Valley Nat'l Bank v. Warren
| Decision Date | 23 April 2021 |
| Docket Number | Case No: 8:20-cv-1777-KKM,Bankruptcy No: 8:16-bk-08167-MGW |
| Citation | 535 F.Supp.3d 1235 |
| Parties | VALLEY NATIONAL BANK f/k/a USAmeribank, Appellant, v. Jeffrey W. WARREN, AS Liquidating TRUSTEE FOR WESTPORT HOLDINGS TAMPA, LIMITED PARTNERSHIP and Westport Holdings Tampa II, Limited Partnership, Appellee. |
| Court | U.S. District Court — Middle District of Florida |
Chantal Pillay, Edmund S. Whitson, III, Adams & Reese, LLP, Tampa, FL, for Appellant.
Adam Lawton Alpert, Bryan D. Hull, Laura Labbee, Bush Ross, PA, Tampa, FL, for Appellee.
Appellant Valley National Bank appeals from a Final Order Granting Liquidating Trustee's Expedited Motion for Authority to Enter Into Litigation Funding Agreement with A/Z Property Partners LLC. (Doc. 1). After consideration of the bankruptcy court's order and the parties’ initial and supplemental briefs, the Court concludes that Valley National lacks standing to challenge the bankruptcy court's order under Article III of the U.S. Constitution. Valley National additionally fails to satisfy the "person aggrieved" test required by precedent. Accordingly, the appeal is dismissed.
On September 22, 2016, Westport Holdings Tampa, Limited Partnership (Westport I) and Westport Holdings Tampa II, Limited Partnership (Westport II) (collectively Debtors) filed voluntary Chapter 11 petitions. (Doc. 9-7 at 1–2). Debtors hold a Certificate of Authority from the Florida Office of Insurance Regulation (OIR) to operate a continuing care retirement community known as "University Village." Id. The bankruptcy court appointed Jeffrey Warren as the Liquidating Trustee, who in turn entered into an agreement to sell most of Debtors’ assets to another corporation. OIR approved the sale as long as it occurred within sixty days, but the estate lacked funds to consummate this deal. Id. at 3.
Separately, during the bankruptcy proceedings, the Liquidating Trustee filed adversary claims against Valley National based on an allegedly fraudulent transfer. Id. at 4. Specifically, the Liquidating Trustee asserted claims against Valley National, as a successor by merger to USAmeriBank, for "aiding and abetting [a] breach of fiduciary duty and the avoidance and recovery of the fraudulent transfer of $3,000,000 of [Westport I's] statutorily required minimum liquid reserves in connection with loans made to Westport Nursing Tampa, LLC." (Doc. 9-7 at 2). The Liquidating Trustee commenced the adversary suit in January 2020, six months prior to the submission of the litigation financing agreement at the heart of the instant dispute. (Doc. 9-7).
Both parties agree that the Liquidating Trustee attempted to sell the claims against Valley National at some point. (Doc. 20 at 4; Doc. 18 at 3–4). Valley National maintains that the principal of the prospective buyer, Richard Ackerman, threatened to obtain the causes of action against Valley National and engage in prolonged litigation if Valley National did not drop an administrative challenge with OIR. (Doc. 18 at 3; Doc. 27 at 2, 4). The sale of the claims against Valley National fell through, and the Liquidating Trustee proceeded to enter into a litigation funding agreement with A/Z Partners, a company newly formed by the same Richard Ackerman, that would finance the closing costs of the sale of Debtors’ assets and the adversary proceeding against Valley National. (Doc. 20. at 4; Doc. 18 at 4).
The parties’ points of view diverge regarding the strictures of the funding agreement. Valley National emphasizes that the agreement requires the Liquidating Trustee to consult A/Z Partners before changing counsel, share privileged information with A/Z Partners, and "not respond to any settlement offer until giving [g]ood faith consideration to [A/Z Partners’] analysis of the offer." (Doc. 18 at 5). For his part, the Liquidating Trustee contends that he "retained ultimate decision-making authority at all times." (Doc. 20 at 5.) At oral argument, the parties explained that the proposed agreement and the effectuated agreement contained slightly different terms, but ultimately Valley National conceded that the governing agreement—at least per its text—provides the Liquidating Trustee the final say so. See (Doc. 21 at 8).
The Liquidating Trustee requested the bankruptcy court approve the litigation funding agreement under 11 U.S.C. §§ 364(c)(1), (c)(2), and (d)(2).1 (Doc. 1 at 4–5). Valley National objected to approval of the funding agreement, arguing that "there are some strings attached" wherein the "financial interests" of A/Z Partners could impair the good faith effort of the Liquidating Trustee to negotiate with Valley National. Id. ; (Doc. 19-2 at 1196–97). The bankruptcy court approved the agreement on July 17, 2020, finding that the agreement best served the Debtors, creditors, and other parties and that it is "neither champertous nor usurious." (Doc 1 at 4, 8). Valley National filed a timely notice of appeal on July 31, 2020. (Doc 1).
On appeal, Valley National argues that the funding agreement is champertous under Florida law because the funder is, allegedly, not passively investing but instead intermeddling in the prosecution of the claims. See (Doc 18 at 10). The Liquidating Trustee responds by arguing, first, that Valley National lacks standing under the Bankruptcy Code. (Doc. 20 at 7). Next, he argues that the challenge is statutorily barred by 11 U.S.C. § 364(e)2 because Valley National failed to obtain a stay after the bankruptcy court's initial ruling. (Doc. 20 at 14). And finally, he argues that the agreement is not in fact champertous under Florida law because "[a]ll that remains of champerty [under Florida law] is an affirmative defense to contract claims," id. at 17, and there is no evidence of the "extreme circumstances" necessary to invalidate a contract on grounds that are neither constitutional nor statutory, id. at 18–19.
The Court ordered supplemental briefing because neither party addressed whether Valley National has Article III standing to appeal the bankruptcy court's order. (Doc. 25). In response, Valley National argues that it has Article III standing because the funding agreement causes an injury in fact by allowing a nonparty to exert control over the adversary proceeding, influence settlement, and prolong litigation. This influence, Valley National contends, affects the integrity and fairness of the bankruptcy proceeding and creates standing to appeal the bankruptcy court's final order blessing the funding agreement.
The Liquidating Trustee argues that Valley National does not have Article III standing to appeal the order because Valley National has not shown a concrete injury. (Doc. 18 at 5–6). Further, the Liquidating Trustee argues that the injury alleged is speculative with no imminent risk of harm because it depends on a tenuous chain of events that is not likely to materialize. Id.
To appeal a bankruptcy court's final order, a party must have both Article III standing and standing to appeal under the Bankruptcy Code. In re Bay Circle Props., LLC , 955 F.3d 874, 877–78 (11th Cir. 2020) ; In re Cap. Contracting Co. , 924 F.3d 890, 897 (6th Cir. 2019) (). The Court must satisfy itself of Article III standing, a question of subject matter jurisdiction, before it may address the question of whether a party may appeal under the Bankruptcy Code. See Steel Co. v. Citizens for a Better Env't , 523 U.S. 83, 94–95, 118 S.Ct. 1003, 140 L.Ed.2d 210 (1998). Because Valley National has established neither, the appeal is dismissed, and the Court has no authority to address the merits of the underlying bankruptcy order approving the third-party litigation financing agreement.
Article III, § 1, of the Constitution vests federal courts with "[t]he judicial Power of the United States," which extends only to "cases" and "controversies." To be sure, "no principle is more fundamental to the judiciary's proper role in our system of government than the constitutional limitation of federal-court jurisdiction to actual cases or controversies." Spokeo, Inc. v. Robins , ––– U.S. ––––, 136 S. Ct. 1540, 1547, 194 L.Ed.2d 635 (2016) (quotations omitted). "Standing to sue is a doctrine rooted in the traditional understanding of a case or controversy," which limits the jurisdiction of federal courts to actions in which a litigant seeks redress for a legal injury. Id. "To satisfy the ‘irreducible constitutional minimum’ of Article III standing, a plaintiff must ... establish (1) an injury in fact (2) that is fairly traceable to the challenged conduct [and] seek (3) a remedy that is likely to redress that injury." Uzuegbunam v. Preczewski , ––– U.S. ––––, 141 S. Ct. 792, 797, 209 L.Ed.2d 94 (2021) (quoting Spokeo , 136 S. Ct. at 1547 ). For appeals, the injury must stem from the judgment rather than an injury caused by the underlying facts. See Wolff v. Cash 4 Titles , 351 F.3d 1348, 1353–54 (11th Cir. 2003) ; In re Cap. Contracting Co. , 924 F.3d at 897. The party seeking relief bears the burden to establish standing at every stage of the litigation. Spokeo , 136 S. Ct. at 1547.3
Valley National stumbles at the first requirement of standing, injury in fact. "To establish injury in fact, a plaintiff must show that he or she suffered ‘an invasion of a legally protected interest’ that is ‘concrete and particularized’ and ‘actual or imminent, not conjectural or hypothetical.’ " Id. (quoting Lujan v. Defenders of Wildlife , 504 U.S. 555, 560, 112 S.Ct. 2130, 119 L.Ed.2d 351 (1992) ). "A ‘concrete’ injury must be ‘de facto’; that is, it must actually exist." Id. Further, ...
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