499 B.R. 66
Bankr. D. Mass.2013Background
- Debtor: Charles Street A.M.E. Church of Boston (CSAME) filed Chapter 11 (Mar 20, 2012) to avoid foreclosure on multiple properties; OneUnited Bank is its largest creditor.
- OneUnited holds two loans: the Church Loan (secured by Church Building, Storefronts, Milton Parsonage) and the Construction Loan (RRC project; undersecured). FEDAME (First Episcopal District) guaranteed the Construction Loan.
- CSAME’s Seventh Modified First Amended Plan (the Plan) would restructure OneUnited’s claims, assume/modify the Thomas construction contract, fund completion of the Roxbury Renaissance Center (RRC) with a $1.5M donation attributed to FEDAME, and release FEDAME’s guaranty.
- OneUnited objected to confirmation on multiple grounds (notably the third‑party release of FEDAME, inadequate treatment as to rate/term/covenants, feasibility, and good faith) and moved to dismiss the case for cause under § 1112(b). CSAME opposed dismissal.
- Court conducted extensive evidentiary hearings (Aug 2012–June 2013); findings included: undersecured status of Construction Loan collateral, diverted restricted grant funds to general operations prepetition (church leadership acknowledged and began restoration), weak working capital, and uncertain sustainable giving.
Issues
| Issue | OneUnited’s Argument | CSAME’s Argument | Held |
|---|---|---|---|
| Third‑party release of FEDAME’s guaranty | Release is impermissible: jurisdictional, constitutional (Stern), barred by § 524(e), nonconsensual, inequitable; OneUnited opposes | Release is related to reorganization, FEDAME will contribute $1.5M, identity of interest exists between CSAME and FEDAME, release aids reorganization | Denied: release unjustified — not essential to debt repayment, nonconsensual as to primary affected creditor, and does not provide equivalent value; confirmation denied on this ground |
| Feasibility under § 1129(a)(11) | Plan is not feasible: cash reserves near zero, debt service heavy (~$316K/yr), RRC/storefront income speculative, giving may not sustain 20‑yr burden | Plan will restore donor confidence, FEDAME donation and assumed fundraising will enable success; cost cuts implemented | Denied: plan not sufficiently feasible; too much reliance on uncertain giving and unproven FEDAME credit support |
| Adequacy of treatment (terms, covenants, valuation) | Interest rates too low, 20‑year term too long, covenants inadequate, Milton Parsonage credit ($380K) excessive | Rates defensible; term acceptable; turnover credit based on prior appraisal/stipulation | Sustained in part: covenants inadequate (insurable collateral & default protections needed) and Milton Parsonage credit not fair/equitable — contributed to denial of confirmation |
| Motion to dismiss under § 1112(b) (cause) | Case should be dismissed for cause: substantial diminution of estate, gross mismanagement, administrative insolvency, insurance lapses, failure to disclose Endowment as creditor | Dismissal would destroy going concern; alternatives exist (examiner, modified plan); appoint examiner instead | Denied dismissal but found cause under § 1112(b)(4)(F) for omission of the Lilly Endowment from schedules; court ordered appointment of a limited examiner rather than dismissal |
Key Cases Cited
- RadLAX Gateway Hotel, LLC v. Amalgamated Bank, 132 S. Ct. 2065 (2012) (standards for confirmation when impaired class rejects plan)
- Stern v. Marshall, 131 S. Ct. 2594 (2011) (limits on non‑Article III adjudication of certain state‑law claims)
- Granada Wines, Inc. v. New England Teamsters & Trucking Indus. Pension Fund, 748 F.2d 42 (1st Cir. 1984) (classification rules and limits on separate classification of similar creditors)
- Monarch Life Ins. Co. v. Ropes & Gray, 65 F.3d 973 (1st Cir. 1995) (effect of plan releases and scope of bankruptcy court authority)
- In re Master Mortgage Inv. Fund, Inc., 168 B.R. 930 (Bankr. W.D. Mo. 1994) (factors commonly applied when evaluating third‑party releases)
- Heartland Fed. Savs. & Loan Assoc’n v. Briscoe Enters., Ltd. II (In re Briscoe Enters. Ltd. II), 994 F.2d 1160 (5th Cir. 1993) (standard of proof for confirmation; court’s independent obligation to satisfy § 1129)