In re Sauk Steel Co., Inc., Bankruptcy No. 90 B 16933.

• Decision Date: 21 October 1991
• Docket Number: Bankruptcy No. 90 B 16933.
• Citation: 133 BR 431
• Parties: In re SAUK STEEL COMPANY, INC., Debtor.
• Court: U.S. Bankruptcy Court — Northern District of Illinois

133 B.R. 431 (1991)

In re SAUK STEEL COMPANY, INC., Debtor.

Bankruptcy No. 90 B 16933.

United States Bankruptcy Court, N.D. Illinois, E.D.

October 21, 1991.

Michael R. Collins, Collins & Collins, Chicago, Ill., for debtor.

William I. Fine, Highland, Ind., for West Creek Inv. Partnership.

Kevin T. Keating, Richard P. Klaus, McDermott, Will & Emery, Chicago, Ill., for Sauk Bldg. Corp.

FINDINGS OF FACT AND CONCLUSIONS OF LAW

JACK B. SCHMETTERER, Bankruptcy Judge.

On September 14, 1990, an Involuntary Petition under Chapter 7 of the Bankruptcy Code was filed against the debtor Sauk Steel Company, Inc. ("Debtor"). On October 11, 1990 Debtor converted the case to one under Chapter 11, Title 11 U.S.C. Sauk Building Corporation has moved to modify the automatic stay under 11 U.S.C. § 362 so it can proceed to obtain possession of real estate owned by it and occupied by Debtor. It also moved for relief from an order of May 13, 1991, which approved a new lease of the subject property entered into between Debtor and West Creek Investment Partnership ("West Creek"), asserting that West Creek had no authority to enter into any lease with Debtor at the time.

Trial was held and the parties rested. Considering the evidence admitted, and having heard and considered argument of counsel, the Court now makes and enters the following Findings of Fact and Conclusions of Law. For reasons set forth below, the Court has entered an order (1) granting relief from stay and (2) finding the Order of May 13, 1991 ineffective against Sauk Building Corporation and therefore the motion for relief from that Order is moot. To the extent if any that the Order of May 13th affected movant, the same is vacated under Rule 60(b)(3) and (6) F.R.Civ.P.

FINDINGS OF FACT

1. The Premises involved here is commonly referred to as 3215 Butler Street, South Chicago Heights, Illinois ("Premises"). At all times mentioned herein, the Premises was occupied by Debtor for manufacturing purposes. West Creek formerly owned title to the Premises. On June 1, 1983, it mortgaged the Premises to Sauk Building Corporation, in return for a loan. That mortgage secured a mortgage note executed by West Creek in favor of Sauk Building Corporation. To further secure the mortgage note, Sauk Building Corporation and West Creek entered into a collateral assignment of lease. (Motion for Relief from Stay ¶¶ 1 and 2; Debtor's Response ¶¶ 1 and 2.)

2. West Creek defaulted on its mortgage obligations to Sauk Building Corporation. Accordingly, Sauk Building Corporation filed a Complaint for foreclosure on November 30, 1990 in the Circuit Court of Cook County, Illinois. The Debtor was not a party to that action. On February 5, 1991, the Circuit Court entered an Order granting Sauk Building Corporation possession of the Mortgaged Premises. (Motion for Relief from Stay ¶ 3; Debtor's Response ¶ 3; and Sauk Building Corporation's Ex. 1.) That Order was directed against the then owner West Creek, and did not by its terms affect Debtor (nor could it have done so because the automatic stay protected Debtor under 11 U.S.C. § 362.). Sauk Building Corporation did not then or subsequently through date of the hearing in this Court take physical possession of the Premises which continued to be occupied by Debtor.

3. At one time, West Creek had a written lease with the Debtor whereunder Debtor leased the Premises from West Creek to use in its manufacturing operations for a term beginning June 1, 1983 and expiring May 31, 1988. During the final year of that lease term, the rent was $10, 700/month plus taxes, insurance, and other responsibilities. It was a triple net lease. (Sauk Ex. 10.) Annual real estate taxes on the Premises were approximately $62,000. After that written lease expired no new lease written or oral was entered into, but Debtor remained on the Premises and paid the lease base rent in effect during the final year of the written lease (but not real estate taxes) until some time before the Involuntary Petition was filed against it in the fall of 1990. While Debtor was paying that base rent, the money was paid over to Sauk Building Corporation on the mortgage obligation of West Creek.

4. On February 15, 1991, Sauk Building Corporation, then still the mortgagee, filed here a Motion which sought rent from the Debtor, or in the alternative an order granting relief from the automatic stay so that it could pursue a forcible entry and detainer action against the Debtor. (Motion for Relief from May 13, 1991 Order ¶ 4; Debtor's Answer ¶ 4.) It thereby sought permission to broaden the state court action so as to exercise its rights under the state court order for possession entered on February 5, 1991, but entered at that time only against West Creek.

5. Without notice to Sauk Building Corporation, on May 3, 1991, the Debtor moved here for approval by this Court of a new Industrial Building Lease Agreement with West Creek. The amount of rent was to be $1,500 per month with an additional $1,500 per month contributed toward general real estate taxes. According to the Motion, the previous rent was in excess of $9,000 per month on a triple net basis, so the new lease was presented in a very favorable light. On May 13, 1991, that Motion was granted at a hearing at which no representative or counsel for Sauk Building Corporation was present. At all times mentioned herein, Mr. John Rosinko was both President and chief operating officer of the Debtor, and also the general partner of West Creek. Therefore this new lease and all agreements between Debtor and West Creek were actually decisions by John Rosinko on behalf of both entities, though he did consult with a prospective new investor about the lease.

6. Subsequently, Sauk Building Corporation and West Creek engaged in settlement negotiations pertaining to the pending motion to modify stay. Final hearing on the original Motion of Sauk Building Corporation for Relief from Stay was postponed several times upon joint request of the Debtor and Sauk Building Corporation. (Motion for Relief from May 13, 1991 Order ¶ 4; Debtor's Answer ¶ 4.)

7. On June 6, 1991, West Creek and Sauk Building Corporation entered into a Settlement Agreement. West Creek paid the sum of $15,000 in three installments as consideration to Sauk Building Corporation for entering into the Settlement Agreement. (Sauk Building Corporation's Exhibit 3, ¶ 1.)

8. Pursuant to the Settlement Agreement, West Creek was required immediately to deposit into escrow at the Chicago Title & Trust Company ("CT & T") a fully-executed recordable warranty deed to the Mortgage Premises, an amended and restated 1983 Note, and an amended 1983 Mortgage. West Creek was also required to deposit into that escrow the amended 1983 Collateral Assignment, evidence of payment of real estate taxes on the Premises, commitment for title insurance, and escrow fees on or before July 31, 1991. No such deposit was deemed made until the date Sauk Building Corporation and/or Hermine Gooder gave notice to West Creek of the acceptability of the deposit. (Sauk Building Corporation's Exhibit 3, ¶ 3.) The total amount necessary to pay and redeem back real estate taxes, principal, interest, and all related costs for the last three tax years is about $300,000.

9. Sauk and Hermine Gooder, not individually but as Trustee of The Hermine K. Gooder Trust dated June 15, 1977, were required to deposit into the escrow the release deed, the 1986 note, a stipulation to dismiss, and an executed withdrawal of the Motion for Relief. (Sauk Building Corporation's Exhibit 3, ¶ 3.)

10. On June 7, 1991, pursuant to the Settlement Agreement, West Creek's attorneys delivered to Sauk Building Corporation's attorneys for placement into the escrow a draft of an amended Collateral Assignment of the Lease from West Creek to Sauk Building Corporation. On June 13, 1991, the attorneys for Sauk Building Corporation notified attorneys for West Creek that the draft Collateral Assignment of Lease was unacceptable. That proposed draft document referenced the new lease between Debtor and West Creek that had been approved on May 13th. However, that reference was obscure and the draft itself was discarded by counsel for Sauk Building Corporation who redrafted the document in accord with the Settlement Agreement. Sauk Building Corporation did not then learn of the new lease between Debtor and West Creek.

11. West Creek delivered to and deposited the deed into the CT & T escrow. (Sauk Building Corporation's Ex. 6.) An amended 1983 Mortgage and an amended Collateral Assignment of Lease were drafted by attorneys for Sauk Building Corporation and signed by West Creek. (Sauk Building Corporation's Ex. 7.) These documents were delivered to CT & T for deposit into the escrow.

12. West Creek informed Sauk Building Corporation that it would be unable to pay the real estate taxes by July 31, 1991. At that time, the back taxes due from West Creek totalled over $300,000. It was clear that West Creek was not able to meet its tax payment obligations under the Settlement Agreement. On July 30, 1991, John Rosinko met with Hermine Gooder, an officer of Sauk Building Corporation, in an attempt to negotiate an extension. At that meeting, Rosinko gave Gooder a check in the amount of $5,000, which was offered as consideration for such extension. Gooder did not cash that check.

13. On July 31, 1991, West Creek defaulted under the Settlement Agreement by failing to deposit a receipt for or proof of payment of the agreed real estate taxes. Accordingly, Sauk Building Corporation elected under the Settlement Agreement to instruct CT & T, as escrow agent, to turn over to Sauk Building Corporation the escrowed executed deed to the Premises. That was done. On August 6, 1991, that deed was recorded with the Cook County Recorder of Deeds. (Sauk Building Corporation's Ex. 8.) Sauk Building Corporation thereupon became and now remains the legal titleholder to the Mortgaged...