Matter of Mimi's of Atlanta, Inc.

• Decision Date: 13 August 1980
• Docket Number: 80-0326A and 80-0288A.,Adversary No. 80-0287A,Bankruptcy No. 80-01015A to 80-01017A,80-0289A
• Citation: 5 BR 623
• Parties: In the Matters of MIMI'S OF ATLANTA, INC., Max' Restaurant, Inc., Exeter Restaurant Corporation, Debtors. In re MIMI'S OF ATLANTA, INC., Debtor. OMNI INTERNATIONAL, LTD., Plaintiff, v. MIMI'S OF ATLANTA, INC., Defendant. In re MAX' RESTAURANT, INC., Debtor. OMNI INTERNATIONAL, LTD., Plaintiff, v. MAX' RESTAURANT, INC., Defendant. In re EXETER RESTAURANT CORPORATION, Debtor. OMNI INTERNATIONAL, LTD., Plaintiff, v. EXETER RESTAURANT CORPORATION, Defendant. In re MIMI'S OF ATLANTA, INC., Debtor. INTERNATIONAL CITY CORPORATION, Plaintiff, v. MIMI'S OF ATLANTA, INC., Defendant. In re MIMI'S OF ATLANTA, INC., Debtor. I.T.T. Industrial Credit Company, Movant.
• Court: U.S. Bankruptcy Court — Northern District of Georgia

5 B.R. 623 (1980)

In the Matters of MIMI'S OF ATLANTA, INC., Max' Restaurant, Inc., Exeter Restaurant Corporation, Debtors.

In re MIMI'S OF ATLANTA, INC., Debtor.

OMNI INTERNATIONAL, LTD., Plaintiff, v. MIMI'S OF ATLANTA, INC., Defendant.

In re MAX' RESTAURANT, INC., Debtor.

OMNI INTERNATIONAL, LTD., Plaintiff, v. MAX' RESTAURANT, INC., Defendant.

In re EXETER RESTAURANT CORPORATION, Debtor.

OMNI INTERNATIONAL, LTD., Plaintiff, v. EXETER RESTAURANT CORPORATION, Defendant.

In re MIMI'S OF ATLANTA, INC., Debtor.

INTERNATIONAL CITY CORPORATION, Plaintiff, v. MIMI'S OF ATLANTA, INC., Defendant.

In re MIMI'S OF ATLANTA, INC., Debtor.

I.T.T. Industrial Credit Company, Movant.

Bankruptcy Nos. 80-01015A to 80-01017A, Adversary Nos. 80-0287A, 80-0289A, 80-0326A and 80-0288A.

United States Bankruptcy Court, N.D. Georgia, Atlanta Division.

August 13, 1980.

Thomas C. Shelton, Kilpatrick & Cody, Dennis S. Meir, Atlanta, Ga., for plaintiff.

Morris W. Macey, Macey & Zusmann, Atlanta, Ga., for defendant.

MEMORANDUM IN SUPPORT OF JUDGMENT AND ORDER

A.D. KAHN, Bankruptcy Judge.

The above-named affiliated corporate debtors-in-possession operate two restaurants in Atlanta, Georgia. They petitioned the court for relief as provided by Chapter 11 of the Bankruptcy Code on March 31, 1980. Presently pending in these related reorganization proceedings are the following: (1) three adversary matters in which the debtors' landlord, Omni International Limited, seeks relief from the automatic stays imposed by 11 U.S.C. § 362(a); (2) a motion filed on behalf of secured creditor I.T.T. Industrial Credit Company to condition Mimi's of Atlanta, Inc.'s continued use of encumbered property upon the provision of adequate protection, as contemplated by 11 U.S.C. § 363(e); and (3) an adversary proceeding in which lien-holding International City Corporation has requested relief from the § 362(a) stay.

I. Factual Background

A mall-like facility in downtown Atlanta known as the "Omni" complex is owned and operated by Plaintiff Omni International Limited, a Georgia limited partnership. Two restaurants, "Mimi's" and "Max'," which occupy retail space within the complex, are owned by debtor/Defendant Mimi's of Atlanta, Inc., and debtor/Defendant Max' Restaurant, Inc. The third debtor-in-possession in these related reorganization proceedings, Exeter Restaurant Corporation, holds no proprietary interest in either restaurant, but it is affiliated with the other corporate debtors in that it not only performs accounting and cash-managing services for the two restaurant-operating debtors, but also is owned and controlled by the same individual, Mr. Steven Brown, who is an experienced businessman and certified public accountant.

In 1978, for a period of approximately one year, Mr. Brown was employed by Plaintiff Omni International Limited as President of the Omni complex. In that capacity, he became acquainted with Mr. Max Schnallinger, who, at that time, owned and operated the Mimi's and Max' restaurants. Apparently, Mr. Brown considered the restaurants to be potentially successful business ventures, because, after he resigned his position with Plaintiff Omni, he formed the above-named corporate debtors into which the assets and liabilities of the restaurants were transferred.

As part of the purchase of the restaurants, Mimi's of Atlanta, Inc., and Max' Restaurant, Inc., assumed the lease obligations owed by Mr. Schnallinger, (or business entities owned by him), to Plaintiff Omni. This assumption and assignment of the leasehold occurred in May of 1979, and the two corporations made rental payments as prescribed by the leases through August of that year. Exeter Restaurant Corporation, the money-managing entity, entered into a lease agreement on office space with Plaintiff shortly after the Mimi's and Max' leases had been assigned, and it appears that no rental payments, as provided by that lease, were ever made by Exeter.

Accordingly, on October 31, 1979, Plaintiff Omni notified the three debtors that they would be in default, as defined in the leases, if the October and partial September arrearages were not cured within ten days of receipt of the notices. Since the lessee/debtors failed to cure the arrearages, the landlord/Plaintiff unilaterally terminated the leases on February 6, 1980, as provided in the lease agreements. A letter bearing that date so informed the debtors of the termination. Shortly after the termination, dispossessory proceedings were initiated by the landlord in state court, but before any writs were issued, the proceedings were stayed by the debtors' filing of petitions for reorganization in this court.

The Schnallinger-Brown transaction also involved the assumption by Mimi's of Atlanta, Inc., of debts owed to I.T.T. Industrial Credit Company and International City Corporation. Each of these debts is secured by liens on personalty owned by the debtor, but, since the court has now determined that the fair market value of the collateral is less than the amount of the debt owed to the undisputed first priority secured party, (ITT), neither of these creditors is fully secured in these proceedings.

II. Procedural Background

Within one week of the filing of Chapter 11 petitions by these three debtors, Plaintiff Omni International Limited sought relief from the automatic stay imposed by § 362(a), or, in the alternative, possession of the premises occupied by the three corporate debtors.¹ The debtors filed a lengthy answer and lodged two counterclaims through which they seek money damages. The court held a preliminary hearing, as contemplated by § 362(e) of the Bankruptcy Code, in order to determine what, if any, immediate relief should be provided.

Since "relief from the stay" is defined to include conditioning the continuance of the stay,² immediately following the preliminary hearing the court entered an order which provided for automatic termination of the stay if the debtors-in-possession continued to occupy the premises without making fair rental payments to the landlord/Plaintiff. Omni International, Ltd. v. Mimi's of Atlanta, Inc., Adv.No. 80-0287A (Bankr.Ct.N.D.Ga., order entered April 10, 1980); Omni International, Ltd. v. Max' Restaurant, Inc., Adv.No. 80-0289A (Bankr. Ct.N.D.Ga., order entered April 10, 1980). The terms of those orders have been fully complied with by the Mimi's and Max' debtors, and the stay has, therefore, remained in full force and effect with respect to those two entities. The office space occupied by Exeter, however, has been vacated, thereby mooting that particular debtor's dispute with the landlord.

Secured creditor I.T.T. Industrial Credit Co. has moved the court for adequate protection, and International City Corporation, who holds an undisputed second priority lien on the same property encumbered by I.T.T.'s lien, seeks relief from the automatic stay. It was inappropriate at the time that the preliminary hearing was held to condition or otherwise weaken the stay imposed upon these two secured creditors, since the court had not had the opportunity to value the property encumbered by the creditors' liens. See 11 U.S.C. §§ 362(d)(1), 362(d)(2).

In order to address these valuation problems and to consider the unresolved issues arising out of the disputes with the landlord, a final hearing in connection with these matters was commenced within thirty days of the date of the preliminary hearing, as required by § 362(e) of the Code.

III. Landlord's Causes of Action

The landlord's first cause of action constitutes a "request," as contemplated by § 362(d) of the Bankruptcy Code, for relief from the stay imposed by § 362(a). The landlord's second cause of action, by which it seeks to have the court grant it possession of the premises, may be properly addressed only after the stay-related issues have been resolved.

Prior to considering whether the standards outlined in § 362(d) for relief from stay have been met, the court must first determine what kind of stay, if any, has been imposed upon the party seeking relief. In making such a determination, the court's attention focuses upon § 362(a) of the Bankruptcy Code. That subsection imposes, immediately upon the filing of any type of petition in bankruptcy, an automatic stay, which prevents eight specific types of actions from being taken against the debtor,³ the debtor's property,⁴ or property which passes to the debtor's bankruptcy estate.⁵

Prior to the filing of petitions by these debtors, the landlord was seeking to dispossess the debtors through proceedings instituted in state court. To the extent that the landlord's only non-bankruptcy remedy against the debtors, their property, or property in their bankruptcy estates lies in such a state court dispossessory action, the court is faced only with "relief-from-stay" issues, because the unambiguous language of § 362(a)(1)⁶ imposes a stay against the exercise of such a judicial remedy. To the extent, however, that the landlord holds a remedy against the debtors that does not require the commencement or continuation of judicial process, relief-from-stay issues arise only after it has been determined that one of the § 362(a) stays other than that found in § 362(a)(1) is found to preclude the exercise of such non-judicial remedies.

While it is probable that the landlord's only remedy against the debtors is indeed judicial,⁷ to the extent that the landlord holds non-judicial remedies, the court is inclined to construe the stay imposed by § 362(a)(3) to prevent the exercise of them. That particular type of § 362(a) stay operates to prevent any entity from acting to obtain possession of "property of the estate," which is defined in § 541(a) of the Code to include "all legal and equitable interests of the debtor in property as of the commencement of the case." Since the debtors have continually maintained possession of the premises and have never had an opportunity to refute the landlord's...