Matter of Executive Office Centers, Inc., Bankruptcy No. 87-00366-THK.
| Decision Date | 21 October 1988 |
| Docket Number | Bankruptcy No. 87-00366-THK. |
| Citation | 96 BR 642 |
| Parties | In the Matter of EXECUTIVE OFFICE CENTERS, INC., Debtor. |
| Court | U.S. Bankruptcy Court — Eastern District of Louisiana |
William E. Steffes, Steffes & MacMurdo, Baton Rouge, La., for debtor, Executive Office Centers, Inc.
B. Franklin Martin, III, Rudy Cerone, McGlinchey, Stafford, Mintz, Cellini & Lang, New Orleans, La., for Burrus Inv. Group, Inc.
FINDINGS OF FACT CONCLUSIONS OF LAW
This matter came on for hearing before the Court after due notice, pursuant to the Order of Judge Charles Schwartz, United States District Court, Eastern District of Louisiana, on the Motion of Executive Office Centers, Inc. ("EOC") to Disallow and Objection to Allowance of Claim of Burrus Investment Group, Inc. ("BIG"). The Court has considered the arguments of counsel, the evidence adduced and the record herein, and makes the following Findings of Fact and Conclusions of Law.
EOC is a Louisiana corporation which filed a Petition for Relief under Chapter 11 of the Bankruptcy Code on January 26, 1987, which commenced the above-captioned bankruptcy proceeding.
John A. Mmahat ("Mmahat") is the president, 50% shareholder, and one of the two directors of EOC.
Paul F. Dastugue, Jr. ("Dastugue") is the secretary, 50% shareholder, and the other director of EOC.
Mmahat is and was, at all time relevant herein, responsible for the financial and legal affairs of EOC.
Dastugue is and was, at all time relevant herein, responsible for the day-to-day management of EOC.
At the commencement of this bankruptcy proceeding, EOC was the owner of five major office buildings and retail shopping centers.
As of the time of the filing of the bankruptcy, those properties and the amount of debt secured thereby appeared as follows:1
BUILDINGS SECURED CREDITOR/RANK AMOUNT
Independence Mall I LASER 1 $1,748,897.
WCC 2 2,386,436.
Independence Mall II PELICAN 1 3,715,839.
WCC 2 Same as
above
Gallery Office Bldg. MONY 1 260,735.
WCC 2 Same as
above
3330 Lake Villa Bldg. WCC 1 Same as
above
Medallion Office Cntr. PELICAN 1 1,434,578.
FIRST COMMERCIAL 2 270,135.
FIRST FINANCIAL 3 2,930,000.
8.
All of the foregoing properties have been foreclosed on by the lenders and are no longer property of the Debtor.
9.
On January 28, 1987, the date after this bankruptcy proceeding was commenced, Westinghouse Credit Corporation ("WCC"), a secured creditor, filed a Motion for Relief from the Automatic Stay, or Alternatively, for Adequate Protection and for Order Directing Use of Cash Collateral (the "WCC Motion for Relief"). WCC asked this Court to lift the automatic stay to permit it foreclose against the properties in which it held a security interest, including the property commonly known as Independence Mall I.
10.
Trial on the WCC Motion for Relief was held on February 26, 1987 and March 20, 1987. The matter was then taken under advisement by the Court.
11.
At the time this bankruptcy proceeding was commenced, the Louisiana State Employees Retirement System ("LASER") was the owner and holder of a promissory note dated October 1, 1974 in the principal sum of $1,800,000.00, secured by a first mortgage on Independence Mall I (the "EOC Note"). The outstanding principal amount of that note and mortgage was $1,632,523.00 with interest accruing at the rate of $453.38 per diem from September 1, 1986 until paid, plus attorneys' fees and costs.
12.
LASER also was the owner and holder of a portfolio of 14 other promissory notes and first mortgages secured by real estate in various parts of Louisiana. LASER and its staff were experienced in bond investments. However, LASER and its staff did not have real estate investment experience equaling their bond investment experience.
13.
The outstanding principal balance due under the 15 mortgage loans then owned and held by LASER (the "LASER Loan Portfolio"), including the EOC Note and first mortgage on Independence Mall I, was approximately $16,000,000.00.
14.
BIG is a Louisiana corporation which invests in real estate and real estate related assets.
15.
George J. Newton, III ("Newton") is a co-founder of BIG and is the president, the chief executive officer, a director and a 25% shareholder of BIG.
16.
In late 1986 and early 1987, Vernon Strickland ("Strickland"), then director of LASER, and Newton held discussions concerning the possible purchase by BIG of the LASER Loan Portfolio.
17.
Strickland invited BIG to submit to LASER a bid for the entire LASER Loan Portfolio. The offer to be submitted by BIG had to include all of the loans in the LASER Loan Portfolio, including the EOC Note. Newton previously had rejected a proposal by Strickland for BIG to purchase only the EOC Note.
Strickland also solicited two other investment firms to submit a bid for the entire LASER Loan Portfolio. Neither investment firm made any offer to purchase the notes.
LASER did not take any further steps to make a public offering of the LASER Loan Portfolio.
18.
Big analyzed the information provided to BIG by LASER about the LASER Loan Portfolio in an attempt to arrive at an appropriate discounted present value price to be offered by Big to LASER for the LASER Loan Portfolio.
19.
The factors considered by Newton and his staff in analyzing the 15 loans in the LASER Loan Portfolio included the interest rates of the loans, the maturity dates of the loans, the legal documentation evidencing the loans, the Louisiana real estate serving as collateral for the loans, the risks of collection of the loans, the costs inherent in servicing the loans, the cost of financing to BIG to purchase the loans, the conditions of and tenancies in the properties serving as collateral for the loans, the profit potential to BIG commensurate with the risk inherent in purchasing the loans, the possibility of purchase offers being made to LASER by others for the portfolio and a prior mortgage loan purchase transaction entered into between LASER and BIG.
20.
Based on this analysis, BIG decided to offer to LASER the total sum of approximately $11,000,000.00 for the LASER Loan Portfolio. This offer equalled approximately 68.6% of the aggregate amount of unpaid principal then due and owing under all of the loans in the LASER Loan Portfolio.
21.
BIG structured the actual offer to LASER in slightly different terms, however, offering to purchase 14 loans at 70% of the unpaid principal amount and offering to purchase the EOC Note at 45% of the unpaid principal amount.
22.
A formal offer was submitted by Newton, on behalf of BIG, to the entire Board of Trustee of LASER, at the Board's regular monthly meeting in Baton Rouge on March 27, 1987.
23.
Public notice was given of that meeting and the items on the agenda in accordance with normal LASER procedures. That Board meeting also was open for public attendance.
24.
After consideration of the BIG offer, the Board of Trustees made a counter offer during that meeting of 70% of the unpaid balance of 14 of the loans and 50% of the unpaid principal balance of the EOC Note.
25.
The LASER counter offer was accepted by BIG and the Board of Trustees of LASER unanimously approved the sale on those terms.
26.
The sale of the LASER Loan Portfolio was consummated on May 13, 1987 through the execution of 15 separate acts of notarial endorsement of the 15 notes and mortgages from LASER to BIG.
27.
Big funded the purchase price of approximately $11,000,000.00 through an interim demand loan from the Whitney National Bank in New Orleans, which interim loan was replaced three months later with a three-year term loan from Hibernia National Bank in New Orleans.
28.
Other than the transaction involving the purchase of the LASER Loan Portfolio and the previous transaction in 1986 concerning the purchase by BIG of another first mortgage from LASER, there existed no business, no social, no political, and no other contacts, relations or transactions of any kind between LASER and its trustees, officers, directors and employees, on the one hand, and BIG and its officers, directors, shareholders and employees, on the other hand.
29.
Other than the EOC Note and a passing social relationship between Mmahat and a director of BIG, there was no business, no social, no political and no other contacts, relations or transactions of any kind between EOC and its officers, directors, shareholders and employees, on the one hand, and BIG and its officers, directors, shareholders and employees, on the other hand.
30.
After BIG acquired the LASER Loan Portfolio, it became aware of the pendency before this Court of the WCC Motion for Relief concerning, inter alia, the ability of WCC to foreclose under its second mortgage affecting Independence Mall I.
31.
In order to protect its position as first mortgagee on the Independence Mall I, BIG filed a similar motion for relief from the automatic stay on June 4, 1987 (the "BIG Motion for Relief").
32.
BIG did not seek to prosecute its motion for relief; instead, it simply asked that, if this Court granted WCC relief from the stay under the WCC Motion for Relief, the Court also grant such relief to BIG.
33.
On June 10, 1987, in response to the BIG Motion for Relief, EOC opposed the motion and requested this Court to hold a hearing on the motion.
34.
In addition, on June 18, 1987, EOC filed against BIG the Motion to Disallow and Objection to Allowance of Claim (the "EOC Motion to Disallow Claim")...
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