SummitBridge Nat'l Invs. VI, LLC v. Orchard Hills Baptist Church, Inc. (In re Orchard Hills Baptist Church, Inc.)

608 B.R. 309

In the MATTER OF: ORCHARD HILLS BAPTIST CHURCH, INC.,

SummitBridge National Investments VI, LLC, Successor in interest to Branch Banking and Trust Co., Movant,

v.Orchard Hills Baptist Church, Inc., Respondent.

CASE NUMBER 19-10897-WHD

United States Bankruptcy Court, N.D. Georgia, Newnan Division.

Signed October 28, 2019

David L. Bury, Jr., Stone & Baxter, LLP, Macon, GA, for Debtor

ORDER

W. Homer Drake, U.S. Bankruptcy Court Judge

Before the Court are two motions: (1) SummitBridge National Investments VI, LLC's ("SBN") Amended Motion for Relief from the Automatic Stay, or, in the alternative, to Compel Adequate Protection under the Security Agreement, (Doc. 52), and (2) SBN's Motion to Dismiss, (Doc. 16), filed in the above-captioned bankruptcy proceeding of Orchard Hills Baptist Church Inc. ("Debtor"). These matters constitute core proceedings, over which this Court has subject matter jurisdiction. See 28 U.S.C. § 157(b)(2)(A), (G) ; § 1334.

These motions came before the Court for hearing on July 30th and 31st, 2019. At the conclusion of the hearing, the Court took the matters under advisement and invited the parties to submit supplemental briefs and findings of fact.

As a matter of efficiency, the Court will address both of SBN's motions in this order, for the same facts are relevant to both. The issues that must be addressed are threefold. First, whether the applicable facts warrant dismissal either for bad faith or for cause as set forth in 11 U.S.C. § 1112(b)(4)(A). Second, whether a prepetition waiver of the right to oppose stay relief is enforceable against the Debtor. Third whether SBN is entitled to relief from the automatic stay pursuant to 11 U.S.C. § 362(d)(1) or (2).

Upon consideration of the pleadings, presentations of counsel, evidence, and any judicially noted facts, the Court holds that (1) SBN's Motion to Dismiss is Denied, and (2) SBN's Motion for Relief from the Automatic Stay is Granted. The following constitutes the Court's findings of fact and conclusions of law in support of this ruling. See Fed. R. Bankr. P. 7052 and 9014.¹

Findings of Fact

On May 7, 2019, the Debtor filed its voluntary petition for bankruptcy relief under Chapter 11. The Debtor operates a Baptist church, which was established during the 1950's and was originally located in College Park, Georgia. Stacy Thomas is the pastor of the Debtor and has been since 1983.

Around 1994, the Debtor relocated from College Park to Newnan, Georgia. In April 2007, the Debtor borrowed $3,800,000 from Branch Banking & Trust ("BB & T") pursuant to a certain promissory note for the purpose of building the Debtor's current facility located at 171 Gordon Road in Newnan (the "Property"). BB & T obtained a security interest in the Property, along with other assets of the Debtor. BB & T also obtained a personal guaranty on the note from Stan Thomas, a well-known real estate developer and the brother of Stacy Thomas. The loan had an initial maturity date of March 27, 2010.

The loan was renegotiated and modified several times up and through April 2016, at which time the outstanding balance on the loan was $2,749,000. Additional negotiations and modifications followed until August 2016, at which time the Debtor and BB & T entered into a Forbearance Agreement. By this time, the outstanding balance on the loan was approximately $2,600,000.²

Despite not receiving any payments from the Debtor after January 2017, BB & T did not attempt to enforce any of its collection remedies, choosing instead to seek a consensual workout with the Debtor. As a result, no agreement between BB & T and the Debtor was in effect from January 2017 to September 2018. During this time, a small group of individuals, including members of the Debtor, offered $1,400,000 to purchase the debt from BB & T. BB & T indicated that this was acceptable and gave the Debtor up until September 30, 2018 to acquire the funds. On September 27, 2018, Stan Thomas, having secured the funds, contacted BB & T, but was informed by BB & T that it had sold the debt to SBN.

On October 5, 2018, SBN sent its initial demand letter to the Debtor, and, subsequently, began discussions concerning repayment of the debt with Stan Thomas, who was negotiating on behalf of the Debtor. Ultimately, on February 28, 2019, the Debtor and SBN entered into a Forbearance Agreement ("Agreement"). (Exh. S-5). Per the terms of the Agreement, the Debtor would pay $100,000 per month, starting in March 2019 and ending in August 2019, with a final lump sum payment due in December 2019. (Id. ). The Agreement also contains Section 16(e) ("Waiver"), which provides the following:

"Notwithstanding anything to the contrary contained herein, Obligors agree that, in the event that a petition for relief is filed under the Bankruptcy Code by or against Obligors, they will not oppose any motion or application filed by the Lender requesting immediate relief from the automatic stay by 11 U.S.C. § 362 to permit Lender to exercise its rights and remedies as a secured party under the Loan and Collateral Documents."

(Id. ).

The Debtor was unable to make the first required payment; consequently, SBN moved to foreclose on the Property. The foreclosure sale was noticed for May 7, 2019, but did not occur because the Debtor filed its Chapter 11 petition on the foreclosure date.

Discussion

A. Motion to Dismiss

SBN asserts that dismissal is appropriate for two reasons. First, it contends that this is a bad faith filing on the part of the Debtor. Second, it asserts that cause for dismissal exists due to a "substantial and continuing loss to or diminution of the estate and the absence of a reasonable likelihood of rehabilitation." Code § 1112(b)(4)(A).

Section 1112(b)(1) provides that the Court, on request of a party in interest, and after notice and a hearing, shall for "cause" convert or a dismiss case, whichever is in the best interest of creditors and the estate. Code § 1112(b)(1). In seeking dismissal under § 1112(b), the movant bears the initial burden of proof by a preponderance of the evidence. In re Global Emergency Res., LLC , 563 B.R. 76, 79 (Bankr. S.D. Ga. 2016).

I. Bad Faith Dismissal

The Eleventh Circuit Court of Appeals has long recognized that a debtor's lack of good faith constitutes cause for dismissal of a case pursuant to § 1112(b)(1). In re Albany Partners, Ltd. , 749 F.2d 670 (11th Cir. 1984). A determination of bad faith is a question of fact and must be made on a case-by-case basis. In re SB Properties, Inc., 185 B.R. 198, 204 (E.D. Pa. 1995).

There is no particular test for determining whether a debtor has filed a petition in bad faith, but, in finding such, courts have emphasized an intent to abuse the judicial process and the purposes of the reorganization process. In re Phoenix Piccadilly, Ltd., 849 F.2d 1393, 1394 (11th Cir. 1988). In making this determination, courts have considered the following factors:

(1) Whether the debtor has few or no unsecured creditors; (2) Whether there has been a previous bankruptcy petition by the debtor or a related entity;

(3) Whether the pre-petition conduct of the debtor has been improper;

(4) Whether the petition effectively allows the debtor to evade court orders;

(5) Whether there are few debts to non-moving creditors;

(6) Whether the petition was filed on the eve of foreclosure;

(7) Whether the foreclosed property is the sole or major asset of the debtor;

(8) Whether the debtor has no ongoing business or employees;

(9) Whether there is no possibility of reorganization;

(10) Whether the debtor's income is sufficient to operate;

(11) Whether there was no pressure from non-moving creditors;

(12) Whether reorganization essentially involves the resolution of a two-party dispute;

(13) Whether a corporate debtor was formed and received title to its major assets immediately before the petition; and

(14) Whether the debtor filed solely to create the automatic stay.

In re SB Properties, Inc., 185 B.R. at 205. This list is not exhaustive, and "courts may consider any factors which evidence ‘an intent to abuse the judicial process and the purposes of the reorganization provisions’ or, in particular, factors which evidence that the petition was filed ‘to delay or frustrate the legitimate efforts of secured creditors to enforce their rights.’ " Phoenix Piccadilly , 849 F.2d at 1394 (citing Albany Partners , 749 F.2d at 674 ). Moreover, a mechanical application of these factors is inappropriate, as the focus of the inquiry should be the presence or absence of the honest intention of the debtor. See In re Park Forest Dev. Corp. , 197 B.R. 388, 393-94 (Bankr. N.D. Ga. 1996). A court has broad discretion to evaluate the totality of the circumstances in each case and to determine whether those circumstances indicate that a petition was filed in bad faith. In re Southside Church of Christ of Jacksonville, Inc., 572 B.R. 384, 388 (Bankr. M.D. Fla. 2017)

It is undisputed that several of the aforementioned factors favor SBN in this case. At its essence, this matter is a two-party dispute, centering around the primary asset of the Debtor. Also, SBN is the major, if not sole, secured creditor, and is the only party applying pressure on the Debtor. The Debtor has few unsecured creditors and owes limited debts to non-moving creditors. Moreover, the Debtor filed its petition for relief on the day of a scheduled foreclosure sale.

On the other hand, several factors are either absent or favor the Debtor. First, this is the Debtor's first filing. Second, and more importantly, there has been no allegation of improper pre-petition conduct on the part of the Debtor. Finally, while it is true that the Debtor's filing did create the automatic stay, and despite SBN's assertion to the contrary, this in and of itself is not evidence of bad faith. See In re Southside Church of Christ of Jacksonville, Inc., 572 B.R. at 389 (stating that the protection offered by the stay would be meaningless if a court were to consider that every bankruptcy...