CPIF Lending, LLC v. Westport Holdings Tampa, LP (In re Westport Holdings Tampa, LP)
| Decision Date | 28 June 2019 |
| Docket Number | Bankr. No. 8:16-bk-8167,Case No. 8:18-cv-1221-T-33 |
| Citation | 604 B.R. 82 |
| Parties | IN RE: WESTPORT HOLDINGS TAMPA, LP, Debtor. CPIF Lending, LLC, Creditor/Appellant, v. Westport Holdings Tampa, LP, Westport Holdings Tampa II, LP, Official Committee of Resident Creditors, and Jeffrey Warren, Debtors/Appellees. |
| Court | U.S. District Court — Middle District of Florida |
Elliot M. Smith, Mark A. Salzberg, Squire Patton Boggs (US) LLP, Cleveland, OH, Traci H. Rollins, Gunster, West Palm Beach, FL, for Creditor/Appellant.
Matthew Blake Hale, Scott Alan Stichter, Stitcher, Riedel, Blain & Postler, P.A., David Samuel Jennis, Jennis Law Firm, Adam Lawton Alpert, Laura Labbee, Bush Ross, PA, Karen Schmid Cox, Appleton Reiss & Skorewicz, Tampa, FL, for Debtors/Appellees.
In the context of a Chapter 11 bankruptcy proceeding, Appellant CPIF Lending, LLC appeals the Bankruptcy Court's order confirming a joint plan of liquidation and order valuing CPIF's collateral. The appeal is fully briefed and, as discussed below, the Court affirms both orders.
University Village is a continuing care retirement community located in Tampa, Florida. (Doc. # 7 at 9). University Village is comprised of independent living apartments and villas (Independent Living Facility) and an assisted living and skilled nursing facility (Health Center). (Doc. # 11 at 7). Independent Living Facility is owned by Westport Holdings Tampa, LP (Westport I) and Westport Holdings Tampa II, LP (collectively, Debtors), both of which are debtors in the underlying bankruptcy proceeding. (Doc. # 7 at 9). Health Center is owned by Westport Nursing Tampa, LLC, which is not a debtor in the underlying bankruptcy proceeding. (Id. ). A full history of these entities' corporate structure is unnecessary, but suffice it to say that Westport Nursing used to be a wholly-owned subsidiary of Westport I. (Doc. # 11 at 8). Westport I's transfer of its ownership interest in Westport Nursing – and thus, Health Center – eventually led to proceedings by the Florida Department of Financial Services. (Id. ).
On September 22, 2016, Debtors filed voluntary petitions for relief under Chapter 11 of the Bankruptcy Code. (Id. ). Shortly thereafter, the United States Trustee appointed the Official Committee of Resident Creditors (Resident Committee) to represent the interests of Independent Living Facility's residents. (Id. at 9). CPIF, one of Debtors' creditors, filed a secured claim in the amount of $9,781,224.58 based on a $9.5 million loan from CPIF in favor Debtors. (Id. at 10). The loan was secured by a lien on all of Debtors' assets, including Independent Living Facility and any cash collateral generated by Independent Living Facility. (Doc. # 7 at 11). CPIF's secured claim was subject to objections and an adversary proceeding, which remained pending before the Bankruptcy Court when this appeal was filed. (Doc. # 11 at 10). Throughout the bankruptcy proceedings, the Bankruptcy Court entered numerous orders permitting Debtors' use of cash collateral. The cash collateral orders provided that CPIF's "cash collateral," as "defined in Section 363(a) of the Bankruptcy Code," would receive adequate protection against any diminution in value. See (Doc. ## 3-7 to 3-20, 3-23, 3-42, 3-45, 3-49, 3-57, 3-80).
On January 18, 2018, the Bankruptcy Court approved a settlement agreement reached between Debtors, Westport Nursing, the Resident Committee, and others to transfer Westport Nursing's ownership interests back to Westport I, thereby reunifying the ownership of University Village. (Doc. # 11 at 9). That same day, Debtors and the Resident Committee submitted a Chapter 11 plan to the Bankruptcy Court. (Id. ). Among other things, the plan called for the sale of the unified University Village – comprised of both Independent Living Facility and Health Center. (Id. at 9-10). CPIF objected to the plan and opposed confirmation on numerous grounds.
(Doc. # 7 at 10). As a result, the plan's proponents pursued confirmation under 11 U.S.C. § 1129(b) – commonly known as the "cramdown" provision. (Doc. # 11 at 13).
The Bankruptcy Court held a three-day trial on confirmation of the plan. (Id. ). To challenge the plan's feasibility and other confirmation requirements, CPIF presented an expert witness, Ed Smith, who testified the value of Independent Living Facility was $12.9 million as of February 6, 2018. (Doc. # 7 at 15). Smith also testified the value of Independent Living Facility was $16.9 million as of September 22, 2016 – the petition date. (Id. at 15-16). Smith's testimony was relied upon by two other experts who testified on the plan's feasibility, the "best interest of the creditors" test, and an appropriate interest rate. (Id. at 16).
Following this testimony, Debtors orally moved to establish the value of Independent Living Facility and CPIF's secured claim at $12.9 million. (Id. at 17). CPIF objected, arguing the value of Independent Living Facility and CPIF's secured claim should be based on the actual amount Independent Living Facility is sold for in a fair market sale. (Id. ). The Bankruptcy Court accepted Smith's valuation and held that for purposes of the confirmation hearing, the value of Independent Living Facility was $12.9 million. (Doc. # 3-70 at 147).
The Bankruptcy Court explained in its oral confirmation ruling that while Debtors had a few interested potential buyers, no actual buyer existed yet. (Doc. # 3-71 at 14:19-15:5). The Bankruptcy Court also noted the sales process was hindered by a few issues, including returning Health Center back to Westport I. (Id. at 15:7-21). Nonetheless, the Bankruptcy Court concluded the plan was fair and equitable, explaining:
To be fair and equitable, the plan must provide that CPIF[ ]'s lien attaches to the University Village's sale proceeds and that CPIF[ ] will receive, on account of its lien, payments totaling the allowed amount of such claim as of the effective date of the plan. To determine whether the Debtors' plan satisfies that requirement, the Court must first determine the amount of CPIF's secured claim. Significantly, the Debtors and the [Resident] Committee have objected to CPIF[ ]'s claim. There's an adversary proceeding dealing with that claim that is pending. So as of confirmation, CPIF[ ] does not have an allowed secured claim. Putting that aside, the Court determined that the value of CPIF[ ]'s collateral, the Independent Living Facility, was $12.9 million. So the maximum amount of CPIF[ ]'s secured claim is $12.9 million.
(Id. at 19:18-20:11).
As modified by the Bankruptcy Court, the confirmed plan provides for the creation of a liquidating trust to pursue the sale of the unified University Village. (Doc. # 3-78 at 35-36). Any sale of University Village by the liquidating trustee is subject to approval under 11 U.S.C. § 363 and CPIF's ability to object. (Id. ).
How and when CPIF's secured claim will be paid depends on when University Village is sold. If University Village is sold within six months of the plan's effective date, CPIF's lien will attach to the proceeds of the sale. (Id. at 26-27). Alternatively, if University Village is sold beyond that date, CPIF's lien will also attach to the proceeds of the sale, but only if the buyer does not assume the obligation to repay CPIF. (Id. ). If the buyer assumes the obligation, University Village will be sold subject to CPIF's liens, and CPIF will be paid through deferred cash payments over ten years with an interest rate of 5.84%. (Id. ). Also, after the six-month period, and until University Village is sold, CPIF will be paid through deferred cash payments over ten years with an interest rate of 5.84% by the liquidating trustee. (Id. ).
If CPIF is to be paid from the cash sale proceeds, the plan requires a reserve be established in favor of CPIF equal to $12.9 million, less outstanding taxes. (Id. ). The reserve must be funded before the liquidating trustee can use the cash sale proceeds to pay any allowed claims junior to CPIF's allowed secured claim. (Id. ). If the sale of University Village generates proceeds in excess of $12.9 million, the excess proceeds may be used to pay junior credits. (Id. ).
On May 8, 2018, the Bankruptcy Court entered its valuation order, which reiterated that Independent Living Facility's value is $12.9 million for confirmation purposes and the maximum amount of CPIF's secured claim is $12.9 million, less outstanding taxes. (Doc. # 3-2). On May 10, 2018, the Bankruptcy Court entered its confirmation order, which overruled CPIF's objections and granted the plan proponents' cramdown request. (Doc. # 3-3). This appeal followed.
Upon entry of a final order by the Bankruptcy Court, a party may appeal to the District Court pursuant to 28 U.S.C. § 158(a). The United States District Court functions as an appellate court in reviewing decisions of the United States Bankruptcy Court. In re Colortex Indus., Inc., 19 F.3d 1371, 1374 (11th Cir. 1994). This Court reviews de novo the legal conclusions of the Bankruptcy Court. In re JLJ, Inc., 988 F.2d 1112, 1116 (11th Cir. 1993).
The standard of review employed by this Court in reviewing the Bankruptcy Court's findings of fact is the clearly erroneous standard of review described in Federal Rule of Bankruptcy Procedure 8013 : "Findings of fact, whether based on oral or documentary evidence, shall not be set aside unless clearly erroneous, and due regard shall be given to the opportunity of the bankruptcy court to judge the credibility of the witnesses." See In re Thomas, 883 F.2d 991, 994 (11th Cir. 1989). A finding of fact is clearly erroneous when, "although there is evidence to support it, the reviewing court on the entire record is left with the definite and firm conviction that a mistake has been committed." Crawford v. W. Elec. Co., Inc., 745 F.2d 1373, 1378 (11th Cir. 1984) (quoting United States v. U.S. Gypsum Co., 333...
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