In Re Market Center East Retail Property Inc.

• Decision Date: 03 August 2010
• Docket Number: No. 11-09-11696 SA.,11-09-11696 SA.
• Citation: 433 B.R. 335
• Parties: In re MARKET CENTER EAST RETAIL PROPERTY, INC., Debtor.
• Court: U.S. Bankruptcy Court — District of New Mexico

433 B.R. 335

In re MARKET CENTER EAST RETAIL PROPERTY, INC., Debtor.

No. 11-09-11696 SA.

United States Bankruptcy Court D. New Mexico.

Aug. 3, 2010.

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Daniel J Behles, Cuddy & McCarthy, LLP, Albuquerque, NM, for debtor.

MEMORANDUM OPINION ON ORIX CAPITAL MARKET, LLC'S MOTION TO ALLOW SECURED CLAIM PURSUANT TO 11 U.S.C. § 506 AND TO ORDER PAYMENT THEREOF and ON DEBTOR'S OBJECTION TO ORIX CAPITAL MARKET'S CLAIM

JAMES S. STARZYNSKI, Bankruptcy Judge.

This matter came before the Court on 1) Orix Capital Market, LLC's (“ORIX”) Motion to Allow Secured Claim Pursuant to 11 U.S.C. § 506 and to Order Payment Thereof (“Motion to Allow”)(doc 120) and the objection thereto (“Objection”) filed by Market Center East Retail Property, Inc. (“Debtor”)(doc 124), and 2) Debtor's Objection to Orix Capital Market's Claim (“Claim Objection”)(doc 121). ORIX was represented by its attorney Thuma & Walker, P.C. (David T. Thuma and Stephanie L. Schaeffer). Debtor was represented by its attorney Cuddy & McCarthy, LLP (Daniel J. Behles). This is a core proceeding. 28 U.S.C. 157(b)(2)(K).

The Court conducted a two day hearing on February 24 and 25, 2010 on the issues presented and the parties then submitted simultaneous briefs and responses (docs. 146, 147, 150 and 151). The matter was submitted on April 15, 2010. The Court has considered the evidence presented at trial, reviewed the arguments of the parties and consulted applicable authorities and now issues its decision. The Court finds that Debtor's objection to the ORIX claim is not well taken and will be overruled. The Court fixes the amount of the ORIX claim to conform to the proof at trial. The Court finds that the Debtor's objections to the Motion to Allow are well taken in part and are sustained in part as set out below. The Court also orders the Clerk to disburse to ORIX the unpaid balance of its claim.

FACTS INTRODUCTION

Debtor is a limited liability company that has operated a retail commercial shopping center in Albuquerque, New Mexico since 2006. See Debtor's Disclosure Statement for Chapter 11 Plan Dated June 16, 2009 (“First Disclosure Statement”), doc. 24, p. 3. It acquired the property by purchase from a former owner in 2006 by assuming that owner's obligations under various loan documents and by executing new guaranties. Id. Mr. Danny Lahave is the 100% owner of the Debtor and its sole officer. Id. He is a guarantor for the transaction. ORIX Exhibit 4, p. 1. The transaction is also guaranteed by Top Terraces, Inc. id., which is a California corporation wholly owned by Mr. Lahave. Doc. 24, p. 8.

HISTORY OF THE LOAN OBLIGATIONS

On April 9, 1999, MCE Associates, L.P. (“Maker”) executed a Deed of Trust Note (“Note”) and promised to pay PW Real Estate Investments, Inc. (“Payee”) $9,175,000.00 at the “Applicable Interest Rate” in installments. (ORIX Exhibit 1) Relevant of the Note include:

1. Interest only on May 1, 1999;

2. A constant payment of $65,667.43 (“Monthly Debt Service Payment Amount”) on June 1, 1999 and the first day of each calendar month thereafter up to and including the first day of April, 2009; each of the payments to be applied (a) to interest computed at the Applicable Interest Rate, and (b) the balance applied toward reduction of the principal sum;

3. The balance of the principal sum and all interest thereon shall be due and payable on May 1, 2009 (“Maturity Date”).

Interest on the principal sum shall be calculated on the basis of the actual number of days elapsed in a three hundred sixty (360) day year. The constant payment required hereunder is based on an amortization schedule of 30 years (360) months (“Amortization Term”).

The term “Applicable Interest Rate” shall mean from the date of this Note through and including the Maturity Date, a rate of Seven and Seventy-four Hundredths percent (7.74%) per annum.

The whole of the principal sum of this Note, together with all interest accrued and unpaid thereon and all other sums due under the Deed of Trust (hereinafter defined), the Other Security Documents (hereinafter defined), and this Note (all such sums hereinafter collectively referred to as the “Debt”) shall without notice become immediately due and payable at the option of Payee if any payment required in this Note is not paid on or before the fifth (5th) day after the date when due or on the happening of any other default, after the expiration of any applicable notice and grace periods, herein or under the terms of the Deed of Trust or Other Security Documents (hereinafter collectively an “Event of Default”). All of the terms, covenants and conditions contained in the Deed of Trust and the Other Security Document are hereby made part of this Note to the same extent and with the same force as if they were fully set forth herein. In the event that it should become necessary to employ counsel to collect the Debt or to protect or foreclose the security hereof, Maker also agrees to pay a reasonable attorney's fee for the services of such counsel whether or not suit be brought.

...

Maker does hereby agree that upon the occurrence of an Event of Default or upon the failure of Maker to pay the Debt in full on the Maturity Date, Payee shall be entitled to receive and Maker shall pay interest on the entire unpaid principal sum at the rate of the greater of (i) 5% above the Applicable Interest Rate or (ii) 5% above the Base Rate (hereinafter defined), in effect at the time of the occurrence of the Event of Default (the “Default Rate”). The term “Base Rate” shall mean the annual rate announced by Citibank, N.A., in New York City, New York as its base rate in effect at the time of the occurrence of the Event of Default. The Default Rate shall be computed from the occurrence of the Event of Default until the actual receipt and collection of the Debt.

This Note is secured by the Deed of Trust and the Other Security Documents. The term “Deed of Trust” as used in this Note shall mean the Deed of Trust, Security Agreement and Financing Statement dated the date hereof in the principal sum of $9,100,000 ¹ given by Maker for the use and benefit of Payee covering the fee estate of Maker in certain premises located in Bernalillo County, State of New Mexico. The term “Other Security Documents” as used in this Note shall mean all and any of the documents other than this Note or the Deed of Trust now or hereafter executed by Maker and/or others and by or in favor of Payee, which wholly or partially secure or guarantee payment of this Note or are otherwise executed and delivered in connection with the Note and/or the Deed of Trust.

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If any sum payable under this Note is not paid on or before the fifth (5th) day after the date on which it is due, Maker shall pay to Payee upon demand an amount equal to the lesser of five percent (5%) of such unpaid sum or the maximum amount permitted by applicable law to defray the expenses incurred by Payee in handling and processing such delinquent payment and to compensate Payee for the loss of the use of such delinquent payment and such amount shall be secured by the Deed of Trust and Other Security Documents.

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This Note shall be governed and construed in accordance with the laws of the State of New Mexico and the applicable laws of the United States of America.

Pages four through six of the Note establish that it is basically a non-recourse Note, with some exceptions that are not particularly relevant to this matter. However, on page six it also states:

Notwithstanding anything to the contrary in this Note, the Deed of Trust or in any of the Other Security Documents, the Debt shall be fully recourse to the Maker and any general partner of Maker in the event that ... a receiver, liquidator or trustee of Maker or of any guarantor shall be appointed, or if Maker or any guarantor shall be adjudicated a bankrupt or insolvent, or if any petition for bankruptcy, reorganization or arrangement pursuant to federal bankruptcy law or any similar federal or state law, shall be filed by, consented to, or acquiesced in by, Maker or any guarantor or if any proceeding for the dissolution or liquidation of Maker or of any guarantor shall be instituted by Maker or any guarantor.

On April 9, 1999, MCE Associates, L.P. (“Trustor”) executed a Deed of Trust, Security Agreement, Assignment of Leases and Rents and Financing Statement (“Deed of Trust”) that transfers the “Premises” described in Exhibit A and all improvements (collectively “Improvements”) to First American Title Insurance Company (“Trustee”) for the benefit of PW Real Estate Investments, Inc. to secure the payment of the $9,175,000.00 Note together with all extensions, renewals or modifications thereof. (ORIX Exhibit 2) The Deed of Trust incorporates the Note's provisions and provides many more details regarding the transaction. Paragraph 5 establishes an “Insurance and Tax Escrow Fund”, a “Replacement Escrow Fund” and a “Rollover Escrow Fund” into which the Trustor shall ² make payments to the Beneficiary to cover the items listed. For each fund, “Trustor hereby pledges to beneficiary any and all monies now or hereafter deposited into the [name of fund] as additional security for payment of the Debt.” Also, for each fund, “upon the occurrence of an Event of Default, Beneficiary may apply any sums then present in the [name of fund] to the payment of the Debt in any order in its sole discretion.”

Deed of Trust ¶ 20 lists “Events of Default” that are referred to in the Note. This paragraph provides that the “Debt shall become immediately due and payable at the option of the Beneficiary”, without notice or demand, upon any one or more of the following events (“Events of Default”): (a) failure to make any payment on or before the fifth day after it is due, (b) if any taxes or similar items such as assessments or government charges relating...