In re Vantage Investments, Inc.
| Decision Date | 14 March 2008 |
| Docket Number | Bankruptcy No. 04-046536-11-DRD.,Adversary No. 07-04076-DRD. |
| Citation | 385 B.R. 670 |
| Parties | In re VANTAGE INVESTMENTS, INC. Debtor. Vantage Investments, Inc., Plaintiff, v. Loc Nguyen Corp. and WWW Asset Two Corp., Defendants. |
| Court | U.S. Bankruptcy Court — Western District of Missouri |
Carol M. Katzer, Robert D. Gaines, Erlene W. Krigel, Krigel & Krigel, Kansas City, MO, for Plaintiff.
Cynthia F. Grimes, Lenexa, KS, Stephanie G. Hazelton, Hazelton & Laner, Kansas City, MO, for Defendants.
The matters before the Court are the objection of debtor Vantage Investments, Inc. ("Debtor") to Amended Proof of Claim No. 44 ("Objection") filed by WWW Asset Two Corporation ("WWW") and the claims asserted in Adversary No. 07-04076 ("Adversary"), filed by Debtor against WWW and a related entity, Loc Nguyen, Corp. ("LNC"). The Court has jurisdiction over this matter under 28 U.S.C. §§ 1334(b) and 157(a) and (b). This is a core proceeding which the Court may hear and determine pursuant to 28 U.S.C. § 157(b)(2)(B)(C) and (P). For the reasons set forth below, the Objection is sustained in part and overruled in part and Counts I, II, III, IV and V of the complaint in the Adversary are denied.
On January 17, 2002, Debtor executed a promissory note payable to University National Bank ("UNB") in the amount of $2,932,500 ("Note") for the purchase of certain real property located at 5701 Longview Rd, Kansas City, MO 64137 ("Hotel Property").1 The Note was secured by a commercial deed of trust dated January 17, 2002 ("Deed of Trust").2 The Note was also secured by certain personal property described in the Deed of Trust and in a separate security agreement executed by the parties. On August 15, 2003, the parties executed a modification and extension of the Note and Deed of Trust, wherein the amount of Debtor's debt was changed to $1,790,000.3
In August 2004, there was a fire in the kitchen of the Hotel Property which shut down the hotel's bar, restaurant and banquet room business. Debtor's insurance carrier, Insurance Corp. of Hannover did not promptly pay Debtor's claim, which caused hotel profits to deteriorate. On October 20, 2004, Debtor filed a voluntary petition for relief under Chapter 11 of the Bankruptcy Code. On July 7, 2005, UNB filed Proof of Claim No. 44 in the amount of $1,769,229, plus an undetermined amount for attorney's fees. Debtor's Second Amended Plan of Reorganization provided for a sale of the Hotel Property to occur on or before February 28, 2006. Debtor's proposed sale did not close, and UNB's motion for an order to require Debtor to surrender possession of the Hotel Property, and allow UNB to proceed with foreclosure was granted on March 2, 2006. UNB was in possession the Hotel Property and in control of running the hotel business operations until ownership was transferred to the successful bidder at the foreclosure sale. On or about May 5, 2006, UNB assigned the Note, Deed of Trust and all other related loan documents to LNC for $2 million.4 On May 9, 2006, Scott Carter, as substitute trustee, at the request of LNC, conducted a foreclosure sale of the Hotel Property.5 At the sale, LNC submitted a credit bid of $2 million and the Hotel Property was sold to LNC for that amount.6
On November' 20, 2006, WWW filed a Notice of Transfer of Proof of Claim No. 44 from UNB to WWW. Thereafter, WWW amended Proof of Claim No. 44 ("Amended Claim No. 44") upward to include claims for real estate taxes, various repairs to the property and post-foreclosure interest and attorney's fees for a total a deficiency request of $356,648.7 On November 22, 2006, Debtor filed its objection to the Amended Claim No. 44.8 The Court heard testimony regarding the Objection on March 9 and April 5 and 6, 2007.
On April 18, 2007, Debtor filed the Adversary. In the complaint, Debtor contends that it is the owner of certain personal property, accounts, furniture, fixtures and trade fixtures, equipment, inventory, supplies and general intangibles and instruments ("Personal Property") related to the Hotel Property. The primary issue raised in the Adversary is whether the Personal Property was properly foreclosed and if not, the resulting implications, specifically, whether the Personal Property was converted, whether there is a cause of action for breach of contract, or breach of the Uniform Commercial Code, whether WWW and/or LNC is obligated to provide an accounting and whether the lien on the property is void or voidable. A trial was held on the Adversary on June 28, 2007. The Court took both the Objection and the issues raised in the Adversary under advisement.
Debtor's arguments against WWW's and LNC's right to assert a deficiency claim, as set forth in the Objection and the Adversary are summarized as follows:
A) Debtor argues that neither WWW nor LNC has standing to assert a deficiency claim against the Hotel Property because neither entity is the legal holder of both Amended Claim No. 44 and the underlying Note. Debtor argues that LNC, which has never filed a claim in this bankruptcy, remains the legal holder of the Note, while WWW, pursuant to a Court Order, is the legal holder of Amended Claim No. 44, thus neither entity holds all the documents necessary to assert an enforceable claim against the estate.
B) Debtor argues that WWW gets no deficiency under the so-called "no-notice-no-deficiency" rule because the transfer of the Personal Property from LNC to WWW was not done in accordance with the notice provisions of Part 6 of Article 9 of the Uniform Commercial Code ("UCC"). Debtor also makes a claim for damages arguing that it did not overtly or by implication abandon the Personal Property, or consent to WWW's use or retention of the property, which was wrongful and constituted conversion.
C) Lastly, Debtor argues that any deficiency awarded should be limited to principal, interest and late fees, as properly calculated, certain costs and reasonable attorney's fees, less the $2 million received at the foreclosure sale. WWW should not be permitted to include real estate taxes paid after the foreclosure sale, repairs made after the sale, or attorney's fees incurred after the sale.
Pursuant to 11 U.S.C. § 502, a proof of claim filed in a bankruptcy proceeding is deemed allowed unless a party in interest objects. Gran v. Internal Revenue Serv. (In re Gran), 964 F.2d 822, 827 (8th Cir.1992). A properly filed proof of claim is prima facie evidence of the validity and amount of the claim. Dove-Nation v. eCast Settlement Corp. (In re Dove-Nation), 318 B.R. 147, 152 (8th Cir. BAP 2004); Consumers Realty & Dev. Co., Inc. v. Goetze, 238 B.R. 418 (8th Cir. BAP 1999); Fed.R.Bankr.P. 3001(f). The objecting party must produce evidence rebutting the claimant or else the claimant will prevail. Gran, 964 F.2d at 827. Once the objecting party produces evidence rebutting the claim, the burden of proof shifts to the claimant to produce evidence establishing the validity of the claim. Id. "Thus, once an objection is made to the proof of claim, the ultimate burden of persuasion as to the claim's validity and amount rests with the claimant." Consumers Realty & Dev. Co., Inc., 238 B.R. at 423.
WWW filed Amended Claim No. 44 and Debtor objected. Debtor asserts that WWW and LNC lack standing to assert a claim because neither entity holds all the necessary documents to file an enforceable claim. LNC clearly cannot prevail because it has not filed a claim in this bankruptcy. Debtor contends that WWW also lacks standing because it only holds a claim, and without the underlying documents to support that claim, its claim is neither valid nor enforceable. Debtor raised substantial legal issues, which were supported by sufficient evidence to shift the burden of persuasion to WWW to establish (as to certain elements of the claim), by a preponderance of the evidence, that it holds a valid and enforceable claim against Debtor for the amount sought in Amended Claim No. 44. There is no dispute that WWW is the legal holder of Amended Claim No. 44 as that fact was established by Court Order.9 Similarly, there is no dispute that, as of May 5, 2006, LNC was the legal holder of the Note, Deed of Trust and related loan documents pursuant to the assignment executed between UNB and LNC.10 The dispute here centers on whether WWW has established that there was an assignment of the Note and related loan documents from LNC to WWW such that it is the holder of both the claim and the supporting documentation and thus has standing to assert Amended Claim No. 44.
There is no written assignment of the Note from LNC to WWW in evidence. The question then is whether there was an oral assignment. The only evidence in the record of an oral assignment is an affirmative response by Mr. Nguyen to a question by counsel for WWW regarding whether there was an assignment of the documents.11 The Court notes the peculiarity of the assertion that Mr. Nguyen, wearing his LNC principal hat, made an oral assignment, and then quickly, switched hats to accept the assignment as a principal of WWW. However, no contradictory evidence was admitted and Debtor offered no legal authority for the proposition that an oral assignment of a promissory note is invalid or that it is subject to certain conditions which were not satisfied in this case. The Court, therefore, finds that the Note was orally assigned from LNC to WWW. The Court, however, specifically makes no findings regarding when the oral assignment occurred as there is no evidence in the record from which the Court could make such a finding, a subject which is...
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