In re Ziegler
| Decision Date | 12 December 2012 |
| Docket Number | Case No. 12-61681-11 |
| Parties | In re MARK ROBERTS ZIEGLER, Debtor. |
| Court | U.S. Bankruptcy Court — District of Montana |
At Butte in said District this 12th day of December, 2012.
Pending in this Chapter 11 case are: (1) Debtor's motion for turnover of commercial rental income monies held by a receiver appointed by a Washington state court (Docket No. 9); (2) NW Evergreen Opportunities I, LLC's ("Evergreen") motion to excuse compliance with turnover requirements of 11 U.S.C. § 543(a) and for stay relief under 11 U.S.C. § 362(a) concerning receivership (Dkt. 25); and (3) Debtor's motion to use cash collateral and for adequate protection of mortgage holders' interest (Dkt. 16). Objections to Debtor's motions were filed by Evergreen, and Debtor filed a response in opposition to Evergreen's motion. A hearing on these matters was held at Missoula on November 8, 20121 . Debtor Mark Roberts Ziegler ("Ziegler" or "Debtor") appeared and testified, represented by attorney Jon R. Binney ("Binney") of Missoula. Evergreen was represented by attorney Erika Peterman ("Peterman") of Missoula. Exhibit ("Ex.") 1, a Receiver's Report regarding Debtor's commercial property in Kennewick, Washington (the "Kennewick Mall") was admitted into evidence without objection.The Court was requested to take judicial notice of Evergreen's Proof of Claim No. 2. At the conclusion of the parties' cases-in-chief, the Court took Debtor's motion to use cash collateral under advisement, and granted the parties 7 days to file stipulated facts2 and briefs regarding Debtor's motion for turnover. The briefs have been filed and reviewed by the Court, together with the record and applicable law. All pending motions are ready for decision. For the reasons set forth below Evergreen's objections are overruled; Evergreen's motion to excuse compliance with turnover and for stay relief is denied; and Debtor's motion for turnover of monies held by the receiver and motion to use cash collateral both are granted.
This Court has exclusive jurisdiction of this Chapter 11 case under 28 U.S.C. § 1334(a). This Memorandum includes the Court's findings of fact and conclusions of law regarding turnover and use of cash collateral.
Mark Roberts Ziegler lives in Missoula, and he owns two commercial properties. One property is located at 2710 Brooks Street in Missoula, Montana (the "Brooks Street property"), which he acquired as part of a § 1031 exchange in March of 2007. The second property is a 14,000 square foot building located in Kennewick, Washington, referred to as the "Kennewick Mall3 "which Ziegler acquired in March of 2007.
The Brooks Street property has two commercial tenants - a Subway sandwich shop and a combination coffee shop/office equipment store. Ziegler testified that he does not have a property manager for the Brooks Street property, and that it has little turnover in tenants. Hetestified that an appraisal was prepared for the Brooks Street property which valued it at approximately $795,000. At first, Ziegler testified that he does not know the current value of the Brooks Street property, but later he testified that he values it at the sum of $800,000 based on $60,000 in annual positive cash flow. He testified that when he acquired the Kennewick Mall it was appraised with a value of $2,625,000, and that a later appraisal shows it had a value of $2 million in 2011.
Ziegler took out a loan from U.S. Bank in the amount of $249,000 by a term note he signed on August 23, 2007. The note required monthly payments in the amount of $1,905.03. Ziegler gave U.S. Bank a mortgage on the Brooks Street property to secure the note. Ziegler also signed a second promissory note. He testified that the total of the two promissory notes owed is $2,180,0004 .
Ziegler missed some payments to U.S. Bank. He entered into a Forbearance and Modification Agreement with U.S. Bank in March of 2011, which he testified required a payment to U.S. Bank in the amount of $10,000 per month5 . At the time of the forbearance agreement, Ziegler testified, U.S. Bank gave him information that it valued the Brooks Street property at $800,000.
At some point Evergreen acquired U.S. Bank's rights under the notes and mortgages. The two notes were cross collateralized. Ziegler admitted that both notes went into default. He testified that a receiver was appointed in the State of Washington, and that the receiver began collecting the rents from the Kennewick Mall. Ex. 1 is the receiver's report for September 2012for the Kennewick Mall prepared by the receiver Ted Durant & Associates. The cover letter for Ex. 1 states that the operating account balance as of October 7, 2012, was $47,330.10.
Debtor filed his voluntary Chapter 11 petition on October 18, 2012, listing assets in the total amount of $5,845,021.71 and liabilities in the total amount of $4,208,536.85. Schedule A lists Debtor's real property, including the property located at 2710 Brooks Street in Missoula, and property described at "7901-7935 W. Grandridge Blvd" in Kennewick, WA. According to Schedule A the Debtor's interest in the Brooks Street property has a current value in the amount of $800,000, and secures a claim in the amount of $216,508.85. The Debtor's interest in the Kennewick Mall is scheduled at a current value in the amount of $2,200,000, and secures a claim in the amount of $1,888,000. Schedule D (Creditors Holding Secured Claims) lists Evergreen as having a $1,888,000 claim secured by the Kennewick Mall, and a $215,508.85 claim secured by the Brooks Street property. Neither of Evergreen's claims has an unsecured portion listed on Schedule D, and neither is marked as contingent, unliquidated or disputed.
Debtor filed his motions for turnover of property and for use of Evergreen's cash collateral on October 22, 2012. The motion for turnover requests the Court order Evergreen and the receiver Ted Durant & Associates to turn over rental income monies, which are held by the receiver under a Washington Superior Court order6 , to the Debtor under 11 U.S.C. §§ 105, 361 and 363 in order to provide the Debtor with operating capital and liquidity and avoid irreparable harm to the estate. Debtor's motion to use cash collateral seeks interim and final orders authorizing Debtor to use cash collateral to address liquidity constraints, and to grant Evergreenadequate protection.
On October 31, 2012, Evergreen filed Proofs of Claim Nos. 1 and 2. Claim 1 asserts a secured claim in the amount of $1,935,207.78, secured by both the Brooks Street property and the Kennewick property7 . Claim 2 asserts a secured claim in the amount of $245,217.58 secured by both properties. No objections have been filed to allowance of Claim 1 or 2.
Evergreen filed oppositions to both Debtor's motion for turnover and motion to use cash collateral, and filed a motion to excuse compliance with turnover requirements of 543(A) and stay relief under 362(a) concerning the receivership, on October 30, 2012. In Evergreen's opposition to turnover it argues that prepetition rents are encumbered by an absolute and present assignment of rents in favor of Evergreen, under which the Debtor has no interest in the rents, and therefore are not property of the estate under 11 U.S.C. § 541 and not subject to turnover under § 543. Evergreen did not offer any written evidence or testimony regarding the assignment of prepetition rents related to the Kennewick Mall at the hearing.
In Evergreen's opposition to Debtor's motion to use cash collateral Evergreen argues that its appraisals are not complete so it does not know the amount of its equity cushion8 . Evergreen objects that the Debtor has not presented a budget and so has not shown that he can make the proposed adequate protection payment. In addition Evergreen contends that the proposed adequate protection payments are not sufficient adequate protection because the monthly interest exceeds the amount of the proposed payments. Evergreen offered no evidence at the hearingregarding the amount of monthly accruing interest. Evergreen argues that the Debtor might use the rents for personal expenses and for expenses unrelated to the two properties.
Evergreen's motion to excuse compliance with turnover requirements of § 543(a) and for stay relief under § 362(a) concerning receivership argues that the Debtor will not use the property for Evergreen's benefit because he defaulted on his payments, that Debtor has mismanaged the property, that he resides in Missoula far away from the Kennewick Mall while Evergreen has a receiver in place. Evergreen requests relief from the stay so that the receiver appointed by the state court may stay in place and continue his management of the Kennewick Mall.
On November 7, 2012, the Debtor filed an application to employ a property manager for the Kennewick Mall. That application was approved by Order entered on November 13, 2012, approving employment of Jerry D. Abrams and Jerry D. Abrams Company, Inc., as real estate management company. Ziegler testified that currently there are 10 tenants out of 11 units in the Kennewick Mall, and that, while occupancy in 2011 was 54%, now it is 95% occupied. He testified that he is current on his payments of insurance premiums for the Kennewick Mall, and that he offers to pay Evergreen $10,000 per month on the note for the Kennewick Mall. He testified that the Kennewick Mall is generating $22,000 per month in rents, and nets $14,500 per month so that he has the ability to make the proposed $10,000 monthly adequate protection payment to Evergreen for the Kennewick Mall. When asked on direct examination for his opinion of the value of the Kennewick Mall, Ziegler testified that he believes it has a value of $2,200,000, and that the total value of his two properties is between $2,800,000 and $3,000,0009 .
Ziegler testified that the Subway tenant at Brooks Street property is insured with a $2 million commercial...
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