ORDER GRANTING BOARD OF TRUSTEES OF POLICEMEN AND FIREMEN RETIREMENT SYSTEM OF THE CITY OF DETROIT AND EXCEL LEGACY CORPORATION'S MOTION FOR RELIEF FROM AUTOMATIC STAY
JAMES K. COACHYS, United States Bankruptcy Judge
This matter comes before the Court on the Motion for Relief from Stay (the "Motion") filed by the Board of Trustees of Policemen and Firemen Retirement System of the City of Detroit and Excel Legacy Corporation (collectively, the "Movants") and the Objection thereto, filed by PCL/Calumet, A Joint Venture ("PCL/Calumet"). Following a hearing on this matter on August 19, 2002, the Court took the matter under advisement and now issues the following Order, wherein it grants the relief requested by the Movants. In support, the Court states the following:
1. Entercitement, LLC's ("Entercitement") sole asset of any value consists of a 510-acre tract of real estate located in Hendricks and Morgan Counties, Indiana, which was intended to be developed as an amusement park (the "Property"). The project, however, was ultimately unsuccessful.
2. PCL/Calumet served as one of two general contractors on the project to build the amusement park, but was not paid for its work. As a result, PCL/Calumet filed a mechanic's lien against the Property and eventually sued upon it in Hendricks and Morgan Counties (the "State Court Action"). In conjunction with the State Court Action, the trial courts were asked to decide the priority of PCL/Calumet's mechanic's lien as it relates to a mortgage held by the Movants. The trial courts eventually entered summary judgment on that issue in favor of the Movants, which judgment was later affirmed by the Indiana Court of Appeals in a published opinion issued on December 21, 2001. PCL/Calumet then filed a petition to transfer with the Indiana Supreme Court, which petition is now pending subject to the automatic stay imposed in this case by 11 U.S.C. § 362.
3. After losing on appeal, PCL/Calumet, among others, commenced this bankruptcy case by way of an involuntary petition filed on March 1, 2002. Over the Movants' objection, an Order for Relief was entered by the Court under Chapter 7 of the United States Bankruptcy Code (the "Code") on May 22, 2002. An interim trustee was appointed on May 23, 2002.
4. The Movants now ask that the automatic stay be modified to allow: (1) the State Court Action to proceed, and (2) the Movants to pursue any remedy, including foreclosure, consistent with the State Court Action's ultimate resolution.
5. PCL/Calumet has objected, arguing that certain claims and/or defenses that may be asserted by either the Chapter 7 trustee or PCL/Calumet against the Movants militate against lifting the stay.
6. Section 362(d) of the Code states in relevant part:
On request of a party in interest and after notice and a hearing, the court shall grant relief from the stay provided under subsection (a) of this section, such as by terminating, annulling, modifying, or conditioning such stay —
(1) for cause, including lack of adequate protection of an interest in proeprty of such party in interest;
(2) with respect to a stay of an act against property under subsection (a) of this section, if
(A) the debtor does not have equity in such property; and
(B) such property is not necessary to an effective reorganization. . . .
7. Here, the only evidence presented to the Court indicates that the Property is worth between $2.3 and $2.5 million. Given that the total liens on the Property far exceed this value, there is no question that Entercitement lacks equity in the property. Because this is a Chapter 7 liquidation case, the Property is not needed for an effective reorganization and, thus, it would appear that the Movants should be granted their requested relief.
8. As indicated above, however, notwithstanding the undisputed evidence as to valuation, PCL/Calumet insists that relief should not be granted because of certain claims and/or defenses that allegedly exist against the Movants. More specifically, PCL/Calumet has expressed its intention to pursue, either in its own name or through the trustee, equitable subordination and/or fraudulent transfer actions against the Movants pursuant to Code §§ 510(c) and 548, respectively. Such actions have not, as yet, been filed.
At the hearing, counsel for PCL/Calumet suggested in argument that the Property's value would be considerably higher if it was developed as an amusement park as originally planned. They did not, however, offer any evidence indicating this potential value or supporting their contention that such development is even possible.
9. Consistent with PCL/Calumet's argument, the Court acknowledges that it may, in its discretion, consider the validity of the lien at issue if challenged by way of an affirmative defense:
The "interests of judicial economy and the speedy and economical determination of litigation" supports the consideration of affirmative defenses in relief from stay litigation. In re Sonnax Industries, Inc.,
907 F.2d 1280, 1287 (2d Cir. 1990). A challenge to the validity of the underlying lien may be asserted by affirmative defense. See, e.g., In re Davenport,
34 B.R. 463, 466 (Bankr.M.D.Fla. 1983) ("when the affirmative defense contests the validity of the lien at issue, such affirmative defense should be considered in determining whether or not the automatic stay should be lifted or extended"); In re Lockwood,
14 B.R. 374 (Bankr.E.D.N.Y. 1981).
In re Poughkeepsie Hotel Assocs. Joint Venture, 132 B.R. 287, 291 (Bankr.S.D.N.Y. 1991).
10. As further indicated in Poughkeepsie, "equitable subordination" is one such affirmative defense that is properly considered in the context of stay litigation. Id. at 292-93 ("Should, for example, the respondent to a motion for relief from the automatic stay prevail on an equitable subordination defense, the movant would be deprived of secured status, thereby creating equity for the benefit of the estate.").
11. This Court does not interpret Poughkeepsie as suggesting that a party need only assert that a claim for equitable subordination (or any of the other claims available under the Code) potentially exists against the moving party in order to defeat a relief from stay motion. In fact, Poughkeepsie indicates that at least some factual basis for the claim must be established. "When faced with an affirmative defense of equitable subordination during relief from stay litigation, courts have considered whether subordination was warranted under the facts of the case." Id. at 293, citing In re ASI Reactivation, Inc., 934 F.2d 1315 (4th Cir. 1991); In re Drexel Burnham Lambert Group Inc., 1990 WL302177, 1990 Bankr. LEXIS 2889 (Bankr.S.D.N.Y. Dec. 14, 1990); In re W.L. Bradley Co., 75 B.R. 505 (Bankr.E.D.Pa. 1987); In re Towner Petroleum Co., 48 B.R. 182 (Bankr.W.D.Okla. 1985).
12. Here, PCL/Calumet has offered no factual support for its allegation that colorable equitable subordination and/or fraudulent transfer claims exist against the Movants. This is not to say that such factual support is nonexistent or that PCL/Calumet and/or the trustee are now barred from later raising these claims (or any others) against the Movants. However, it was incumbent upon PCL/Calumet, in objecting to the Motion, to come forward with some degree of evidentiary support at the Court's August 19th hearing. Having wholly failed to do so, the Court is compelled to grant the Movants' requested relief.
While the interim trustee was present for part of the hearing, he did not express any objection to the Motion, nor did he indicate that he would like additional time to investigate any claims the estate may have against the Movants. Nevertheless, in support of their objection to the Motion, counsel for PCL/Calumet did, however, make various representations regarding the trustee's intentions vis-à-vis potential claims. The Court must ignore these representations; statements of counsel in argument are not evidence. PCL/Calumet is not empowered to speak on behalf of the trustee, and if counsel wanted to illicit the trustee's intentions regarding the Movants, they should have presented him as a witness.
On several occasions at the close of the Court's hearing on the Motion, counsel for PCL/Calumet suggested that they could present evidence on a variety of PCL/Calumet's otherwise unsupported contentions, including valuation and equitable subordination, presumably at a subsequent hearing. The Court notes that even if such evidence exists, the time to have presented it was at the hearing held on the Motion on August 19, 2002.
13. Based on the foregoing, the Court grants the Motion for Relief from Stay filed by the Board of Trustees of Policemen and Firemen Retirement System of the City of Detroit and Excel Legacy Corporation and overrules PCL/Calumet's Objection thereto.
IT IS SO ORDERED