In re BB Island Capital, LLC

540 B.R. 16

In re BB Island Capital, LLC, Debtor

Case No. 15–13105–JNF

United States Bankruptcy Court, D. Massachusetts.

Signed November 5, 2015

Gary W. Cruickshank, Law Office of Gary W. Cruickshank, Boston, MA, for Debtor.

MEMORANDUM

Joan N. Feeney, United States Bankruptcy Judge

I. INTRODUCTION

The matter before the Court is the Motion of East Boston Savings Bank for Relief from the Automatic Stay pursuant to 11 U.S.C. § 362(d)(1)and (d)(2)(the “Lift Stay Motion”). Specifically, East Boston Savings Bank (“EBSB”) seeks to foreclose on real property located at 173B Norfolk Avenue, Boston, Massachusetts; 30–40 Batterymarch Street, Boston, Massachusetts; 261 Marlborough Street, Unit 5, Boston, Massachusetts; and 239 Commonwealth Avenue, Unit 10, Boston Massachusetts (collectively, the “Four Properties”). It maintains that there is cause for relief from the automatic stay under 11 U.S.C. § 362(d)(1)because BB Island Capital, LLC (“BB Island” or the “Debtor”) cannot adequately protect its interest in the Four Properties, as well as under 11 U.S.C. § 362(d)(2)because the Debtor has no equity in the Four Properties and “no reorganization is reasonably within prospect.” The Debtor opposes the Lift Stay Motion.

The Court heard the Lift Stay Motion on September 16, 2015 and on October 7, 2015 and directed the parties to file supplemental documents. Having reviewed the Lift Stay Motion and the Debtor's Response, as well as the parties' supplemental submissions, the Court concludes that the material facts necessary to determine whether EBSB has sustained its burden with respect to the Lift Stay Motion are not in dispute, although circumstances surrounding the stalled development of the property located at 20 Parmenter Street and 244–246 Hanover Street, Boston, Massachusetts (the “Project”) have raised, and likely will continue to raise, considerable controversies among EBSB, Whipple Construction (“Whipple”), Hanover Parmenter Union LLC (“Hanover Parmenter”), and the Debtor because the Four Properties owned by the Debtor are pledged to secure its guaranty of Hanover Parmenter's debt to EBSB.

II. FACTS

The material facts needed to resolve the Lift Stay Motion are either admitted by the Debtor in its Response to the Lift Stay Motion or set forth in the Verified Complaint and Request for Injunctive Relief it filed against EBSB in the Suffolk Superior Court, Department of the Trial Court on July 30, 2015. The denial of injunctive relief by the Superior Court precipitated the filing of the Debtor's Chapter 11 case on August 4, 2015.

In 2008, Twenty P. Realty Trust, 244 VFW Trust, and Joseph F. Perroncello (“Perroncello”), who holds a 99% interest in the Debtor and who was the trustee of the two trusts, borrowed $9,570,000.00 from EBSB to finance the Project, which at the time was to consist of 2 buildings located at 20 Parmenter Street and 244–246 Hanover Street and to include 18 residential units, 6–7 retail spaces, and 25 underground parking spaces. Permitting delays in connection with an underground lift for the parking areas and other issues delayed the Project, and Perroncello and the two trusts defaulted on their obligations. The loan matured in 2011 before completion of the Project.

EBSB agreed to refinance the Project, but conditioned the refinancing upon the engagement of Whipple and the conveyance of the Project to a new entity, Hanover Parmenter, whose members are Silvermine Development Partners, LLC (“Silvermine”) and the Debtor. Alyson Toombs Worthington (“Toombs”) is the Manager of Hanover Parmenter; Geoffrey Evancic (“Evancic”), an officer of Whipple, was until recently the manager of the Debtor.

On April 13, 2012, EBSB entered into an agreement with Hanover Parmenter for a loan in the amount of $16,423,000.00, some of the proceeds were used to pay off the existing loan. In addition, the two Perroncello controlled trusts transferred title to the Project to Hanover Parmenter. Hanover Parmenter signed a promissory note in favor of EBSB in the amount of $16,423,000.00, which note was secured by a mortgage on the Project, i.e., the properties located at 244–246 Hanover Street and 20 Parmenter Street.

The Hanover Parmenter note was guaranteed by the Debtor¹and the guaranty, which is dated April 13, 2012, was secured by first mortgages on the Four Properties (the “Guaranty”). Titles to the Four Properties were transferred to the Debtor which was formed for the purpose of managing them. In order to pay off existing loans on the Four Properties, EBSB and the Debtor entered into a loan agreement whereby, on April 20, 2012, the Debtor executed a promissory note made payable to EBSB in the amount of $1,741,631.00 and granted EBSB a second mortgage on the Four Properties. On May 4, 2012, the Debtor entered into another transaction with EBSB whereby it borrowed an additional $14,472.33, executed a promissory note, and granted EBSB a third mortgage on the Four Properties. On May 1, 2015, however, EBSB filed a subordination of the first mortgage securing the Guaranty to the April 20, 2012 mortgage and the May 4, 2012 mortgage that was recorded at the Suffolk County Registry of Deeds. The effect of the subordination was to make the April 20, 2012 mortgage the first mortgage, the May 4, 2012 mortgage the second mortgage, and the mortgage securing the Guaranty the third mortgage.

The Debtor's April 13, 2012 Guaranty of the Hanover Parmenter note was executed by Evancic as “Manager and authorized signatory,” and provides in pertinent part the following:

This Guaranty is an absolute, unconditional and continuing guaranty of the full and punctual payment and performance by the Borrower [Hanover Parmenter] of the Obligations, including any future advances made to Borrower pursuant to the Note and the other Loan Documents, and not of their collectibility only and is in no way conditioned upon any requirement that the Bank first attempt to collect any of the Obligation from the Borrower or any other party primarily or secondarily liable with respect thereto or resort to any security or other means of obtaining payment of any of the Obligations which the Bank now has or may acquire after the date hereof,or upon any other contingency whatsoever. The obligations of the Guarantor hereunder shall remain in full force and effect until all amounts due pursuant to the Note and the other Loan Documents have been paid in full.

* * *

The liability of the Guarantor hereunder shall be unlimited in amount.

(emphasis supplied).

According to the Debtor, EBSB “ran the construction project,” but at present only the building located on Parmenter Street is partially completed and the real estate on Hanover Street is a vacant lot. In September of 2013, due to EBSB's alleged mismanagement of the Project, Hanover Parmenter and the Debtor demanded that Whipple be terminated and that Hanover Parmenter be allowed to manage the Project, a demand EBSB rejected. Nevertheless, on December 30, 2013, the Debtor executed an “Amendment of Unlimited Guaranty of BB Island Capital LLC.” The amendment contained the parties' alleged recognition that the loan amount was to be increased from $16,423,000.00 to $18,700,000.00. EBSB submitted the affidavit of Evancic who, while noting that a formal Consent of Members document had not been executed, represented the following:

The additional funding was sought by Hanover Parmenter because it had changed its plans for the Project. Mr. Perroncello was aware of the changes to the project and the increase of residential units from 18 to 28 units and he was aware that EBSB would require that BB Island execute the Amendment as part of the increased loan arrangement for the additional funds to complete the additional units.

Prior to my execution of the Amendment, Mr. Perroncello consented to having BB Island execute it and guaranty the increase in the loan amount.

Perroncello, in his affidavit, stated that “I was never made aware of or participated in any vote to amend the Guaranty ... or to modify the underlying loan.” He also stated that no vote took place and that he was not aware of, or signed, any written Consent to amend the Guaranty. In response, EBSB filed another affidavit executed by Evancic to which he attached an email chain demonstrating Perroncello's awareness that the amount of the loan to Hanover Parmenter was to be increased, although no formal written consent was executed.

The Debtor failed to pay sums due under the April 20, 2012 and May 4, 2012 notes and, on December 8, 2014, EBSB accelerated the loans and demanded full payment. When the Debtor failed to pay, it sent the Debtor notices of its intent to foreclose and to conduct foreclosure auctions. The Debtor and EBSB dispute whether the Debtor paid $600,000 to postpone the auctions of the Four Properties for sixty days.

On July 30, 2015, the Debtor filed its Verified Complaint in the Suffolk Superior Court. Based upon its claims that EBSB controlled and mismanaged the Project, it formulated four counts as follows: Count I—Breach of Fiduciary Duty; Count II—G.L. c. 93A; Count III—Equitable Estoppel; and Count IV—Injunctive Relief. Specifically, it alleged that EBSB should be estopped from foreclosing on the additional collateral, namely the Four Properties, because of its representations that it would complete the Project. The Superior Court heard the request for preliminary injunctive relief. Its denial of that request precipitated the filing of the Debtor's bankruptcy petition.

In its Lift Stay Motion, EBSB states Hanover Parmenter defaulted on its obligations to EBSB by, among other things, failing to make payment as and when due, adding that the Hanover Parmenter loan matured on May 1, 2015. According to EBSB, the total amount due as of the Debtor's filing date of the petition was $16,899,549.27, a sum in excess of the face amount set forth in the original Guaranty ($16,423,000.00–$16,899,549.27 = $476,549.27). EBSB also contends that the Debtor is liable to it for the full amount...