477 B.R. 652
Bankr. N.D. Tex.2012Background
- Dougherty funded a $39.6 million senior loan to Presidio Hotel Fort Worth and holds a first lien on the Property; the balance now is about $44.5 million.
- Vestin Originations, Inc. extended a $10 million junior loan to the Borrower, with Vestin and affiliates securing a second lien and then assigning Junior Loan to the Vestin Affiliates.
- A Subordination and Inter-creditor Agreement governs the creditors’ rights and foreclosure process.
- Debtor (Vestin’s SPV) was formed to take the Vestin Affiliates’ place and limits exposure of Vestin assets; Vestin purportedly assigned the Junior Loan interests to Debtor in Nov 2011.
- In Dec 2011 the Borrower defaulted; Dougherty and Debtor (as successor to Vestin) notified of defaults early 2012; Debtor filed to foreclose and the Deed-in-Lieu transferred title to Debtor on Feb 7, 2012.
- Dougherty filed a state court suit to restrain foreclosure; Debtor filed chapter 11 on March 26, 2012, while the TRO was pending and the foreclosure plan was in motion.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Bad faith filing as cause for relief or dismissal | Dougherty contends Debtor filed in bad faith to stall foreclosure. | Debtor claims restructuring needs and intercreditor disputes justify the filing. | Court finds bad faith exists but imposes stay conditions rather than dismissal. |
| Relief from stay under §362(d)(2) applicable to property with equity | Dougherty argues no equity or necessity for reorganization justifies stay. | Property value exceeds senior debt; Deed-in-Lieu merged Junior Loan; reorg necessary. | Not appropriate under §362(d)(2) because there is equity or reorganization need. |
| Continuation of stay conditioned to protect public interests | Dougherty asserts no public interest in keeping stay. | Public interest via Tax Incentive Agreement and City plan supports stay. | Court conditioned stay with bond requirement to protect Dougherty and public interests. |
Key Cases Cited
- In re Humble Place Joint Venture, 936 F.2d 814 (5th Cir.1991) (bad faith as cause for relief or dismissal recognized)
- In re Little Creek Dev. Co., 779 F.2d 1068 (5th Cir.1986) (multiple factors indicating bad faith filing; not all required)
- In re Trident Assocs. Ltd. P’ship, 52 F.3d 127 (6th Cir.1995) (new debt- or syndrome; inter-lender disputes")
- In re Mirant Corp., 378 F.3d 511 (5th Cir.2004) (need to balance interests in chapter 11 context)
- In re FRE Real Estate, Inc., 450 B.R. 619 (Bankr.N.D.Tex.2011) (conditioning automatic stay on cash bond)
- In re James Wilson Assocs., 965 F.2d 160 (7th Cir.1992) (considerations of delay and value preservation)
- In re 1020 Warburton Ave. Realty Corp., 127 B.R. 333 (Bankr.S.D.N.Y.1991) (subject of bad-faith discussion in related context)