Summit Inv. Mgmt. v. Conlly (In re Fog Cap Retail Inv'rs)
| Decision Date | 17 August 2022 |
| Docket Number | Civil Action 20-cv-03823-PAB,Bankruptcy 16-13817 TBM |
| Parties | In re FOG CAP RETAIL INVESTORS, LLC Debtor. SUMMIT INVESTMENT MANAGEMENT, LLC, SBN FCCG, LLC, and SBN EDGE, LLC, Appellants, v. TOM H. CONLLY, Appellee. |
| Court | U.S. District Court — District of Colorado |
This is an appeal by Summit Investment Management, LLC, SBN FCCG LLC, and SBN Edge, LLC (collectively “appellants”) from the (1) December 16, 2020 oral ruling [Docket No. 7-6 at 3-80] of the United States Bankruptcy Court for the District of Colorado (the “bankruptcy court”) granting the Trustee's Amended Motion Seeking Approval of Claims Subordination Stipulation with Foot Locker Retail, Inc., Authorization to Make an Interim Distribution to Creditors, and Authorization to Settle the Dispute Concerning the $330,000 in Earnest Money Still Held By the Estate and (2) the bankruptcy court's December 17, 2020 Order Approving Stipulations Between Trustee and Foot Locker Retail, Inc. and Stratford Holdings, LLC [Docket No. 7-1 at 1-3]. The Court has jurisdiction pursuant to 28 U.S.C. § 158(a).[1]
Fog Cap Retail Investors, LLC (“debtor”) was formed in 2002 to hold assets in the form of leasehold interests for investment purposes. R. 5 at 10. SBN FCCG, LLC (“SBN FCCG”) acquired ownership of debtor and is the sole member of debtor and a creditor of debtor. R. 5 at 10-11. Summit Investment Management, LLC (“Summit”) and SBN Edge, LLC (“SBN Edge”) are other creditors of debtor. R. 5 at 11. SBN FCCG, Summit, and SBN Edge are all related by virtue of SBN FCCG's ownership of debtor. R. 5 at 13.
Stratford Holding, LLC (“Stratford”) is another creditor of debtor. R. 5 at 11. Stratford owns certain commercial property near Oklahoma City, Oklahoma (the “property”). Id. In 1977, Stratford's predecessor entered into a 30-year lease with a predecessor of Foot Locker Retail, Inc. (“Foot Locker”), which operated a shoe store at the property from 1977 to 1995. R. 5 at 14. In 1995, Foot Locker subleased the property to a dry cleaning business. Id.
In September 2002, Foot Locker sold and assigned all of its interests under the lease agreement to debtor. Id. Foot Locker and debtor also entered into an assignment and assumption agreement, and debtor “stepped into all of the obligations under the lease agreement with Stratford.” R. 5 at 14-15. The dry cleaning business operated until August 2008, when debtor forcibly evicted the tenant. R. 5 at 15. The property sat vacant for almost four years. R. 5 at 55. In February 2012, debtor surrendered its leasehold interest in the property back to Stratford, and the lease agreement between the two was terminated. R. 5 at 15. At that time, however, it was determined that the property was contaminated with hazardous dry-cleaning chemicals, including perchloroethylene (“PCE”). R. 5 at 16. In November 2012, the State of Oklahoma commenced an environmental enforcement action against Stratford and its former dry-cleaning tenants. Id.[3]
To recover its costs and damages, including the cost of the environmental remediation, Stratford sued Foot Locker and debtor in the United States District Court for the Western District of Oklahoma, asserting claims for nuisance, trespass, negligence, and other claims, as well as claims under the Resource Conservation and Recovery Act (“RCRA”) and the Comprehensive Environmental Response Compensation and Liability Act (“CERCLA”). R. 5 at 16-17. The parties and the bankruptcy court refer to this litigation as the “Oklahoma Litigation.” Stratford also asserted claims for breach of the lease agreement against debtor and Foot Locker. R. 5 at 17. Summit and SBN FCCG are defendants in the Oklahoma Litigation. Id.
Stratford asserts that debtor is liable to it for between $12,726,324 and $20,726,324 for the damage to the property. R. 5 at 11. Foot Locker has a general unsecured claim against debtor for $21,668,943, asserting indemnification for environmental damages pertaining to the property. R. 5 at 12. Summit and SBN FCCG have filed proofs of claim of an unknown amount for indemnification for the property's environmental damage. Id.
As a result of the Oklahoma Litigation, debtor filed for bankruptcy in the United States Bankruptcy Court for the District of Colorado, which triggered an automatic stay of all pending litigation, including the Oklahoma Litigation, pursuant to 11 U.S.C. § 362. R. 5 at 19. Debtor indicated that it would liquidate all of its assets, consisting primarily of leasehold interests, yet doing so was “extremely difficult and contentious” because debtor “lined up on one side along with other affiliated and related entities” against the parties in the Oklahoma Litigation, including Stratford and Foot Locker, as well as the unsecured creditors' committee. R. 5 at 19-20. The creditors filed motions for relief from the stay so that the Oklahoma Litigation could continue and requested that the bankruptcy court abstain from deciding objections to proofs of claim by Stratford and Foot Locker in favor of their resolution in the Oklahoma Litigation. R. 5 at 20-21.
On January 12, 2017, the bankruptcy court granted motions for relief from the stay, permitting the parties to the Oklahoma Litigation to continue to litigate their claims against debtor in the Oklahoma court. R. 5 at 21. The bankruptcy court entered these orders on the assumption that the Oklahoma Litigation would progress to trial in 2017 or 2018. Id. The bankruptcy court then converted the Chapter 11 case into a liquidation under Chapter 7 and appointed Tom H. Connolly as Trustee. Id.
The Trustee has focused on resolving the various claims stemming from the Oklahoma Litigation through mediation and settlement discussions and has hired local counsel and an environmental consulting expert witness. R. 5 at 22.
Though less relevant to the Oklahoma Litigation, the Trustee has also attempted to resolve a dispute concerning an asset purchase agreement with Stratford for the purchase of certain of debtor's leasehold interests prior to the conversion of the bankruptcy from Chapter 11 to Chapter 7. R. 5 at 23-24. Stratford tendered $330,000 as a deposit in connection with the transaction, which the bankruptcy court approved. R. 5 at 24. However, Stratford terminated the agreement, and debtor initiated an adversary proceeding against Stratford in the United States Bankruptcy Court for the District of Colorado (the “adversary proceeding”). Id. Debtor seeks declaratory judgment determinating that debtor, not Stratford, was entitled to retain the $330,000 deposit. Id. The adversary proceeding has been held in abeyance pending resolution of the Oklahoma Litigation. R. 5 at 24-25.
On September 28, 2020, the Trustee filed a motion seeking approval of (1) a claim subordination stipulation with Summit and SBN FCCG (the “Summit Stipulation”), settling Summit's and SBN FCCG's claims at $0.00 each and (2) a stipulation with Foot Locker (the “Foot Locker Stipulation”). R. 5 at 25. Summit and SBN FCCG objected to the Foot Locker Stipulation. R. 5 at 26. On November 12, 2020, the Trustee filed a stipulation with Stratford (the “Stratford Stipulation”). R. 5 at 8.
As to the Summit Stipulation, Summit and SBN FCCG agreed to the treatment of their proofs of claim in the debtor's bankruptcy case and stipulated that their claims were contingent, unliquidated claims for reimbursement and contribution. R. 5 at 26. They also agreed to the estimation of their respective claims at $0.00 solely for purposes of the bankruptcy case. Id. The Summit Stipulation indicated that Summit and SBN FCCG could seek reconsideration of the estimation under 11 U.S.C. § 502(j) after the conclusion of the Oklahoma Litigation. Id. In addition, the Summit Stipulation included the agreement of Summit and SBN FCCG to allow the Trustee to refund the $330,000 deposit held by the Trustee to Stratford, provided that Stratford dismisses its counterclaims against Summit and SBN FCCG in the adversary proceeding. R. 5 at 27. The Summit Stipulation stated that the Trustee intended to make an interim distribution to creditors with allowed claims. Id. However, Summit and SBN FCCG did not expressly agree to such proposed interim distribution, but agreed that, if an interim distribution is made to Stratford, such amount shall be credited against any damages asserted by Stratford in the case in Oklahoma. Id. Finally, the Summit Stipulation contained a number of “prophylactic” protections in relation to the impact of the stipulation in the case in Oklahoma, in particular that the stipulation shall have no collateral estoppel or res judicata effect on the determinations of liability or damages in the Oklahoma Litigation. R. 5 at 27-28.
As to the Foot Locker Stipulation,[4] debtor proposed that Foot Locker's $21,668,943 claim against debtor be subordinated to all allowed claims and all costs of administration, except the Summit and SBN FCCG claims, estimated at $0.00 for purposes of the bankruptcy case. R. 5 at 28-29. The bankruptcy court noted that, “[w]hether characterized as subordinated or estimated at zero, the practical result is exactly the same” because “the Foot Locker Summit, and SBN FCCG claims will not receive a distribution by the Trustee.” R. 5 at 30. Foot Locker also agreed to the Trustee allowing the Stratford claim of $6,500,000. Id. The Trustee agreed to withdraw and dismiss with prejudice the complaint in the adversary proceeding and to disperse the $330,000 deposit to Stratford, and Stratford agreed to dismiss all counterclaims filed in the adversary proceeding. R. 5 at 30-31. The Trustee also proposed to make interim...
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