IN RE SLC LTD. V
| Decision Date | 18 March 1993 |
| Docket Number | Adv. No. 92PB-2195.,Bankruptcy No. 91B-03012 |
| Citation | 152 BR 755 |
| Parties | In re SLC LIMITED V, Debtor. SLC LIMITED V, Plaintiff, v. BRADFORD GROUP WEST, INC., Defendant. |
| Court | U.S. Bankruptcy Court — District of Utah |
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Paul James Toscano, Cohne, Rappaport & Segal, P.C., and Paul James Toscano, Salt Lake City, UT, for plaintiff.
Craig L. Taylor, Ray, Quinney & Nebeker, Salt Lake City, UT, for defendant.
The cross motions for summary judgment in this adversary proceeding between the debtor and its primary secured creditor raise three issues. First, did the pre-petition appointment of a state court receiver result in a preferential transfer? Second, are funds from the settlement of litigation arising from breach of a real property lease general intangibles, or rents and proceeds? Third, did the secured creditor violate the Utah "one-action" rule by obtaining judgment against guarantors before exhausting remedies against collateral? The pleadings on file, including the final pretrial order, indicate there are no material issues of disputed fact. The issues presented are matters of law and are ripe for summary judgment.
The chapter 11 debtor and plaintiff, SLC Limited V, a California limited partnership (SLCV), is one of a series of limited partnerships created to develop real property. Loran Corporation, Inc., a California corporation (Loran), is the general partner of SLCV. Irving N. Fisher and James F. Kern (Fisher and Kern) are president and vice president, respectively, and sole shareholders of Loran.
By documents dated January 17, 1986, SLCV and The Bradford Group West, Inc., a Utah corporation (Bradford), entered into a Construction Loan Agreement for the construction of a mixed-use commercial property known as the West Town Center (West Town Center or Property). Bradford provided the financing for the construction in the form of a Trust Deed Note (Note) for $2,100,000 secured by a Trust Deed with Assignment of Rents (Trust Deed). The Trust Deed contained what was characterized as an absolute and unconditional assignment of rents. As additional security for the Note, Loran, on behalf of SLCV, executed and delivered to Bradford a separate Assignment of Leases and Rents (Assignment of Rents). Bradford recorded the Trust Deed and the Assignment of Rents in Salt Lake County on January 22, 1986. Bradford also filed an executed UCC-1 financing statement covering all tangible personal property of SLCV. The UCC-1 financing statement did not include general intangibles and choses in action.
As part of the loan agreement documents, Bradford obtained a separate Guaranty Agreement (Guaranty Agreement) from Fisher and Kern guaranteeing SLCV's payments under the Note. Fisher and Kern are sophisticated and experienced businessmen involved in a variety of real estate ventures. Bradford gave no additional consideration to Fisher and Kern for their personal guarantees except Bradford's consent to extend credit to SLCV.
On October 15, 1987, Eat-A-Burger, Ltd., (Eat-A-Burger) entered into a lease with SLCV for space at the West Town Center. The lease and the rents thereunder were subject to Bradford's Trust Deed and Assignment of Rents.
SLCV defaulted on its payments under the Note on or about January 17, 1987. The parties entered into two forbearance and extension agreements dated June 23, 1987, and July 31, 1990, but Bradford never waived its legal rights arising as a result of the default. SLCV defaulted on both of the forbearance and extension agreements.
In January of 1991, Bradford commenced nonjudicial foreclosure proceedings. It also initiated a state court proceeding seeking the appointment of a receiver to collect its interest in rents and proceeds from the West Town Center. On January 29, 1991, Bradford delivered to the tenants or posted on the premises, a notice of assignment of rents. Bradford and SLCV entered into a stipulation and the state court executed an order appointing Tate/Brubaker Real Estate Services as receiver on February 13, 1991. Tate/Brubaker immediately began collecting rents from tenants, but Eat-A-Burger refused to pay rents that it owed after February of 1991. Bradford scheduled a trustee's sale of the West Town Center, and on May 7, 1991, SLCV filed this chapter 11 proceeding.
Bradford filed a notice pursuant to 11 U.S.C. § 546(b).1 Bradford and SLCV filed a joint motion seeking permission for SLCV to use cash collateral that received court approval. The thirty page joint motion for the use of cash collateral recited that Bradford had a valid and perfected lien and security interest in SLCV's real and personal property. It also recited that Bradford had perfected its lien against the rents, revenues, issues, income, profits, and deposits from the West Town Center by virtue of its notice under § 546(b), and that the same were cash collateral. The stipulation provided for adequate protection of Bradford's interests in the use of its cash collateral by requiring payment to Bradford of all cash collateral in excess of a stipulated amount to cover operating expenses of the West Town Center.
On the same day Bradford filed the stipulation for the use of cash collateral, it also moved to lift the automatic stay. The court denied Bradford's stay lift motion and the battle ground changed to disclosure statement and confirmation issues. After this court denied confirmation, see, In re SLC Ltd. V, 137 B.R. 847 (Bankr. D.Utah 1992), Bradford renewed its motion for relief from the stay. The court granted the renewed motion for relief from stay, as well as SLCV's motion for stay pending appeal of the order granting stay relief. SLCV was unable to meet the bonding requirements of the order granting the stay pending appeal, and Bradford completed its foreclosure of the West Town Center on May 18, 1992, by credit bidding $1,370,000.
During the bankruptcy proceedings relating to the stay lift and plan confirmation, Bradford continued its state court action against Fisher and Kern on the Guaranty Agreement. Fisher and Kern raised the Utah one-action rule as a defense, asserting that Bradford had elected foreclosure upon the real property as its sole remedy. On or about January 23, 1992, the state court awarded summary judgment to Bradford against Fisher and Kern in the approximate amount of $2,099,900.
While SLCV was litigating various issues in bankruptcy court with Bradford, SLCV initiated a turnover action pursuant to § 542(b) against Eat-A-Burger. The complaint sought recovery of unpaid rent that SLCV characterized as accounts receivable arising from the unexpired but defaulted lease between the parties. The action resulted in a court approved settlement between Eat-A-Burger and SLCV (Eat-A-Burger Settlement). Eat-A-Burger agreed to pay SLCV $50,779.66 over time, representing $30,779.66 for delinquent rents and $20,000 in liquidated damages resulting from the breach of the lease before its expiration. The first breach of the lease occurred on January 10, 1991, and SLCV calculated the $30,779.66 from that date to October 31, 1991. The financial reports on file with the court show that the portion of the settlement representing delinquent rents consisted of three lease payments that accrued pre-petition with the balance accruing post-petition.
Bradford demanded payment from SLCV of the funds from the Eat-A-Burger Settlement asserting that such funds were subject to Bradford's Trust Deed and its Assignment of Rents. SLCV refused to remit the funds from the Eat-A-Burger Settlement to Bradford, arguing that they represented a general intangible not subject to Bradford's security interest. SLCV's counsel is holding all settlement funds in trust pending the outcome of these proceedings.
The issues presented by these cross motions for summary judgment are core pursuant to 28 U.S.C. § 157(b)(2)(A), (F), (K) and (O). The court can enter a final judgment pursuant to 28 U.S.C. § 1334 and Local Rule of District Court Procedure, D.Utah 404(a).
SLCV moved for partial summary judgment on its first and second claims for relief. It requested a judgment avoiding, as a preferential transfer, the perfection of Bradford's security interest in rents that SLCV asserts occurred upon the date of the state court order appointing a receiver. Bradford countered with a cross motion for partial summary judgment requesting dismissal of SLCV's first and second claims for relief. Bradford also counterclaimed seeking declaratory judgment that Bradford's interest in the funds resulting from the Eat-A-Burger Settlement was superior to the interest of SLCV, and that the funds should be accounted for and turned over to Bradford.2
At the time SLCV filed its complaint in this adversary proceeding, the court had granted stay relief but Bradford had not completed its foreclosure sale. By its third claim for relief, SLCV requested that the court permanently enjoin Bradford from conducting the foreclosure sale and collecting any deficiency. The basis asserted for the claim was that Bradford had violated Utah's one-action rule by pursuing simultaneous actions against the collateral and Fisher and Kern, the guarantors.
By the time SLCV filed its motion for partial summary judgment on its third claim for relief, Bradford had foreclosed on the Property. SLCV's pleadings asked for reconveyance of the West Town Center or money judgment of $1,370,000 (the amount of Bradford's credit bid). Bradford responded by filing a cross motion for partial summary judgment and requested dismissal of SLCV's third claim for relief asserting the one-action rule is not a defense to an action on a guaranty.
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