Bronx Miracle Gospel Tabernacle Inc.

UNITED STATES BANKRUPTCY COURT
SOUTHERN DISTRICT OF NEW YORK
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In re: 	:
: 	Chapter 11
BRONX MIRACLE GOSPEL TABERNACLE 	:
WORD OF FAITH MINISTRIES f/k/a 	: 	Case No. 17-11395 (SMB)
BRONX MIRACLE GOSPEL TABERNACLE, 	:
:
Debtor. 	:
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MEMORANDUM DECISION GRANTING MOTION TO DISMISS CASE
A P P E A R A N C E S
CARDENAS ISLAM & ASSOCIATES, PLLC
Attorneys for Debtor
175-61 Hillside Avenue, Suite 302
Jamaica, New York 11432
Barak P. Cardenas, Esq.
Of Counsel
WILLIAM K. HARRINGTON
United States Trustee
U.S. Federal Office Building
201 Varick Street, Rm 1006
New York, New York 10014
Serene K. Nakano, Esq.
Of Counsel.
ROBINOWITZ COHLAN DUBOW & DOHERTY LLP
Attorneys for Newell Funding, LLC
199 Main Street
White Plains, New York 10601
Bruce Minkoff, Esq.
Of Counsel
STUART M. BERNSTEIN
United States Bankruptcy Judge:
The United States Trustee has moved to dismiss this chapter 11 case. His motion
is supported by Newell Funding, LLC (“Newell”), the sole secured creditor of the
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debtor’s principal asset, and is opposed by the debtor. For the reasons that follow, the
motion is granted.
BACKGROUND
The debtor is a not-for-profit religious corporation that filed this chapter 11 case
pro se on May 22, 2017. After retaining counsel, it filed Schedules (ECF Doc. # 15)
indicating that its principal asset was real estate (the “Property”) worth $3.5 million
located in the Bronx. The Property was encumbered by a mortgage in the sum of $1.1
million held by Newell, and the Schedules did not list Newell’s secured claim as
contingent, unliquidated or disputed. In addition, the debtor did not schedule any
causes of action or claims against third parties. The Schedules were signed under the
penalty of perjury by Rev. Dr. Keith Elijah Thompson, the president of the debtor.
On November 13, 2017, Newell moved for relief from the automatic stay. (ECF
Doc. # 29.) The motion for stay relief revealed that Newell had made a $425,000 loan
secured by the Property on March 5, 2008, and the loan matured one year later. The
debtor defaulted, Newell commenced a mortgage foreclosure action, and the state court
granted a Judgment of Foreclosure on March 2, 2017 which included a money judgment
in the sum of $1,196,033.99 (the “Judgment”). Newell subsequently filed a proof of
claim in the amount of $1,381,054.53, and submitted an appraisal in connection with its
motion for stay relief ascribing a value of $710,000.00 to the Property.
The debtor responded to Newell’s motion acknowledging that it would have to
return to state court for the relief it needed. (See Affidavit of Dr. Keith Elijah
Thompson in Response to the Motion of Newell Funding for Relief from the Automatic
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Stay, sworn to Dec. 5, 2017 (“Response”) (ECF Doc. # 30).) Rev. Thompson stated his
belief that the Judgment “was entered upon false information provided to the State
Court,” (id. ¶ 15), and concluded:
I am prepared to take this matter back to the State Court where the Church
will be able to pursue all of its State Court remedies as I am currently in
possession of newly discovered information to challenge the Judgment
and I believe that at this time it is in the best interest of the Church that
the Church seeks recourse in the State Court in order to attack the
Judgment.
(Id. ¶ 16.) In light of the debtor’s position, the Court granted stay relief to Newell to
complete the foreclosure and permit the debtor to pursue the claims identified in the
Response. (ECF Doc. # 33.)
The U.S. Trustee thereafter moved to dismiss the case on January 8, 2018. 1 He
argued that the Court had granted stay relief regarding the Property, there was
substantial loss to the estate and there was no likelihood of rehabilitation.
(Memorandum of Law in Support of Motion of the United States Trustee to Dismiss
this Case, dated Jan. 8, 2018 (ECF Doc. # 38-4).)
The debtor, through new counsel, opposed the motion to dismiss. (See Letter
from Barak P. Cardenas, Esq. to the Court, dated May 11, 2018.) It contended that
there had been no diminution to the estate and there was a reasonable likelihood of
rehabilitation. Specifically, the debtor asserted that Newell had converted and/or failed
to allocate to the debtor certain alleged excess rents pledged by Rev. Thompson that
were generated by properties he personally owned. The debtor also asserted that it had
1 	Because the debtor is a not-for-profit corporation its case cannot be converted to chapter 7 unless
the debtor requests conversion. 11 U.S.C. § 1112(c).
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a legal malpractice claim against its attorney in the state court foreclosure action for
failing to raise the debtor’s lack of authority to enter into the Newell mortgage and a day
care center that was formerly a tenant on the Property.
DISCUSSION
Bankruptcy Code § 1112(b) authorizes a court to dismiss a chapter 11 case for
cause. “Cause” includes a “substantial or continuing loss to or diminution of the estate
and the absence of a reasonable likelihood of rehabilitation.” 11 U.S.C. § 1112 (b)(4)(A).
The last monthly operating report filed by the debtor covering November 2017, (ECF
Doc. # 51), showed a cumulative net operating loss of $45,140.29 since the Petition
Date. Adding in the unpaid chapter 11 expenses, the cumulative net loss totaled
$82,838.29. By memorandum endorsement and order signed May 7, 2018, the Court
granted the debtor’s request to have until May 18, 2018 to file the remaining monthly
operating reports, (ECF Doc. # 56), but the debtor failed to comply. Instead, the debtor
submitted a second request to extend the deadline to file the monthly operating reports
until five days after the Court decides the motion to dismiss. (ECF Doc. # 63.) The
granting of the motion to dismiss moots this request which is otherwise unacceptable
because all chapter 11 debtors must disclose the results of their operations by filing
monthly operating reports, but based on what the debtor has filed, I find that the estate
is suffering a continuing loss and diminution.
I also find that it is not reasonably likely that the debtor will be able to
rehabilitate. “If the debtor or some other party in interest is unable or unwilling to put
together a convincing business plan within a reasonable amount of time, and can offer
neither a valid justification for the failure to do so nor a reasonable prospect of being
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able to accomplish the task in the near future, there is often little reason to proceed with
the reorganization.” 7 C OLLIER ON B ANKRUPTCY ¶ 1112.04 (6th ed. 2018) (emphasis
added). The debtor filed this case one year ago, and the Court has granted Newell relief
from the automatic stay to complete the foreclosure of the debtor’s principal asset, the
Property. Further, the main thrust of the debtor’s opposition is that it owes Newell less
than the Judgment (or nothing) based on Newell’s misconduct and the debtor’s lack of
authority to enter into the mortgage. However, these claims are foreclosed by the
Judgment. Moreover, the debtor recently moved in state court to vacate the Judgment
based on the same claims it makes here. In a decision dated Apr. 26, 2018, (ECF Doc. #
57-1), the state court denied the motion, concluding that the allegations regarding
Newell’s misconduct had already been determined by the court when it granted Newell’s
motion for summary judgment. In addition, the state court rejected the debtor’s
arguments that the mortgage was unauthorized and the underlying debt was usurious.
It concluded that “[t]he judgment of foreclosure and sale is not vacated and the sale of
the premises may proceed.”
The debtor cannot, therefore, base its prospects for rehabilitation on its claims
against Newall. Additionally, the claims of professional malpractice against the debtor’s
state court attorney and its former tenant are speculative, will take years to litigate, and
do not provide the basis for a successful rehabilitation within a reasonable time in the
near future.
At bottom, this chapter 11 case no longer serves any purpose. The debtor filed the
case to stay the foreclosure sale and refinance its debt. (Affidavit Pursuant to Local
Bankruptcy Rule 1007-2, sworn to July 12, 2017, at ¶ 6 (“[F]acing the prospect of a
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foreclosure sale of its Church Property, Petitioner had no alternative but to seek
protection under Chapter 11 of the Bankruptcy Code in order to obtain time to refinance
the indebtedness to Newell or to complete the negotiation of the development of the
property where the developer would assist Petitioner with the necessary funding to
resolve its obligations with Newell.”) (ECF Doc. # 14.) The Court granted relief from the
stay, the foreclosure will proceed, and the debtor has been unable to refinance its debt to
Newell in the year since the Petition Date. The debtor can continue to pursue any
remedies it may have against Newell or anyone else in state court, but cannot remain in
chapter 11 while it does so.
The motion is granted, and the U.S. Trustee is directed to submit an order
dismissing this chapter 11 case.
Dated: New York, New York
May 23, 2018
/s/ Stuart M. Bernstein
STUART M. BERNSTEIN
United States Bankruptcy Judge
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