In re Perdido Bay Country Club Estates, Inc., Bankruptcy No. 81-02157-BKC-TCB
| Decision Date | 19 August 1982 |
| Docket Number | 81-02158-BKC-TCB,Bankruptcy No. 81-02157-BKC-TCB,Adv. No. 82-0128-BKC-TCB-A. |
| Citation | 23 BR 36 |
| Parties | In re PERDIDO BAY COUNTRY CLUB ESTATES, INC. and Vermont Land Corporation, Debtors. PERDIDO BAY COUNTRY CLUB ESTATES, INC. and Vermont Land Corporation, Plaintiffs, v. The EQUITABLE TRUST COMPANY, Defendant. |
| Court | U.S. Bankruptcy Court — Southern District of Florida |
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Edward A. Kaufman, Miami, Fla., for defendant Britton Cohen et al.
Donald N. Rothman, Lewis A. Kann, Baltimore, Md., John E. Venn, Jr., Smith, Sauer & Venn, Pensacola, Fla., for defendant.
Robert F. O'Malley, Jr., Smathers & Thompson, Miami, Fla., for plaintiff.
The debtors seek the avoidance under 11 U.S.C. §§ 1107(a) and 548(a)(2)(A) and (B)(i) of separate real property transfers by each debtor to Equitable (C.P. Nos. 1, 17 and 20). The matter was tried on July 27 and 28. Equitable's motion to dismiss Vermont Land's petition (C.P. No. 65a) which had been denied on July 19 without prejudice (C.P. No. 99) was also renewed and considered at the trial.
A threshold issue is presented by Equitable's eighth affirmative defense (C.P. No. 17) challenging jurisdiction upon the ground subsequently adopted by the Supreme Court in Northern Pipeline Construction Co. v. Marathon Pipe Line Co. ___ U.S. ___, 102 S.Ct. 2858, 73 L.Ed.2d 598 (1982). During argument, the parties agreed that the Supreme Court's stay of judgment in that case confirms this court's jurisdiction to adjudicate these issues at least until October 4, 1982. Only acts of this court after that date are dependent upon future remedial action by Congress.
The Court said:
Unless the effect of this stay is to confirm the exercise of this court's jurisdiction at least until October 4, 1982, every interim act of the Bankruptcy Court would be suspect and subject to jurisdictional challenge after October 4. This would inevitably produce the very impairment of interim administration which the Court was at pains to avoid.
The transfer from Perdido occurred on March 5, 1981, when the clerk of the U.S. District Court for the Northern District of Florida issued a certificate of title to Equitable, following a foreclosure sale ordered by that court. It involved some 2,900 acres of land near Pensacola, portions of which were improved with a country club and other improvements. Perdido now contends that it "received less than a reasonable equivalent value in exchange for such transfer." I disagree with Perdido.
The transfer from Vermont Land occurred five months later on August 5 and 7, 1981, after that debtor's right of redemption expired under the terms of a 1980 Agreement, when Vermont courts entered consent foreclosure orders vesting title in Equitable without sale. It involved 3,930 acres of vacant land in two counties in southern Vermont. Vermont Land contends that it, too, "received less than a reasonable equivalent value in exchange for such transfer". I agree with Vermont Land.
In neither instance is there any suggestion of fraud, mistake, accident, or surprise or irregularity in the transfer.
The two transfers are challenged in this single action, because the two debtors are wholly owned subsidiaries of a parent corporation not in bankruptcy, Cavanagh Community Corporation, and because the debtors were jointly liable to Equitable upon a single debt which dates back to a 1976 mortgage. Both transfers were made in compliance with a Settlement Agreement executed between the parties on December 31, 1980, when the Vermont property was pledged as additional collateral. Though the history of the debt has absorbed much of the parties' attention here, it is essentially irrelevant to the matters before me.
Under §§ 1107(a) and 548(a)(2)(A) and (B)(i), the debtors assert a purely statutory cause of action, which permits them to avoid transfers as constructively fraudulent, irrespective of the parties' actual intent, upon proof of three elements: (1) the transfer was made to defendant within one year before December 30, 1981, when these debtors filed for bankruptcy; (2) for which each debtor received less than reasonably equivalent value; and (3) that each debtor was then insolvent or became insolvent by its transfer. 4 Collier on Bankruptcy (15th ed.) ¶ 548.03.
The Eleventh Circuit, which includes this court, has formally adopted Fifth Circuit precedent. I am, therefore bound by Durrett v. Washington National Insurance Co., 5 Cir. 1980, 621 F.2d 201, 203, where the Court held that a Texas private, non-judicial foreclosure sale under a deed of trust for 57.7 percent "of the fair market value of the property" was not for a "fair equivalent". This case was decided under § 67(d) of the former Act, but the operative provisions under the former Act are indistinguishable from the provisions of § 548(a)(2) of the present Act.
In Durrett, the Court noted that:
"We have been unable to locate a decision of any district or appellate court dealing only with a transfer of real property as the subject of attack under section 67(d) of the Act, which has approved the transfer for less than 70 percent of the market value of the property."
The only case cited for this statement involved a voluntary transfer. There is no presently reported application of either § 67(d) or § 548(a)(2) to a judicial foreclosure sale or to any public foreclosure sale. In fact, the only presently reported cases applying either the old or the new bankruptcy provision to any foreclosure sale are Durrett and Abramson v. Lakewood Bank and Trust Co., 5 Cir. 1981, 647 F.2d 547, cert. den., ___ U.S. ___, 102 S.Ct. 1038, 71 L.Ed.2d 320, which followed Durrett by reversing a summary judgment entered before and contrary to Durrett. Like Durrett, Abramson involved a Texas private sale under a deed of trust.
I conclude that Durrett is controlling with respect to the Vermont transfer involved in this case, but that it must be applied with caution, if at all, to the Florida transfer.
We turn now to separate consideration of the two transfers.
Florida transfer. Perdido has satisfied me with respect to the first and third elements in its cause of action, but not the second:
"the debtor (2)(A) received less than a reasonably equivalent value in exchange for such transfer".
In this context:
"`value\' means ... satisfaction ... of a present or antecedent debt of the debtor..." § 548(d)(2)(A).
Because Equitable's foreclosure of its first lien eliminated a second lien held by third parties, Royal American and Bankers Life, and because neither lien holder preserved any deficiency claim against Perdido, the debts owed Royal American and Bankers Life as well as those owed Equitable were satisfied by the foreclosure sale. The value received by Perdido, in exchange for the Florida property, therefore, was $7.9 million.
The opinion evidence as to the market value of the Florida property at the time of the transfer ranged from $7.8 to $13.4 million. I find from the conflicting evidence that the Florida property had a market value of at least $7.9 million but not more than $11.2 million. That is to say the market value at least equalled the total of the liens against the property and did not exceed the outer limit suggested by Durrett. Seventy percent of $11.2 million is the $7.9 million which Perdido received. No practical purpose is served in this case by seeking a more definitive market value.
In arriving at this conclusion, I have considered, along with the opinion evidence before me, the circumstances of the judicial sale. It was conducted in Pensacola by a disinterested special master appointed by the District Court. He held an open public auction attended by over 100 interested parties. The sale had been advertised in a general newspaper once a week for four consecutive weeks. The only bid received was that of Equitable. Had the bulk market value of this property on that day exceeded $11.2 million, which is 41 percent more than the sum necessary to discharge all liens, it is difficult to believe that no one else would have offered to buy the property at the sale or that the debtors' parent, Cavanagh, before the sale would have failed to sell the property or enough of the property to discharge the liens. Cavanagh is a nationally recognized land developer. At the time of sale, the Florida and the national real estate market was extremely depressed. There is no evidence of any offers to buy the Florida property either before or after the judicial sale for any sum that approaches $11.2 million.
The fact that neither Equitable nor the second mortgagee sought a deficiency decree supports the conclusion that the property was worth at least $7.9 million, the extent of the two liens.
Secondly, a foreclosure sale conducted under § 45.031, Florida Statutes, as this one was, is subject to challenge if the sale price was so inadequate as to indicate fraud or other irregularity. Unless challenged successfully:
"The amount of the bid for the property at the sale shall be conclusively presumed to be sufficient consideration for the sale." § 45.031(7).
Perdido never availed itself of this judicial remedy nor has it ever suggested that there was any irregularity in this sale. It is, therefore, bound by the statutory presumption and it is collaterally estopped to challenge the sufficiency of the consideration received at that sale. Wise v. Tucker, Fla. App.1981, 399 So.2d 500, 502. One who claims under one who is estopped is bound by the estoppel. LaMar v. Lechilder, 1939, 135 Fla. 703, 185 So. 833. Therefore, the debtor-in-possession stands in the debtor's...
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