In re General Development Corp.
| Decision Date | 15 March 1994 |
| Docket Number | 90-12231-BKC-AJC.,No. 93-1666-CIV,93-1666-CIV |
| Parties | In re GENERAL DEVELOPMENT CORPORATION, et al., Debtors. CONTINENTAL CASUALTY COMPANY, Appellant, v. GENERAL DEVELOPMENT CORPORATION and Florida Department of Revenue, Appellees. |
| Court | U.S. District Court — Southern District of Florida |
Mark Freund, Mark Freund, P.A., Thomas J. Guilday, Huey, Guilday, Kuersteiner & Tucker, P.A., Tallahassee, FL, for Continental Cas. Co.
Arthur J. England, Jr., Mark D. Bloom, Paige A. Harper, Greenberg, Traurig, Hoffman, Lipoff, Rosen & Quentel, P.A., Miami, FL, for General Development Corp.
Jeffrey M. Dikman, Asst. Atty. Gen., Dept. of Legal Affairs, Tax Section, Tallahassee, FL, for Florida Dept. of Revenue.
ORDER AFFIRMING DECISION OF BANKRUPTCY COURT
This is an appeal by Continental Casualty Company ("CCC") from three related orders entered by Judge A. Jay Cristol of the United States Bankruptcy Court for the Southern District of Florida relating to the payment of Florida corporate income taxes for the years 1974, 1975 and 1976. These orders are (1) Order Granting in Part and Denying in Part Motion to Vacate Order Approving Settlement Agreement Between Debtor and Florida Department of Revenue; to Approve Settlement De Novo, Nunc Pro Tunc, dated November 14, 1991; (2) Order on Continental Casualty Company's Motion for Rehearing of November 14, 1991 Nunc Pro Tunc Order on GDC-DOR Settlement, dated December 10, 1992; and (3) Second Order on Continental Casualty Company's Motion for Rehearing of November 14, 1991 Nunc Pro Tunc Order on GDC-DOR Settlement, dated March 5, 1993. This appeal has been referred to by the parties and the Court as the "Nunc Pro Tunc Appeal."1
The Court has carefully considered the briefs on appeal, oral argument of counsel, the record on appeal, the decisions of the lower court and the applicable law, and is otherwise fully advised in the premises. For the following reasons, this Court AFFIRMS the decision of the Bankruptcy Court.
In February of 1979, Appellee Florida Department of Revenue ("DOR") issued a notice of deficiency to Appellee General Development Corporation ("GDC" or the "Debtor"), stating a net tax deficiency of $1,909,110.00 for the years 1974, 1975 and 1976. Discussions between the parties later resulted in a revised tax claim of $1,219,379.00. In accordance with DOR regulations, GDC appealed the notice of deficiency by commencing an action in the circuit court for the Second Judicial Circuit in Leon County, Florida (the "state court action") in June of 1981. Appellant CCC is a surety company that provided a bond to GDC at the commencement of the state action in the amount of $1,958,530.00.
DOR and GDC continued to litigate the state action and on April 6, 1990, GDC filed a voluntary petition for relief under Chapter 11 of the United States Bankruptcy Code. Subsequent negotiations between the parties resulted in a proposed settlement agreement which was approved by the Bankruptcy Court by Order dated September 14, 1990 (the "Settlement Order") after a hearing. The approved terms of the settlement permitted, inter alia, the lifting of the automatic stay for the "limited" purposes of:
(1) Allowing DOR to make demand for payment of the Liability from GDC; (2) Allowing the entry of a Judgment against GDC in the Circuit Court of the Second Judicial Circuit in and for Leon County, Florida in the amount of the Liability, $1,958,530 (the "Judgment"); and (3) Allowing DOR to pursue any and all remedies DOR may have against the bond posted in connection with the Action.
Pursuant to the approved settlement agreement, the state court entered a consent final judgment against GDC on September 28, 1990 for the sum of $1,958,530.00. CCC first became aware of the DOR/GDC settlement and the Settlement Order when DOR sought to enforce the consent final judgment against it to recover on the bond. CCC objected, claiming that its due process rights were violated by GDC's failure to provide proper notice and an opportunity to be heard on the settlement motion in the bankruptcy proceeding. The state court declined to enforce the judgment against CCC.
DOR thereafter moved the Bankruptcy Court to vacate the Settlement Order and to approve the GDC/DOR settlement de novo on a nunc pro tunc basis. At the hearing on DOR's motion, CCC presented its due process argument and attacked the GDC/DOR settlement as being fraudulently entered into. On November 14, 1991, the Bankruptcy Court entered the Order Granting in Part and Denying in Part Motion to Vacate Order Approving Settlement Agreement Between Debtor and Florida Department of Revenue; to Approve Settlement De Novo, Nunc Pro Tunc (hereinafter referred to as the "Nunc Pro Tunc Order").
In the Nunc Pro Tunc Order, the lower court approved and ratified the DOR/GDC settlement agreement previously approved in the Settlement Order on September 14, 1990. It vacated and reinstated, nunc pro tunc, the Settlement Order as of September 14, 1990. The Order also provided that it "in no way determines whether CCC is liable on the bond posted" in the state court action as such determination rests with the state court. In addition, the Order stated that "with the exception of finding that the Settlement Agreement was entered into absent `fraud or collusion,' this Court makes no ruling upon any defense which CCC has raised in the state court Action."
CCC filed a motion for a rehearing, claiming that (1) the effective date of the settlement should be October 23, 1991, the date of the hearing on DOR's motion to vacate and reinstate, and not the nunc pro tunc date of September 14, 1990 because CCC had no opportunity to object or be heard on September 14, 1990; (2) the settlement improperly established GDC's tax liability rather than merely liquidating DOR's claimed amount of taxes due; (3) the agreement that DOR would seek recourse for its claim against CCC rather than from GDC violated CCC's state law right of exoneration; and (4) the Nunc Pro Tunc Order improperly exposed CCC to liability for prejudgment interest payments from September 14, 1990 through October 23, 1991.
A hearing on CCC's motion for a rehearing was held on December 18, 1991 and resulted in the entry of the Order on Continental Casualty Company's Motion for Rehearing of November 14, 1991 Nunc Pro Tunc Order on GDC-DOR Settlement, dated December 10, 1992 (hereinafter referred to as the "First Rehearing Order"). In that Order, the lower court again approved and ratified the DOR/GDC settlement agreement and determined that the factual circumstances warranted the entry of a nunc pro tunc order as of September 14, 1990. It also revised the Nunc Pro Tunc Order to reflect that the settlement agreement merely liquidated the amount of DOR's claim and not make a substantive determination of GDC's tax liability. In addition, a hearing was set on December 30, 1992 to hear additional arguments on CCC's due process arguments arising from the interest payments.
Prior to the scheduled hearing, DOR waived its claim for prejudgment interest from the period September 14, 1990 through October 23, 1991. Nonetheless, the hearing was held as scheduled and resulted in the entry of the Second Order on Continental Casualty Company's Motion for Rehearing of November 14, 1991 Nunc Pro Tunc Order on GDC-DOR Settlement (hereinafter referred to as the "Second Rehearing Order") on March 5, 1993. In that Order, the Bankruptcy Court held that DOR's waiver of all claim to interest during the disputed time period rendered CCC's due process claim moot, reiterated that the settlement agreement liquidated DOR's "tax claim" as opposed to determining GDC's "tax liability," and reiterated that the nunc pro tunc provision of the Nunc Pro Tunc Order was valid and remained in full effect.
This appeal followed. CCC contends on appeal that it can not be bound by the Nunc Pro Tunc Order (and the two subsequent orders clarifying and reaffirming the Nunc Pro Tunc Order) as of September 14, 1990. It concedes that it can be bound by the orders as of October 23, 1991, the date on which CCC first presented its objections to the GDC/DOR settlement agreement to the Bankruptcy Court.
The Court has jurisdiction of this appeal pursuant to 28 U.S.C. § 158(a) (West 1993).
CCC raises three issues in this appeal: (1) whether CCC's due process rights were violated by the Bankruptcy Court's reinstatement of its Settlement Order, nunc pro tunc, as of September 14, 1990; (2) whether the Bankruptcy Court abused its discretion in reinstating the GDC/DOR settlement agreement on a nunc pro tunc basis; and (3) whether the Bankruptcy Court had jurisdiction to issue an order regarding a controversy between two non-debtors, DOR and CCC. The Court will address these issues seriatim.
The Fifth Amendment of the United States Constitution provides that no person shall be "deprived of life, liberty or property, without due process of law." U.S. CONST. amend. V. It is well established that creditors' rights in bankruptcy cases are property interests that are protected by the Fifth Amendment and that cannot be impaired without notice and an opportunity to be heard. See, e.g., City of New York v. New York, New Haven & Hartford Railroad Co., 344 U.S. 293, 73 S.Ct. 299, 97 L.Ed. 333 (1953); Reliable Electric Co., Inc. v. Olson Construction Co., 726 F.2d 620, 623 (10th Cir.1984); In re Bilder, 108 B.R. 666, 667 (Bankr.E.D.Wis.1989).
Since CCC is the surety on the bond issued in the state court litigation between GDC and DOR, it certainly had a property interest in the settlement of that action. It is undisputed that CCC did not receive prior notice of the GDC/DOR settlement agreement and thus did not have an opportunity to be heard at the bankruptcy hearing approving said settlement. In this regard, the Settlement Order entered on September 14, 1990...
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