Holywell Corp., In re
| Decision Date | 02 October 1990 |
| Docket Number | No. 89-5346,89-5346 |
| Parties | 24 Collier Bankr.Cas.2d 69, Bankr. L. Rep. P 73,639 In re HOLYWELL CORPORATION, et al., Debtors. OLYMPIA & YORK FLORIDA EQUITY CORP., and Miami Center Joint Venture, Plaintiffs-Appellees, v. The BANK OF NEW YORK, Defendant-Appellant. In re HOLYWELL CORPORATION, et al., Debtors. BANK OF NEW YORK, Plaintiff-Appellant, Theodore B. Gould, Plaintiff-Appellant-Appellee, Olympia & York/Miami Center Joint Venture, Plaintiffs-Appellees-Appellants, v. Fred Stanton SMITH, As Liquidating Trustee of the Miami Center Liquidating Trust, Defendant-Appellee. In re HOLYWELL CORPORATION, Debtors. BANK OF NEW YORK, Plaintiff-Appellant, v. Fred Stanton SMITH, As Liquidating Trustee of the Miami Center Liquidating Trust, Defendant-Appellee. |
| Court | U.S. Court of Appeals — Eleventh Circuit |
Vance E. Salter, Barry R. Davidson, S. Harvey Ziegler, Kirkpatrick & Lockhart, Miami, Fla., for Bank of New York.
John W. Kozyak, Kozyak, Tropin & Throckmorton, Miami, Fla., Albert I. Edelman, New York City, for Miami Center Joint Venture, Olympia & York.
Robert M. Musselman, Charlottesville, Va., for Holywell Corp., Miami Center Joint Venture, Chopin.
Theodore B. Gould, Charlottesville, Va., pro se.
Herbert Stettin, Miami, Fla., for Smith.
Appeals from the United States District Court for the Southern District of Florida.
Before KRAVITCH and COX, Circuit Judges, and DYER *, Senior Circuit Judge.
This appeal involves yet another set of disputes arising from the Chapter 11 reorganization of the five debtors involved in the Miami Center Project. The Bank of New York, the appellant and proponent of the confirmed plan of reorganization, challenges orders of the district court reversing the junior classification and equitable subordination of the lease claims of Olympia & York Florida Equity Corporation ("O & Y") and Miami Center Joint Venture ("MCJV") and requiring the Bank to pay the amount of this claim together with interest. O & Y and debtor Theodore B. Gould cross-appeal, arguing that the courts below erred in interpreting and giving effect to a post-confirmation agreement between O & Y and the liquidating trustee of the plan. For the reasons set forth below, we affirm.
Numerous published decisions have described the complex set of facts in this underlying bankruptcy case. See, e.g., Holywell Corp. v. Bank of New York, 59 B.R. 340 (S.D.Fla.1986), vacated with instructions to dismiss, Miami Center Ltd. Partnership v. Bank of New York, 838 F.2d 1547 (11th Cir.1988), cert. denied, 488 U.S. 823, 109 S.Ct. 69, 102 L.Ed.2d 46 (1988). We therefore detail only those facts pertinent to the resolution of this appeal.
Construction of the Miami Center Project commenced in 1980. The Miami Center Limited Partnership ("MCLP") was the developer of this luxury office, hotel and parking development in downtown Miami. The following year, Gould, a general partner of MCLP, and O & Y formed the Miami Center Joint Venture ("MCJV") to develop a further condominium project adjacent to the one under construction. Under the MCJV partnership agreement, Gould was to act as "managing venturer," Gould and O & Y each owned a fifty percent interest in the partnership's profits and losses, and Gould was entitled to a first priority return of capital. O & Y and Gould also agreed that O & Y would loan MCJV $7,775,000 to acquire furniture, fixtures and equipment ("FF & E") to lease to MCLP for use in the Miami Center Project. This loan was made, the FF & E acquired, and in May, 1981, MCJV entered into two long-term leases of that FF & E to MCLP. MCLP's failure to remit any payments under these leases forms the basis of claim 502, MCJV's $14,417,679 claim against the bankrupt estate.
Serious differences between the joint venturers arose shortly after the formation of MCJV. Pursuant to the partnership agreement, O & Y and Gould submitted the dispute to arbitration. In 1984 the arbitrators entered an award, the effect of which required MCJV's dissolution either through Gould's purchase of O & Y's interest, or in the event Gould did not elect to make such a purchase within a specified time, under the supervision of a receiver appointed by the arbitrators. Gould elected the buyout option. Prior to the closing date of the buyout, however, Gould and his companies filed voluntary Chapter 11 petitions in the Southern District of Florida.
The bankruptcy court modified the automatic stay of proceedings to permit finalization of the arbitration award. O & Y petitioned the District Court for the Southern District of New York to vacate, modify or correct the arbitration award; Gould filed a cross-motion to confirm it. The district court affirmed the award. The Second Circuit reversed, however, on grounds that the award failed to deal explicitly with the contingency that arose in this case--namely, Gould's bankruptcy after election of the buyout option. Finding sufficient evidence of a lack of a "mutual, final and definite award" within 9 U.S.C.A. Sec. 10(d) (1970), the Second Circuit remanded to the arbitrators for a declaration of their intent in the event of this contingency. Olympia & York Florida Equity Corp. v. Gould, 776 F.2d 42, 45 (2nd Cir.1985).
Prior to this decision and the time the arbiters reconvened, the plan of reorganization was confirmed, necessitating the liquidating trustee's involvement in the proceedings. 1 Gould and O & Y thereafter negotiated a settlement, which substantially restructured the previous arbitration award. Under this "final modified award," O & Y was the managing partner and venturer of MCJV; MCJV was to be dissolved as determined by O & Y. The Final Modified Award also specified the order of payment of MCJV's liabilities and provided that certain principal items of indebtedness would be paid pari passu with repayment to Gould of the balance of his return of capital. In a June 26, 1986 letter agreement entered into in conjunction with this award, Gould, O & Y and the liquidating trustee agreed that "some form of disposition [of MCJV's liabilities] will be determined within two years ... to make accessible to the Liquidating Trustee ... Gould's interest [in his return of capital, to be paid ratably with payment of MCJV's liabilities], to an extent of $6.3 million." In another separate agreement, also made in conjunction with the modified award, O & Y agreed to release over $69,000,000 in claims it filed against the bankruptcy estate. Based on the consent of all parties involved, the arbiters entered the award, and the award was reduced to judgment in Florida state court. 2 O & Y failed to pay this $6,300,000 to the liquidating trustee two years later, giving rise to the liquidating trustee's breach of contract claim.
As noted above, shortly after the debtors filed their voluntary petitions for reorganization, MCJV filed a proof of claim (claim 502) against debtor MCLP for $14,417,679 for unpaid rent and interest due under the FF & E leases. 3 O & Y, both for itself and for the benefit of MCJV, filed a related proof of claim (Claim 241) for unpaid rent and interest under the same leases. O & Y, both for itself and for the benefit of MCJV, also filed a claim against Gould (claim 251) for Gould's indebtedness to O & Y with respect to MCJV. O & Y subsequently released claims 241 and 251, 4 however The plan of reorganization proposed by the Bank of New York provided for a classification scheme by which MCJV's claim 502 and O & Y's claims would be paid after the administrative claims, tax claims, and the claims of secured creditors and unsecured creditors not affiliated with the debtors, but prior to the claims of Gould-affiliated creditors and the claims of the debtors themselves. Although the debtors, MCJV and O & Y objected, the plan was confirmed on August 8, 1985 with the overwhelming support of creditors. The debtors failed to post a supersedeas bond to stay the effective date of the plan; on October 10, 1985, the plan was thus implemented. Because the plan's classification of MCJV and the amount of claim 502 was still in dispute as of this date, the Bank of New York executed a funding agreement in which it agreed to advance up to the full amount of claim 502 to the liquidating trustee in the event MCJV's classification was reversed. The trustee, in turn, issued to the Bank a trustee's certificate for the amount of any funds advanced by the Bank pursuant to the funding agreement. 5 Prior to the implementation of the plan, the district court ordered the Bank to file a $15,000,000 corporate surety bond to provide sufficient protection to MCJV's and O & Y's interests in the event of reversal of the classification scheme on appeal.
in conjunction with entry of the Final Modified Award.
O & Y, on behalf of MCJV, appealed the order of the bankruptcy court confirming the plan. 6 Noting that no hearing had been held on the subordination issue, the district court remanded the case to the bankruptcy court with instructions to hold further adversarial hearings and to provide a more detailed discussion of the law and facts. On remand the bankruptcy court conducted a hearing at which the parties agreed that neither desired to offer any evidence. By mutually agreed prior arrangement, the Bank and O & Y submitted proposed findings of fact and conclusions of law. Adopting the Bank's submissions, the bankruptcy court again confirmed the plan, holding that the unique facts and circumstances of MCJV's claim 502 justified its separate classification under 11 U.S.C.A. Sec. 1122 (1979) and its equitable subordination under 11 U.S.C.A. Sec. 510(c) (1979). On appeal, the district court reversed the confirmation order with respect to the subordination of claim 502 and remanded for determinations of the amount of claim 502 and of the respective interests in this claim held by O & Y and the bankruptcy estate (in lieu of Gould). The district court...
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