In re Westbank Holdings, LLC

1

IN RE:WESTBANK HOLDINGS, LLC, et al.^[1] DEBTORS.

No. 22-10082

United States Bankruptcy Court, E.D. Louisiana

April 19, 2023

CHAPTER 11

SECTION A

MEMORANDUM OPINION AND ORDER

MEREDITH S. GRABILL, UNITED STATES BANKRUPTCY JUDGE

On Tuesday, April 11, 2023, the Court held a one-day evidentiary hearing to consider the Chapter 11 Bankruptcy plan, as amended, [ECF Docs. 648-1, 722, 747 & 910], filed by the Federal National Mortgage Association ("Fannie Mae"), and the Objections filed by (i) the Office of the United States Trustee ("UST"), [ECF Doc. 877], and (ii) Joshua Bruno, [ECF Doc. 880]. Following the evidentiary hearing, Fannie Mae filed the Amended Creditor's Plan of Reorganization for the Debtors Pursuant to Chapter 11 of the United States Bankruptcy Code conforming to concessions made at trial (the "Plan"). [ECF Doc. 916].

The Court makes the following findings of fact and conclusions of law pursuant to Rules 7052 and 9014 of the Federal Rules of Bankruptcy Procedure.^[2] For the following reasons, the Court CONFIRMS Fannie Mae's Plan.

JURISDICTION AND VENUE

This Court has jurisdiction to grant the relief provided for herein pursuant to 28 U.S.C. § 1334. The matters presently before the Court constitute core proceedings that this Court may hear and determine on a final basis under 28 U.S.C. § 157(b)(2)(L). The venue of the Debtors' chapter 11 cases is proper under 28 U.S.C. §§ 1408 and 1409(a).

FINDINGS OF FACT

A. The Debtors' Prepetition Businesses, Relationship with Fannie Mae, and Bankruptcy Filing

The events leading to the filing of the Debtors' bankruptcy cases in early 2022 is undisputed and well documented in the record of these jointly administered cases:

Joshua Bruno is the sole managing member of each of the six affiliated single-asset-real-estate Debtors: Westbank Holdings, LLC, Cypress Park Apartments II, LLC, Liberty Park Apartments, LLC, Forest Park Apartments, LLC, Washington Place, LLC, and Riverview Apartments, LLC. Each of the six Debtors is a holding company for multifamily apartment buildings (the "Properties") and prepetition, provided subsidized-rental housing for low-income families in the greater New Orleans area. The Debtors have no employees; rather, Bruno utilized other of his wholly owned non-debtor affiliates to manage the Debtors' businesses: Metro-Wide Apartments, LLC and Metro-Wide Apartments II, LLC oversaw property management and leasing; Downtown Development Group, LLC performed and managed all repairs and capital improvements for the Debtors and also served as the exclusive contractor and insurance claims consultant for the Debtors; WBH Servicing, LLC employed personnel who worked at apartments held by Westbank Holdings, LLC; and MW Servicing, LLC employed personnel who worked at apartments held by the other five Debtors.

In December 2014, Bruno, on behalf of five of the Debtors borrowed a total principal amount of $6,985,000 from Greystone Servicing Corporation, Inc. ("Greystone Servicing"), an entity that provides acquisition and refinancing loans for multifamily housing projects. In March 2018, Bruno, on behalf of Westbank Holdings, LLC, borrowed the principal amount of $22,150,000 from Greystone Servicing. To secure the repayment of $29,135,000 in 120-month, fixed rate, non-recourse notes, Bruno pledged each Debtor's immovable property and improvements, leases, rents, and insurance policies and proceeds. Greystone assigned and endorsed the notes and mortgages to Fannie Mae and has continued to service the debt on behalf of Fannie Mae. See No. 22-10082, Proof of Claim 11 (Exs. 1-5); No. 22-10083, Proof of Claim 9, (Exs. 1-5); No. 22-10084, Proof of Claim 7 (Exs. 1-5); No. 22-10085, Proof of Claim 6 (Exs. 1-5); No. 22-10086, Proof of Claim 7 (Exs. 1-5); No. 22-10176, Proof of Claim 8 (Exs. 1-5).

Each of the Debtors' apartment buildings sustained damage caused by Hurricane Zeta, a Category 3 hurricane which made landfall in Louisiana on October 28, 2020, and Hurricane Ida, a Category 4 hurricane which made landfall in Louisiana on August 29, 2021. In March 2020, state and local governments issued stay-at-home orders in response to the COVID-19 public health emergency. The businesses of the Debtors suffered as a consequence of the pandemic, as many tenants could not pay rent during those months and local authorities imposed a moratorium on evictions. Although Bruno entered into a forbearance agreement with Fannie Mae in the second quarter of 2020, out-of-court workout negotiations did not bear fruit and Fannie Mae initiated foreclosure proceedings in April 2021. Bruno authorized five of the Debtors to file petitions for chapter 11 bankruptcy relief on January 27, 2022, and authorized the sixth Debtor, Riverview Apartments, LLC, to file on February 23, 2022.

B. Relevant Events During the Debtors' Jointly Administered Bankruptcy Cases

1. Cash Collateral Orders

This Court issued several consent Orders allowing the Debtors the use of Fannie Mae's cash collateral. [ECF Docs. 19, 37 & 92]. As adequate protection for use of cash collateral, the Debtors granted Fannie Mae a claim in the amount of any post-petition diminution of the value of Fannie Mae's security interest in the assets of the Debtors and to secure that claim, the Debtors granted Fannie Mae replacement security interests in and liens upon all post-petition personal property, accounts, and cash of the Debtors to the extent Fannie Mae possessed prepetition perfected security interests in those assets. The Orders expressly carved out from Fannie Mae's security interests any causes of action arising from §§ 510, 544, and 546-551 of the Bankruptcy Code. The Orders entered by the Court also required the Debtors to adhere to a budget approved by the Court for expenditures and to obtain Fannie Mae's consent for emergency expenditures prior to moving the Court for final approval of those expenditures.

Serious events occurred on the Debtors' Properties that required expensive, emergency expenditures of cash collateral, including sewer and plumbing breaks as well as fires which destroyed parts of already-damaged buildings. [ECF Docs. 202, 380, 386 & 500]. The Court also entered consent Orders permitting the use of insurance proceeds and recoverable depreciation (encumbered by liens held by Fannie Mae) to begin repairs on some of the Debtors' buildings damaged by Hurricane Ida. [ECF Docs. 556 & 606].

2. Proofs of Claim Filed

Fannie Mae filed proofs of claim against the Debtors' estates asserting prepetition secured claims in the aggregate amount of approximately $42.9 million. See No. 22-10082, Proof of Claim 11; No. 22-10083, Proof of Claim 9; No. 22-10084, Proof of Claim 7; No. 22-10085, Proof of Claim 6; No. 22-10086, Proof of Claim 7; No. 22-10176, Proof of Claim 8.^[3] The U.S. Small Business Administration ("SBA") also filed proofs of claim asserting prepetition secured claims against the Debtors' estates in the aggregate amount of approximately $368,000. See No. 22-10082, Proof of Claim No. 1; No. 22-10083, Proof of Claim No. 1; No. 22-10084, Proof of Claim No. 2; No. 22-10086, Proof of Claim No. 2; No. 22-10176, Proof of Claim No. 3. The City of New Orleans likewise asserted prepetition secured claims against the Debtors' estates for code violations in the total amount of $7,650. See No. 22-10082, Proof of Claim Nos. 49 & 50. Federal, state, and municipal taxing authorities also filed priority unsecured claims against the Debtors' estates in the total aggregate amount of approximately $145,000. See No. 22-10082, Proof of Claim Nos. 46-48; No. 22-10083, Proof of Claim Nos. 3 & 5; No. 22-10084, Proof of Claim Nos. 4 & 5; No. 22-10085, Proof of Claim Nos. 3 & 4; No. 22-10086, Proof of Claim Nos. 4 & 5; No. 22-10176, Proof of Claim Nos. 1 & 6.

Insiders of the Debtors and non-debtor affiliates filed proofs of claim against the Debtors' estates asserting prepetition general unsecured claims in the aggregate amount of approximately $3.5 million. See No. 22-10082, Proof of Claim Nos. 22-26; No. 22-10083, Proof of Claim Nos. 12-14; No. 22-10084, Proof of Claim Nos. 8 & 9; No. 22-10085, Proof of Claim Nos. 7 & 8; No. 22-10086, Proof of Claim Nos. 9 & 10; No. 22-10176, Proof of Claim Nos. 9-12.

The Sewerage and Water Board of New Orleans ("SWB") filed proofs of claim against the Debtors' estates asserting prepetition general unsecured claims in the aggregate amount of approximately $3 million. See No. 22-10082, Proof of Claim No. 3; No. 22-10083, Proof of Claim No. 2; No. 22-10084, Proof of Claim No. 3; No. 22-10085, Proof of Claim No. 2; No. 22-10086, Proof of Claim No. 8. Entergy New Orleans, LLC also asserted prepetition general unsecured claims against the Debtors' estates in the aggregate amount of approximately $186,000. See No. 22-10082, Proof of Claim No. 8; No. 22-10083, Proof of Claim No. 7; No. 22-10084, Proof of Claim No. 6; No. 22-10085, Proof of Claim No. 5; No. 22-10086, Proof of Claim No. 6; No. 22-10176, Proof of Claim No. 7.

In addition to various other creditors filing general unsecured claims, numerous current and former tenants filed proofs of claim asserting priority unsecured claims for rental deposits as well as general unsecured claims including property damage, breach of contract, and personal injury.^[4]

To date, no objections to any proofs of claim have been filed.

3. Appointment of a Chapter 11 Trustee

Early in the case, on March 28, 2022, Fannie Mae filed a motion to appoint a chapter 11 trustee to oversee and operate the businesses of the Debtors pursuant to 11 U.S.C. §§ 1104(a)(1) and (a)(2) for cause and in the best interests of creditors and the Debtors' estates. [ECF Doc. 86]. The SWB, a coalition of current and former tenants of the Debtors, and the Federal Housing...