In re Taj Graphics Enters., LLC
| Decision Date | 19 April 2019 |
| Docket Number | Case No. 09-72532 |
| Citation | 601 B.R. 451 |
| Parties | IN RE: TAJ GRAPHICS ENTERPRISES, LLC, Debtor. |
| Court | U.S. Bankruptcy Court — Eastern District of Michigan |
Thomas R. Morris, Silverman & Morris, P.L.L.C., Farmington Hills, MI, John D. Hertzberg, Hertzberg, P.L.L.C., Bloomfield Hills, MI, Attorneys for the Debtor.
Jay S. Kalish, Jay S. Kalish & Associates, P.C., Southfield, MI, Attorney for creditor, Prime Financial, Inc.
Rodney M. Glusac, Bernardi, Ronayne & Glusac, P.C., Plymouth, MI, Attorney for Wendy Turner Lewis, Chapter 11 Trustee.
This Chapter 11 bankruptcy case is before the Court on the Debtor's objection to the claim of Prime Financial, Inc. (Docket # 153, the "Claim Objection"). The Court held a lengthy evidentiary hearing on the Claim Objection. The Court has considered all of the written and oral arguments of counsel for the parties; all of the exhibits admitted into evidence during the evidentiary hearing;1 and the testimony of all of the witnesses, namely:
This Opinion states the Court's findings of fact and conclusions of law. For the reasons stated in this Opinion, the Court will enter an order sustaining the Debtor's Claim Objection in part, and overruling it in part, and ordering that Prime has an allowed, nonpriority, unsecured claim in this bankruptcy case in the reduced amount of $ 1,356,044.45.
This Court has subject matter jurisdiction over this contested matter under 28 U.S.C. §§ 1334(b), 157(a) and 157(b)(1), and Local Rule 83.50(a)(E.D. Mich.). This is a core proceeding under 28 U.S.C. §§ 157(b)(2)(A), 157(b)(2)(B), and 157(b)(2)(O).
This proceeding also is "core" because it falls within the definition of a proceeding "arising in" a case under title 11, within the meaning of 28 U.S.C. § 1334(b). Matters falling within this category in § 1334(b) are deemed to be core proceedings. See Allard v. Coenen (In re Trans-Industries, Inc. ), 419 B.R. 21, 27 (Bankr. E.D. Mich. 2009). This is a proceeding "arising in" a case under title 11, because it is a proceeding that "by [its] very nature, could arise only in bankruptcy cases." See id. at 27.
The Debtor, TAJ Graphics Enterprises, LLC, referred to in this Opinion as the "Debtor," is a Michigan limited liability company that was formed in 1998. At all relevant times, the Debtor has been managed and controlled by Robert Kattula, its president, and its members have been members of Robert Kattula's immediate family — his wife Maria Kattula and their children — and/or trusts controlled by Maria Kattula.
Prime Financial, Inc., referred to in this Opinion as "Prime," is a Michigan corporation owned and operated by Aaron Jade. In this Chapter 11 case, Prime filed an amended proof of claim, asserting a nonpriority, unsecured claim for $ 2,237,000.00. Prime's claim is based on a plan that was confirmed in 2004, in a previous Chapter 11 case filed by the Debtor in 2003. In that prior case, the Debtor's confirmed plan gave Prime an allowed claim for $ 1.2 million, plus interest, and required the Debtor to pay Prime's claim over a 5-year period. Prime's amended proof of claim in this case is calculated as follows: (1) $ 1,200,000.00, plus (2) $ 1,037,000.00 in interest, calculated at the rate of 17% from October 1, 2004 to the petition date in the current case.2
The Debtor contends that Prime has no valid claim against it, and seeks disallowance of Prime's claim in its entirety. The Debtor alleges that Prime's claim under the confirmed plan in the Debtor's 2003 bankruptcy case was paid in full. The Debtor advances several theories in support of its payment defense, and these are discussed below.
The present dispute has roots in the Debtor's first Chapter 11 case. The Debtor filed its first Chapter 11 case in this Court on December 23, 2003, Case No. 03-75414 (the "2003 Case"). In that case, the Debtor proposed, and the Court ultimately confirmed, a Chapter 11 plan. The Debtor's combined plan and disclosure statement was filed on June 30, 2004.3 (That document is referred to in this Opinion as the "2004 Plan.") In that document, the Debtor described the 2004 Plan as "a liquidating plan of reorganization."4 The 2004 Plan was amended by certain written modifications in a document filed by the Debtor on September 1, 2004.5 (That document is referred to in this Opinion as the "2004 Plan Amendments.") The 2004 Plan as amended by the 2004 Plan Amendments was confirmed, and the Debtor's disclosure statement was given final approval, by an order entered on September 29, 2004.6
The 2004 Plan described the Debtor as "a real estate holding company which owns five parcels of industrial property ... located in Cleveland, Ohio."7 (The 2004 Plan Amendments later reduced this number of parcels to four.)8
In the 2003 Case, Prime was listed in the Debtor's Schedule D, as a junior secured creditor, holding a "2nd position all asset lien," with a claim in the amount of $ 1.2 million, the "unsecured" portion of which was the entire $ 1.2 million. The Debtor's Schedule D did not list Prime's claim as being contingent, unliquidated, or disputed.9 Prime did not file a proof of claim in the 2003 Case, and no one ever objected to Prime's claim in the 2003 Case. As a result, and under then-applicable statutory provisions and bankruptcy rules,10 Prime had an allowed claim in the scheduled amount of $ 1.2 million in the 2003 Case.
The 2004 Plan treated Prime's claim in Class I. The Plan defined that class as consisting of the "Allowed Secured Claim of Prime Financial."11 The terms "Allowed" and "Allowed Claim" were defined by the Plan in a way that confirms that the amount of Prime's allowed claim under the Plan was $ 1.2 million.12 The 2004 Plan provided that the Debtor would pay the "Prime Financial Indebtedness" in full "on or by five (5) years ... after the Effective Date of the Plan."13 The term "Prime Financial Indebtedness" was defined in the 2004 Plan as "the indebtedness owed by the Debtor."
The Plan's "Effective Date" was defined as "the first Business Day after the tenth day after the Confirmation Date," and "Confirmation Date" meant the date of entry of the order confirming the Plan.14 "Business Day" was defined to exclude weekend days or legal holidays.15 Because the confirmation order was entered on September 29, 2004, these definitions mean that the "Effective Date" of the confirmed 2004 Plan turned out to be Tuesday, October 12, 2004 (Monday, October 11, 2004 being Columbus Day, a legal holiday).
Thus, the 2004 Plan required that Prime's $ 1.2 million allowed claim be paid in full no later than 5 years after October 12, 2004 — i.e. , no later than October 12, 2009. The 2004 Plan contained further requirements regarding the treatment of Prime's Class I, $ 1.2 million allowed claim. It stated:
Putting the above provisions from the 2004 Plan together, then, the Plan required the Debtor to pay Prime's allowed $ 1.2 million claim by making monthly payments commencing on Wednesday, April 13, 2005,17 in an amount calculated by amortizing the $ 1.2 million over a 15-year period, "with interest fixed at the Interest Rate." As discussed in detail in Part III.C.1 of this Opinion, the Plan's definition of "Interest Rate" translates to an interest rate on Prime's claim of 17% per annum. This means that the Debtor's required monthly payments to Prime under the Plan were roughly $ 18,000 per month. But because such monthly payments would not pay off the entire $ 1.2 million claim within the Plan's required 5-year payoff period, this implied that a balloon payment would be due to pay off the Prime claim, no later than the 5-year deadline of October 12, 2009, in the amount of roughly $ 1.081 million.18 In providing for monthly payments for 5 years followed by a balloon payment, as described above, the 2004 Plan did not expressly permit, or prohibit, early payment of the Prime claim.
Some further explanation of the 2004 Plan is required. In the 2004 Plan as initially proposed, § 3.1.4, quoted above, granted Prime a "Lien against the Real Estate to secure the payment of the Prime Financial Indebtedness."
The 2004 Plan defined "Real Estate" to mean "all real property owned by the Debtor," and the definition further stated that "Real Estate" included, in substance, all of the Debtor's rights relating to such real property, including "[a]ll of the rents, issues, income and profits of the Real Estate," and "equipment ... in or upon the Real Estate and used or usable in connection with any present or future operation of the Real Estate."19
The 2004 Plan, as later amended and confirmed, stated that the Debtor owned four parcels of real estate in Cleveland, Ohio. These were grouped in two groups of two parcels each, for purposes of disposition under the Plan. The first group was labeled the "Rockefeller Property" and was "[t]he property commonly known as 2777 and 2779 Rockefeller Drive" in Cleveland. The second group was labeled the ...
To continue reading
Request your trial
-
In re Baum
...and entered an order authorizing the Debtor to enter into the agreement. See 11 U.S.C. § 363(b)(1) ; In re TAJ Graphics Enters., LLC , 601 B.R. 451, 479-80 (Bankr. E.D. Mich. 2019). This is required under § 363(b)(1), and this Court's local rules, see TAJ Graphics , 601 B.R. at 479, because......
-
In re Taj Graphics Enters., LLC
...(Ex. B to the Trustee Motion), which purports to assign Kattula's rights under the MOU to the Debtor. See, e.g., In re TAJ Graphics Enterprises, LLC , 601 B.R. at 481-82. These circumstances give Kattula a chance to succeed in his current assertion that he did not assign away ownership of h......