In re Charles St. African Methodist Episcopal Church of Bos.

• Decision Date: 14 December 2017
• Docket Number: Case No. 12–12292–FJB
• Citation: 578 B.R. 56
• Parties: IN RE CHARLES STREET AFRICAN METHODIST EPISCOPAL CHURCH OF BOSTON, Debtor
• Court: U.S. Bankruptcy Court — District of Massachusetts

578 B.R. 56

IN RE CHARLES STREET AFRICAN METHODIST EPISCOPAL CHURCH OF BOSTON, Debtor

Case No. 12–12292–FJB

United States Bankruptcy Court, D. Massachusetts, Eastern Division.

Signed December 14, 2017

Gregory L. Demers, Andrew G. Devore, Martha Martir, William L. Roberts, Ropes & Gray LLP, Boston, MA, David B. Madoff, Madoff & Khoury LLP, Foxborough, MA, for Debtor.

MEMORANDUM OF DECISION ON CONFIRMATION OF DEBTOR'S SECOND MODIFIED SECOND AMENDED THIRD PLAN OF REORGANIZATION

Frank J. Bailey, United States Bankruptcy Judge

The matter before the court is the proposed confirmation of the Second Modified Second Amended Third Plan of Reorganization [Doc. # 1214] of debtor Charles Street African Methodist Episcopal Church of Boston ("the Church"), to which creditor OneUnited Bank ("OneUnited") has objected. For the reasons set forth below, the Court will confirm the plan.

PROCEDURAL HISTORY

a. The Petition and Case to Date

The Church is an incorporated congregation of the African Methodist Episcopal Church. OneUnited is the Church's largest creditor, having extended to it two loans that, as of January 2012, were in default. On March 20, 2012, facing foreclosure on its church building and two other properties, the Church filed a petition for relief under chapter 11 of title 11 of the United States Code (the "Bankruptcy Code").

The ensuing history of this bankruptcy case is lengthy, but for present purposes, the short form should suffice. Though the plan presently under consideration is entitled the Church's Third, in fact only one other has been presented for confirmation. The Church presented a plan of reorganization for confirmation in the summer of 2013. After an evidentiary hearing, the Court sustained OneUnited's objection to it confirmation. At the same time the Court denied a motion by OneUnited to dismiss this case and ordered the appointment of an examiner in the case for limited purposes. After these events, the Church turned its attention to prosecuting two counterclaims against OneUnited, which it asserted primarily as defenses, in the nature of setoff, against the OneUnited's claims in this case. After another evidentiary hearing, the Court dismissed the counterclaims and accordingly overruled the Church's objections to the OneUnited's claim. On appeal, the District Court vacated that judgment in part and remanded one count for the limited purpose of explaining the relationship of the Court's findings to one of two theories underlying one of the Church's counts. In July of this year, the Court did so and again entered judgment for OneUnited on the remanded count. As of this writing, there is pending a motion by the Church for the Court to alter or amend its findings and/or judgment.

b. Claims of OneUnited and other Secured Creditors

In this bankruptcy case, OneUnited holds the vast majority of the secured debt. It has filed a proof of claim, now thrice amended, by which it asserts in total three claims—two secured and one unsecured—based on two loans made by OneUnited to CSAME on October 3, 2006. The first, the "Church Loan," involved a borrowing of $1,115,000, with principal and unpaid interest due in full on December 1, 2011. The second, known as the "RRC Loan" (together with the Church Loan, "the Loans"), was an 18–month non-revolving line of credit of up to $3,652,000 for the purpose of constructing a community center, the Roxbury Renaissance Center (the "RRC Building").

The Loans were secured by mortgages on Church-owned real property, six parcels in all. The Church Loan was secured by mortgages on the house of worship, located at 545–551 Warren Street, Roxbury, Massachusetts (the "Church Building"), on the adjacent property at 553–565 Warren Street (the "Storefronts"), consisting of storefronts that the Church was renting out as office space, and on a single-family residence at 70 Sumner Street in Milton, Massachusetts (the "Milton Property" or "Milton Parsonage"). The Construction Loan was secured by mortgages on 567–575 Warren Street (the "RRC Building"), which was the site of the RRC, on 5 Elm Hill Avenue, Roxbury, ("5 Elm Hill" or "the Old Parsonage"), and on an adjoining parking lot at 15 Elm Hill Avenue (the "Church Parking Lot").

In 2014, the Church, by exercise of its powers as a debtor-in-possession under the Bankruptcy Code, sold the RRC Building and the neighboring Storefronts together as a unit at auction for $2.9 million, of which $350,000 was allocated to the Storefronts and the balance to the RRC Building. And, in a separate sale in 2014, again by exercise of its powers as a debtor-in-possession under the Bankruptcy Code, the Church sold the Milton Property for approximately $385,000. Each sale was free and clear of OneUnited's mortgage on the property in question, with that mortgage attaching instead to the proceeds of the sale, with the same priority and validity and to the same extent as its mortgage on the property had enjoyed.

The proceeds securing the Church Loan are subject only to OneUnited's mortgages and no other encumbrance. The proceeds securing the RRC Loan are subject to one other lien, a real estate tax lien in favor of the City of Boston which, it is undisputed, has priority over OneUnited's mortgage. In its disclosure statement for the present plan, the Church estimates the City's lien to be in the amount of $88,212.00.

Aside from the liens already mentioned, only one other has been asserted against and presently encumbers the Church's properties (or the proceeds thereof), that one being a junior mortgage on the Church Building in favor of creditor Tremont Credit Union ("Tremont"), securing an asserted claim of $493,274.05.

The sale proceeds from the three sold properties were placed in escrow, to be disbursed only upon order of the Court. To date, the Court has authorized three distributions from escrow, one to the Church to reimburse it under 11 U.S.C. § 506(c) for costs of preserving the mortgaged properties, and two to OneUnited in partial abatement, on a dollar-for-dollar basis, of its secured claims.¹ The escrow account continues to hold $1,694,280.64.

In an amendment to its proof of claim, OneUnited asserted that its Church Secured Claim should, under 11 U.S.C. § 506(b), include attorney's fees approaching $4 million, and the Church objected to this § 506(b) claim, arguing that the fee component of this claim should be disallowed in its entirety. The controversy has been resolved by a stipulation that the Court has approved. Consequently, for purposes of the present confirmation proceedings, the Church and OneUnited have stipulated to the following, resolving virtually all issues pertaining to quantification of OneUnited's claims:

i. Valuation of Unliquidated Properties: The value of the Church Building is $1,350,000, the value of 5 Elm Hill is $385,000, and the value of the Church Parking Lot is $400,000.

ii. OneUnited Church Loan 506(b) Fee Claim: OneUnited shall have an allowed claim with respect to its postpetition fees and costs under § 506(b) of the Bankruptcy Code in the amount of $340,000.00 (the "OneUnited Church Loan 506(b) Fee Claim"). The OneUnited Church Loan 506(b) Fee Claim shall be treated as part of the OneUnited Church Secured Claim under the Third Plan. Other than the OneUnited Church Loan 506(b) Fee Claim, the Bank shall have no allowed claim against the Church for any postpetition fees or costs with respect to the OneUnited Church Note or the OneUnited RRC Note.

iii. OneUnited Church Secured Claim: The OneUnited Church Secured Claim shall equal the sum of (i) the prepetition claim amount of $1,155,471.23, (ii) post-petition interest through October 31, 2017 of $469,556.67, (iii) $232.34 per diem post-petition interest from November 1, 2017 to the effective date of a chapter 11 plan, if confirmed, and (iv) the OneUnited Church Loan 506(b) Fee Claim of $340,000.00.

iv. OneUnited RRC Secured Claim: As the OneUnited RRC Note is undersecured, the amount of the OneUnited RRC Secured Claim shall equal the value of the collateral securing the OneUnited Note, which equals the sum of (i) the RRC Proceeds in the amount of $2,387,839.82, plus accrued interest thereon, (ii) the stipulated value of 5 Elm Hill, $385,000.00, and (iii) the stipulated value of the Church Parking Lot, $400,000.00.

v. OneUnited Unsecured Claim: The OneUnited Unsecured Claim shall equal the difference between (i) the prepetition OneUnited RRC Claim amount of $3,436,629.13, and (ii) the OneUnited RRC Secured Claim.

The Church maintains, and Tremont does not dispute, that Tremont's mortgage on the Church Building is junior to OneUnited's and that by virtue of that priority and the limited value remaining in the Church Building after subtraction of OneUnited's secured claim, Tremont's $493,274.05 claim is, for purposes of the present plan, a secured claim to the extent of approximately $70,000 and an unsecured claim for the balance.

c. The Present Plan

The Church now presents a second plan for confirmation, its Second Modified Second Amended Third Plan of Reorganization [Docket No. 1214], the result of two amendments and three modifications to the Church's Third Plan. The Third Plan was filed in this case on March 27, 2017. On June 28 and July 5, 2017, the Church filed its first and second amended Third Plans. On July 10, 2017, the Court approved the Church's disclosure statement as to the Second Amended Third Plan of Reorganization (the "Disclosure Statement"). The Church then transmitted the Disclosure Statement to creditors and solicited their votes with respect to confirmation of the Second Amended Third Plan. Upon completion of plan voting, the Church's counsel filed a declaration certifying (i) the methodology for the tabulation of votes on the plan and (ii) the results of the voting. The report indicates that of the seven classes entitled to vote, three (Classes 3, 8, and 9) have accepted the plan and four (Classes 2, 4, 6, and 7) have rejected it. No creditor disputes, and I find, that the...