In re All American Holding Corp.
| Decision Date | 14 January 1981 |
| Docket Number | Adv. No. 80-0294-BKC-JAG-A,Bankruptcy No. 80-01278-BKC-TCB,80-0295-BKC-JAG-A. |
| Citation | 8 BR 459 |
| Parties | In re ALL AMERICAN HOLDING CORP., Debtor. ATLAS MOTOR INNS, INC., a Virginia Corporation, Plaintiff, v. ALL AMERICAN HOLDING CORP., a New York Corporation and Nordic American Banking Corporation, Defendants. |
| Court | U.S. Bankruptcy Court — Southern District of Florida |
Brown, Malman & Salmon, Miami, Fla., for plaintiff.
Britton, Cohen, Kaufman, Benson & Schantz, Miami, Fla., for debtor/defendant.
Lapidus & Stettin, P.A., Miami, Fla., Zalkin, Rodin & Goodman, New York City, for Nordic American Banking Corp.
FINDINGS AND CONCLUSIONS
These companion adversaries were tried together before the court on November 20, December 3, and December 10, 1980 at which times evidence consisting of extensive testimony and voluminous documents was presented to the court.
In Adversary Case No. 80-0295-BKC-JAG-A, the plaintiff seeks to have this court eject the defendant from possession of certain property known as the St. Thomas Sheraton Hotel and Marina at St. Thomas, Virgin Islands. In Adversary Case No. 80-0294-BKC-JAG-A, the plaintiff asks that if the court does not grant the ejectment, it grant relief from the automatic stay (11 U.S.C. § 362) to permit the plaintiff to pursue an action for ejectment in the appropriate non-bankruptcy forum.
The thrust of the plaintiff's action is that it acquired title to the St. Thomas Sheraton Hotel and Marina property by deed from Aetna Business Credit, Inc. (Aetna) which in turn had obtained title to the property as a result of a deed given by the defendant, All American Holding Corporation (All American) to Aetna in lieu of foreclosure at a time when a mortgage from All American to Aetna was in default.
The defendant, All American, on the other hand asserts that the deed given by it to Aetna constituted only additional security for the preexisting mortgage obligation which would enable Aetna to have its remedy without the necessity of a foreclosure suit in the event of subsequent default by All American of the extended redemption period established in the form of an option for All American to re-purchase the property for fixed sums at various intervals after the agreement was executed. (See Plaintiff's Exhibit No. 5.) As an additional affirmative defense All American alleged in the alternative that its conveyance to Aetna was fraudulent by reason of the insufficiency of the purchase price at a time when All American was in extreme financial difficulty and had other creditors both secured and unsecured. The result reached by the court makes it unnecessary to determine the merits of this affirmative defense.
Nordic American Banking Corporation (Nordic) was permitted to intervene as a party defendant because it was a party to the transactions here at issue and in connection with those transactions had paid on behalf of All American $1,500,000 to Aetna or its wholly owned subsidiary, ITL-AAH, Inc., (ITL) and was extended the same option rights as were given All American.
At the conclusion of the plaintiff's presentation of its evidence, the defendants moved that the complaints in each of the adversary proceedings be dismissed and that judgment for defendants be entered. The defendants argued that the testimony of the plaintiff's witnesses and all of the exhibits admitted into evidence not only failed to establish that the deed to Aetna was an absolute conveyance but rather, conclusively proved that the entire transaction constituted a security device only. The court reserved ruling upon the motions of the defendants to dismiss, whereupon the defendants rested without presenting further evidence. (Without objection to their being admitted out of turn during the presentation of the plaintiff's case, the court received defendant All American's Exhibits A through H as evidence in these proceedings.)
Based upon the evidence and the applicable law, the court agrees with the defendants' position. The conclusions reached and the judgments being entered make it unnecessary to rule separately on the defendants' motions to dismiss.
The relevant factual background is as follows. In July, 1978 All American borrowed $5,000,000 from Aetna and, in addition to the promissory note evidencing the indebtedness, executed various security agreements, including a mortgage deed on the St. Thomas Sheraton Hotel and Marina property. In May, 1979 the loan was in default. Before taking any legal action on the default Aetna assigned the note and mortgage to its wholly owned subsidiary ITL which was initially formed for the purpose of receiving such assignment. Immediately thereafter in September, 1979 ITL became one of the petitioning creditors in an involuntary bankruptcy proceeding commenced against All American in this court (Case No. 79-1109) under Chapter X of the Bankruptcy Act then in effect. All American vigorously contested that proceeding.
Prior to trial on the involuntary petition, the parties entered into a stipulation which was incorporated and approved in an order of this court dated October 18, 1979 (Plaintiff's Exhibit No. 1). The stipulation and order provided in part that the parties had until January 30, 1980 within which to reach a complete settlement or proceed further in Bankruptcy Court.
A settlement was in fact reached on January 30, 1980 which involved the execution of several documents on that date (and the next day as to the so-called management contract). Pursuant to that agreement and those documents letter agreement between Aetna/ITL and Nordic (Plaintiff's Exhibit No. 3); agreement between All American and Nordic (Plaintiff's Exhibit No. 4); agreement among All American, ITL, and Nordic (Plaintiff's Exhibit No. 5); deed from All American to Aetna (Plaintiff's Exhibit No. 6); and management contract between Aetna and All American (Plaintiff's Exhibit No. 7) Nordic paid $1,500,000 to ITL on behalf of All American, the Chapter X proceeding in this court was dismissed, various security agreements which had previously been given by All American to Aetna and assigned by Aetna to ITL were assigned by ITL to Nordic, deed to the hotel property was given by All American to Aetna, and a management agreement whereby All American retained possession and operation of the hotel property was entered into between All American and Aetna.
No satisfaction of the mortgage from All American to Aetna (then held by ITL) was executed or delivered and the original promissory note was retained by ITL. One of the settlement documents, the so-called settlement agreement (Plaintiff's Exhibit No. 5), provided for the repurchase of the property by All American or Nordic upon payment of the various amounts listed. The option price increased on a monthly basis by an amount approximating the interest accrual on the original note and mortgage. There was a slight difference between what the interest would have been and the figures used, which was explained by Richard Polivy, vice president of Aetna as being the estimated "cost of funds" to Aetna during this period of time. Aetna also placed in escrow with its attorney a deed back to All American which was to be delivered if All American complied with the requirements of the settlement agreement to exercise its option.
In February, 1980 Aetna and ITL commenced discussions with American Motor Inns, Inc., another of its large borrowing customers in the hotel and motel industry, to sell the right, title and interest which Aetna and ITL then had as a result of the January 30, 1980 transactions. There had been a casual inquiry between Aetna/ITL and American Motor Inns as early as about November, 1979 but the conversation went no further at that time. Pursuant to the negotiations which commenced in February, 1980, an agreement was reached on March 10, 1980 between Aetna and ITL on the one hand and American Motor Inns, Inc. and its wholly owned subsidiary Atlas Motor Inns, Inc., (Atlas), the plaintiff in these adversaries, on the other. By this agreement, ITL assigned the note and mortgage to American Motors and Aetna conveyed the property by deed to Atlas. The former deed from All American to Aetna had been recorded. Aetna and Atlas agreed that the deed from Aetna to Atlas would not be recorded and that the entire transaction between Aetna/ITL and American Motors/Atlas would be kept secret from All American and Nordic. For this assignment and conveyance American Motors and Atlas paid to Aetna and ITL $3,656,549.22 which was the precise amount at which All American and Nordic had the option to repurchase the property as of March 31, 1980, the increment date immediately following the transaction between Aetna/ITL and American Motors/Atlas on March 10, 1980. Atlas agreed to pay Aetna an additional $250,000 if neither All American nor Nordic exercised their option and Atlas was able to obtain title insurance without exception with respect to all that had theretofore transpired. In the meantime Aetna was to act as agent for Atlas and American Motor Inns.
It should be noted that in the documents between Aetna/ITL and American Motor Inns/Atlas, ITL represented that the original mortgage loan obligation was extant and that its balance was not less than the amount being paid by Atlas which was the repurchase option price at that particular time. Ben Richardson, vice president and general counsel of American Motor Inns and Atlas testified that he always understood that the mortgage and note were still in full force and effect notwithstanding the conveyance by deed. Richard Polivy was ambiguous on the issue of whether or not the obligation had been extinguished by the conveyance.
All American continued to possess, manage and operate the property under the management agreement until August 31, 1980, its original termination date and thereafter through...
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