In re Dunes Hotel Associates

• Citation: 194 BR 967
• Decision Date: 25 August 1995
• Docket Number: Bankruptcy No. 94-75715. Adv. No. 95-8042.
• Court: United States Bankruptcy Courts. Fourth Circuit. U.S. Bankruptcy Court — District of South Carolina
• Parties: In re DUNES HOTEL ASSOCIATES, a South Carolina general partnership, Debtor. DUNES HOTEL ASSOCIATES, a South Carolina general partnership, in its capacity as the Debtor-in-Possession representative of its estate, Plaintiff, v. HYATT CORPORATION, a Delaware corporation and S.C. Hyatt Corporation, a South Carolina corporation, Defendants.

194 B.R. 967 (1995)

In re DUNES HOTEL ASSOCIATES, a South Carolina general partnership, Debtor.

DUNES HOTEL ASSOCIATES, a South Carolina general partnership, in its capacity as the Debtor-in-Possession representative of its estate, Plaintiff, v. HYATT CORPORATION, a Delaware corporation and S.C. Hyatt Corporation, a South Carolina corporation, Defendants.

Bankruptcy No. 94-75715. Adv. No. 95-8042.

United States Bankruptcy Court, D. South Carolina.

August 25, 1995.

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

Julio E. Mendoza, Jr., Columbia, SC, John J. Dawson, Phoenix, AZ, for Plaintiff.

Claude D. Montgomery, New York City, Michael M. Beal, Columbia, SC, for Defendants.

ORDER

JOHN E. WAITES, Bankruptcy Judge.

THIS MATTER came before the Court pursuant to the Motion of SC Hyatt Corporation and Hyatt Corporation ("Hyatt") to Dismiss the Complaint of Plaintiff Dunes Hotel Associates, or, in the Alternative, to Stay the Second Claim and Compel Its Arbitration ("Hyatt Motion") and the Motion for Partial Summary Judgment against the Defendants with Respect to the First Claim for Relief of the Complaint ("Dunes Motion"), filed by Dunes Hotel Associates ("Dunes" or "Debtor" or "Debtor-in-Possession"). Hyatt filed a timely objection to the Dunes Motion and Dunes filed a timely objection to the Hyatt Motion.

In the Hyatt Motion, Hyatt asks the Court to dismiss the Complaint filed by Dunes in this adversary proceeding pursuant to Federal Rule of Civil Procedure 12(b)(6), as incorporated by Rule 7012 of the Federal Rules of Bankruptcy Procedure, for failure to state a claim against Hyatt upon which relief can be granted. In the alternative, Hyatt asks the Court to stay the Second Claim for Relief of the Complaint and compel its arbitration. As will be developed further in the Conclusions of Law, the Court will treat the Hyatt Motion as a Motion for Summary Judgment.

In its Motion, Dunes objects to the relief requested in the Hyatt Motion, and asks the Court to enter an order granting summary judgment against Hyatt with respect to the First Claim for Relief of the Complaint pursuant to Federal Rules of Civil Procedure 54(b) and 56, as incorporated by Rules 7054 and 7056 of the Federal Rules of Bankruptcy Procedure.

On June 1, 1995, the Court held a hearing regarding both Motions. As a result of the pleadings filed with the Court, the arguments presented by counsel for the respective parties, and the entire record before the Court, the Court makes the following Findings of Fact and Conclusions of Law:

FINDINGS OF FACT

1. Plaintiff Dunes is a South Carolina general partnership formed in 1972 and located in Stamford, Connecticut.

2. The general partners of Dunes are Andrick Hotel Corporation ("Andrick"), a Delaware corporation located in Stamford Connecticut, and Meyers Enterprises, Inc. ("Meyers"), also located in Stamford, Connecticut.

3. The stock of Andrick and of Meyers is wholly owned by an affiliate of the General Electric Pension Trust ("GEPT"), a common law trust organized under the laws of New York which manages and controls an asset portfolio of approximately 30 billion dollars.¹

4. On November 18, 1994, Dunes filed a voluntary petition under Chapter 11 of the Bankruptcy Code.

5. At all times since the filing of the Dunes\' Chapter 11 case, Dunes has been, and remains, the Debtor-in-Possession.

6. Dunes is the title owner of the real property, improvements, and other property which is comprised of the 505 room destination resort/convention hotel located on Hilton Head Island in Beaufort County, South Carolina, commonly known as the Hyatt Regency Hilton Head or the Hyatt on Hilton Head Island (the "Hotel Property").

7. The stipulated value of the Hotel Property is at least $52,500,000.²

8. In 1986, Dunes executed a promissory note ("Promissory Note") and other loan documents with Aetna Life Insurance Company ("Aetna") in order to evidence and secure a loan. The original principal amount of the Promissory Note was $50,000,000.

9. As security for the Promissory Note, Dunes delivered to Aetna several documents creating liens on property of Dunes including but not limited to:

a. Mortgage and Assignment of Rents and Security Agreement, dated June 13, 1986 ("Mortgage"), executed by the Debtor and delivered to Aetna and recorded in Book 368, Page 1110 of the Office of the Register of Mesne Conveyances for Beaufort County, South Carolina ("RMC Office"), which Mortgage grants to Aetna a first-priority mortgage lien on and security interest in, inter alia, the real and personal property comprising the Hotel Property and assigns to Aetna all of the Debtor\'s right, title and interest in and to all present and future leases and subleases affecting the Hotel Property and all present and future rents, issues, profits, income and proceeds from the Hotel Property;

b. An Assignment of Rents and Leases, dated June 13, 1986 ("Assignment of Rents"), executed by the Debtor, as assignor, in favor of Aetna and recorded in Book LB 17, Page 667 of the RMC Office, which assigns to Aetna, inter alia, all of the Debtor\'s right, title and interest in and to all present and future leases and subleases affecting the Hotel Property and all present and future rents, issues, profits, income and proceeds from the Hotel Property;

c. An Assignment of Lease, dated June 13, 1986 ("Assignment of Lease"), executed by the Debtor, as assignor, in favor of Aetna and recorded in Book LB 17, Page 660 of the RMC Office, which assigns to Aetna, inter alia, all of the Debtor\'s rights, interest and privileges under the Agreement and Lease upon default by Dunes on the Promissory Note. The Assignment of Lease identifies the lessor-lessee relationship between Hyatt and Dunes and attaches a description of the Hotel Property which is subject to the Agreement and Lease.

10. Aetna asserts that Dunes is indebted to Aetna in the approximate principal amount of $49,000,000 pursuant to a matured non-recourse loan agreement between Dunes and Aetna ("Aetna Claim"), secured by the Hotel Property and revenues thereof.³ Dunes has stipulated that Aetna\'s claim is fully secured.⁴

11. Hyatt and Dunes are parties to a prepetition written agreement relating to the Hotel Property ("SC Hyatt Agreement").

The documents which comprise the SC Hyatt Agreement are more fully described in a subsequent Finding of Fact.

12. The term of the claimed lease of the Hotel Property under the SC Hyatt Agreement is for thirty (30) fiscal years from December 31, 1976 (i.e., until December 31, 2006), plus an additional ten (10) fiscal years (i.e., until December 31, 2016) if Hyatt elects to extend the alleged lease term.

13. SC Hyatt is a South Carolina corporation, and is a wholly owned affiliate of Hyatt Corporation, a Delaware corporation. Hyatt Corporation was the original contracting party with Dunes under the SC Hyatt Agreement. Hyatt Corporation subsequently assigned its rights under the initial Agreement and Lease to SC Hyatt which assignment the Debtor acknowledged pursuant to an amendment to the Agreement and Lease, dated January 19, 1976.

14. SC Hyatt currently operates the Hotel Property under the SC Hyatt Agreement.

15. The SC Hyatt Agreement is comprised of the following five (5) documents:

a. The Agreement and Lease dated November 2, 1973, by and between Dunes Hotel Associates and Hyatt Corporation ("Agreement and Lease" or "Agreement" or "Lease");

b. The First Amendment to Agreement and Lease dated January 19, 1976, by and between Dunes Hotel Associates and SC Hyatt Corporation ("First Amendment to Agreement and Lease");

c. The Letter Agreement dated July 1, 1983, by and between Dunes Hotel Associates and Hyatt Corporation ("1983 Letter Agreement");

d. The Amendment to Agreement and Lease dated November 7, 1984, by and between Dunes Hotel Associates and SC Hyatt Corporation ("Amendment to Agreement and Lease"); and

e. The Letter Agreement dated November 6, 1985, by and between Dunes Hotel Associates and SC Hyatt Corporation ("1985 Letter Agreement").

16. Section 20 of the initial Agreement and Lease document provides as follows:

Upon notice from either party to the other, Hyatt and Owner Dunes shall execute (in recordable form) and deliver to the party requesting the same an appropriate instrument, which, when recorded, will impart constructive notice to third parties of the rights of Hyatt under this Lease. Each party hereto shall further execute and deliver all such other appropriate supplemental agreements and other instruments and take such other action as may be necessary to make this Lease fully and legally effective, binding and enforceable as between the parties hereto and as against third parties, or as the other party may reasonably request.

17. No document provided for in Section 20 of the initial Agreement and Lease or any memorandum thereof evidencing the alleged leasehold interest under the SC Hyatt Agreement has been recorded in the official public records of Beaufort County, South Carolina.

18. There are four proofs of claims currently filed against the bankruptcy estate.

a. Aetna asserts a claim as of November 18, 1994, the petition date, of $48,560,392.00, excluding a pre-petition late charge of $1,863,594.39 and default interest accruing at the rate of 13.25% per annum on and after the petition day and post-petition attorney\'s fees and expenses. Aetna filed a secured proof of claim with the Court on February 23, 1995, in the amount of $50,423,986.39.⁵

b. SC Hyatt Corporation filed an unsecured claim on March 17, 1995 in the amount of $31,438.56 for monies owed from the Debtor arising out a fund entitled Fund for Furnishings and Replacements ("F, F & E Account").

c. The law firm of Wolf, Block, Schorr & Solis-Cohen ("Wolf-Block") filed an unsecured claim against the estate for expenses incurred in connection with services performed in the amount of $2,139.57 on March 20, 1995. Wolf-Block represented the Debtor as well as GEPT pre-petition.

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