In Re Daufuskie Island Properties, 09-00389-jw.

• Decision Date: 07 January 2010
• Docket Number: No. 09-00389-jw.,09-00389-jw.
• Citation: 431 B.R. 626
• Court: U.S. Bankruptcy Court — District of South Carolina
• Parties: In re DAUFUSKIE ISLAND PROPERTIES, LLC aka Daufuskie Island Resort and Breathe Spa, Debtor.

431 B.R. 626

In re DAUFUSKIE ISLAND PROPERTIES, LLC aka Daufuskie Island Resort and Breathe Spa, Debtor.

No. 09-00389-jw.

United States Bankruptcy Court D. South Carolina.

Jan. 7, 2010.

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Ellis R. Lesemann, Parker Poe Adams & Bernstein, LLP, Ivan N. Nossokoff, Ivan N. Nossokoff, LLC, Charleston, SC, Julio E. Mendoza, Jr., Nexsen Pruet, LLC, Columbia, SC, for Debtor.

ORDER (1) AUTHORIZING SALE OF SUBSTANTIALLY ALL ASSETS OF THE ESTATE FREE AND CLEAR OF LIENS, CLAIMS, ENCUMBRANCES AND OTHER INTERESTS, AND (2) APPROVING THE ASSUMPTION AND ASSIGNMENT OF CERTAIN UNEXPIRED EXECUTORY CONTRACTS AND LEASES

JOHN E. WAITES, Chief Judge.

This matter came before the Court upon the Motion and Memorandum for an Order (1) Authorizing the Sale of Substantially All Assets of the Estate Free and Clear of Liens, Claims, Encumbrances and Other Interests, and (2) Approving the Assumption and Assignment of Certain Unexpired Executory Contracts and Leases (the “Sale Motion”) filed on September 15, 2009 by Robert C. Onorato, as Trustee (the “Trustee”) for the Chapter 11 bankruptcy estate (the “Estate”) of Daufuskie Island Properties, LLC (the “Debtor”), seeking (1) authorization pursuant to 11 U.S.C. §§ 363(b)(1) and (f), Rule 6004 of the Federal Rules of Bankruptcy Procedure (“Rule 6004”) ¹ and SC LBR 6004-1, to sell substantially all of the assets of the Estate, as more fully described below (the “Sale”); and (2) approval of the Trustee's assumption and assignment of certain unexpired leases and executory contracts to the purchaser of the assets pursuant to 11 U.S.C. §§ 365(a), (b) and (f) and Rule 6006, as part of the Sale. The Sale is to be made to Montauk Resorts, LLC or its assigns (“Montauk”), which will also purchase the Eigelberger Tract of property titled in the name of Eprop, LLC, an entity wholly-owned by the Estate, for the total sale price of $49.5 million.

Although several parties in the case filed objections to the Sale Motion, all but one of the objections were resolved prior to or at the hearing on the Sale Motion on December 30, 2009. The one objection remaining at the hearing, which is addressed in this Order, is the objection filed by The Melrose Club, Inc. (“MCI”), relating to the provision in the Sale Motion that the Sale shall be free and clear of MCI's rights and interest under that certain Transfer Agreement (the “Transfer Agreement”) dated September 27, 1996, by and between MCI and Melrose Club Management, Inc. n/k/a Daufuskie Club, Inc. (“DCI”), and the Memorandum of Agreement filed in the RMC Office of Beaufort County, South Carolina on December 31, 1996 (the “Memorandum of Agreement”). For the reasons set forth hereinbelow, the Court overrules the MCI objection and grants authorization for the Sale.

Pursuant to Rule 52 of the Federal Rules of Civil Procedure, which is made applicable to this matter by Rules 7052 and 9014, the Court makes the following Findings of Fact and Conclusions of Law.²

I. FINDINGS OF FACT

A. The Bankruptcy Case

1. On January 20, 2009, the Debtor filed its petition for relief under Chapter 11 of the United States Bankruptcy Code (11 U.S.C. §§ 101 et seq., the “Bankruptcy Code”). The Debtor operated as a Chapter 11 debtor-in-possession until the Trustee's appointment in this case.

2. On March 17, 2009, the Court entered its Order Granting Joint Motion for Appointment of Chapter 11 Trustee Pursuant to 11 U.S.C. § 1104, granting the joint motion of the Official Committee of Unsecured Creditors (the “Creditors Committee”), Beach First National Bank (“Beach First”) and AFG, LLC (“AFG”) for the appointment of a trustee in this case. Thereafter, on March 23, 2009, the Court entered its Order Approving Appointment of Trustee, approving the United States Trustee's appointment of Robert C. Onorato as Trustee for the Estate.

3. Shortly before the Trustee's appointment, the Debtor closed its business operations after its proposed post-petition lender withdrew its offer to provide post-petition financing, whereupon the Debtor lacked funding to cover its operating expenses. Following his appointment, the Trustee was able to obtain post-petition loans for the payment of costs to maintain the property owned by the Estate, to resume some of the resort operations on the property, and to market the assets owned by the Estate for sale.

4. The Trustee employed the services of RBC Enterprises, Inc. (“RBC”) as the non-exclusive broker for the marketing and sale of the property in this case. From the Trustee's testimony, it appears that the Trustee and RBC began marketing the property soon after the Trustee's appointment, that RBC contacted approximately 180 potential buyers of the property, that RBC sent those potential buyers a professionally prepared book describing and showing the property, that there were over 30 site visits to the property by potential buyers, and that the Trustee and RBC have remained in contact with potential buyers pending the proposed sale to Montauk.

5. After several months of marketing and soliciting for offers for the property, the Trustee accepted Montauk's offer, subject to authorization by the Court. The Trustee then filed the Sale Motion on September 15, 2009.

6. In conjunction with the Sale Motion, the Trustee also filed a Motion for Order Establishing Bidding and Other Procedures in Connection with the Sale of Property and Granting Protections to the Proposed Buyer, and Memorandum in Support of Motion (the “Bidding Procedures Motion”) pursuant to 11 U.S.C. §§ 105(a) and 363(b) and (f), and Rule 6004, for the entry of an order (1) establishing bidding and other procedures in connection with the sale of the Assets under the Sale Motion, and (2) granting certain protections to Montauk as the proposed purchaser of the assets in the Sale Motion. On September 24, 2009, the Court entered the Order (1) Establishing Bidding and Other Procedures in Connection with the Sale of Substantially All Assets of the Estate, (2) Granting Protections to the Proposed Buyer, and (3) Scheduling Hearing on the Sale (the “Bidding Procedures Order”). The Bidding Procedures Order established procedures for the submission of qualified competing bids for the assets being sold under the Sale Motion.

7. In addition to the Sale Motion and the Bidding Procedures Motion, the Trustee filed a Notice of (1) Sale of Substantially All Assets of the Estate Free and Clear of Liens, Claims, Encumbrances and Other Interests, (2) Assumption and Assignment of Certain Unexpired Executory Contracts and Leases, and (3) Hearing on the Sale (the “Notice of Sale”) describing the Trustee's proposed sale and providing notice of the hearing on the Sale Motion. As shown by certificates of service filed with the Court, the Notice of Sale, the Sale Motion, the Bidding Procedures Motion, and the Bidding Procedures Order were served on creditors and parties in interest in the case.

8. The hearing on the Sale Motion (the “Sale Hearing”) initially was scheduled for October 28, 2009; however, it was twice rescheduled at the Trustee's request to allow Montauk additional time in which to complete its due diligence review of the assets and related matters for the Sale. The Court conducted the rescheduled Sale Hearing on December 30, 2009.

9. On November 20, 2009, the Trustee filed his Chapter 11 Plan (the “Plan”) and the Disclosure Statement to Chapter 11 Plan (the “Disclosure Statement”). The Plan incorporates the Sale under the Sale Motion. The hearing on the Disclosure Statement is presently scheduled for January 13, 2010.

B. General Description of the Assets of the Estate

10. The assets of the Estate (collectively, the “Estate Assets”) primarily consist of resort facilities, lodging, maintenance and support buildings and structures, and development property located on Daufuskie Island in Beaufort County, South Carolina. The Estate owns real property with improvements in the Melrose Planned Unit Development (“Melrose Plantation” or the “Melrose Property”), real property with improvements in the Bloody Point Planned Unit Development (“Bloody Point” or the “Bloody Point Property”), and real property and improvements comprising Melrose Landing, the dock and landing/departure location for the Debtor and for residents and visitors to Melrose Plantation and Bloody Point. The Estate also owns the Eigelberger tract of real property (the “Eigelberger Tract”) on Daufuskie Island by and through the Estate's ownership of Eprop, LLC, which holds title to the Eigelberger Tract.

11. The Estate Assets include an inn (the “Melrose Inn”), a conference center (the “Island House Conference Center”), cottages and duplexes (the “Beach Cottages”), a beach club (the “Melrose Beach Club”), two golf courses (the “Melrose Golf Course” and the “Bloody Point Golf Course”), an equestrian center, tennis courts, a pool and other structures, improvements and fixtures. The Melrose Golf Course, the Melrose Inn, the Melrose Beach Club, the tennis courts and the Beach Cottages are located on the Melrose Property. The Bloody Point Golf Course, miscellaneous maintenance buildings and structures and two unsold residential lots are located on the Bloody Point Property.

C. Existing Liens on the Assets of the Estate

12. Pursuant to Orders entered on April 24, 2009, May 8, 2009, July 17, 2009 and July 29, 2009, the Court granted the Trustee's motions for authorization to obtain post-petition financing from Beach First in the principal amount of $1 million and from Tidelands Bank in the principal amount of $500,000.00; these loans (the “Senior Post-Petition Loans”) comprise a participation loan by these two lenders, secured by a senior mortgage on, security interest in and lien on all assets of the Estate (except for avoidance actions and recoveries from avoidance actions), and having superpriority status under 11 U.S.C. § 364(c)(1) (except as to avoidance actions and recoveries from avoidance actions).

13. Pursuant...