In Re: Ks Realty Inc. And Pointe Luck LLC

• Decision Date: 05 January 2011
• Docket Number: Bk. No. 09-10918-JMD,Bk. No. 09-10919-JMD
• Citation: 2011 BNH 001
• Parties: In re: KS Realty, Inc. and Pointe Luck, LLC, Debtors
• Court: U.S. Bankruptcy Court — District of New Hampshire

2011 BNH 001

In re: KS Realty, Inc. and Pointe Luck, LLC, Debtors

Bk. No. 09-10918-JMD

Bk. No. 09-10919-JMD

United States Bankruptcy Court District of New Hampshire

Filed: January 05, 2011

Note: This is an unreported opinion. Refer to LBR 1050-1 regarding citation.

Robert J. Keach, Esq.

Jennifer Rood, Esq.

Bernstein, Shur, Sawyer & Nelson

Portland, ME and Manchester, NH

Attorneys for Debtor

John M. Sullivan, Esq.

Joshua E. Menard, Esq.

Preti Flaherty PLLP

Concord, NH

Attorneys for Maxfield Real Estate, Inc.

MEMORANDUM OPINION

I. INTRODUCTION

KS Realty, Inc. and Pointe Luck, LLC, jointly administered debtors (collectively, the "Debtors"), object to the proof of claim ("POC 11" or the "Claim") filed by Maxfield Real Estate, Inc. ("Maxfield") (Doc. No. 230) (the "Objection"). Maxfield asserts a claim for $584,000 based on its alleged entitlement to a commission from the post-confirmation sale of the Debtors' Grand View Commons subdivision property located in Wolfeboro, New Hampshire (the "Property"). The Court held an evidentiary hearing on the Objection and took the matter under advisement. This Court has jurisdiction of the subject matter and the parties pursuant to 28 U.S.C. §§ 1334 and 157(a) and the "Standing Order of Referral of Title 11 Proceedings to the United States Bankruptcy Court for the District of New Hampshire," dated January 18, 1994 (DiClerico, C.J.). This is a core proceeding in accordance with 28 U.S.C. § 157(b).

II. FACTS

Maxfield and the Debtors entered into an Exclusive Listing Agreement (the "Agreement") dated July 2, 2007, with respect to the Property, which the parties extended through January 15, 2009. The Agreement stated in relevant part:

If during the term of this Agreement, an individual or entity is procured who is ready, willing and able to purchase at said price, or upon another price and terms to which SELLER may agree, the SELLER agrees to pay AGENCY a commission of 5% to 6% of the contract price.... Upon full execution of a contract for sale and purchase of the PROPERTY, all rights and obligations of this Agreement will extend with respect to such Purchase and Sales Agreement and Deposit Receipt through the date of closing as specified in the Purchase and Sales Agreement and Deposit Receipt.... The commission as provided above shall be due if the PROPERTY is contracted to be or has been sold, leased, conveyed, exchanged or otherwise transferred within 6 months after the expiration or rescission of this Agreement to anyone with whom the Agency has procured, unless the PROPERTY has been listed with another licensed broker on an exclusive basis. "Procurement" shall include, but not be limited to, providing information about the PROPERTY, showing the PROPERTY, or presenting offers on the PROPERTY.

Under the Agreement the amount of the commission depended upon the nature of the lot being sold. The Agreement further authorized Maxfield to share its commission on an equal basis with licensed brokers and agents from other real estate firms. It also provided that Maxfield would be entitled to payment of fifty percent of any deposit forfeited by a defaulting buyer.

Maxfield and its co-broker, Yankee Pedlar Realtors ("Yankee Pedlar"), procured a buyer for the Property. On September 15, 2008, the Debtors entered into a purchase and sale agreement for the Property (the "2008 P&S") at a purchase price of $14,150, 000 with JWM Generations Trust (the "Buyer" or "Marriott"). Pursuant to the 2008 P&S, the Buyer paid a deposit of $1,000, 000 (the "Deposit"). The 2008 P&S did not have a set closing date; rather, itcalled for a closing no later than fifteen days after completion of a due diligence period. The 2008 P&S called for a forty-five day due diligence period, which could be extended an additional thirty days.

On November 25, 2008, within the due diligence period, the Buyer terminated the 2008 P&S. The Debtors contended that the termination was unilateral and without cause. Marriott contended that the termination was permissible under section 5(c) of the 2008 P&S, which provided in relevant part:

In the event that Buyer shall determine in Buyer's sole and absolute judgment and discretion, that the Property is in any manner unsuitable or unsatisfactory to Buyer, Buyer shall have the right, at the Buyer's option, to terminate this Agreement by giving written notice thereof to Seller on or before the expiration of the Due Diligence Period, in which event ONE HUNDRED AND NO/100 DOLLARS ($100.00) of the Earnest Money shall be delivered to the Seller as consideration for Seller's execution of and entry into this Agreement, the balance of the Earnest Money shall be refunded to Buyer immediately upon request, all rights and obligations of the parties under this Agreement shall expire, and this Agreement shall become null and void.

The 2008 P&S provided that if the Buyer defaulted, the Debtors could recover the Deposit. Maxfield would have been entitled to half the Deposit, or $500,000, as a professional fee. The Deposit was not recovered by the Debtors or Maxfield at that time.

In early 2009, the Debtors commenced litigation in state court (the "Marriott Litigation") asserting several causes of action against the Buyer and its trustee: Count I for breach of contract by the Buyer, Count II for breach of the covenant of good faith and fair dealing by the Buyer, Count III for violation of RSA c. 358-A by the Buyer, and Count IV for prima facie tort by the Buyer's trustee. The Debtors sought an award of damages plus interest, costs, and fees; the Debtors did not seek specific performance of the 2008 P&S in the state court suit. The Debtors contended that the Buyer's purported termination was ineffective and without cause. Shortlythereafter, on March 23, 2009, the Debtors filed bankruptcy; they removed the state court litigation to this Court on June 19, 2009, and it became an adversary proceeding.

During the course of the Debtors' bankruptcy case they retained and employed a new real estate broker, Prudential Spencer-Hughes Real Estate ("Prudential"), to market the Property under an exclusive listing agreement that was in effect from April 15, 2009, to October 23, 2009. With court approval, the agreement was ultimately extended through January 31, 2010.

The Debtors filed their first plan of reorganization and disclosure statement on June 22, 2009. It incorrectly indicated that the Debtors were seeking specific performance of the 2008 P&S in the Marriott Litigation. This inaccuracy was repeated in the Debtors' second plan and disclosure statement filed with the Court on August 10, 2009, as well as the third plan and disclosure statement filed with the Court on October 26, 2009. The Court confirmed the Debtors' third plan of reorganization, as amended, on December 10, 2009. The confirmed plan provided for payments to creditors to be funded from sales of lots of the Property and from any recovery from post-confirmation causes of action, including the Marriott Litigation.

On December 10, 2009, the Court also approved a sale of lot 33 of the Property to Winter Harbor Holdings, LLC for a price of $1,520, 000. Marriott objected to the sale of lot 33 and indicated that Marriott had previously made an offer to purchase the entire Property for $10,000, 000, which offer had been rejected by the Debtors. The purchase and sales agreement for lot 33 contained no provision for the payment of a broker's commission to either Maxfield, Yankee Pedlar, or Prudential, and no broker asserted any claim for a commission with the Court with respect to that sale.

Post-confirmation, the Debtors and Marriott resolved their differences. The parties executed another purchase and sales agreement dated March 17, 2010 (the "2010 P&S") with astated purchase price of $14,100, 000. The 2010 P&S differed from the 2008 P&S in the following ways:

1. The payment terms changed from a cash sale to a partial installment sale for more than $4,000, 000 of the purchase price, which would be secured by a note and mortgage on certain designated lots;

2. The total face value of the purchase price was lowered by $50,000;

3. The Deposit already being held in escrow was being surrendered and was to constitute a portion of the purchase price;

4. $7,000, 000 in cash was being transferred as part of the purchase price;

5. The closing date was changed to a date certain instead of being based on the performance of due diligence as set forth in the 2008 P&S

6. The 2010 P&S did not include any due diligence condition or period whatsoever nor any other conditions precedent;

7. A requirement was added that the buyer pay the prorated share of all real estate taxes and other such liens;

8. A provision was added permitting the principal of the Debtors to store items in the airport hangar and insure those items;

9. A requirement was added that the buyer pay certain closing costs;

10. The requirement that the seller obtain estoppel certificates as a condition to closing was removed;

11. The provision identifying Maxfield and Yankee Pedlar as brokers was removed and a provision stating that Marriott had no liability to them was added;

12. A provision was added requiring the seller to repurchase lot 33 of the Property, using a portion of the purchase price, so that it could be transferred to the buyer;

13. The required deliverables were reduced;

14. A release provision was added releasing the parties from any claims raised or which could have been raised in the litigation between them;

15. Certain representations and warranties were removed; and

16. A provision was added requiring bankruptcy court approval of the sale.

On March 16, 2010, the Debtors filed a motion for an expedited hearing to clarify, or amend, their confirmed plan to approve the proposed sale to Marriott. After a hearing, the Court determined that Court approval of the proposed sale was unnecessary and inappropriate under the terms of the confirmed plan of reorganization. On March 18, 2010, the Court entered an order...