Case 11-33802-PGH

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UNITED STATES BANKRUPTCY COURT

SOUTHERN DISTRICT OF FLORIDA
(WEST PALM BEACH DIVISION)

In re:

Case No. 11-33802-BKC-PGH

THOMAS G. HINNERS,

Chapter 7

Debtor.

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MOTION TO ENFORCE THE AUTOMATIC STAY PURSUANT TO

11U.S.C.362, TO ENJOIN FURTHER VIOLATIONS OF THE
AUTOMATIC STAY AND FOR OTHER RELIEF
NICOLE TESTA MEHDIPOUR, in her capacity as the Chapter 7 Trustee for the abovereferenced bankruptcy case (the "Chapter 7 Trustee"), by and through undersigned counsel and
pursuant to 11 U.S.C. 105(a) and 362, hereby moves to enforce the automatic stay, to enjoin
further violations of the stay and for monetary sanctions. In support of this Motion, the Chapter
7 Trustee respectfully represents:

FACTUAL BACKGROUND 1

Debtor is the founder of a nonprofit corporation called Florida Affordable

1.

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The Auburn Communities Business

Housing, Inc. ("F AH"), which was formed in 1987 as a developer of low income housing. The
business of FAH evolved over time into what is now referred to as "Auburn Communities" which is actually a group of affiliated companies primarily controlled and managed by a Florida
corporation known as Auburn Management, Inc. ("AMI"). AMI is a creditor in this case and
Debtor's employer.

Each of the facts recited in support this Motion is supported by the declaration of the Trustee's financial
professional, Michael Borkowski, II, which is attached hereto as Exhibit "A."

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2.

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Auburn Communities, by and through AMI, specializes in exploiting various

programs (e.g., Florida's State Apatiment Incentive Loan Program, or "SAIL") that provide tax
credits, low interest financing and the like in support of affordable housing developments.
3.

Auburn Communities employs a complicated structure to take advantage of

various income streams flowing from a project.

In general terms, each project Auburn

Communities develops is owned by a general partner (typically an entity included within the

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Auburn Communities umbrella), a limited partner, and in some cases a special limited partner.
Additionally, these projects are customarily developed by a separate affiliate entity under the
umbrella of the Auburn Communities' organization and, after a project is developed, it is
managed by AMI. Fees are paid to these affiliate entities at various stages in the development
process as well as during the operational phases of the communities.
4.

AMI was formed and originally owned 100% by the Debtor, but in 2004, Debtor

transferred one half of his ownership interest in AMI to his son, Brian Hinners. Eight (8) months

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prior to the Petition date, on or around December 31, 2010, Debtor transferred his remaining
50% ownership interest to Brian Hinners. The Trustee has sought to recover this interest by way

of an adversary proceeding-Mehdipour v. Brian Hinners, Adv. Proc. No. 14-01207.

5.

AMI's Violation of the Automatic Stay

The Debtor identified on his [Amended] Schedule B a 99% limited pminership

interest in an entity known as Auburn Trace, Ltd. ("Auburn Trace") [ECF No. 126, at p. 4 of
25].
6.

Auburn Trace is an entity that was formed to operate a low income housing

apartment complex located in Delray Beach, Florida, known as the Auburn Trace Apatiments.
The 1% general pminer of Auburn Trace is "Auburn Trace Joint Venture," which is a joint

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venture between F AH and AMI. Pursuant to the First Amendment to the Auburn Trace Restated
Joint Venture Agreement dated April 27, 2006, FAH and AMI were named as co-managing
partners, whereby either one of them was authorized to manage the affairs, activities, and
business of Auburn Trace Joint Venture. As such, FAH and AMI effectively control Auburn
Trace through the Joint Venture.
7.

The Trustee has recently learned that AMI has actively been negotiating a

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transaction with the City of Delray Beach, Florida by which the Auburn Trace Apartments would
be sold to another Auburn Communities affiliate, Village at the Park, Ltd. ("Village at the
Park"), an entity in which the Debtor has no ownership interest (the "Auburn Trace
Transaction").
8.

Thus, in substance, the Auburn Trace Transaction would result in stripping the

only income-producing asset out of Auburn Trace - the Estate being left with the company shell
only. The Auburn Trace Transaction is a clear violation of the automatic stay by an entity that is
a creditor in this case and, the Trustee submits, will be shown to be owned, in part, by the

9.

AMI's violation of the automatic stay can only be willful where: (1) AMI is

Debtor.

Debtor's employer; (2) AMI was owned by the Debtor until eight months prior to the Petition
Date and it is now owned by Debtor's son; and (3) AMI manages both Auburn Trace and Village
at the Parle To be clear, there is no colorable argument that AMI was unaware of the ownership
of impact of the Auburn Trace Transaction on the Debtor's Estate.

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PERTINENT AUTHORITY & REQUESTED RELIEF

10.

The Chapter 7 Trustee requests that the Court enter an order preventing AMI from

consummating the Auburn Trace Transaction, awarding sanctions against AMI (in the amount of
the professional fees and costs incurred in the investigation of the Auburn Trace Transaction and
prosecution of this Motion), and for such other relief as is necessary to prevent further
interference with Estate assets.
The foregoing relief is proper pursuant to 11 U.S.C. 362(a)(3) (precluding "any

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11.

act to obtain possession of property of the estate") and 11 U.S.C. 362(k) (permitting the Court
to award damages, attorneys' fees and costs). Moreover, the relief requested is authorized by 11
U.S.C. 105, by which bankruptcy comis may issue "any order, process, or judgment that is
necessary or appropriate to carry out the provisions" of the Bankruptcy Code. See also In re L &

S Indus., Inc., 989 F.2d 929, 932 (7th Cir. 1993) (stating that bankruptcy court has broad power
to enjoin proceedings that would impair the bankruptcy court's jurisdiction of bankruptcy case);
Otero Mills, Inc. v. Sec. Bank & T1yst (In re Otero Mills, Inc.), 21 B.R. 777, 778 (Bankr. D.N.M.

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1982) (recognizing that, when circumstances warrant, I 05 authorizes a bankruptcy comi to

extend operation of the automatic stay to ensure that a creditor or party in interest "may not do
indirectly that which he is forbidden to do directly").

WHEREFORE, NICOLE TESTA MEHDIPOUR, in her capacity as the Chapter 7

Trustee, respectfully requests that the Court enter an order:
(1)

Preventing the Auburn Trace Transaction from closing;

(2)

Enjoining AMI from any further efforts to sell, pledge or otherwise encumber any

asset of the Estate;

(3)

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Finding that the Chapter 7 Trustee is entitled to an award of her reasonable

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professional fees and costs as a sanction for AMI' s wrongful conduct and reserving ruling on the
amount of such fees; and
(4)

Granting such further relief as is deemed just and proper.

Dated this

23rd

day of May, 2014.

Respectfully submitted,
I HEREBY CERTIFY that I am admitted to the Bar of the United States District
Court for the Southern District of Florida, and I am in compliance with the
additional qualifications to practice in this Court set forth in Local Rule 2090-l(A).

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LAW OFFICE OF NICOLE TESTA MEHDIPOUR, P.A.

Co-Counsel for Chapter 7 Trustee

200 E. Broward Boulevard, Suite 1110
Fort Lauderdale, FL 33301
Telephone:
(954) 858-5880
Facsimile:
(954) 208-0888
Email: Nicole.Mehdipour~ntrnlawfirm.com
Email: Kimberlv.Salamone!Wntmlawfirm.com

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By: Isl Nicole Testa Mehdipour

Nicole Testa Mehdipour
Florida Bar No. 177271
Kimberly Salamone
Florida Bar No. 86560

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- and -

TRIPP SCOTT, P.A.

Michael C. Foster
Florida Bar No. 0042765
Co-Counsel for the Chapter 7 Trustee
110 Southeast Sixth Street
15th Floor
Fmi Lauderdale, Florida 33301
Telephone:
(954) 525-7500
Facsimile:
(954) 761-8475
E-Mail: mcff(/),trippscott.com, =~=-=-~=-=-===

UNITED STATES BANKRUPTCY COURT

SOUTHERN DISTRICT OF FLORIDA
(WEST PALM BEACH DIVISION)
www.flsb.uscourts.go\'

In re:

Case No. 11-33802-BKC-PGH

THOMAS G. HINNERS,

Chapter 7

Debtor.

DECLARATION OF MICHAEL A. BORKOWSKI, JI

I.

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Pursuant lo 28 U.S.C 1746(2), Michael A. Borkowski, II, states the following:

My name is Michael Borkowski; J am over the age of I 8 and I have personal

knowledge of the facts set forth in this Declaration.

2.

I am Florida Ce1iified Public Accountant, a Ce11ified Fraud Examiner, and a

Supervisor at the accounting firm of Ahearn

Jasco & Co. (the "Firm"). The Firm and I were

engaged to perfrmn ordinary and necessary accounting services required in connection with the
captioned bankruptcy case, by Order dated December 5, 2012.

J have evaluated certain assets listed on the Debtor's schedliles as part of the

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3.

services I have provided. That is, I have been asked to confirm Debtor's ownership of certain
assets, to consider whether such assets can be sold and, if salabk, the value of the assets.
4.

1 have reviewed the books and records of dozens of affiliated entities that together

form a business known as "Auburn Communities"

a developer of affordable housing. Debtor

is in part responsible for maintaining the accounting (and other) books and records for Auburn
Communities, including, the books and records of the entity that manages the group, Auburn

Management. Inc. ("AMJ"). 1 (AMI is a creditor in this case and Debtor's employer.) I have also
met with the Debtor, and perfrmned an independent review of publicly available sources (e.g.,
records maintained by the State of Florida at www.sunbiz.org).

These activities fom1 the

predicate for the facts I a11iculate below.

5.

Debtor was the founder of a nonprofit corporation called Florida Affordable

Housing, Inc. ("'FAH"), which was formed in 1987 as a developer of low income housing. The

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business of F AH evolved over time into what is now rcforred to as "Au bum Communities.''
Auburn Communities, by and through AMI. specializes in exploiting various programs (e.g.,
Florida's State Apartment Incentive Loan Program, or "SAi L'') that provide tax credits, low
interest financing and the like in support of affordable housing developments.
6.

Auburn Communities employs a complicated structure to take advantage of

various income streams flowing from a project.

In general tenns, each project Auburn

Communities develops is owned by a general pai1ner (typically an entity included within the
Auburn Communities umbrella), a limited partner, and in some cases a special limited partner.

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Additionally, these projects arc customarily developed by a separate affiliate entity under the

umbrella of the Auburn Communities organization and, after it is developed, they are managed
by AMI. Fees arc paid to these entities at various stages in the development process as well as
during the operational phases of the communities.
7.

Included among the assets J have evaluated, is a 99% limited partnership interest

that Debtor claims in an entity known as Auburn Trace. Ltd. ("Auburn Trace''). Auburn Trace
is an entity that was fonned lo own and operate a low income housing apartment complex
1

AMI was formed and originally owned 100% by the Debtor, but in 2004, Deblor transferred one half of
his ownership interest in AMI to his son, Brian Hinners. Eight (8) months prior to the Petition date, on or around
December 31, 2010, Debtor transferred his remaining 50')';, ownership interest to Brian Hinners. The Trustee ha~
sought to recover this interest by way of an adversary proceeding seeking to rccovc1 the transfer Mehdipour v.
Brian Hinners, Adv. Proc. No. 14-01207.

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located in Delray Beach, Florida, known as the Auburn Trace Apartments. Auburn trace is part
of the Auburn Communities Group,
8.

The l'r'o general partner of Auburn Trace is the "Auburn Trace Joint Venture,''

which is a joint venture between Florida Affordable I lousing, Inc. ("FAH'') and AMI. Pursuant
to the First Amendment to the Auburn Trace Restated Joint Venture Agreement dated April 27,
2006, FAH and AMI were named as co-managing partners, whereby either one of them was

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authorized to manage the affairs, activities, and business of Auburn Trace Joint Venture. As
such, FAH and AMI effectively control Auburn Trace through the Joint Venture.
9.

From my investigation, I have learned that AMI has been negotiating a

transaction with the City of Delray Beach, Florida by which the Auburn Trace Apartments would
be sold to another AMI alliliate, Village at the Park, Ltd. (''Village at the Park") (the ''Auburn
Trace Transaction"). Debtor has no ownership interest in Village at the Park as reflected by his
schedules. A true and co1Tect copy of a Memorandum of Understanding reflecting this proposed

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transaction is attached hereto as Exhibit "A."

The Auburn Trace Transaction would result in stripping the only mcomc

producing asset out of Auburn Trace

the Estate being left with the company shell only.

l declare under penalty of perjury that the foregoing is true and correct.
Executed on this

day of May, 2014.

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EXHIBIT A

MEMORANDUM OF UNDERSTANDING
THIS MEMORANDUM OF UNDERSTANDING ("Memorandum") is made and
entered into as of this _ _ day of March, 2014, by and between CITY OF DELRAY BEACH
("City"), a municipality located in Palm Beach County, Florida, acting by and through its
Department of Community Improvement ("DCI"), AUBURN TRACE, LTD., a Florida limited
pa1inership ("Seller"), and VILLA GE AT THE PARK, LTD., a Florida limited partnership
("Purchaser") with respect to the acquisition/rehabilitation of the Auburn Trace Apartments (the
"Apartments") and the modification of the Urban Development Action Grant (as defined herein)
in connection with such acquisition/rehabilitation.
1.

Background

2.

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The Seller received an Urban Development Action Grant from the City in the original
principal amount of $3,840,000 in the year 1989, the proceeds of which were used to develop
and construct the Auburn Trace Apartments in the City of Delray Beach, Palm Beach County,
Florida (the "Action Grant"). The Action Grant is evidenced and secured by that ce1iain
Promissory Note dated June 29, 1989, as amended by that certain Agreement to Revise Term and
Payment Schedule of $3,840,000 Note Dated June 29, 1989, and as further amended by that
ce1iain Amendment to Note, Motigage Modification and Subordination Agreement (collectively,
the "Note"), which Note bears interest at three percent (3%) per annum. As it currently stands,
all such outstanding principal and accrued interest is due on August 1, 2022.

Rehabilitation

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The Seller plans to sell the Apartments to Purchaser, for the purposes of the Purchaser
rehabilitating the Apaiiments. The rehabilitation is contemplated to be financed with proceeds
from a new issuance of tax-exempt bonds, private equity capital, and section 42 low-income
housing tax credits (the "Senior Financing"). Further, a part of the acquisition of the Apartments
requires the assumption of the Action Grant by the Purchaser, or a loan in a like amount to repay
the same. The rehabilitation project will consist of 152 low-income affordable housing units.
This will consist of 121 units restricted to families at, or below, 60% of the Area Median Income
("AMI"), 15 units restricted to families at, or below, 50% of the AMI, and 16 units restricted to
families at, or below, 30% of the AMI.

3.

Modification of the Urban Development Action Grant

The City consents to the sale of the Apatiments, and to the assumption of the Action
Grant obligations by the Purchaser, subject to the following terms:
(a)

At the closing of the sale of the Apatiments (the "Closing"), the Seller shall make
an advance principal payment to City in the amount of One Million and Fifty
Thousand Dollars ($1,050,000); and

(b)

At the Closing, City shall extend the te1m of the Action Grant so that the maturity
of the Action Grant is set for seventeen (17) years from the date of Closing; and
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At the Closing, City shall modify the terms of the Action Grant so that the Action
Grant will accrue interest at an annual rate of three percent (3%) during the entire
seventeen (17) year loan period; and

(d)

At the Closing, City shall modify the terms of the Action Grant so that the Action
Grant will generate principal and interest payments to be made payable
commencing on the eighth (8th) anniversary date of the Closing, and made
annually thereafter, in an amount equal to the remaining cash flow generated from
the Apartments after the required payments of the tax-exempt bond obligations
and deferred developer fee; and

(e)

At the Closing, City shall modify the terms of the Action Grant so that the Action
Grant will mature seventeen (17) years from the date of Closing, at which time all
remaining and unpaid principal and accrued interest shall become due and owed
to City; and

(f)

At the Closing, City shall subordinate the Action Grant so that City holds a junior
second mortgage lien and security interest in the Apartments (and all
improvements, fixtures, and appurtenances thereto), with the acknowledgement
that the senior first mortgage lien and security interest is held by Florida Housing
Finance Corporation or the Palm Beach County Housing Finance Authority as
issuer of the tax-exempt bonds; and

(g)

At the Closing, Purchaser shall assume the Action Grant, which will have a
principal balance of approximately $3, 168, 789 (including the balance of any
accrued interest);

(h)

City hereby agrees that the Action Grant shall remain a non-recourse debt
obligation, and is not a recourse debt obligation of any partner of Purchaser;

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(i)

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(c)

City hereby agrees that Purchaser maintains the right and authority to admit or
remove partners of the partnership, and the right and authority of partners of
Purchaser to transfer and assign their partnership interests;

U)

Purchaser hereby agrees to a twenty-five percent (25%) minority participation

goal;

(k)

Purchaser hereby agrees to a thitty percent (30%) Delray Beach contractor base;
and

(1)

All parties agree to cooperate and execute any and all other documents reasonably
necessary to accomplish the foregoing, and as otherwise necessary to facilitate the
Senior Financing.

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4.

Miscellaneous

This Memorandum reflects the entire understanding between the parties, and may only be
amended in writing, signed by the affected parties. This Memorandum is not merely an
"agreement to agree;" but rather, this Memorandum is a legally binding contract. The parties
agree to execute such documents, and do such things, as may be necessary or appropriate to
facilitate the rehabilitation of the Apartments and the consummation of the agreement herein.
This Memorandum may be executed in several counterparts, each of which shall be deemed to be
an original copy, and all of which together shall constitute one agreement binding on all parties
hereto, notwithstanding that all the parties shall not have signed the same counterpart.

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THIS MEMORANDUM SHALL BE GOVERNED AND CONSTRUED IN

ACCORDANCE WITH THE LAWS OF THE STATE OF FLORIDA, EXCLUSIVE OF
CONFLICT OF LAWS PRINCIPLES.
In case any one, or more, of the provisions contained in this Memorandum (for any
reason) are held to be invalid, illegal, or unenforceable in any respect, such invalidity, illegality,
or unenforceability, such determination of invalid, illegal, or unenforceable will not affect any
other provision hereof, and this Memorandum will be construed as if such invalid, illegal, or
unenforceable provision had never been contained herein.
The parties hereto submit exclusively to the jurisdiction of the state and federal comis of
Palm Beach County, Florida, and venue for any cause of action arising hereunder shall lie
exclusively in the state and federal courts of Palm Beach County, Florida.

Should any party employ an attorney, or attorneys, to enforce any of the provisions
hereof, to protect its interest in any manner arising under this Memorandum, or to recover
damages for the breach of this Memorandum, the non-prevailing patiy in any action pursued in
comis of competent jurisdiction (the finality of which is not legally contested) agrees to pay to
the prevailing party for all reasonable costs, damages and expenses, including specifically, but
without implied limitation, attorneys' fees expended or incurred by the prevailing patiy in
connection therewith.

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IN WITNESS WHEREOF, the parties hereto have executed this Memorandum as of

this _ _ day of March, 2014, by a duly authorized representative, to be effective as of March

_,2014.

AUBURN TRACE, LTD., a Florida limited partnership

By: Auburn Trace Joint Venture, a Florida general
partnership, its general partner

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By: Auburn Management, Inc., a Florida

corporation, its sole member

Brian J. Hinners, President

VILLAGE AT THE PARK, LTD., a Florida limited

partnership
By: Village at the Park GP, LLC, a Florida limited
liability company, its general pa11ner

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By: Florida Affordable Housing, Inc., a Florida

not-for-profit corporation, its sole member

Brian J. Hinners, Chief Executive Officer

CITY OF DELRAY BEACH, a municipality in Palm

Beach County, State of Florida

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