In re River Village Associates, Bankruptcy No. 92-15503S.

CourtUnited States Bankruptcy Courts. Third Circuit. U.S. Bankruptcy Court — Eastern District of Pennsylvania
Writing for the CourtDAVID A. SCHOLL
Citation161 BR 127
PartiesIn re RIVER VILLAGE ASSOCIATES, a Delaware Limited Partnership, Debtor.
Docket NumberBankruptcy No. 92-15503S.
Decision Date29 October 1993

161 B.R. 127 (1993)

In re RIVER VILLAGE ASSOCIATES, a Delaware Limited Partnership, Debtor.

Bankruptcy No. 92-15503S.

United States Bankruptcy Court, E.D. Pennsylvania.

October 29, 1993.

161 BR 128

Kenneth S. Goodkind, Fellheimer, Eichen & Braverman, P.C., Philadelphia, PA, for debtor.

Stephen M. Lyons, III, Reed Smith Shaw & McClay, Philadelphia, PA, Irving Sulmeyer, Sulmeyer, Kupetz, Baumann & Rothman, Los Angeles, CA, for GECC.

Frederic Baker, Ass't. U.S. Trustee, Philadelphia, PA.


DAVID A. SCHOLL, Bankruptcy Judge.


Presently before this court in the voluntary Chapter 11 bankruptcy case of RIVER

161 BR 129
VILLAGE ASSOCIATES ("the Debtor") are (1) the Debtor's request that we confirm its Fourth Amended Plan of Reorganization Dated July 9, 1993 ("the Debtor's Plan"), over the opposition of the Debtor's only secured lender, General Electric Capital Corporation ("GECC"); (2) GECC's request that we confirm its competing Second Amended Plan of Reorganization ("GECC's Plan") over the Debtor's opposition; and (3) GECC's motion for relief from the automatic stay, or, alternatively, for adequate protection ("the Stay Motion")

We hold that the Debtor's Plan is confirmable, finding that, despite the decision in General Motors Acceptance Corp. v. Jones, 999 F.2d 63 (3rd Cir.1993), it is permissible to apply the Debtor's proposed risk free rate plus a premium of nine (9%) percent per annum in the instant situation in light of evidence that GECC does not presently make loans similar to the terms of the loan it is required to make under the Debtor's Plan. However, we also hold that GECC's Plan is confirmable. Since we are permitted to confirm only one plan, we have determined that GECC's plan should be confirmed, because it has greater creditor support and does not frustrate the public policy of preferring reorganizational efforts which will preserve going businesses and aid the economy. Consequently, the Stay Motion is moot and we need not address it.


The Debtor filed the underlying bankruptcy case on September 11, 1992 ("the Petition Date"). The Debtor is a limited partnership which owns a single asset: an apartment complex known as River Village Apartments, located at 2610 Philadelphia Turnpike, Claymont, Delaware ("the Property"). The Debtor and GECC have both presented testimony that the Property needs significant repairs. They also agree that the clientele of the Property is "blue collar workers," historically consisting of many employees at the Philadelphia Navy Yard, which is itself threatened with closure.

On or about May 28, 1988, the Debtor acquired the Property from the Najjar Group ("Najjar"). The Debtor, Najjar, and GECC entered into a Note and Mortgage Assumption Agreement pursuant to which the Debtor assumed Najjar's obligations (1) under a $7,000,000.00 Promissory Note, dated April 27, 1988, to GECC ("the Note"); (2) a Mortgage and Security Agreement to GECC constituting a first lien on the Property; (3) an Assignment of Rents and Leases, dated April 27, 1988, to GECC encumbering the Property ("the Assignment of Rents"); and (4) certain other loan documents incidental thereto. The Note was subsequently amended on October 30, 1990, and December 30, 1990.

The Note, as amended, matures on April 30, 1995, and bears interest at a rate of one and five-eighths (1 5/8%) percent per annum in excess of the higher of GECC's commercial paper rate or the prime rate ("the Contract Rate"). GECC contends that the Debtor was required to make payments as if the Note bore interest at eleven (11%) percent on the Petition Date. However, as of the hearing of June 2, 1993, see page 130 infra, GECC's agent conceded that, at that time, the effective interest rate was 7.625 percent. Also, it is important to note that, on the Petition Date, the Debtor was collecting the rents on the Property.

On October 14, 1992, GECC filed the Stay Motion. On December 10, 1992, we entered an order ("the December Order") granting GECC relief from the automatic stay only for the purposes of initially filing any action that it could take under the applicable loan documents and applicable state law ("the Limited Relief"). The Limited Relief prevented GECC from executing upon any foreclosure judgment obtained if the Debtor, on or before February 18, 1993, filed a plan of reorganization and obtained a written commitment from a non-insider third party to finance proposed repairs and improvements to the Property. Since entering the December Order, we have extended the Limited Relief several times, and it remains in effect pursuant to an Order dated June 29, 1993.

After obtaining the Limited Relief, GECC filed a complaint for appointment of a receiver and a complaint to foreclose the mortgage in Delaware state court. GECC also sent a letter to all tenants of the Property notifying them to pay rents directly to GECC.

161 BR 130

In response to GECC's latter action, the Debtor, on January 11, 1993, filed a motion for reconsideration of the December Order and to hold GECC in contempt. After a colloquy of January 13, 1993, in which we informed GECC's counsel that the December Order should not have been interpreted as allowing GECC to demand rent payments from the tenants, we entered an order of January 14, 1993, requiring the Debtor and GECC to send a joint letter to the tenants advising them to once again pay their rents to the Debtor.

The Debtor filed its first plan of reorganization and disclosure statement on January 8, 1993. Since that time, the Debtor has amended its plan three times and its disclosure statement twice.

On June 2, 1993, we conducted a lengthy hearing to consider confirmation of the Debtor's Third Amended Plan ("the 3rd Plan"). After extensive post-hearing briefing, we issued an Order/Memorandum of June 19, 1993, reported at 1993 WL 243897 ("the Memo"), denying confirmation of the 3rd Plan for the following reasons: (1) the value of the Property was $3,250,000, not the $2,500,000 figure that the Debtor claimed it was and assumed that it was in determining the amount of GECC's secured claim in the 3rd Plan. Slip op. at *1; (2) the interest rate necessary to provide GECC with the present value of its secured claim was at least nine (9%) percent, not eight (8%) percent, as proposed in the 3rd Plan. Id. at *2; (3) it was unclear how the tenants' priority claims for security deposits were being treated and, therefore, a reballoting of the tenants holding such claims was necessary. Id.; and (4) an attempt to obtain releases of general partners from creditors who did not affirmatively agree to such releases was inappropriate. Id. at *3. The Memo also (1) continued the Stay Motion on the condition that the Debtor file a Fourth Amended Plan and an accompanying Amended Disclosure Statement on or before July 9, 1993. Id. at *1; (2) required the Debtor to resolicit plan votes. Id.; and (3) denied GECC's motion to sequester rents because we doubted whether, under applicable Delaware law, GECC had a valid security interest in the rents. Id. at *5-*6.

In accordance with the Memo, the Debtor filed the Plan before us for consideration and an accompanying Third Amended Disclosure Statement on July 9, 1993. However, on the previous day, July 8, 1993, GECC had also filed a plan and disclosure statement.

On July 21, 1993, we summarily denied a motion of the Debtor to "clarify" the Memo in such a fashion as to interpret it as an extension of the Debtor's exclusivity period, which had otherwise expired. We stated that, in issuing the Memo, we did not mean to extend the Debtor's exclusivity period nor preclude GECC from filing a competing plan.

Hearings on the Disclosure Statements accompanying both Plans were scheduled on August 4, 1993. Both parties filed Objections to the Disclosure Statements of the other. GECC filed the instant Plan and an Amended Disclosure Statement in response to the Debtor's Objections to its original Disclosure Statement on August 4, 1993. On August 5, 1993, we entered orders approving each of the parties' respective Disclosure Statement, and scheduling confirmation hearings on both Plans on September 22, 1993.

On the latter date, we conducted a brief consolidated hearing regarding confirmation of both Plans, supplemental to the extensive hearing of June 2, 1993, relating to confirmation of the Debtor's 3rd Plan. After the hearing, on September 23, 1993, we entered an Order granting the parties an opportunity to simultaneously file Opening Briefs supporting their own plans and opposing those of the other party by October 1, 1993, and Reply Briefs addressing the same issues by October 8, 1993.


The key difference between the Plans in issue is their treatment of (1) the tenants' claims for security deposits; (2) GECC's claim; and (3) the partners' equity interests in the Debtor. In describing the Plans, we will focus on their treatment of these claims.

The tenants have claims against the Debtor for their security deposits. The first $900

161 BR 131
of each of these claims is arguably a sixth priority claim pursuant to 11 U.S.C. § 507(a)(6)

GECC's total claim against the Debtor is $6,746,564. In the Memo, this court determined that the value of the Property securing the GECC's claim is $3,250,000. Accordingly, GECC has a secured claim of $3,250,000 and an unsecured claim in the amount of $3,496,564.


The Debtor's Plan basically corrects the deficiencies that prevented confirmation of the 3rd Plan. It includes the tenants' allowed claims for security deposits in Class 3 to the extent they are priority claims pursuant to 11 U.S.C. § 507(a)(6). The tenants have an option with respect to these claims. Each tenant may elect to have ninety (90%) percent of the claim paid in cash on the effective date or as soon as practicable thereafter. The claims of...

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1 practice notes
  • In re M. Paolella & Sons, Inc., Civ. A. No. 92-1405
    • United States
    • United States District Courts. 3th Circuit. United States District Court (Eastern District of Pennsylvania)
    • 18 Noviembre 1993
    ...547 that the Bankruptcy Court entered against MNC and in favor of the trustee in the amount of $166,103.00 is affirmed. Accordingly, 161 BR 127 the order of the Bankruptcy Court is affirmed in part and reversed in JUDGMENT ORDER AND NOW, on this 18th day of November, 1993, and for the reaso......
1 cases
  • In re M. Paolella & Sons, Inc., Civ. A. No. 92-1405
    • United States
    • United States District Courts. 3th Circuit. United States District Court (Eastern District of Pennsylvania)
    • 18 Noviembre 1993
    ...547 that the Bankruptcy Court entered against MNC and in favor of the trustee in the amount of $166,103.00 is affirmed. Accordingly, 161 BR 127 the order of the Bankruptcy Court is affirmed in part and reversed in JUDGMENT ORDER AND NOW, on this 18th day of November, 1993, and for the reaso......

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