In Re Kraft LLC

• Decision Date: 22 April 2010
• Docket Number: Bankruptcy No. 07-21367 JPK.,Adversary No. 08-02038.
• Citation: 429 B.R. 637
• Parties: In re KRAFT, LLC, a Limited Liability Company, Debtor.Kraft, LLC, a Limited Liability Company, Plaintiff,v.Charles R. Greiner, Dennis Churilla, Jeffrey D. Greiner, Louis Gerodemos, Mary Louise Sarey, Robert Heikema, Terry R. Schrefler, Brenda L. Van Zuidam, Defendants.
• Court: U.S. Bankruptcy Court — Northern District of Indiana

429 B.R. 637

In re KRAFT, LLC, a Limited Liability Company, Debtor.Kraft, LLC, a Limited Liability Company, Plaintiff,v.Charles R. Greiner, Dennis Churilla, Jeffrey D. Greiner, Louis Gerodemos, Mary Louise Sarey, Robert Heikema, Terry R. Schrefler, Brenda L. Van Zuidam, Defendants.

Bankruptcy No. 07-21367 JPK.

Adversary No. 08-02038.

United States Bankruptcy Court,

N.D. Indiana,

Hammond Division.

April 22, 2010.

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COPYRIGHT MATERIAL OMITTED

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Lori D. Fisher, Esq., Merrillville, IN, for the Plaintiff, Kraft, LLC.

Kenneth A. Manning, Esq., Dyer, IN, for the Defendants.

MEMORANDUM OF DECISION

J. PHILIP KLINGEBERGER, Bankruptcy Judge.

This contested matter/adversary proceeding arises from a complaint filed on April 11, 2008, by Kraft, LLC, against Charles R. Greiner, Dennis Churilla, Jeffrey D. Greiner, Louis Gerodemos, Mary Louise Sarey, Robert Heikema, Terry R. Schrefler and Brenda L. Van Zuidam (the “Investors”). On September 7, 1999, Kraft Funeral Services and Crematory, Inc. (“Kraft Funeral”) entered into promissory notes with the eight individual Investors, each in the amount of $50,000 (the “Notes”). In order to secure the foregoing Notes, on April 7, 2000, Kraft, LLC executed and gave a mortgage to the Investors on real estate commonly known as 370 N. County Line Road, Hobart, Indiana (the “Property”). Kraft, LLC contends that the mortgage executed on April 7, 2000 is not valid on several theories, including that the mortgage does not adequately describe the secured debt pursuant to I.C. § 32-21-4-1 and therefore should be avoided pursuant to 11 U.S.C. § 544(a)(3).

On December 12, 2008, the court held a pretrial conference at which it was determined that the case should be decided on a stipulated record, which was memorialized by an order entered on January 8, 2009. Following several extensions of time to file the stipulated record, on April 21, 2009, the United States Trustee filed a motion to dismiss, which was eventually resolved. While the motion to dismiss was pending, the parties requested that the deadlines in this case be stayed until after the motion was resolved, a request which the court granted. On June 3, 2009, the court entered an order making the stipulation due on June 8, 2009, the initial briefs due on June 22, 2009, and any replies due on July 22, 2009. The parties adhered to the deadlines, although only the Investors filed a reply brief.

The record is closed. The Court has subject matter jurisdiction over this adversary proceeding pursuant to 28 U.S.C. § 1334(a) and (b), 28 U.S.C. § 157(a) and (b), and N.D.Ind.L.R. 200.1(a). The case is a core proceeding under 28 U.S.C. § 157(b)(2)(K).

I. THE FACTUAL RECORD/ ISSUES PRESENTED

Pursuant to an order of the court entered on January 8, 2009, this case is submitted by means of a stipulated record. On June 8, 2009, the Plaintiff Debtor and the Defendant Investors jointly filed with the court a document entitled Stipulation of Facts/Exhibits (the “Stipulation”), in which the parties set out not only the legal issues in this case, but also the facts and evidence the court is to consider in rendering a final decision. The Stipulation provides as follows: ¹

For purposes of convenience and concise record, exhibits 1, 5 and 6 are samples, examples of identical documents for each of the 8 Investors. The dates, amounts and signatures are identical duplicate; only the subscriber name, payee and social security number would be different, appropriately designating the proper Investor. Exhibit 11 is the identical real estate mortgage for each Investor.

STIPULATION OF FACTS

1. Kraft Funeral Services and Crematory Inc. (hereinafter Kraft Funeral) is an Indiana corporation for profit which was incorporated on November 18, 1998. It has elected sub-s status for reporting its income and filing tax returns.

2. In late part of 1998, Dennis Churilla and Charles R. Greiner approached Jackie Kraft about investing in the construction of the new funeral home and crematory. Dennis Churilla and Charles R. Greiner solicited and obtained all of the Investors.

3. On, or about, December 1998 each of the Investors signed and executed a “Subscription Agreement” which was not signed by Kraft Funeral. The subscription agreement was to/in favor of Kraft Funeral. See Exhibit “1”.

4. In the spring/early summer 1999, Kraft Funeral and Debtor's principals sought a loan and financing from, and through, National City Bank. These efforts failed.

5. On, or about, June 1, 1999, at the request of Investors, Kraft Funeral and Debtor's presented to Investors a copy of the proposed mortgage in favor of Investors. This request was made as part of the ongoing negotiations to obtain sufficient funds, financing and lender requirements. See Exhibit “2”.

6. On, or about, July 8, 1999 Peoples Bank approved a loan and financing to Kraft Funeral and Debtor. A true and complete copy of the Peoples Bank “loan commitment” letter is attached as Exhibit “3”.

7. Among other requirements, the Peoples Bank loan commitment required:

a. Subordination of Investor's interest to Peoples Bank b. Peoples Bank would have to review and approve “all documents” evidencing Investor indebtedness,

c. No less than $340,000 “equity cushion” had to be deposited in escrow with Peoples Bank, and applied towards construction prior to any bank disbursement,

d. Any mortgage in favor of Investors had to be junior, and subordinate to Peoples Bank.

8. At the end of July, 1999, Investors received “Projected Statement of Operations” from Russell Kraft, Sr.; this “Projected Statement” was prepared by Kraft's accountant, John Lowenstein. See Exhibit “4”.

9. The total cost for the purchase of the real estate and the new funeral home building, improvements and equipment was estimated and projected to be $1.2 million.

10. On September 7, 1999, each of the Investors signed and executed a “Subscription Agreement” which was signed by Kraft Funeral. The subscription was to/in favor of Kraft Funeral. See Exhibit “5”.

11. On September 7, 1999, a Promissory Note was entered into by Kraft Funeral and each of the Defendants for $50,000.00 per individual. See Exhibit “6”.

12. On, or about September 7, 1999, each of the Investors paid to Kraft Funeral $50,000; a total of $400,000.00 was paid to Kraft Funeral. The funds received from Investors were partially used in the construction of the funeral home building.

13. On September 8, 1999, a Trustee's Deed was executed transferring real estate located at 370 N. County Line Road, Hobart, Indiana (hereinafter the “Real Estate”) to Kraft Funeral which deed was recorded October 6, 1999. See Exhibit “7”.

14. On November 18, 1999, Kraft LLC was incorporated.

15. On December 23, 1999, an Inter Creditor Agreement was signed/executed by Investors and Kraft, LLC (Debtor), at the request of Peoples Bank. See Exhibit “8”.

16. On January 4, 2000, Kraft Funeral executed a Quit Claim Deed transferring title to the Real Estate to Kraft LLC which deed was recorded January 7, 2000. See Exhibit “9”.

17. The new funeral home was built and constructed by Project Resource & Development LLC, and was completed on, or about March 15, 2000.

18. On April 7, 2000, Kraft LLC executed a mortgage on the Real Estate in favor of Peoples Bank to secure a Note in the amount of $800,000.00 which is attached hereto as Exhibit “10”.

19. On April 7, 2000, Kraft LLC executed a mortgage in favor of “Lender” in the amount of $400,000.00 a copy of said mortgage is attached hereto as Exhibit “11”.

20. Since spring of 2000, Debtor has leased the County Line Rd. real estate to Kraft Funeral. There are no other tenants/occupants of the real estate.

21. At the commencement of the case, the shareholders of Kraft Funeral and the members/equity owners of Debtor are identical. Russell A. Kraft, Sr., Jacqueline Kraft, Russell A. Kraft, Jr. and Tammy Kraft each “own” 25%.

22. The Debtor's Schedule F reflects unsecured creditors in the amount of Schedule F, $258,192. (Court docket 52) in addition to the Debtor is amended Schedule F to list an omitted creditor, John Lowenstein. Attached hereto as Exhibit “12” is Debtor's proposed amended Schedule F.

23. The addresses listed and shown on Exhibit A (attachment to real estate mortgage, Exhibit “11”) are, and were the accurate addresses of each lender throughout all relevant times.

24. All Investor Subscription Agreements, notes and real estate mortgages were prepared by Attorney William Longer pursuant to the request of the Investors that Debtor have same prepared. Attorney Longer was attorney for Kraft Funeral and Debtor. Investors did not have an attorney but were advised by the Debtor to have all documents reviewed.

STIPULATION OF EXHIBITS

The following documents, papers and exhibits are stipulated as true, accurate and complete documents and records for purposes of authenticity and admissibility:

1. Unsigned Subscription Agreement (Charles Greiner). (Note: An identical document is present for each of the other 7 Investors).

2. Unsigned Second Real Estate Mortgage.

3. Peoples Bank loan commitment letter dated July 8, 1999.

4. Projected Statement of Operations.

5. Subscription Agreement (Charles Greiner). (Note: An identical document is present for each of the other 7 Investors).

6. Promissory Note dated 9-7-1999, $50,000.00. (Note: the identical Notes are exhibits to proofs of claim filed by Investors; claims # 4 thru 11 inclusive).

7. Trustee's Deed from Peoples Bank SB Trustee to Kraft Funeral dated September 3, 1999 and recorded October 6, 1999.

8. Inter Creditor Agreement.

9. Quit-Claim Deed from Kraft Funeral to Kraft LLC dated January 4, 2000 and recorded January 7, 2000.

10. Peoples Bank real estate mortgage, document # 2000-024534. Note: the identical exhibit to proof of claim# 2; Peoples Bank Note/Security Agreement dated April 7, 2000. Note: identical exhibit to proof of claim # 2; and, Peoples Bank Note/Security Agreement dated April 7, 2000. Note: identical exhibit to proof of

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