In re Alumni Hotel Corp.
| Decision Date | 30 December 1996 |
| Docket Number | 95-44349 and 95-53977.,Bankruptcy No. 91-10696 |
| Citation | 203 BR 624 |
| Parties | In re: ALUMNI HOTEL CORPORATION, 17017 Blue Realty Corporation, Villa Holding Corporation, Debtors. |
| Court | U.S. Bankruptcy Court — Eastern District of Michigan |
Daniel Weiner, Bloomfield Hills, MI, for Fine & Davenport.
Linda Hammell, NLRB, Detroit, MI, for NLRB.
Kevin Ball, Birmingham, MI, for trustee.
John Adam, Southfield, MI, for HERE Local 24 & HERE Funds.
Martin Fine and the Davenport Entities have filed a motion for allowance of attorney fees under 11 U.S.C. § 503. The issue is whether these legal fees should be allowed as an administrative expense of the debtors' estate(s) under 11 U.S.C. § 503(b)(3)(D) and (b)(4). The Court concludes that the fees should not be allowed, as the applicants have not made a substantial contribution to the debtors' estates.
Defendants Martin Fine and "the Davenport Entities," corporations affiliated with Fine,1 seek payment and/or reimbursement of $25,807.25 in attorneys fees and $273.72 in costs as administrative expenses of the estate(s) of Alumni Hotel Corporation, 17017 Blue Realty Corporation, and Villa Holding Corporation. Fine contends that by proposing and designing a settlement of the trustee's adversary proceeding, his counsel produced a "substantial contribution" to these three estates and, therefore, the estates should bear the expense of counsel under 11 U.S.C. § 503(b)(3)(D) and (b)(4).
This matter concerns the estates of three different debtors: Alumni Hotel Corporation, 17017 Blue Realty Corporation, and Villa Holding Corporation. These corporations shared two important attributes: 1) the same individual, Martin Fine, was the sole shareholder and managing officer of each of these corporations; and 2) each of the corporations was connected to the ownership and/or management of a hotel located at 17017 West Nine Mile Road, Southfield, Michigan. The entangled affairs of these companies generated hundreds of pleadings in their bankruptcies and culminated in an adversary proceeding to determine the true ownership of the hotel property. The attorneys' fees at issue arose during the adversary proceeding. In order to understand the adversary proceeding, a brief history of the three underlying bankruptcy cases is included in the summary of facts.
Alumni Corporation, doing business as the Days Hotel, operated at 17017 West Nine Mile Road, Southfield, Michigan, from September 27, 1989 to May of 1993. In May of 1993, Alumni ceased operating as a Days Hotel and became a Ramada Hotel.2 Martin Fine was the president and sole shareholder of Alumni.3 From 1989 through the pendency of the Alumni bankruptcy case, the hotel property was the subject of several transactions. According to Alumni's disclosure statement(s), Alumni Hotel Corporation purchased the real and personal property of the hotel from Prudential Insurance Company, using a $4 million loan from Fine, in a sale which closed on September 27, 1989. On March 19, 1990, Fine, as president of Alumni, executed a quit-claim deed which transferred title to the property to 649 Broadway Equities Company, a partnership in which Fine is a partner. The quit-claim deed indicated that the transfer was for "$1 and other good and valuable consideration." Fine later maintained that Broadway received the property in exchange for $200,000 and an agreement that Broadway would assume the $4 million obligation to repay Fine.4 Alumni then leased the hotel property from Broadway. The record contains a copy of the lease, which shows that on March 19, 1990, Fine, acting as Alumni's representative, entered into a twenty-year lease agreement with Broadway, also represented by Fine, for total rent of $4,800,000, payable in monthly installments of $20,000. On September 16, 1991, Martin Fine, as a partner of Broadway, gave the Israel Discount Bank of New York a mortgage on the hotel property as security for a guarantee for "a certain obligation of Davenport Trading Corp.", another corporation owned by Fine.5
On September 23, 1991, Alumni filed a voluntary petition for chapter 11 relief. Martin Fine remained as Alumni's director. Alumni's schedules disclosed that its chief assets were a Days Hotel franchise agreement, valid through September 1999, and the Broadway leasehold agreement for the hotel property.6 The schedules disclosed that Alumni owed Broadway a considerable amount of unpaid rent and that Broadway held a security interest in the lease.7 In addition, Alumni's disclosure statement, filed August 5, 1992, stated that "entities controlled by Mr. Fine have prepetition unsecured claims in the approximate amount of $1,500,000.00."8
On November 28, 1991, Martin Fine, acting as president of Broadway, executed a quit-claim deed transferring the hotel property to 17017 Blue Realty Corporation, a corporation in which Fine served as president and sole stockholder. The deed stated that the property was exchanged "for the sum of $1." On April 30, 1992, Fine, acting as president of Blue Realty, gave the Israel Discount Bank of New York a mortgage on the hotel property as security for Blue Realty's guarantee of "certain obligations of Davenport Trading Corp., Twelve Lions Renaissance Corp., 644 BRDY Realty Inc., WCC BOCA Corp., and Martin R. Fine."9 On August 5, 1993, Fine, acting as president of Blue Realty, again gave the Israel Discount Bank of New York a mortgage on the hotel property as security for Blue Realty's guarantee of "certain obligations of Davenport Trading Corp., Twelve Lions Renaissance Corp., 644 BRDY Realty Inc., WCC BOCA Corp. and Martin R. Fine."10
On February 15, 1994, the court appointed a trustee in Alumni's chapter 11 case and ordered the trustee to report whether Alumni should remain in chapter 11 or be converted to chapter 7. On March 8, 1994, trustee Charles Taunt reported that Alumni's case should be converted to chapter 7, as Alumni had incurred substantial losses during the case and had no reasonable likelihood of rehabilitation. The trustee recommended that the hotel business be liquidated by sale as a going concern, rather than simply shutting down the business and auctioning Alumni's few assets. The trustee believed that to be most effective, the sale should take place as soon as possible and that the buyer should fund the operational losses which would occur in the pendency of the court's approval of the sale and the closing. The trustee noted that Martin Fine's related businesses may be able to purchase the hotel.
On April 25, 1994, the court ordered that Alumni's case be converted from chapter 11 to chapter 7. In accordance with the trustee's recommendation that the hotel be sold as a going concern, the trustee received court permission to enter into an agreement with one of Martin Fine's corporations, the Villa Holding Corporation, which allowed Villa to operate the hotel, receive its revenues, and pay its expenses, for the period from April 26, 1994 until September 15, 1994. In exchange for receipt of all hotel revenue, Villa was to pay the Alumni estate $5,000 per month.
On April 29, 1994, the trustee moved for court permission to sell Alumni's assets, consisting primarily of inventory, accounts, and the Ramada franchise agreement, to two corporations controlled by Martin Fine, the Smythe-Burton Consulting Corp. and Villa Holding Corporation. These corporations offered to pay $200,000 for these assets, as follows:
$30,000 cash at closing $40,000 cash upon successful transfer of the hotel's liquor license $100,000 release of a super-priority claim of Smythe-Burton $30,000 assumption of liability for advance deposits made for use of the hotel;
and subordination of Blue Realty's claims (for unpaid rent) to all other claims against the estate. Various creditors filed objections to the proposed sale. These objections were eventually resolved, and the court entered an order approving sale of Alumni's meager assets to Smythe-Burton and Villa on September 22, 1994, on the terms listed above.
This was not the end of the matter, however.
On April 24, 1995, the trustee filed an adversary action alleging that Martin Fine and the companies which he controlled engaged in fraudulent transfers involving the hotel property which were allegedly designed to hinder, delay, or defraud creditors of Alumni. The trustee argued that the real property located at 17017 West Nine Mile Road, Southfield, Michigan, should be considered part of Alumni's estate. The complaint named Martin Fine and his related companies, Blue Realty, 649 Broadway Equities Company, and five corporations in which Martin Fine was a shareholder and officer: Davenport Trading Corp., Twelve Lions Renaissance Corp., 644 BRDY Realty Inc., WCC BOCA Corp., and Villa Holding Corporation.11 The complaint also named the Israel Discount Bank of New York, which held mortgages on the hotel property.
The trustee alleged that although Fine, Blue Realty, and Fine's affiliated businesses purported to be separate entities, "Fine manipulated and dominated Alumni and Blue Realty, stripping Alumni of the real estate, Alumni's most important asset."12 The trustee alleged that Alumni's leasehold interest in the hotel property was a sham designed to insulate the debtor's interest in the hotel property from creditors. The trustee also claimed that the sale of the hotel property to Broadway and, later, to Blue Realty, was actually nothing more than a financing transaction. The trustee sought a declaration that the hotel property was property of the Alumni estate, along with a decree setting aside the Israel Discount Bank of New York's mortgages.
The 17017 Blue...
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