In re The Bennett Funding Group, Inc.
| Decision Date | 09 October 1997 |
| Docket Number | Bankruptcy No. 96-61376,Adversary No. 96-70154. |
| Citation | 220 BR 743 |
| Parties | In re THE BENNETT FUNDING GROUP, INC., Debtors. Richard C. BREEDEN, Trustee for the Bennett Funding Group, Inc., et al., Plaintiff, v. Patrick R. BENNETT, et al., Defendant. |
| Court | U.S. Bankruptcy Court — Northern District of New York |
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Simpson, Thacher & Bartlett, New York City, George M. Newcombe of counsel, for Plaintiff.
Backenroth & Grossman, L.L.P., New York City, Robert E. Grossman, for Defendant.
MEMORANDUM-DECISION, FINDINGS OF FACT, CONCLUSIONS OF LAW AND ORDER
Before the Court is the motion (the "Motion") of the chapter 11 trustee (the "Trustee") of the jointly administered and substantively consolidated estates of The Bennett Funding Group, Inc. ("BFG"), Bennett Receivables Corporation, Bennett Receivables Corporation II and Bennett Management and Development Corporation ("BMDC") for " a) partial summary judgment on the Trustee's claim that the sale of the Hotel Syracuse on or about March 1, 1996, and the modifications to BMDC's notes and mortgages on the Hotel Syracuse attendant therewith, was a fraudulent conveyance and should be avoided; b) turnover to the Trustee of title to the Hotel Syracuse and all profits and revenues generated by the Hotel since March 1, 1996; c) a preliminary injunction prohibiting defendant Allegro Property and Finance, Inc. ("Allegro") from transferring and/or disposing of any of the profits and revenue generated by the Hotel Syracuse since March 1, 1996; or, in the alternative, an order of attachment against the assets of Allegro located in New York; and d) an order requiring Allegro to provide an accounting of all profits and revenue generated by the Hotel Syracuse since March 1, 1996." See Trustee's Notice of Motion, filed October 2, 1996 (the "Notice of Motion"), at p. 2.
On June 6, 1996, the Trustee filed a complaint (the "Complaint") containing allegations illustrative of what this Court has previously characterized as a "financial superweb" of dealings involving, among others, companies owned and/or controlled by the Bennett family of Syracuse, New York, including all of the above-captioned debtors, as well as individual members of the Bennett family (collectively, the "Bennett Group"). On August 30, 1996, the Trustee amended the Complaint by filing a First Amended Adversary Proceeding Complaint (the "Amended Complaint").
The Trustee's Amended Complaint asserts various causes of action against numerous individuals and entities alleged to have aided and abetted the Bennett Group in one fashion or another in perpetrating the fraud described above. The Trustee's cause of action against Allegro is factually predicated upon a complex series of transactions directly or indirectly affecting ownership and/or control of the real property and improvements thereon located at 500 South Warren Street in Syracuse, New York, commonly known as the Hotel Syracuse (hereinafter, the "Hotel"), which culminated in Allegro's effective acquisition of the Hotel. The Trustee essentially contends that the transfer of the Hotel to Allegro was facilitated by an adverse modification to BMDC's mortgage interest in the Hotel, as well as by an extinguishment or a reduction of loan receivables owing to BMDC, which constitute fraudulent transfers/conveyances of BMDC's property within the meaning of § 548(a) of the Bankruptcy Code, 11 U.S.C. §§ 101-1330 (the "Code") and §§ 270-281 of the New York Debtor and Creditor Law ("NYD & CL").
The Trustee filed the Motion on or about October 2, 1996. Following several adjournments, oral argument was heard on February 27, 1997, and the matter was submitted for decision that same day.
The Hotel is owned by Hotel Syracuse, Inc. ("HSI").1 On October 26, 1990, HSI filed a chapter 11 bankruptcy petition in this Court. By Order dated June 18, 1993 (the "HSI Confirmation Order"), the Court confirmed HSI's Third Amended Plan of Reorganization (the "HSI Plan"), pursuant to which M.A. Bennett Associates, Ltd. ("MAB") purchased all of the stock of HSI. BMDC, however, actually funded the HSI Plan by effectively paying, or causing to be paid, a total of $10,658,880.04 (the "Acquisition Funds") to various entities which held claims against HSI's estate. On its books, BMDC treated the advancement of the Acquisition Funds as 1) a secured loan receivable in the principal amount of $8,000,000 owing from MAB, and 2) various unsecured loan receivables in the aggregate principal amount of approximately $2,600,000 owing from MAB. See Affidavit of Manny A. Alas, Sworn to December 11, 1996 (the "Alas Affidavit"), submitted under cover of Declaration of James G. Gamble filed December 11, 1996, at ¶¶ 6-8.2
BMDC's treatment of $8,000,000 of the Acquisition Funds as secured stemmed from the fact that, prior to confirmation of the HSI Plan, BMDC had purchased an aggregate principal amount of $17,500,000 in secured claims against HSI's estate for approximately $4,000,000.3See Allegro's Memorandum of Law filed October 21, 1996, at p. 2. Pursuant to the HSI Plan, these secured claims were to be "recast and restructured" into a single note in the principal amount of $8,000,000, secured by a single mortgage lien which was to be the only encumbrance against HSI's interest in the Hotel immediately post-confirmation. See Exhibit B to Declaration of Schuyler G. Carroll, filed October 21, 1996. The Trustee concedes that these secured claims were never recast nor restructured, but nevertheless asserts that immediately following confirmation of the HSI Plan, BMDC held a claim in the principal amount of $8,000,000 against HSI, secured by a first priority lien on the Hotel (the "$8 Million Obligation"). The Trustee further asserts that, pursuant to the terms of the HSI Plan, approximately $1,300,000 in accrued interest was due and owing on the $8 Million Obligation as of February 29, 1996, so that BMDC held a secured claim of approximately $9,300,000 as of that date.4
BMDC continued to fund the operation of the Hotel post-confirmation. From October 1994 to June 1995, BMDC made seven advances of funds to HSI, aggregating $3,121,187.00 (collectively, the "Renovation Loans"), which appear to have been used to renovate the Hotel. During 1994, BMDC made three other advances to MAB and one to HSI, aggregating $1,635,025.00, which were recorded on the books of BMDC as having been made in exchange for preferred stock in MAB. See id. at ¶¶ 9-11.
Additional post-confirmation funding came from BFG, which, under its "Aloha Leasing" trade name, entered into a total of 80 lease transactions with HSI between June 1993 and December 1995, in connection with which it advanced to HSI funds and/or equipment having an aggregate value of $5,552.449.00. The first 16 of these leases (collectively, the "16 BMDC Leases"), entered into between June 1993 and September 1994, were consolidated into a single loan receivable owing from HSI to BFG in the amount of $4,087,653.82, which was transferred to BMDC in October 1994 through a series of accounting entries on the books of BFG and BMDC, respectively.5 See id. at ¶¶ 12-15.
Thus, the Trustee asserts that, as of March 29, 1996, obligations totaling at least $20,803,865.82 (collectively, the "Pre-Sale Obligations") were owing to BMDC from MAB and/or HSI, respectively:
Obligation Obligor Outstanding Debt
$8 Million Obligation HSI/MAB $ 9,300,000.00
$2.6 Million of Acquisition
Funds MAB $ 2,660,000.00
Renovation Loans MAB $ 3,121,187.00
Preferred Stock MAB $ 1,635,025.00
16 BMDC Leases HSI $ 4,087,653.82
Total $20,803,865.82
The Post-Sale Obligations Owing to BMDC
Pursuant to a Stock Purchase Agreement dated March 1, 1996, between Michael A. Bennett, Allegro, MAB, HSI and BMDC,...
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Moncho v Miller
...Contrary to Miller and Sprei's contention, the confirmed reorganization plan became a binding contract (see In re Bennett Funding Group, Inc., 220 BR 743, 758 [Bankr ND NY 1997] [debtor's confirmed plan "became a binding contract . . . and must be interpreted in accordance with general cont......