In re Sixty Sixty Condo. Ass'n, Inc.
| Decision Date | 07 August 2017 |
| Docket Number | Case No. 16–26187–BKC–RAM |
| Citation | 574 B.R. 773 |
| Parties | IN RE: SIXTY SIXTY CONDOMINIUM ASSOCIATION, INC., Debtor. |
| Court | U.S. Bankruptcy Court — Southern District of Florida |
574 B.R. 773
IN RE: SIXTY SIXTY CONDOMINIUM ASSOCIATION, INC., Debtor.
Case No. 16–26187–BKC–RAM
United States Bankruptcy Court, S.D. Florida.
Signed August 7, 2017
Brett D. Lieberman, Thomas M. Messana, Esq., Fort Lauderdale, FL, for Debtor.
ORDER INTERPRETING RIGHT OF FIRST REFUSAL
Robert A. Mark, Judge
Before the Court is a motion by the Debtor, Sixty Sixty Condominium Association, Inc. (the "Debtor" or the "Association"), for approval of a proposed bulk sale that includes the sale of all of the Debtor's assets (the "Sale Motion") [DE #174]. Ordinarily, the Court's analysis would be limited to a determination of whether the proposed sale satisfies the "sound business purpose" test and otherwise complies with section 363 of the Bankruptcy Code. However, in this case, the Court cannot grant or deny approval of the bulk sale without first exercising jurisdiction to interpret a right of first refusal ("ROFR") applicable to non-debtor property that is being sold as part of the proposed bulk sale.
In the interests of brevity, the Court incorporates as if fully set forth herein the background facts and procedural history described in the Court's Case Administration Guidance Relevant to the Debtor's Sale Motion, the Shared Cost Adversary, and Plan Confirmation (the "Case Management Order") [DE #333]. Unless otherwise defined herein, all capitalized terms in this Order shall have the same meaning ascribed to such terms in the Case Management Order.
Relevant Facts
The Debtor in this case is a condominium association. The Association holds title to real property within the condominium, but not in the traditional sense. Usually an association owns and controls common areas within a building. In this case, most of that ownership and control rests in the hands of an entity called the Schecher Group, Inc. ("Schecher," the "Schecher Group," or the "Hotel Unit Owner"). Schecher runs a hotel operation at the condominium from a pool of units whose non-debtor owners voluntarily placed their units in the hotel program.
The Schecher Group has a right of first refusal (the "SG ROFR") applicable to proposed transfers of units in the condominium. The SG ROFR provides that a residential unit owner who intends to accept a bona fide offer (the "Outside Offer") to purchase its residential unit must give the Schecher Group notice of the Outside Offer. The SG ROFR further provides that the giving of notice of the Outside Offer constitutes an offer by the residential unit owner to sell its residential unit to the Schecher Group, or its designee.
The respective rights and obligations of the Association, the Hotel Unit Owner, and the residential unit owners are contained in the Declaration of Sixty Sixty Condominium (the "Declaration"). Of critical importance here is the language of the SG ROFR in Article 17.1 of the Declaration, which provides, in pertinent part, as follows:
Any Residential Unit Owner who receives a bona fide offer to purchase his or her Residential Unit ... (an "Outside Offer") ... which the Offeree Unit Owner intends to accept shall give notice ... to the Hotel Unit Owner .... The giving of such notice to the Hotel Unit Owner shall constitute an offer by the Offeree Unit Owner to sell his or her Residential Unit to the Hotel Unit Owner or its designee upon the same terms
and conditions as contained in such Outside Offer.
The SG ROFR does not apply to the five units in the condominium owned by the Debtor, four of which are commercial units and one of which is a residential unit. Articles 17.1 and 17.5 of the Declaration of Sixty–Sixty Condominium specifically exclude the sale of the Debtor's units from the SG ROFR [DE #138–2, p.5]. Thus, interpretation of the SG ROFR would be unnecessary if the Outside Offer included only the Debtor's assets. The offer is not so limited. Rather, the Outside Offer is an offer by Marc Realty Capital, LLC ("MRC") to purchase the Debtor's five units only as part of a sale that includes at least fifty non-debtor residential units.
The Debtor asserts, and has proven, that it can neither reorganize nor maximize the value of its assets outside of a bulk sale that includes non-debtor property. Moreover, the Debtor is seeking approval of a sale on a parallel track with its request for confirmation of a plan of reorganization. Thus, any sale approved by the Court will be part of a formal chapter 11 plan process. The Schecher Group, like all other creditors, can evaluate and vote on the plan, and raise objections to confirmation.
I. THE COURT HAS AND WILL EXERCISE JURISDICTION TO DETERMINE WHETHER THE SCHECHER GROUP CAN EXERCISE ITS ROFR ON A UNIT–BY–UNIT BASIS AGAINST AN OUTSIDE OFFER THAT INCLUDES A BULK–SALE TERM.
Sections 1334(b) and 157(c)(1) of Title 28 of the United States Code authorize district courts and bankruptcy courts to exercise "related to" jurisdiction. Lemco Gypsum, the seminal 11th Circuit case interpreting a bankruptcy court's related-to jurisdiction, broadly interprets "related to" to mean any and all matters whose outcome " ‘could conceivably have an effect on the estate being administered in bankruptcy.’ " Miller v. Kemira, Inc. (In re Lemco Gypsum, Inc.), 910 F.2d 784, 788 (11th Cir. 1990) (quoting and adopting Pacor, Inc. v. Higgins, 743 F.2d 984, 994 (3rd Cir. 1984) ).
The conceivable-effect test is so broad that "[a]n action is related to bankruptcy if the outcome could alter the debtor's rights, liabilities, options, or freedom of action (either positively or negatively) and which in any way impacts upon the handling and administration of the bankruptcy case." Id. This includes actions that are neither against the debtor nor against property of the debtor's bankruptcy estate.
Id.The Court finds the conceivable effect test is easily satisfied here because the Debtor cannot effectively market or sell its assets independent of a sale of non-debtor units, and without a sale of the Debtor's assets, the Debtor cannot reorganize. Although the Court has not yet conducted a final hearing on the Sale Motion, the testimony is complete and the Court finds it appropriate to enter findings relevant to this Order based upon the testimony at the July 13, 2017, and July 21, 2017, evidentiary hearings on the Sale Motion.
Jason Welt, the Debtor's broker, testified that there is no market for the Debtor's commercial units. The testimony of Charles R. Gibbs, the Vice President of National Acquisitions for MRC, the proposed purchaser of the Debtor's units, convincingly corroborated Mr. Welt's position.
Mr. Gibbs testified that MRC's agreement to purchase the Debtor's units for one million dollars is incidental to MRC's purchase of at least fifty non-debtor units. Mr. Gibbs explained that MRC is interested
[574 B.R. 777
in purchasing a "critical mass" in the Sixty Sixty condominium building. Its priority is acquiring a sufficient number of non-debtor units to constitute a critical mass. If MRC must purchase the Debtor's units in order to acquire a bulk number of non-debtor units, MRC is prepared to do so.
The Court finds Mr. Gibbs's testimony to be credible and persuasive. The Court additionally finds the testimony of both Mr. Welt and Mr. Gibbs is in line with what common sense would dictate. It would be difficult, if not impossible, to solicit a seven-figure sale of the Debtor's property (four commercial units, three of which are only terraces, and one residential unit) in a building whose association is in bankruptcy and where more than sixty residential unit owners are defending foreclosure cases in state court.
Whether this Court should exercise jurisdiction is controlled by section 1334(c) of Title 28. The Court finds that neither the mandatory nor the permissive abstention provisions of 28 U.S.C. § 1334(c) apply or should be employed here. If the Court abstained, enormous prejudice would be visited upon the Debtor, whose potential for a cost-effective reorganization would be lost.1
The Court's decision to exercise jurisdiction is bolstered by the fact that no action for declaratory relief regarding the SG ROFR has been brought or is pending in state court. Obtaining declaratory relief in state court would likely take at least several months, and this Court already has devoted substantial time to interpreting the SG ROFR after reviewing thorough memoranda from the parties. Deciding this issue is necessary for the Court to rule on the Sale Motion. If the Sale Motion is approved, the Debtor should be able to move efficiently through the chapter 11 plan process, which includes protections of the interests of all creditors.
II. THE SCHECHER GROUP...
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