Prior to filing this Chapter 11, Debtor entered into a Loan Agreement with Sabra Phoenix Wisconsin, LLC. The loan provided the Debtor with financing necessary for the completion of a construction project. Simultaneously with the Loan Agreement, Debtor and Sabra Phoenix entered into an Option Agreement. Debtor subsequently filed in bankruptcy and Sabra filed a proof of claim for $17,773,438.77, which included damages for Debtor's alleged breach of the Option Agreement. The Debtor objected to the claim insofar as it sought damages related to the Option. The Court granted Debtor's objection and determined that Sabra was not entitled to a claim for breach of the Option Agreement. In so holding, the Court found that the Option served as additional security for the Loan Agreement, that there was insufficient consideration in the transaction, that the Option impermissibly clogged Weston's right of redemption of its mortgage, and that the Option Agreement was unconscionable.
11 U.S.C. § 502 -- Allowance of Claims or Interests
Clogging the Right of Redemption