Nilhan Developers, LLC v. Westplan Investors Acquisitions, LLC (In re Bay Circle Props., LLC)

• Decision Date: 01 November 2018
• Docket Number: CASE NO. 15-58440-WLH,ADV. PROC. NO. 18-5193-WLH
• Parties: IN RE: BAY CIRCLE PROPERTIES, LLC, and Nilhan Developers, LLC, et al., Debtors. Nilhan Developers, LLC, Plaintiff, v. Westplan Investors Acquisitions, LLC and Accent Cumberland Apartments, LP, Defendants.
• Court: United States Bankruptcy Courts. Eleventh Circuit. U.S. Bankruptcy Court — Northern District of Georgia

593 B.R. 14

IN RE: BAY CIRCLE PROPERTIES, LLC, and Nilhan Developers, LLC, et al., Debtors.Nilhan Developers, LLC, Plaintiff,

v.Westplan Investors Acquisitions, LLC and Accent Cumberland Apartments, LP, Defendants.

CASE NO. 15-58440-WLH

ADV. PROC. NO. 18-5193-WLH

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

Signed November 1, 2018

Roberto Bazzani, Weener & Nathan, LLP, Suite 275, 5887 Glenridge Drive, Atlanta, GA 30328, for Plaintiff.

Michelle L. Wein, Cohan Law Group, LLC, Suite 2570, 3340 Peachtree Road NE, Atlanta, GA 30326, for Defendants.

ORDER GRANTING MOTION TO DISMISS

Wendy L. Hagenau U.S., Bankruptcy Court Judge

This matter is before the Court on the Motion to Dismiss filed by Westplan Investors Acquisitions, LLC ("Westplan") and Accent Cumberland Apartments, LP ("Accent") (collectively, "Defendants") [Docket No. 4]. The Court has jurisdiction of this matter under 28 U.S.C. § 1334. The Complaint alleges the matter is core, but the Motion to Dismiss raises the question of whether this is a core matter under 28 U.S.C. § 157. Nevertheless, all parties have consented to the Court's entry of this Order as a final order without prejudice to Defendants' position the Court cannot enter any other final orders without their consent [Docket Nos. 8 and 9].

FACTS

The Debtor filed its bankruptcy petition under Chapter 11 of the United States Bankruptcy Code on May 4, 2015 (Case No. 15-58443 which was jointly administered with Case No. 15-58440). The Debtor's Schedules reflect it owned real estate including property located at 2800 and 2810 Spring Road, Smyrna, Georgia. The property located at 2800 Spring Road is identified as a shopping center consisting of 1.56 acres ("2800 Spring Road"). The property identified as 2810 Spring Road is described as office suites consisting of three buildings on 7.14 acres ("2810 Spring Road"; together with 2800 Spring Road, the "Property"). The Property is located in the general vicinity of SunTrust Park, where the Atlanta Braves play.

Nilhan's Property was collateral for a loan made by Wells Fargo to affiliates of the Debtor and the Debtor's principal Chittranjan (Chuck) Thakkar and his wife, and guaranteed by the Debtor and other affiliates. The threatened foreclosure by Wells Fargo on some of its collateral prompted the bankruptcy filing in 2015 of the Debtor and other affiliates. After the bankruptcy case was filed, Wells Fargo, the Debtor and the other obligors entered into a settlement agreement approved by this Court. The settlement agreement required the full amount of the debt to Wells Fargo to be paid in full by April 30, 2017 and set various deadlines for interim payments. In the settlement agreement, the parties agreed that the release price for the Property was $5.2 million. If Wells Fargo was not paid in full by April 30, 2017, it could record deeds-in-lieu of foreclosure on the Debtor's Property and property of the other obligors without further hearing. After the settlement agreement was finalized and approved, Wells Fargo assigned its interest and claim to Bay Point Capital Partners, LP ("Bay Point").

In anticipation of this April 30, 2017 deadline, the Debtor filed a motion on April 11, 2017 [Case No. 15-58440, Docket No. 634] to sell the Property for $7 million to Westplan. The contract for sale called for certain adjustments to the purchase price. The Debtor asked the Court to authorize the sale to Westplan free and clear of any liens pursuant to 11 U.S.C. § 363. Attached to the motion was a "Standard Form Contract of Sale" between Westplan and the Debtor for the sale of the Property ("Contract"). The Debtor supplemented the motion on April 19, 2017 by including the site plan which was to have been attached to the Contract as an exhibit. The supplement to the motion also included an "Assignment of Standard Form Contract of Sale" representing that Westplan had assigned all of its rights and interests under the Contract to Accent as of April 6, 2017. Under this assignment, Accent assumed all of the obligations and liabilities of Westplan under the terms of the Contract. Included in the Contract is paragraph 26 entitled "Buy Back". This paragraph states as follows in its entirety:

26. BUY BACK. Seller acknowledges that Purchaser intends to apply to rezone the Property to allow the development of a multi-use project on the Property and, as part of such rezoning, the Purchaser will obtain annexation into the City of Smyrna. After Closing, the Seller shall have the right to purchase a portion of the Property utilized for the proposed hotel, office and retail (as shown on the rezoning/annexation site plan attached and incorporated (sic) herein as Exhibit B) ("HOR Property") for $2,500,00.00 Seller's right to purchase the HOR Property shall be valid for sixty (60) days from the date of final rezoning and annexation. Purchaser shall deliver notice to Seller of such final rezoning and annexation. If Seller fails to close and acquire the HOR Property within such sixty (60) day period, then Seller's right shall be null and void and Seller shall no longer have such right. If Seller acquires the HOR Property, Seller and Purchaser shall enter into joint development and master site agreement addressing common development issues, such as construction costs, easements and maintenance costs. The rezoning and annexation shall provide the guidelines and framework for the joint development and master site agreement as determined by the Purchaser. The joint development and master site agreement shall designate the proportionate share of costs and expenses for each party based upon acreage within the proposed multi-use project, such costs and expenses shall include but not be limited to, those costs associated with engineering, architectural, geotechnical, oversight, developing, grading and infrastructure (such as stormwater, driveways, utilities and parking). The parties agree that such common development costs and expenses shall be escrowed at the closing of the HOR Property. Purchaser shall have the right to determine the contractors and service providers for the multi-family project.

Further, if after Closing Purchaser is denied rezoning and annexation by the applicable authorities, Seller shall have the right to purchase the Property for $7,750,000.00 plus costs and expenses set forth in the second paragraph of Section 7, as well as interest at a rate of fifteen percent (15%) compounded annually from the date of Closing. Seller's right to purchase the Property shall be valid for ninety (90) days from the date Purchaser was denied the rezoning and annexation. Purchaser shall deliver notice to Seller of the denial of the rezoning and annexation. If Seller fails to close and acquire the Property within such ninety (90) day period, then Seller's right shall be null and void and Seller shall no longer have such right.

Bay Point objected to the proposed sale as did another major creditor.

The Court held hearings on April 24, 2017 and April 27, 2017 on the motion to sell to the Defendants as well as on several other motions filed by the Debtor and its affiliates in contemplation of the April 30, 2017 deadline to pay Bay Point in full. The Court heard testimony from a representative from the Defendants and from Mr. Thakkar regarding the proposed sale, the proposed rezoning of the Property, and the potential Buy Back provision. The Court also heard testimony from a developer of hotel properties regarding the potential value of the Buy Back provision.

Because Bay Point wanted to exercise its right to credit bid on the sale to the Defendants, the Court allowed an auction to be conducted during the hearing. Ultimately, Bay Point offered to pay $7.3 million to the estate for the Property, but without the Buy Back option, while Westplan offered only $7.2 million to the estate including the Buy Back option. The Court was faced with deciding whether to grant the Debtor's motion to sell to Westplan or to deny the motion because Bay Point offered a greater value. The Court's analysis is explained in its oral ruling. The Court reviewed the claims filed in the Debtor's case, which were minimal. While typically the interests of equity holders get little consideration in a bankruptcy case, where the value of the asset is sufficient to pay creditors in full and deliver value to the equity holders, the Court may consider the interests of the equity holders in making decisions. The Court found that once the Property was rezoned to accommodate residential and hotel use, the Buy Back option could have a value of $1 million or more. However, if the Property was not rezoned, the option likely had a zero value. The Court stated, "The bidding suggests to me that it's [the Buy Back option] worth no more than $100,000". The Court noted that the option was "clearly important to Mr. Thakkar", so the resolution was for Mr. Thakkar to pay the additional $100,000 so the estate and Bay Point would not be prejudiced, but the Debtor retained the Buy Back option set out in the Westplan proposal. The Court entered an order on April 28, 2017.

The sale to Accent closed on May 1, 2017. According to the Complaint, Accent applied for rezoning with Cobb County, but with a site plan that differed from that attached to the sale motion. Accent did not consult with the Debtor or its principals in connection with the rezoning. The Debtor contends that the changes to the site plan reduced the value of the hotel, office and retail portions of the Property which the Debtor had retained the option to repurchase if rezoning were approved. The Debtor alleges that Accent intended to have the rezoning denied. In fact, the rezoning request was denied.

CLAIMS IN THE COMPLAINT

The Debtor claims first that Westplan and Accent breached the Contract because they failed to pursue the agreed-upon site plan for rezoning and instead made unilateral changes to it. The Complaint alleges that these changes to the site plan were made willfully to...