McFeeley Maryland Opinions et al v. Rubenstein et al

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96-5150-SD AHP LTD, INC. d/b/a TAVERNA ATHENA V. BALTIMORE
CENTER ASSOCIATES LIMITED PARTNERSHIP

IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF MARYLAND

IN RE: *
AHP LTD, INC. d/b/a * Case No. 95-5-3161-ESD
TAVERNA ATHENA Chapter 11
*
Debtor.

cn i a a a a a a a a a a a a a a a a ae ed

AHP LTD, INC. d/b/a *
TAVERNA ATHENA
*
Plaintiff
*
Vv. Adversary No. 96-5150-SD
*
BALTIMORE CENTER ASSOCIATES
LIMITED PARTNERSHIP *
Defendant *

cn i a a a a a a a a a a a a a a a a ae ed

MEMORANDUM OPINION

THIS MATTER came before the Court upon the motion of
defendant Baltimore Center Associates Limited Partnership
("Baltimore Center") for summary judgment dismissing the
complaint and upon the opposing motion of plaintiff AHP LTD, Inc.
d/b/a Taverna Athena ("Taverna Athena") for summary judgment in
its favor. The Court having heard the arguments of counsel,
examined the pleadings and briefs, and being otherwise fully
advised enters this memorandum opinion.

UNDISPUTED FACTS

The undisputed facts before the Court are as follows:

INFORMATION
GPO

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1. 	Baltimore Center is the owner and landlord of a retail
shopping center, The Gallery at Harborplace, which is located in
downtown Baltimore, Maryland.
2. 	Harbor Place Associates Limited Partnership is the owner
and landlord of a retail shopping center, Harborplace, which is
also located in downtown Baltimore and is adjacent to The
Gallery.
3. 	Both Baltimore Center and Harbor Place Associates are
subsidiaries or affiliates of The Rouse Company.
4. 	A restaurant known as The Gallery Grill leased space in
The Gallery shopping center from the late 1980's until it closed
in the fall of 1991.
5. 	The Gallery Grill, Inc., which operated the restaurant,
is a closely-held corporation owned and operated by Spyros H.
Stavrakas.
6. 	The Gallery Grill, Inc. was frequently delinquent in
lease payments, and at the time the restaurant closed a
substantial arrearage in unpaid rent remained due and owing to
Baltimore Center.
7. 	In the spring of 1993, Spyros Stavrakas, individually
and on behalf of the Gallery Grill, Inc. as its president,
executed a promissory note in favor of Baltimore Center. 	The
note provided for installment payments of the lease arrearages
and other unpaid charges.
8. Spyros H. Stavrakas is also the president and sole
shareholder of AHP, Ltd., Inc. which operated another restaurant,
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known as Taverna Athena, from 1980 until March of 1996.
9. 	Taverna Athena was located in Harborplace shopping
center under a lease arrangement with Harbor Place Associates
Limited Partnership.
10. 	In the spring of 1993, Harbor Place Associates and
Stavrakas, on behalf of AHP and the Taverna Athena restaurant,
were involved in negotiations for a new lease.
11. 	Taverna Athena also had a history of delinquent rent
payments and lease charge write-offs.
12. 	Harbor Place Associates, as a prerequisite to
continuing its lease arrangement with AHP/Taverna Athena,
required the new lease to contain default provisions tied to both
the timely remittance of the agreed lease payments and the prompt
payment of all amounts due to Baltimore Center under the terms of
the promissory note executed by The Gallery Grill, Inc. and
Stavrakas.
13. 	According to the terms of the renegotiated lease,
failure to meet either obligation would trigger the default
provisions of the lease.
14. 	In October of 1993, Stavrakas, on behalf of AHP/Taverna
Athena, executed the new lease containing the cross-default
provision.
15. 	On May 3, 1995, AHP Ltd., Inc. d/b/a Taverna Athena
filed for relief under Chapter 11 of the Bankruptcy Code.
16. 	On March 25, 1996, the debtor filed an adversary
complaint against Baltimore Center seeking to recover a portion
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of the amounts paid under the promissory note on the grounds that
the payments constitute a fraudulent conveyance.
DISCUSSION
The Bankruptcy Code provides for the recovery of property of
the estate which has been transferred, under certain specified
conditions, to another person or entity within one year prior to
the date of the filing of the petition. 	Such a transfer may be
avoided if the debtor is proven to have had an actual intent to
hinder, delay, or defraud a creditor, or if the debtor "received
less than a reasonably equivalent value in exchange for such
transfer or obligation" and was insolvent at the time the
transfer was made. 	11 U.S.C. §548(a)(1) & (2). 	In the present
case the debtor-in-possession, standing in the shoes of the
trustee, seeks to recover payments made on a promissory note on
the grounds that the debtor did not receive a benefit of
reasonably equivalent value for the payments.
"Reasonably equivalent value" depends upon the facts and
circumstances of each case. 	In re Chicago, Missouri & Western
Ry. Co., 124 B.R. 769 (Bankr. N.D. Ill. 1991). 	Taverna Athena
asks the Court to consider the fact that the payments made by the
debtor to Baltimore Center pursuant to the promissory note
operated to reduce the obligation of a totally separate entity,
The Gallery Grill, Inc., and did not bestow any benefit on
Taverna Athena. 	Therefore, according to Taverna Athena, the
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debtor received no reasonably equivalent value for the payments
and is entitled to recover them for the estate.
Baltimore Center responds with two arguments. 	First,
Baltimore Center asserts that Taverna Athena did receive a direct
benefit from the payments on the note. 	According to Baltimore
Center, the continuation of the lease, with the accompanying
privilege of operating a restaurant at Harbor Place, constituted
an essential benefit to Taverna Athena without which the debtor
would have faced the disruption of relocating to another
property. 	Baltimore Center contends that because the cross-
default provision was an absolute prerequisite to the
continuation of the lease, the payments made on the Gallery Note
conferred the direct benefit of allowing Taverna Athena to retain
its existing location and enjoy continuous operation.
Second, Baltimore Center points out the interrelatedness of
the parties involved in these transactions. 	Spyros Stavrakas is
the president, CEO, and sole stockholder of both the debtor and
the obligor under the promissory note. 	The Court is urged to
find that reduction of the obligation under the promissory note,
which directly benefitted The Gallery Grill, also indirectly
benefitted Taverna Athena because of the obvious benefit to
Spyros Stavrakas. 	It is true that a number of cases have held
that benefits to third parties may sometimes have the effect of
conferring an indirect benefit on the debtor which is sufficient
to satisfy the "reasonably equivalent value" requirement. 	See In
re Jeffrey Bigelow Design Group, Inc., 127 B.R. 580 (Bankr. D.
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Md. 1991), aff'd 956 F.2d 479 (4th Cir. Md. 1992); Rubin v.
Manufacturers Hanover Trust, 661 F.2d 979 (2d Cir. 1981); In re
Evans Potato Co., 44 B.R. 191 (Bankr. S.D. Ohio 1984); In re
Holly Hill Medical Center, Inc., 44 B.R. 253 (Bankr. M.D. Fla.
1984). 	As long as the payer received some benefit by the payment
of a debt owed by a third party, then the payment can still be
for reasonably equivalent value. 	In re Coors of North
Mississippi, Inc., 66 B.R. 845 (Bankr. N.D. Miss. 1986).
Taverna Athena counters by pointing out a case which stands
for the proposition that transfers made for the benefit of a
third party do not constitute reasonably equivalent value. 	See
In re Pembroke Development Corp., 124 B.R. 398 (Bankr. S.D. Fla.
1991). The debtor also insists that any benefit it realized
indirectly is disproportionately small when compared to the
detriment of depriving the estate of the funds.
The Court finds (1) that the cross-default provisions of the
lease conferred a direct benefit on the debtor which was the
reasonably equivalent value of the payments required; (2) that
the payments made by the debtor on the promissory note did not
constitute a fraudulent transfer; and (3) the defendant is
entitled to summary judgment. 	The facts are undisputed that both
of Spyros Stavrakas' restaurants had a history of delinquent and
unpaid rent. 	The very existence of the promissory note to
Baltimore Center evidences the magnitude of shortfall. 	It is
also undisputed that Harbor Place Associates was not willing to
enter into a new lease arrangement with Taverna Athena unless the
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promissory note default provision was included. 	The successful
renegotiation of the lease clearly provided a benefit to Taverna
Athena, and the necessity of including additional reassurance for
Baltimore Center seems only reasonable. 	Just as any individual
with a poor credit rating might expect to pay a higher interest
rate on loan, Taverna Athena was required to sweeten the deal
with Baltimore Center. 	Taverna Athena needed to overcome a poor
track record, and the debtor does not challenge the fact the
terms of the lease were the result of fair bargaining. 	The
debtor received "reasonably equivalent value" for the payments
made on the Gallery note, and those payments are not subject to
avoidance under §548. 	Having found the existence of a direct
benefit to the debtor, the Court abstains from determining
whether the close relationship between the entities operated to
confer indirect value.
Debtor has also raised, in support of its position, the
existence of language in an earlier order of the Court which
describes the payments on the Gallery Grill note as "a gift" and
avoidable as a fraudulent transfer. 	This comment from the Court
appears in an order denying a motion for reconsideration and
affirming an order denying debtor's motion for approval of
assumption of lease. 	The substantive issue addressed in this
order is assumption of the lease, and the Court's remarks
regarding the note payments are merely dicta.
Having determined that summary judgment should be granted in
favor of the defendant, the Court finds the plaintiff's motion to
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amend the complaint is moot and should be denied.
CONCLUSION
For the foregoing reasons, the Court grants summary judgment
in favor of the defendant Baltimore Center and denies the motions
of plaintiff AHP, Ltd. Inc. d/b/a Taverna Athena for summary
judgment and for leave to amend the complaint. 	This opinion
constitutes the Court's findings of fact and conclusions of law
pursuant to Rule 7052 of the Federal Rules of Bankruptcy
Procedure. 	An appropriate judgment and orders will be entered.
_________________________________
MARK B. McFEELEY
United States Bankruptcy Judge
Sitting by designation
I certify that on the above stamped date I mailed a copy of the
above to:
Orbie R. Shively
GEORGE W. LIEBMANN P.A.
8 West Hamilton Street
Baltimore, MD 	21202
Seema Reznick
Michael J. Schwarz
2840 Legg Mason Tower
111 South Calvert Street
Baltimore, MD 	21202
U.S. Trustee
300 West Pratt Street - Suite 350
Baltimore, MD 	21202
______________________________
Dinah N. Martinez
Secretary to Judge McFeeley
(505) 248-6526
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