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Mondelli v. Berkley Realty Partners # 244

August 14, 2008

VICTOR MONDELLI, APPELLANT,
v.
BERKLEY REALTY PARTNERS # 244, LLC, JACK SILVERMAN REALTY & MORTGAGE CO., LLC., APPELLEES.



The opinion of the court was delivered by: William J. Martini, U.S.D.J.

OPINION

Debtor appeals from an order of the bankruptcy court enforcing a mortgage and lease to which Debtor was a party and from an order of the bankruptcy court denying Debtor's motion for reconsideration of the former order. Debtor, however, failed to timely file a designation of record and statement of issues on appeal. The Court finds after careful consideration that this failure warrants dismissal of Debtor's appeal.

I. FACTS AND PROCEEDINGS

Although the Court ultimately dismisses the appeal on a procedural ground, a brief description of the facts of the case is necessary since dismissal on the procedural ground is only appropriate if the appeal lacks substantive merit, as the opinion will later explain.

This bankruptcy appeal concerns the bankruptcy court's disposition of real property owned by the estate. Debtor generally used this real property as commercial rental space. To satisfy Debtor's debts, the bankruptcy court, via two orders, allowed Debtor to obtain a loan by mortgaging the property.

The mortgage was a somewhat unorthodox financial instrument, as it was accompanied by an inseparable lease. Like any typical mortgage, Debtor received a loan from the mortgagee, Jack Silverman Realty & Mortgage Co. ("JSRM"), that was secured by the real property. Debtor used the loaned funds to pay his creditors in full. Atypically, however, the Debtor at the same time entered into a lease agreement, the lessee of which was a company called Berkeley Realty Partners ("BRP"). Under the lease, lessee BRP paid lessor Debtor a monthly rental amount. The lease expressly stated that its existence was a condition precedent to JSRM's grant of a mortgage, and the parties obviously contemplated that the mortgage and lease were part of an overall bargain.

The lease also contained three provisions of particular relevance to this appeal.

First, the lease gave BRP a right of first refusal, should Debtor sell the property. Second, the lease contained a "subordination" provision, which required Debtor to subordinate his interest in the property to any mortgage that BRP entered for the purpose of obtaining money "for the construction and permanent financing" of the lease. Third, the lease required BRP to pay property taxes and purchase insurance for the property.

The dispute arose when BRP attempted to mortgage the property pursuant to the subordination provision in the lease. BRP sought the mortgage to obtain financing to redevelop the property. As discussed above, the subordination provision required Debtor to subordinate its interest in the property to any mortgage that BRP entered to obtain financing for redevelopment of the property. Subordination in this case required Debtor to complete a separate subordination agreement of some kind, which he refused to do.

In response, BRP and JSRM filed a motion to enforce the bankruptcy court's prior orders allowing Debtor to enter into the mortgage and lease. Debtor opposed this motion with a two-page letter. Debtor's only coherent argument against enforcement of the lease in this opposition was to claim that BRP had breached the lease by failing to pay property taxes, as required by the lease.

The bankruptcy court, Judge Donald Steckroth, granted BRP and JSRM's motion to enforce the mortgage and lease. The court ordered Debtor to comply with all of the terms of the mortgage and lease.

Debtor then filed a motion for reconsideration of that order enforcing the mortgage and lease. In this motion for reconsideration, Debtor raised new arguments that he had not previously raised, four of which are relevant to this appeal. First, Debtor argued that the lease was void because its provision granting BRP a right of first refusal constituted a clog on Debtor's equitable right of redemption with respect to either JSRM's mortgage or an equitable mortgage created in favor of BRP by the lease itself.*fn1 Second, Debtor appeared to argue that the lease imposed no obligation to subordinate his interest in the property to a mortgage for BRP-as BRP had requested-absent proof from BRP that it intended to use the proceeds from the mortgage to develop the property. Third, Debtor argued that BRP had breached the lease by subleasing a parcel of the property that the parties refer to as the "middle store." Fourth, Debtor argued that Judge Steckroth should recuse himself for bias. Debtor's reasoning for this argument was largely that Judge Steckroth's legal decisions against Debtor were consistently erroneous, evidencing bias against Debtor. Debtor also renewed his argument against enforcement of the lease on the grounds that BRP had breached it by failing to pay for property taxes and insurance.

The bankruptcy court denied Debtor's motion for reconsideration. With respect to Debtor's argument regarding BRP's right of first refusal, the court did not address whether this impermissibly clogged Debtor's right of redemption with respect to JSRM's mortgage. Rather, the court held only that the lease did not create an equitable mortgage in favor of BRP and dismissed Debtor's argument on that ground. With respect to Debtor's argument that the lease did not obligate him to subordinate his interest to a mortgage in favor of BRP absent evidence that BRP intended to use the proceeds for development of the property, the court appears to have not addressed that issue.*fn2 With respect to Debtor's argument that BRP breached the lease by subleasing the "middle store," the court found that the lease did not prohibit such use and thus that any sublease was not a breach. With respect to Debtor's argument that Judge Steckroth was biased, Judge Steckroth found no such evidence of bias and noted that even erroneous legal decisions are not grounds for recusal. Finally, the bankruptcy court held that any breach by BRP of the lease in failing to pay for property taxes or insurance was de minimis, that BRP quickly cured any such breach, and that such breach was not grounds to terminate the lease.

Debtor now appeals. Debtor essentially raises the same five arguments raised in its motion for reconsideration.

BRP and JSRM oppose the appeal. They argue, inter alia, that this Court should dismiss Debtor's appeal because Debtor failed to timely file a designation of ...


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