In re Jenkins Court Associates Ltd. Partnership, Bankruptcy No. 94-17748SR.
| Decision Date | 25 April 1995 |
| Docket Number | Bankruptcy No. 94-17748SR. |
| Parties | In re JENKINS COURT ASSOCIATES LIMITED PARTNERSHIP, Debtor. |
| Court | U.S. Bankruptcy Court — Eastern District of Pennsylvania |
Andrew C. Kassner, Drinker, Biddle & Reath, Philadelphia, PA, for JCP.
Albert Bixler, Connelly, Epstein, Chicco, Foxman, Englemyer & Ewing, Philadelphia, PA, for debtor.
Louis C. Ricciardi, Ballard, Spahr, Andrews & Ingersoll, Philadelphia, PA, for Official Committee of Unsecured Creditors.
This matter is before the Court upon the Motion of Jenkins Court Pennsylvania, L.P. ("JCP") to Dismiss, or, in the alternative, For Relief From the Automatic Stay (the "Motion"). The Motion is opposed by the Debtor, Jenkins Court Associates Limited Partnership (the "Debtor"). A preliminary hearing was scheduled for March 6, 1995, however, in lieu of an evidentiary hearing on that date the parties agreed that the Court should first determine whether a waiver of the automatic stay granted by the Debtor to JCP pursuant to a pre-petition settlement agreement dated July 2, 1992, should be enforced, since that issue may be determinative. A further hearing was held on March 15, 1995, at which time the parties argued their respective positions regarding the enforceability of the pre-petition waiver. If the Court determines the waiver should not be enforced, the parties have requested that the Court schedule a further evidentiary hearing to consider the remainder of the Motion on or before 15 days after the Court enters its Opinion and Order making the former determination.
The facts, as alleged by JCP, are as follows.1 On January 9, 1989, Fleet National Bank ("Fleet") made a loan (the "Construction Loan") to the Debtor in the original principal amount of $17,820,000, to enable the Debtor to 1) acquire a parcel of land in Jenkintown, Pennsylvania, 2) to rehabilitate certain improvements located on the parcel, and 3) to construct additional improvements on the parcel (collectively the "Project"). As security for the Construction Loan, the Debtor executed a construction mortgage and security agreement (the "Mortgage"), as well as an assignment of rents and leases (the "Assignment"), thereby granting Fleet certain liens and other rights. The Mortgage and Assignment were recorded in the Office of the Recorder of Deeds for Montgomery County.
JCP avers that the Construction Loan was not intended to constitute permanent, long term financing for the Debtor. Rather, JCP avers, the Debtor was expected to obtain refinancing from another lender upon completion of the construction.
The Construction Loan, the Mortgage and the Assignment were amended in February 1991, January 1992 and July 1992, in order to, among other things, extend the maturity date and increase the amount of the Construction Loan. On June 15, 1994, the Construction Loan matured by its terms and all outstanding amounts became due and payable. On or about September 30, 1994, Fleet assigned its rights under the Construction Loan and related documents to JCP.
JCP contends that notwithstanding the additional years which have been given to the Debtor to locate permanent financing, the Debtor has yet to locate a lender willing to provide such financing in an amount that would satisfy the indebtedness due under the Construction Loan. Thus, according to JCP, the Debtor has defaulted in its obligations under the Construction Loan. Moreover, JCP has not even received interest payments from the Debtor since November 1994.2
JCP avers that as of the Petition Date, the Debtor's obligations to JCP under the Construction Loan total approximately $25,000,000. The Debtor's has scheduled its obligation to JCP as a disputed secured claim in the amount of approximately $21,000,000.
Section 3(d) of the Second Amended Settlement Agreement.
JCP argues that it is entitled to relief from the automatic stay for "cause" under 11 U.S.C. § 362(d)(1) due to the Debtor's agreement to such relief in the foregoing provision. The Debtor argues that enforcement of the provision would be inconsistent with the broad purposes of the Bankruptcy Code, and, accordingly, the Court should not enforce the waiver. The waiver aside, JCP also argues that in the above provision the Debtor also acknowledged its lack of equity in the Project and, concomitantly, the absence of any chance for a successful reorganization, and further acknowledged that any bankruptcy proceeding in which it failed to honor both of these admissions would be deemed to have been commenced in bad faith. These facts JCP also points to as alternate grounds for modification of the stay or dismissal of the bankruptcy case.
In recent years, the issue of the enforceability of pre-petition waivers of the automatic stay has been considered by numerous bankruptcy courts. While a number of those courts have concluded that a pre-petition waiver is valid and enforceable, others disagree. In re Powers, 170 B.R. 480 (Bankr. D.Mass.1994) (); In re Cheeks, 167 B.R. 817 (Bankr.D.S.C.1994) (same); In re Club Tower, L.P., 138 B.R. 307 (Bankr.N.D.Ga.1991) (same); In re Citadel Properties, Inc., 86 B.R. 275 (Bankr.M.D.Fla.1988) (same); but see, Farm Credit of Cent. Florida, ACA v. Polk, 160 B.R. 870 (M.D.Fla.1993) (); In re Sky Group Int'l, Inc., 108 B.R. 86 (Bankr.W.D.Pa.1989) ().
The decisions holding that a pre-petition agreement waiving the automatic stay is valid and enforceable, and which are relied upon by JCP, can be separated into two categories: First, certain courts have held that a pre-petition waiver of the automatic stay is valid and enforceable in conjunction with a factual determination that either the debtor filed his bankruptcy petition in bad faith or there was no possibility of an effective reorganization. See In re Club Tower, L.P., supra; In re Citadel Properties, Inc., supra.
In view of this, and as noted at the March 15, 1995 hearing, the Court is somewhat perplexed as to why JCP agreed to bifurcate the issues and rest on the very limited record now before the Court. JCP's exclusive reliance on the admissions in Sections 3(d)(ii) and (iii) of the Second Amended Settlement Agreement as proof that (1) the Debtor has no equity in the Project and has no chance of a successful reorganization, and (2) that the Debtor commenced this bankruptcy case in bad faith, is ill-founded. The determination of whether a bankruptcy petition has been filed in bad faith is fact intensive. Indeed, in In re Orange Park South Partnership, 79 B.R. 79, 82 (Bankr.M.D.Fla. 1987), the Court listed no less than ten factors to be considered in making a determination as to whether a Chapter 11 case has been filed in bad faith. JCP has alleged that many of those factors exist in the instant case, however, JCP has not established any of those factors to the satisfaction of this Court simply by offering into evidence a copy of the pre-petition settlement agreement which, the Court notes, was signed well over two years before the commencement of the instant bankruptcy case. In this vein, it is not unreasonable to wonder whether the Debtor's circumstances or market conditions might not have changed during the lengthy period between the Debtor's execution of the pre-petition settlement agreement and the...
To continue reading
Request your trial