In re Falls Bldg., Ltd., Bankruptcy No. 3-87-00823
| Decision Date | 21 November 1988 |
| Docket Number | Adv. No. 3-88-0042.,Bankruptcy No. 3-87-00823 |
| Citation | 94 BR 471 |
| Parties | In re FALLS BUILDING, LTD., Debtor. Arthur TEMLOCK, Thomas Miller, Frank Sisko, J. Phillip Davis and James Baker, Plaintiffs and Counter-Defendants, v. FALLS BUILDING, LTD., Defendant and Counter-Plaintiff, and Lloyd Bush and Lincoln National Pension Insurance Company, Defendants. |
| Court | U.S. Bankruptcy Court — Eastern District of Tennessee |
Patrick, Beard & Richardson, P.C., Gary R. Patrick, Chattanooga, Tenn., for plaintiffs and counter-defendants.
Heiskell, Donelson, Bearman, Adams, Williams & Kirsch, Clive W. Bare, David E. Fielder, Stephen E. Roth, Knoxville, Tenn., for defendant and counter-plaintiff, Falls Bldg., Ltd.
Walker & Walker, P.C., John A. Walker, Jr., Knoxville, Tenn., for defendant, Lloyd Bush.
Wildman, Harrold, Allen, Dixon & McDonnell, Jennie D. Latta, Memphis, Tenn., for defendant, Lincoln Nat. Pension Ins. Co.
The court has three issues before it for resolution: (1) Whether a "Complaint For Interpleader" filed by the plaintiffs and now counter-defendants, Arthur Temlock, Thomas Miller, Frank Sisko, J. Phillip Davis, and James Baker (plaintiffs) in the United States District Court for the Eastern District of Tennessee on February 16, 1988, as amended February 25, 1988, violated the automatic stay of 11 U.S.C.A. § 362(a)(1) (West Supp.1988); (2) If plaintiffs' interpleader action violated the stay, whether Falls Building, Ltd., the debtor and an original defendant and now counter-plaintiff (Falls Building, Ltd. or debtor), is entitled to sanctions pursuant to 11 U.S.C.A. § 362(h) (West Supp.1988); and (3) Whether the debtor is entitled to a judgment against plaintiffs for interest, and costs of collection, including attorney's fees, for an installment investment contribution due January 15, 1987.
All issues raised in plaintiffs' "Complaint For Interpleader," as amended, have been resolved.1 Only those matters raised by a counterclaim filed by the debtor on March 21, 1988, remain at issue. The trial of the debtor's counterclaim was held October 26, 1988.
The issues before the court involve mixed core and noncore matters. 28 U.S.C.A. § 157(b)(2) and (c)(1) (West Supp.1988). The parties have consented to the entry of appropriate orders and judgments by the bankruptcy judge with respect to all noncore issues. 28 U.S.C.A. § 157(c)(2) (West Supp.1988).
Plaintiffs are limited partners in Falls Building, Ltd., a Tennessee limited partnership.2 Culp & Associates, Ltd., also a Tennessee limited partnership, and Lloyd Bush are the general partners. Culp & Associates, Ltd. is the managing general partner. The limited partnership was created to acquire and renovate a commercial office building in Memphis, Tennessee.
Plaintiffs acquired their limited partnership interests in the debtor in August or September, 1983. Under the terms of the "Restated Certificate And Limited Partnership Agreement Of Falls Building, Ltd." (Limited Partnership Agreement), each plaintiff was required to contribute to the capital of the partnership a cash investment of $52,000. Of this amount, $600 was required to be paid upon execution of the Limited Partnership Agreement with the remaining $51,400 to be paid in three annual installments: $39,000 on January 15, 1985; $8,000 on January 15, 1986; and $4,400 on January 15, 1987. Section 7(c) of the Limited Partnership Agreement provides that the investment obligation of each limited partner is to be evidenced by a "Negotiable Promissory Note" (note).
As required by the Limited Partnership Agreement, each plaintiff executed a note in the amount of $51,400 payable to the order of the debtor. These notes were pledged in September, 1983, together with notes of other limited partners, to First National Bank of Louisville, Kentucky (First National) as part of the collateral package securing a construction loan for the renovation of the Falls Building office project. In September, 1985, the debtor entered into an agreement with its permanent lender, Lincoln National Pension Insurance Company (Lincoln National), and the project's general contractor, Rentenbach Constructors Incorporated (Rentenbach), to refinance both the First National construction loan and an indebtedness owed by the debtor to Rentenbach for additional construction costs.
In connection with the refinancing of its construction loan, First National released its security interest in the notes executed by the limited partners. The notes were subsequently pledged to Rentenbach as part of its collateral package to secure a promissory note in the original principal amount of $1,155,189.73 (the Rentenbach Note). On September 17, 1985, each plaintiff was forwarded a letter signed by First National and the debtor, by its general partners, advising that their notes had been assigned to Rentenbach and that all future note payments should be made to Rentenbach "until such time as you receive written notice from Rentenbach otherwise."
On December 12, 1986, plaintiffs, by letters signed on behalf of the debtor by its managing general partner Culp & Associates, Ltd. and Rentenbach, were notified that in settlement of claims of Rentenbach the $1,155,189.73 Rentenbach Note and collateral had been purchased by Lloyd Bush "in his individual capacity (not as a general or limited partner of Falls Building, Ltd.)." By this letter plaintiffs were also notified that "your promissory note has now been assigned to Mr. Bush and the payment on your note which is due January 15, 1987, in the amount of $4,400 should be made to the following address unless you receive written notice from Mr. Bush otherwise. . . ."
Neither the September 17, 1985 letter (informing plaintiffs of the assignment of their notes to Rentenbach) nor the December 12, 1986 letter (relative to the assignment of the Rentenbach Note and collateral to Lloyd Bush) contained documentation evidencing the assignment of plaintiffs' notes.
The first two payments required under the terms of the notes were made by plaintiffs. The final payments of $4,400 due January 15, 1987, were not paid when due.
On November 3, 1986, the debtor's general partners forwarded a memorandum to the limited partners (Memorandum). This Memorandum, indicating financial difficulty on the part of the debtor, informed plaintiffs and the other limited partners that Lincoln National had agreed not to foreclose its mortgage on the debtor's property provided that an infusion of additional capital in the amount of $2,000,000 be made to the limited partnership. The Memorandum further informed the limited partners that the general partners proposed to raise the additional capital by requiring a further investment from each limited partner in the amount of $25,642. The recapitalization proposal advanced by the general partners also provided for a special allocation of losses in the amount of $459,000 to Lloyd Bush beginning June 15, 1986.
Plaintiffs, upon receipt of the November 3, 1986 Memorandum, employed an attorney, Vick Speed, to represent their interests. Mr. Speed testified that at the time of his employment disputes between the debtor's general partners and its limited partners centered upon three areas: (1) the special loss allocation the debtor proposed to extend to Lloyd Bush and its adverse tax impact on the limited partners; (2) the method of refinancing the mortgage indebtedness with Lincoln National to keep it from foreclosing; and (3) the debtor's request for an additional capital contribution in excess of $25,000 from each limited partner. Mr. Speed further testified that in his opinion the special loss allocation proposed by the general partners required an amendment to the Limited Partnership Agreement and that he advised plaintiffs of a possible right of offset relative to their $4,400 investment contribution due January 15, 1987, if Lloyd Bush took the special loss allocation.
On December 12, 1986, Mr. Speed wrote the debtor's attorneys, Heiskell, Donelson, Bearman, Adams, Williams & Kirsch, P.C. (Heiskell, Donelson), notifying them that he represented the plaintiffs and expressing plaintiffs' objections to the proposed special loss allocation to Lloyd Bush. On April 1, 1987, Mr. Speed joined the Chattanooga law firm of Luther, Anderson, Cleary, Ruth & Speed, P.C. (Luther, Anderson), which at that time took over the representation of plaintiffs.
Amidst its financial difficulties with Lincoln National and the disputes with its limited partners, the debtor filed its voluntary petition under Chapter 11 of title 11 of the United States Code on April 2, 1987.
By letter dated April 6, 1987, Culp & Associates, Ltd., the debtor's managing general partner, advised the limited partners of Lloyd Bush's agreement to rescind the special loss allocation. Mr. Culp's letter further requested payment of the $4,400 final investment installment by those limited partners who had not yet made that payment and advised the limited partners that the debtor had filed a Chapter 11 petition. This letter, written on Culp & Associates' letterhead, does not specify to whom the $4,400 payment is to be made.
The debtor filed its Statement of Affairs and Schedules on April 10, 1987. Schedule B-2 to its petition, entitled "Personal Property," lists as an asset of the debtor at subparagraph p. "Limited Partner Notes Receivable" in the amount of $189,200.
Plaintiffs, in April, 1987, upon advice of counsel, deposited their $4,400 installment payments due January 15, 1987, in an interest bearing escrow account maintained by Luther, Anderson.
On December 3, 1987, David E. Fielder, one of the debtor's attorneys, wrote each plaintiff concerning the delinquent $4,400 installment payments due January 15, 1987. Representative of these letters is the one forwarded plaintiff Arthur Temlock, which provides in part:
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