In re State Street Houses, Inc., 02-33876.

• Decision Date: 03 December 2002
• Docket Number: No. 02-33876.,02-33876.
• Citation: 305 B.R. 726
• Parties: In re STATE STREET HOUSES, INC., Debtor.
• Court: U.S. Bankruptcy Court — Southern District of Florida

305 B.R. 726

In re STATE STREET HOUSES, INC., Debtor.

No. 02-33876.

United States Bankruptcy Court, S.D. Florida.

December 3, 2002.

Paul E. Gifford, Esq., Leslie Gern Cloyd, Ft. Lauderdale, FL, for debtor.

Michael K. Bakst, Esq., West Palm Beach, FL, Daniel F. Brown, Esq., Buffalo, NY, Robert N.H. Christmas, Esq., Christopher J. Porzio, Frank W. Ryan, New York City, John W. Dillon, Utica, NY, D. Bruce Kratz, Esq., Jupiter, FL, for creditor.

ORDER GRANTING MOTION TO DISMISS CASE

STEVEN H. FRIEDMAN, Bankruptcy Judge.

THIS MATTER came before the Court on October 3, 2002 upon a hearing on the Motion of New York State Urban Development Corporation ("UDC") et al. to Dismiss Petition or to Transfer Case filed on September 10, 2002 by UDC, New York State Mortgage Loan Enforcement and Administration Corporation ("MLC") and New York State Project Finance Agency ("PFA"). On September 30, 2002, the debtor filed its Memorandum of Opposition to the motion to dismiss and/or transfer venue. Thereafter, on October 1, 2002, the New York State Division of Housing and Community Renewal ("DHCR") filed its Joinder to the Motion by UDC to Dismiss this Chapter 11 Proceeding or to Change Venue. On the same date, Creditor, State Street Associates, L.P. ("Associates"), filed its Response in Opposition to UDC's Motion to Dismiss or Transfer Venue of Chapter 11 Proceeding. On October 2, 2002, both the County of Oneida, New York and the City of Utica, New York filed separate Joinders to the Motion by UDC to Dismiss this Chapter 11 Proceeding or to Change Venue. On the same date, MLC, UDC, PFA, and the Empire State Development Corporation ("ESDC") filed their Reply Memorandum of Law in Further Support of Motion to Dismiss Petition and/or to Transfer Venue. The Court, having reviewed the motion, memorandum of opposition, response, various joinders, and the record, having heard the arguments of counsel, and otherwise being fully advised in the premises, hereby enters the following findings of fact and conclusions of law.

FINDINGS OF FACT

Movants, UDC, ESDC, MLC and PFA are New York entities that are governmental agencies or public benefit corporations, which have as their primary function assisting with and enabling real estate and project development throughout New York State, primarily through the provision of funding to qualified developers. (Affidavit of Garry P. Ryan in Support of Motion to Dismiss Petition and/or Transfer Venue ("Ryan Affidavit") at ¶ 4.) Movant, Larry Sutton, is an individual who resides at 315 Aspen Drive, Plainsboro, New Jersey. He is also the former General Counsel for UDC.

Debtor is a New York corporation having offices in care of Lanny A. Horwitz, Attorney, Kennedy Plaza Rental Office, Two Kennedy Plaza, Utica, New York 13502. (Ryan Affidavit at ¶ 5.) Debtor's Petition also lists an address in this District, in care of Mathematical Bridge Corporation, 408 Mariner Drive, Jupiter, Florida 33477 (the "Jupiter Address"). In the Statement of Financial Affairs, Lanny A. Horwitz is listed as the President, Assistant Secretary, Director and sole shareholder of Debtor. The Jupiter Address is the location of Horwitz's home, and a small office used by the Debtor and Associates. Debtor is the "bare legal title" owner of the Kennedy Plaza Apartments ("Kennedy Plaza"), a seventeen floor high-rise residential apartment building located in Utica, New York. In its Petition, Debtor lists the location of its principal asset(s) as "Two Kennedy Plaza, Utica, New York 13502."

Associates is a New York limited partnership which has offices at Rental Office, Two Kennedy Plaza, Utica, New York. (Id. at ¶ 6.) Associates is the equitable owner of Kennedy Plaza, which was built in or around 1970. Id.

UDC extended to Associates and Debtor a loan in the original principal amount of $8,105,000.00, with the debt and interest accruing thereon secured by a mortgage dated July 21, 1971 on the Kennedy Plaza premises ("Initial Mortgage"). An Additional Mortgage by and between Houses and UDC dated May 2, 1978 was thereafter executed and recorded ("Additional Mortgage") securing a loan in the amount of $66,000.00 and interest accruing thereon. The Initial Mortgage and Additional Mortgage were later consolidated and thereafter, on or about July 31, 1985 another addition to the original note and mortgage was made in the amount of $8,000.00, resulting in a Final Mortgage Determination of $8,179,000.00. (Id. at ¶ 7.) The terms of the financing relationship were subsequently amended and modified numerous times over nearly twenty years, and several other loans and/or restructurings were extended to Debtor and Associates by Movants. These loans and/or restructurings were also secured by additional mortgage liens on the Kennedy Plaza premises (all indebtedness hereinafter referred to collectively as the "Mortgage"). Currently, the Mortgage is being administered by MLC, as Attorney-in-Fact for UDC and the PFA. (Id. at ¶ 9.)

A. The Sarabond Litigation

In 1983, Associates, UDC, MLC and PFA, along with owners and others holding interests in other properties, commenced a civil action in the United States District Court for the Southern District of New York captioned New York State Urban Development Corp. et al. v. Dow Chemical Company, Inc., et al., 83 CV 4327(VLB) (the "Sarabond Litigation"). That action was brought against Dow for the failure of its defective "Sarabond" mortar additive product, which was utilized in the construction of the Kennedy Plaza premises. The action sought compensatory and punitive damages from Dow. (Id. at ¶ 10.)

By a Loan Restructuring Agreement dated as of July 31, 1985, Associates assigned to UDC any award it might receive or any portion of a settlement it might receive in the Sarabond Litigation, and UDC, PFA, MLC, Associates and Houses agreed to an allocation of any such settlement proceeds. (Id. at ¶ 11.) The second priority under the allocation was that $2,173,800 (the "Settlement Funds") plus accrued interest would be paid by UDC from the settlement proceeds to the United States Department of Housing and Urban Development ("HUD") on the HUD Flexible Subsidy Loan (the "HUD Loan") that Debtor and Associates had taken out to make the repairs occasioned by the defective Sarabond product. Id. The purpose of this Loan Restructuring Agreement was to give Associates and Debtor an opportunity to cure various defaults under the mortgage. Id.

UDC, MLC, PFA and Associates entered into a Settlement Agreement with Dow dated April 10, 1991, under which Dow was to pay $20 million to the plaintiffs in the Sarabond Litigation. (Id. at ¶ 12.) Based on and pursuant to the Settlement Agreement, in April of 1991, District Judge Broderick ordered the Stipulation and Order of Dismissal executed by attorneys for the parties to the Sarabond Litigation. (Id. at ¶ 13.) An Amendment to the 1985 Loan Restructuring Agreement, dated July 31, 1991, revised the priorities for the allocation by UDC of the Sarabond Litigation's settlement proceeds slightly, making the payment to HUD of the Settlement Funds the first priority thereunder. (Id. at ¶ 14.) Under the 1985 Loan Restructuring Agreement, UDC, MLC and PFA afforded Debtor and Associates a forebearance period of 10 years from the closing date of the financing (i.e., until 1995) under which Movants would not commence an action to foreclose the Mortgage or accelerate the debt for certain types of defaults. (Id. at ¶ 15.) The 1991 Amendment to that Loan Restructuring Agreement extended that forebearance period an additional five years to expire on July 31, 2000. Id.

B. Default is Declared

Following the expiration of the forebearance period, UDC, on behalf of Movants sent Associates and Debtor a default notice dated April 9, 2002. The First Default Notice was sent to the attention of Lanny Horwitz on behalf of both Associates and Debtor. (Id. at ¶ 16.) The First Default Notice referenced a number of defaults,¹ and also alleged a long history of Debtor's and Associates' failure to live up to their obligations under the mortgage, as well as Movants' forebearance:

This loan relationship has had a lengthy history of continued attempts to permit [Associates and Houses] the opportunity to cure various defaults at various times. In 1985 we entered into a comprehensive workout plan evidenced by that certain Loan Restructuring Agreement dated as of July 31, 1985 (as subsequently amended, the "LRA"). By its terms, the forebearance period established under the LRA expired on July 31, 2000. For a number of years, [Associates and Houses have] been unable to operate the Project by timely paying taxes and debt service.

(Id. at ¶ 19.)

In response to this First Default Notice, Debtor and Associates sent a letter dated April 18, 2002, which generally took issue with the events of default cited by Movants and asserted the offset for the money which Associates and Debtor contended never was paid to HUD, plus interest. (Id. at ¶ 20). The letter was signed by Lanny Horwitz on behalf of both Associates and Debtor. Id.

C. The Federal Action is Commenced

Shortly after the First Default Notice, on April 22, 2002, Debtor, Associates and Horwitz commenced an action in the United States District Court for the Southern District of New York captioned State Street Houses, Inc., et al. v. New York State Urban Development Corporation, et al., 02-CV-3036 (Pauley, J.) (the "Federal Action"). (Declaration of Christopher J. Porzio, Esq. in Support of Motion to Dismiss Petition and/or to Transfer Venue ("Porzio Declaration") at ¶ 4.) That action focused almost exclusively on the alleged failure of Movants to make payment to HUD of the Settlement Funds toward Debtor's and Associates' obligation owed on the HUD Loan. (Id. at ¶ 4; Ryan Affidavit at ¶¶ 21-25.)

Upon the filing of the Federal Action, Debtor, Associates and Mr. Horwitz brought on by Order to Show Cause a motion for a preliminary injunction, which would have...