In re Perrysburg Marketplace Co.

Decision Date09 April 1997
Docket NumberAdv. No. 94-3195.,Bankruptcy No. 94-32588
PartiesIn re PERRYSBURG MARKETPLACE CO., Debtor. Mary L. MILLER, Plaintiff, v. MIF REALTY L.P., et al., Defendants.
CourtUnited States Bankruptcy Courts. Sixth Circuit. U.S. Bankruptcy Court — Northern District of Ohio

COPYRIGHT MATERIAL OMITTED

Stephen Schweller, Mark Bissinger, Rita Miller Altimari, Reuel Ash, Cincinnati, OH, for MIF Realty L.P.

Ralph Bragg, Michael Bragg, Toledo, OH, for plaintiff.

Marshall Guerin, Toledo, OH, for Barkan & Robon.

H. Buswell Roberts, Jr., John Gustafson, Toledo, OH, for PMC.

OPINION AND ORDER DENYING MOTIONS FOR SUMMARY JUDGMENT OF MARY L. MILLER, PERRYSBURG MARKETPLACE CO., PERRYSBURG LAND DEVELOPMENT INC., BARKAN & ROBON AND MARVIN A. ROBON, GRANTING MIF REALTY L.P.'S MOTION FOR SUMMARY JUDGMENT, AND GRANTING DECLARATORY JUDGMENT IN FAVOR OF MIF REALTY L.P.

WALTER J. KRASNIEWSKI, Bankruptcy Judge.

This matter is before the Court on defendant MIF Realty L.P.'s ("MIF") motion for summary judgment against Mary L. Miller ("Miller") on Miller's adversary complaint to determine the validity, priority and extent of MIF's mortgages, assignment of rents and assignment of leases against a leasehold on certain real property which the debtor-in-possession, Perrysburg Marketplace Company "PMC"), has leased from Miller. PMC and Miller have filed cross motions for summary judgment seeking to void MIF's interest in the leasehold mortgages. Likewise, Barkan & Robon ("B & R") and Marvin A. Robon ("Robon"), PMC's former attorneys, and Perrysburg Land Development, Inc. ("Land"), a corporation owned by PMC's principal Joseph Swolsky ("Swolsky"), have filed cross motions seeking to void MIF's interest in the leasehold mortgages. Alternatively, Miller's adversary complaint seeks a ruling that her fee interest in the real estate is senior in priority to MIF's mortgages on the leasehold, notwithstanding Miller's execution of subordination agreements in favor of MIF's predecessor in interest in 1983 and 1984.

MIF also seeks summary judgment on its counterclaims and cross claims against PMC, B & R, Robon and Land for a declaratory judgment that MIF's mortgages have first priority against the real estate, that a promissory note executed in conjunction with the leasehold mortgages is valid, and that the assignments of leases and rents are valid and enforceable. MIF further seeks an order permitting it to sell the real estate in satisfaction of the mortgages.

The Court finds that the motions for summary judgment of PMC, Miller, Land, B & R and Robon are not well taken and should be denied. The Court further finds that MIF's motion for summary judgment is well taken and should be granted, except to the extent that MIF seeks an order permitting it to sell the real estate in satisfaction of the mortgages without obtaining relief from stay and abandonment with regard to the real estate.

POSITIONS OF THE PARTIES

PMC, Miller, Land, B & R and Robon offer several arguments in support of their position that MIF's mortgages on PMC's leasehold estate are void. First, they argue that the mortgages are void because MIF's predecessor in interest, the RTC, lost the original promissory note executed by PMC. Second, they argue that PMC's obligation to MIF under the lost note and mortgages was extinguished by a bond trustee's repayment of certain bonds issued by Wood County, Ohio in a transaction related to PMC's execution of the note and mortgages. Third, they argue that MIF's action on the note and mortgages is precluded by a prior action by the RTC against PMC for servicing, administrative and standby loan commitment fees, which the RTC prosecuted in its capacity as receiver and conservator for the former Freedom Federal Savings and Loan Association. Fourth, they argue that the Court should deny enforcement of the lost note and mortgages because of MIF's alleged champerty.

Miller argues that the mortgages should not be enforced because they were not properly witnessed, because the mortgage executed in 1983 improperly sought to convey a mortgage in fee simple rather than a mortgage in PMC's leasehold, and because the mortgage executed in 1984 was without consideration. Further, Miller argues that the subordination agreements which she executed in 1983 and 1984 should not be enforced because they were ambiguous, and because MIF's predecessor in interest allegedly breached its obligations under the subordination agreements.

Not surprisingly, MIF argues that the lost note should be enforced and that its mortgages represent the first and best liens on PMC's leasehold interest. MIF further argues that the subordination agreements are unambiguous and should be enforced according to their terms.

FACTS

On August 8, 1980, Miller executed a forty-five year ground lease of undeveloped farmland in favor of S & W Land Company. S & W Land Company subsequently assigned the lease to PMC.

The Note, the Leasehold Mortgages and the Related Assignments of Rents, Assignments of Leases and Subordinations

In order to finance the construction of the Perrysburg Marketplace Shopping Center in Perrysburg Township, Ohio (the "Marketplace"), PMC executed a ten-year note in the amount of $2,200,000.00 in favor of Freedom 1 (the "Note"). See Swolsky Deposition, at p. 35. In its answer to MIF's cross claim, PMC admits "that it executed a commitment letter dated April 13, 1983 and a promissory note". Docket No. 12, Answer of Perrysburg Marketplace Co. To Cross Claim of MIF Realty, L.P., at p. 1, para. 2. To secure the Note, PMC granted Freedom 1 a leasehold mortgage on four parcels of real estate on April 13, 1983 (the "1983 Mortgage"). Docket No. 12, Answer of Perrysburg Marketplace Co. To Cross claim of MIF Realty, L.P., at p. 2, para. 3. Freedom 1 recorded the 1983 Mortgage on April 14, 1983. PMC also executed an assignment of rents and an assignment of leases to secure the Note.

Swolsky acknowledges that Freedom 1 paid PMC $2,200,000.00.

According to the affidavit of Michael D. Saad, the primary attorney representing Freedom 1 at the time of the loan transaction between Freedom 1 and PMC, "it was a requirement of Freedom 1 to have the fee interest subordinated to Freedom 1's mortgage in order to make the loan to PMC". Motion of MIF for Summary Judgment, Exhibit 4, Affidavit of Michael D. Saad (hereinafter "Saad Aff."), at pp. 3-4, para. 9. On April 12, 1983, Miller subordinated her interest in the real estate to the 1983 Mortgage (the "1983 Subordination"). The 1983 Subordination sets forth the fact that Freedom 1 was loaning PMC a principal amount of $2,200,000.00. The 1983 Subordination further states that:

Miller does hereby intentionally waive, relinquish and subordinate the priority and superpriority of her ownership interest in Premises in favor of the 1983 Mortgage (an executed copy of which is attached hereto). Miller understands that Freedom 1 is acting in reliance upon and in consideration of this waiver, relinquishment and subordination; specific loans are being and will be made, and as part and parcel thereof, specific monetary and other obligations are being made and will be entered into by third parties which would not be made or entered into but for such reliance upon this waiver, relinquishment and subordination. Miller further acknowledges that the fee simple ownership of the Premises has, by this instrument, been subordinated to the 1983 Mortgage.

1983 Subordination, at pp. 1-2, para. 1. Freedom 1 recorded the 1983 Subordination on April 14, 1983.

In June, 1984, PMC sought to draw the balance of the $2,200.000.00 construction loan, in excess of $1,340,000.00, despite the fact that PMC had failed to meet certain requirements for disbursement of the funds required by the construction loan documents. As a condition precedent to Freedom 1's disbursement of the balance of the $2,200,0000.00 construction loan, in excess of $1,340,000.00, Freedom 1 required PMC to execute an additional leasehold mortgage (the "1984 Mortgage"). MIF's Motion for Summary Judgment, Exhibit 1.A. § 5.01, p. 4; Docket No. 12, Answer of Perrysburg Marketplace Co. To Cross claim of MIF Realty, L.P., at p. 2, para. 4. The 1984 Mortgage covers the parcels of land where the Kroger and K-Mart stores are presently located (the "K Parcels"). Freedom 1 recorded the 1984 Mortgage on May 17, 1984.

In connection with the 1984 Mortgage, Miller executed a "Leasehold Mortgage Consent and Estoppel Certificate and Subordination Agreement" (the 1984 Subordination"). The language of the 1984 Subordination parallels that of the 1983 Subordination in all material respects. Leasehold Mortgage Consent And Estoppel Certificate And Subordination Agreement, at p. 1, para. 4. According to Saad, "it was the requirement of Freedom 1 to have the fee interest subordinated to Freedom 1's mortgage in order for Freedom 1 to advance in 1984 the unadvanced portion of the construction loan." Saad Aff., at p. 4, para. 10. Freedom 1 recorded the 1984 Subordination on June 22, 1984. Stipulation of Facts, at p. 3, para. 11.

Miller benefited from subordinating her fee interest to the 1983 Mortgage by receiving increased ground rent. PMC's rent obligation rose from $12,000.00 annually to $7,972.50 per month after construction of the Marketplace. Stipulation of Facts, at p. 3, para. 10.

In June of 1984, Freedom 1 sold the Note to Nassau Savings and Loan Association ("Nassau 1").

In conjunction with the sale of the Note, Freedom 1 assigned the 1983 Mortgage and the 1984 Mortgage (collectively, the "Mortgages") to Nassau 1, along with the related assignments of rents (the "Rent Assignments") and assignments of leases (the "Lease Assignments"), and the subordination agreements (the "Subordinations"). See MIF's Motion for Summary Judgment, Exhibit 1.G. (Assignment of 1983 Mortgage); Exhibit 1.H. (Assignment of Assignment of Leases and Rents); Exhibit 1.I. (Assignment of 1984 Mortgage and Assignment of Leases and Rents); MIF has provided the...

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