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In re Olympia Office LLC

United States District Court, E.D. New York

February 26, 2018

In re OLYMPIA OFFICE LLC Debtor, MLMT 2005-MCP1 Washington Office Properties, LLC, as assignee of Wells Fargo Bank N.A., as Trustee for the Registered Holders of Merrill Lynch Mortgage Trust 2005-MCP1 Commercial Mortgage Pass-Through Certificates, Series 2005-MCP1 and U.S. Bank, N.A., as Successor-Trustee to LaSalle Bank N.A., as Trustee for the benefit of the Certificate Holders of Commercial Mortgage Pass-Through Certificates, Series MCCMT 2004-C2D, Appellant,

          Alan M. Feld, Esq., Thomas Monahan, Esq., Of Counsel Attorneys for the Appellant

          Joseph S. Maniscalco, Esq., Jordan C. Pilevsky, Esq., Jordan D. Weiss, Esq., Of Counsel Attorneys for the Appellee


          ARTHUR D. SPATT United States District Judge

         On December 15, 2016, MLMT 2005-MCPI Washington Office Properties, LLC (the “Appellant” or “MLMT”) filed an appeal from a December 1, 2016 order (the “EDNY Bankruptcy Court Order”) by the United States Bankruptcy Court, Eastern District of New York (the “EDNY Bankruptcy Court”) (Trust, J.). The EDNY Bankruptcy Court Order ruled that (1) the automatic stay issued in the underlying EDNY bankruptcy proceeding applied to seven properties located in the State of Washington (the “Washington Properties”); (2) the Appellant's motion pursuant to 11 U.S.C. § 362(d) seeking entry of an order determining that the automatic stay does not apply or, in the alternative, granting relief from the automatic stay to continue with a series of motions before the United States Bankruptcy Court for the Western District of Washington (the “Washington Bankruptcy Court”) is denied; (3) the Appellant may not proceed with its motions before the Washington Bankruptcy Court concerning the Washington properties; and (4) the request for a preliminary injunction filed by Olympia Office LLC is denied as moot.

         For the reasons set forth below, the EDNY Bankruptcy Court Order is vacated and this case is remanded to the EDNY Bankruptcy Court for further proceedings consistent with this order.

         I. BACKGROUND

         A. The Underlying Facts

         1. The CDC Bankruptcy and the Washington Properties

         On February 10, 2011, CDC Properties I LLC, a Delaware limited liability company (“CDC”) filed a voluntary petition for reorganization pursuant to Chapter 11 of the Bankruptcy Code in the Washington Bankruptcy Court and was assigned case number 11-41010 (the “CDC Bankruptcy Case”).

         At the time of CDC's petition, it was the owner of the Washington Properties, which consist of: (1) 5000 Capital Boulevard Southeast, Tumwater, WA 98502; (2) 640 Woodland Square Loop Southeast, Lacey, WA 98503; (3) 637 Woodland Square Loop Southeast, Lacey, WA 98503; (4) 629 Woodland Square Loop Southeast, Lacey WA 98503; (5) 4565 7th Avenue Southeast, Lacey, WA 98503; (6) 645 Woodland Square Loop Southeast, Lacey, WA 98503; (7) 805 South Mission Street, Wenatchee, WA 98801; (8) 8830 25th Avenue Southwest, Seattle, WA 98106; and (9) 1620 South Pioneer Way, Moses Lake, WA 98837.

         The Washington Properties were allegedly subject to Deeds of Trust with Security Agreement, Assignment of Leases and Rents and Fixture Filings (the “Deeds of Trust”) as well as an Assignments of Leases and Rents and Security Deposits (the “Assignment of Rents”) that resulted from a $43, 257.50 loan to CDC on or about September 29, 2004. A deed of trust is “[a] deed conveying title to real property to a trustee as security until the grantor repays a loan. This type of deed resembles a mortgage.” Black's Law Dictionary 502 (10th ed. 2014). Merrill Lynch Mortgage Lending, Inc. (the “Original Lender”) provided the loans (the “CDC Loans”) in the form of two promissory notes, Note A and Note B (together, the “Notes”). The Deeds of Trust and the Assignment of Rents for the Washington Properties were provided to the Original Lender as security. On or about September 30, 2005, the Original Lender allegedly assigned Note A to Wells Fargo Bank N.A. (“Wells Fargo”) and Note B to U.S. Bank N.A. (“U.S. Bank”). The Appellant is the assignee of both Wells Fargo and U.S. Bank and is the holder of both Notes.

         In November 2011, the Washington Bankruptcy Court confirmed CDC's plan of reorganization (the “CDC Plan”). Under the CDC Plan, the CDC Loans were allegedly restructured with the Notes, Deeds of Trust, and Assignments of Rents remaining in effect with new maturity dates and revised payment amounts. The Appellant alleges that the CDC Plan also prohibits the transfer of the Washington Properties unless the CDC Loans are fully repaid: “The Reorganized Debtor may sell or refinance the [Washington Properties], or any component thereof, at any time if the proceeds of the sale or refinance are sufficient to pay all Allowed Claims in Classes 1-5 …” CDC Plan. Allegedly, the Deeds of Trust also prohibits the transfer of the Washington Properties without the prior written consent of the Appellant.

         The CDC Plan also allegedly specifically addresses the Washington Bankruptcy Court's retention of jurisdiction:

Following the Confirmation Date, the Bankruptcy Court shall retain jurisdiction over the Reorganized Debtor and the Assets until the Plan is fully consummated and an order closing the Case is entered by the Bankruptcy Court. The Bankruptcy Court's retained jurisdiction shall give it authority to hear matters for purposes of administering the Plan, including without limitation: . . . 5. To issue orders in aid of execution of the Plan and to issue injunctions or take such other actions or make such other orders as may be necessary or appropriate to restrain interference with the Plan or its execution or implementation by any entity; . . . 8. To determine any disputes arising in connection with the interpretation, implementation, execution or enforcement of the Plan, the Confirmation Order, or any other order of the Bankruptcy Court; 9. To recover all Assets, wherever located.

         CDC Plan. The Washington Bankruptcy Court closed the CDC Bankruptcy Case on February 15, 2012.

         2. Post CDC Bankruptcy

         Although the Appellant alleges that CDC defaulted under the CDC Plan and the Deeds of Trust, the Appellee disputes that claim. On March 11, 2016, the Appellant commenced non-judicial foreclosure proceedings involving the Washington Properties. On May 19, 2016, a Washington State court appointed JSH Properties, Inc. (the “Receiver”) as the Receiver over the Washington Properties. This appointment was done at the request of the Appellant and by the commencement of a state court suit.

         The non-judicial foreclosure sale of the Washington Properties was scheduled for October 21, 2016. Three days prior to the scheduled sale, Wells Fargo and ...

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