Branch Banking & Trust Co. v. Kraz, LLC (In re Kraz, LLC)
| Decision Date | 10 August 2020 |
| Docket Number | Bankr. No. 8:15-bk-7039-MGW,Case No. 8:17-cv-1555-T-27 |
| Citation | 626 B.R. 432 |
| Parties | IN RE: KRAZ, LLC, Debtor. Branch Banking and Trust Company, Appellant, v. Kraz, LLC, Appellee. |
| Court | U.S. District Court — Middle District of Florida |
Stephen R. Leslie, Mark F. Robens, Stichter, Riedel, Blain & Postler, P.A., Tampa, FL, for Debtor.
BEFORE THE COURT is Appellant Branch Banking and Trust Company's appeal of the Bankruptcy Court's Final Judgment in an adversary proceeding (8:15-ap-655-MGW). Upon consideration, the Bankruptcy Court's Final Judgment is VACATED , and the matter is REMANDED for proceedings consistent with this order.
The bankruptcy court outlined the relevant facts, which are largely undisputed. In 2006, Colonial Bank loaned Appellee Kraz, LLC (Kraz) the principal amount of $5,182,280 secured by a mortgage on real property used by Kraz for a commercial self-storage business. (Dkt. 14-377 at p. 4; Dkt. 16-261 at p. 2; Dkt. 16-262 at p. 2).1 The loan initially required monthly payments of interest, then monthly payments of principal and interest, and finally a balloon payment on the maturity date. (Dkt. 14-377 at p. 4; Dkt. 16-261 at p. 3).
Kraz made timely monthly payments until Colonial Bank declared it to be in default in July 2009. (Dkt. 14-377 at p. 4 & n.5). Shortly thereafter, Colonial Bank failed, and the Federal Deposit Insurance Corporation (FDIC) took over its assets. (Id. at p. 4). In August 2009, Appellant Branch Banking and Trust Company (BB&T) purchased Colonial Bank's assets, including the loan to Kraz, through a Purchase and Assumption Agreement with the FDIC. (Id. at pp. 4-5; Dkt. 14-159). The Purchase and Assumption Agreement included a shared loss agreement by which the FDIC guaranteed BB&T a percentage of any losses incurred from the failed bank's loans. (Dkt. 14-377 at p. 5; Dkt. 14-159 at pp. 100-123).
BB&T "charged off" $1.8 million of Kraz' loan, triggering reimbursement from the FDIC, and initiated a state foreclosure action against Kraz in 2010. (Dkt. 14-377 at p. 8). In 2012, the state court entered final judgment in Kraz' favor, determining that Colonial Bank had improperly demanded that Kraz make curtailment payments and that BB&T had declared a "fraudulent default." (Dkt. 13-304 at pp. 3-4). The state court final judgment reinstated the loan nunc pro tunc to June 30, 2009, extended the maturity date fourteen months from the effective date of the order, and directed Kraz to resume loan payments after the parties agreed to a new payment schedule.
(Id. at pp. 5-6). As for interest on the loan, the court explained, (Id. at p. 5). BB&T appealed the final judgment, which was affirmed in all pertinent respects. Branch Banking and Trust Co. v. Kraz, LLC , 114 So. 3d 273 (Fla. 2d DCA 2013).2 Kraz made the required monthly payments.3 (Dkt. 14-377 at p. 11).
Between October 2012 and December 2014, Kraz requested and received from BB&T four estoppel letters that included payoff information.4 (Dkts. 13-348, 13-349, 13-350, 13-309). BB&T has not appealed the bankruptcy court's finding that the estoppel letters overstated the loan balance by including accrued interest and attorney's fees. (Dkt. 20 at p. 18). The bankruptcy court noted that the December 2014 letter included an outstanding loan amount of $6,938,227.27, which was $2.1 million more than BB&T had previously stated Kraz owed. (Dkt. 14-377 at p. 12).
In October 2014, iStorage expressed interest in purchasing the property from Kraz in letters of intent, eventually transmitting a $5,200,000 purchase offer. (Dkt. 14-377 at pp. 11-13; Dkt. 14-13). As discussed below, the bankruptcy court found that BB&T's failure to provide an accurate estoppel letter prevented the sale to iStorage from closing. (Dkt. 14-377 at p. 13).5 On the loan's maturity date in April 2015, Kraz failed to tender the balloon payment. (Id. at p. 14).
BB&T filed a foreclosure action against Kraz in the Middle District of Florida, which has since been dismissed. Branch Banking and Trust Co. v. Kraz, LLC , 8:15-cv-1042-T-17AEP, ECF: 1, 35. Approximately two months later, Kraz filed a Petition under Chapter 11 of the Bankruptcy Code. In re Kraz, LLC , 8:15-bk-7039-MGW, ECF: 1 (Bankr. M.D. Fla. July 7, 2015). Kraz also filed a complaint in an adversary proceeding that, as amended, objected to BB&T's proof of claim and brought claims against BB&T for breach of contract, breach of the covenant of good faith and fair dealing, and several torts.
Kraz, LLC v. Branch Banking and Trust Co. , 8:15-ap-655-MGW, ECF 73 (Bankr. M.D. Fla. Feb 24, 2016).6
In October 2015, the bankruptcy court entered a Memorandum Opinion on Amount of Claim, finding that the principal amount of BB&T's claim was $4,754,860.26 and that BB&T was not entitled to accrued interest from June 30, 2009 through April 28, 2015 or attorney's fees incurred from the state court final judgment through the petition date. (Dkt. 16-45 at pp. 6-7, 10-11, 14); see also In re Kraz, LLC , 539 B.R. 887 (Bankr. M.D. Fla. 2015). The remaining questions for trial were whether BB&T was entitled to default interest following the loan's maturity on April 28, 2015, reimbursement of property taxes it paid on behalf of Kraz, and whether Kraz was entitled to damages on its claims in the adversary proceeding. (Dkt. 14-377 at pp. 15-16).
In its Findings of Fact and Conclusions of Law following trial, the bankruptcy court determined that BB&T was not entitled to post-maturity default interest because, by providing an inaccurate estoppel letter, it prevented Kraz from tendering the balloon payment on the maturity date. (Id. at p. 16). The bankruptcy court further found that Kraz' breach of contract claim was necessarily resolved by BB&T's proof of claim, entered judgment in Kraz' favor on the basis that failure to provide an accurate estoppel letter constituted a breach of the contract, awarded $1,180,000 in damages to Kraz, and reduced the amount awarded to BB&T accordingly. (Id. at pp. 17, 32-34, 38). The bankruptcy court also determined that BB&T was not entitled to be reimbursed for the real property taxes it paid on behalf of Kraz, based on insufficient evidence and res judicata, that judgment in BB&T's favor on all of Kraz' remaining claims was appropriate, and that punitive damages were unwarranted. (Id. at pp. 28-32, 35-36).
The bankruptcy court entered final judgment on all claims in the adversary proceeding. (Dkt. 1 at pp. 4-5). BB&T appeals the bankruptcy court's determination of the amount of its claim against Kraz, specifically the decision not to include post-maturity default interest and the failure to award reimbursement of the paid property taxes. (Dkt. 20). BB&T also appeals the judgment in favor of Kraz on its breach of contract claim.7
Bankruptcy courts have statutory authority to determine core proceedings arising under Title 11. See 28 U.S.C. § 157(b)(1) ; see also Stern v. Marshall , 564 U.S. 462, 468, 131 S.Ct. 2594, 180 L.Ed.2d 475 (2011). In non-core proceedings related to a case under Title 11, a bankruptcy court submits proposed findings of fact and conclusions of law to the district court, which may then enter final judgment after conducting a de novo review of matters objected to. § 157(c)(1).
District courts have jurisdiction to hear appeals from final judgments, orders, and decrees of the bankruptcy courts. § 158(a)(1). A district court reviews the bankruptcy court's factual findings for clear error and its legal conclusions and mixed questions of law and fact de novo. In re Cox , 493 F.3d 1336, 1340 n.9 (11th Cir. 2007) (citation omitted).
In summary, because BB&T's inaccurate estoppel letter did not modify Kraz' contractual obligation to pay post-maturity default interest and Kraz never tendered the balloon payment to BB&T, the bankruptcy court erred in denying this part of BB&T's claim. Second, the bankruptcy court erred in finding that res judicata barred BB&T's claim for reimbursement of property taxes it advanced on behalf of Kraz. Finally, the bankruptcy court lacked authority to enter final judgment on Kraz' breach of contract claim.
In denying BB&T post-maturity default interest, the bankruptcy court found that BB&T's inaccurate estoppel letter prevented Kraz from selling its property and tendering the balloon payment at maturity. The court noted that in Florida, the "refusal to accept a proper tender will prevent the collection of interest because the failure to receive payment is due to the promisee's own action." (Dkt. 14-377 at p. 19). According to the bankruptcy court, since BB&T did not receive the balloon payment because of its own action in providing an inaccurate estoppel letter, it was likewise not entitled to post-maturity interest. (Id. at pp. 19-21). The bankruptcy court reasoned, (Dkt. 14-377 at p. 20). While the bankruptcy court acknowledged that "failure to provide an accurate estoppel letter does not discharge the payment of interest," it opined that "where a lender's refusal to provide an accurate estoppel letter prevents a borrower from tendering a balloon payment is a different story." (Id. at p. 21).
BB&T contends that this reasoning conflates a refusal to accept tender with the obligation of a lender to provide an estoppel letter under Florida Statute § 701.04. It points out that Kraz never made a tender and argues that "[e]quitable protestations and allegations do not affect [its] contractual right" to post-maturity interest under the...
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