In re Northwood Properties, LLC

• Decision Date: 30 November 2007
• Docket Number: No. 07-1146.,07-1146.
• Citation: 509 F.3d 15
• Parties: In re NORTHWOOD PROPERTIES, LLC, Debtor. Sidney Bourne; Claudio M. Delise; Ralph S. Tyler, Plaintiffs, Appellees, v. Northwood Properties, LLC, Defendant, Appellant.
• Court: U.S. Court of Appeals — First Circuit

509 F.3d 15

In re NORTHWOOD PROPERTIES, LLC, Debtor Sidney Bourne; Claudio M. Delise; Ralph S. Tyler, Plaintiffs, Appellees, v. Northwood Properties, LLC, Defendant, Appellant.

No. 07-1146.

United States Court of Appeals, First Circuit.

Submitted October 1, 2007.

Decided November 30, 2007.

Jeffrey D. Ganz and Riemer & Braunstein LLP, on brief, for appellant.

Robert J. Galvin, Christopher J. Marino, and Davis, Malm & D'Agostine, P.C., on brief, for the Abstract Club and the Real Estate Bar Association for Massachusetts, Inc., amici curiae.

Sidney Bourne, Claudio M. Delise, and Ralph S. Tyler, on brief, pro se.

Before TORRUELLA, Circuit Judge, CAMPBELL, Senior Circuit Judge, and LYNCH, Circuit Judge.

LYNCH, Circuit Judge.

In this case we interpret Massachusetts General Laws chapter 183A, section 5, which governs condominium owners' rights and powers vis-à-vis the phased development of condominium projects. We reverse the district court, In re Northwood Props., LLC, 356 B.R. 81 (D.Mass.2006), because its statutory interpretation was in error.

Northwood Properties, LLC, ("Northwood") is the developer of Northwood at Sudbury, a partially completed condominium project. Northwood is currently attempting to reorganize under Chapter 11 of the Bankruptcy Code. At every turn, its reorganization has been opposed by three individuals: Sidney Bourne, Claudio Delise, and Ralph Tyler. Bourne and Delise are residents of Northwood at Sudbury; all three are creditors of Northwood. Bourne and Delise vigorously oppose Northwood's attempt to extend its rights to finish developing Northwood at Sudbury, rights which were set by the original master deed to expire in 2005. Without the extension of these rights, Northwood's efforts at reorganization will likely fail.

This discrete dispute turns on a provision in the Massachusetts condominium statute which provides that a condominium owner constructively consents to the addition of further units "if the master deed at the time of the recording of the unit deed . . . made possible an accurate determination of the alteration of each unit's undivided interest that would result therefrom." Mass. Gen. Laws ch. 183A, § 5(b)(1). This provision has yet to be interpreted by the Supreme Judicial Court or the Massachusetts Appeals Court.

Further, Bourne, Delise, and Tyler all oppose Northwood's reorganization plan, offering their own in its place. Under their plan, they would take control of the reorganized development company, Bourne and Delise would be paid for their consent to further development, and Tyler would receive a large settlement for his long-running litigation against Northwood at Sudbury. The three appellees also argue that Northwood's final plan denied them a vote in its confirmation by leaving their rights as creditors unimpaired.

The bankruptcy court held that Northwood had successfully extended its development rights; rejected Bourne, Delise, and Tyler's voting complaint; and confirmed Northwood's plan. The district court, sitting as an intermediate appellate court, interpreted section 5 of chapter 183A to hold that Northwood had not successfully extended its development rights. In re Northwood Props., 356 B.R. at 89. Because it remanded the issue of confirmation of Northwood's plan for reconsideration in light of this ruling, it did not consider the voting argument. Id.

We hold that we have jurisdiction over both disputes, hold that the district court's interpretation of the condominium statute was in error, reverse the district court's ruling on the validity of Northwood's development rights, find the district court's remand moot on the grounds stated, and affirm the bankruptcy court's confirmation of the reorganization plan.

I.

Northwood at Sudbury was originally envisioned as a six-building complex that would offer residential care to the residents of its sixty-six condominium units. The master deed for the condominium was recorded on December 9, 1998, following the completion of the first phase of development, which consisted of one twelve-unit building. As the Massachusetts Appeals Court has explained, "[i]n a phased condominium development, groups or stages of units are completed over a period of several years and become part of the condominium by successive amendments to the master deed. `Phasing' is not a statutory term, but is a usage that has grown out of the general enabling provisions" of the condominium statute. Podell v. Lahn, 38 Mass.App.Ct. 688, 651 N.E.2d 859, 860 n. 3 (1995). The deed allowed for four additional phases of construction to complete the project, but it set those development rights to expire on December 9, 2005.

The master deed was amended on May 20, 2002, to account for the completion of the second phase, which consisted of another twelve-unit building and a clubhouse. Bourne and Delise each purchased a unit built in this second phase. No further phases have yet been undertaken.

In advance of the expiration of its development rights, Northwood negotiated an extension of those rights with the condominium unit owners' association ("Association") in exchange for $700,000. Even though Northwood had filed for bankruptcy in the interim, twenty unit owners approved the extension, two abstained, and two — Bourne and Delise — voted against it. This eighty-three percent approval was more than sufficient under the master deed to extend the development rights until December 9, 2010.

When Northwood filed for bankruptcy in September 2005, there were five unsecured claims held by non-insider creditors: (1) $50.00 owed to NStar; (2) $50.00 owed to KeySpan; (3) $305.92 owed to GZA GeoEnvironmental; (4) $622,270 allegedly owed to Ralph Tyler; and (5) approximately $1.5 million owed to the Association. Northwood disputed the debt claimed by Tyler; the legitimacy of that claim is still pending before the bankruptcy court.¹

Bourne and Delise filed a Phasing Rights Motion in Northwood's bankruptcy proceedings in February 2006, seeking a determination that the extension of development rights was not valid without their consent. In March 2006, Bourne, Delise, and Tyler each purchased, respectively, the NStar debt, the GZA GeoEnvironmental debt, and the KeySpan debt. By becoming creditors of Northwood, they improved their ability to oppose Northwood's Chapter 11 reorganization plan and gained the opportunity to submit their own.

Northwood filed its first proposed reorganization plan in May 2006. Under this plan, the five unsecured, non-insider claims were grouped together and would initially receive approximately five percent of the allowed amount of those claims. Proceeds from either future condominium sales or the sale of Northwood's development rights would then be distributed pro rata among the claims. As relevant here, a claim is impaired under a reorganization plan if the plan does not "leave[ ] unaltered the legal, equitable, and contractual rights to which such claim . . . entitles the holder of such claim." 11 U.S.C. § 1124(1). Because their interests were impaired under this plan, Bourne, Delise, and Tyler had a controlling vote over the plan's confirmation, which they opposed.

Northwood then submitted a revised version of its plan in July 2006. This version grouped the NStar, KeySpan, and GZA GeoEnvironmental debts into a convenience class; these claims, including interest, would be paid in full immediately. Tyler's original claim was placed in its own class and would be paid in full with interest once a final, non-appealable order allowing the claim was entered. This left the Association's claim in its own class, to be paid over time by Northwood's future earnings as under the first proposed plan. Because the interests of Bourne, Delise, and Tyler were no longer impaired under this plan, their votes were not required for the plan's confirmation. The Association, whose interests remained impaired, voted to accept the plan.

In July 2006, the bankruptcy court denied Bourne and Delise's Phasing Rights Motion, rejecting their argument that, despite the vote of the Association, no development rights could be extended without their specific consent. The court then conducted a confirmation hearing on Northwood's revised plan and approved it. Bourne, Delise, and Tyler objected to the reclassification of claims under the revised plan, arguing that it impermissibly nullified their votes. The court rejected this argument, however, because the revised plan fulfilled all their interests as creditors. Bourne, Delise, and Tyler moved for reconsideration, primarily of the phasing rights issue; the court denied the motion. They then appealed to the district court, which took a different view of the matter than did the bankruptcy court.

Before the district court, Bourne, Delise, and Tyler argued that their Phasing Rights Motion should have been granted and that the revised plan should not have been confirmed. On the confirmation question, they argued in part that the plan was infeasible if Northwood did not have legitimate development rights and in part that Northwood's reclassification of their claims was an impermissible "gerrymander" meant to deprive them of a say in Northwood's reorganization.

The district court held a hearing on November 16, 2006, which focused on the appellees' Phasing Rights Motion. The court issued its order three weeks later, essentially granting the Phasing Rights Motion and holding that Northwood's development rights had not been legitimately extended. In re Northwood Props., 356 B.R. at 89. It vacated the confirmation of the plan on the grounds that the plan was not feasible without the development rights. Id. In so concluding, the court interpreted the condominium statute as demanding a great degree of precision. That is the first merits issue before us.

Because the court found the revised plan not feasible and thus vacated the plan's confirmation on that ground, the court did not address the reclassification...