In re Five Star Partners, LP
| Decision Date | 08 July 1994 |
| Docket Number | Bankruptcy No. 93-72524. Adv. No. 93-6784. |
| Citation | 169 BR 994 |
| Parties | In re FIVE STAR PARTNERS, L.P., Debtor. FIVE STAR PARTNERS, L.P., Plaintiff, v. VINCENT NETHERLANDS PROPERTIES, B.V., Defendant. |
| Court | U.S. Bankruptcy Court — Northern District of Georgia |
COPYRIGHT MATERIAL OMITTED
Dennis S. Meir of Kilpatrick & Cody, Atlanta, GA, for plaintiff/debtor.
Richard D. Ellenberg, Atlanta, GA, for defendant Vincent Netherlands Properties, B.V.
W. Brooks Stillwell, Savannah, GA, for amicus curiae Kragmore Properties, Inc.
DECISION AND ORDER ON CROSS-MOTIONS FOR SUMMARY JUDGMENT
Vincent Netherlands Properties, B.V., a corporation organized under the laws of The Netherlands, (the "Defendant") holds by assignment a security deed on real property owned by Five Star Partners, L.P. (the "Plaintiff" or "Debtor") to secure a debt owed to the Defendant. When the Debtor filed this case, the Defendant had yet to comply with reporting and related requirements of the Georgia RICO Act. O.C.G.A. ? 16-14-1, et seq. That statute provides in part that an alien corporation failing to comply with reporting and registration provisions "shall not be entitled to own, purchase, or sell any real property. . . ." O.C.G.A. ? 16-14-15(h). The Plaintiff contends that the Defendant's failure to comply with reporting and registration provisions of the Georgia RICO Act renders the Defendant's interest in the property voidable under 11 U.S.C. ? 544(a).
There being no issue of material fact, each of the parties moved for summary judgment. In addition to the briefs submitted by the parties, Kragmore Properties, Ltd., a creditor, filed an amicus brief. The court heard oral argument from the Debtor, the Defendant and Kragmore on April 22, 1994.
The legal issues presented are matters of first impression. For the reasons given below, the court holds that O.C.G.A. ? 16-14-15 is not a recording statute. The mere failure of an alien corporation to comply with the reporting and registration provisions of the Georgia RICO Act does not permit a bona fide purchaser of real property to take title to that property free of the interests of the non-complying alien corporation in that property. The court further holds that the Debtor lacks standing under O.C.G.A. ? 16-14-15 to challenge the validity of the security deed held by the Defendant.
Five Star Investment Properties, Inc. ("FSIP") is the sole general partner of the Debtor. In December 1990, it acquired property consisting of three separate tracts of land located in Fulton County, Georgia, one of which is commonly known as the Biltmore Hotel (collectively the "Property"), from O.P.D.I.-U.S., Inc., a Georgia corporation, ("OPDI"). The purchase price consisted of $3,000,000 in cash and FSIP's Purchase Money Real Estate Note (the "Note") in the amount of $13,500,000. FSIP secured the Note with a Purchase Money Deed To Secure Debt (the "Security Deed"), which OPDI recorded in the office of the Clerk of the Superior Court of Fulton County, Georgia on December 18, 1990. The recorded Security Deed gave OPDI a first priority lien against the Property.
By deeds dated July 1, 1991, FSIP transferred the Property to itself and G. Lars Gullstedt ("Gullstedt"), who in turn transferred it to the Debtor. Those deeds were recorded on February 7, 1992.
By an assignment dated August 19, 1991, OPDI transferred its interest in the Note and Security Deed to Vincent Antilles Holdings, N.V., a Netherlands Antilles corporation ("VAH"). By an assignment also dated August 19, 1991, VAH transferred the Note and Security Deed to the Defendant. Each one of those assignments was filed of record on September 3, 1991.
Two years later, on September 3, 1993, the Debtor filed a voluntary petition for relief under Chapter 11 of the Bankruptcy Code. A trustee has not been appointed and hence the Debtor is a debtor in possession. On September 28, 1993, about three weeks after the filing of the petition initiating this case, the Defendant complied for the first time with the reporting and registration provisions of the Georgia RICO Act.
Pursuant to Fed.R.Civ.P. 56(c) incorporated in Fed.R.Bankr.P. 7056, a party moving for summary judgment prevails if "the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 2552, 91 L.Ed.2d 265 (1986). There is no disputed material fact in this case. There is only a question of the application of the law to the undisputed facts. This court has jurisdiction under 28 U.S.C. ? 157(b)(2)(K). Accordingly, the motions for summary judgment are appropriately before the court.
Section 544 of the Bankruptcy Code arms a bankruptcy trustee with the lien priority and rights of a hypothetical lien creditor or bona fide purchaser of real property of the debtor as of the moment the petition is filed.1 The Plaintiff, as a debtor in possession with the powers of a trustee under 11 U.S.C. ? 1107, seeks to use these "strong-arm" provisions to avoid the interest of the Defendant in the Property.
State law governs the validity and extent of liens and security interests in bankruptcy and hence determines the bounds of a trustee's rights under section 544(a). Watkins v. Watkins, 922 F.2d 1513 (10th Cir. 1991); Lewis v. Diethorn, 893 F.2d 648 (3rd Cir.1990), cert. denied, 498 U.S. 950, 111 S.Ct. 369, 112 L.Ed.2d 332 (1990); National Bank of Alaska, N.A. v. Erickson (In re Seaway Exp. Corp.), 912 F.2d 1125 (9th Cir. 1990).
The Plaintiff challenges validity of the Defendant's lien under O.C.G.A. ? 16-14-15(h). Section 16-14-15(h) provides:
Each alien corporation that fails to file a report as required by subsection (c) of this Code section or fails to maintain a registered office and a registered agent as required by subsection (a) of this Code section shall not be entitled to own, purchase, or sell any real property and shall not be entitled to bring an action or defend in the courts of the state until such requirements have been complied with.
The Plaintiff argues that the Defendant's Security Deed is voidable because this statute means literally what it could be read to say: a non-complying alien corporation may not own real property in Georgia. The Plaintiff contends that the maintenance of a registered office and agent and the timely filing of reports pursuant to O.C.G.A. ? 16-14-15(a) and (c) are additional recording requirements that are necessary to provide constructive notice of the interest of an alien corporation to bona fide purchasers of real property in Georgia.
The Defendant and Kragmore urge the court to limit the reach of O.C.G.A. ? 16-14-15(h), which they contend should be no farther than necessary to serve what they say is the statute's purpose. They argue that the natural result flowing from the Debtor's interpretation and intended use of the statute is a forfeiture and that only the State of Georgia may seek to void an interest in property under the Georgia RICO Act.
Thus, the issues in this case are (1) whether O.C.G.A. ? 16-14-15 is a recording statute permitting a bona fide purchaser of real property to take the property free of the interest of a non-complying alien corporation and (2) whether a bona fide purchaser of real property has standing under the statute to challenge the validity of a security deed held by a non-complying alien corporation.
To decide this controversy, the court must analyze and determine the meaning of O.C.G.A. ? 16-14-15(h). This task requires the application of proper principles of statutory interpretation.
The starting point of statutory analysis is always the statute itself. This is the approach taken by federal courts: "The meaning of a statute must, in the first instance, be sought in the language in which the act is framed, and if that is plain, . . . the sole function of the courts is to enforce it according to its terms." Caminetti v. United States, 242 U.S. 470, 485, 37 S.Ct. 192, 194, 61 L.Ed. 442 (1917). It is also the methodology used by Georgia courts: "We look first to the words of the statute to determine what the legislature's intent was and if those words be plain and unambiguous and the intent may be clearly gathered therefrom, we need look no further in determining what the intent was." Stone Mountain Memorial Ass'n v. Herrington, 225 Ga. 746, 749, 171 S.E.2d 521, 523 (1969).
The Plaintiff argues that the plain meaning of subsection (h) mandates a judgment in its favor. It believes that because the provisions of the statute "unambiguously state that an alien corporation cannot own real property until it complies with the statute's requirements, an inquiry into the legislature's intent is unnecessary." (Debtor's Resp. To Mot. For Summ.J. and Mem. of Law In Supp. of Debtor's Cross-Mot. For Summ.J. at 8, n. 2). Thus, the Debtor would have the court read subsection (h) in isolation and apply its plain meaning. The Defendant and Kragmore find a different meaning of subsection (h) by considering matters outside its four corners.
The "plain meaning" rule is the genesis of the admonition that "courts must presume that a legislature says in a statute what it means and means in a statute what it says there." Connecticut Nat'l Bank v. Germain, ___ U.S. ___, ___, 112 S.Ct. 1146, 1149, 117 L.Ed.2d 391 (1992). There has been much debate recently about the proper role of the "plain meaning" rule in statutory interpretation. See, e.g., Thomas G. Kelch, An Apology For Plain-Meaning Interpretation of the Bankruptcy Code, 2 Bankr.Dev.J. 289, n. 1 (1994). The debate is not new. In his diary entry on January 6, 1943,...
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