constitutes the Court's findings of fact and conclusions of law to the extent required by Federal Rule of Bankruptcy Procedure 7052.

BACKGROUND

231 Fourth Avenue Lyceum, LLC (the “Debtor”) commenced this case under chapter 11 of the Bankruptcy Code on April 11, 2013. The Debtor's principal asset is real property located at 227–231 4th Avenue, Brooklyn, New York (the “Property”), which is encumbered by a mortgage held by P.B. The Debtor defaulted on the mortgage and P.B. obtained a judgment of foreclosure and sale on September 28, 2012 (the “Foreclosure Judgment”).

On the eve of the foreclosure sale, the Debtor filed this bankruptcy case. Other than the Property, the Debtor's only other assets are trolley cars having a value, according to the Debtor, between $30,000 and $300,000.² (Am. Proposed Disclosure Statement Dated 11/21/13; 13–42125–CEC, ECF No. 47 at 5.) ³ The Debtor's schedules include P.B.'s secured claim and $700,000 of unsecured claims, $300,000 of which is insider debt. The amount of P.B.'s secured claim, calculated in accordance with the Foreclosure Judgment, is approximately $6.6 million. (Affirmation in Supp. of Mot. for Relief from Stay Exs. E and F, 13–42125–CEC, ECF Nos. 56–5 and 56–6.)

Since filing, the Debtor's operating reports have shown that the Debtor has generated no income. (Monthly Operating Reports, Case No. 13–42125–CEC, ECF Nos. 16, 22, 23, 32, 62, 63, 64, and 65.) At the creditors' meeting pursuant to § 341, the Debtor's principal, Eric Richmond, stated that the Debtor leases the building to 231 Fourth Avenue Lyceum Inc. (“Lyceum Inc.”), a related entity, for $6,000 a year and 25 percent of any profits that entity generates. (Affirmation in Supp. of Mot. to Authorize/Direct that this case is a Single Asset Real Estate Case Ex. I, Case No. 13–42125–CEC, ECF No. 18–9 at 19.) Lyceum Inc., in turn, rents the building out for various events. Id. The last time the Debtor received a portion of Lyceum Inc.'s profits was three years prior to the Debtor's bankruptcy filing. Id. at 18. Lyceum Inc. is listed in the Debtor's schedules as an unsecured creditor owed $300,000. The Debtor's Proposed Amended Disclosure Statement states that the Property grossed approximately $30,000 for the 30 days ending December 16, 2013. (Proposed Am. Disclosure Statement, Case No. 13–42125–CEC, ECF No. 59 at 6.) Furthermore, the Debtor projected that the Property would gross an additional $10,000 before the end of the year.⁴Id.

On July 8, 2013, P.B. filed a motion to designate the Debtor as a single asset real estate debtor. (Mot. to Authorize/Direct that this case is a Single Asset Real Estate Case, Case No. 13–42125–CEC, ECF No. 17.) On November 1, 2013, after conducting several hearings, the Court entered an order designating the Debtor as a single asset real estate Debtor and directing the Debtor to comply with the provisions of § 362(d)(3) by filing “a plan of reorganization that has a reasonable possibility of being confirmed within a reasonable time”, or by commencing monthly payments that “are in an amount equal to the then applicable nondefault contract rate of interest on the value of the creditor's interest in the real estate.” (Order Granting Mot. for a Determination that this Case is a Single Asset Real Estate Case, Case No. 13–42125–CEC, ECF No. 42 at 1–2) (quoting § 362(d)(3)).

On November 22, 2013, the Debtor filed a first amended chapter 11 plan and disclosure statement (its initial disclosure statement having been rejected as insufficient by order dated November 1, 2013), as well as a motion seeking approval of the first amended disclosure statement and plan, which was amended on November 25, 2013. (Mot. to Authorize/Direct Entry of an Order Approving the Adequacy of the Debtor's Am. Proposed Disclosure Statement and Am. Proposed Reorganization Plan, Case No. 13–42125–CEC, ECF No. 46; Am. Notice of Mot. to Authorize/Direct Entry of an Order Approving the Adequacy of the Debtor's Am. Proposed Disclosure Statement and Am. Proposed Reorganization Plan, Case No. 13–42125–CEC, ECF No. 50.) On December 18, 2013, the Debtor filed a second amended chapter 11 Plan (the “Plan”), a second amended proposed disclosure statement (the “Disclosure Statement”), and an affirmation in further support of the Disclosure Statement and Plan. (Proposed Am. Disclosure Statement, Case No. 13–42125–CEC, ECF No. 59; Proposed Am. Chapter 11 Plan, Case No. 13– 42125–CEC, ECF No. 60; Affirmation in Further Support, Case No. 13–42125–CEC, ECF No. 61.) ⁵

The Plan proposes to pay 100% of claims owed to creditors over 60 months. (Proposed Am. Chapter 11 Plan, Case No. 13–42125–CEC, ECF No. 60 at 1.) The Plan states, incorrectly, that there are no impaired classes, as all claims are being paid in full.⁶Id. The Plan provides for P.B.'s claim, valued at $6,600,000, and includes proposed payments to satisfy the $700,000 in unsecured claims, future real estate taxes, insurance, utilities, and lease payments for a storage space housing the Debtor's trolley cars. Id. at 1–2. The monthly debt service payment provided in the Plan totals $56,300 per month for the 60 months of the plan. Id. Under the Plan, the Debtor would also be required to make a lump sum payment of $1,399,000 on the first day of every year from 2015 to 2018, with that amount increasing to $1,699,000 for the final lump sum payment due on January 1, 2019. Id. The Plan states that the Debtor will make these payments through income generated by the Property, investments by various theater and dance companies, long term leases of portions of the facility, possible investors/partners, refinancing of the business, income generated by the adjacent lot whose ownership is in dispute, and participation in an EB–5 program (a foreign investment program). Id. at 3. In addition, the Plan provides an estimated future income schedule that projects that the Debtor will generate gross monthly income of $30,000 after three months, $40,000 after 6 months, $50,000 after nine months, $54,000 after 12 months, $68,000 after 24 months, $85,000 after 36 months, $102,000 after 48 months, and $118,000 after 60 months. Id.

On December 4, 2013, P.B. filed an objection to the Debtor's first amended disclosure statement and filed this motion seeking relief from the stay. (Affirmation in Opp'n to Disclosure Statement, 13–42125–CEC, ECF No. 53; Mot. for Relief from Stay, 13–42125–CEC, ECF No. 55; Affirmation in Supp. of Mot. for Relief from Stay, 13–42125–CEC, ECF No. 56.) On December 11, 2013, the United States Trustee also objected to the Debtor's first amended disclosure statement. (Objection of the United States Trustee to the Approval of the Debtor's Disclosure Statement, 13–42125–CEC, ECF No. 58.) A hearing was held on December 18, 2013.

ARGUMENTS

The Debtor contends that the Plan is confirmable. The Debtor also asserts that the Foreclosure Judgment is not valid because P.B. did not obtain a judgment within the time period set forth in New York Civil Practice Law and Rules § 3215(c).

P.B. asserts that the Plan is unconfirmable because it is clearly not feasible. P.B. points out that the Debtor has not provided evidence of its ability to make either the monthly debt service payments of $56,300 or the annual lump sum Plan payments. P.B., also, correctly, objects to its designation as an unimpaired creditor.

The United States Trustee also objects to approval of the Disclosure Statement and the Plan because the Plan lacks feasibility and because the Debtor is attempting to deny impaired creditors the right to vote on the Plan by improperly characterizing them as unimpaired.

DISCUSSION

A finding by the Court that a debtor's property constitutes “single asset real estate” within the meaning of § 101(51B) triggers the applicability of § 362(d)(3). See11 U.S.C. 362(d)(3). Not later than 30 days from the entry of the order designating a debtor as subject to the provisions of § 362(d)(3), the debtor must file a plan of reorganization that has a reasonable possibility of being confirmed within a reasonable time, or commence monthly payments to its secured creditor in an amount equal to at least the then applicable nondefault contract rate of interest on the value of the creditor's interest in the real estate. Id. Failure to file a plan or to commence monthly payments constitutes grounds for the secured creditor to obtain stay relief. Id.

The Debtor was designated a single asset real estate debtor by an order entered on November 1, 2013, after a hearing on October 16, 2013, which required, by November 22, 2013, the Debtor to commence monthly payments or to file a plan having a reasonable possibility of being confirmed within a reasonable time. (Order...