In re Challa
| Decision Date | 11 September 1995 |
| Docket Number | Bankruptcy No. 92-2124-3P1. |
| Citation | 186 BR 750 |
| Parties | In re Hanimi R. CHALLA, and Jamuna Challa, Debtors. |
| Court | U.S. Bankruptcy Court — Middle District of Florida |
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Robert Altman, Palatka, FL, for debtors.
Lance P. Cohen, Jacksonville, FL, for Beverly Hills Medical Park.
This case came before the Court upon debtors' objection to claim 34 filed by Beverly Hills Medical Park, Inc. (BHMP or medical park). Upon the evidence presented at hearings held on August 4, 1994, November 22, 1994, and February 22, 1995, the Court enters the following findings of fact and conclusions of law.
1. Debtor, Dr. Hanimi Challa (Dr. Challa or Challa), is a physician specializing in geriatric medicine in Marion County and Citrus County, Florida.
2. In 1986, debtors purchased a 34 acres of undeveloped land in Citrus County, Florida and subdivided the land into seven smaller parcels. (Tr. Vol. I at 17).
3. Debtors sold 4.4 acres of land to a partnership (the partnership) comprised of debtors, owning fifty percent of the partnership; Dr. Venugopala A. Reddy and his wife, owning twenty-five percent of the partnership; and, Dr. Padma V. Reddy and her husband, owning twenty-five percent of the partnership. (Tr. Vol. I at 17).
4. The partnership attempted to develop a medical park on the property and on November 10, 1988, the partnership borrowed $800,000 from First Florida Bank, N.A. (First Florida) to construct the first medical park building. (Debtors' Ex. 1).
5. On August 4, 1989, BHMP was incorporated as a Florida for profit corporation. At the time of incorporation, the principal shareholders were Dr. Hanimi Challa, Jamuna R. Challa, Venugopala Reddy, and Saraswathi Reddy. (Debtors' Ex. 2).
6. On August 31, 1989, the partnership transferred the 4.4 acre parcel of land to BHMP. (Debtors' Ex. 3).
7. At the time of the transfer, one office building had been constructed on the property and was occupied by Challa's Citrus and Marion Geriatrics Associates, P.A., Gulf Coast Physical Therapy, and Dr. Sol Anker. (Tr. Vol. I at 31).
8. Challa's Citrus and Marion Geriatrics Associates, P.A. (the P.A.) was incorporated on September 3, 1987, (Debtors' Ex. 4), and Dr. Challa was the sole shareholder of the corporation. (Tr. Vol. I at 26). Dr. Hanimi Challa, Dr. Venugopala Reddy, and Dr. Padma Reddy served as officers of the corporation. (Tr. Vol. I at 26).
9. Debtor, Dr. Hanimi Challa, entered into an employment agreement with the P.A. on September 18, 1988. (Debtors' Ex. 5). Challa signed the employment agreement both as an individual and as the president of the P.A.. (Tr. Vol. I at 27).
10. Challa's P.A. first occupied space in the medical park in July, 1989. (Tr. Vol. I at 44).
11. On April 14, 1992, the debtors filed for relief under Chapter 11 of the Bankruptcy Code.
12. On November 9, 1992, BHMP filed claim 34 in the amount of $428,953.41. The claim included $188,770.75 for prepetition rent; $17,786.39 for prepetition interest on rent; $47,938.56 for damages for breach of lease (1 year's rent); and $174,457.71 for conversion of corporate funds.
13. Debtors filed an objection to claim 34, alleging that the P.A. made irregular lease payments to BHMP and, in lieu of rent, loaned money to BHMP and paid expenses on its behalf. Debtors also demanded a right to setoff against BHMP's claim.
A properly filed proof of claim is presumed valid and prima facie evidence of both the claim and its amount. In re McCoy, 163 B.R. 206, 209 (Bankr.M.D.Fla.1994). See In re St. Augustine Gun Works, Inc., 75 B.R. 495, 499 (Bankr.M.D.Fla.1987), and In re The Securities Groups, 116 B.R. 839, 845 (Bankr. M.D.Fla.1990). Unless an interested party objects, a claim is allowed as filed. In re Haack, 165 B.R. 501, 502 (Bankr.M.D.Fla. 1994). See In re Brinson, 153 B.R. 952, 954 (Bankr.M.D.Fla.1993), and 11 U.S.C. § 502(a). The debtor bears the burden of overcoming the presumed validity of the claim with affirmative proof. In re St. Augustine Gun Works, Inc., 75 B.R. 495, 499 (Bankr.M.D.Fla.1987). If, however, the debtor overcomes the presumed validity of the claim, or if the claim was incorrect when filed, the claimant must establish the validity and amount of the claim. In re Haack, 165 B.R. 501, 503 (Bankr.M.D.Fla.1994). See In re McCoy, 163 B.R. 206, 209 (Bankr.M.D.Fla. 1994). Thus, the "burden of ultimate persuasion by the preponderance of the evidence rests with the claimant." In re The Securities Groups, 116 B.R. 839, 845 (Bankr. M.D.Fla.1990).
Claim 34 is essentially composed of a claim for prepetition rent and damages resulting from an alleged lease agreement between Dr. Challa and BHMP, and a claim for conversion of corporate funds charged against Dr. Challa. The Court will examine each portion of the claim before evaluating the debtors' right to set off.
In open Court, BHMP itemized this portion of its claim as follows:
Prepetition rent $147,107.00
Sales tax on prepetition rent 8,826.42
Common area maintenance
charges (CAM) 14,160.00
Sales tax for CAM charges 845.60
Rejection for lease rent damages 48,234.70
Rejection for lease CAM damages 4,000.00
Sales tax on rejection damages 3,139.06
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TOTAL: $226,311.48
BHMP's new calculations for this portion of the claim differ substantially from those itemized in the original proof of claim. Thus, BHMP bears the burden of proving both the validity and the amount of the claim. In re Haack, 165 B.R. 501 (Bankr.M.D.Fla. 1994).
BHMP's claim for prepetition rent and lease rejection damages is premised on an alleged lease between Challa and BHMP. Both the origin and the validity of the lease are in dispute. The Court received into evidence a copy of a lease which names Dr. H. Challa, M.D. as the lessee and Beverly Hills Medical Park, Inc. as the lessor. The lease was signed by Harriette Rolnick, as President of BHMP, Bhupendra Gupta, and Hanimi H. Challa. (Claimant Ex. 1). The Court also heard testimony from Gaston Hall, the project manager and general contractor for the medical park buildings. Hall stated that Dr. Challa "whited-out" the name on a copy of a lease and penciled in his own name. According to Hall, Challa also wrote in the term of the lease and the monthly rental value. Challa then gave the lease, with his handwritten changes, to a secretary to have the handwritten information typed onto that lease. (Tr. Vol. II at 271). Hall further testified that Challa reviewed the typed copy of his name, and entered the handwritten initials "M.D." after his name. The copy of the lease in evidence contains handwritten initials "M.D." after Dr. Challa's typed name. (Tr. Vol. II at 272-73). Hall also testified that Challa submitted the lease to First Florida Bank as part of a loan approval package in late 1989. (Tr. Vol. II at 334).
In contradiction to Hall's testimony, Challa testified that neither he nor his P.A. signed a lease with BHMP. (Tr. Vol. I at 39). Although BHMP claims that the lease in evidence binds Challa, Challa argues that the signature page on that lease was actually copied from a lease between BHMP and Bhupendra Gupta, which Challa signed as a witness.
The Court received the deposition of Dr. Bhupendra Gupta into evidence. (Debtors Ex. 41; Tr. Vol. II at 251). According to Gupta, the signature page on his lease is also attached to the alleged Challa lease. (Debtors' Ex. 41 at 9). Gupta and Challa signed two originals of Gupta's lease in April 1990. Gupta's lease was also signed by Harriette Rolnick in her capacity as President of BHMP. (Tr. Vol. I at 35). Rolnick's signature is not dated. Rolnick became President of BHMP in October, 1989. (Tr. Vol. I at 35, 37).
The alleged Challa lease was dated March 29, 1989. (Claimant Ex. 1). While it is possible that this lease could have been signed by Harriette Rolnick after October 1989, the lease could not have been included in the loan package to First Florida in late 1989 because Gupta and Challa did not sign the lease until April 1990. According to the testimony of a bank officer, neither the Gupta lease nor the alleged Challa lease was contained in the bank file. (Debtors' Ex. 42, Tr. Vol. II at 260-61). In court, BHMP offered a facsimile copy of a lease allegedly faxed to Mr. Cohen's office from First Florida. In light of the bank officer's testimony and absent means of authenticating the faxed copy, the Court finds it inappropriate to consider the copy of the alleged Challa lease as a part of the bank file. (Claimant Ex. 23).
Gupta testified that he signed two originals of his lease, but he never signed another document with Dr. Challa. (Debtors' Ex. 41 at 8). Thus, Gupta's signature should not appear on a Challa lease.
The Court has reviewed the testimony surrounding the alleged lease with Challa, as well as the exhibits purporting to be copies of the document. (Claimant's Ex. 1, Claimant's Ex. 23, Debtors' Ex. 3). The Court finds the authenticity of the alleged lease with Challa to be suspect, and BHMP cannot rely on the lease to establish the validity or the amount of its claim for prepetition rent or lease rejection damages.
The Court, however, finds that BHMP does have a valid claim for prepetition rent pursuant to Challa's testimony regarding a verbal lease agreement he negotiated with BHMP on behalf of his P.A. According to Challa's testimony, his P.A. agreed to pay $3,500 per month plus sales tax to BHMP for lease of 5,000 square feet of office space in the medical park. (Tr. Vol. I at 43). Pursuant to Challa's testimony,...
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