JBB Holdings, LLC v. Abundant Life Worship Ctr. of Hinesville, GA, Inc. (In re Abundant Life Worship Ctr. of Hinesville, GA, Inc.), Number 20-40959-EJC

In re: ABUNDANT LIFE WORSHIP CENTER OF HINESVILLE, GA, INC., Debtor.

JBB Holdings, LLC, Movant, v. ABUNDANT LIFE WORSHIP CENTER OF HINESVILLE, GA, INC., Respondent.

Number 20-40959-EJC

UNITED STATES BANKRUPTCY COURT FOR THE SOUTHERN DISTRICT OF GEORGIA SAVANNAH DIVISION

December 16, 2020

Chapter 11

OPINION ON MOTION TO CONFIRM NO STAY IS IN EFFECT

I. INTRODUCTION

This case involves a long-running dispute between a church, Abundant Life Worship Center of Hinesville, GA, Inc. (the "Debtor") and its principal creditor, JBB Holdings, LLC ("JBB"), which holds a first-priority lien on real property consisting of 40 acres in Liberty County, Georgia, commonly known as 5493 North Coastal Highway, Fleming, Georgia 31309 (the "Property"). Three times in the past 23 months, the Debtor has taken last-minute steps to stop a foreclosure sale by JBB. First, minutes before a scheduled foreclosure, the Debtor filed a Chapter 11 petition in this Court on January 2, 2019, commencing case no. 19-40004-EJC. After that case was dismissed on March 2, 2020, the Debtor filed a Verified Complaint for Preliminary Injunction and Temporary Restraining Order in the Superior Court of Liberty County, Georgia, and obtained a temporary restraining order enjoining a second foreclosure scheduled for March 3, 2020. When that state court litigation was dismissed as to JBB on September 18, 2020, and the injunction lifted, a third foreclosure sale was scheduled for November 3, 2020. The Debtor sought a stay from the state court while it pursued an appeal, but on November 2, 2020, the state court denied the motion for stay. To stop the sale for a third time, the Debtor filed its petition in this case on that same day, November 2, 2020. Believing that the foreclosure sale was not subject to the automatic stay, JBB held the sale on the courthouse steps in Hinesville, Georgia. JBB submitted the high bid and obtained a signed deed conveying the Property to JBB but has not yet recorded that deed and asserts it will not do so until this Court rules that no stay came into effect under 11 U.S.C. § 362(n)(1)(B).

Pending before the Court are JBB's Motion to Confirm the Automatic Stay Under 11 U.S.C. § 362(a) Does Not Apply to Debtor's Second Small Business Debtor Case Pursuant to 11 U.S.C. § 362(n)(1)(B) (the "Motion to Confirm No Stay is in Effect") (2020 dckt. 7)¹ and its supplemental motion requesting the same relief. (2020 Dckt. 96). JBB's motion came on for hearing on November 30, 2020. On the eve of that hearing, on November 29, 2020, the Debtor filed an amended petition electing to proceed under Subchapter V of Chapter 11. (2020 Dckt. 58). At the hearing on JBB's motion, the Court heard testimony from two witnesses, and the parties stipulated that the Court could take judicial notice of all filings on its docket in both the 2019 case and the pending case, including all the state court filings attached to the various papers submitted by the parties.² At the conclusion of the hearing, the Court took the matter under advisement. The parties have submitted supplemental materials and briefs (2020 dckt. 96, 97, 98), and the matter is now ripe for ruling.

Having reviewed the docket in both this case and the 2019 case, and based on the evidence presented at the November 30, 2020 hearing and the supplementalmaterials, the Court finds that the automatic stay of § 362(a) did not come into effect upon the Debtor's filing of its petition in this case on November 2, 2020. The Court further finds that the November 29, 2020 election to proceed under Subchapter V did not operate to impose the automatic stay, retroactively or otherwise. Therefore, the Court will enter an Order granting JBB's Motion to Confirm No Stay is in Effect. This Opinion constitutes the Court's findings of fact and conclusions of law. To the extent that any findings of fact herein are construed to be conclusions of law, they are hereby adopted as such. To the extent that any conclusions of law herein are construed to be findings of fact, they are hereby adopted as such.

II. JURISDICTION

This Court has subject matter jurisdiction pursuant to 28 U.S.C. § 1334(a), 28 U.S.C. § 157(a), and the Standing Order of Reference signed by then Chief Judge Anthony A. Alaimo on July 13, 1984. This is a "core proceeding" under 28 U.S.C. § 157(b)(2).³

III. FINDINGS OF FACT

A. Organization of the Debtor

The Debtor is a non-denominational congregational church originally formed in 1998 under the name Abundant Life Worship Center, Inc. (2020 Dckt. 92, p. 50).⁴ According to the Debtor's filings in this matter, that incorporation was approved not only by its board of directors, but by its membership as well. (2020 Dckt. 36, p. 3). Due to an administrative oversight, however, that corporation was administratively dissolved by the Georgia Secretary of State in 2005. (2020 Dckt. 36, p. 4; 2020 Dckt. 92, p. 50). In 2011, in connection with the loan transaction discussed below, the church was again incorporated, by its bishop, Carroll A. Norwood, under the name Abundant Life Worship Center of Hinesville, GA, Inc. (2020 Dckt. 36, p. 4; 2020 Dckt. 92, pp. 50-51, 62, 64). As addressed below, the Debtor now claims that this 2011 reincorporation was accomplished without the knowledge or approval of the church membership. (2020 Dckt. 35, p. 4).

B. The Loan Transaction and the Debtor's Default

In 2011, the Debtor obtained a loan from United Community Bank to finance the purchase of the Property. (2020 Dckt. 92, pp. 70-71). The principal amount of the original loan was $280,000.00. (2020 Dckt. 94-1; 2020 Dckt. 92, pp. 70-71). Thereafter, the Debtor financed the construction of a church building on the site, andthe amount of the loan increased to $1,650,167.00 by 2015. (2020 Dckt. 94-5). Both the land and the church building served as collateral for the loan. Subsequently, the loan was divided into two promissory notes, which were then assigned to JTS Capital, LLC and were later purchased by JBB.⁵ In 2018, JBB declared the Debtor in default under the loan transaction, and a foreclosure sale was scheduled for January 2, 2019.⁶

C. The 2019 Bankruptcy Case⁷

To prevent the foreclosure sale, the Debtor filed a skeletal petition commencing Chapter 11 case no. 19-40004-EJC at 9:54 a.m. on January 2, 2019. (2019 Dckt. 1).⁸ Neither the original petition nor an amended petition filed later that same day indicated that the Debtor was a small business as defined in 11 U.S.C. § 101(51D). (2019 Dckt. 1, p. 2; 2019 Dckt. 5, p. 2). On January 16, 2019, the Debtormoved to employ attorney J. William Boone of James-Bates-Brannan-Groover-LLP, which the Court granted. (2019 Dckt. 15, 26, 30, 33, 53). An amended petition filed on February 27, 2019, indicated that the Debtor was a small business under § 101(51D). (2019 Dckt. 56, p. 2). Its debts were within the small business debt limit of § 101(51D),⁹ and no party in interest objected to that small business designation.¹⁰

On May 7, 2019, JBB, as Trustee of the Abundant Life Worship Center Trust 09082017 (the "Trust"), filed its proof of claim in the amount of $2,156,150.58 secured by the Property. (2019 Claim No. 7). One month later, the Debtor appeared to acknowledge its inability to pay the debt to JBB under the terms of the notes. On June 7, 2019, JBB filed its Unopposed (by Debtor) Motion for Relief from the Automatic Stay (the "Consent Motion for Stay Relief") (2019 Dckt. 109). According to that motion, the Debtor and JBB agreed to a settlement whereby the stay would be lifted so that JBB could conduct a foreclosure sale. JBB agreed to waive any deficiency claim against the Debtor or its guarantors. Further, if JBB submitted the highest bid at foreclosure, it would then lease the Property to the Debtor for an initial term of 24 months at a rate of $7,500.00 per month. If JBB did not sell the Property during that 24-month term, then the Debtor could extend the lease for an additional18 months under the same terms. The Debtor would hold a right of first refusal should JBB receive an offer to purchase the Property, but the lease would terminate upon any sale to a third party. (2019 Dckt. 109, pp. 7-8). Consistent with the Consent Motion for Stay Relief, the Debtor filed on June 14, 2019, a Motion for Approval of Compromise and Settlement by and among Abundant Life Worship Center of Hinesville, GA, Inc. and JBB Holdings, LLC (the "Motion to Compromise") setting forth the terms of this agreement. (2019 Dckt. 115, pp. 6-8). A hearing on the Motion to Compromise was scheduled for July 29, 2019. (2019 Dckt. 118).

Before the hearing could take place, however, the Debtor withdrew the Motion to Compromise (the "Withdrawal") on July 12, 2019, stating only that "Debtor ... subsequent to a change of composition of members of its Board of Directors, has made a decision to withdraw . . . without prejudice" the Motion to Compromise and the consent order submitted in connection with JBB's Consent Motion for Stay Relief. (2019 Dckt. 125, p. 1). On July 17, 2019, Mr. Boone moved to withdraw from representing the Debtor in the case. (2019 Dckt. 126). In its Motion to Enforce Compromise and Settlement of Claims with Debtor (the "Motion to Enforce Compromise") filed on July 22, 2019, JBB argued that the Debtor was bound by its Board's prior decision to enter into the settlement. (2019 Dckt. 131). JBB further contended that even if the settlement was not enforced, JBB shouldnevertheless be granted stay relief to commence foreclosure proceedings. (2019 Dckt. 131, p. 7).¹¹

On July 29, 2019, a hearing¹² was held on JBB's Consent Motion for Stay Relief, the Debtor's Motion to Compromise, the Withdrawal, and Mr. Boone's motion to withdraw from the case.¹³ At that hearing, J. Michael Hall of Hall & Navarro, LLC, appeared on behalf of the Debtor. (2019 Dckt. 150, pp. 3-5). While counsel for JBB argued that the Court should enforce the terms of the settlement, Mr. Hall asserted that valuation of the Property was critical to the issues...