In re Montgomery Court Apartments
| Decision Date | 26 May 1992 |
| Docket Number | Bankruptcy No. 2-90-07782,No. 38-2567292.,38-2567292. |
| Citation | 141 BR 324 |
| Parties | In re MONTGOMERY COURT APARTMENTS OF INGHAM COUNTY, LTD., Debtor. |
| Court | U.S. Bankruptcy Court — Southern District of Ohio |
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Mark A. Beatrice, Manchester, Bennett, Powers & Ullman, Youngstown, Ohio, for debtor.
Grady L. Pettigrew, Jr., Arter & Hadden, Columbus, Ohio, for Greyhound Leasing and Financial Corp.
Leonard A. Carlson, Schottenstein, Zox & Dunn, Charles M. Caldwell, Office of the U.S. Trustee, Carol Stebbins, and Fordham Huffman, Marilyn Shea-Stonum, Jones, Day, Reavis & Pogue, Columbus, Ohio, Michael L. Cook, Sally M. Henry, Skadden, Arps, Slate, Meagher & Flom, New York City, co-counsel to Trustee.
Jay Alix, Jay Alix & Associates, Southfield, Mich., Chapter 11 Trustee.
Leon Friedberg, Benesch, Friedlander, Coplan & Aronoff, Columbus, Ohio, for Official Committee of Unsecured Creditors.
Harvey S. Minton, Minton & Leslie, Columbus, Ohio, Charles J. Taunt, Charles J. Taunt & Associates, Birmingham, Mich., Gary H. Cunningham, Kramer Mellen, P.C., Southfield, Mich., Sp. Counsel to Trustee of the Consol. Estate.
James Bownas, General Counsel, Cardinal Industries, Inc., Columbus, Ohio.
Before the Court is the requested confirmation of a First Amended Plan of Reorganization ("Plan") proposed by Chapter 11 debtor Montgomery Court Apartments of Ingham County, Ltd. ("Montgomery Court"). Greyhound Financial Corporation ("Greyhound") objected to confirmation and voted to reject the Plan. No other parties objected to confirmation. Montgomery Court requested confirmation over Greyhound's rejection under the "cram down" provisions of Chapter 11 and the Court heard the matter. The Court also has considered the parties' prehearing and posthearing briefs as well as written comments from the Official Committee of Unsecured Creditors in the Cardinal Industries, Inc. consolidated cases.
The Court has jurisdiction in this contested matter under 28 U.S.C. § 1334(b) and the General Order of Reference entered in this district. This is a core proceeding under 28 U.S.C. § 157(b)(2)(L) which this bankruptcy judge may hear and determine. To facilitate the location of specific aspects of this opinion, an index is included as exhibit A.
Montgomery Court is a syndicated Ohio limited partnership. The managing general partner is Cardinal Industries, Inc. ("CII"). CII and 31 of its corporate subsidiaries or affiliates ("Cardinal Enterprise") are also debtors in Chapter 11 cases before this Court. Those corporate estates have been substantively consolidated. Additionally, approximately 300 limited partnerships in which either CII or one of its subsidiaries is a managing general partner, and three related corporate entities (collectively "Partnership Debtors") also are Chapter 11 debtors in this Court.
The Cardinal Enterprise was a vertically integrated business structure which manufactured modules used in the construction of motels, retirement villages and apartment complexes, such as the one owned by Montgomery Court. The Cardinal Enterprise controlled every aspect of development from "conception to consumption." Initial financing, management, accounting services and replacement parts all were provided by various arms of the Cardinal Enterprise. Approximately 1,000 properties were developed in this manner; approximately 550 of those were later syndicated to outside investors. See, generally, Cardinal Industries, Inc. v. Buckeye Federal Savings and Loan Association (In re Cardinal Industries), 105 B.R. 834, 837 (Bankr.S.D.Ohio 1989).
The relationship between Montgomery Court and the Cardinal Enterprise is important because Montgomery Court is not an isolated Chapter 11 debtor before this Court. The Court previously has noted that events in the Cardinal Enterprise case necessarily impact the Partnership Debtors. See In re Montgomery Court Apartments of Ingham County, Ltd., 126 B.R. 537, 359 (Bankr.S.D.Ohio 1991) and In re Northgate Terrace Apartments, Ltd., 126 B.R. 762, 766 (Bankr.S.D.Ohio 1991). The reverse is also true. Further, it is the future value of receivables from retained partnerships which are the primary assets of the Cardinal Enterprise estate. Therefore, it is impractical to view Montgomery Court or any Partnership Debtor without considering the interrelated nature of the Cardinal Enterprise and the Partnership Debtors.
Montgomery Court owns real property in Ingham County, Michigan on which a 59-unit single story apartment complex has been constructed (the "Property"). In January 1986, Montgomery Court executed a promissory note payable to Cardinal Industries Mortgage Company ("CIMC") in the principal amount of $1,160,000. That note carries an interest rate measured at 1.5% over the Citibank, N.A., prime rate. Recourse under the note is limited to the Property. Repayment of Montgomery Court's obligations under the note is secured by a mortgage against the Property, an assignment of rents and a security interest in all personalty. In 1986, CIMC assigned to Greyhound the note, mortgage, assignment of rents and security agreement.
Montgomery Court filed its voluntary petition for relief under Chapter 11 on November 19, 1990. In an order of February 15, 1991, the parties agreed to the use of the rents as cash collateral to pay the reasonable, necessary and ordinary expenses associated with the operation of the Property. After payment of enumerated expenses, net rents were to be paid to Greyhound up to the amount of the regular monthly payment required by the promissory note. One-half of any net income from the Property remaining after that payment was also to be paid to Greyhound to "be applied against Greyhound Financial's claim." Montgomery Court was to deposit the remaining one-half of its net income into a debtor in possession account. Those deposited funds were not to be used without the written consent of Greyhound.
Montgomery Court's Plan classifies claims and interests into fifteen classes. Greyhound's allowed claim is bifurcated into an allowed secured claim and an allowed unsecured claim based upon the provisions of 11 U.S.C. § 506(a) and the debtor's assertion that Greyhound's total claim exceeds the value of the Property. Greyhound disputes this characterization.
The Plan proposes to pay Greyhound's allowed secured claim on a thirty year amortization schedule with a discount factor of 9.825% per annum and a new maturity date measured by the earlier of December 31, 2000, or the sale of the Property or refinancing of the mortgage debt. Only interest will be paid on that secured claim during the first year of the Plan.
Montgomery Court calculates the amount of Greyhound's secured claim by first subtracting from the value of the Property estimated liquidation or transfer expenses. The secured claim is then increased by the amount of net rent payments made to Greyhound after the bankruptcy filing date, but prior to the effective date of the Plan. Additionally, those post-petition payments made under the cash collateral order are to be applied to satisfy the Debtor's obligation to Greyhound on account of its allowed secured claim during the first 10 or 11 months of the Plan. (Amended Plan of Reorganization § 4.02). Greyhound strongly disputes the appropriateness of these provisions.
The Plan further provides that Greyhound's allowed unsecured claim may receive annual payments of interest at 4% per annum until the earlier of December 31, 2000, or the sale of the Property or refinancing of the mortgage obligation. Upon any of those events, a final payment of unpaid principal and accrued and deferred interest will be made. Payments on account of Greyhound's allowed unsecured claim will coincide with payments to be made on the allowed unsecured claims of certain Cardinal Enterprise affiliates. The allowed unsecured claims of those Cardinal Enterprise affiliates are also to receive interest at 4% per annum. Payments to either class of claims prior to any sale or refinancing are to be made only to the extent of available cash flow after operating expenses and the satisfaction of other payments under the Plan.
The Plan separately classifies the allowed interests of CII as general partner, R/E Management Services Inc. ("R/E") as an additional general partner, and the thirty-five individual limited partners ("Limited Partner(s)"). CII is to contribute new capital based upon its proportionate equity interest in the partnership, consistent with the total capital contributions required from all interest holders. The Plan, however, proposes to offset CII's contribution against its administrative expense claim.
Section 5.05 of Montgomery Court's Plan provides that the Partnership Agreement "shall be further amended as of the Effective Date, to remove R/E as an additional general partner of the Debtor." CII is to continue as the managing general partner.
The Plan's treatment of interests held by the Limited Partners is more complicated. Because confirmation has been requested under the "cram down" provisions of § 1129(b), the only equity interests which survive confirmation are those designated as new class A units, to be purchased during the confirmation process for a $2000 contribution of new capital for each such unit.
The Plan also separately classifies and provides for any allowed claims of Pittsburgh National Bank ("PNB"), the holder of certain investor notes executed by the Limited Partners. The treatment of this class is confusing. The Plan provides that Montgomery Court will object to the allowance of any claim in this class, but estimates this claim at $9,755 plus interest. (Amended Plan of Reorganization § 4.04). PNB...
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