In re Sagamore Partners, Ltd.

• Decision Date: 26 February 2014
• Docket Number: Case No. 13-20708-CIV-ROSENBAUM
• Court: U.S. District Court — Southern District of Florida
• Parties: In re: SAGAMORE PARTNERS, LTD., BANKRUPTCY APPEALS.

In re: SAGAMORE PARTNERS, LTD., BANKRUPTCY APPEALS.

Case No. 13-20708-CIV-ROSENBAUM

UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF FLORIDA

DONE and ORDERED: February 26, 2014

OPINION AND ORDER

This matter is before the Court upon the Consolidated Opening Brief of Appellants/Cross Appellees JPMCC 2006-LDP7 Miami Beach Lodging, LLC ("JPMCC"), Berkadia Commercial Mortgage, LLC ("Berkadia"), LNR Partners, LLC ("LNR"), Wells Fargo Bank, N.A., as Trustee, and U.S. Bank National Association as Successor Trustee [ECF No. 15], and the Motion to Dismiss Appeals as Equitably Moot of Appellee/Cross-Apellant Sagamore Partners, Ltd. ("Sagamore") [ECF No. 25]. The Court has considered the brief, all supporting and opposing filings, and the record in this case. For the reasons set forth below, the Court affirms the Bankruptcy Court's confirmation of Sagamore's Amended Reorganization Plan and vacates and remands the Bankruptcy Court's denial of attorney's fees and costs.

BACKGROUND

Sagamore is the owner and operator of the Sagamore Hotel, located in Miami Beach, Florida. ECF No. 15 at 4. Martin W. Taplin indirectly owns or controls a 100% interest in the entities that own Sagamore. Id.

On March 24, 2006, Arbor Commercial Mortgage, LLC, made a loan to Sagamore in the amount of $31.5 million secured by a mortgage on the hotel property. Id. The Note, Mortgage, andLoan Agreement have since been assigned to JPMCC, and LNR is the special servicer of the loan. Id. Pursuant to the Loan Agreement, Sagamore was required to make interest-only payments on a monthly basis at a rate of 6.54% per annum, ("note rate"), until April 11, 2016, the maturity date of the loan. ECF No. 15-1 at 16, 30, § 2.3.3. On the maturity date, all amounts remaining unpaid, including the $31.5 million, would become payable. Id. at 30, § 2.3.4.

But if "any Event of Default shall have occurred and be continuing," interest would be calculated at the default rate of 5% above the note rate—or 11.54%—instead of at the note rate. Id. at 29, § 2.2.4. The Loan Agreement provides that an Event of Default occurs

if (A) Borrower fails to (1) make any regularly scheduled payment with respect to any portion of the Debt when due; or (2) make any regularly scheduled monthly deposit into a Reserve when due; or (B) make any other payments within ten (10) days after receipt of written notice or invoice therefor;

Id. at 84, § 8.1(a)(i). Any notice to Sagamore "required or permitted" under the Agreement is effective only if hand delivered or sent to Sagamore's Florida address with a copy to Sagamore's counsel's address in New York. Id. at 98-99, § 10.6.

On August 10, 2009, Taplin sent a letter to the Master Servicer of the loan,¹ indicating that "Sagamore is not in a position to fund the August, 2009, [loan] payment" and that "[d]efault is imminent." ECF No. 15-1 at 207. Sagamore failed to make the August 2009 loan payment and all payments thereafter until Sagamore filed for bankruptcy on October 6, 2011, when it began to make monthly adequate protection payments equal to its monthly payments under the Loan Agreement at the note rate. See In re Sagamore Partners, Ltd., No. 11-37867, ECF No. 1 (Bankr. S.D. Fla. Oct.6, 2011).

On September 28, 2009, in response to Sagamore's failure to make the monthly loan payments, LNR sent Sagamore a letter notifying Sagamore that it was "in default under the Note and other Loan Documents by virtue of, among other things, its failure to pay all amounts when due thereunder." ECF No. 15-1 at 209. The letter noted that "if Lender does not receive all amounts due under the Loan within 10 days of receipt of this letter, Lender will take all such actions as it deems appropriate to protect its interest in the Loan and to collect the debt thereunder . . . . In the event any such actions are taken, Lender will also seek to recover its additional costs and expenses, including attorney's fees and court costs, incurred in any collection efforts." Id. The September 28, 2009, Default Notice was mailed to Sagamore's business address in Florida but not to Sagamore's counsel in New York. See In re Sagamore Partners, Ltd., No. 11-03122, ECF No. 401 at 5 (Bankr. S.D. Fla. Nov. 8, 2012).

On November 19, 2009, counsel for JPMCC sent a letter to Sagamore indicating that because of Sagamore's default, JPMCC was accelerating the obligation of Sagamore to repay the loan. ECF No. 15-1 at 213-14. The letter declared the entire principal amount, all interest accrued, and all other amounts outstanding to be immediately due and payable. Id. On December 7, 2009, JPMCC initiated foreclosure proceedings in state court because of Sagamore's failure to make these payments. ECF No. 15 at 6.

But on October 6, 2011, days before a summary-judgment hearing was scheduled in the foreclosure proceedings, Sagamore filed for Chapter 11 bankruptcy in this District. Sagamore, No. 11-37867, ECF No. 1 (Bankr. S.D. Fla. Oct. 6, 2011). Sagamore then commenced an adversary proceeding to determine the validity, priority, and extent of liens on the property (Count I) and toobject to Creditor JPMCC's unliquidated claim in the amount of $31.5 million (Count II), among other counts. Sagamore, No. 11-03122, ECF No. 1 at 43-46, ¶¶ 131-142 (Bankr. S.D. Fla. Dec. 27, 2011).

On March 2, 2012, Sagamore filed a reorganization plan that proposed to cure all amounts due to JPMCC under the loan and render JPMCC's secured loan unimpaired. Sagamore, No. 11-37867, ECF No. 110 (Bankr. S.D. Fla. Mar. 2, 2012). But a dispute arose between the parties about whether Sagamore must pay $5,416,250.00 in accrued default-rate interest to cure the loan or could, instead, cure the loan by paying interest at the lower note rate. In an Order sustaining JPMCC's objections to a Disclosure Statement issued by Sagamore in connection with its reorganization plan ("Disclosure Statement Order"), the Honorable A. Jay Cristol initially determined that, under the most persuasive case law, Sagamore must pay all amounts due, including interest at the default rate, to cure the loan. Sagamore, No. 11-37867, ECF No. 213 (Bankr. S.D. Fla. July 10, 2012).

Upon hearing evidence at trial² in the adversary proceeding that JPMCC failed to send its September 28, 2009, Notice of Default to Sagamore's counsel in New York, however, the Bankruptcy Court determined, as part of its Directed Verdict Order, that Sagamore and its counsel were not provided with sufficient notice of the default as required by the Loan Agreement. Sagamore, No. 11-03122, ECF No. 401 (Bankr. S.D. Fla. Nov. 8, 2012). Based on the determination that JPMCC had never served Sagamore with a proper notice of default, the Bankruptcy Court laterheld, in an Order confirming Sagamore's amended reorganization plan³ in the main bankruptcy case ("Confirmation Order"), that JPMCC is not entitled to interest at the default rate or attorney's fees and costs. Sagamore, No. 11-37867, ECF No. 521 at 4 (Bankr. S.D. Fla. Dec. 26, 2012). The Bankruptcy Court also reasoned that default-rate interest was improper because JPMCC initially elected to charge Sagamore late fees instead of default interest, and a Lender cannot charge both late fees and default interest under applicable law. Id. at 11-16. In addition, the Confirmation Order rejected JPMCC's arguments that Sagamore had defaulted on the management provisions of the Loan Agreement and that the Reorganization Plan was not feasible. Id. at 17-19, 21-24.

After entry of the Confirmation Order, JPMCC moved the Bankruptcy Court to certify that the previous Directed Verdict Order, on which the Confirmation Order based its determination that interest should be paid at the note rate, was final and appealable pursuant to Rule 54(b), Fed. R. Civ. P. Sagamore, No. 11-03122, ECF No. 421 (Bankr. S.D. Fla. Dec. 27, 2012). The Bankruptcy Court determined that the Directed Verdict Order was not a final order because it granted only partial disposition in the adversary proceeding. Id. ECF No. 430 (Bankr. S.D. Fla. Jan. 11, 2013). Nevertheless, the Bankruptcy Court certified the Directed Verdict Order as appealable in the interest of judicial economy and because "[t]he Court is loath to deny a party the opportunity to seek review of the Court's orders where the economic consequences of the order are as significant as they are here." Id. at 9. The Bankruptcy Court thereafter entered Final Judgment in the adversary proceeding, ("Adversary Judgment"), in favor of Sagamore and against JPMCC solely as to the determinationsconcerning the Notice of Default as set forth in the Directed Verdict Order. Id. ECF No. 431.

JPMCC appealed the Confirmation Order and, upon the Bankruptcy Court's certification, all Appellants appealed the Adversary Judgment. ECF No. 1; Berkadia Commercial Mortgage, LLC v. Sagamore Partners, Ltd., No. 13-20709, ECF No. 1 (S.D. Fla. Feb. 27, 2013). Sagamore, however, disagreed with the Bankruptcy Court about the appealability of the determinations in the Directed Verdict Order and therefore appealed the Bankruptcy Court's Rule 54(b) Order. Sagamore Partners, Ltd. v. JPMCC 2006-LDP7 Miami Beach Lodging, LLC, No. 13-20853, ECF No. 1 (S.D. Fla. Mar. 8, 2013).

On August 8, 2012, prior to the Bankruptcy Court's determination of the sufficiency of the Notice of Default, Sagamore had moved the Honorable Kenneth A. Marra for leave to appeal the Bankruptcy Court's Disclosure Statement Order that had initially found that JPMCC was entitled to interest at the default rate. Sagamore Partners, Ltd. v. JPMCC 2006-LDP7 Miami Beach Lodging, LLC, No. 12-23195, ECF No. 1 (S.D. Fla. Aug. 30, 2012). Judge Marra denied the Motion for Leave to Appeal because the "interlocutory appeal will not materially advance the ultimate termination of this case." Id. ECF No. 5 at 6. Judge Marra nevertheless concluded that "after entry of a final appealable order, Sagamore can challenge the Bankruptcy Court's ruling that it must pay default interest to render the secured lender...