In re Ponn Realty Trust, Bankruptcy No. 80-00312-HL.
| Decision Date | 09 May 1980 |
| Docket Number | Bankruptcy No. 80-00312-HL. |
| Citation | 4 BR 226 |
| Parties | In re PONN REALTY TRUST, Debtor. |
| Court | U.S. Bankruptcy Court — District of Massachusetts |
Stephen M. Richmond, Siri F. Boreske, Barbara T. Goff, Kaye, Fialkow, Richmond & Rothstein, Boston, Mass., for plaintiff.
Gerald D. Rosen, Richmond, Rosen, Crosson & Resnek, Boston, Mass., for defendant debtor.
MEMORANDUM ON MOTION TO DISMISS
Debral Realty, Inc., an alleged secured creditor of the debtor, Ponn Realty Trust, has filed a motion seeking the dismissal of the Chapter 11 proceeding commenced voluntarily by Ponn Realty. The motion to dismiss fails to specify whether the movant is seeking the court's action pursuant to 11 U.S.C. § 1112 or 11 U.S.C. § 305,1 but only states that dismissal is appropriate because "the Trust is not an entity entitled to be debtor under the Bankruptcy Code." A hearing was conducted by the court on the issue of dismissal and arguments have been briefed by counsel for both parties. The court will consider each of the sections.
The motion to dismiss, first to be considered in relation to 11 U.S.C. § 1112, raises an issue of first impression under the new Bankruptcy Code, although that in itself may not be unique considering that this far-reaching enactment only became effective on October 1, 1979.
The issue is stated simply: Can Chapter 11 properly be invoked to forestall a secured creditor from foreclosing a mortgage on a one-family, debtor-occupied residential dwelling and thereby also seek readjustment of the mortgage debt?
There is apparently no provision in the Bankruptcy Code that would, on its face, prevent the filing of a Chapter 11 proceeding in such a circumstance. In the case presently before the court, a petition under Chapter 11 was filed on February 20, 1980 by Ponn Realty Trust, a business trust with transferrable shares. A foreclosure sale of the Trust's sole asset, a single-family dwelling house located at 57 Barbara Lane, Milton, Massachusetts, had been scheduled for the morning of February 21, 1980. The trustee of the Ponn Realty Trust, one Nancy Cantor, resides in the house belonging to the trust and, as was conceded at the hearing on the motion to dismiss, she has resided in the house continuously since the Trust first acquired the property in 1974. In the schedules filed by Mrs. Cantor, all of the shares of the Trust are shown as owned by Mrs. Cantor's son Stephen Cantor; the value of the house in question is listed as $150,000; the mortgage debts are listed at approximately $400,000, concededly making any equity doubtful although these mortgages are listed as contingent and disputed. The schedules further indicate that except for liability for 1978 and 1979 real estate taxes, there are no creditors other than those parties who assert claims under the various mortgages on the property. The debtor was engaged in three state court actions with the different mortgagees and assignees at the time of the filing of the Chapter 11 petition.
The moving party, Debral Realty, Inc., is the first mortgagee of the property in question and has filed both a complaint for relief from the automatic stay and this motion to dismiss. The debtor has filed an answer to the complaint and a memorandum entitled "Opposition of Debtor to Motion to Dismiss". A hearing on the motion to dismiss was conducted, however, no evidence was produced by the parties at that hearing. Although both parties attempt to argue facts in their briefs, the court does not accept these arguments as evidence of "cause" under 11 U.S.C. § 1112 and, therefore, the court's determination will of necessity be based upon the petition, schedules, statement of affairs and admissions in open court.2 It should be noted that 11 U.S.C. § 1112, and not F.R.C.P. 12(b)(6), is the controlling standard. Although Rule 12(b)(6) and section 1112 may operate similarly in certain circumstances, they are not equivalent and section 1112 is not as limited inasmuch as it expressly contemplates the possibility of an evidentiary hearing.
In opposition to the motion to dismiss, the debtor contends that it is indeed an entity entitled to relief under Chapter 11 of the Bankruptcy Code. The debtor's analysis begins with an examination of 11 U.S.C. § 109(d).
Sec. 109(d) Only a person that may be a debtor under chapter 7 of this title, except a stockholder or commodity broker, and a railroad may be a debtor under chapter 11 of this title.
Section 109(b) of the Code sets forth the eligibility requirements for debtors under Chapter 7.
Hence the debtor concludes that if the debtor Trust qualifies as a "person" under the Code, then it is a proper entity for relief under Chapter 11.
The Bankruptcy Code defines "person" as including an "individual, partnership, and corporation, but does not include governmental unit." 11 U.S.C. § 101(30). Pursuant to section 101(8)(A)(v), the term "corporation" includes business trusts. 11 U.S.C. § 101(8)(A)(v). Because a business trust is a "person" within the ambit of the Bankruptcy Code, the debtor submits that its petition under Chapter 11 is proper.
The debtor seeks to buttress its argument by referring the court to case law under Chapter VI of the Bankruptcy Act. Citing In re Roundabout Theatre Co., Inc., 1977 Bankr.L.Rep. (CCH) ¶ 66,545, the debtor notes that a corporation under Chapter XI of the Act did not necessarily have to be a moneyed, commercial business but could also be a business of a non-profit nature. From this, the debtor argues that the real estate owned by Ponn Realty Trust together with its desire for reorganization provide sufficient grounds for a Chapter 11 proceeding.
The court concurs with the debtor that, under the proper circumstances, a business trust such as a realty trust with transferrable shares may be a proper debtor under Chapter 11 of the Bankruptcy Code. The issue presented herein, however, is broader than the issue addressed in the debtor's arguments. In the present case, the sole asset of the debtor trust is a one-family residence occupied by the trustee and her family. The real issue presented is whether Chapter 11 is an appropriate vehicle for the adjustment of mortgage indebtedness on a single-family residence.
In interpreting the new Bankruptcy Code, it is essential to ascertain congressional intent. The debtor maintains that congressional intent is irrelevant unless the statute to be construed is ambiguous. Clearly, the Code does not explicitly exclude a Chapter 11 proceeding for a single-family residence, however, that in and of itself does not conclusively establish the converse. It is but the first step. Did Congress intend that mortgages on owner-occupied single family homes are suitable subjects for readjustment under Chapter 11? Is such a filing a good faith filing under 11 U.S.C. 1129(a)(3)?
There is, of course, no more persuasive evidence of the purpose of a statute than the words by which the legislature undertook to give expression to its wishes. Often these words are sufficient in and of themselves to determine the purpose of the legislation. In such cases we have followed their plain meaning. When that meaning has led to absurd or futile results, however, this Court has looked beyond the words to the purpose of the act. Frequently, however, even when the plain meaning did not produce absurd results but merely an unreasonable one `plainly at variance with the policy of the legislation as a whole\' this Court has followed that purpose, rather than the literal words.
Perry v. Commerce Loan Co., 383 U.S. 392, 400, 86 S.Ct. 852, 857, 15 L.Ed.2d 827 (1966) (quoting United States v. American Trucking Ass'ns, 310 U.S. 534, 543, 60 S.Ct. 1059, 1063, 84 L.Ed. 1345 (1940)). In Perry, the Court construed the language of section 14 of the Bankruptcy Act as not barring confirmation of an extension plan under Chapter XIII even though a discharge in bankruptcy had been granted within the immediately preceding six years. Id., 383 U.S. at 394, 86 S.Ct. at 854. See also Peter Pan Fabrics, Inc. v. Martin Weiner Corp., 274 F.2d 487, 489-90 (2d Cir. 1960). The court not only may, but must, look to the legislative history of the Bankruptcy Reform Act to determine whether the case currently before the court is within the intended purpose of Chapter 11.
In the introduction to Senate Rep. No.95-989 at page 3, U.S.Code Cong. & Admin.News 1978, pp. 5787, 5789, the following statement is made regarding the intended purpose of Chapter 11.
The second paragraph of this discussion of Chapter 11 indicates that the new Chapter 11 under the Bankruptcy Code replaces Chapters X, XI, and XII of the old Bankruptcy Act and further indicates the purpose of this consolidation.
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