In re Resorts Intern., Inc., Bankruptcy No. 89-10119

• Decision Date: 03 June 1996
• Docket Number: 89-10120,Bankruptcy No. 89-10119,89-10461 and 89-10462.
• Citation: 199 BR 113
• Parties: In re RESORTS INTERNATIONAL, INC.; Resorts International Financing, Inc.; Griffin Resorts, Inc. and Griffin Resorts Holding, Inc., Debtors.
• Court: U.S. Bankruptcy Court — District of New Jersey

199 B.R. 113 (1996)

In re RESORTS INTERNATIONAL, INC.; Resorts International Financing, Inc.; Griffin Resorts, Inc. and Griffin Resorts Holding, Inc., Debtors.

Bankruptcy Nos. 89-10119, 89-10120, 89-10461 and 89-10462.

United States Bankruptcy Court, D. New Jersey.

June 3, 1996.

Dechert, Price & Rhoads by Robert A. Baime, New York City, for Debtors.

Bressler, Amery & Ross, P.C. by David H. Pikus, Michael J. Connolly, Florham Park, NJ, for J. Louis Binder, Trustee of Resorts International Litigation Trust.

OPINION

ROSEMARY GAMBARDELLA, Bankruptcy Judge.

This matter comes before the Court on a Verified Application by Resorts International, Inc.¹ and related entities (collectively "Resorts") for entry of an order pursuant to Sections 1142(b) and 105(a) authorizing and approving distribution of accrued interest from the Resorts International Litigation Trust to Resorts (the "Application"). A hearing at which this Court reserved decision was conducted on September 21, 1995. The following constitutes this Court's findings of fact and conclusions of law.

FACTS

On or about November 12, 1989, involuntary petitions were filed against Resorts International, Inc. ("RII") and Resorts International Financing, Inc. ("RIFI"). On December 22, 1990, RII and RIFI consented to the entry of an order for relief pursuant to Chapter 11 of the Bankruptcy Code. On that same date, Griffin Resorts Inc. ("GRI") and Griffin Resorts Holding, Inc. ("GRHI") filed separate voluntary petitions under Chapter 11 of the Bankruptcy Code. Upon application of the Debtors, on December 22, 1989, this Court entered an order directing the joint administration and consolidation for administrative purposes only of the RII, RIFI, GRI and GRHI Chapter 11 cases.

By Order dated August 28, 1990, this Court confirmed the Second Amended Joint Plan of Reorganization for the collective debtors (the "Plan"). Pursuant to Section 7.10 of the Plan and the Litigation Trust Agreement, which was entered into by the parties on or about September 17, 1990 and annexed as Exhibit 1.46 to the Plan, the Litigation Trust was created for the benefit of certain of Resorts' creditors. The beneficial interests in the Litigation Trust were divided into 10,000,000 Litigation Trust Units and allocated to certain creditors (the "Unitholders")² pursuant to a formula set forth in Section 7.10(b) of the Plan. Each Litigation Trust Unit entitled its holder to a pro rata share of any distribution from the Litigation Trust. See Section 7.10(d) of the Plan.

The Litigation Trust, inter alia, was empowered to prosecute various claims and causes of action (the "Litigation Claims") held by the Debtors and certain of their affiliates against Donald J. Trump ("Trump") and affiliated entities ("Trump Parties") arising from the leveraged buyout of the Taj Mahal by Trump from Resorts in 1988. The Litigation Claims were assigned to the Litigation Trust upon its formation. Representatives of the Unitholders elected Kenneth R. Feinberg ("Feinberg") as the Litigation Trustee, pursuant to an Order of the Bankruptcy Court entered on April 17, 1990. Thereafter, by Order dated August 17, 1994, J. Louis Binder ("Binder"), the Successor Trustee, was chosen to replace Feinberg as Litigation Trustee.

Pursuant to the Plan and Litigation Trust Agreement, Resorts was required to make available $5,000,000 to the Litigation Trust to be used to prosecute or otherwise liquidate the Litigation Claims which the Debtors assigned to the Litigation Trust and to fund other Litigation Trust expenses. Section 7.10(a) of the Plan required Resorts to secure this obligation by furnishing an irrevocable letter of credit for the benefit of the Litigation Trust in the sum of $5 million.³

On or about October 1, 1990, Resorts and the Litigation Trustee entered into a Deposit Agreement whereby Resorts was permitted to deposit $5 million in cash in lieu of the $5 million letter of credit originally contemplated under the Plan. On or about October 3, 1990, Resorts deposited $5 million cash in a separate expense account in the name of the Litigation Trust to facilitate Resorts' obligation to fund the Litigation Trust's expenses (the "Expense Account"). The Deposit Agreement provides in relevant part:

1. Deposit. The Deposit shall be held by the Trustee in an interest bearing account, selected by the Trustee and reasonably acceptable to Resorts, on the terms hereinafter set forth. Within two (2) days of opening such account(s), the Trustee shall notify Resorts, by telecopy, by certified mail return receipt requested or by letter hand delivery, of the name and address of the depository and of each account number.

2. If the requisite Letters of Credit are issued for the account of Resorts and for the benefit of the Trustee, and are delivered to the Trustee, the Trustee shall deliver the balance of the Deposit, together with interest thereon, to Resorts in accordance with instructions given by Resorts.

3. Unless and until the Letters of Credit are issued for the account of Resorts and for the benefit of the Trustee, the Trustee shall be entitled to apply the Deposit, in amounts up to $5,000,000 in the aggregate of all funds so applied, to pay or reimburse the Trustee for the payment of reasonable expenses of the Litigation Trust as and in the manner provided in Section 7.10(a) of the Plan, and to apply the balance of such $5,000,000, if any, upon final settlement of all Litigation Claims in the manner provided in Section 7.10(b) of the Plan.

4. Unless and until the Letters of Credit are issued for the account of Resorts and the benefit of the Trustee, the Trustee may apply up to $3,600,000 of the Deposit, plus an amount equal to 8% per annum of such amount for the period from September 17, 1990, to the date such amount is so applied to the repayment of the 8% Promissory Note dated September 17, 1990 (the "Promissory Note") made by Resorts payable to the Trustee, which amounts then will be applied in respect of the Special Litigation Trust Units as provided in Section 7.10(d) of the Plan. Any amounts not applied to repayment of the Promissory Note in accordance with Section 7.10(d) of the Plan shall be returned to Resorts.

5. Except as set forth in Paragraph 1 herein, the Trustee shall have no duty to invest all or any portion of the Deposit during any period of time the Trustee may hold the same prior to disbursement thereof and any disbursements or deliveries of the balance of the Deposit required herein to be made by the Trustee shall be with such interest, if any, as shall have been earned thereon, unless provided otherwise herein or by the Agreement.

* * * * * *

8. In the event Resorts fails to procure the required Letter of Credit in the amount of $3.6 million by September 17, 1991, the balance of the Deposit maintained in respect of the Special Litigation Trust Units, up to a maximum of $3,888,000, shall be disbursed by the Trustee as provided in the Section 7.10(d) of the Plan. The remaining balance of the Deposit shall be held and disbursed in accordance with the applicable provisions of the Litigation Trust Agreement and Section 7.10(a) of the Plan.

See Deposit Agreement dated October 1, 1990, attached as Exh. C to Resorts Verified Application (emphasis added). Resorts retained the option, which it never exercised, of substituting a letter of credit for the cash deposit at any time prior to settlement of the Litigation Claims.

On May 28, 1991, the Litigation Trustee entered into an agreement with Trump, the Trump Parties and the Debtors settling the Litigation Claims on behalf of the Unitholders in the amount of $12,000,000 (the "Settlement Agreement").⁴ Pursuant to Section 7.10(a) of the Plan, disbursements or deliveries of "the balance of the $5 million letter of credit, if any," was "to be drawn upon final settlement of all Litigation Claims." Similarly, Section 7.10(d) of the Plan provides that "the amount of any undrawn balance of the $5,000,000 letter of credit delivered to the Litigation Trustee as described above shall be added to the amount of any settlements for purposes of calculating distributions to the Unitholders."

This Court approved an interim distribution of Litigation Trust assets on February 7, 1994. Pursuant thereto, the Litigation Trustee distributed approximately $14,750,000, representing all of the $12 million settlement proceeds, together with interest income earned thereon, and a portion of the Expense Account balance contributed by Resorts, less $1,250,000 reserved for disputed Unitholder claims and ongoing Litigation Trust expenses. As part of a Settlement Agreement dated May 28, 1991, Feinberg agreed to pay $57,973.71 to Resorts, representing interest income earned on the Expense Account for the period March 16, 1991 through May 28, 1991.

Resorts filed the within motion seeking entry of an order authorizing and approving distribution of accrued interest⁵ from the $5 million deposited in the Expense Account.⁶ Resorts relies upon several documents in support of its claim to the interest income. Resorts points to the December 2, 1992 Report of Independent Accountants (Price Waterhouse) to the Trustee of Resorts' Litigation Trust, which provides in pertinent part:

Pursuant to the Settlement Agreement, the Trump Parties settled all of the Litigation Claims assigned to the Trust for $12 million. Furthermore, pursuant to Section 7.10(a) of the Plan, Resorts deposited $5 million in a separate expense account held on behalf of Resorts in order to secure Resorts\' obligation to fund the Trust\'s expenses. Under this funding arrangement, interest earned on the $5 million belongs to Resorts. The balance of the funds remaining in the Expense Account, after the interest earned on the account is returned to Resorts and the expenses incurred by the Trust are paid in full, is available for distribution to Trust Unitholders pursuant to Section 7.10(d) of the Plan. . . .

Exh. E to Resorts' Verified...