In re Chesmid Park Corp., Bankruptcy No. 84-00618-R.

• Citation: 45 BR 153
• Decision Date: 13 December 1984
• Docket Number: Bankruptcy No. 84-00618-R.
• Court: United States Bankruptcy Courts. Fourth Circuit. U.S. Bankruptcy Court — Eastern District of Virginia
• Parties: In re CHESMID PARK CORPORATION, Debtor.

45 B.R. 153 (1984)

In re CHESMID PARK CORPORATION, Debtor.

Bankruptcy No. 84-00618-R.

United States Bankruptcy Court, E.D. Virginia, Richmond Division.

December 13, 1984.

H.P. Jack Armstrong, Richmond, Va., for debtor.

MEMORANDUM OPINION

BLACKWELL N. SHELLEY, Bankruptcy Judge.

This matter came before the Court on the motions of the United States Trustee and the Bank of Powhatan to dismiss or convert to Chapter 7 Chesmid Park Corporation's Chapter 11 petition. After notice and a hearing on November 20, 1984 on the stated motions, the Court took the matter under advisement. After deliberation upon the evidence adduced at the hearing, this Court makes the following findings of fact and conclusions of law.

FINDINGS OF FACT

Chesmid Park Corporation ("Chesmid Park"), the debtor, is not a business in the ordinary sense. The apparent purpose of the debtor corporation is to hold legal title to a certain parcel of real estate consisting of approximately ten acres of valuable commercial property in Midlothian, Virginia, until it appreciates in value and then liquidate that asset. The testimony given at the hearing indicated that the land had a value in excess of $684,590. This realty is the debtor's sole asset.

The testimony established that the Bank of Powhatan ("Bank") was given a first deed of trust lien to secure its loan to Chesmid Park in the amount of $35,000 in 1972 on a 2.12 acre parcel of the subject real estate. The Bank of Powhatan loaned additional funds to Chesmid Park in 1975 and consolidated the two loans secured by a new deed of trust for $60,000 on the 2.12 acre parcel and an additional 4.98 acre parcel. John L. Lewis, III ("Lewis") and J. Stanley Whittaker, Jr. were named trustees under the deed of trust. From the time the payments under the $60,000 deed of trust came in default in early 1977, Chesmid Park's total indebtedness to the Bank of Powhatan steadily increased due to the accrual of interest at a rate of prime plus 2 percentage points. At the time of the hearing of this matter, Chesmid Park owed the Bank approximately $130,000.

On March 26, 1980, the president of the Bank of Powhatan sent a letter to John R. Smith, Chairman of the Board of Chesmid Park, notifying the latter that the loans were delinquent and had been so since the early part of 1977. The letter requested that the loans be brought current or the Bank would be forced to foreclose under the deed of trust instruments. Lewis testified that subsequent to the letter, the president of the Bank of Powhatan asked him to institute foreclosure proceedings. Lewis then contacted Smith by letter on April 23, 1980 to discuss the sale of the property. In the ensuing months, it appears that approximately 15 letters were sent back and forth between Lewis and the Bank on the one hand and Smith on the other in an effort to negotiate an amicable solution to the problem. The Bank did not carry to fruition any foreclosure proceedings during this time.

In 1981, an agreement was obtained by Smith to further delay any foreclosure proceedings until March of 1982. The Bank's agreement to delay foreclosure again was not met by any quid pro quo attempt on the part of Smith to bring Chesmid Park's loan obligations current on the notes.

In March, 1982, Lewis was again requested by the Bank to institute foreclosure proceedings. Negotiations between the Bank and Smith continued with the Bank again acquiescing several more times in a continuance of the foreclosure. Finally, in the fall of 1982 the Bank decided to foreclose, but only as to the 2.12 acre parcel. The rationale behind selling only a portion of the secured acreage was that the value of the property was such that the proceeds of only a limited portion of the secured collateral would be sufficient to retire all of Chesmid Park's indebtedness to the Bank. However, foreclosure was delayed again. Smith met with the Bank several times requesting that there be no sale of the acreage until it was subdivided and then sold on a per parcel basis on the assumption that the subdivided parcels would bring a higher price. Smith was successful in persuading the Bank in this regard.

Subsequent to the preparation of a plat dividing the property into lots, Lewis then proceeded with plans to sell the 2.12 acre parcel and scheduled the sale for December 10, 1982. Again at Smith's request, the sale was delayed until January 21, 1983. A sale was finally held on that date and attended by various real estate agents and approximately 80 to 100 interested persons. The result of the sale was that 12 parcels were purchased by four groups. Parcel 1A was purchased by Paul Norman Tapp for $60,000. Parcels 1B, 3A, 2, 5 and 6 were purchased by Vernon Pledger. Parcels 3 and 4 were purchased by Jack McCrocklin and his wife, Mildred E. McCrocklin. Parcels 7, 8, 9 and 10 were purchased by David F. Freeman and G. Robert Waldrop, III. One hundred eighty-five thousand dollars ($185,000) was the total amount of the bids. Coincidental with the sale, the purchasers of eight lots which bordered on proposed Chesmid Drive by contract agreed to pay their proportional interest for the paving of the road which Smith planned to blacktop and Chesmid Park planned to dedicate as a public street. On the other side of Chesmid Drive lay the 4.98 acres pledged in 1975. Behind the 4.98 acres is another four acre parcel which would also be served by proposed Chesmid Drive.

Consummation of the sale was to occur within 90 days of the signing of the contracts. Mr. Freeman, one of the purchasers of lots 7, 8, 9 and 10, approached Smith prior to consummation of the sale about the purchase and was informed by Smith that he would not consummate the sale with respect to lots 7, 8 or 9 unless Freeman paid an additional $3,000 over and above the amount Freeman had bid at the sale. Smith also demanded that the existing easement on lot 10 be relocated, and further, Smith wanted Freeman and Waldrop to give him a fifty-foot easement across lot 10 to serve some of the Smith family's property to the rear of the parcels. The testimony indicated that Smith also went to Jack McCrocklin and told him he could have Vernon Pledger's lots 5 and 6 for an additional $1,000 per parcel. In addition, when Smith became aware that Pledger sought to sell lots 1B and 3A to the Fire Department for approximately a $12,000 profit, Smith made it known that he did not wish to confirm the sale to Pledger as to those parcels.

The possibility that the sale might be consummated became even more remote. Smith did not dedicate or blacktop Chesmid Drive, thus, the purchasers did not want to consummate the sale until this was done. With respect to lots 1B and 3A sold to Vernon Pledger, Smith asked for and received a preliminary injunction in the Circuit Court of Chesterfield County, Virginia enjoining Lewis, the trustee, from conveying the parcels to Pledger. At a subsequent hearing on the merits, that court ruled the sale by Lewis was a valid trustee's sale and the injunction was dissolved. However, in each of the contracts signed by the purchasers, confirmation of the sale was conditioned on approval by the Circuit Court of Chesterfield County, Virginia.

To this date the sale has never been consummated and Chesmid Drive has neither been blacktopped nor dedicated to public use. The cash deposits placed on certain parcels by Freeman, Waldrop, and McCrocklin have been recovered by them. The evidence was that after two years, they no longer desired to go forward with the purchase of the lots.

The Bank of Powhatan decided to hold a new trustee's sale on the 4.98 acres. The Bank advertised the sale of 4.51 acres (4.98 acres minus the fifty-foot strip for the dedication of Chesmid Drive).¹ The advertisement for the sale ran in the newspaper for two or three weeks. Immediately prior to foreclosure, Chesmid Park filed its petition in bankruptcy. The automatic stay under § 362 of the Bankruptcy Code went into effect preventing the foreclosure.

Chesmid Park filed a plan of reorganization on October 4, 1984. The plan proposes that the debtor remain in possession of the property selling individual parcels over a period of 18 months from the date of confirmation of the plan. The plan also indicates that Chesmid Park has conveyed 0.2 acres of the land to Paul Norman Tapp subject to the Bank of Powhatan's lien in the amount of $54,000. The plan states that the Bank of Powhatan refuses to execute a partial release on the conveyed parcel. In addition, the debtor has an agreement to sell to Tapp an additional 0.5 acres for the sum of $80,000 on the execution of a partial release by the Bank and other existing secured creditors. The debtor proposes to sell the remaining parcels in a like manner one tract at a time. The overall plan contains no classifications of creditors and states that the United States Trustee shall receive as a priority payment 9 percent of all sums received. Although the debtor's plan was filed on October 4, 1984, at the time of the hearing on November 20, 1984, no disclosure statement had been filed.

The United States Trustee brought to the attention of the Court the fact that the debtor has been persistently dilatory in filing reports as required by the Consent Order dated September 18, 1984. In addition, the U.S. Trustee indicates that no status report has been filed by the debtor as required. Finally, counsel for the Bank of Powhatan brought it to the attention of the Court that the debtor has not filed its tax return for 1983 nor does the debtor have a tax identification number.

CONCLUSIONS OF LAW

The Bank of Powhatan and the United States Trustee filed their motions to convert or to dismiss or convert, respectively, under the provisions of § 1112(b).² Congress reposed wide discretion in this Court pursuant to § 1112(b). See H.Rep. No. 95-595, 95th Cong., 1st Sess. 405 (1977), U.S. Code Cong. & Admin.News 1978, p. 5787. The Court is given authority to dismiss a case or...