IN RE CAPTRAN CREDITORS'TRUST
| Decision Date | 17 June 1991 |
| Docket Number | No. 90-719-CIV-T-17(A).,90-719-CIV-T-17(A). |
| Citation | 128 BR 469 |
| Parties | In re CAPTRAN CREDITORS' TRUST, Debtor. CAPTRAN CREDITORS' TRUST, Club Baha, Ltd., a foreign corporation and Tropical Properties, Ltd., a foreign corporation, Appellants, v. David W. McCONNELL, Gerard A. McHale, Jr., and McHale, Ezzell and Co., a Florida professional association, Appellees. |
| Court | U.S. District Court — Middle District of Florida |
Malka Isaak, Tampa, Fla., Richard W. Epstein, Greenspoon, Marder, Hirschfeld & Rafkin, P.A., Fort Lauderdale, Fla. and Jerome H. Shevin, Miami, Fla., for appellants.
Francis H. Cobb; Chad Whitehurst Browne and Charles William Pittman, MacFarlane, Ferguson, Allison & Kelly, Tampa, Fla., for appellees.
APPEAL FROM THE UNITED STATES BANKRUPTCY COURT FOR THE MIDDLE DISTRICT OF FLORIDA
This cause is before the Court on appeal from the Final Judgment of the Bankruptcy Court entered in this adversary proceeding in favor of appellees. Chief Bankruptcy Judge Alexander L. Paskay entered Final Judgment on April 17, 1990 upon the Findings of Fact, Conclusions of Law and Memorandum Opinion dated April 4, 1990. 114 B.R. 753.
Findings of fact by the Bankruptcy Court will not be set aside unless clearly erroneous. Bankruptcy Rule 8013; In re Downtown Properties, Ltd., 794 F.2d 647 (11th Cir.1986). However, appellants are entitled to an independent, de novo review of all conclusions of law and the legal significance accorded to the facts. In re Owens, 86 B.R. 691 (M.D.Fla.1988).
1. In 1982, Captran Resorts International, Inc. (CRI), a corporation based in Lee County, Florida, was engaged in the business of developing resorts and selling time-share interests to the public. CRI's president was Keith Trowbridge (Trowbridge).
2. CRI, through its president Trowbridge, entered into a joint venture with Club Baha, Ltd. (Club Baha) and Tropical Properties, Ltd. (Tropical Properties). Tropical Properties is the parent organization of Club Baha, its wholly owned subsidiary. Jack Grobowsky (Grobowsky) controlled Tropical Properties which developed resorts and timeshare interests in the Bahamas.
3. The CRI joint venture with Club Baha resulted in a disagreement and litigation between the parties. Club Baha sued CRI and its president, Trowbridge, asserting fraud and breach of contract involving the development and marketing of a Club Baha timeshare resort in the Bahamas. A lengthy jury trial was held in the Circuit Court for Lee County, Florida. On May 18, 1982 Club Baha obtained a $1.7 million dollar final judgement for compensatory and punitive damages against CRI and Trowbridge.
4. CRI could not pay the $1.7 million Club Baha judgement lien and continue its resort development and timeshare business. Further, CRI could not post a supersedeas bond to avoid losing some, if not all, of its property.
5. On July 16, 1982, CRI filed a voluntary Petition for Relief under Chapter 11 of the Bankruptcy Code. Soon thereafter, CRI and some of its largest creditors, including Club Baha and Tropical Properties, entered into extensive negotiations. The purpose of their negotiations was to ultimately satisfy CRI's creditors and to resolve CRI's problems outside of the provisions of Chapter 11 and the Bankruptcy Court.
6. The negotiations resulted in the "Captran Creditors' Settlement Agreement" (Trust Agreement) which provided that the CRI creditors would form the Captran Creditors' Trust (CCT or Trust). It was later ruled that the Captran Creditors' Trust constituted a business trust under section 101(8) of the Bankruptcy Code. In re Captran Creditors' Trust, 53 B.R. 741 (Bankr.M.D.Fla.1985). A copy of the Trust Agreement, a synopsis of its development, and copies of related documents are included in what is referred to as "the yellow book".
7. Appellants allege that appellee McHale negotiated the Trust Agreement for Club Baha. Appellees counter that McHale did not negotiate the agreement for Club Baha. Moreover, appellees contend that Domenic Massari (Massari), appellants' attorney, was instrumental in drafting the Trust Agreement as well as being the chief architect of the legal structure of the Trust. Appellees add that according to Grobowsky, Massari was the major author of the Trust Agreement. In their briefs, appellants do not refute that Massari authored the Trust Agreement.
8. The Trust Agreement was finalized in December, 1982. Based on the settlement, the Bankruptcy Court on December 6, 1982 entered an order granting CRI's motion to dismiss its Chapter 11 case. The Trust was effective following the final agreement.
9. CRI assets, and any debts and liabilities of those assets, including 1400 timeshare unit weeks at five different resort properties; undeveloped land; two mortgage portfolios and a promissory note, were transferred to the CCT to be the Trust res. CRI creditors were to be the CCT beneficiaries. Appellees McConnell, an attorney, and McHale, a Certified Public Accountant (Trustees), were appointed as initial trustees of CCT. CRI retained a residual interest in the CCT properties, if one remained after the liquidation of the Trust assets and after the satisfaction of the interests of the Trust beneficiaries.
10. Appellees McConnell and McHale were both familiar with the parties' businesses before appointment as Trustees. McConnell had significant business dealings with CRI and Trowbridge during the CRI bankruptcy. He was considered closely aligned with CRI and Trowbridge. McHale had previously been retained by Club Baha for financial and economic analysis during its litigation with CRI and Trowbridge. He was considered closely aligned with Club Baha and Grobowsky. CRI and the CCT beneficiaries sought to balance their competing interests by appointing these Trustees to administer the Trust.
11. A major asset of the CCT was the land of Sanibel Island Beach Club (SIBC), a phased development having multiple buildings upon completion. Building 10 was almost built however it was not certified for occupancy. The Trust owned the land for Buildings 8 and 9. CRI had building permits for Buildings 8 and 9 from before the commencement date of the Trust. The land for Buildings 5, 6, and 7 was also a Trust asset but no building permits had yet been issued. Appellees claim the building permits for Buildings 8 and 9 would have been lost had construction not commenced. Appellant Club Baha, and Grobowsky, claim that they were unaware that CRI had building permits for Buildings 8 and 9. The CCT and CRI were, in effect, dependent on each other concerning the SIBC development.
12. The CRI assets transferred to the CCT were to be marketed and sold. Net sales proceeds were to go to the Trust for the benefit of the Trust beneficiaries. Under the Trust Agreement, CRI was to act as the marketing agent for the CCT properties. In exchange, CRI would receive a 38% marketing fee based on the sale price of the properties it sold. The Trust Agreement allowed the CCT properties to be sold at a 10% discount. Discounts above 10% were deducted from CRI's 38% marketing fee with the Trust always getting 62% of the net sales proceeds. CRI acted as the marketing agent for the CCT properties.
13. Actual sales of the CCT property were handled by a real estate firm owned and controlled by Trowbridge. Northern American Title Insurance Agency, Inc. (NATIA), also owned and controlled by Trowbridge, processed the sales, handled closings, and maintained the records regarding the sales of timeshare unit weeks. All sales records of the Trust properties were under the exclusive control of George Mills (Mills), CRI's controller.
The Trustees received weekly sales reports on Trust inventory, monthly schedules of closed sales, monthly balances in escrow, cumulative showings of use of escrow funds for development and construction purposes, escrow draw approvals and draw requests from the construction company. In addition, the Trustees met approximately bi-weekly with Mills.
14. The Trust Agreement stated the purpose of the Trust as follows:
Purpose: This Trust is organized for the primary purpose of liquidating the assets transferred to it with no objective to continue or engage in the conduct of a trade or business.
The Trust Agreement also had a provision regarding Trustee liability. It stated:
Trustee Liability: Except for proven dishonesty, a Trustee shall not be personally liable for any act or omission in connection with his duties as Trustee.
As noted above, the Trust Agreement was the product of the parties after extensive negotiations.
15. In 1983, CRI continued developing Buildings 8 and 9 at SIBC. The land for those Buildings was a Trust asset to be liquidated under the stated purpose of the Trust Agreement. The Trustees agreed, at least tacitly, to this activity by CRI, and at no time voiced any objection to it. On the contrary, appellee McHale consented to this development believing it would maximize the return to the Trust beneficiaries. Grobowsky first learned that Buildings 8 and 9 were being developed in July, 1983. It appears that even though the Trust Agreement did not authorize any additional development, the effect of developing Buildings 8 and 9 resulted in a net benefit to the Trust of $1.7 million dollars.
16. In 1983 the Trustees and Grobowsky both tried selling the CCT assets in bulk. No buyer was found. Next, Club Baha suggested that CCT assets be liquidated to the Trust beneficiaries. The Trustees developed a liquidation plan to distribute the Trust assets in-kind to the CCT beneficiaries. In exchange, the Trust beneficiaries would extinguish their interests in the Trust.
17. CRI, in the Fall of 1983, resisted the in-kind distribution plan and threatened to sue the Trustees if they proceeded with the plan. CRI resisted the plan because it held a residual interest in the Trust properties.
18. In February, 1984 the Trustees filed a suit for declaratory relief...
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