In re Excelsior Henderson Motorcycle Mfg. Co., Inc.

• Decision Date: 11 February 2002
• Docket Number: No. 01-36461-BKC-PGH.,01-36461-BKC-PGH.
• Citation: 273 B.R. 920
• Parties: In re EXCELSIOR HENDERSON MOTORCYCLE MANUFACTURING COMPANY, INC., Debtor.
• Court: U.S. Bankruptcy Court — Southern District of Florida

273 B.R. 920

In re EXCELSIOR HENDERSON MOTORCYCLE MANUFACTURING COMPANY, INC., Debtor.

No. 01-36461-BKC-PGH.

United States Bankruptcy Court, S.D. Florida.

February 11, 2002.

Gary L. Barnhart, Jefferson, City, MO, Phillip Bohl, Minneapolis, MN, Michael J. Compagno, West Palm Beach, FL, John D. Eaton, Miami, FL, David E. Flowers, St. Paul, MN, David B. Galle, Minneapolis, MN, Robert N. Gilbert, West Palm Beach, FL, Ilyse, M. Wrubel Homer, Paul Steven Singerman, Miami, FL, Jeffrey S. Wood, Ft. Lauderdale, FL, for creditors.

Robert C. Furr, Boca Raton, FL, for debtor.

MEMORANDUM OPINION AND ORDER GRANTING FINOVA PUBLIC FINANCE, INC.'S AMENDED MOTION FOR RELIEF FROM THE AUTOMATIC STAY

PAUL HYMAN, Bankruptcy Judge.

THIS MATTER came before the Court on January 16, 2002 upon Finova Public Finance, Inc.'s ("Finova") Amended Motion for Relief from the Automatic Stay (the "Motion"). The Court has jurisdiction over this matter pursuant to 28 U.S.C. § 1334. This is a core proceeding under 28 U.S.C. § 157(b)(2)(G).

FINDINGS OF FACT

On December 6, 2001, Excelsior Henderson Motorcycle, Manufacturing Company (the "Debtor") filed with this Court a voluntary petition for relief under Chapter 11 of the Bankruptcy Code. Pursuant to §§ 1107 and 1108 of the Code, the Debtor continues to operate its business as a debtor in possession. This is not the Debtor's first bankruptcy filing. On December 21, 1999, the Debtor filed a voluntary Chapter 11 petition with the United States Bankruptcy Court for the District of Minnesota (Case No. 99-46679-RJK)(the "Minnesota Case").

In the Minnesota Case, Finova was a secured creditor. Finova was the assignee of a Bond issued by the Economic Development Authority of the City of Belle Plain, Minnesota (the "EDA"). The Debtor assumed liability for payment of the Bond under the terms of a Loan Agreement entered into between the EDA and the Debtor. The proceeds of the Bond and the Loan Agreement were used by the Debtor to purchase certain equipment and tooling to be used by the Debtor in connection with the manufacture of motorcycles. The Debtor's obligations under the Bond and the Loan Agreement were secured by a valid and fully perfected lien and security interest in the equipment and tooling purchased with the proceeds of the Bond and the Loan Agreement, and by certain reserve accounts held by National City Bank. As of the commencement of the Minnesota Case, the balance outstanding on the Bond and the Loan Agreement was not less than $5,856,311.56.

During the Minnesota Case, the Debtor proposed a Modified Plan of Reorganization (the "Plan"). The Plan was confirmed by the Minnesota Bankruptcy Court on August 18, 2000. The Effective Date of the Plan was September 14, 2000. Pursuant to the Plan, the Debtor executed and delivered to Finova a Second Restructured Note (the "Note") to replace its obligations under the Bond and the Loan Agreement. The principal amount of the Note was $4,949,097.33. The Plan required that one of the terms of the Note was a consent to stay relief in the event of a later bankruptcy filing. Specifically, the relevant provision of the Plan stated:

Waiver of Automatic Stay: The Reorganized Debtor will waive the benefit of the automatic stay as it relates to Finova with respect to any bankruptcy proceeding commenced by or against the Reorganized Debtor during the first three years following the Effective Date.

In accordance with the Plan, the corresponding provision in the Note provides as follows:

21. Consent to Relief from Stay.

Company hereby agrees that, in the event the Company (by its own actions, or the action of any of its shareholders or creditors), (if applicable), on or before September 14, 2003, files or has filed against it (with an order for relief being entered) another case under the Bankruptcy Code of 1978, as previously or hereafter amended, Lender shall thereupon be entitled to relief from the automatic stay of Section 362 of Title 11 of the U.S.Code, as amended, on or against the exercise of the rights and remedies available to the Lender under this Note and the Company hereby waives the benefits of such automatic stay and consents and agrees to raise no objection to such relief.

Subsequently, the Debtor defaulted under the terms of the Note. The Debtor, inter alia, ceased operations, failed to provide Finova with certain required financial statements, and removed some of Finova's collateral from its premises. Accordingly, Finova filed a Complaint in the District Court for the First Judicial District of the State of Minnesota (the "Minnesota State Court"). On August 1, 2001, the Minnesota State Court entered a final judgment in favor of Finova and against the Debtor in the amount of $5,310,971.00.

In accordance with its rights under the Minnesota State Court Judgment, Finova scheduled a public auction of certain inventory, equipment, motorcycles and other property of the Debtor. The auction was scheduled to take place on December 6, 2001 at 11:00 a.m., CST. On December 6, 2001, at approximately 10:30 a.m., CST, Finova was informed that the Debtor filed a voluntary petition for relief under Chapter 11 of the Bankruptcy Code, instituting the instant Case before this Court.

On December 18, 2001, Finova filed an Amended Motion for Relief from the Automatic Stay (the "Motion"). In its Motion, Finova argues that by virtue of the provision in the Note, as well as the provision in the Plan, the protection afforded by the automatic stay is waived, vis-a-vis any collateral in which Finova has a perfected security interest. Finova further argues that the Debtor neither has equity in the collateral securing Finova's claim, nor does the Debtor need the collateral for an effective reorganization.

In response, the Debtor argues that the waiver provisions under the Plan and in the Note are unenforceable. Contrary to Finova's position, the Debtor argues that the collateral is necessary to the Debtor's reorganization. Accordingly, the Debtor prays that the Court deny Finova's Motion.

CONCLUSIONS OF LAW

The Bankruptcy Code provides that the filing of a petition under Chapter 11 of the Code operates as an automatic stay of most activity against the debtor's property, including actions to realize the value of collateral securing an obligation of the debtor. 11 U.S.C. § 362(a). The purpose of the automatic stay is well known. "It stops all collection efforts and gives the debtor a `breathing spell' so he can be relieved of the pressures that drove him into bankruptcy and attempt to develop a repayment or reorganization plan that will satisfy his outstanding debts." In re Atrium High Point Ltd. P'ship, 189 B.R. 599, 605 (Bankr.M.D.N.C.1995).

Although the scope of the automatic stay is broad, creditors do have remedies available to them. In order to place both debtor and creditors on equal footing, the Code specifically allows creditors to seek relief from the automatic stay under 11 U.S.C. § 362(d). Section 362(d) provides:

On request of a party in interest and after notice and a hearing, the court shall grant relief from the stay provided under subsection (a) of this section, such as by terminating, annulling, modifying, or conditioning such stay —

(1) for cause, including the lack of adequate protection of an interest in property of such party in interest;

(2) with respect to a stay of an act against property under subsection (a) of this section, if —

(A) the debtor does not have an equity in such property; and

(B) such property is not necessary to an effective reorganization.

11 U.S.C. § 362(d). In the instant case, Finova seeks relief from the automatic stay under § 362(d)(1) and (d)(2). Finova argues that there is sufficient "cause" to lift the stay because of the terms of the Note and Plan wherein the Debtor agreed that it would not oppose any Motion by Finova seeking relief from the automatic stay. Additionally, Finova argues that it is entitled to relief under § 362(d)(2) because the collateral securing Finova's judgment is not necessary for an effective reorganization.

The main issue before the Court is whether a pre-petition agreement which waives the Debtor's right to enjoy the protection of the automatic stay is enforceable. Although there is a plethora of authority within the Bankruptcy Courts of the Middle District of Florida, this issue appears to be one of first impression in this District. See In re Citadel Prop., Inc., 86 B.R. 275 (Bankr.M.D.Fla.1988); In re International Supply Corp., 72 B.R. 510 (Bankr.M.D.Fla.1987); In re Gulf Beach Dev. Corp., 48 B.R. 40 (Bankr.M.D.Fla.1985).

There are numerous cases that explore the issue of pre-petition waivers of the automatic stay; however, the most analogous to the case sub judice is In re Atrium High Point Ltd. Partnership, 189 B.R. 599 (Bankr.M.D.N.C.1995). In Atrium, the debtor was a partnership formed for the purpose of managing a two-story office building, its sole asset. Id. at 602. The debtor had chronic difficulties servicing its mortgage on the building. Id. It entered into several agreements with its lender to modify the terms of the loan but was unable to avoid bankruptcy. Id. at 602-03. As part of the plan in its first Chapter 11 case, the debtor and lender entered into yet another modification of the mortgage note. Id. The modification and the debtor's Chapter 11 plan, approved by the court and assented to by all the debtor's pre-petition creditors, contained language prohibiting the debtor from objecting to any motion to lift stay in any subsequent bankruptcy proceeding. Id. at 603.

A little under two years later, it filed a second Chapter 11 petition. Atrium, 189 B.R. at 603. The lender sought relief from stay under § 362(d)(1). Id. at 605. The lender argued that there was "cause" to lift the stay because of the pre-petition agreement and prior plan treatment wherein the debtor agreed it would not oppose any lift stay motion by the lender. Id. The debtor and other creditors...