Toledo, In re, 97-5517
| Decision Date | 02 April 1999 |
| Docket Number | No. 97-5517,97-5517 |
| Citation | 170 F.3d 1340 |
| Parties | , Bankr. L. Rep. P 77,914, 12 Fla. L. Weekly Fed. C 647 In re: Orlando TOLEDO and Maria Toledo, Debtors. Continental National Bank of Miami, a national banking corporation, Plaintiff-Appellant, v. Carmen Sanchez, Defendant-Appellee. |
| Court | U.S. Court of Appeals — Eleventh Circuit |
Elliot H. Scherker, Greenberg, Traurig, Hoffman, et al., Stephen Mendelsohn, Miami, FL, for Plaintiff-Appellant.
Stormie Stafford, Castillo, Stafford & Wald, Coral Gables, FL, for Defendant-Appellee.
Appeal from the United States District Court for the Southern District of Florida.
Before ANDERSON and DUBINA, Circuit Judges, and FAY, Senior Circuit Judge.
Carmen Sanchez filed the instant adversary proceeding against the trustee of the bankruptcy estate ("Estate") of Orlando and Maria Toledo, the debtors themselves, and the Continental National Bank of Miami ("Bank"). The bankruptcy court invalidated the Bank's mortgage on real estate owned by a partnership of which the debtors and Sanchez were the partners. The district court affirmed the bankruptcy court, applying the deferential standards of review applicable to "core" proceedings under the Bankruptcy Code. 1 The Bank appeals. The issues presented for review are (i) whether the bankruptcy court had jurisdiction to hear this adversary proceeding, and (ii) if so, whether the district court was correct in treating it as a core proceeding rather than as a non-core proceeding requiring de novo, plenary review. For the reasons stated below, we hold that the bankruptcy court had jurisdiction, but that this was a non-core matter necessitating plenary review by the district court.
In 1988, Orlando and Maria Toledo, debtors in the underlying bankruptcy case, formed a partnership with Tomas and Carmen Sanchez called the Latin Quarter Center Partnership ("Partnership"). Each of the four partners held an equal one-fourth share. The purpose of the partnership was to hold, develop, and deal in certain contiguous parcels of real estate in downtown Miami ("Partnership Property"). No formal partnership agreement was ever entered into, but Orlando Toledo, acting alone, generally managed and acted on behalf of the partnership. Shortly after the Partnership came into being, Tomas Sanchez died, and his wife Carmen Sanchez (plaintiff in the instant adversary proceeding) succeeded to his 25% share, so that she then owned a total 50% interest in the Partnership. Orlando Toledo continued to act as managing partner and Carmen Sanchez was uninvolved in Partnership affairs.
In April of 1989, Orlando Toledo encountered personal financial difficulties. In order to assuage the Bank's concern about its position as one of his creditors and to induce it not to foreclose on a mortgage it held on his Key Biscayne personal residence, Toledo purported to convey a mortgage on the Partnership Property to the Bank to secure Toledo's personal indebtedness to the Bank in the approximate amount of $1,100,000. This was done without Sanchez' consent or knowledge. In taking this action, Toledo claimed to be acting in the capacity of a general partner as an agent for the Partnership. If the mortgage was valid, the Partnership Property thereby became a guarantee for Toledo's personal debt. Toledo also convinced McDonald's Corp., which had a $275,000 pre-existing purchase money mortgage on the Partnership Property, to subordinate its mortgage to the one newly granted to the Bank.
Orlando Toledo's financial outlook did not improve, and the Bank eventually obtained a judgment of foreclosure on both the Partnership Property and Toledo's Key Biscayne personal residence (which secured the same indebtedness) in Dade County circuit court in November 1992. Despite her status as 50% partner, Sanchez was not served with the notice of foreclosure and therefore was not a party to these Florida state court proceedings; the Bank apparently relied on Florida law allowing service on a partnership to be effected by serving a single general partner. The circuit court rendering the foreclosure judgment held that Toledo's residence would be sold first, and if the debt to the Bank (now, including interest, real estate taxes, and subsequent advances, at some $1.8 million) was still unsatisfied thereafter, it would schedule sale of the Partnership Property. On January 11, 1993, the day before the scheduled foreclosure sale of the Key Biscayne residence, Orlando and Maria Toledo filed for Chapter 11 and thereby averted the sale.
Soon after the commencement of the bankruptcy case, a private sale of the Partnership Property to McDonald's Corp. was negotiated by Toledo, the Estate, and the Bank under supervision of the bankruptcy court. The terms of this sale, which the record indicates were favorable to the sellers, were that McDonald's Corp. would purchase the Partnership Property for an agreed sale price of $825,000. Of that $825,000, approximately $474,000 would go to satisfy amounts due under McDonald's Corp.'s purchase money mortgage (plus past real estate taxes paid by McDonald's and other costs), and about $351,000 would go to the Bank and/or the Partnership. 2 The parties, apparently assuming that the bankruptcy court's stamp of approval was necessary in order to consummate the sale, applied to the court for approval even though the Partnership Property was not property of the Estate. Acting under purported authority of 11 U.S.C. § 363(f), Judge Weaver approved the sale in an order dated April 12, 1993 (and modified in respects not material on June 4, 1993). 3 In that same sale order, Judge Weaver directed that of the proceeds of the sale of the Partnership Property, $200,000 be disbursed to the Bank in satisfaction of its mortgage. 4 The sale was carried out and the Bank was so paid. Sanchez, as a 50% partner, consented to the terms of sale but asked that the proceeds be placed in escrow rather than being distributed immediately; Judge Weaver refused to consider the escrow proposal because Sanchez' counsel filed a pleading by facsimile transmission rather than appearing personally in court. Later, Sanchez signed a closing statement reflecting that the proceeds would be distributed in accordance with the sale order.
Meanwhile, Sanchez filed the instant adversary complaint in the bankruptcy court against the trustee of the Estate, the debtors themselves, and the Bank (i) to determine entitlement to the proceeds of the sale of the Partnership Property to McDonald's Corp., and (ii) to contest the validity of the Bank's lien (formerly on the Partnership Property, and now on $200,000 of the proceeds therefrom). The action was styled as a "Complaint to Determine Validity, Priority, and Extent of Lien and Ownership Interest." After four evidentiary hearings in which extensive testimony was taken from Orlando Toledo, employees of the Bank, and others, Judge Cristol of the bankruptcy court accepted Sanchez' argument and ordered that (i) the Bank had had no valid lien on the Partnership Property because it knew Toledo was conveying the mortgage for improper, non-partnership purposes, and (ii) the Bank must pay to Sanchez the $200,000 it had previously received from the sale of the Partnership Property. 5 The bankruptcy court noted that it had jurisdiction under 28 U.S.C. § 1334, but never specifically confronted the question whether the adversary proceeding was core or non-core under 28 U.S.C. § 157. By issuing an order that purported to be final and binding, rather than submitting proposed findings of fact and conclusions of law to the district court, the bankruptcy court indicated that it viewed the proceeding as a core one of which it had full, plenary authority to dispose.
Appealing to the district court, the Bank argued that (i) the bankruptcy court lacked subject matter jurisdiction to hear the adversary proceeding filed by Sanchez; (ii) the bankruptcy court erred in finding that the Bank knew Toledo lacked authority to mortgage the Partnership Property for personal purposes; and (iii) the doctrines of waiver or estoppel should have precluded the bankruptcy court from granting Sanchez relief. The district court held that the bankruptcy court had subject matter jurisdiction and that the matter was a core matter. It then found, applying the "clearly erroneous" standard of review to the bankruptcy court's fact findings (the appropriate standard of review for bankruptcy court orders regarding core matters), that Toledo lacked authority to mortgage the Partnership Property for his personal purposes, and that the Bank was aware thereof. The district court also held that the bankruptcy court did not abuse its discretion by not applying the doctrines of waiver or estoppel to bar relief invalidating the Bank's mortgage. Consequently, the district court affirmed the bankruptcy court's judgment.
On appeal to this court, the Bank argues first that the bankruptcy court lacked jurisdiction to entertain the adversary proceeding under 28 U.S.C. § 1334. Second, it argues that, even if the bankruptcy court had jurisdiction, such jurisdiction was in the nature of a non-core proceeding limiting the bankruptcy court's adjudicative powers. Third, the Bank reiterates its various substantive arguments as to why the bankruptcy court erred in its determination of the merits under Florida law; however, in light of our conclusion that this was a non-core proceeding, it is unnecessary for us to reach those issues.
The first question is whether the bankruptcy court had jurisdiction to entertain the instant adversary proceeding under 28 U.S.C. § 1334. Section 1334(b) provides that "the district courts shall have original but not exclusive jurisdiction of all civil proceedings arising under title 11, or arising in or related to cases under title 11." This provision creates jurisdiction in three...
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