In re Ocean 4660 LLC

• Decision Date: 01 August 2017
• Docket Number: Case No. 13–23165–JKO
• Citation: 569 B.R. 850
• Parties: IN RE: OCEAN 4660 LLC, Debtor.
• Court: U.S. Bankruptcy Court — Southern District of Florida

569 B.R. 850

IN RE: OCEAN 4660 LLC, Debtor.

Case No. 13–23165–JKO

United States Bankruptcy Court, S.D. Florida, Fort Lauderdale Division.

Signed August 1, 2017

Ocean 4660, LLC, pro se.

Drew M. Dillworth, Kristopher E. Pearson, Eric J. Silver, Miami, FL, for Trustee.

Zana Michelle Scarlett, Office of the U.S. Trustee, Miami, FL, for U.S. Trustee.

ORDER SANCTIONING KENNETH A. FRANK PURSUANT TO 28 U.S.C. § 1927 FOR UNREASONABLY AND VEXATIOUSLY MULTIPLYING PROCEEDINGS, DIRECTING TRUSTEE YIP TO FILE A BILL OF COSTS, ETC., FINDING KENNETH A. FRANK TO HAVE ACTED IN BAD FAITH, PROHIBITING FILINGS BY HIM, AND DIRECTING CLERK TO TAKE CERTAIN ACTIONS

John K. Olson, Judge, United States Bankruptcy Court

This Chapter 7 case came on for hearing before the Court on January 19, 2017, on the Court's Order to Show Cause [ECF 524], entered May 26, 2016, which directed Kenneth A. Frank to show cause why he should not be sanctioned pursuant to 28 U.S.C. § 1927 for unreasonably and vexatiously multiplying the proceedings in this bankruptcy case.

Frank has challenged virtually every step of this case, starting during its time in Chapter 11 and continuing thereafter to stymie the case's Chapter 7 liquidation process. He has relentlessly and falsely accused the Trustee, Maria Yip, and her counsel of nonfeasance and malfeasance. Even after his contentions have been found by this Court to be untrue, and those findings have been affirmed on appeal, he has continued to accuse the Trustee of wrongdoing without offering any evidence in support of his accusations. In doing so, he has gone so far beyond the reasonable boundaries of litigation that his actions have passed the high burden of unreasonable and vexatious multiplication of these proceedings as to warrant the imposition of sanctions under 28 U.S.C. § 1927.

Background

This case was filed [ECF 1] as a voluntary Chapter 11 case on June 2, 2013. The Debtor owned a beachfront hotel (the "Hotel") in Lauderdale-by-the-Sea, Florida, with 147 guestrooms, a beachfront tiki bar and grill (the "Tiki Bar"), an adjoining restaurant and commercial kitchen, and on-site parking. The filing was precipitated by a mortgage foreclosure action brought by Comerica Bank and very extensive code violations asserted by the Town of Lauderdale-by-the-Sea. Despite excellent representation by its counsel, Genovese, Joblove & Battista, P.A., the case quickly floundered over management issues beyond counsel's control. Comerica Bank and the United States Trustee sought appointment of a Chapter 11 Trustee by separate motions [ECF 52, 54, 55] filed July 9, 2013. With the Debtor's acquiescence, the Court directed the United States Trustee to appoint a Chapter 11 Trustee by Order [ECF 56] entered July 10, 2013. Maria Yip was appointed [ECF 57] as Chapter 11 Trustee on July 12, 2013. The Court approved the appointment by Order [ECF 61] entered July 15, 2013. Trustee Yip promptly sought [ECF 68], and the Court authorized [ECF 70], the retention of Drew Dillworth, Esquire, and Stearns Weaver Miller Weissler Alhadeff & Sitterson, P.A., as Trustee's counsel.

The Tiki Bar Lease

The Trustee quickly concluded that the value of the Hotel was substantially depressed by the existence of a purported lease of the Tiki Bar by the Debtor to El Mar Associates, Inc., a Florida corporation owned by Frank. The Trustee accordingly moved to reject the lease by Motion [ECF 98] (the "Motion to Reject") timely filed August 23, 2013. On September 3, 2013, the Trustee brought Adversary Proceeding 13–1641 against El Mar and Frank for declaratory judgment, determination of the validity of the El Mar lease, avoidance of a fraudulent transfer, and injunctive relief. After trial on the Motion to Reject in the Adversary Proceeding, the Court granted the Motion to Reject the Tiki Bar lease by Order [ECF 154] entered November 22, 2013, and determined that the Tiki Bar lease was invalid in Adversary Proceeding 13–1641 by Order [ECF 85] entered November 21, 2013, and Final Judgment [ECF 87] entered November 22, 2013. No notice of appeal was filed seeking appellate review of the Order [ECF 154] that granted the Motion to Reject. Frank, pro se and purporting to act only on behalf of himself (although he was not a party to the purported lease, which was solely between the Debtor and El Mar¹ ), timely filed a Notice of Appeal [ECF 100] in the Adversary Proceeding on December 2, 2013. Frank (again acting pro se and asserting that he "is a Director of El Mar Associates, Inc.") simultaneously sought entry of a stay pending appeal in a 155–page Motion for Stay Pending Appeal [ECF 101], filed December 2, 2013, in the Adversary Proceeding. On December 3, 2013, Frank withdrew the Motion for Stay [ECF 101] by formal Withdrawal [ECF 110], filed December 3, 2013, and simultaneously withdrew the Notice of Appeal by formal Withdrawal [ECF 111]. No further review by way of motion for reconsideration or appeal was ever sought by Frank or El Mar, and the effect of the withdrawals of the Notice of Appeal and the Motion for Stay Pending Appeal was that this Court's determination that the lease was both invalid and rejected became final.

Sale of the Hotel

Meanwhile, on October 29, 2013, the Trustee filed her motion (the "Motion to Sell") [ECF 135] in the main case seeking to sell the Hotel, including the Tiki Bar, by competing bid and free and clear of all liens, claims, encumbrances, and interests. The Court granted in part the Motion to Sell by Order [ECF 146] (the "Sale Procedures Order") entered November 13, 2013, setting bidding and sale procedures and scheduling an auction sale hearing for December 3, 2013. On November 27, 2013, Frank and another of his entities, Oceanside Lauderdale, Inc., filed an Objection² [ECF 158] to the Motion to Sell. El Mar, through counsel, also Objected [ECF 160] on November 30, 2013. Trustee Yip conducted the auction sale on December 3, 2013. Four bidders participated in the auction; their respective bids are produced on Trustee Yip's Bidding Summary [ECF 173], filed December 3, 2013. The final winning bid was in the all-cash amount of $17 million. This price was several million dollars in excess of the parties' expectations; the price obtained was greeted with universal jubilation from all parties, including Frank and his entities. The Objections of El Mar and of Frank and Oceanside were thereupon immediately withdrawn by formal Withdrawals [ECF 175, 176] filed by counsel on December 3, 2013. The Court approved the sale of the Hotel (including the Tiki Bar) by Order [ECF 178] (the "Final Sale Order") entered December 12, 2013. Among other things, the Final Sale Order authorized Trustee Yip to pay certain real estate tax obligations (which exceeded $750,000), the break-up fee to the stalking horse bidder of $200,000, the broker's commission of $595,000, and the sum of $11,941,376.29 to Comerica Bank for loan principal amounts outstanding, together with tax, insurance, and ground lease rent payment which had been advanced by Comerica. No motion for reconsideration or appeal was sought from the Final Sale Order, which became final by operation of law on December 26, 2013. The sale closed in the final days of 2013, and Trustee Yip made the payments authorized in the Final Sale Order.

On February 24, 2014, the Trustee filed a Chapter 11 Plan [ECF 212] and a Motion to Waive Disclosure Statement Requirement [ECF 213], which indicated that there was approximately $3.6 million in remaining Sale proceeds. The Plan ultimately proved impossible to confirm because of Frank's continuing obstruction. In order to minimize administrative expenses and to preserve as much value as possible for creditors, the Trustee moved to convert the case to Chapter 7 by Motion [ECF 331] filed September 22, 2014. The case was converted, by Order [ECF 340] entered October 3, 2014, to a case under Chapter 7 after hearing conducted September 30, 2014. Chapter 11 Trustee Yip was appointed [ECF 344] as Interim Chapter 7 Trustee by the United States Trustee on October 6, 2014.

Valuation of Comerica's Claim

On February 28, 2014, Comerica Bank filed its Motion to Value and Determine Secured Status of Lien (the "Motion to Value") [ECF 228]. Comerica sought to recover $2.25 million as a secured claim in addition to the $11,941,376.29 that it had previously been paid on account of its secured claim. The additional amount sought included default interest and attorneys' fees.

Trustee Yip filed a Preliminary Response [ECF 243] to the Motion to Value on March 28, 2014. Trustee Yip noted that, after payment of then-anticipated administrative expenses of some $1.35 million, the effect of payment to Comerica of the additional $2.25 million the Bank sought would be that "there will be virtually nothing available for any other constituency in this case."

On March 28, 2014, Frank, El Mar, and Oceanside, through counsel, for the first time and "upon information and belief," raised questions by Cross–Motion [ECF 244] concerning whether Comerica Bank had properly accounted for payments made to it by the Debtor under an interest rate swap agreement (the "Swap Agreement") and whether Comerica had properly accounted for "any 'profit' " on its disposition of allegedly cross-collateralized property owned by Tropic Ranch, Inc., an entity owned at relevant times by principals of the Debtor. These perfectly appropriate questions did not allege any wrongdoing by Comerica or the Trustee and were raised in the context of Comerica's Motion (the "Motion to Value") [ECF 228] seeking determination of the amount and allowance of its secured claim.

At a hearing on the Motion to Value conducted April 1, 2014, the Court was advised that the parties wished to pursue a mediated settlement. Accordingly, and by Order [ECF 256] entered April 14, 2014, the Court set a further status conference on the Motion to Value for May 14, 2014, and ordered:

At the status conference, the Court will consider what further discovery, briefing,

...