In re Venice-Oxford Associates Ltd. Partnership
| Decision Date | 17 April 1998 |
| Docket Number | Bankruptcy No. 97-9831-8G1. |
| Citation | 236 BR 791 |
| Parties | In re VENICE-OXFORD ASSOCIATES LIMITED PARTNERSHIP, Debtor. |
| Court | U.S. Bankruptcy Court — Middle District of Florida |
Russell M. Blain, Wanda H. Anthony, Stichter, Riedel, Blain & Prosser, P.A., Tampa, FL, for Venice-Oxford Associates Limited Partnership.
Paul Bennett Bran, Guy S. Neal, Dickstein, Shapiro, Morin & Oshinsky, L.L.P., Washington, D.C., for Venice-Oxford Associates Limited Partnership.
Gregg W. McClosky, Michael J. Ioannou, Mattlin & McClosky, Boca Raton, FL, for Multifamily Mortgage Trust 1996-1 and LaSalle National Bank.
ORDER ON MOTION FOR AUTHORITY TO USE CASH COLLATERAL
THIS CASE came before the Court for hearing on the Motion for Authority to Use Cash Collateral filed by the Debtor, Venice-Oxford Associates Limited Partnership. The Debtor is the owner of an apartment complex in Sarasota County, Florida (the Property). In its Motion, the Debtor requests permission to use the rents generated from the apartment complex to pay its ordinary business expenses and to preserve the value of the Property.
The Debtor's primary secured creditors are Multifamily Mortgage Trust 1996-1 and LaSalle National Bank (Creditors). The Creditors claim that they are the holders of a first mortgage on the Debtor's Property. The Creditors also contend that they are the owners of all rents, including future rents, generated from the Property pursuant to a Final Judgment of Foreclosure entered in the Sarasota County Circuit Court prior to the filing of the Debtor's bankruptcy petition. Consequently, the Creditors assert that the rents are not property of the Debtor's bankruptcy estate, and oppose the Debtor's use of the rents as requested in the Motion.
On March 7, 1997, the Debtor filed its voluntary petition under Chapter 11 of the Bankruptcy Code in the Bankruptcy Court for the District of Maryland.
On March 21, 1997, the Debtor filed a Motion for Authority to Use Cash Collateral. In the motion, the Debtor requested authority to use "cash collateral in the form of rents and proceeds arising from the Debtor's property, pursuant to 11 U.S.C. § 363(c)(2)." A hearing was conducted, and on June 10, 1997, the Bankruptcy Court in Maryland entered an Order granting the motion in part. The Order states that the "Debtor has a property interest in the rents (the "Rents") collected from leases at the Debtor's residential apartment complex," and also states that the Creditors hold "an interest in the Rents." The Order authorizes the Debtor to pay "the reasonable and necessary expenses associated with the operations and maintenance of the Property for the limited period beginning on the petition date (March 7, 1997) and ending thirty (30) days from the entry date of this order." The Order also establishes a method for the management of the rents.
On the same date that the order was entered authorizing the temporary use of the rents, the Court also entered an order transferring the venue of the Chapter 11 case to the Bankruptcy Court for the Middle District of Florida.
After the case had been transferred, the Debtor filed an Emergency Motion for Authority to Use Cash Collateral. In the Emergency Motion, the Debtor again requests authority to use the rents paid by the tenants in the apartment complex "to pay the ordinary business expenses necessary to operate the debtor's business and to preserve and maintain the value of the property."
The Creditors filed an Objection and Memorandum of Law in Opposition to Debtor's Emergency Motion for Authority to Use Cash Collateral. In the Memorandum, the Creditors "object to the use of any of the rents as cash collateral since the Rents are not property of the estate, but instead are the sole property of Mortgage Trust and LaSalle by virtue of the Final Judgment." A copy of a Final Judgment of Foreclosure docketed in the Circuit Court for Sarasota County on February 13, 1997, is attached to the Objection and Memorandum. Paragraph 16 of the Final Judgment states:
All rents, issues, proceeds, income, revenue and profits arising from the Property ("Rents") described in the Loan Documents previously collected by Venice-Oxford and all Rents hereinafter generated from the Property shall forthwith be delivered to Plaintiffs and Plaintiffs are hereby declared the owner of all Rents. Further, all Rents deposited into the escrow account pursuant to this Court\'s Order dated October 16, 1996, shall forthwith be delivered to Plaintiffs.
The Creditors contend that the Final Judgment "divests Venice-Oxford of any interest in the rents, issues, proceeds, income, revenue and profits arising from the Property ("Rents") previously collected by Venice-Oxford and all Rents generated from the Property after the entry of the Final Judgment."
The issue in this case is whether rents generated from the Debtor's apartment complex constitute "cash collateral" within the meaning of § 363(a) of the Bankruptcy Code which the Debtor may use, sell, or lease pursuant to § 363(b)(1) of the Bankruptcy Code.
The Creditors assert that the Final Judgment has preclusive or collateral estoppel effect with respect to the ownership of the rents, and that ownership of the rents passed to the Creditors when the Final Judgment was entered pursuant to section 697.07 of the Florida Statutes. The Creditors assert that the Final Judgment of Foreclosure is a "final adjudication" within the meaning of that statute, and that this Court is bound to give the Final Judgment full faith and credit pursuant to 28 U.S.C. § 1738.
The Debtor contends that the issues presented in the foreclosure action were not identical to the issues presented in the cash collateral proceedings, and that ownership of the rents was never "actually litigated" in the state court foreclosure action. According to the Debtor, an issue must have been "actually litigated" in the prior proceeding before the doctrine of collateral estoppel can be invoked. Consequently, the Debtor asserts that collateral estoppel does not apply in this case to preclude litigation regarding the ownership of the rents.
The Debtor filed in this Court a copy of the state court pleadings file from the foreclosure case. The state court file reflects the following:
On or about August 12, 1996, the Creditors filed an action in the Circuit Court for Sarasota County, Florida to foreclose a mortgage on real property. In the Complaint, the Creditors allege that the Debtor "owns and operates a multi-unit rental apartment complex and other improvements on the real property which is the subject matter of this action," that the Creditors own and hold a mortgage note, mortgage, and security agreement with respect to the Property, and that the Debtor had failed to make the mortgage payments when due. Consequently, the Creditors sought a judgment foreclosing the mortgage and security interest created by the loan documents.
Also on August 12, 1996, the Creditors filed a Motion for Appointment of Receiver and Alternative Motion to Compel Deposit of Rents. In paragraph 8 of the motion, the Creditors allege that they had served the Debtor with written notice of default and a demand for the rents pursuant to Section 697.07 of the Florida Statutes. The Creditors requested, among other relief, the entry of an order compelling the Debtor to turn over to the Creditors "all rents, income, profits, deposits and account receivables in its possession at the time of the written demand and collected thereafter."
On September 27, 1996, the Debtor filed a Verified Amended Answer and Affirmative Defenses to the Complaint. The Affirmative Defenses include waiver and estoppel, breach of contract, failure of the Creditors to satisfy certain conditions precedent, the statute of limitations, and laches. On September 24, 1996, the Debtor served its Memorandum in Opposition to the Creditors' Motion for Appointment of Receiver and Alternative Motion to Compel Deposit of Rents. In this Memorandum, the Debtor primarily contends that the Creditors had failed to establish the Debtor's default under the loan documents, a prerequisite to an order compelling the deposit of rents, and also that the Creditors are estopped from declaring a default and seeking the deposit of rents because of the conduct of the Creditors' predecessors in continuing to accept payments from the Debtor after the occurrence of the alleged default.
On or about September 19, 1996, the Creditors filed a Memorandum of Law in Support of Motion for Appointment of Receiver and Alternative Motion to Compel Deposit of Rents. In the Memorandum, the Creditors argue that the assignment of rents contained in the loan documents was absolute, and that they are entitled to the rents pursuant to Section 697.07 of the Florida Statutes. According to the Creditors, Section 697.07 entitles them to the immediate turnover of all rents collected from the Property. The Creditors contend that the right is subject only to the delivery of written demand and the Debtor's failure to turn over the rents, and that both of these conditions had been satisfied.
On November 20, 1996, the Creditors filed a Motion for Summary Judgment. Paragraph 1 of the Motion for Summary Judgment states that "this is an action to foreclose a mortgage on certain real property located in Sarasota County, Florida ("Property")." The motion then recites the history of the loan documents, the Debtor's default under the documents, the balance due to the Creditors, and the Debtor's affirmative defenses set forth in its Answer. The Creditors request that the Court enter a final summary judgment "and foreclose the interest of said defendant and all other persons or entities claiming under or against Mortgage Trust and LaSalle's interest in the Property," and award reasonable fees and costs to the Creditors. The Motion does not include any specific reference to...
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