IN RE MANDALAY SHORES CO-OP. HOUSING ASS'N, INC., Bankruptcy No. 86-1183-8P1.
| Decision Date | 02 March 1990 |
| Docket Number | Bankruptcy No. 86-1183-8P1. |
| Citation | 112 BR 440 |
| Parties | In re MANDALAY SHORES COOPERATIVE HOUSING ASSOCIATION, INC., Debtor. |
| Court | U.S. Bankruptcy Court — Middle District of Florida |
Jack Burr, Officer of debtor corp., Dunedin, Fla.
Langfred W. White, Clearwater, Fla., trustee.
Robert Eddy, Tampa, Fla., for creditors.
Cindy Burnette, Tampa, Fla., Asst. U.S. Trustee.
ORDER ON MOTION (OR PETITION) FOR VOLUNTARY WITHDRAWAL OR DISMISSAL OF PETITION FOR RELIEF VOLUNTARILY FILED UNDER CHAPTER 11 OF THE BANKRUPTCY CODE FOR THE PURPOSE OF TERMINATING CASE AND RENEWED MOTION TO DISMISS
THIS is the third Chapter 11 case commenced by the Mandalay Shores Cooperative Housing Association, Inc. (MSCHA), and the matters under consideration are two Motions. The first is filed by MSCHA and is entitled "Motion (or Petition) for Voluntary Withdrawal or Dismissal of Petition for Relief Voluntarily Filed under Chapter 11 of the Bankruptcy Code for the Purpose of Terminating Case". The second is a Renewed Motion to Dismiss this Chapter 11 case filed by Elizabeth M. Cannon (Cannon) and Ralph Meyer (Meyer). The Motion filed by MSCHA presents a unique twist in that the Debtor who sought relief in the bankruptcy court three times under Chapter 11 now urges that its third Chapter 11 should be dismissed because it was filed in bad faith, because of the continuing loss or diminution of assets of the estate, and because of the total absence of the likelihood of rehabilitation. In addition, MSCHA also urges that it is unable to effectuate a plan of reorganization, there are delays which are prejudicial to the creditors, and the Chapter 11 should be dismissed because of the Debtor's failure to file a reorganization plan within the time fixed by the Court.
The Renewed Motion to Dismiss filed by Cannon and Meyer urges a dismissal on the basis that the second Chapter 11 case filed by MSCHA in the Northern District of Illinois was dismissed with prejudice. Accordingly, this third Chapter 11 case, In re Mandalay Shores Co-op. Housing Ass'n, Inc., 63 B.R. 842 (M.D.Ill.1986), is a legal nullity and cannot be maintained by this Debtor, according to Cannon and Meyer.
In order to put the Motions under consideration in proper focus, it should be helpful to highlight both the problems which beset MSCHA from the outset and the underlying cause for its inability to achieve rehabilitation. It should be noted that rehabilitation would have been nothing more than a disposition of the only asset of MSCHA, monies on deposit in an Illinois bank which were collected by MSCHA from MSCHA members. It should be also helpful to state the reasons why this Court permitted MSCHA to remain under the protective umbrella of this Court for so long, and the concern which prompted this Court to go to an extra length to allow MSCHA to initially maintain the first and then this third Chapter 11 case.
MSCHA is an association organized under Fla.Stat. § 617.01 as a non-profit corporation. MSCHA was formed by the tenants of an apartment complex known as Mandalay Shores. The complex, which is located in Clearwater Beach, Florida, was owned by Housing and Urban Development (HUD), an agency of the U.S. Government, when the first Chapter 11 case was filed.
The record reveals that MSCHA was originally formed for the singular purpose of acquiring Mandalay Shores from HUD to prevent HUD from selling the complex to a private entrepreneur who most likely would convert Mandalay Shores into a condominium operation. Specifically, the tenants, most of whom were senior citizens, were told by the MSCHA organizers that the sale by HUD to a private developer would result in the loss of their very advantageous leases, even if the complex was not converted into a condominium project. Inasmuch as most of the retiree-tenants were not in the financial position to either purchase a condominium unit in the event of conversion or to pay an increased rent, their fear was well-founded and understandable. Faced with these frightening prospects, it is not surprising that the tenants of Mandalay Shores were anxious to join forces at the urging of the promoters, who initially promised the tenants that their combined efforts and resources would assure the preservation of their tranquil life, free of fear of losing their well-established residences and free of anxiety over their future. Thus it is not surprising that the management of the newly formed organization, MSCHA, had no difficulty in collecting over $1 million from the tenants to achieve the announced goal of MSCHA.
Initially, it appeared that MSCHA might have been able to achieve its goal. However, in spite of the vigorous, albeit unsuccessful, attempts, first on an administrative level and then in the various courts, MSCHA never had a chance to succeed, simply because HUD refused to consider MSCHA as a qualified purchaser of Mandalay Shores.
As noted earlier, MSCHA collected over $1 million from its members. Each member paid approximately $3,200 and obtained a receipt evidencing the amounts paid. Some of the receipts stated that in the event MSCHA's attempts to purchase Mandalay Shores proved unsuccessful, members may request a refund of their contribution or a general meeting of all members of MSCHA would be called to decide by a majority vote the next step to be taken by MSCHA concerning the future course of action to be pursued by MSCHA.
It appears that at the meeting, from which the members who had demanded back their contributions were excluded, the management of MSCHA changed the bylaws of MSCHA, and those in attendance, that is, the group loyal to the management, decided that they would attempt to purchase some similar apartment complex for the purpose of making available to the members suitable living facilities at reasonable prices.
As noted, several of the members demanded the return of their funds since they did not desire to participate in any further attempts by the management to acquire any property other than Mandalay Shores. Some of the members received refunds. However, the management decided not to honor any further requests for refunds and declared that members who demanded refunds were no longer members in good standing and lost their right to participate in the affairs of MSCHA. At this time, several of the dissident members instituted an action in the Circuit Court for Pinellas County and sought to recover not only their contributions, but also sought punitive damages based on alleged fraud by the management. The Plaintiffs in the state court action also applied for and obtained the appointment of a receiver. However, the imposition of receivership turned out to be meaningless inasmuch as the only assets of MSCHA, the funds collected from the members, were on deposit in the Northern District of Illinois and the receiver never acquired control of the funds.
When all efforts of MSCHA's management to purchase Mandalay Shores failed, and it was faced with the receivership imposed by the state court, MSCHA filed its first voluntary Petition for Relief under Chapter 11 in this Court on April 3, 1981. In spite of repeated attempts by MSCHA to produce a viable plan of reorganization, all its efforts failed and certain disgruntled former members sought repeatedly to have a dismissal of the Chapter 11 case, or in the alternative to convert the Chapter 11 case to a Chapter 7 liquidation case.
In due course, the Motion to Dismiss was heard. The Court considered all the alternatives and concluded that while this case was facially ripe for conversion, it could not be done without MSCHA's consent, because MSCHA was "a non-monied, nonbusiness, non-commercial" corporation and as such its case could not be converted absent consent to a Chapter 7 liquidation case by virtue of § 1112(c) of the Bankruptcy Code. Based on this, this Court entered an Order and granted the Motion to dismiss the Chapter 11 case, but suspended the effectiveness of the Order for 20 days in order to allow parties of interest in the alternative to seek an appointment of the trustee pursuant to § 1104, who might then be able to propose a confirmable plan of reorganization.
Notwithstanding the entry of the Order of Dismissal, it appears that the Chapter 11 case remained alive and this Court entered several additional Orders, all of which dealt primarily with the unsuccessful attempts by MSCHA to acquire suitable housing for the loyal members of MSCHA, provided none of the funds of the estate were used for that purpose. When everything failed, this Court ultimately dismissed with finality the first Chapter 11 case on October 25, 1985. The Order of Dismissal provided that all administrative expenses incurred during the pendency of the case would be considered by this Court, and no funds would be returned to MSCHA until this Court entered final orders on all applications for allowance filed by the numerous professionals involved in that Chapter 11 case. Although MSCHA filed a Motion for Rehearing on the Order of Dismissal, the Motion was denied on November 13, 1985, and the first Chapter 11 case, No. 81-0547 was dismissed.
While the first Chapter 11 case was still technically pending in this Court, MSCHA filed its second voluntary Petition for Relief under Chapter 11 in the Northern District of Illinois. The counsel for the dissenting members wasted no time and immediately sought a dismissal of this second Chapter 11 case on the basis that it was filed in bad faith because the sole purpose of this second Chapter 11 case was to defeat the lawful claims of members who demanded a refund of their contributions.
In due course, the bankruptcy court in the Northern District of Illinois heard the Motion to Dismiss and concluded that the second Petition was nothing more than abuse of the judicial process and was filed in bad faith. The Court entered an Order which dismissed the Chapter 11 case "with prejudice" on ...
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