Andrews v. RBL, L.L.C. (In re Vista Bella, Inc.), Case No.: 11-00149-MAM-7

• Decision Date: 09 August 2013
• Docket Number: Case No.: 11-00149-MAM-7,Adv. Proc. No.: 12-00060-MAM
• Citation: Andrews v. RBL, L.L.C. (In re Vista Bella, Inc.), Adv. Proc. No.: 12-00060-MAM, Case No.: 11-00149-MAM-7 (Bankr. S.D. Ala. Aug 09, 2013)
• Parties: In re: VISTA BELLA, INC., Debtor. LYNN HARWELL ANDREWS, Trustee, v. RBL, L.L.C., ROBERT W. SHALLOW, SUSAN SHALLOW, and RONALD H. CARR, Defendants.
• Court: U.S. Bankruptcy Court — Southern District of Alabama

In re: VISTA BELLA, INC., Debtor.LYNN HARWELL ANDREWS, Trustee,

v. RBL, L.L.C., ROBERT W. SHALLOW, SUSAN SHALLOW,and RONALD H. CARR, Defendants.

Case No.: 11-00149-MAM-7

Adv. Proc. No.: 12-00060-MAM

UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF ALABAMA MOBILE DIVISION

Dated: August 9, 2013

ORDER DENYING THE DEFENDANTS' MOTION TO RECONSIDER AND

GRANTING IN PART AND DENYING IN PART THE DEFENDANTS' MOTION FOR

PARTIAL SUMMARY JUDGMENT

William M. Lyon, Jr., Attorney for the Trustee, Mobile, Alabama

Lynn Harwell Andrews, Chapter 7 Trustee, Mobile, Alabama

Mark H. Taupeka and Max Cassady, Attorneys for the Defendants, Fairhope, Alabama

At issue are the Defendants' motions to reconsider and for partial summary judgment. The Trustee's opposes the relief requested in both motions. This court has jurisdiction to hear and finally decide these matters pursuant to 28 U.S.C. § 157 and 1334 and the Order of Reference of the District Court. For the reasons detailed below, the Defendants' motion to reconsider is GRANTED and the Defendants' motion for partial summary judgment is GRANTED in part and DENIED in part.

FACTS

On June 4, 2013, this court entered an opinion granting in part and denying in part cross-motions for partial summary judgment filed by the parties. See In re Vista Bella, 2013 WL2422703 (Bankr. S.D. Ala. June 4, 2013); Doc. 114 and 115. In it, the court considered five fraudulent transfers alleged by the Trustee. The facts included in that opinion are incorporated here by reference.

The following facts are also relevant to the motions currently before the court. On October 27, 2005, the transactions which culminated in the creation of the Vista Bella condominium development took place. Among other documents, Vista Bella Inc. and AmSouth Bank executed a Loan Agreement; an Assignment of Leases, Rents, and Income; a Mortgage and Security Agreement; and an Assignment of Contract Rights and General Intangibles (collectively, the "Loan Documents"). The Loan Agreement contemplated the individual sale of the condominiums comprising the Vista Bella development and in section 3.14 assigned Vista Bella's "rights and privileges under any and all Purchase Agreements" to AmSouth as security for the loan. In pertinent part, section 3.14 stated:

Assignment of Purchase Agreements. All of [Vista Bella's] rights and privileges under any and all Purchase Agreements . . . including but not limited to [Vista Bella's] rights with respect to any and all earnest money deposits . . . relating to the sale of any individual condominium unit, shall be, and hereby are, assigned to [AmSouth Bank] as additional collateral and security for the Loan. [Vista Bella] shall punctually perform, satisfy and comply with all conditions, covenants, terms and provisions to be performed, satisfied and/or complied with by [Vista Bella] . . . . Further, [Vista Bella] shall not make, suffer, permit or consent to any modification or termination of any such Purchase Agreement, nor enter into any future Purchase Agreement for the sale of any portion of the Premises, except for the sale of individual condominium units upon the form of Purchase Agreement approved by [AmSouth Bank] and for a purchase price at least equal to the applicable minimum purchase price set forth in Exhibit "C" attached hereto and incorporated by reference, without the prior written consent of [AmSouth Bank].

Section 3.20 of the Loan Agreement discusses Purchase Agreements. It explains that "[e]ach Purchase Agreement shall be upon the form of agreement approved by [AmSouth], withoutalteration or amendment except as approved by [AmSouth] in writing, and shall have a purchase price equal to or greater than the minimum purchase price . . . unless [AmSouth] shall have approved in writing a lower purchase price." The applicable release price for Vista Bella Unit PH-1 contained in Exhibit C of the Loan Agreement was $1,820,000. There is no evidence that AmSouth ever approved, in writing or otherwise, the sale of Unit PH-1 at a price lower than the $1,820,000 minimum release price. Similarly, at section 3.16, the Loan Agreement details the circumstances in which AmSouth would execute a partial release of the individual condominiums in order to facilitate sales of those condominiums. That section reiterates that a release price would need to be paid to AmSouth in order for AmSouth to release a condominium.

The Mortgage and Security Agreement (the "Mortgage") granted AmSouth Bank a security interest, with an associated power of sale, in the Vista Bella development property and other related assets of the Debtor. The following "Rents and Accounts" were included as "Mortgaged Property":

All rents, royalties, issues, profits, revenues, income, accounts, accounts receivable, contract rights, general and tangibles (sic), instruments, chattel paper and any and all rights of [Vista Bella] of any nature whatsoever to the payment of money, whether now existing or hereafter arising, by reason of or arising from or in connection with the use, occupancy or operation of the Mortgaged Property or any part thereof or the operation of any business enterprise thereon, together with all proceeds and products thereof, and further including without limitation all right title and interest of [Vista Bella], as seller, under any and all agreement for the sale of all or any portion of the Mortgaged Property now existing or hereafter entered into, including but not limited to any such contracts for the sale of condominium units hereafter constructed upon the Mortgaged Property, together with Mortgagor's rights and interest in the earnest money deposits made or to be made pursuant to such agreement.

All of AmSouth Bank's interests in the Mortgaged Property, including in the Rents and Accounts, would be extinguished after Vista Bella successfully satisfied the balance of the Noteand complied with the terms mandated by the Loan Documents. Section 1.07 of the Mortgage "creates a security interest in all that property (and the proceeds thereof) included in the Mortgaged Property which might otherwise be deemed 'personal property.'"

The Mortgage also included, at section 1.03, a provision entitled "Assignment of Rents, Accounts, Etc." It purported to "absolutely, presently, and unconditionally" assign the Rents and Accounts to AmSouth, but allowed Vista Bella to collect those Rents and Accounts so long as no Event of Default occurred. After an Event of Default, AmSouth was entitled to direct all "lessees, occupancy tenants, and account debtors of the Mortgaged Property" to pay to AmSouth "all amounts due [Vista Bella] pursuant to their respective leases, occupancy agreements, accounts or other agreements," provided that AmSouth sent written notice of the Event of Default to those persons. In that circumstance, "all persons [were] expressly relieved of any and all duty, liability or obligation to [Vista Bella] in respect of all payments so made." There is no evidence before the court that AmSouth ever sent the Shallows any written notice of default.

Section 1.04(C) of the Mortgage allowed Vista Bella to enter into contracts to sell condominium units for not less than the minimum approved sales price as detailed in the Loan Agreement and upon the terms of pre-approved Purchase Agreements. It is undisputed that an Event of Default occurred with regard to the sale of Unit PH-1 because it was sold for less than the minimum release price detailed in the Loan Agreement. The Debtor likewise did not remit the proceeds of the sale to AmSouth Bank. Section 1.09 of the Mortgage, entitled "No Secondary Financing," prohibited Vista Bella from creating or permitting a lien to encumber the Mortgaged Property without prior written consent of AmSouth Bank. It is undisputed that the Debtor did not obtain the written permission of AmSouth or its successors in interest to encumber Vista Bella Unit PH-1 with the vendor's lien.

The Assignment of Contract Rights and General Intangibles, executed on October 27, 2005 contemporaneously with the Loan Agreement and Mortgage, states:

[Vista Bella] hereby grants a security interest in, transfers and assigns unto [AmSouth Bank], its successors and assigns, all of [Vista Bella's] rights, title, interests, privileges, and powers (whether now existing or hereafter arising) in, to, under and with respect to (1) all agreements and contracts between [Vista Bella] and the Escrow Agent pertaining in any way to the Vista Bella condominium development and (2) the Purchase Agreements and the monetary deposits made and to be made by purchasers under the Purchase Agreements as well as all of [Vista Bella's] right, title and interest with respect to any and all letters of credit . . . given and to be given by purchasers under said Purchase Agreements in lieu of monetary deposits, including without limitation [Vista Bella's] right to receive the proceeds from any Letter of Credit . . ., including without limitation [Vista Bella's] right to receive the Escrow Deposits and [Vista Bella's] right to require Escrow Agent to draw upon a letter of credit given in lieu of a monetary deposit upon a default by a purchaser under his or her Purchase Agreement . . . for the purpose of providing additional security . . . .

In addition to Vista Bella, Inc. and AmSouth Bank, the Assignment of Contract Rights and General Intangibles included Ocean Shores, Inc. d/b/a RE/MAX Paradise as a party to the agreement as "Escrow Agent." RE/MAX Paradise is owned and operated by Robert Shallow.

On June 2, 2006, Curtis Wilson, on behalf of the Vista Bella, executed a Preconstruction Purchase and Escrow Agreement with Robert Shallow for the purchase of Vista Bella Unit PH-1. It patently states that the Shallows paid $1,000,000 to the Debtor for Unit PH-1 as an earnest money cash deposit and that $350,000 remained due at closing. On July 18, 2007, Unit PH-1 was conveyed to Robert and Susan Shallow (collectively, the "Shallows"). As part of the conveyance,...