Opinion ID: 196328
Heading Depth: 3
Heading Rank: 2

Heading: Irreparability of Injury; Adequacy of Remedy at Law

Text: 15 Every court which has considered the question has determined that the NHA empowers HUD to enforce its prepetition rights under a Regulatory Agreement notwithstanding the initiation of a chapter 11 proceeding by or against the NHA borrower. See, e.g., In re EES Lambert Assocs., 43 B.R. 689, 691 (Bankr.N.D.Ill.1984), aff'd, 63 B.R. 174 (N.D.Ill.1986); In re Marion Carefree Ltd. Partnership, No. 93-33011, 1994 WL 115911, 1994 Bankr.LEXIS 398, at  8-9 (Bankr.N.D.Ohio Mar. 17, 1994); In re Tampa Bay Briarwood Assocs., Ltd., 118 B.R. 126, 128-29 (Bankr.M.D.Fla.1990); In re Garden Manor Assocs., 70 B.R. 477, 486 (Bankr.N.D.Cal.1987); In re TWO-KMF Dev. Assoc., 63 B.R. 149, 151 (Bankr.N.D.Ill.1985); In re Hil'Crest Apartments, 50 B.R. 610, 613 (Bankr.N.D.Ill.1985). Three principal grounds appear to support postpetition enforcement of the NHA lender's prepetition contract remedies notwithstanding the fact that the debtor no longer has possession of, or access to, the precise collateral it diverted prior to the petition. 16 First, the debtor's own partners are the parties principally benefited by the prepetition diversion of the HUD collateral--most notably in this case the fees for retaining professional assistance in fending off any MHFA foreclosure, thereby safeguarding their personal financial investments 7 at the expense of low-income Project residents--the intended principal beneficiaries of the NHA. See In re Garden Manor, 70 B.R. at 485; In re Hil'Crest Apartments, 50 B.R. at 612; In re EES Lambert, 43 B.R. at 690. But for the unauthorized diversion, the rents normally would have been applied, as appropriate, toward Project maintenance. See In re Garden Manor, 70 B.R. at 483, 485 (regulatory agreement is not an executory contract subject to rejection by debtor) (citing Bankruptcy Code Sec. 365). 17 Second, the assignment-of-rents provision in the Regulatory Agreement is not merely a term in a private loan agreement, but a contractual precondition to coinsurance which Congress expected HUD to enforce in the public interest. See 12 U.S.C. Secs. 1709, 1715k, 1715v(c)(4) (listing numerous restrictions on NHA mortgagors). Permitting partnership debtors, or their individual partners, to divert public funds with any degree of impunity threatens significant depletion of the treasury, see In re Garden Manor, 70 B.R. at 483, and ultimately undercuts public confidence in the efficacy of federal housing, lending, and insurance programs, thereby subverting Congress's announced intention to promote private construction of low-income housing. Id. 18 Third, these cases point out that there is no inherent inconsistency between the policies of the NHA and the Bankruptcy Code, in that the partnership debtor, and its individual partners, remain free to retain chapter 11 counsel provided they do not fund their retainers with the NHA lender's cash collateral. Id. at 482, 486; In re TWO-KMF, 63 B.R. at 151; In re Hil'Crest Apartments, 50 B.R. at 612. 19 Notwithstanding the strong judicial support for these general policy considerations, however, we are given great pause at the prospect of fashioning extraordinary injunctive relief absent either demonstrated compliance with the explicit requirements of the enabling provision in the Bankruptcy Code, see 11 U.S.C. Sec. 105(a), or some clear indication in the NHA that Congress envisioned such an accommodation between the NHA and the Bankruptcy Code. Thus, we think it is not enough simply to point to the importance of safeguarding the integrity of the NHA loan program, where neither the NHA, the Regulatory Agreement entered into pursuant to the NHA, nor the Bankruptcy Code itself so much as intimates that a bankruptcy court may fashion the extraordinary reimbursement relief sought by MHFA. 20 No matter how compelling the public policy reasons for formulating such extraordinary relief, it must be recognized that the right and remedy are judge-made. Bankruptcy courts must be especially cautious about embarking upon a lawmaking exercise in circumstances where the injured party has neither demonstrated that it has exhausted, nor even pursued, efficacious alternative forms of relief which, if available, might well preclude a finding that the relief sought from the bankruptcy court is either necessary or appropriate to carry out the provisions of [the Bankruptcy Code]. Bankruptcy Code Sec. 105(a), 11 U.S.C. Sec. 105(a). See generally Lopez v. Garriga, 917 F.2d 63, 68 (1st Cir.1990) (noting that injunction-seeker must first show that he has no adequate remedy at law); see also Baker v. United States, 27 F.2d 863, 875 (1st Cir.1928) (Where courts intrude into their decree their opinions on questions of public policy, they in effect constitute the judicial tribunals as law-making bodies in usurpation of the powers of the Legislature.) (citation omitted). 8 We therefore decline to endorse the MHFA's request for extraordinary injunctive relief under Bankruptcy Code Sec. 105(a), absent any showing or appearance that it is either necessary or appropriate to carry out the provisions of the Bankruptcy Code. See Bankruptcy Code Sec. 105(a), 11 U.S.C. Sec. 105(a).