In re Dena Corp.

• Decision Date: 22 July 2004
• Docket Number: No. 03 B 35085.,03 B 35085.
• Citation: 312 B.R. 162
• Parties: In re DENA CORP., an Illinois corporation, Debtor.
• Court: U.S. Bankruptcy Court — Northern District of Illinois

312 B.R. 162

In re DENA CORP., an Illinois corporation, Debtor.

No. 03 B 35085.

United States Bankruptcy Court, N.D. Illinois, Eastern Division.

July 22, 2004.

COPYRIGHT MATERIAL OMITTED

John R. Hubeny, Law Offices of John R. Hubeny, Westmont, IL; Jerome F. Crotty, Maria E. Mazza, Rieck and Crotty, P.C., Chicago, IL, for Plaintiff.

David A. Golin, Gesas, Pilati, Gesas and Golin, Ltd., Chicago, IL, for Defendant.

FINDINGS OF FACT AND CONCLSIONS OF LAW FOLLOWING TRAL ON PETITIONERS' ADMINITRATIVE CLAIM

JACK B. SCHMETTERER, Bankruptcy Judge.

Dena Corporation, Inc. ("Dena Corp." or "Debtor") is a Debtor in this Chapter 11 proceeding. Royal American Bank and John R. Hubeny, individually, and Robert J. Hubeny, as Trustee, are assignees-lessors of a commercial lease entered into by Debtor. As Petitioners they seek an administrative claim for payment of rent default and related expenses asserted to have arisen under what they contend is a lease agreement. Debtors objected, the issues were tried, and the parties rested. Final argument was submitted in writing through filings of proposed Findings of Fact and Conclusions of Law.

BACKGROUND AND PROCEDURAL HISTORY

Petitioners, Royal American Bank, as Trustee under Trust Agreement dated September 27, 2001, and known as Trust No. 10139, as assignee-lessor, and its beneficiaries John R. Hubeny, individually, and Robert J. Hubney, as Trustee under the Robert J. Hubeny Trust Agreement dated June 4, 1999 ("Petitioners") claim, pursuant to 11 U.S.C. § 503(b)(1)(A), payment from Debtor of priority administrative expenses ("Claim"). Petitioners also moved, pursuant to 11 U.S.C. § 362(d) to modify the automatic stay to proceed with eviction proceedings against Debtor ("Stay Motion").

The Debtor and certain secured creditors, namely Messers. Mahmoud Faisal Elkhatib, Dena Elkhatib, Maysoon M. Elkhatib, Hasan M. Elkhatib and Mary C. Kenna, and the Official Committee of Unsecured Creditors answered Petitioners' Claim and Petition. Petitioners replied. The Petitioners and the Debtor submitted a Joint Statement of Undisputed Facts. A trial on Petitioners' Claim and Petition was held on April 8-9, 2004.

On May 27, 2004 an Order was entered disposing of Petitioners' Stay Motion. The Order modified the stay and allowed Petitioners to proceed with eviction proceedings.

This matter was taken under advisement to determine if a commercial lease entered into by Debtor and assigned to Petitioners constitutes a "true lease" under 11 U.S.C. § 365(a). If so (as decided hereinbelow), Petitioners are entitled to rent and thereto entitled to an administrative claim under 11 U.S.C. § 503(b)(1)(A).

Based on the record and evidence, the court now makes and enters Findings of Fact and Conclusions of Law.

FINDINGS OF FACT

1. An involuntary bankruptcy petition under Chapter 7 of Title 11 the Bankruptcy Code ("Code") was filed against Dena Corporation on August 25, 2003. (JS ¶ 1)¹ The Debtor previously sought relief under Chapter 11 of Title 11 of the Code in 2000.

2. The petition was converted into a voluntary Chapter 11 proceeding on September 23, 2003, pursuant to the Debtor's motion. (JS ¶ 2)

3. Debtor is continuing to operate its business and manage its properties as a debtor in possession pursuant to §§ 1107(a) and 1108 of the Code.

4. Debtor continues to operate its business from two buildings located on 825 and 850 Nicholas Boulevard, Elk Grove Village, Illinois (the "Property").

5. In 1986, Petitioner purchased the 850 Nicholas Building from Z.S. Frank, Trustee, pursuant to an Agreement for Sale and Purchase of Real Estate for a purchase price of $250,000. (Pet'r Exh. 1)²

6. Z.S. Frank, Trustee, conveyed the 850 Nicholas Boulevard property to Debtor by Trustee's deed. (Pet'r Exh. 1)

7. In 1989, Debtor purchased the 825 Nicholas Boulevard building from Mr. Julius Walton ("Walton") pursuant to a real estate sale contract for a purchase price of $370,000. (Pet'r Exh. 2)

8. The purchase of the 825 Nicholas Boulevard building from Walton completed a deferred exchange provision and the construction of a building on the 825 property. (Pet'r Exh. 3, 4)

9. Walton conveyed the 825 Nicholas Boulevard property to Hasan El Khatib ("El Khatib") by warranty deed. (Pet'r Exh. 5) El Khatib has at all times been Debtor's President and sole shareholder.

10. El Khatib financed the purchase of the 825 Nicholas Boulevard property through Bank Audi USA. El Khatib granted Bank Audi USA a Trust Deed on the property. (Pet'r Exh. 6)

11. El Khatib also granted Bank Audi USA an assignment of rents as additional security for the repayment of the loan secured by the Trust Deed. (Pet'r Exh. 7)

12. On January 15, 1993, El Khatib, individually, conveyed title to the 825 Nicholas Boulevard property to the Debtor by Quit Claim Deed. (JS ¶ 13; Pet'r Exh.> 8)

13. In September 1993, Debtor and Bank Audi USA executed a Modification and Extension Agreement to, inter alia, extend the term of the Bank Audi USA loan. (JS ¶ 14; Pet'r Exh. 9)

14. In January 1995, Debtor executed a Note for $1,000,000 payable to LaSalle Northwest National Bank ("LaSalle") and granted LaSalle a commercial mortgage on the property. (JS ¶ 15; Pet'r Exh. 10)

15. In December 1995, the commercial mortgage was modified, inter alia, to increase the debt to $1,200,000 by Debtor's execution of an amendment to the commercial mortgage ("First Amendment") (JS ¶ 16; Pet'r Exh. 11)

16. In January 1997, the commercial mortgage was again modified, inter alia, to increase the debt to $1,253,580 by Debtor's execution of a Second Amendment. (JS ¶ 17; Pet'r Exh. 12)

17. On January 14, 2000, Debtor filed a voluntary petition for relief under Chapter 11 ("Debtor's First Bankruptcy Case") (Case 00 B 01235). Debtor's First Bankruptcy case was assigned to Judge Doyle.

18. At the time of Debtor's First Bankruptcy case, the Debtor owed LaSalle approximately $1,800,000. (JS ¶ 19) As security for this debt, LaSalle held a mortgage on the Property and a security interest in Debtor's personal property, including machinery, equipment and receivables. (Pet'r Revised Findings of Fact ¶ 19)

19. In Debtor's First Bankruptcy case, LaSalle agreed to accept payment of approximately $1,533,000 in full settlement of its claim. (JS ¶ 20)

20. On August 24, 2000, in Debtor's First Bankruptcy case, Debtor filed a motion to sell real estate, enter into lease of premises, obtain credit from K & L Financial Inc and grant a priority security interest pursuant to 11 U.S.C. § 364 ("Omnibus Motion"). (JS ¶ 21; Pet'r Exh. 13)

21. In the Omnibus Motion, Debtor requested authorization to sell the property to a corporation owned by Mr. James Reger ("Reger"). Reger offered to purchase the Property from the Debtor for $850,000 and to lease it back pursuant to a commercial lease agreement. (JS ¶ 22)

22. In the Omnibus Motion, Debtor requested authorization to enter into a factoring and equipment accommodation to obtain credit from K & L Financial, Inc. for its working capital needs.

23. On September 11, 2000, in Debtor's First Bankruptcy case, Judge Doyle entered an Order Authorizing Debtor-In-Possession to Sell Real Estate, Enter into Commercial Lease of Premises and to Obtain Financing and Pay Off Secured Debt. (JS ¶ 24; Pet'r Exh. 14)

24. On September 27, 2000, Debtor's corporate attorney and corporate secretary was Stephen Levy ("Levy"). Debtor retained Levy to assist it in connection with its sale of the Property to Reger's corporation. (JS ¶ 25)

25. Reger obtained financing for his corporation's purchase of the Property through Royal American Bank. (JS ¶ 28)

26. Royal American Bank required an environmental assessment and an appraisal report on the Property as a condition of its loan to Reger's corporation. (JS ¶ 29)

27. Royal American Bank obtained an environmental assessment and an appraisal report on the Property. (JS ¶ 30; Pet'r Exh. 17,18)

28. On November 29, 2000 Debtor closed the sale of the Property to Carpe Diem for a purchase price of $850,000 as allowed by Judge Doyle's Order of September 11, 2000. See Order Authorizing Debtor-In-Possession to Sell Real Estate, Enter into Commercial Lease of Premises and to Obtain Financing and Pay Off Secured Debt, September 11, 2000, 00 B 01235.

29. On November 29, 2000, Debtor's sale of the Property to Carpe Diem was closed through escrow at Chicago Title and Trust Company. (JS ¶ 29; Pet'r Exh. 19)

30. Debtor conveyed the Property to Carpe Diem by warranty deed dated November 29, 2000. (JS ¶ 30; Pet'r Exh. 20)

31. Debtor entered into a commercial lease (the "Commercial Lease") with Carpe Diem with respect to the Property dated November 29, 2000. (JS ¶ 36; Pet'r Exh. 21)

32. Debtor, Carpe Diem and Royal American Bank entered into a Subordination, Attornment and Non-Disturbance Agreement dated November 29, 2000. (JS ¶ 38; Pet'r Exh. 22)

33. On or about November 29, 2000, Debtor and Triple L, Ltd., an Illinois corporation ("Triple L"), entered into an Equipment Lease Agreement. In connection with the Triple L Equipment Lease Agreement, Debtor, Carpe Diem and Triple L executed a Landlord's Waiver and Subordination Agreement for the Property. (JS ¶ 39; Pet'r Exh. 23)

34. On December 4, 2000, Judge Doyle entered another Order Authorizing Debtor-In-Possession to Sell Real Estate, Enter into Commercial Lease of Premises and to Obtain Financing and Pay Off Secured Debt which made provisions for the replacement of K & L Financial with Triple L as the entity to provide equipment and financing to Debtor. (JS ¶ 40; Pet'r Exh. 14)

35. On September 19, 2001, the Commercial Lease with Carpe Diem was recorded with the Cook County Recorder of Deeds. (JS ¶ 29; Pet'r Exh. 21)

36. On November 15, 2001, one of the Petitioners, Robert J. Hubeny, executed a commercial sales contract with Carpe Diem to purchase the Property from Carpe Diem for a purchase price of $787,500. (JS ¶ 42; Pet'r Exh. 24)

37. On November 15, 2001, Carpe Diem...