In re A. Hirsch Realty, LLC

• Decision Date: 13 April 2018
• Docket Number: Case No. 18–10043–JNF
• Citation: 583 B.R. 583
• Parties: IN RE A. HIRSCH REALTY, LLC, Debtor
• Court: U.S. Bankruptcy Court — District of Massachusetts

583 B.R. 583

IN RE A. HIRSCH REALTY, LLC, Debtor

Case No. 18–10043–JNF

United States Bankruptcy Court, D. Massachusetts.

Signed April 13, 2018

Roman Brusovankin, Kate E. Nicholson, Nicholson Herrick LLP, Cambridge, MA, for Debtor.

MEMORANDUM

Joan N. Feeney, United States Bankruptcy Judge

I. INTRODUCTION

The matter before the Court is the Motion filed by MSCI 2007–IQ16 Blue Hill Avenue, LLC ("Blue Hill") to Dismiss or, in the Alternative, for Relief from Stay (the "Motion to Dismiss or for Relief from Stay"). The Debtor filed an objection to the Motion, and the Court held a hearing on April 3, 2018, at which the Court directed the Debtor's attorney to file a supplemental brief on the judicial estoppel argument made by Blue Hill, which was filed on April 6, 2018. The Court then took the matter under advisement.

Preliminarily, A. Hirsch Realty, LLC (the "Debtor"), through its Expedited Motion for Use of Cash Collateral (the "Cash Collateral Motion"), and Blue Hill, in its Opposition to the Cash Collateral Motion, as well as in its Motion to Dismiss or for Relief from Stay, raise the issue of the enforceability of certain prepetition bankruptcy waivers, including a waiver of the protection of the automatic stay, a waiver of the right to oppose dismissal of the case, and a waiver of the use of cash collateral, which were contained in a modification agreement (the "Modification Agreement") that was approved, in form, prior to its execution, by the bankruptcy court in the Debtor's prior Chapter 11 case in conjunction with confirmation of the Debtor's First Amended Plan of Reorganization. The Debtor, on the one hand, takes the position that the provisions are unenforceable because they amount to a complete waiver of bankruptcy protection in violation of public policy. Blue Hill, on the other hand, maintains they are enforceable, thus warranting dismissal of the Debtor's case, or, alternatively, entry of an order granting it relief from the automatic stay.

The issue initially was raised on February 7, 2018 at a hearing on the Debtor's Expedited Motion for Use of Cash Collateral on an Interim Basis. At that time, the Court entered the following order:

For the reasons stated on the record, the Court authorized the Debtor's interim use of cash collateral through the continued hearing date of March 7, 2018 at 11:00 a.m. The Debtor shall file a reconciliation of actual income and expenses to projections by March 6, 2018 at 4:30 p.m. Counsel shall submit their briefs on the objection and on the legal issues identified at the hearing and any agreed statement of facts by February 19, 2018 at 4:30 p.m. In the event, the parties cannot agree on all facts needed for the Court to decide the legal issues, they shall file a joint statement of disputed facts by February 19, 2018 and the Court will schedule an evidentiary hearing.

The parties obtained an extension of time to file briefs. On March 12, 2018, Blue Hill filed its Motion to Dismiss or for Relief from Stay, the Debtor filed a Brief in Opposition to Blue Hill's Motion to Dismiss or for Relief from Stay in which it challenged the enforceability of certain provisions of the parties' prepetition Modification Agreement, and the parties filed a Stipulation of Undisputed and Disputed Facts in Connection with the Motion to Dismiss or for Relief from Stay and the Debtor's Opposition.

The material facts necessary to resolve the issue as to the enforceability of the prepetition waivers are not in dispute. For the reasons set forth below, the Court only shall consider Blue Hill's alternative request for relief from the automatic stay. The Court shall enter an order granting Blue Hill's alternative request to grant it relief from the automatic stay.

II. THE PARTIES' STIPULATION OF UNDISPUTED FACTS

The Court paraphrases the Stipulation and supplements the Undisputed Facts filed by the parties with reference to the contents of documents filed in the Debtor in its prior case.¹

A. Background

Approximately six years ago, on March 14, 2012, the Debtor filed a Chapter 11 case captioned A. Hirsch Realty, LLC, Case No. 12–12092–WCH (Bankr. D. Mass.) (the "First Bankruptcy"). The Debtor filed the First Bankruptcy to prevent a foreclosure of the Property, as defined below.

On January 5, 2018, the Debtor commenced its present Chapter 11 case as a single asset real estate case, as defined in 11 U.S.C. § 101(51B), with the filing of a voluntary petition. Andrew H. Sherman executed the petition as Manager and authorized representative of the Debtor. In addition Andrew Sherman, as the Manager and 99% Member of the Debtor, executed the "Written Consent of Managers and Members," authorizing the commencement of the Chapter 11 case.

On January 19, 2018, the Debtor filed its Schedules and Statement of Financial Affairs. On Schedule A/B: Assets—Real and Personal Property, it listed real property located at 1613–1615 Blue Hill Avenue, Mattapan, Massachusetts (the "Property") with a value of $4 million. On Schedule D: Creditors Who Have Claims Secured by Property, the Debtor listed Blue Hill as the holder of a first mortgage in the amount of $2,584,359.31. On Schedule E/F: Creditors Who Have Unsecured Claims, the Debtor listed four claims, including the claims of the Massachusetts Development Finance Agency in the sum of $288,000; Marlene Sherman in the sum of $80,000,² Skolnick CPA in the sum of $4,200, and Associated Elevator Companies in the sum of $1,800.³ It also listed eight unexpired commercial real estate leases with tenants for premises at the Property.

B. Undisputed Facts

The Debtor's sole business is owning and managing the Property. The Property is a three-story commercial building in Mattapan Square consisting of approximately 16,000 square feet. The first floor contains retail space and the second and third floors contain offices. The only income generated by the Debtor is the rental income from the Property.

On or about August 1, 2007, the Debtor secured a loan from NCB, FSB in the original principal sum of $2,300,000 with respect to the Property. The terms and conditions of the loan are evidenced by, among other documents, a Mortgage Note (the "Note"), a Mortgage, Assignment of Leases and Rents and Security Agreement (the "Mortgage"), and an Assignment of Leases and Rents (the "Assignment") (collectively, the "Loan Documents"). The original Note was subject to the following basic terms:

a. Principal balance: $2,300,000.00

b. Monthly payment: $14,161.50

c. Maturity date: August 1, 2017

d. Interest rate: 6.25%

e. Default interest rate: 11.25%

Through a series of loan assignments, the Loan Documents were assigned to Blue Hill.⁴ On or about March 2011, the Debtor defaulted under the Note by failing to remit all amounts due.

U.S. Bank, N.A., as Trustee for the Registered Holders of Morgan Stanley Capital I Inc., Commercial Mortgage Pass–Through Certificates, Series 2007–IQ16 (the "Trust") filed a claim in the First Bankruptcy (which was subsequently allowed) in the sum of $2,480,134.45.⁵ The claim was comprised of the following amounts:

Principal: $2,200,816.25

Accrued interest: $132,965.98

Default interest: $94,146.03

Late charges: $7,788.88

Servicing advances: $46,135.13

Escrow credits: ($1,717.82)

On May 10, 2013, the Trust filed a disclosure statement and proposed plan of reorganization in the First Bankruptcy. The Trust attached an appraisal of the Property to its disclosure statement indicating the value of the Property, as of October 5, 2012, was $1,070,000 (In its Cash Collateral Motion filed in this case, the Debtor indicated that the value now is approximately $3.8 to $4.0 million.) As part of its disclosure statement and plan of reorganization, the Trust proposed to take title to the Property "for a deemed payment of $1,070,000."

On May 24, 2013, the Debtor filed its own plan. The Trust objected to the Debtor's plan, and the Debtor objected to the Trust's plan. On May 29, 2013, the Court scheduled a plan confirmation hearing for June 26, 2013. On June 18, 2013, the Debtor and the Trust filed a "Joint Motion to Continue Hearings on Adequacy of Disclosure, Plan Confirmation, Pending Claim Objections and to Further Extend the Use of Cash Collateral," seeking to continue the hearing on plan confirmation and other matters for approximately 30 days. Subsequently, the Court rescheduled the hearing for August 14, 2013.

On October 30, 2013, Judge Hillman conducted a hearing on the competing plans. He continued the hearing to December 4, 2013, and then to January 8, 2014, and March 5, 2014, each time as a result of one of the parties claiming more time was needed in order for them to agree on a consensual plan. On March 4, 2014, the Trust and the Debtor filed a Joint Motion to Set Final Hearing on Plan Confirmation.⁶ The Court granted the Joint Motion, canceled the March 5, 2014 hearing, and ordered the filing of a new disclosure statement and plan before the Court would schedule any further hearings on plan confirmation. It stated in pertinent part: "Because of the radical changes proposed to the disclosure statement and plan, a new disclosure statement and plan must be filed before any further hearing will be scheduled. The parties shall notify the court to the extent that the motions previously scheduled for today still require hearings."

The parties took several additional months to finalize an amended disclosure statement and plan of reorganization. On July 17, 2014, the Debtor filed an agreed upon First Amended Plan of Reorganization⁷ and a Proposed Form of Disclosure Statement Regarding Debtor's First Amended Plan of Reorganization (the "Disclosure Statement"). The Court approved the Disclosure Statement and held a confirmation hearing on September 18, 2014. In support of confirmation, the Debtor's principal, Andrew Sherman ("Sherman"), filed an Affidavit. Thereafter, the parties filed periodic updates with the Court concerning their ongoing efforts to negotiate mutually agreeable loan documents. On December 2, 2014, ...