Second Ave. Holdings, LLC v. Latimer (In re Latimer)
Decision Date | 26 March 2013 |
Docket Number | Adversary No. 11–00432–BGC.,Bankruptcy No. 11–00223–BGC7. |
Citation | 489 B.R. 844 |
Parties | In re ROY THOMAS LATIMER, JR., Debtor. Second Avenue Holdings, LLC, Plaintiff, v. Roy Thomas Latimer, Jr., Defendant. |
Court | U.S. Bankruptcy Court — Northern District of Alabama |
OPINION TEXT STARTS HERE
Bradley Richard Hightower, Christian & Small LLP, Daniel D. Sparks, Birmingham, AL, for Plaintiff.
Lee R. Benton, Brenton K. Morris, Jamie Alisa Wilson, Benton & Centeno, LLP, Frederick Mott Garfield, Spain & Gillon, Birmingham, AL, for Defendant.
The matter before the Court is the Motion to Compel Arbitration and Stay Adversary Proceeding (A.P. Doc. No. 27) filed on April 3, 2012 by the defendant, Roy Thomas Latimer, Jr. After notice, a hearing was held on May 23, 2012. Appearing were: Brenton K. Morris and Frederick Mott Garfield, attorneys for the defendant; and Bradley Richard Hightower, the attorney for the plaintiff, Second Avenue Holdings, LLC. The matter was submitted on the record in this case and the arguments and briefs of counsel.
1. The debtor, Mr. Latimer, is the managing member and owns membership interests in a limited liability company known as Goodall–Brown Management, LLC. (“GBM”). GBM is the general partner of Goodall–Brown Associates, LP (“GBA”).
2. On December 31, 2001, GBA obtained a loan in the amount of $2,975,000 from a lender named “The Bank” to use for construction to convert a commercial building know as the Goodall Brown Building into loft apartments and retail space.
3. Three documents were executed with respect to the loan: (1) a promissory note; (2) a “Future Advance Mortgage, Assignment of Rents and Leases and Security Agreement,” which provides security for repayment of the amounts loaned; and (3) a “Construction Loan Agreement,” which dictates how and when the funds would be distributed to GBA and defines what events constitute defaults under the note. A.P. Doc. No. 1, Exhibits A, B, & C.
4. Mr. Latimer executed the note, and the construction loan agreement, and the security agreement on behalf of GBA in his representative capacity as manager of GBM, GBA's general partner. Mr. Latimer, along with several other individuals, also personally guaranteed repayment of the loan. Those other individuals were eventually released from their guarantees.
5. The note provides for interest only payments until October 31, 2003 (the “Construction Maturity Date”), and after that date, for monthly principal and interest payments until October 31, 2004 (the “Term Maturity Date”), on which date GBA had the option to either pay the balance due in full or extend the term of the loan until October 31, 2006 (the “Extended Term Maturity Date”). Through a series of amendments to the note, the “Construction Maturity Date” was extended to June 30, 2004, and the “Extended Term Maturity Date” was ultimately extended to August 5, 2013. The last and eighth amendment to the note was executed on August 5, 2010.
6. To secure payment of amounts due under the note, GBA, in the “Future Advance Mortgage, Assignment of Rents and Leases and Security Agreement,” in addition to conveying the property to the lender, also assigned to the lender all leases of the property, or any part thereof, that it had entered into or might otherwise enter into in the future, as well as all rents which might accrue or be produced by virtue of any such rental of the property. The document specifically forbad GBA from collecting more than one month's rent in advance from any tenant and from waiving, releasing, reducing, discounting, discharging or compromising the payment of any of the rents that might accrue or had accrued for any portion of the property.
7. On October 1, 2005, GBA leased the entire property to Sloss Real Estate Group, Inc. (“SREG”). The lease was to run until September 30, 2037. The rent for the first year of the lease was an amount equal to the annual debt service on the property. The annual rent for the two years after that was an amount equal to the lesser of the annual debt service or $25,000 per month. The annual rent for the remaining term of the lease was to be an amount equal to 150% of the annual debt service.
8. The lease provided the lessee with the option to purchase the property after January 31, 2008. The lessee was required to pay the lessor $4,700,000 for the property if it should elect to exercise the option before August 30, 2008. After that date, the option price would be the greater of $4,700,000 or the fair market value of the property as determined by appraisal.
9. The lease requires any and all disputes between the lessor and the lessee concerning the lease to be resolved through binding arbitration administered by the American Arbitration Association. The dispute resolution provision reads:
13.1.2. Dispute Resolution. The parties recognize that disputes may arise in the future concerning this Lease (a “Dispute”). Therefore, the parties shall resolve any and all such Disputes of any nature whatsoever in the following manner:
13.1.2.1 Negotiation. In the event of a Dispute, the parties shall attempt to settle such Dispute through informal negotiations. To this effect, they shall consult and negotiate with each other, in good faith for a period of thirty (30) days and, recognizing their mutual interests, attempt to reach a just and equitable solution satisfactory to both parties.
13.1.2.2 Arbitration. Any Dispute, which remains unresolved at the end of such thirty (30) day period, shall be submitted to binding arbitration in accordance with Chapter 1, Title 9 of the United States Code (Federal Arbitration Act). Arbitration shall be administered by the American Arbitration Association (“AAA”) in accordance with its Commercial–Arbitration Rules as supplemented by its Supplementary Procedures for Complex Cases.
A.P. Doc. No. 28, Exhibit A.
10. The lease defines the term “parties” to mean “Landlord and Tenant.” “ ‘Parties' shall mean Landlord and Tenant.” A.P. Doc. No. 28, Exhibit A. It likewise defines the term “party” to mean either the “Landlord or Tenant.” Id.
11. On December 6, 2005, with GBA's consent, SREG purported to assign its interest in the lease to Sloss Goodall–Brown, LLC (“SGB”). A.P. Doc. No. 28, Exhibit B. The document in which the assignment was effected, which was executed by Mr. Latimer (on behalf of GBM for GBA), SREG and SGB, contains the representation that SGB was, at that point in time, a limited liability company wholly owned by SREG. SREG promised in the document to continue its complete ownership of SGB for the remainder of the lease term, absent GBA's permission to do otherwise. Moreover, SGB promised in that document not to assign its interest in the lease without GBA's written consent.
12. Problematic to the efficacy of the purported assignment is the fact that SGB did not exist as a legal entity. It was not legally formed until December 8, 2009, when its articles of formation were filed in the office of the probate judge of Jefferson County, Alabama. A.P. Doc. No. 28, Exhibit C. SGB's articles of formation list SREG as its sole initial member.
13. On August 30, 2006, SREG provided a letter to GBA purporting to terminate the lease effective November 1, 2006.
14. On July 20, 2010, GBA delivered a letter to SREG and SGB purporting to terminate the lease for nonpayment of rent.
15. On October 7, 2010, Superior Bank, which had been assigned the note, GBA, and Mr. Latimer, the lone remaining guarantor, entered into the final amendment to the note and other agreements relating thereto. The document effecting those amendments is entitled “Eighth Amendment to Loan Documents and Forbearance Agreement.” A.P. Doc. No. 28, Exhibit 2A. Mr. Latimer executed that document on behalf of GBA in his representative capacity as manager of GBM, GBA's general partner, and in his personal capacity as guarantor.
16. Among other things, the amendment extended the maturity date of the note until August 5, 2013. In addition, the parties thereto recognized the default occasioned by SREG's nonpayment of rent which resulted in GBA's termination of its lease:
As referenced in the Seventh Amendment to Loan Documents dated October 31, 2006, Borrower executed a master lease of the Project on October 1, 2005 (the “Master Lease”) to Sloss Real Estate Group, Inc. (“Sloss”). Sloss has ceased paying rent and has requested an adjustment to the terms of the Master Lease. Borrower and Sloss have conducted negotiations on a modification of the Master Lease to resolve the default by Sloss, but no agreement has been reached by the parties thereto, and the Master Lease remains in default (the “Sloss Default”). The Sloss Default is an Event of Default under the Loan Agreement.
“Eighth Amendment to Loan Documents and Forbearance Agreement” A.P. Doc. No. 28, Exhibit A2.
Superior Bank, however, agreed in the amendment to forbear from exercising its rights to accelerate the note and foreclose its mortgage based on the default resulting from SREG's nonpayment of rent until September 1, 2011, provided GBA continued to make its payments when due, no other events constituting defaults occurred, and the proceeds of any settlement between SREG and GBA were turned over to it.
17. On August 31, 2010, GBA filed suit in the state circuit court against SREG and SGB seeking $452,698.12 in rents due under the lease and $11,207 in rents purportedly converted by SREG/SGB from subtenants who were supposed to have made rent payments directly to GBA following their default under the lease.
18. On January 17, 2011, Mr. Latimer filed the present bankruptcy case under Chapter 11.
19. On January 26, 2011, GBA amended its state court complaint. In the amendment, it listed as additional defendants Sloss Real Estate Group, Inc., Sloss Real Estate Company, Inc., Leigh Ferguson, Catherine S. Crenshaw, Jack Peterson, A. Page Sloss, Jr., Ronald J. Cappello, and Vicki H. Bolton. It added as...
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