In re Gainesville Venture, Ltd.

• Citation: 159 BR 810
• Decision Date: 30 August 1993
• Docket Number: Bankruptcy No. 2-90-01486,Adv. No. 2-93-0270.
• Court: United States Bankruptcy Courts. Sixth Circuit. U.S. Bankruptcy Court — Southern District of Ohio
• Parties: In re The GAINESVILLE VENTURE, LTD., Debtor. The GAINESVILLE VENTURE, LTD., Cardinal Realty Services, Inc., Peoples Westchester Savings Bank, Plaintiffs, v. C & R TRUST, Defendant.

159 B.R. 810 (1993)

In re The GAINESVILLE VENTURE, LTD., Debtor.

The GAINESVILLE VENTURE, LTD., Cardinal Realty Services, Inc., Peoples Westchester Savings Bank, Plaintiffs, v. C & R TRUST, Defendant.

Bankruptcy No. 2-90-01486, Adv. No. 2-93-0270.

United States Bankruptcy Court, S.D. Ohio, E.D.

August 30, 1993.

Gary Paul Price, Columbus, OH, for debtor.

Carol G. Stebbins, c/o Cardinal Realty Services, Inc., Reynoldsburg, OH, James H. Bownas, Gen. Counsel, Cardinal Realty Services, Inc., Leon Friedberg, Benesch, Friedlander, Coplan & Aronoff, Columbus, OH, for Cardinal Realty Services, Inc.

Ira Rubin, Goldman, Rubin & Shapiro, Dayton, OH, for Peoples Westchester Sav. Bank.

Joseph C. Winner, McFadden, Winner and Savage, and Henry P. Montgomery, Baker & Hostetler, Columbus, OH, for C & R Trust.

OPINION AND ORDER GRANTING REQUEST FOR INJUNCTIVE RELIEF AND FINDING VIOLATION OF THE AUTOMATIC STAY

BARBARA J. SELLERS, Bankruptcy Judge.

On June 22, 1993, the Court entered an order which approved a settlement reached between the debtor, The Gainesville Venture ("Gainesville"), and Peoples Westchester Savings Bank ("Peoples"). That settlement granted Peoples relief from the automatic stay imposed by 11 U.S.C. § 362(a) to pursue in Florida state court its prepetition judgment of foreclosure obtained against Gainesville. C & R Trust ("C & R"), Gainesville's sole limited partner, objected to the settlement. The Court overruled that objection and approved the settlement. C & R did not appeal that order.

Presently before the Court is a motion and a complaint filed jointly by Gainesville and by Cardinal Realty Services, Inc. ("Cardinal"), Gainesville's managing general partner. The motion seeks a finding that C & R is in violation of the automatic stay. The complaint, also joining Peoples as a plaintiff, seeks to enjoin C & R from interfering in the state foreclosure action. These actions were precipitated by C & R's filing in the state court of a motion to quash service of process and vacate the state court's prior order of foreclosure. The Florida court has set that motion for hearing on September 2, 1993.

With the agreement of C & R, the Court heard the motion and the complaint for an injunction on an expedited basis on August 26, 1993. Based upon the arguments of the parties and the Court's independent research, the Court finds that C & R has violated the automatic stay and should be enjoined from interfering further in the Florida state court foreclosure action.

C & R asserts that it has a derivative right on behalf of the Gainesville partnership to contest the validity of the foreclosure judgment and future sale. There is no dispute that under Florida law a limited partner may, under certain circumstances, assert a derivative right which the general partner has refused to assert. See, Fla. Stat.Ann. § 620.163 and Goldome Savings Bank v. Wulsin, 530 So.2d 291 (1988). As the statute and case law recognize, however, this "derivative right" is asserted on behalf of the limited partnership. Said differently, the cause of action or defense belongs to the limited partnership, not the limited partner. Fla.Stat. § 620.163. In this manner limited partner derivative suits are similar to shareholder derivative suits brought on behalf of a corporation rather than for the benefit of an individual shareholder. Compare, Fla.Stat. § 607.07401.

When the limited partnership is a chapter 11 debtor, however, any causes of action or defenses of the limited partnership to a state court foreclosure action are property of the partnership's bankruptcy estate pursuant to 11 U.S.C. § 541. See, Griffin v. Bonapfel (In re All American Ashburn, Inc.), 805 F.2d 1515, 1518 (11th Cir.1986). In Griffin, the court was faced with a shareholder derivative action being asserted on behalf of a debtor corporation. The chapter 7 trustee had reached a settlement with the defendant and sought to enjoin the shareholders from further pursuing the action. The Court found that the cause of action belonged to the corporation and, thus was property of the bankruptcy estate. Any assertion of that claim by the shareholders through a derivative action would be an...