In re Mmh Automotive Group, LLC

• Decision Date: 17 March 2008
• Docket Number: Bankruptcy No. 05-40913-BKC-LMI.,Adversary No. 07-01574-LMI.
• Citation: 385 B.R. 347
• Parties: In re MMH AUTOMOTIVE GROUP, LLC, Debtor. South Motor Company of Dade County, a Florida corporation, Plaintiff, v. Carter-Pritchett-Hodges, Inc., a Florida corporation, Defendant.
• Court: U.S. Bankruptcy Court — Southern District of Florida

385 B.R. 347

In re MMH AUTOMOTIVE GROUP, LLC, Debtor.

South Motor Company of Dade County, a Florida corporation, Plaintiff, v. Carter-Pritchett-Hodges, Inc., a Florida corporation, Defendant.

Bankruptcy No. 05-40913-BKC-LMI.

Adversary No. 07-01574-LMI.

United States Bankruptcy Court, S.D. Florida.

March 17, 2008.

As Amended March 18, 2008.

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John B. Hutton, III, Scott M. Grossman, Esq., Miami, FL, for Plaintiff.

Glenn D Moses, Esq., Miami, FL, for Defendant.

MEMORANDUM OPINION IN SUPPORT OF FINAL JUDGMENT IN FAVOR OF PLAINTIFF

LAUREL M. ISICOFF, Bankruptcy Judge.

This adversary proceeding, filed by South Motor Company of Dade County ("South Motor"), the purchaser of real property in a bankruptcy sale, seeks a determination that an unrecorded billboard lease, of which South Motor did not have actual notice, was eliminated as an interest upon entry of the order approving the bankruptcy sale. The Defendant lessee, Carter-Pritchett-Hodges, Inc. ("CPH"), disagrees. For the reasons stated below, judgment will be entered against CPH and in favor of South Motor.¹

PROCEDURAL HISTORY

MMH Automotive Group, LLC ("MMH") filed a chapter 7 petition on September 25, 2005. Pursuant to the settlement of an adversary proceeding more fully described below, the Trustee obtained title to real property located in Miami-Dade County, 18010 South Dixie Highway (the "Real Property"), which at one time had belonged to MMH. This Court granted the chapter 7 trustee (the "Trustee") authority to sell the Real Property by auction in accordance with 11 U.S.C. § 363, and subsequently it was sold to South Motor. Pursuant to the sale order entered on March 15, 2007 (the "Sale Order") (Bankr.CP # 209),² South Motor purchased the Real Property free and clear of all liens and encumbrances.

Following the sale, South Motor instituted the instant adversary proceeding, seeking a determination that the Sale Order conveyed the Real Property to South Motor free and clear of any interest in the Real Property asserted by CPH by virtue of an unrecorded lease. Cross-motions for summary judgment were filed by South Motor and CPH, both of which were denied.³ This matter then proceeded to trial on November 13, 2007.

SUMMARY OF DISPUTE

South Motor seeks to enforce the Sale Order provisions that authorized the Trustee to sell the Real Property to South Motor free and clear of all liens and encumbrances and enjoined third parties from "asserting against South Motor, its successors or assigns, its property, or the Real Property, such persons' or entities' interests." Sale Order at ¶ 6. South Motor also asks this Court to find CPH has no interest in the Real Property because CPH's leasehold interest was not recorded and therefore is unenforceable against the Trustee and South Motor, a bona fide purchaser. Moreover, South Motor argues, because CPH's leasehold interest was not recorded, CPH was not entitled to receive notice of the sale of the Real Property. South Motor further asserts that even if CPH had been entitled to notice, the Real Property could nonetheless be sold free of CPH's interest pursuant to 11 U.S.C. § 363(f). South Motor's final argument is that since the Sale Order was a final order, not appealed, the whole world, including CPH, is bound by its provisions.

CPH counters that it does have an enforceable interest in the Real Property, that it was entitled to notice of the sale, and, moreover, that its interests cannot be compromised by section 363(f). CPH claims it has an inalienable right in the Real Property by virtue of section 365(h), ,and therefore, the Sale Order is invalid as to its interests in the Real Property.

FACTUAL SUMMARY

On April 19, 1999, CPH, a Florida corporation engaged in the business of outdoor advertising, entered into an Outdoor Advertising Ground Lease Agreement (the "Billboard Lease") with RGA Investment Inc. ("RGA"), a predecessor-in-interest to MMH. The Billboard Lease gave CPH the right to operate a billboard on the Real Property for a period of 99 years, for a single, up-front payment of $15,000. Along with the Billboard Lease, RGA executed a sale agreement with CPH in which RGA sold the billboard to CPH for ten dollars. [CPH Exh. # B]. CPH did not record the Billboard Lease, nor did it seek a permit for the billboard. CPH asserts that the billboard did not need a permit because it was erected before Miami-Dade County required permits for billboards. [Trans. 171:12-18, 198:1-25].

CPH apparently operated the billboard for the next few years, during which time the Real Property was sold several times. In 2002, RGA sold the Real Property to MMH and executed a Warranty Deed (the "RGA Deed") recorded December 30, 2002 in the public records of Miami-Dade County. [CPH Exh. # I]. The RGA Deed conveyed the Real Property subject to, as stated on the face of the RGA Deed, taxes, conditions and easements of record, certain environmental matters and

The Ninety-nine (99) Year Outdoor Advertising Ground Lease Agreement Dated April 21, 1999 for the lease term commencing April 16, 1999, said lease made between RGA Investments, Inc., a Florida corporation, and Carter-Pritchett Hodges, Inc., a Florida corporation.

MMH and RGA entered into an Assignment and Assumption Agreement of Outdoor Advertising Ground Lease Agreement on or about December 19, 2002. [CPH Exh. # LL]. There is no question that CPH knew MMH purchased the Real Property as MMH sent CPH a letter on December 30, 2002, asking for certain proof of insurance and requesting certain arrangements for, and payment of, utility charges associated with the electricity used to operate the billboard. [CPH Exh. #F],

In 2005, MMH transferred the Real Property to an allegedly affiliated company, GAG Realty, Inc. ("GAG"), by quitclaim deed (the "MMH Deed"),⁴ while also transferring the car dealership located on the Real Property to an affiliate of GAG, Global Automotive Sales ("Global"). The MMH Deed did not mention the Billboard Lease; nor is there any evidence GAG assumed the Billboard Lease.

MMH filed for relief under chapter 7 of the Bankruptcy Code on September 25, 2005. The Billboard Lease was not scheduled as an executory contract of the Debtor. The Trustee did not move to assume or reject the Billboard Lease.

Joel Tabas (the "Trustee"), was appointed chapter 7 trustee on September 27, 2005. On December 29, 2005, the Trustee filed an action against Global (the "Avoidance Adversary") seeking recovery of the automobile dealership assets,⁵ which complaint was amended on February 2, 2006, adding GAG as a party and adding a count seeking recovery of the Real Property. The basis for the relief sought by the Trustee was that the transfers of the dealership and the Real Property were fraudulent transfers recoverable pursuant to 11 U.S.C. §§ 548 and 550. The parties ultimately settled the Avoidance Adversary, and pursuant to the settlement, GAG transferred the Real Property to the Trustee by quitclaim deed (the "GAG Deed"). The GAG Deed apparently did not reference the Billboard Lease.⁶

Although no bankruptcy pleadings referenced the billboard or the Billboard Lease, the Trustee had actual knowledge of both. In connection with the Avoidance Adversary the Trustee's counsel took the deposition of Ralph Sam, principal of GAG and Global, where, in response to a question by Trustee's counsel, Mr. Sam confirmed the billboard was owned by a third party named "Carter." [CPH Exh. # G, at 151:20-153:4]. Moreover, an exhibit to Mr. Sam's deposition, the Purchase and Sale Agreement between MMH and GAG, specifically recites in an addendum that "the billboard on the property is not owned by the seller, and is owned by a third party." [CPH Exh. # G].

Counsel for the Trustee also took the deposition of Abram Katz. Exhibits from that deposition included the RGA Deed and the Billboard Lease. [CPH Exh. # H]. Additionally, a copy of the Billboard Lease was produced to the Trustee as part of a document production that requested "All documents regarding billboard." [CPH Exh. # B and JJ].

Once the Trustee had title, he began marketing the Real Property. On February 14, 2007, the Trustee filed a motion seeking authority to sell the Real Property to SAG Realty, LLC free and clear of liens and encumbrances (the "Motion to Sell") (Bankr.CP # 201). The Motion to Sell was granted, and on March 12, 2007, I conducted an auction, at the conclusion of which, and based on the Trustee's recommendation, I found South Motor's bid of $6,835,000 to be the highest and best offer for the Real Property. On March 15, 2007, I entered the Sale Order approving the sale to South Motor free and clear of all claims, liens and encumbrances. I made certain findings in the Sale Order, based on the factual proffers of the Trustee, including that "[p]roper, timely, adequate and sufficient notice of the Motion ... has been provided in accordance with Section 102(1) of the Bankruptcy Code and Bankruptcy Rules 2002 and 6004" and that "[a] reasonable opportunity to object or to be heard regarding the relief requested in the Motion has been afforded to all interested persons and entities." Sale Order, Exh. C and D. See Trans, of hearing on Motion to Sell, 21:24-22:8 [SM Exh. # 24]. The closing took place on March 19, 2007.⁷ [SM Exh. # 1, at ¶ 30].

South Motor asserts it first became aware of a possible third party interest in the billboard when, in July 2007, CPH employees arrived and commenced painting the billboard's pole. [SM Exh. # 1, at ¶ 33]. Through counsel, South Motor contacted CPH, identified itself as the current owner of the Real Property, and demanded CPH remove the billboard. Prior to the demand, CPH claims it had no formal notice⁸ of MMH's bankruptcy or notice of the sale of the Real Property. [Pretrial Order (CP # 49), at ¶ 1C].

JURISDICTION

While neither party disputes my jurisdiction, I nonetheless must determine whether I have...