In re Jacksonville Riverfront Development, Ltd., Bankruptcy No. 97-5353-3P1.
| Decision Date | 10 November 1997 |
| Docket Number | Bankruptcy No. 97-5353-3P1. |
| Parties | In re JACKSONVILLE RIVERFRONT DEVELOPMENT, LTD., a Florida limited partnership, f/a/k/a Riverview Music Shed, Ltd., Tax ID# XX-XXXXXXX, Debtor. |
| Court | United States Bankruptcy Courts. Eleventh Circuit. U.S. Bankruptcy Court — Middle District of Florida |
David E. Otero, Milam, Otero, Larsen, Dawson & Traylor, P.A., Jacksonville, FL, for Debtor.
Nathan D. Goldman, McGuire, Woods, Battle & Boothe, L.L.P., Jacksonville, FL, for Movant Jacksonville Shipyards, Inc.
FINDINGS OF FACT AND CONCLUSIONS OF LAW
This case came before the Court on Jacksonville Shipyards, Inc.'s Motion for Relief from Stay and Motion to Dismiss. Evidentiary hearings were held on September 22 and 29, 1997, and October 7, 1997. On the evidence presented, the Court enters the following findings of fact and conclusions of law:
FINDINGS OF FACT
1. The debtor, Jacksonville Riverfront Development, Ltd., commenced this Chapter 11 case on July 16, 1997.
2. The debtor is a Florida limited partnership whose sole asset is a parcel of real estate comprised of 27.47 acres of uplands and 16.88 acres of submerged land, commonly referred to as the Jacksonville Shipyards (the "Property"). The Property is owned and operated by the debtor and is located in Jacksonville, Florida, on the St. Johns River.
3. The debtor has continuously owned and operated the Property since February 10, 1995. The debtor has no other assets besides the Property and the improvements located thereon.
4. The debtor's business has been managed by John H. Hanan since its formation. He is the principal of the debtor, as well as a 99% shareholder of the general partner of the debtor. In addition to Mr. Hanan, the debtor has two other employees.
5. On October 6, 1994, the Property was appraised by Walter M. Lampe, Inc., at $12,500,000.00
6. On November 8, 1994, Satulah/Jacksonville Corporation, the general partner of the debtor1, and the movant, Jacksonville Shipyards, Inc. (JSI), entered into a Real Estate Purchase Agreement for the Property. On December 15, 1994, Satulah assigned the Real Estate Purchase Agreement to the debtor with the written consent of JSI.
7. The terms of the purchase agreement required the debtor to: give JSI a one year balloon note in the principal amount of $3,777,100.00, as well as a mortgage securing the note; assume existing property taxes in the amount of $665,728.40; agree to indemnify JSI and assume existing vendor payables owed by JSI in the amount of $1,115,649.74; and, agree to indemnify JSI and assume all responsibility for then existing environmental problems.
8. Soon after the acquisition of the Property, the debtor sought to obtain investors or lenders in order to raise the necessary capital to pay off the balloon note to JSI. The debtor also attempted, unsuccessfully, to negotiate alternative terms of payment with JSI.
9. The debtor, unable to raise the necessary capital, defaulted on the note on February 16, 1996. In May, 1996, JSI initiated a foreclosure proceeding against the debtor.
10. Since the debtor acquired the Property, approximately $1,000,000 in improvements have been made to the Property. In addition, the debtor has made various unsuccessful attempts to develop the Property.
11. In June, 1996, the debtor located a group of investors, the "Schultz Group", that was interested in purchasing the note and mortgage from JSI. The debtor introduced the Schultz Group to JSI, and on July 15, 1996, the Schultz Group entered into a purchase agreement for the JSI note and mortgage. However, the Schultz Group did not consummate its agreement to purchase the balloon note from JSI.
13. The debtor has not made any payments to JSI on the balloon note. The debtor made payments of $170,187.85 for property taxes and $8,000 for vendor payables.
14. On July 14, 1997, the Property was appraised by Lampe, Roy & Associates, Inc., as having a value of $15,048,000.00 (after subtracting estimated environmental cleanup costs).
15. At the time of its bankruptcy filing, the debtor was a defendant in a dozen other lawsuits for debts incurred by the debtor since it acquired the Property.
16. The debtor filed its Schedules and Statement of Financial Affairs on the petition date. According to the debtor's schedules, the debtor had $5,992,096.81 in secured debts and $704,765.11 in unsecured debts on the petition date. Of the secured debts, $4,624,121.69 is owed to JSI pursuant to its balloon note and first mortgage. Seventy-four thousand four hundred and twenty-three dollars and sixty cents ($74,423.60) in secured debt is owed to Laquidara & Edwards pursuant to a note and second mortgage. Secured debt in the amount of $19,122.11 is owed to LeBoeuf Lamb Greene & MacRae pursuant to a note and third mortgage. There are two judgment liens totaling approximately $50,600.00. The balance of the secured debt is owed for property taxes. The unsecured debt includes an amount owed to Clearview Investment Management, Inc. (Clearview), based on a pre-petition loan for $96,455.31.
17. On September 18, 1997, the Debtor filed a Disclosure Statement and Plan of Reorganization. Pursuant to the plan, Clearview is to acquire a 50% interest in the debtor on confirmation. In exchange, Clearview obligates itself to abide by the terms of the confirmed plan, which includes a requirement that Clearview post $1,500,000 in collateral in the form of an irrevocable letter of credit until all plan obligations are paid.
Further, Mr. Hanan testified that the debtor will list the eastern portion of the Property for sale after confirmation, which sale will enable the debtor to pay all creditors in full on closing. Otherwise, the plan provides as follows: the debtor will pay all secured debts with interest over seven-years with a balloon payment due on the seventh anniversary of the effective date of the plan; creditors holding pre-petition settlement agreements will receive the full amount of those settlement agreements on the effective date; the balance of the unsecured claims will be paid 100% of their claims without interest over seven years; and, all environmental clean-up work will be completed during the first four years of the plan.
18. The debtor currently has three leases on the Property and is operating with a positive cash flow.
19. On August 13, 1997, JSI filed a Motion to Dismiss Or In The Alternative Relief From Stay. Subsequently, on August 19, 1997, JSI filed a Motion For Relief From Stay. JSI sought relief from the stay or dismissal for cause, pursuant to 11 U.S.C. § 362(d)(1) or 11 U.S.C. § 1112(b), to prosecute its pending foreclosure action.
JSI's motions are predicated upon the assertion that the debtor's petition was filed in bad faith. At the hearing held on October 7, 1997, JSI, relying on In re Phoenix Piccadilly, Ltd., 849 F.2d 1393 (11th Cir.1988), argued that in a single asset real estate case the Court must lift the stay or dismiss the case for cause as a bad faith filing.2
11 U.S.C. § 362(d)(1) requires a court to grant relief from the stay "for cause, including the lack of adequate protection of an interest in property. . . ." The Eleventh Circuit has established the principle that good faith is an implicit prerequisite to filing a Chapter 11 bankruptcy petition. See In re Albany Partners, Ltd., 749 F.2d 670 (11th Cir.1984). A debtor's lack of good faith in filing a bankruptcy petition constitutes "cause" for lifting the automatic stay. In re O'Quinn, 98 B.R. 86, 88 (Bankr.M.D.Fla. 1989) (citing In re Little Creek Development Company, 779 F.2d 1068 (5th Cir.1986)).
Additionally, a court may dismiss a case for cause pursuant to 11 U.S.C. § 1112(b). Section 1112(b) includes a list of ten grounds establishing cause for dismissal.3 However, the list of grounds provided by section 1112(b) is not an exhaustive list of factors constituting cause. In re Albany Partners, Ltd., 749 F.2d at 674 (). The failure to file a case in good faith also constitutes cause for dismissal pursuant to section 1112(b). Id. Therefore, the Court is authorized to grant JSI's Motion For Relief From Stay or Motion to Dismiss if it finds that the debtor's petition was filed in bad faith.
JSI specifically asserts the following as grounds for a finding of bad faith on the part of the debtor: (1) the debtor is guilty of improper prepetition conduct; (2) there is no realistic probability of reorganization; (3) the debtor made this filing in an attempt to stall the hearing on JSI's motion to enforce the assignment of rents and eventual foreclosure sale.
In support of its claim that the debtor's petition was filed in bad faith, JSI relies on In re Phoenix Piccadilly, Ltd., 849 F.2d at 1393. In Phoenix Piccadilly, the Eleventh Circuit Court of Appeals affirmed the District Court's decision affirming this Court's dismissal of a case for cause pursuant to section 1112(b). The Eleventh Circuit affirmed the finding of bad faith based on the presence of many circumstantial factors identified by the courts as indicating a bad faith filing:
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