In re Surfside Resort and Suites, Inc.

• Decision Date: 08 June 2006
• Docket Number: Bankruptcy No. 04-bk-09469-JAF.,Adversary No. 05-ap-00310-JAF.
• Citation: 344 B.R. 179
• Court: U.S. Bankruptcy Court — Middle District of Florida
• Parties: In re SURFSIDE RESORT AND SUITES, INC., Debtor. Westchester Surplus Lines Insurance Company, Plaintiff, v. Surfside Resort and Suites, Inc. and Bray & Gillespie IX, LLC, Defendants.

344 B.R. 179

In re SURFSIDE RESORT AND SUITES, INC., Debtor.

Westchester Surplus Lines Insurance Company, Plaintiff, v. Surfside Resort and Suites, Inc. and Bray & Gillespie IX, LLC, Defendants.

Bankruptcy No. 04-bk-09469-JAF.

Adversary No. 05-ap-00310-JAF.

United States Bankruptcy Court, M.D. Florida, Jacksonville Division.

June 8, 2006.

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Gary M. Freedman, Joel L. Tabas, Tabas, Freedman, Soloff & Miller, P.A., Miami, FL, for Plaintiff.

Walter J. Snell, Snell & Snell, P.A., Daytona Beach, FL, John B. Macdonald, Patrick P. Patangan, Akerman Senterfitt, Jacksonville, FL, for Defendants.

ORDER GRANTING DEFENDANTS' MOTION TO DISMISS AND DENYING PLAINTIFF'S CROSS — MOTION FOR PARTIAL SUMMARY JUDGMENT

JERRY A. FUNK, Bankruptcy Judge.

This Proceeding came before the Court upon Defendants' Motion to Dismiss Complaint ("Motion"), Plaintiff's Response and Cross-Motion for Partial Summary Judgment ("Response"), Defendants' Reply ("Reply"), and Plaintiffs Supplemental Memorandum ("Memorandum"). Based upon the evidence presented and the arguments of the parties, the Court finds it appropriate to grant Defendants' Motion to Dismiss and deny Plaintiff's Cross-Motion for Partial Summary Judgment.

Plaintiff issued a policy of commercial insurance to, among other commercial properties, Surfside Resort and Suites, Inc. ("Debtor"), as part of the Hotel Risk Management Association Layered Property Program Property Coverage. (Defs.' Mot. to Dismiss at ¶ 2; Pl.'s Resp. at 3; Aff. of Wes Sattenfield at ¶ 4; Aff. of Walter Benzija, Ex. A.) The Policy covered the period from February 1, 2004, through February 1, 2005, and was designated as Policy Number D3589844A001 (the "Polley"). (Id.; see also Supplemental Aff. of Wes Sattenfield at ¶ 3.) This was a supplemental policy to the primary policy issued by Hartford Fire Insurance Company ("Hartford"), which offered $10,000,000.00 in primary coverage. (Defs.' Mot. to Dismiss at ¶ 2; Aff. of Wes Sattenfield at ¶ 4; Aff. of Walter Benzija, Ex. A.) The Policy, therefore, covered Debtor's property, an ocean front hotel resort in Ormond Beach, Florida (the "Hotel"), for physical loss or damage in excess of the $10,000,000.00 in coverage provided by Hartford. (Defs.' Mot. to Dismiss at ¶ 3; Aff. of Wes Sattenfield at ¶ 5; Aft of Walter Benzija, Ex. A.) Debtor paid the premium in full to Plaintiff via an insurance premium finance agreement between Debtor and Imperial Premium Finance, Inc. ("Imperial"). (Defs.' Mot. to Dismiss at ¶ 4; Aff. of Wes Sattenfield at ¶ 6.) Hence, Imperial paid Plaintiff for the premiums due under the Policy owed by Debtor, for the full one-year term of the Policy. Id. This left Debtor obligated to Imperial, which it paid through installments. Id. Sometime during the months of August and September in 2004, the Hotel sustained property damage as a result of Hurricanes Charley and Frances. (Defs.' Mot. to Dismiss at ¶ 8; Pl.'s Resp. at 3; Aff. of Wes Sattenfield at ¶ 10.)

Debtor filed for bankruptcy on September 17, 2004.¹ (Defs.' Mot. to Dismiss at ¶ 8; Pl.'s Resp. at 4.) On May 10, 2005, Debtor's First Amended Plan of Reorganization (the "Plan") was approved by the Court. (Defs.' Mot. to Dismiss at ¶ 11 Aff. of Wes Sattenfield at ¶ 13.) Defendant Bray & Gillespie IX, LLC ("B & G") owned and held the first and second mortgage liens encumbering the Hotel. (Defs.' Mot. to Dismiss at ¶ 5; Pl.'s Resp. at 3; Aff. of Joseph G. Gillespie at ¶ 2.) According to the Plan, B & G, Debtor's largest secured creditor, would purchase Debtor's main asset, the Hotel. (Defs.' Mot. to Dismiss at ¶ 11 Aff. of Wes Sattenfield at ¶ 13; Aff. of Walter Benzija, Exs. B, C, and D; Aff. of Joseph G. Gillespie at ¶ 3.) B & G acquired the right to collect the proceeds from the insurance claims asserted by Debtor pursuant to the sale. (Defs.' Mot. to Dismiss at ¶ 12 Aff. of Joseph G. Gillespie, Ex. A.)

On November 3, 2005, just a few days shy of the 180 days allocated by 11 U.S.C. § 1144², Plaintiff filed a two-count complaint seeking to revoke the order confirming the Chapter 11 Plan ("Confirmation Order"). (See generally Pl.'s Compl.) Plaintiff alleges in Count I that the Confirmation Order should be revoked because Defendants conspired to intentionally deprive Plaintiff of notice of commencement of Debtor's bankruptcy case (the "Case"), thereby procuring the Confirmation Order by fraud. (Pl.'s Compl. at ¶¶ 17-20.) In the alternative, Plaintiff alleges in Count II that because of Defendants' fraudulent conduct, Plaintiff is entitled to declaratory relief that Plaintiff is not bound by the terms of the Plan. (Pl.'s Compl. at ¶¶ 21-25.)

Defendants filed the Motion contending that Plaintiff was never entitled to notice of Debtor's Case, and, as a result, failed to state a claim upon which relief could be granted. (Defs.' Mot. to Dismiss at 6-9.) Plaintiff contends in its Response that it was entitled to notice of commencement of the Case due to its status as a creditor, or, in the alternative, as a party in interest, and as such has legitimately stated a claim upon which relief could be granted. (Pl.'s Resp. at 7-8, 10-13, 15-19.) Furthermore, Plaintiff submits that summary judgment is inappropriate in this matter because there are numerous issues of material fact that remain in dispute. (Pl.'s Resp. at 13-19.) In addition, Plaintiff argues that it is entitled to partial summary judgment on the basis that B & G is bound by all provisions of the Policy, including the specified anti-assignment clause. (Pl.'s Resp. at 27-29.) Ergo, Plaintiff submits that Plaintiff is not bound by the Plan. Id.

Defendants counter in their Reply that the Policy expired by its own terms prior to confirmation of Debtor's Plan, among other factual assertions, and that Plaintiff never submitted proof that it did not receive notice of commencement of Debtor's Case. (Defs.' Reply at 2-4, 6-7.) Moreover, Defendants aver that Plaintiff is not entitled to partial summary judgment because the expiration of the Policy prohibited the creation of new contractual rights between Plaintiff and B & G. (Defs.' Reply at 9.) Plaintiff raises "New Material Factual Dispute[s]" in its Memorandum regarding Defendants' assertion that Plaintiff did receive notice of commencement of Debtor's case via a dated letter, as Plaintiff reiterates that it never received any notice of commencement of Debtor's case. (See generally Pl.'s Mem.)

A court ruling based upon Federal Rules of Civil Procedure, Rule 12(b)(6) (made applicable to adversary proceedings by Bankruptcy Rule 7012), should not be taken lightly, as granting a motion to dismiss for failure to state a claim effectively terminates a plaintiff's case on its merits. See Chatham Condo. Ass'ns v. Century Village, Inc., 597 F.2d 1002, 1011-12 (5th Cir.1979)(quoting Mortensen v. First Fed. Say. & Loan Ass'n, 549 F.2d 884, 891 (3d Cir.1977)). In making its determination on dismissal under 12(b)(6), a court can only consider facts alleged in the pleadings, as to consult extrinsic evidence would convert the motion to one for summary judgment. Concordia v. Bendekovic, 693 F.2d 1073, 1075 (11th Cir.1982). While it is within a court's discretion to consider such extrinsic evidence and convert the motion to one for summary judgment, Prop. Mgmt. & Inv., Inc. v. Lewis, 752 F.2d 599, 604 (11th Cir.1985), the Eleventh Circuit follows a strict approach in applying the notice requirements of Rule 56, which requires 10 days' notice before the court may consider the motion as one for summary judgment. Jones v. Auto. Ins. Co., 917 F.2d 1528, 1532-33 (11th Cir. 1990). Considering that the Motion was filed on December 12, 2005, and inasmuch as Plaintiff filed its Response on January 9, 2006 and its Memorandum on March 21, 2006, each addressing the propriety of summary judgment, the Court feels it has abided by the precise requirements of Rule 56. Thus, the Court will consider evidence outside the scope of the pleadings, and treat Defendants' Motion as one for summary judgment.

Summary judgment under Rule 56 is appropriate "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(c) (2005)(incorporated by Fed. R. Bankr.P. 7056). A moving party bears the initial burden of showing a court that there are no genuine issues of material fact that should be decided at trial. See Celotex Corp. v. Catrett, 477 U.S. 317, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986); accord Clark v. Coats & Clark, Inc., 929 F.2d 604, 607 (11th Cir.1991). A moving party discharges its burden on a motion for summary judgment by "`showing' — that is, pointing out ... that there is an absence of evidence to support the nonmoving party's case." Celotex Corp., 477 U.S. at 325, 106 S.Ct. 2548. In determining whether the movant has met this initial burden, "the court must view the movant's evidence and all factual inferences arising from it in the light most favorable to the nonmoving party." Allen v. Tyson Foods, Inc., 121 F.3d 642, 646 (11th Cir.1997)(citing Adickes v. S.H. Kress & Co., 398 U.S. 144, 157, 90 S.Ct. 1598, 26 L.Ed.2d 142 (1970) and Fitzpatrick v. City of Atlanta, 2 F.3d 1112, 1115 (11th Cir.1993)). In other words, the court must decide "whether the evidence presents a sufficient disagreement to require submission to a jury or whether it is so one-sided that one party must prevail as a matter of law." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 251-52, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986).

If a moving party satisfies this burden, then a nonmoving party must come forward with specific facts showing that there is a genuine issue for trial. See Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986). A nonmoving party...