540 B.R. 16
Bankr. D. Mass.2015Background
- EBSB seeks relief from the automatic stay to foreclose four Boston properties pledged as collateral for BB Island Capital LLC’s guaranty of a construction loan to Hanover Parmenter (the Project).
- Hanover Parmenter borrowed (2012) ~$16.4M from EBSB; BB Island guaranteed the loan and granted first mortgages on the Four Properties; BB Island separately borrowed small amounts from EBSB and granted second/third mortgages.
- Project construction stalled; EBSB asserts defaults and accelerated the loans; EBSB claims total secured exposure (including guaranty and BB Island notes) exceeds ~$17.6M (or ~$18.2M including disputed charges).
- EBSB’s appraisals value the Project at $14.1M and the Four Properties at $3.465M (combined $17.565M); Debtor concedes the Four Properties’ value but does not effectively rebut Project appraisals.
- Debtor filed state-law claims (breach of fiduciary duty, G.L. c.93A, estoppel, injunctive relief) in Suffolk Superior Court; denial of injunctive relief led to BB Island’s Chapter 11 filing on August 4, 2015.
- Court found BB Island has no equity in the Four Properties and that the Debtor failed to show a realistic, imminent plan of reorganization; granted EBSB’s motion for relief from stay under 11 U.S.C. § 362(d)(2).
Issues
| Issue | EBSB (Plaintiff) Argument | BB Island (Debtor) Argument | Held |
|---|---|---|---|
| 1. Is there cause / lack of adequate protection under § 362(d)(1)? | EBSB: Debtor cannot adequately protect its interest; secured exposure is large and collateral undervalued relative to debt. | Debtor: Will provide adequate protection and can propose a confirmable plan; overall collateral package oversecured. | Court: Debtor failed to specify adequate protection; cause established by lack of equity and no plan—stay relief granted. |
| 2. Does Debtor have equity and is property necessary for effective reorganization under § 362(d)(2)? | EBSB: Debtor has no equity in the Four Properties; reorganization not reasonably likely. | Debtor: Denies some charges; contends a confirmable plan will be filed and disputes some valuation/charges. | Court: Debtor has no equity; did not show a plausible reorganization in prospect—§ 362(d)(2) relief granted. |
| 3. Is the December 30, 2013 amendment to the guaranty enforceable / does it increase guaranty exposure? | EBSB: Amendment (or guaranty language) valid and increases exposure beyond original face amount. | Debtor: Amendment was unauthorized (Perroncello did not consent); date discrepancy undermines amendment. | Court: Declined to resolve merits fully; found even without amendment debtor owes at least original guaranty amount, so amendment dispute immaterial to stay relief. |
| 4. Does the pendency of Superior Court litigation bar stay relief? | EBSB: State-court claims do not preclude relief; creditor has colorable claim to property. | Debtor: Pending state action and estoppel defenses should prevent foreclosure / stay relief. | Court: State litigation does not block summary stay relief; Grella controls—only colorable claim needed. |
Key Cases Cited
- United Sav. Assoc. of Texas v. Timbers of Inwood Forest Assocs., Ltd., 484 U.S. 365 (Sup. Ct.) (creditor must show undersecured status; debtor must show property is necessary to an effective reorganization that is in prospect)
- Grella v. Salem Five Cent Savs. Bank, 42 F.3d 26 (1st Cir.) (stay-relief hearings are summary; creditor need only a colorable claim to estate property)
- In re Holly’s, Inc., 140 B.R. 643 (Bankr. W.D. Mich. 1992) (articulates staged standard for debtor’s burden to show reasonable possibility of reorganization)
- In re Sun Valley-Newspapers, Inc., 171 B.R. 71 (9th Cir. BAP) (applies Holly’s staged test and discusses shifting burdens during early case period)