In re Blake Family Props., LLC

632 B.R. 583

IN RE: BLAKE FAMILY PROPERTIES, LLC, Debtor.

CASE NO. 15-01497-5-SWH

United States Bankruptcy Court, E.D. North Carolina, Wilmington Division.

Signed September 3, 2021

Clayton W. Cheek, George M. Oliver, The Law Offices of Oliver & Cheek, PLLC, New Bern, NC, for Debtor.

ORDER ALLOWING MOTION TO ENFORCE PLAN OBLIGATIONS

Stephani W. Humrickhouse, United States Bankruptcy Judge

The matter before the court is the Motion to Enforce Plan Obligations filed by CL45 MW Loan 1, LLC (the "Bank") (successor in interest to Yadkin Bank) on March 16, 2021. A hearing was held in Raleigh, North Carolina on April 20, 2021, after which the matter was taken under advisement. For the reasons that follow, the motion will be allowed.

BACKGROUND

On April 25, 2008, Crescent State Bank (predecessor to Yadkin Bank) extended a $750,000 loan (the "Loan") to Blake Home Builders, Inc. ("BHB, Inc"), a subsidiary of debtor Blake Family Properties, LLC. The Loan was secured by the guarantees of Thomas A. Blake and Charles E. Blake, individually (the "Guarantors"), as well as by a real estate deed of trust and assignment of rents (the "Deed of Trust") on three tracts of the debtor's property (the "Property"). The Loan was eventually modified on June 6, 2011, for the purpose of extending the maturity date to June 2, 2014.

The debtor filed a voluntary petition for relief under chapter 11 of the Bankruptcy Code on March 18, 2015. As successor to Crescent State Bank, Yadkin Bank filed a proof of claim on June 22, 2015, which reflected a balance due on the matured Loan of $300,704.83. The proof of claim provided that the debtor's Property served as collateral under the Loan, but that the debtor was not personally obligated under the Loan.

The debtor's chapter 11 plan was confirmed on January 20, 2016. Class 7 set out the treatment of the Yadkin Bank claim as follows:

(1) Description of Debt. ... The Debtor's real property as listed on Schedule A was the collateral used to secure Blake Home Builders, Inc.’s obligation to Crescent State Bank. On June 6, 2011, Blake Home Builders, Inc. and Crescent State Bank modified Blake Home Builders, Inc.’s obligation and provided that the existing balance of $297,128.55 would be paid over thirty-five (35) equal consecutive monthly payments of $3,031.00 beginning on July 2, 2011 with the balance due on June 2, 2014. The Debtor scheduled the obligation to Yadkin Bank and also noted the claim as disputed via a Notice of Disputed Claims [D.E. 37] filed on April 15, 2015. Yadkin Bank filed Claim 4 on June 22, 2015 alleging to be owed $300,704.83, but noted that the Debtor was not obligated on the loan between Blake Home Builders, Inc. and Yadkin Bank. Yadkin Bank also noted on Exhibit A to Claim 4 that the Debtor was not liable for the amounts owed, but the Debtor's property secured the obligation of Blake Home Builders, Inc.

...

(3) Treatment. The Debtor will file an objection or adversary proceeding to Yadkin Bank's Claim, as appropriate, asking that Blake Home Builders, Inc. be fully responsible for the obligation and not the Debtor. If after that objection and/or adversary proceeding is concluded the Court finds that the Debtor is obligated to Yadkin Bank in any amount, then the Debtor will pay the obligation through the proceeds of a sale of the Debtor's real property assets, which are listed on its Schedule A (the "Property").

...

To the extent Yadkin Bank has a valid lien, Yadkin Bank shall retain its liens with the priority thereof, as existed on the Petition Date pursuant to § 1129(b)(2)(A)(i)(I), until its claims are paid as outlined herein. The Debtor will continue to market the Property and shall have eighteen (18) months from the Effective Date (the "Marketing Period") to liquidate the Property. Upon the sale of the Property, Yadkin Bank's liens shall attach to the proceeds of such sale, and shall be paid in accordance with the Plan. The Debtor shall keep the Property's post-Petition tax obligations current ....

Dkt. 124 at 11-12 (emphasis added). The Effective Date of the confirmed plan was established as February 3, 2016, and thus the Marketing Period for the debtor's Property ended on August 3, 2017. As of the date of the hearing on the motion, two of the three parcels of the debtor's Property had not been sold. The tax records for 2018, 2019, and 2020 introduced at the hearing indicate that the debtor has not paid the property taxes on those remaining parcels for those years.

Pursuant to the confirmed plan, the debtor initiated an adversary proceeding against the Bank on January 19, 2016, with the filing of a complaint seeking to rescind and set aside the Bank's security interest in the property. Case No. 16-00007-5-SWH. The Bank filed an answer generally denying the allegations of the complaint on March 21, 2016. Prior to trial, the parties agreed to mediation of the adversary proceeding, which resulted in a mediated settlement agreement dated January 27, 2017¹ (the "Settlement Agreement"). Pursuant to the Settlement Agreement, Yadkin Bank agreed to cap its claim at $340,000, and to be paid through the receipt of one-half of the proceeds of the sale of the debtor's Property. The Settlement Agreement also provides that, upon receipt of the $340,000, the Bank is to cancel the Deed of Trust and a judgment obtained in the state court lawsuit. None of the parties sought court approval of the Settlement Agreement by this court. Additionally, the debtor did not seek to modify the confirmed plan to incorporate the terms of the Settlement Agreement. On November 3, 2020, Yadkin's successor, the Bank, filed a transfer of claim pursuant to Rule 3001(e) of the Federal Rules of Bankruptcy Procedure, indicating that Claim No. 4 had been transferred to the Bank. Fed. R. Bankr. P. 3001(e).

The debtor has responded to the Bank's motion by asserting that this court lacks both subject matter jurisdiction over this matter and standing to bring it before the court. Furthermore, the debtor asserts that the Settlement Agreement is a fully integrated agreement, essentially replaced the confirmed plan, and is therefore the only document relevant to this dispute. The debtor contends that it has no further obligation to seek modification of the plan because the Settlement Agreement deals only with Class 7 and does not change the treatment of any other class. The debtor argues that it has fulfilled its obligations under the Settlement Agreement by remitting one-half of the net proceeds from the sale of one of the parcels of the Property to the Bank, and by continuing to market the remaining parcels. The debtor denies that it retains any further obligation to auction the Property after any specific date. Finally, in the event that the court finds that the Settlement Agreement is not the sole operative document, the debtor asserts that either the statute of limitations or the doctrine of laches bars the recovery sought by the Bank's motion.

The Bank maintains that this court has "arising under" jurisdiction over this controversy. The Bank also argues that it has standing to bring these claims based on the defaults in the payment of property taxes by the debtor, and the fact that it is the enforcement of its lien on the debtor's Property that is at issue. The Bank asserts that the Settlement Agreement and confirmed plan must be read together to form the operative documentation, and that the Settlement Agreement complements the plan and in no way excuses the debtor's noncompliance with that plan. Additionally, with respect to the debtor's statute of limitations arguments, the Bank asserts that since the property taxes are to be paid annually, the statute of limitations has not yet expired for enforcement of the Deed of Trust for failure to pay the 2018, 2019, and 2020 taxes.

DISCUSSION

I. Subject Matter Jurisdiction

The debtor maintains that this court does not have subject matter jurisdiction over this controversy. Subject matter jurisdiction for this court is set forth in 28 U.S.C. § 1334(b) :

Except as provided in subsection (e)(2), and notwithstanding any Act of Congress that confers exclusive jurisdiction on a court or courts other than the district courts, the district courts shall have original but not exclusive jurisdiction of all civil proceedings arising under title 11, or arising in or related to cases under title 11.

Courts have defined "arising under" jurisdiction to apply to matters wherein "the cause of action or substantive right claimed is created by the Bankruptcy Code." Harvey v. Dambowsky (In re Dambowsky) , 526 B.R. 590, 597 (Bankr. M.D.N.C. 2015) (quoting Burns v. Dennis (In re Southeastern Materials, Inc.) , 467 B.R. 337, 346 n.4 (Bankr. M.D.N.C. 2012) ). Courts have defined "arising in" jurisdiction to apply to matters "not based on any right expressly created by Title 11, but ... [that] would have no existence outside of the bankruptcy," and "related to" jurisdiction to apply to matters wherein "the outcome of that proceeding could conceivably have any effect on the estate being administered in bankruptcy." Valley Historic Ltd. P'ship v. Bank of NY, 486 F.3d 831, 835-36 (4th Cir. 2007) (quoting Bergstrom v. Dalkon Shield Claimants Trust (In re A. H. Robins Co. ), 86 F.3d 364, 372 (4th Cir. 1996) ; Pacor, Inc. v. Higgins , 743 F.2d 984, 994 (3d Cir. 1984) ). Furthermore, in the case of "related to" jurisdiction, matters brought post-confirmation must "affect the interpretation, implementation, consummation, execution, or administration of the confirmed plan." Valley Historic , 486 F.3d at 836-37 (quoting Binder v. Price Waterhouse & Co. (In re Resorts Int'l, Inc. ), 372 F.3d 154, 167 (3d Cir. 2004) ).

This controversy involves the Property of the debtor and requires a determination of whether that Property has been correctly administered pursuant to the confirmed plan. The court agrees that the motion seeks to enforce the provisions of a confirmed plan and thus arises under § 1142(b) of the Bankruptcy Code. An...