In re Futterman

• Decision Date: 24 April 2019
• Docket Number: Case No. 17-12899 (MEW)
• Parties: IN RE: Hans FUTTERMAN, Debtor.
• Court: United States Bankruptcy Courts. Second Circuit. U.S. Bankruptcy Court — Southern District of New York

602 B.R. 465

IN RE: Hans FUTTERMAN, Debtor.

Case No. 17-12899 (MEW)

United States Bankruptcy Court, S.D. New York.

Signed April 24, 2019

Jill L. Makower, Scott S. Markowitz, Robert A. Wolf, Tarter Krinsky & Drogin LLP, Joel Shafferman, Shafferman & Feldman, LLP, New York, NY, for Debtor.

Gary Frederick Herbst, LaMonica Herbst & Maniscalco, Jacqulyn S. Loftin, Wantagh, NY, for Trustee.

DECISION REGARDING CERTAIN ASSERTED OBJECTIONS TO CLAIM 3-2 OF RWNIH-DL 122ND ST 1, LLC

Honorable Michael E. Wiles, United States Bankruptcy Judge

The issues before the Court arise out of a deficiency claim filed by RWNIH-DL 122nd Street 1, LLC ("RWN ") in the Chapter 11 case of Hans Futterman. The deficiency claim arises out of the bankruptcy cases of Ladera Parent LLC and Ladera LLC (the "Ladera Debtors ") and is based on a personal guaranty of the Ladera Debtors' obligations that Mr. Futterman signed (the "Guaranty "). The parties disagree as to whether Mr. Futterman is entitled to assert certain objections to the deficiency claim as a matter of New York law and as to whether any or all of such objections are foreclosed either by the terms of the Guaranty or by the confirmation of the Ladera Debtors' plan of reorganization. The parties jointly asked the Court to rule on certain disputed legal issues in order to assist the parties in streamlining issues and preparing their cases for trial. The Court has broad authority to issue such rulings pursuant to Rule 16 of the Federal Rules of Civil Procedure, made applicable here by Rules 7016 and 9024 of the Federal Rules of Bankruptcy Procedure, and this Decision sets forth the Court's rulings as to the relevant legal standards.

Background

Mr. Futterman is a real estate developer who has engaged in various development projects through entities he either controlled or owned. One such project was known as the "Ladera project," which involved the Ladera Debtors. Mr. Futterman was the ultimate sole equity owner of Ladera Parent LLC, and Ladera Parent LLC was the sole owner of the limited liability company membership interests in Ladera, LLC.

Ladera LLC owned real property at 300 West 122nd Street in New York that it intended to develop. In about August 2015, RWN loaned Ladera the principal amount of approximately $ 36,640,000 under two loan agreements (the "Ladera Loans "). The Ladera Loans were secured by, among other things, first priority mortgage liens and security interests on the property located at 300 West 122nd Street, together with, among other things, certain related plans and development rights and interests that Mr. Futterman had in certain entities he controlled. Mr. Futterman also signed the Guaranty to provide additional credit support.

A number of the provisions of the Guaranty waived defenses that might otherwise be available. See Second Amended and Restated Guaranty Agreement, Ex. A. to RWN's Proof of Claim, Ex. 1 to Futterman's Objection to the RWN's Proof of Claim, Case No. 17-1899 (the "Futterman Docket "), Docket No. 68-1. More particularly:

• Paragraph 2(b) of the Guaranty states that all sums payable to RWN under the Guaranty "shall be payable on demand and without reduction for any offset, claim, counterclaim or defense."

• Paragraph 5 confirms that the obligations of Mr. Futterman are "irrevocable, absolute and unconditional, irrespective of ... any setoff, counterclaim, and irrespective of any other circumstances which might otherwise limit recourse against Guarantor by Lender or constitute a legal or equitable discharge or defense of a guarantor or surety."

• Paragraph 5 further states that the obligations of Mr. Futterman under the Guaranty "shall not be in any way affected" by various matters, including "the sale, transfer or conveyance of the Property or the Collateral or any interest therein to any Person, whether now or hereafter having or acquiring an interest in the Property or the Collateral or any interest therein and whether or not pursuant to any foreclosure, trustee sale or similar proceeding against Borrower or the Property or the Collateral or any interest therein."

• Finally, paragraph 5(c) states, in relevant part, that "to the extent allowed by applicable law" Mr. Futterman "expressly and irrevocably waives all defenses in an action brought by [RWN] to enforce this Guaranty based on claims of waiver, release, surrender, alteration or compromise and all setoffs, reductions, or impairments, whether arising hereunder or otherwise."

On December 4, 2016, the Ladera Debtors filed for bankruptcy under Chapter 11. The Ladera Debtors attempted without success to arrange a refinancing of their debts, and on March 29, 2017 they proposed a plan of reorganization under which the properties would be sold. The Ladera Debtors also sought approval of bidding procedures that would govern an auction of the properties. The Court approved bidding procedures in an Order dated May 17, 2017, and approved a short postponement of a scheduled auction in an Order dated June 21, 2017. Shortly thereafter, however, the Ladera Debtors withdrew their request for approval of a sale and withdrew their request that an auction be conducted.

The cancellation of the proposed sale met with howls of protest from RWN, and the Ladera Debtors and RWN promptly filed competing proposed plans of reorganization. The Ladera Debtors' proposed plan contemplated additional efforts to refinance the properties, and the RWN Plan contemplated a prompt sale. The parties resolved their differences by agreeing that the Ladera Debtors' proposed plan could be confirmed, but only on the condition that the plan could not become effective unless new financing was arranged by a specified date, failing which the confirmation of the Ladera plan would automatically be rescinded and the RWN plan would automatically be confirmed. The Court confirmed the Ladera Debtors' proposed plan on these terms by Order dated August 10, 2107. Ladera failed to arrange the desired financing, and so the Court entered an Order on August 31, 2017 that rescinded the confirmation of the Ladera Debtors' plan and that confirmed the RWN plan of reorganization.

RWN filed proposed bidding procedures in connection with its proposed plan, and no party in interest objected to those procedures. The procedures largely followed the procedures that the Ladera Debtors had earlier proposed. The RWN plan provided that there would be an auction of the Ladera properties and that the auction would be overseen by a Wind Down Officer who was appointed under the confirmed plan. The Wind Down Officer (who is Esther DuVal of CBIZ) was authorized to determine whether interested parties were eligible to participate in bidding and otherwise to supervise the conduct of the auction. There were no objections to the appointment of the Wind Down Officer.

The Wind-Down Officer ultimately qualified two bidders: a group comprised of Happy Living Development, LLC, Titan Capital ID LLC and Ira Saperstein ("Happy Living "), and a designee of RWN named West 122 Associates LLC ("West 122 "). The auction took place on September 14, 2017. After 11 rounds of bidding, the Wind-Down Officer selected West 122 as the winning bidder, with a credit bid of $ 48,600,000 (the "Credit Bid "). The parties then asked the Court to approve the sale to West 122.

Mr. Futterman informally submitted a request for more time to determine whether he wished to object to the confirmation of the sale. The Court considered that request in a telephone conference on September 21, 2017. After considering the arguments of the parties the Court declined to grant additional time. No objections were filed, and on September 22, 2017, the Court entered an order approving the sale, which was later amended on October 19, 2017 (as amended, the "Sale Order "). The Sale Order included a finding that "the consideration to be paid by [RWN] constitutes adequate and fair value for the Assets." Am. Order Authorizing and Approving the Sale, Case No.16-13382 (the "Ladera Docket "), Docket No. 180 ¶¶ G, H. The Sale Order further provided that the "consideration provided by the Successful Purchaser and any Purchaser Transferee for the Assets shall be deemed for all purposes to constitute reasonably equivalent value and fair consideration under the Bankruptcy Code and any other applicable law ..." Id. ¶ 4. No appeals from the Sale Order were filed.

The Claim and the Objections

Mr. Futterman filed a personal bankruptcy petition in late 2017. RWN subsequently filed the Claim in Mr. Futterman's bankruptcy case, asserting a right to recover approximately $ 10 million pursuant to the Guaranty. RWN explained that the claim reflected (i) the principal balance of RWN's loan to the Ladera Debtors (approximately $ 39.3 million), plus (ii) interest payments owed to RWN (approximately $ 16.3 million), plus (iii) RWN's costs and expenses, including attorneys' fees (approximately $ 2.4 million), minus (iv) the amount of the $ 48.6 million Credit Bid.

Mr. Futterman has objected to the Claim. The crux of his argument is that RWN improperly colluded with the Wind-Down Officer and otherwise engaged in scare tactics and other dilatory conduct to discourage other bidders from participating in the auction, for the purpose of chilling competition and artificially lowering the price at which RWN could prevail in the auction. Mr. Futterman has noted that within a few weeks after the auction RWN entered into an agreement to sell the Ladera properties to an affiliate of Happy Living—the only other qualified bidder in the auction—for a price that far exceeds the amount of the RWN Credit Bid and that also far exceeds the amounts that were owed to RWN. He has also asserted that there was an improper agreement between RWN and Happy Living to defer Happy Living's bid so that RWN (not the Ladera Debtors and their creditors and owners) could reap the benefit of the higher price that Happy Living was willing to pay. Mr. Futterman further contends that his appraiser...