In re Cord Real Estate, LLC

Burton Perlman

This document has been electronically entered in the records of the United States Bankruptcy Court for the Southern District of Ohio. IT IS SO ORDERED.

__________

Burton Perlman

United States Bankruptcy Judge

Chapter 11

Judge Burton Perlman

ORDER GRANTING MOTION FOR RELIEF FROM STAY
AND DENYING MOTION TO SELL I. Introduction.

This matter is before the Court on the Emergency Motion of Corporex Realty Acquisitions, LLC ("Corporex") for Entry of an Order Granting Relief from the Automatic Stay Pursuant to Section 362(d) of the Bankruptcy Code (Doc. 12) (the "Stay Motion"), Debtor Cord Real Estate, LLC's (the "Debtor") Objection (Doc. 21), Corporex's Reply (Doc. 23) and Corporex's Supplement to their Reply (Doc. 27). Also before the Court is the Debtor's Motion to Sell Property (Doc. 14) ("Motion to Sell") and Corporex's Objection (Doc. 20). A hearing was held on November 19, 2013 at which the Court requested that the parties address only the Stay Motion.

II. Jurisdiction.

The Court has jurisdiction over this matter pursuant to 28 U.S.C. § 1334(b) and the General Order of Reference entered in this district. This is a core proceeding arising under 11 U.S. C. § 157.

III. Stay Motion.

In its Stay Motion, Corporex asserts that there are three grounds upon which the Court should annul the automatic stay. First, Corporex asserts that the Debtor's bankruptcy petition was not filed in good faith and that this constitutes cause to annul the stay under 11 U.S.C. § 362(d)(1). Second, Corporex asserts that because the debtor failed to timely redeem the property as a part of the state court foreclosure process, the Debtor no longer has an equitable interest in the property, and that this is reason to annul the stay under 11 U.S.C. § 362(d)(2). Third, Corporex asserts that the Debtor's transfer of its membership interest after the sheriff's sale and on the eve of its bankruptcy filing is grounds for relief under 11 U.S.C. § 362(d)(4). Debtor opposes the Stay Motion primarily on the basis that it proposes to pay Corporex in full.

IV. Facts Surrounding the State Court Foreclosure.

On or around June 18, 2002, the Debtor executed and delivered to North Side Bank & Trust Company a promissory note in the amount of $1,400,000.00. The note was secured by a mortgage on certain real property located at 11790 and 11820 Snyder Road in Cincinnati Ohio (the "Property"). On April 5, 2013, Corporex acquired the note and mortgage from North Side Bank. On April 19, 2013, Corporex commenced a foreclosure action in state court. The Debtor did not respond to the foreclosure complaint. Corporex then filed a motion for default judgment against the Debtor on June 12, 2013. On July 18, 2013, the state court found the Debtor in default and entered a judgment entry and decree of foreclosure which gave the Debtor three days to exercise its right to redeem or the Property would be sold at sheriff's sale. This judgment entry was not appealed nor did the Debtor redeem the Property. On July 30, 2013, a sheriff's sale was ordered, and on September 26, 2013, Corporex purchased the Property at the sheriff's sale for a credit bid in the amount of $800,000.00. On October 1, 2013, Corporex filed its motion for order confirming sheriff's sale. The next day, on October 2, 2013, the Debtor appeared for the first time in state court and moved to stay confirmation of the sale. A hearing was held on October 9, 2013 at which the magistrate judge denied the debtor's motion to stay confirmation and ordered that the sale be confirmed. On October 11, 2013, the Debtor filed its objections to the magistrate judge's decision or in the alternative motion to vacate the magistrate judge's decision and a memorandum in opposition to Corporex's motion to confirm sale. On October 15, 2013 Judge Ethna Cooper placed her entry stamp on the order confirming sheriff's sale ("Order Confirming Sale"). On October 22, 2013, Judge Cooper placed her entry stamp on the entry denying the Debtor's motion to set aside the magistrate judge's entry denying debtor's motion to stay confirmation of sale ("Entry Denying Debtor's Motion to Set Aside"). Both the Order Confirming Sale and Entry Denying Debtor's Motion to Set Aside received entry stamps by the clerk's office on October 23, 2013.

In the Entry Denying Debtor's Motion to Set Aside, Judge Cooper held that the sheriff's sale of the Property conformed with state law and therefore that confirmation of the sale was appropriate. The entry states: "[d]ue to [the Debtor's] eleventh-hour appearance in this matter, its failure to appear and to timely appeal the Judgment Entry and Decree in Foreclosure, its failure to allege any defect or irregularity in the sale of the property, and its failure to deposit any funds with the Clerk of Court in an attempt to redeem the property, [the Debtor's] Motion to Stay Confirmation of Sale was properly denied by the Magistrate."

The Debtor filed its bankruptcy petition on October 23, 2013.

V. Legal Analysis.

In Laguna Associates Limited Partnership v. Aetna Casualty & Surety Company (In re Laguna Associates Limited Partnership), the Sixth Circuit set forth the following factors for determining whether a debtor has filed its petition in good faith: (1) the debtor has one asset; (2) the pre-petition conduct of the debtor has been improper; (3) there are only a few unsecured creditors; (4) the debtor's property has been posted for foreclosure, and the debtor has been unsuccessful in defending against the foreclosure in state court; (5) the debtor and one creditor proceeded to a standstill in state court litigation, and the debtor has lost or has been required to post a bond which it cannot afford; (6) the filing of the petition effectively allows the debtor to evade court orders; (7) the debtor has no ongoing business or employees; and (8) the lack of possibility of reorganization. 30 F.3d 734, 738 (6th Cir. 1994) (citing In re Charfoos, 979 F.2d 390, 393 (6th Cir. 1992)) (followed by In re EVPP, Inc., 2013 WL 5820284, 2013 Bankr. LEXIS 2308 (Bankr. S.D. Ohio June 4, 2013) (Perlman, J.)).

The Court finds that ostensibly all of the Laguna factors are present in this case and that the Debtor's petition was not filed in good faith.

The Debtor owns one asset, that being the foreclosed upon Property. Indeed, this case was filed as a single asset real estate case.

Sometime after the sheriff's sale, the Debtor assigned its full membership interest to another entity—Snider Real Estate, LLC—the members of which were not identified by the Debtor until the November 19 hearing. Those members are now known to be Kevin M. Moeller and Kevin P. McGraw, who also the only two members of Snider Holdings, LLC, the entity that has offered to purchase the Property vis-à-vis the Debtor's Motion to Sell. Also discovered during the hearing is the fact that the same Mr. Moeller and Mr. McGraw are the only members of Hilton Capital Group, LLC, which paid the $10,000 retainer to the Debtor's attorney. As described by Corporex at the hearing, the Debtor intends, through a series of related entities with identical ownership, to sell the Property to itself by way of this bankruptcy filing and its Motion to Sell.

The Debtor's schedules list Corporex as its only creditor.

The Debtor's Property was posted for foreclosure and the Debtor was unsuccessful in defending against the foreclosure in state court.

The Debtor and Corporex proceeded to a standstill in state court litigation and the Debtor has lost.

The filing of the Debtor's petition is an attempt to allow the Debtor to evade the state court order which confirmed the sale of the Property to Corporex.

The Debtor has no ongoing business or employees.

The Debtor lacks the possibility of reorganization. In fact, at the hearing, the Debtor's attorney represented that the Debtor did not intend to file a plan of reorganization, but rather intended only to file the petition and the Motion to Sell.

VI. The Debtor's Position.

Much of the time at the hearing was devoted to testimony and exhibits regarding the exact timing of the entry of the state court's Order Confirming Sale. While the Order Confirming Sale bears the entry date stamp of October 23, 2013, the time of entry does not appear either on the document itself or on the public docket sheet. The Debtor's bankruptcy petition was filed at 2:35 p.m. on October 23, 2013. The Debtor contends that the Order Confirming Sale was not effective until some time after October 23, 2013, when the Order Confirming Sale finally appeared on the public docket sheet. Citing State ex rel. Hopson v. Cuyahoga County Court of Common Pleas, 135 Ohio St.3d 456 (2013), Corporex contends that the effective date of the Order Confirming Sale is controlled by the journalization of the order, that is, the documentation of the judge's signature and stamp of the clerk of court, and not by the appearance of the order on the courts electronic docket sheet. In view of the fact that this court has decided that Corporex is entitled to relief from the automatic stay for cause under 11 U.S.C. § 362(d)(1) due to the Debtor's lack of good faith, it is not necessary for the court to address this issue which is relevant to relief under 11 U.S.C. § 362(d)(2).

The Debtor also contends that it was unable to redeem the Property as a part of the state court foreclosure process because the exact amount of redemption was impossible to calculate. While the Debtor was able to calculate the amounts of the principal and interest that it believes were due, it argues that it was not able to calculate the amounts of late charges, collection costs and attorney fees. This argument was squarely addressed and rejected by Judge Cooper in the Entry Denying Debtor's Motion to Set Aside.

The Debtor also contends that it should be permitted to pursue this bankruptcy case because it intends to pay Corporex in full. The sole source of funding for the Debtor from which to pay Corporex is the proposed sale of the Property to Snider Holdings, LLC. Built into the Buyer's offer to purchase is a contingency that the "[s]ale is also contingent on Buyer's approval and acceptance of the Bankruptcy Court's determination of the purchase price." This is not an enforceable promise to pay, much less a promise to pay a debt in full.

VII. Conclusion.

For the reasons stated above, the Court finds that the Debtor's bankruptcy petition was not filed in good faith and that Corporex has established cause to annul the automatic stay under 11 U.S.C. § 362(d)(1).

In view of the above, it is not necessary for the Court to address the other grounds for relief raised by Corporex. Further, because granting the requested relief to annul the automatic stay has the effect of allowing Corporex to finalize the confirmed sale by recording a sheriff's deed, the Court finds that the Motion to Sell is moot, as the Debtor will have no Property left to sell.

Accordingly, the Stay Motion is hereby GRANTED; and the Motion to Sell is DENIED as MOOT.

SO ORDERED. Copies to: Default List Robert G. Sanker, Esq.