In re Tree of Life Church

522 B.R. 849

In re: Tree of Life Church, Debtor(s).

C/A No. 14–00802–JW

United States Bankruptcy Court, D. South Carolina.

FILED January 12, 2015

Entered: January 13, 2015

Chapter 11

ORDER

John E. Waites, US Bankruptcy Judge, District of South Carolina

This matter is before the Court on (1) confirmation of Debtor's August 1, 2014 amended Chapter 11 plan, as modified by Debtor's Addendum to Amended Plan of Reorganization, filed October 15, 2014; and (2) Debtor's Motion to Compel Creditor Sun Circle, Inc. (“Sun Circle”) to aid in the consummation of a sale previously approved by this Court. Sun Circle has filed three separate objections to the confirmation of Debtor's proposed Chapter 11 plan but, to date, has not filed a written response to Debtor's Motion to Compel. The Court has jurisdiction over this matter pursuant to 28 U.S.C. §§ 157 and 1334. Pursuant to Federal Rule of Civil Procedure 52, which is made applicable to this contested matter by Federal Rules of Bankruptcy Procedure 7052 and 9014(c), the Court makes the following findings of fact and conclusions of law.¹

FINDINGS OF FACT

1. Debtor is a tax-exempt, non-profit religious corporation that was incorporated under the laws of South Carolina on April 11, 1994 by Pastor Elaine Green, who continues to serve in that position. According to her testimony, Pastor Green does not and has never taken a salary or living expenses from Debtor; she serves on a voluntary basis. Debtor has no corporate members and its primary activity is the operation of a church. Debtor also operates a day care for the benefit of church members and the community, and, in 2013, Debtor began a revenue-generating summer camp outreach, which it repeated in 2014. Debtor also began offering a year-round after-school program to generate additional revenues in 2014 and intends to continue the program in coming years.

2. Debtor's church services are held at two locations: (1) Myrtle Beach, from leased property; and (2) North Charleston, from real property comprised of approximately 5.5 acres acquired by Debtor on April 21, 2004 (“N. Charleston Property”). Additionally, there is a billboard on Debtor's North Charleston property for which Debtor negotiated a long-term lease to Adams Outdoor Advertising (“Adams”). The billboard lease generates annual revenues for Debtor of $6,000.00. Debtor also owns unencumbered real property on Otranto Road in North Charleston (“Otranto Property”) with an estimated value of $330,000.00.

3. On November 1, 2010, Debtor executed a Note in favor of Regions Bank requiring Debtor to make monthly payments of $9,461.51 beginning on December 15, 2010 with “the final payment ... due on November 15, 2014....” The Note is secured by a Mortgage on the N. Charleston Property. The Note and Mortgage were later assigned to Alabama Capital, LLC.

4. Debtor's operations are funded by tithes and offerings from its members and guests and the billboard lease plus, in recent years, profits generated by the day care, summer camps, after-school program, and various fundraisers. As of January 2014, the active membership at Debtor's North Charleston location was 151 “giving units” and the active membership at Debtor's Myrtle Beach location was 86 “giving units.” A giving unit is defined as a member who actively attends, financially supports, and participates in the ministries of the church.

5. On February 11, 2014, Debtor filed with this Court a voluntary petition for relief under Chapter 11 of the Bankruptcy Code. Debtor's Schedules and Statements were filed shortly thereafter on February 14, 2014. Since filing, Debtor has remained in possession of its property and continued in its operations. The following circumstances preceded Debtor's filing:

a. On May 30, 2013, a state foreclosure action was commenced on Debtor's N. Charleston Property by Alabama Capital, LLC, Sun Circle's predecessor in interest.² The foreclosure complaint alleges Debtor's default under the terms of the Note and shows the Mortgage's principal balance as $1,007,032.31 with interest, plus costs and attorneys' fees. Alabama Capital, LLC also reserved a deficiency claim.

b. On February 4, 2014, a receiver was appointed by Alabama Capital, LLC through an order entered in the foreclosure case.

c. Upon Debtor's filing for Chapter 11 bankruptcy on February 11, 2014, the imposition of the automatic stay effectively ended the receivership. To date, the N. Charleston Property remains in Debtor's possession and under its control.

Debtor's Creditors

6. In its Schedules, Debtor lists debts owed to the following creditors:

a. Alabama Capital, LLC, as a secured creditor and holder of the Note secured by the Mortgage on Debtor's N. Charleston Property;

b. Pastor Green, as an unsecured creditor to be reimbursed for an advance paid to Debtor's first attorney in this case for his retainer and consulting fee;

c. Charleston County Treasurer, as a creditor holding tax claims for past-due personal property taxes for 2012 and 2014 and vehicle taxes for 2007, 2012, and 2013; and

d. DeMott Law Firm (“the Law Firm”), as an unsecured creditor owed fees and costs for prior representation.³

7. On April 2, 2014, Charleston County Revenue Collections (“CCRC”) filed a Proof of Claim in the amount of $6,911.85, listing “Taxes and Fees” as its basis. CCRC's Proof of Claim sets forth a secured claim for past-due business personal taxes in the amount of $1,902.66 and an unsecured claim entitled to priority under 11 U.S.C. § 507(a)(8) in the amount of $5,099.19.⁴ Presumably, CCRC's claims arise from those which Debtor lists as owed to the Charleston County Treasurer.

8. On April 9, 2014, Sun Circle, as successor in interest to Alabama Capital, LLC, filed a Proof of Claim in the amount of $1,140,347.48 plus 5.55% interest, listing “Note and Mortgage of Property” as its basis. Sun Circle's Proof of Claim sets forth a secured real estate claim, perfected through proper recordation of the Mortgage, and values Debtor's N. Charleston Property at $750,000.00.⁵

Debtor's Motion to Sell & Motion to Compel

9. On June 17, 2014, Debtor filed its Motion to Sell to Landmark Dividend, LLC (“Landmark”) a ninety-nine year easement of one side of the billboard located on Debtor's N. Charleston Property. Debtor also filed a Notice and Application to Sell which provided for the closing documents necessary for the sale's consummation to be executed within thirty days of the Court's approval of the sale⁶ and set July 8, 2014 as the deadline to file objections to the sale.

10. On July 8, 2014, Adams—a leaseholder for the land on which the billboard is located—filed a limited objection to Debtor's Motion to Sell. As lessee of the portion of Debtor's N. Charleston Property where the billboard is erected, Adams consented to the entry of an order granting Debtor's Motion to Sell only if such an order (1) acknowledged Adams' interests under its lease agreement with Debtor; and (2) incorporated the lease agreement into its terms. Adams was the only party to object to Debtor's Motion to Sell.

11. On July 23, 2014, after a hearing on Debtor's Motion to Sell, the Court entered a consent order provided by Adams and Debtor which granted the Motion to Sell and incorporated the lease agreement between Adams and Debtor (“Sale Order”). The Sale Order, in pertinent part: (1) notes that Debtor intends to assume the lease to Adams underlying the billboard; (2) authorizes Debtor's sale to Landmark of a ninety-nine year easement of Debtor's interest in one side of the billboard; (3) sets the sale price at $42,800.00 with $38,000.00 of that amount to be paid directly to Sun Circle, the mortgagee of the N. Charleston Property; and (4) orders the annual lease payments from Adams of $6,000.00 to be divided equally between Landmark and Debtor, including any future increases in the lease amount as provided by the lease's escalation provision.

12. After entry of the Sale Order, Landmark informed Debtor that to consummate the sale, a separate agreement needed to be signed by Sun Circle, as the mortgagee of the N. Charleston Property where the billboard is located (“Non–Disturbance Agreement”). According to Debtor, the purpose of the Non–Disturbance Agreement is to ensure that Landmark's interest in one side of the billboard is properly perfected in the event the N. Charleston Property is sold to a third-party by Debtor or Sun Circle. Debtor forwarded the Non–Disturbance Agreement to Sun Circle but, to date, Sun Circle declines to execute it.

13. On October 13, 2014, Debtor filed its Motion to Compel seeking an order from this Court compelling Sun Circle to assent to the Non–Disturbance Agreement thereby allowing for execution of the terms set forth in the Sale Order, including payment to Sun Circle of a portion of the sale price. Debtor asserts that execution of the Non–Disturbance Agreement is in the best interest of Sun Circle, because it will allow the sale to be completed and, thus, provide Sun Circle with a sum of $38,000.00 paid to it by Debtor from sale proceeds. Upon agreement of the parties, Debtor's Motion to Compel was considered along with confirmation of Debtor's proposed Chapter 11 Plan of Reorganization and approval of its Disclosure Statement at a hearing set for October 15, 2014, as discussed further below.

Debtor's Plan of Reorganization & Sun Circle's Objections to Confirmation

14. On June 26, 2014, Debtor filed a proposed Chapter 11 Plan of Reorganization, Disclosure Statement, and motion for a combined hearing on the confirmation of the plan and approval of the Disclosure Statement. The following day, the Court entered an order conditionally approving Debtor's Disclosure Statement and granting Debtor's motion to combine the hearings.

15. On August 4, 2014, Sun Circle filed an objection to confirmation of Debtor's June 26th filed plan. In this first objection, Sun Circle argues that Debtor's plan, as proposed at that time, (1) was not fair and equitable, as required by 11 U.S.C. § 1129(b)(2) ; (2) did ...