Kittery Point Partners, LLC, 613 B.R. 42

Background

Debtor Kittery Point Partners (the Debtor) executed a 2005 Note and Mortgage allegedly in favor of Middlebury Equity Partners (MEP); Bayview later purchased the Note and Mortgage and filed a secured proof of claim in the Chapter 11 for a loan originated in the $600,000 range.
The Debtor contended the Note and Mortgage were unenforceable because the documents were signed before the Debtor’s formation and because MEP never advanced consideration (or any consideration later failed).
In 2009 the parties executed a Delinquency Repayment Agreement (DRA) in which the Debtor acknowledged the validity of the Note and Mortgage and released claims; Bayview dismissed foreclosure and later defended against the Debtor’s state-court challenge.
The Maine Superior Court granted summary judgment for Bayview, holding the DRA barred the Debtor’s lack-of-consideration claim; the Maine Supreme Judicial Court later affirmed that judgment.
In bankruptcy Bayview’s properly filed proof of claim was prima facie valid; the Bankruptcy Court held the Debtor failed to produce substantial evidence to rebut the claim because its theories were barred by the DRA and by claim preclusion.
The Court allowed Bayview’s claim in the amount asserted ($1,240,126.31) and, under 11 U.S.C. § 506(b), found Bayview oversecured and allowed postpetition interest and reasonable postpetition fees and costs, bringing the allowed secured claim to $1,673,332.74 as of November 19, 2019.

Issues

Issue	Debtor's Argument	Bayview's Argument	Held
Whether Debtor’s lack-of-consideration / failure-of-consideration defenses defeat Bayview’s proof of claim	The Note/Mortgage are unenforceable because (a) they were signed before entity formation and (b) MEP never advanced funds or later failed to perform	The DRA waived those defenses; state-court judgment already resolved those claims	Rejected: the DRA and state-court final judgment preclude relitigation; Debtor failed to produce substantial evidence to overcome prima facie claim validity
Whether the state-court judgment bars relitigation (claim preclusion)	Debtor: failure-of-consideration is distinct and could not have been litigated earlier because MEP could have performed pre-petition	Bayview: the earlier suit and DRA addressed the same transactional nucleus; preclusion applies	Held: Claim preclusion applies under Maine law; both lack and failure-of-consideration theories were or could have been litigated previously
Whether Bayview’s proof of claim enjoys a Rule 3001(f) presumption and whether Debtor rebutted it	Debtor: contested substance of the claim (interest, fees) and asserted substantive defenses	Bayview: proof was properly filed so prima facie valid; DRA/state judgment foreclose substantive defenses	Held: Proof of claim is prima facie valid; Debtor did not produce substantial evidentiary quality material to rebut it
Proper allowed amount and whether §506(b) permits postpetition interest and fees	Debtor: questioned commercial reasonableness of default rate and reasonableness of attorney fees (but offered no specific evidence)	Bayview: contractual rates apply; Property value exceeds claim so postpetition interest and reasonable fees allowed	Held: Court allowed the claim components ($1,240,126.31) and, finding Property value ≈ $3.5M (oversecured), allowed postpetition interest and $249,049.90 in reasonable postpetition fees; allowed secured claim = $1,673,332.74 as of Nov. 19, 2019

Key Cases Cited

Raleigh v. Ill. Dep’t of Revenue, 530 U.S. 15 (U.S. 2000) (proof of claim submitted in bankruptcy is prima facie evidence under Rule 3001(f))
Juniper Dev. Grp. v. Kahn (In re Hemingway Transp., Inc.), 993 F.2d 915 (1st Cir. 1993) (standard for rebutting a proof of claim requires substantial evidence)
In re Perron, 474 B.R. 310 (Bankr. D. Me. 2012) (discussion of what constitutes substantial evidence to overcome a proof of claim)
In re Allegheny Int’l, Inc., 954 F.2d 167 (3d Cir. 1992) (objector must produce evidence that, if believed, refutes an essential allegation of the claim)
Pisnoy v. Ahmed (In re Sonus Networks, Inc.), 499 F.3d 47 (1st Cir. 2007) (federal court gives state-court judgments the same preclusive effect as in the rendering state)
Macomber v. MacQuinn-Tweedie, 834 A.2d 131 (Me. 2003) (elements of claim preclusion under Maine law)
Wilmington Trust Co. v. Sullivan-Thorne, 81 A.3d 371 (Me. 2013) (transactional test for defining a cause of action for preclusion purposes)
In re SW Boston Hotel Venture, LLC, 748 F.3d 393 (1st Cir. 2014) (§506(b) allows postpetition interest and fees where creditor is oversecured and contractually entitled)
Baybank-Middlesex v. Ralar Distribs., 69 F.3d 1200 (1st Cir. 1995) (creditor is oversecured when collateral value exceeds claim; postpetition interest/fees allowed to extent of oversecurity)
Fed. Nat’l Mortg. Ass’n v. Deschaine, 170 A.3d 230 (Me. 2017) (discussion of issue preclusion under Maine law)
Beegan v. Schmidt, 451 A.2d 642 (Me. 1982) (claims that could have been presented in prior suit are precluded)