Harper v. Heather Hills Amenities, LLC (In re Heather Hills Amenities, LLC )
| Decision Date | 21 March 2022 |
| Docket Number | Case No: 8:21-cv-1057-CEH |
| Citation | 637 B.R. 168 |
| Parties | IN RE: HEATHER HILLS AMENITIES, LLC David Harper, et al., Appellants, v. Heather Hills Amenities, LLC and Lakeshore Management, Inc., Appellees. |
| Court | U.S. District Court — Middle District of Florida |
Benjamin G. Martin, Benjamin G. Martin, Esq., Sarasota, FL, for Appellants.
Kathleen Schin McLeroy, Nathaniel G. Foell, Carlton Fields, PA, Tampa, FL, for Appellee Heather Hills Amenities, LLC.
Kathleen Schin McLeroy, Joseph H. Lang, Nathaniel G. Foell, Carlton Fields, PA, Tampa, FL, for Appellee Lakeshore Management, Inc.
This cause is before the Court on appeal from the United States Bankruptcy Court for the Middle District of Florida. Appellants, David Harper, Dennis Cox, Suzanne Cox, Eugene Darrell, John Blanchard, Letterina Franz, Dennis Todd, Josefina Todd, James Michels, and Crystal Woods ("Lot Owners"), are parcel owners in the Heather Hills subdivision and are parties of interest in the bankruptcy estate of Debtor, Heather Hills Estates, LLC ("Debtor"). Debtor was the owner of what was referred to as the "Amenities Property," which consisted of a clubhouse, shuffleboard courts, and certain other property in the Heather Hills subdivision. In the context of Debtor's Chapter 11 bankruptcy proceeding, the Lot Owners seek review of the Bankruptcy Court's Order (Doc. 2-2) and Amended Order (Doc. 2-3) Granting Motion to Dismiss the Lot Owners’ Complaint filed against Heather Hills Amenities, LLC ("Heather Hills Amenities") and Lakeshore Management, Inc. ("Lakeshore Management") (Docs. 2-2 and 2-3 are collectively referred to as the "Dismissal Order").1 The appeal is fully briefed, see (Docs. 9, 12, 15), and oral argument was held February 2, 2022. For the reasons that follow, the Court will affirm the Bankruptcy Court's Dismissal Order.
On November 4, 2016, Debtor filed a voluntary petition for relief under Chapter 11 of the United States Bankruptcy Code ("Bankruptcy Code" or the "Code") in the United States Bankruptcy Court for the Middle District of Florida, Tampa Division, and was assigned Case No. 8:16-bk-9521-CPM. Docs. 9 at 14, 12 at 12. The Debtor operated its business and managed its affairs as a debtor and debtor in possession, pursuant to Code Sections 1107 and 1108 until confirmation.
On January 18, 2018, Debtor filed its modified plan of reorganization (the "Plan").2 Doc. 2-7. Debtor was the owner of the "Amenities Property," which included a clubhouse, shuffleboard courts, and certain other property in the Heather Hills subdivision. Doc. 2-7 at 5; Doc. 2-16 at 13–14. Under the Plan, Debtor was to sell the Amenities Property to an entity called HHEA, LLC and use the proceeds to make payments to its creditors. Doc. 2-7 at 10. Although the Lot Owners were listed on the "Schedule of Creditors" of the bankruptcy case, no amount was claimed to be owed by the Debtor to the Lot Owners. Doc. 9 at 14.
The aspect of the Plan at issue in this appeal is the process for reviving certain covenants burdening the lots in Heather Hills Estates subdivision. The Plan referred to the initial covenants as the "Old Restrictions" and the revived covenants as the "New Restrictions." Id. at 4–5; see also id. at 17–21 (). The Plan provided that, pursuant to Part III of Chapter 720 of the Florida Statutes,3 the Heather Hills Estates subdivision lot owners would vote to decide whether to enact the New Restrictions. Doc. 2-7 at 7.
Under the Plan, there were seven Heather Hills Estates subdivision parcels that were excluded from application of the New Restrictions; they were referenced as "the Excluded Lots" and their owners were identified as "the Excluded Lot Owners." Doc. 2-7 at 3–4, 11–12. The Debtor decided that, due to state court litigation between the Debtor and the Excluded Lot Owners, the Excluded Lot Owners would not be subject to the New Restrictions regardless of the outcome of the vote, and thus they were not eligible to vote on the New Restrictions. Id. ; Doc. 2-17 at 110. Under the Plan, the Excluded Lot Owners are enjoined from use of or access to the Amenities Property until all outstanding assessments have been paid and documents signed to subject their property to the New Restrictions. Doc. 2-7 at 11–12.
Confirmation hearings regarding the Debtor's Plan took place on March 23, 2018; April 5, 2018; and May 24, 2018 ("Confirmation Hearings"). Doc. 2-2 at 2. The Bankruptcy Court approved the Plan and entered its Order Confirming Plan on June 15, 2018 ("Confirmation Order"). Doc. 2-8. The Confirmation Order authorized, among other things, the transfer of the Amenities Property to the purchaser and the application of New Restrictions to all lots in the subdivision (except the Excluded Lots). Id. at 5. The Confirmation Order provided that "[t]he New Restrictions shall be recorded at the Closing and shall thereafter constitute a covenant running with the land as to all lots ... except for the Excluded Lots." Id.
On March 5, 2019, Debtor filed an emergency motion seeking to substitute the name of the new purchaser, Lakeshore Communities, Inc., in place of HHEA, LLC. Doc. 2-18 at 3. On March 19, 2019, the Bankruptcy Court granted the Debtor's emergency motion to modify the Confirmed Plan to substitute the name of a different purchaser, Lakeshore Communities, Inc., and to more fully reflect the findings and conclusions the Court stated on the record at the Confirmation Hearings ("Amended Confirmation Order"). Docs. 2-18, 2-23; see Doc. 2-2 at 2 n.3.
In its Confirmation Order, the Bankruptcy Court found that a majority of the Heather Hills Estates subdivision lot owners voted in favor of the New Restrictions. Doc. 2-8 at 2–3. It also found that "revival of the restrictions through approval of the New Restrictions is integral to the success of the Debtor's reorganization." Id. at 3. The Bankruptcy Court concluded that the Plan was "the best, and perhaps the only way, to resolve the issues and litigation that have plagued the Heather Hills Estates subdivision for nearly ten years." Id.
In the Bankruptcy Court's Amended Confirmation Order issued March 19, 2019, the court substituted Lakeshore Communities, Inc. for HHEA, LLC as the purchaser of the Amenities Property. Doc. 2-23 at 2-3. The other modification related to the approval of the New Restrictions pursuant to Part III of Chapter 720 of the Florida Statutes. In the June 15, 2018 Confirmation Order, the Bankruptcy Court made two findings regarding the approval of the New Restrictions: (1) the "balloting process in this case met all the requirements of due process and was consistent with the requirements of Florida Statute § 720.403, et seq .," and (2) "the processes and procedures employed by the Debtor through the Plan are expressly contemplated in Florida Statute § 720.403, et seq ." Doc. 2-8 at 2. In its emergency motion, Debtor requested that the bankruptcy court supplement its findings in specific ways to more fully reflect the express and implicit findings the Bankruptcy Court made orally at the Confirmation Hearings. Doc. 2-18 at 3. In granting the Debtor's emergency motion, the Bankruptcy Court made the requested modifications to its order confirming the Plan. Doc. 2-23. The Lot Owners did not pursue an appeal of the Confirmation Order when it was originally entered or when it was modified (the Amended Confirmation Order).4 On June 10, 2019, Debtor filed its Motion for Final Decree and Certificate of Substantial Consummation, and on June 28, 2019, the Bankruptcy Court entered a Final Decree. Doc. 12 at 15.
On October 1, 2019, several Lot Owners and one Excluded Lot Owner (collectively "Plaintiffs") filed a state court action against Heather Hills Amenities, Lakeshore Management, and Heather Hills Property Owners Association, Inc. Doc. 2-27 at 5-12. The one Excluded Lot Owner, Kenna Gunn, was a Plaintiff but is not an Appellant. The Amended Confirmation Order made Lakeshore Communities the purchaser of the Amenities Property from Debtor but also gave it the ability to assign that purchase right. Doc. 2-23 at 4. Lakeshore Communities assigned its purchase right to Heather Hills Amenities, who then purchased the Amenities Property. Doc. 2-27 at 2-3. Heather Hills Amenities, in turn, contracted with Lakeshore Management to manage the Amenities Property.
Plaintiffs asserted one claim in their state court complaint: a declaratory judgment claim asking the state court to declare that application of the New Restrictions to their lots would violate § 712.12, Florida Statutes. Id. at 6. In pertinent part, § 712.12 provides that a parcel owner, whose land has ceased to be governed by covenants or restrictions as of October 1, 2018, may commence an action for a judicial determination that the covenants or restrictions do not govern that parcel and that any revitalization of such covenants or restrictions would unconstitutionally deprive the parcel owner of rights or property. See § 712.12(3), Fla. Stat.
Defendants in the underlying action, Heather Hills Amenities and Lakeshore Management ("Defendants" or "Appellees") removed the state court action to the Bankruptcy Court. Doc. 2-27 at 1-3. Defendants argued that the Bankruptcy Court "expressly retained ‘jurisdiction to enforce the New Restrictions and to entertain and resolve any actions challenging them.’ " Id. at 3 (quoting Doc. 2-23 at 9). On December 20, 2019, the Bankruptcy Court issued an order accepting the removed state court action turned adversary proceeding. Doc. 2-28.
Defendants moved to dismiss Plaintiffs’ complaint in the adversary proceeding arguing Plaintiffs’ claims are barred by res judicata because they failed to timely challenge the Confirmation Orders that provided for the application...
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