DeFlora Lake Dev. Assocs., Inc. v. Park (In re DeFlora Lake Dev. Assocs., Inc.)

Decision Date29 April 2021
Docket NumberAdv. No. 17-09006 (CGM),Case No. 17-35318 (CGM)
Citation628 B.R. 189
Parties IN RE: DEFLORA LAKE DEVELOPMENT ASSOCIATES, INC., Debtor. DeFlora Lake Development Associates, Inc., Plaintiff, v. Hyde Park, a Wisconsin Limited Partnership and Lewis D. Wrobel, Defendant(s).
CourtU.S. Bankruptcy Court — Southern District of New York

Elizabeth A. Haas, Elizabeth A. Haas Attorney at Law, P.O. Box 607, Tallman, NY 10982, Attorney for Plaintiff, DeFlora Lake Development Associates, Inc.

Leonard Benowich, Benowich Law, LLP, 1025 Westchester Avenue, White Plains, NY 10604, Attorney for Defendant, Hyde Park, a Wisconsin Limited Partnership.

MEMORANDUM DECISION FURTHER EXPLAINING THIS COURT'S JANUARY 10, 2020 ORDER

CECELIA G. MORRIS, CHIEF UNITED STATES BANKRUPTCY JUDGE

The Court originally held a trial in this adversary proceeding in May 2018. Following trial, the Court entered a five-page decision and order on January 10, 2020. Hyde Park appealed. The District Court reviewed that decision and order and remanded the case for more explanation from this Court on how it came to its determinations.

The trial determined whether monies and deeds held in "escrow" are property of the estate. In so determining, the Court had to address issues that arose from a contested sale of property by DeFlora Lake Development Associates, Inc., ("DeFlora Lake" or "Debtor") and Hyde Park, a Wisconsin Limited Partnership ("Hyde Park"). A contract governed the division of proceeds of the sale between DeFlora Lake and Hyde Park; a prior District Court case2 determined that those contract claims were barred by the statute of limitations. That determination was upheld by the United States Court of Appeals for the Second Circuit.3 Ultimately, and for further reasons set forth in this Memorandum Decision, the Court finds that the Wrobel Funds (as defined herein) held in the name of DeFlora Lake are property of the estate and must be turned over to Debtor and that the deeds are property of the estate subject to the escrow agreement regarding them.

Jurisdiction

This Court has subject matter jurisdiction pursuant to 28 U.S.C. § 1334(a), 28 U.S.C. § 157(a) and the Standing Order of Reference signed by Chief Judge Loretta A. Preska dated January 31, 2012. This is a "core proceeding" under 28 U.S.C. § 157(b)(2)(A) (matters concerning the administration of the estate) and (E) (orders to turnover property of the estate).

Background

In 1980, Caesar DeFlora ("Caesar")4 and Hyde Park entered into an agreement ("Land Contract") for the purchase and sale of seven parcels of real property. JPTO ¶ 15, ECF No. 32.5 The parcels, referred to as parcels A through G, consisted of 487 acres of land (the "Property"), including a lake, in Dutchess County, New York. Id. ; see also JX-26 (Amendment No. 2). The Land Contract called for a total purchase price of $3.9 million to be paid over time with interest. JX-1, ¶ 1 (Land Contract). According to the Land Contract, the Property was to be used for the construction of 3,200 residential dwelling units. JX-1, ¶ 7.

Caesar and Hyde Park modified portions of the Land Contract four times in ten years, including by changing the purchase price and repayment period, creating lake rights for future owners, and agreeing to sell and divide the proceeds of the Property. See JXs-2–4 (Amendment Nos. 1–4). By December 31, 1990, Caesar and Hyde Park had not yet developed the Property. JX-5, at 1. On December 31, 1995, fifteen years after it was originally signed, the Land Contract was amended for the fifth time ("Amendment Five"). JX-6 (Amend. No. 5).

Sometime between the fourth and fifth amendment, Caesar "transferred all of his right, title and interest" in the Property, which is subject to the Land Contract, "as well as all his right, title and interest in the Land Contract" to DeFlora Lake. Id. at 1. Amendment Five to the Land Contract was made and entered into by and between DeFlora Lake and Hyde Park. Id. This is the most recent amendment to the Land Contract. JPTO ¶ 17. Amendment Five purported to resolve various litigation and disputes that had arisen between Hyde Park and DeFlora Lake. JX-6, at 2. As such, Amendment Five sets forth a detailed process for selling parcels of the Property and division of proceeds. JX-6.

According to Amendment Five, DeFlora Lake and Hyde Park could each obtain a purchaser for any and all parcels of the Property. JX-6, ¶ 8.A. Monies generated from the sale of Property would be applied as a "credit" towards the debt owed by Hyde Park to DeFlora Lake. Id. As of December 31, 1995, the date on which Amendment Five was executed, Hyde Park, as purchaser, owed Debtor, as seller, $8,404,989.43 ("Total Obligation") for all obligations under the Land Contract, and would repay that debt "solely from the proceeds of the management of the Property, and from sale(s) of the Property and from other credits and reductions described herein." JPTO ¶ 17 (cleaned up); see also JX-6, ¶ 5. Amendment Five also provides that the first $1,800,000.00 in proceeds (as defined therein) from the sale of Property (the "Threshold") would be paid to the DeFlora Lake, and thereafter "[Hyde Park] shall retain an amount equal to fifty (50%) percent of any net sale price and the remaining balance shall be paid to [DeFlora], as a continued reduction of [Hyde Park's] obligation under paragraph 4 herein. ... Any amounts due [Hyde Park] when gross sale proceeds and credits are greater than $1,800,000 shall be paid in cash by [DeFlora] to [Hyde Park]." JPTO ¶ 18; JX-6, ¶ 12.

To facilitate the sale of Property, DeFlora Lake and Hyde Park were required, under the terms of Amendment Five, to sign deeds and other instruments to effect conveyance of each parcel at a future sale. JX-6, ¶ 10. The deeds were placed in escrow with Lewis Wrobel ("Wrobel"), who was named as the "Deed Escrow Agent" in Amendment Five. JX-6, ¶¶ 10, 18. The deeds were to be released by Wrobel upon written instruction of either DeFlora Lake or both, Hyde Park and DeFlora Lake. JX-6, ¶¶ 10; 18. An ambiguity discussed in more detail below.

Despite the parties' intentions to prevent disagreements over the Property through the creation of Amendment Five, in 1999, a dispute arose between DeFlora Lake and Hyde Park regarding the sale of parcels D, E, and G ( "Parcels D, E, & G"). On March 10, 1999, DeFlora Lake gave notice to Hyde Park that it intended to sell Parcels D, E, & G for $900,000. JPTO ¶ 21. In communications between the parties extending from March to September 1999, Hyde Park objected to the proposed sale, stating that the sale price was unreasonably low and suggesting that Parcels D, E, & G were worth at least $1,750,000. Id. In September of 1999, Hyde Park stated that it would not object to delivering its quitclaim deeds to allow Parcels D, E, & G to be sold if $207,116 were delivered to and held by Wrobel. Id. at ¶ 22. DeFlora Lake acquiesced "under protest" and the funds were delivered to Wrobel ("Wrobel Funds") on September 23, 1999. Id.

Wrobel deposited those funds, the Wrobel Funds, into two accounts: (a) DeFlora Lake development Assoc Ltd/Lewis D Wrobel Attorney, Account No. XXXXXXXX06 ("DeFlora Account"), and (b) Hyde Park/Lewis D Wrobel Attorney, Account No. XXXXXX64 ("Hyde Park Account").

Paragraph 8.C of Amendment Five contained a procedure that the parties were to follow should they not agree on the details of the sale of any parcel of the Property. JX-6, ¶ 8.C. In that event, DeFlora Lake was permitted to proceed with the closing of the sale and Hyde Park would be given a "credit" against both the Threshold and Total Obligation owed to DeFlora Lake. JX-6, ¶ 8.C(i). If the parties could not agree on the amount of the credit, Amendment Five set out a procedure to determine the amount of the credit to be given. JX-6, ¶ 8.C(ii).

According to paragraph 8.C(ii), the credit would be given in an amount equal to the "Fair Market Value" (defined therein) of the parcels sold, as determined by an "MAI7 Appraiser." Id. Each party was to obtain its own appraisal of the parcels sold and if they still could not agree on the Fair Market Value a third appraisal would be obtained to determine the Fair Market Value for purposes of valuing Hyde Park's credit. Id. Neither Debtor nor Hyde Park obtained an appraisal or took any steps with respect to the Wrobel Funds pursuant to Paragraph 8.C(ii) of Amendment Five. JPTO ¶ 24.

On September 6, 2005, DeFlora Lake commenced an action against Hyde Park in the United States District Court for the District of New Jersey, which was dismissed by order dated March 29, 2006 for failure to effect service on Hyde Park. JPTO ¶ 25. On February 26, 2007, DeFlora Lake commenced a second action against Hyde Park, also in the United States District Court for the District of New Jersey, which was dismissed by an opinion and order dated October 23, 2007, for lack of personal jurisdiction. Id.

In September 2008, DeFlora Lake commenced the following action in the United States District Court for the Southern District of New York ("District Court"): DeFlora Lake Development Associates, Inc. v. Hyde Park, LP and Lewis Wrobel, as Deed Escrow Agent , 08 CV 8155 ("DeFlora I "). JPTO ¶ 27. In a decision and order dated March 30, 2011, Judge Seibel held that DeFlora Lake's claims and Hyde Park's counterclaims to the Wrobel Funds were time-barred under New York's six-year Statute of Limitations. JPTO ¶ 28. Neither party appealed that determination. JPTO ¶ 29.

Subsequently, on July 11, 2013, DeFlora Lake commenced a second action in the United States District Court for the Southern District of New York: DeFlora Lake Development Associates, Inc. v. Hyde Park, LP and Lewis Wrobel, as Deed Escrow Agent , 13 CV 04811 ("DeFlora II "). JPTO ¶ 31. Judge Seibel ultimately dismissed DeFlora II and granted Hyde Park's applications for prevailing party attorneys' fees under the Land Contract. JPTO ¶ 32.8 DeFlora Lake appealed the first attorneys' fees award and the United States Court of Appeals...

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