Matter of Ridgemont Apartment Associates, Ltd.

• Decision Date: 06 June 1991
• Docket Number: Bankruptcy No. A88-02855-WHD,Adv. No. 90-0024A.
• Citation: 127 BR 934
• Parties: In the Matter of RIDGEMONT APARTMENT ASSOCIATES, LTD., Debtor. ATLANTA ENGLISH VILLAGE, LTD., Plaintiff, v. RIDGEMONT APARTMENT ASSOCIATES LTD., A New Jersey limited partnership, Harmon/Envicon Associates, A New Jersey Joint Venture, Firemen's Insurance Company of Newark, New Jersey, A New York corporation, and Southmark Management Corporation, A Nevada corporation, Defendants.
• Court: U.S. Bankruptcy Court — Northern District of Georgia

127 B.R. 934 (1991)

In the Matter of RIDGEMONT APARTMENT ASSOCIATES, LTD., Debtor.

ATLANTA ENGLISH VILLAGE, LTD., Plaintiff, v. RIDGEMONT APARTMENT ASSOCIATES LTD., A New Jersey limited partnership, Harmon/Envicon Associates, A New Jersey Joint Venture, Firemen's Insurance Company of Newark, New Jersey, A New York corporation, and Southmark Management Corporation, A Nevada corporation, Defendants.

Bankruptcy No. A88-02855-WHD, Adv. No. 90-0024A.

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

June 6, 1991.

Stephen C. Greenberg, Francis X. Moore, Holt, Ney, Zatcoff & Wasserman, Atlanta, Ga., for defendant Ridgemont Apartment Associates, Ltd.

C. Richard McQueen, Daniel A. Angelo, F.C. Schenck, Greene, Buckley, Jones & McQueen, Atlanta, Ga., for plaintiff Atlanta English Village Ltd.

ORDER

W. HOMER DRAKE, Jr., Bankruptcy Judge.

This matter is before the Court on the Motion for Partial Summary Judgment filed by Ridgemont Apartment Associates, Ltd. ("Debtor") on January 31, 1991. Plaintiff Atlanta English Village, Ltd. ("AEV") filed a brief in opposition to the motion on February 20, to which Debtor responded on March 5. Having considered these pleadings and the record in the case file, the Court will grant Debtor's motion in part and deny it in part. The following constitute the Court's findings of fact and conclusions of law.

FINDINGS OF FACT

On December 17, 1984, Debtor purchased from AEV the Ridgemont Apartments located at 7275 Roswell Road, Atlanta, Georgia (the "Property"). As a part of the transaction, Debtor gave to AEV a Promissory Note for $9.8 million, a Security Deed creating a security interest in the Property, and an Assignment of Rents from the Property.¹ In March of 1988, Debtor failed to make a $69,416.67 interest payment under the terms of these documents, and AEV declared Debtor to be in default. Debtor then filed its Chapter 11 petition on April 1, 1988.

On April 21, 1988, Debtor filed a Motion for Authorization to Use Cash Collateral, and the Court responded with a series of orders imposing conditions on such authorization (the "Cash Collateral Orders"), including an Agreed Interim Order dated May 31, 1988 directing Debtor to maintain post-petition security deposits in an escrow account and to deposit additional sums in separate accounts to pay insurance premiums and taxes; a July 8, 1988 order described below in some detail; and a December 14, 1988 order directing Debtor to secure security deposits collected by Debtor before April 1, 1988 by a bond, to place post-April 1 security deposits in escrow, and to deposit monthly payments into a tax reserve account.

Meanwhile, AEV filed a motion for relief from stay or in the alternative for adequate protection on April 27. In a June 22, 1988 order the Court preserved the automatic stay conditioned on Debtor's payment of $69,416.67 each month to AEV for adequate protection. The order further provided for automatic termination of the stay without further motion, notice, hearing or order if payments were not made as specified therein. Debtor filed a notice of appeal and sought a stay pending appeal, which was granted on June 29 subject to the posting of a $450,000 supersedeas bond. On July 8, 1988, the Court further conditioned the stay pending appeal on Debtor's monthly payment to AEV of either $35,000 or the excess cash collateral generated by the debtor each month after paying necessary expenses, whichever is greater, and on Debtor's payment of certain deposits for taxes and insurance. Again, Debtor's noncompliance with that order or any other Cash Collateral Order would result in immediate termination of the automatic stay without motion, order or notice.

The supersedeas bond, executed by Debtor and Southmark Corporation ("Southmark") as co-principals and by Firemen's Insurance Company ("Firemen's") as surety, was filed on July 13, 1988. Under its terms the executors

are held and firmly bound, jointly and severally, unto AEV . . . in the principal sum of $450,000.00, and not in excess thereof . . . for the payment upon the dismissal of the appeal by Debtor of the June 22 Order, or immediately upon the affirmation of said Court Order, as reimbursement to AEV, . . . but subject, however, to the U.S. Bankruptcy Court . . . awarding to AEV . . . actual damages which may be sustained. . . .

Damages specifically covered by the bond include, inter alia, deficiencies in adequate protection payments, tax payments and tax reserve deposits, and insurance premium payments; damages caused by failure to maintain a separate escrow account for tenant security deposits; and "any and all other damages which may be sustained by AEV . . . during the pendency of said Debtor's appeal. . . ."

On August 10, 1988, the Court amended its June 22, 1988 order to include the following additional finding:

The Court finds that the Debtor has no equity in the Property in that the value of the Property is less than the amount of the combined debt against the Property held by AEV.

To reflect the amendment, Debtor filed an amended notice of appeal and the Court ordered a revised supersedeas bond. On October 21 Debtor filed the revised bond, the substance of which was the same as the original.

On September 21, October 11, and November 14, 1988, AEV filed motions "for Adequate Protection and for the Court's Direction Concerning Matters Relating to the Operation of the Debtor's Business" in which AEV alleged various violations of the Court's orders² and requested that the Court raise the amount of the supersedeas bond to $1 million. After a hearing on November 15 and 16 on the motions, the Court took no action with respect to the alleged violations, and on December 16, 1988 it denied AEV's request to increase the amount of the supersedeas bond, reasoning that the bond in addition to the monthly payments ordered on July 8, 1988 provided sufficient security.

The Court held a confirmation hearing on Debtor's proposed Chapter 11 plan on January 9, 1989. On February 15, 1989, the Court declined to confirm the plan and instead granted relief from the automatic stay to AEV. AEV conducted a foreclosure sale of the Property on April 4, 1989, purchased the Property at the sale with a bid of $7.8 million, and sold it to Signature Group for $7.2 million.

Both the District Court for the Northern District of Georgia and the Eleventh Circuit Court of Appeals affirmed the June 22 Order, and on January 5, 1990, AEV filed the present "Complaint for an Accounting and to Determine Damages Recoverable under Supersedeas Bond" against Debtor, Harmon/Envicon Associates (Debtor's general partner), Firemen's and Southmark. Count 1 of the Complaint asks for $3,749,172.84 as compensation for damages incurred during the stay pending appeal, including the depreciation of the Property's fair market value from $10,350,000 on June 22, 1988³ to $7,800,000 at the time of the foreclosure sale. According to Count 2, Debtor improperly used cash collateral to refund tenant security deposits and otherwise failed to comply with the Court's interim cash collateral orders of May 31 and December 14, 1988 (the "Cash Collateral Orders") pertaining to those deposits, and AEV requests the turnover of the deposits totalling $60,266. Count 3 alleges that Debtor improperly applied $69,681.86 of cash collateral toward pre-petition unsecured claims. Count 4 alleges that AEV is owed $25,673.62 for unpaid tax reserve deposits required by the Cash Collateral Orders. Count 5 alleges that AEV is owed a refund for an unearned insurance premium totalling $9,623.40 pursuant to the Cash Collateral Orders. Finally, Count 6 alleges that Debtor commingled $103,564.42 of cash collateral with "investor note receipts" totalling $25,886.30 in a savings account in contravention of the Cash Collateral Orders, moved $69,551.27 from this account into its general operating account, and moved $51,321.21 from the savings account to a second savings account, and it requests that the balance of both savings accounts ($34,952.14 and $52,879.64) be turned over to AEV.

In addition to the recovery of the alleged amounts, Counts 2 through 6 request that Debtor be ordered to "account to Plaintiff AEV" for the funds. AEV had filed a Motion for an Accounting by Debtor on March 25, 1989 which included many of the same allegations found in these Counts, to which Debtor had filed a response on May 3, 1989 purporting to satisfy the request. According to the Complaint, the Court stated in a May 10, 1989 in-chambers conference that the Motion would be heard in conjunction with the Complaint; the docket reflects no further resolution or adjudication of the Motion.

After Debtor filed the present Motion for Partial Summary Judgment, AEV moved to dismiss Firemen's as a defendant under the Complaint. The Court granted the request on April 25, 1991.

DISCUSSION

In accordance with Bankruptcy Rule 7056, which incorporates Federal Rule of Civil Procedure 56, this Court will grant a motion for summary judgment only when there is no material issue of fact to be tried and the movant is entitled to judgment as a matter of law, see Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 2552, 91 L.Ed.2d 265 (1986), on remand, 826 F.2d 33 (D.C.Cir.1987), cert. denied, 484 U.S. 1066, 108 S.Ct. 1028, 98 L.Ed.2d 992 (1988). The movant bears the initial burden to establish that no such factual issue exists, Id. at 324, and the Court shall read any affidavits or pleadings in a light most favorable to the non-movant, Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). Only when the movant's burden is met does the burden shift to the non-movant to demonstrate that there is an issue of fact to be determined at trial, Clark v. Coats & Clark, Inc., 929 F.2d 604 (11th Cir.1991).

In support of its Motion for Partial Summary Judgment, Debtor asserts first that a cause of action under the bond is AEV's exclusive remedy,...