In re Madison Heights Grp., LLC

506 B.R. 734

In re MADISON HEIGHTS GROUP, LLC, Debtor.

No. 13–58587.

United States Bankruptcy Court,

E.D. Michigan,

Southern Division.

Signed March 17, 2014.

Peter Steven Halabu, Madison Heights, MI, for Debtor.

OPINION REGARDING DEBTOR'S MOTION FOR RECONSIDERATION

THOMAS J. TUCKER, Bankruptcy Judge.

This case is before the Court on the Debtor's motion entitled “Motion for Reconsideration,” filed November 12, 2013 (Docket # 37, the “Motion”), which seeks reconsideration of, and relief from, two orders the Court entered in this case on October 29, 2013: (1) the Order entitled “Order Denying Debtor's Motion for Use of Cash Collateral” (Docket # 33); and (2) the Order entitled “Order Granting Creditor's Motion to Dismiss this Case, With a 180–Day Bar to Refiling” (Docket # 35). For the reasons stated in this opinion, the Motion will be denied.

I. The Court's general conclusions

The Court finds that the Motion fails to demonstrate a palpable defect by which the Court and the parties have been misled, and that a different disposition must result from a correction thereof. See L.B.R. 9024–1(a)(3) (E.D. Mich.).

In addition, the Court finds that the allegations and arguments in the Motion do not establish any valid ground for relief from either of the orders at issue, under Fed.R.Civ.P. 60(b), applicable under Fed.R.Bankr.P. 9024; or under Fed.R.Civ.P. 59(e), applicable under Fed.R.Bankr.P. 9023; or otherwise.

In addition, the Court notes the following.

II. Discussion of specific issuesA. Debtor waived its reconsideration arguments

The Debtor waived every argument that Debtor makes in the Motion, because Debtor makes these arguments for the first time in a motion for reconsideration. Debtor waived these arguments by failing to make them before the Court ruled on the motions and entered the two October 29 Orders. See, e.g., Riverview Trenton R.R. Co. v. DSC, Ltd. ( In re DSC, Ltd ), 486 F.3d 940, 947 (6th Cir.2007) (citing with approval, and applying, Wiley v. United States, 20 F.3d 222, 226 (6th Cir.1994) for the proposition that “objections raised for the first time in a reconsideration motion are deemed to have been waived”); Evanston Ins. Co. v. Cogswell Props., LLC, 683 F.3d 684, 692 (6th Cir.2012) (citations omitted) (“Arguments raised for the first time in a motion for reconsideration are untimely and forfeited on appeal.”).¹

B. Debtor's arguments are without merit in any event

Debtor's arguments are without merit, in any event.

1. There was no “contested” or “open” question of fact

Debtor's first argument is that “[w]hether CB 2011 effected service on the Debtor'stenants remained an open question at the close of the [October 23, 2013] hearing.” ² And, Debtor now argues, “[w]hether or not the Debtor['s] tenants were served notice of the Assignment of Rents is a contested question of fact that affects the status of rents....” ³ Debtor is incorrect. This was not “an open question at the close of the hearing,” nor was it “a contested question of fact.” Rather, it was clear from the written argument filed by Debtor in support of its cash collateral motion, and from the oral argument of Debtor's counsel at the October 23, 2013 hearing, that while the Debtor could not affirmatively admit that all of the tenants actually received service of the recorded notice of default and the instrument creating the Assignment of Rents, Debtor was not arguing that one or more of the tenants did not receive service. Debtor made only other arguments in support of Debtor's cash collateral motion and in opposition to CB 2011's argument that the Debtor had no interest in rents, due to the Assignment of Rents. Debtor expressly chose not to contest CB 2011's allegation that it served the tenants with the required notice pre-petition.

In the Court's October 29, 2013 Opinion (Docket # 32), the Court stated the following:

CB 2011 says, with supporting exhibits, and Debtor is unable to dispute, that well before the filing of Debtor's bankruptcy petition in this case, each of the following five events occurred to perfect and enforce the Assignment of Rents:

(1) Execution of the Assignment of Rents;

(2) Recording of the Assignment of Rents;

(3) Default under the Mortgage;

(4) Recording of Notice of Default; and

(5) Service of the Recorded Notice of Default and the instrument creating the Assignment of Rents upon the tenants.

[Footnote 5 of the Court's opinion:]

CB 2011 Objection (Docket # 28) at 2; Ex. B to Docket # 28. During the October 23 hearing, Debtor's counsel stated that the Debtor does not dispute that all of these things occurred prepetition, except that Debtor's counsel could not then admit that the notice of default was served upon all of the tenants, because some of the tenants continued to pay rent to the Debtor, rather than paying the rent to CB 2011. Debtor's counsel said that this suggests that some of the tenants might not have actually received the notice of default from CB 2011. But Debtor's counsel also said that he did not know this to be the case.

[continued text of the opinion:]

Under Michigan law, based upon the Michigan statute regarding the assignment of rents and case law, the above five steps are required in order for a creditor to obtain “complete enforcement of an assignment of rents.” ⁴

Before the Court held the hearing on October 23, 2013, and in response to CB 2011's objection to Debtor's cash collateral motion, Debtor filed a written response to CB 2011's arguments about the Assignment of Rents. In that written brief, filed October 22, 2013, Debtor did not dispute CB 2011's allegation that pre-petition, CB 2011 had taken all five steps necessary under Michigan law to enforce its Assignment of Rents, including serving all of the Debtor's tenants with the recorded notice of default and the instrument creating the Assignment of Rents. CB 2011 had specifically alleged this, in its October 22, 2013 objection to Debtor's cash collateral motion.⁵ Debtor's written response to CB 2011's objection did not dispute this, but rather argued, only for certain other reasons, that the Debtor's rental income is cash collateral that it could use during the bankruptcy case.⁶

The Court questioned Debtor's counsel about this subject during the October 23, 2013 hearing. Following is the entire discussion that occurred during the hearing about this subject:

[Judge:]

I had another question. This may be, really it's related also to the cash collateral motion as well as the motion to dismiss. The creditor CB 2011 argues in objecting to the cash collateral motions, that pre-petition it took all of the five steps required under Michigan law for it to be able to enforce the Assignment of Rents including service on the tenants of the notice. Do Debtors dispute that or agree with that? You didn't dispute that in the papers you filed yesterday.

[Debtor's attorney Peter Halabu:]

No. And I don't think we dispute that. There are some tenants that seem never to have gotten it, or not to have heeded it, but we don't dispute that they perfected the assignment.

[Judge:]

Well, I didn't ask you about perfection in those words. The question I asked you, the answer is what?

[Halabu:]

I'm sorry say it again.

[Judge:]

That they took all of the steps, the five steps under Michigan law required to, in order to enforce the Assignment of Rents, and require the tenants to pay them.

[Halabu:]

No. We don't dispute that.

[Judge:]

Okay. In all of the five cases?

[Halabu:]

In each of the five cases.

...

[Halabu:]

... co-counsel reports that we are not actually positive that every tenant got notice of the Assignment of Rents, again, suggested by the fact that some tenants continue to send rents to us. But again, we did not object to that in our response.⁷

Based on this, the Court concluded, and reiterates that conclusion now, that Debtor was not disputing CB 2011's allegation that it served all of Debtor's tenants with the required papers. There was and is no “contested question of fact” or open question about this, because Debtor expressly chose not to contest it, before the Court made its ruling on the cash collateral motion.

If and to the extent the Debtor now seeks to contest this, it is a new argument that Debtor is making for the first time in a motion for reconsideration, and Debtor therefore has waived any such argument. See cases cited above. In addition, the Court notes that even now, in its motion for reconsideration, the Debtor does not point to any single particular tenant that Debtor contends did not actually receive the served notice of default and Assignment of Rents papers from CB 2011.

For these reasons, Debtor's first argument in its Motion is without merit.

2. In addition to Debtor having waived its argument based on 11 U.S.C. § 541(a)(6), that argument is incorrect in any event.

Debtor argues that even if this Court's ruling is correct regarding Michigan law and the Assignment of Rents, the rents are still property of the bankruptcy estate, because of 11 U.S.C. § 541(a)(6). That section states the general rule that property of the bankruptcy estate includes “[p]roceeds, product, offspring, rents, or profits of or from property of the estate, ....” (emphasis added). Because the underlying real estate from which the rents arise was owned by the Debtor and therefore became property of the bankruptcy estate under 11 U.S.C. § 541(a)(1), Debtor says, the “rents” from that real estate necessarily became property of the bankruptcy estate under § 541(a)(6). This is so, Debtor argues, even if the Debtor had no rights or ownership interest in the rents, and no right to collect or use the rents, as of the petition date, because of the Assignment of Rents to CB 2011.

First, the Court reiterates that the Debtor waived this argument, because Debtor did not make this argument before the Court ruled on Debtor's cash collateral motion. Second, the argument is wrong on the merits.

The Debtor cites three bankruptcy court decisions in support of its...