Source: http://web.mawebcenters.com/mandela/receivergvtmotion.ivnu
Timestamp: 2019-04-20 04:29:55+00:00

Document:
estate. The grounds for this motion are as follows.
The Boston Redevelopment Authority, the Commissioner of the Massachusetts Department of Revenue, and the City of Boston, (hereinafter the governmental entities) which are interested parties and creditors ofV&M Management, Inc. (Debtor), hereby move the Court for the appointment of a trustee for cause pursuant to §1104(a)(l) of the Bankruptcy Code on the grounds that the Debtor has grossly mismanaged its affairs, and has acted with dishonesty and/or incompetence which has resulted in the instant bankruptcy and , in the alternative pursuant to §1104 (a) (2) because such appointment is in the best interests of the Debtor's creditors and estate. The grounds for this motion are as follows.
as the Westminster and Willard projects, and which have been renamed Mandela by the Debtor, are located in Roxbury, Mass. Mandela is a ch. 121 A urban renewal project, which was built and is operated pursuant to the provisions of Massachusetts General Laws Chapter 121 A. Alphonse Mourad is the sole shareholder, director and officer ofV&M Management, Inc.
For the purposes of this motion, the following aspects of ch. 121 A urban renewal projects are relevant. A ch. 121 A project is exempt from ordinary real estate taxes, however the owner of the project must pay 121 A "excise" taxes in lieu thereof. Mass.Gen.L. ch. 121 A §10. The excise taxes are collected by the Department of Revenue of the Commonwealth of Massachusetts. They in turn, are passed on, after collection, to the city or town in which the project is located. In the case of Mandela, the excise taxes are to be turned over, after collection, to the city of Boston. The governmental entity which is charged by statute with the administration of ch. 121 A urban renewal projects in the City of Boston is the Boston Redevelopment Authority (BRA). Its powers include the right to initially approve the adoption of a 121 A project. It also has the obligation to review and to approve where appropriate the sales of, refinancing of, and changes to a ch. 121 A urban renewal project. The BRA has statutory authority to bring suits in law and in equity to enforce the provisions of ch. 121 A. See Mass. Gen.L. ch. 121 B §46.
must operate the project in the public interest, and in a manner consistent with the provisions of the ch. 121 A urban renewal plan.
There are presently pending in the Suffolk Superior Court two consolidated actions between the governmental entities and the Debtor, V & M Management. Inc. V. Boston Redevelopment Authority, et al. Civil Action No. 89-6500-E and Commonwealth of Massachusetts v. V & M Management. Inc. et al 90-5433 -D. The first suit was initiated by V&M Management, Inc. against the BRA, the City of Boston Assessing Department and the Massachusetts Department of Revenue wherein the Debtor claims that for various reasons Mass.Gen.L. ch. 121A did not apply to it. Summary Judgement has entered against the Debtor on all of the claims. During discovery in this case the BRA ascertained, inter alia, that the owner had mismanaged and exploited the project in violation of Mass.Gen.L. ch.l21A, and had not paid any of its taxes on the project. The BRA filed a counterclaim alleging that the Debtor has misappropriated project funds for personal use by its sole shareholder, director and officer in violation of the provisions of ch.l21A; has failed to pay any real estate or excise taxes due for at least the past ten years1; has failed to keep the property up to code, and has failed to pay the projects legitimate bills, including water and sewer and electric bills all in violation of the requirements of Mass.Gen.L. ch. 121A. The DOR and the City are also seeking payment of past due ch. 121A excise taxes. The Court has also granted Summary Judgment stating that these taxes are due, and have not been paid for over ten years. All that remains is the calculation of the total amount due. See 11 U.S.C. 505(a)(2)(A).
'The only ch. 121A excise taxes that have been paid were three monthly installments of approximately $18,000.00 each, which were paid after the DOR levied on its liens and the Debtor procured some limited relief from the levy in the Middlesex Superior Court on condition it make these payments.
In the second suit, the Commonwealth of Massachusetts, through the Attorney General, has asserted that the Debtor has failed to keep the project up to the standard of repair required by law; has failed to segregate and/or has misappropriated tenant security deposits; has interfered with the rights of the tenants to join and form tenants unions and has intimidated individual tenants; and has otherwise violated the provisions ofMass.Gen.L. ch.93A, the Consumer Protection Act.
In the process of pre-trial discovery in the above cases the Debtor submitted financial statements for the project from 1981 through 1993. The initial report states that the owner purchased the property in 1981 for $1,450,000.00 of which $150,000.00 was advanced by the owner and the balance was a purchase money mortgage from the United States Department of Housing and Urban Development (HUD). In the first year of operation Mr. Mourad withdrew from the project $157,000.00 and there were $240,000.00 of expenses incurred that could not be documented. According to its financial reports, in 1984, the Debtor took out new mortgages on the project in the amount of $2,800,000.00, paid off the HUD mortgage,, and distributed to its shareholder approximately $950,000.00 from the proceeds of the refinancing, and loaned the shareholder an additional $300,000.00. In addition Mr. Mourad was paid $30,000.00 for "consulting" in that year. According to the same report, the project lost $562,812.00 in 1984, and owed ch.l21A taxes in the amount of $196,859 for 1982 and 1983, as well taxes for 1984.
and its shareholder, in each and every year the project suffered losses from operations and has lost hundreds of thousands of dollars, and no payments have been made for taxes in any year. Nevertheless, in virtually every year, additional funds have been "advanced" to the owner and/or its sole shareholder Mr. Mourad. By the end of 1989 Alphonse Mourad was reported to owe the Debtor corporation $2,369,391.00. According to the 1993 financial statement, the last one produced by the Debtor in the litigation, the project lost $489,231,00 in 1993; had accumulated losses from operations of $6,071,810.00; and had accumulated "advances" to the owner of $2,457,657.00. In addition, the Debtor owed $3,002,255.00 in ch.l21A taxes and had other accounts payable (excluding past due interest and mortgages payable) of $1,716,347.00. This was all despite the fact that in 1993, the Debtor received $2,253,428.00 in rent from HUD.
In a related case Mourad v. Dreier. Middlesex Superior Court No. 92-6665, Alphonse Mourad was deposed. During the course of the deposition, he admitted that V & M Management, Inc. had no books of its own, and he had no reason to contradict the contents of the various financial statements referred to above. Moreover, no books or records of the income and expenses of the Debtor have ever been produced in the course of the litigation with the governmental entities, although some disorganized and limited bills and checks have been produced after the Debtor was ordered to produce its records by the Court..
Nor has there been any evidence that the debtor has rehabilitated the property which is subject to the suit of the Attorney General. There remain outstanding bills to the water and sewer commission as well as to Boston Edison. The present Chapter 11 filing has been instituted because of the pendency of a foreclosure sale by the second mortgagee.
I. The Pre-Petition Acts ofV&M Management. Inc. and its Shareholder. Alfonse Mourad. Provide Cause to Require the Appointment of a Trustee Pursuant to 11 U.S.C. S 1104faVn.
For the reasons set forth below, any one of which would justify the appointment of a trustee, the governmental entities involved in this case request that a trustee should be appointed.
(A) Mr. Mourad, the sole shareholder, officer and director of V&M Management, Inc. owes it in excess of two million dollars. There is no basis for believing that he will be willing to take the necessary steps to collect this debt from himself.
According to his own financial records produced in the pre-trial discover in pending cases against the governmental entities, Mr. Mourad has taken substantial "advances" from the debtor corporation, in excess of two million dollars, despite the fact that the project has consistently lost money. He has failed and/or refused to repay the "advances" even though some of them are incorporated in a demand note or notes he has issued to the corporation. As sole shareholder of the corporation, he cannot realistically be counted upon to obtain the repayment of his personal debt to satisfy the creditors.
the fact that debtor suffered net losses exceeding one million dollars during a two year period of time. Id. at 179. The court also noted that the manner in which debtor's management directed that the debtor "lend" them substantial sums of money was indicative of their gross mismanagement.
In the present situation, Mr. Mourad is the sole shareholder, officer and director of the Debtor corporation. He has "advanced" to himself more than two million dollars over the years, even though the Debtor has suffered serious losses each year it owned the project. Mr. Mourad has made no effort on behalf of the Debtor to collect the money he himself owes. Under these circumstances the appointment of a trustee is warranted. See. In re Oklahoma. Refining Co.. 838 F.2d 1133, 1135 (10th Cir. 1988) in which the appointment of a trustee was deemed proper where debtor's manager was making no effort to collect the debt from affiliated companies, and debtor was in the uncomfortable position of having to decide whether or not to sue itself.
(B) A Trustee Should Be Appointed Because of the Debtors Continual Failure and Refusal to Pay His Chapter 121 A Excise Taxes Which Now Exceed Three Million Dollars.
Section 1104(a)(l) of the Bankruptcy Code provides that this Court should appoint a trustee in a Chapter 11 case upon a showing of cause. The term "cause" is defined to include "fraud, dishonesty, incompetence, or gross mismanagement of the affairs of the debtor by current management, either before or after the commencement of the case." 11 U.S.C. §1104(a)(l).
acts as failure to pay real estate taxes. In In re Great Northeaster Lumber and Mill-work Corp.. 20 B.R. 610 (Bankr. E.D. Pa. 1982), the Commonwealth of Pennsylvania offered evidence that the debtor had a history of failure to file returns and pay sales taxes. The taxes which the Commonwealth asserted were due totaled approximately $507,000.00 including interest, penalties and fees. The Court determined that the failure of the debtor to file and pay its sales taxes for six years constituted such "gross mismanagement of the affairs of the debtor by current management" as to constitute "cause" for the appointment of a trustee under § 1104(a)(l) of the Code. The court reached this conclusion despite the fact that the debtor was contesting the tax assessments made by the Department of Revenue. Id. at 611.
In the present case, the Debtor has failed to pay excise taxes (which are comparable to real estate taxes for Chapter 121 A Urban Renewal Projects) to the Department of Revenue for at least the past ten years. Excise taxes owed to the Commonwealth of Massachusetts currently total approximately $3,800,000.00 including interest and penalties.
(C) A Trustee should be appointed because the debtor has demonstrated his inability to manage the housing project over the fifteen years it has owned and operated it.
Incompetence and gross mismanagement are the most common grounds for appointment of a trustee under § 1104(a)(l). In re North American Communications. Inc.. 138 B.R. 175, 178 (Bankr. W.D. Pa. 1992); In re Sharon Steel Corp.. 86 B.R. 455, 458 (Bankr. W.D. Pa. 1988), aff'd, 871 F.2d at 1217 (3d Cir. 1990). In In re La Sherene. Inc.. 3 B.R. 169 (Bankr. N.D. Ga. 1980) the bankruptcy court held that the appointment of a trustee was justified based on the demonstrated incompetence of the debtor's management evidenced by his gross mismanagement of the debtor's business from the outset. 3 B.R. at 175. Although recognizing the rehabilitative potential of the business, the court reasoned that the debtor's current management was not up to the task of reorganizing the company based on his fiscal and operation abuses through overspending, lack of fiscal control, failure to institute an adequate system of record-keeping and financial controls, pattern of monetary favor and extravagance to himself, and commingling. See id. at 175, 176. Thus, the court concluded that just cause existed to mandate the appointment of a trustee under §1104(a). Id. at 176.
As described above, the Debtor's gross mismanagement includes but is not limited to (i) the fact that since December 1981 when V&M Management, Inc. purchased the property, the Debtor has lost substantial amounts in each and every year, total losses from operations over this period accumulate to more than six million dollars (ii) the fact that the Debtor maintains no general ledger or books (iii) the fact that excessive "advances" have been made to Mr. Mourad despite the financial difficulties of the project (iv) the fact that the Debtor has failed to pay its taxes and utility bills when due (v) the fact that the Debtor is currently being sued by the Boston Redevelopment Authority ("BRA"), the agency responsible for supervision of urban renewal projects, for, among other things, payment of income to Mr. Mourad out of the project in amounts larger than allowed under the urban renewal laws and placement of excess debt on the project without receipt of the required permission from the urban renewal authority and (vi) the fact that the Debtor is being sued by the Attorney General's office for violation of the Consumer Protection Act for, among other things, intimidating tenants, misuse of security deposits, and substandard living conditions on the premises. All of the foregoing evidences a serious lack of fiscal control on the part of the Mr. Mourad, similar to the exorbitant expenses, waste and commingling sanctioned by the management in In re La Sherene. Inc.. 3 B.R. at 176, and perhaps even amounting to fraud.
The debtor is heavily in debt and has consistently exercised poor business judgment. If the conduct of the Debtor's current management is not fraudulent and dishonest, it is at bare minimum a clear example of incompetence and gross mismanagement.2 Because there is clear and convincing evidence that under Mr. Mourad's leadership V & M Management, Inc., is not competent to successfully rehabilitate the business, §1104(a)(l) warrants that this Court appoint a trustee. In re Paolino. 53 B.R. at 401. (Bankr. E.D. Pa. 1985), affd. 60 B.R. 828 (Bankr. E.D. Pa. 1986). Mr. Mourad's lack of fiscal control and responsibility has seriously impaired and continues to seriously impair the interests of the creditors and the bankruptcy estate in general.
(D) The Failure of the Debtor to Maintain Books and Records of its Operations Mandates That a Trustee Be Appointed.
The courts have held that incompetence and gross mismanagement are evidenced by a debtor's failure to impose proper financial controls or maintain accurate books and records prior to or after commencement of the case. See. e.g.. In re St. Louis Globe-Democrat. Inc.. 63 B.R. 131, 139 (Bankr. E.D. Mo. 1985) where the court held that holding debtor's inability to project income with some certainty and failure to maintain books and records represents incompetence and gross mismanagement; In re Paolino. 53 B.R. 399, 400 where it was found that "cause" for appointment of trustee was demonstrated by management's failure to keep accurate financial records; In re La Sherene. Inc.. 3 B.R. 169, 175 (Bankr. N.D. Ga. 1980) where the court held that the absence of financial controls or planning is "cause" for appointment of trustee; In re Philadelphia Athletic Club. 15 B.R. 60, 63 (Bankr. E.D. Pa. 1981) where it was concluded that failure of the debtor to keep adequate books and records justified the appointment of a trustee.
Movants respectfully reserve the right to assert that Mr. Mourad's conduct was fraudulent and dishonest, but for purposes of this motion such a showing is not required. See In re St. Louis Globe-Democrat. Inc.. 63 B.R. 131, 138 (Bankr. E.D. Mo. 1985). That there may be more than mere mismanagement is indicated by the fact that Mr. Mourad consistently refused to answer questions relating to his financial affairs citing his Fifth Amendment Privilege during a deposition taken by the Attorney General in Commonwealth v. V&M Management. Inc.
In the case at bar, the debtor has no general ledger and no "books" as that term is commonly used. Since at least 1984 various accountants of the Debtor in notes to the Financial Statements have reported the lack of corporate books and recommended that they be kept. Nevertheless, there still are no such corporate records to the knowledge of the governmental entities. As late as 1995, Mr. Mourad admitted in a deposition in the Dreier case that the Debtor has no corporate books or ledgers. When ordered to produce financial records by the Court, all the Debtor could produce were disorganized and incomplete materials consisting almost entirely of bills and checks, moreover, were simply payments of monies to Mr. Mourad.
II. Alternatively the Court Should Appoint a Trustee Because the Benefits to Creditors' Interest Outweigh the Costs of a Trustee.
"Section 1104(a)(2) embodies a more flexible standard under which the court may engage in a cost benefit analysis to determine whether the appointment of a trustee would be in the best interests of creditors, other equity holders, and other interests of the estate." In re Brown. 31 B.R. 583, 585 (Bankr. D.C. 1983); In re Philadelphia Athletic Club. 15 B.R. 60, 62. "Factors which justify appointment of a trustee under this subsection are highly diverse and in essence reflect the practical reality that a trustee is needed to manage the debtor's affairs." In re North American Communications. Inc.. 138 B.R. 175, 178-179. Under §1104(a)(2) a court may use its broad equity powers to examine the prior and current conduct of a debtor-in-possession and the prospects for the debtor's rehabilitation to determine whether the appointment of a trustee will more efficiently and effectively accomplish a reorganization plan. "In equity, as no where else, courts eschew rigid absolutes and look to the practical realities and necessities inescapably involved in reconciling competing interests." In re Royster Co.. 145 B.R. 88, 90 (Bankr. M.D. Fla. 1992): In re lonoshpere Clubs. Inc.. 113 B.R. 164, 169 (1990). In re Parker Grande Development. Inc.. 64 B.R. 557, 561 (Bankr. S.D. Ind. 1986); In re Hotel Assoc.. Inc.. 3 B.R. 343, 345 (Bankr. E.D. Pa. 1980).
As was the case in In re Hotel Assoc.. 3 B.R. at 345, the benefits inherent in the appointment of a trustee for the Debtor significantly outweigh the costs associated with a trustee. In Hotel Associates, the Debtor's failure to keep adequate books and records coupled with its failure to maintain proper operating standards on its property made appointment of trustee necessary and outweighed its considerable costs. Not only has Mr. Mourad failed to develop a general ledger or books, he is being sued by the Attorney General's Office for failure to keep the property up to code in violation of the Consumer Protection Act. In addition, the Boston Redevelopment Authority has also sued the Debtor for failure to comply with various provisions of the Urban Renewal Laws, including failure to keep the property up to code. Not only does the above clearly and convincingly show gross mismanagement on the part of Mr. Mourad, it also establishes that appointment of a trustee would be in the best interest of creditors and of the bankruptcy estate in general.
(c) Granting the Movants such other relief as is necessary and proper.
Kenneth W. Gurge, Esq., BBO^.jr-'/^W?
V & M MANAGEMENT, INC.
TRANSCRIPT OF EVIDENTIARY HEARING ON MOTION OF BOSTON REDEVELOPMENT AUTHORITY, THE COMMONWEALTH OF MASSACHUSETTS DEPARTMENT OF REVENUE, AND THE CITY OF BOSTON FOR APPOINTMENT OF A CHAPTER 11 TRUSTEE; AFFIDAVIT OF ARTHUR CHIPOURAS, KERRY LYNN EADIE, AND SAUL A. SCHAPIRO, ESQ. BEFORE THE HONORABLE CAROL J. KENNER, J.U.S.B.C.
HARRY MURPHY, ESQ. DONALD FARRELL, ESQ.
Page 24 1 tenants. And there's going to have to be somebody who's going to sit down on each of those sides and figure out what they can bring to the table and how this project can be saved.
even start that ball rolling.
THE COURT: But -- okay. Thank you. Let me -- let me ask your two colleagues as moving parties whether Mr.Schapiro's statements this morning reflect your position as 17 || well.
question. Your Honor. Thank you.
was started in the first place.
will the appointment of a Trustee help you accomplish that goal?
MR. MURPHY: They won't talk to the debtor.
Your Honor. Mr. Mourad is not the debtor.
MR. MURPHY: I do not represent Mr. Mourad.
clear to counsel at the table. I represent the interest of the debtor.
negotiate with Mr. Mourad. What did you say, Mr. Gurge?
in that context. Your Honor.
with Mr. Murphy who represents the debtor?
MR. MURPHY: Well, I like to think there is.
THE COURT: I'd like to think there is, as well. There had better be, and in my experience, Mr. Murphy has always been cognizant of that difference.
think there was a misstatement or something respecting what should this Court do and what do you believe may be appropriate here.

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