explaining that courts should interpret a contract according to its plain meaning “because the terms of a contract provide the best evidence of the parties’ intent”
How later courts described this case
- explaining that courts should interpret a contract according to its plain meaning “because the terms of a contract provide the best evidence of the parties’ intent”
- “It is well- established that the parties’ intent governs contract construction and interpretation.”
- “A chapter 11 plan is a contract between a debtor and the creditors of the bankruptcy estate.
- “The Court follows principles of contract interpretation to interpret a confirmed plan of reorganization.”
Written by the judges who cited it.
The opinion
ORDERED.
Dated: May 20, 2020 U - é Zi } Vf ’ i
Michael G. Williamson
United States Bankmptcy Judge
UNITED STATES BANKRUPTCY COURT
MIDDLE DISTRICT OF FLORIDA
TAMPA DIVISION
www.flmb.uscourts.gov
In re: Chapter 11
Westport Holdings Tampa, Case No. 8:16-bk-08167-MGW
Limited Partnership (Lead Case)
Westport Holdings Tampa II, Case No. 8:16-bk-08168-MGW
Limited Partnership,
Jointly Administered under
Case No. 8:16-bk-08167-MGW
Debtors.
□
MEMORANDUM OPINION ON
CALCULATION OF RESERVE
American cartoonist Rube Goldberg was famous for “depicting complicated
gadgets performing simple tasks in indirect, convoluted ways.”! In this case, the
Court is asked to assume that the drafters of a confirmed plan took a Goldbergian
' “Reuben Garrett Lucius Goldberg, known best as Rube Goldberg, was an American cartoonist,
sculptor, author, engineer, and inventor . . . . best known for his popular cartoons depicting
complicated gadgets performing simple tasks in indirect, convoluted ways.”
https://en.wikipedia.org/wiki/Rube_Goldberg.
approach to drafting a plan provision that instructs a liquidating trustee how to fund
a reserve account.2
Under the confirmed plan in this case, the Liquidating Trustee was required to
market and sell the Debtors’ independent living facility and then use the sales
proceeds to first fund a reserve for the benefit of CPIF Lending, which has a lien on
the independent living facility. Section 5.04(a)(2) of the plan provides that the
amount of the reserve is $12.9 million “less any outstanding real estate and personal
property tax claims secured by the Independent Living Facility as of the Effective Date” of
confirmation, which was May 10, 2018.
The Liquidating Trustee contends § 5.04(a)(2) was intended to authorize him
to deduct from the sales proceeds all the property taxes for 2018. CPIF Lending,
however, contends that § 5.04(a)(2) was intended to prohibit the Liquidating Trustee
from deducting any property taxes. The Court rejects both parties’ interpretations of
§ 5.04(a)(2).
Had the drafters of the plan intended for the Liquidating Trustee to deduct
either all the property taxes or none of them, they would not have used such
unnatural and convoluted language to achieve such a simple outcome. And this
Court will not apply such a strained and unnatural construction to a plan provision,
particularly when doing so would render language in the plan provision meaningless.
2 Derived from Rube Goldberg, the term “Goldbergian” means “grotesquely complex: contrived
with inept and excessive intricacy.” Goldbergian, available at https://www.merriam-
webster.com/dictionary/Goldbergian.
The only natural reading of § 5.04(a)(2)—one that gives meaning to all the
provision’s terms—is that the Liquidating Trustee is authorized to deduct from the
$12.9 million reserve the property taxes that had accrued on a per diem basis as of
the plan’s effective date.
I. BACKGROUND
The Debtors operate a continuing care retirement community known as
University Village, which consists of an independent living facility and a health
center.3 Under the confirmed plan in this case, a Liquidating Trustee was appointed
to market and sell University Village.4 The Liquidating Trustee has found a buyer,
though only for the independent living facility, which is secured by a first mortgage in
favor of CPIF Lending.5
CPIF Lending previously filed a secured claim in the amount of $9.8 million,
plus postpetition interest and attorney’s fees.6 At confirmation, the Court determined
that the independent living facility was worth $12.9 million. So the maximum value
of CPIF Lending’s secured claim is $12.9 million. CPIF Lending’s claim, however, is
disputed.7
3 Doc. No. 839 at 5 – 6.
4 Doc. No. 1012 at § 8.01.
5 Doc. No. 1625.
6 Claim No. 22-1.
7 The Liquidating Trustee is currently prosecuting various claims against CPIF Lending for money
damages, as well as an objection to CPIF Lending’s Claim No. 22-1. Jeffrey W. Warren, as Liquidating
Trustee v. CPIF Lending, LLC, Adv. No. 8:18-ap-00102-MGW, Adv. Doc. No. 93.
Therefore, before the Liquidating Trustee can use the proceeds from the sale
of the independent living facility to pay creditors other than CPIF Lending, the
confirmed plan requires him to first fund a reserve equal to $12.9 less certain
property taxes:
[B]efore the Liquidating Trustee can use the Cash Sale
Proceeds to pay any Allowed Claims junior to [CPIF
Lending’s secured claim], the Liquidating Trustee shall first
establish a reserve of the Cash Sale Proceeds in favor of CPIF
equal to the amount of $12,900,000.00 less any outstanding real
estate and personal property tax claims secured by the
Independent Living Facility as of the Effective Date.8
With the closing of the sale looming on the horizon, the Liquidating Trustee
and CPIF Lending cannot agree on how to calculate the reserve.9 According to the
Liquidating Trustee, he is required to deduct all property taxes for 2018 from the
$12.9 million reserve.10 The Liquidating Trustee points out that under Florida law, all
property taxes are secured by a first lien that goes into effect on January 1 of the year
the taxes are assessed.11 Because the effective date of confirmation was not until May
10, 2018, five months after the property tax lien went into effect, the Liquidating
Trustee reasons that the property taxes were secured by a lien on the independent
8 Doc. No. 1012 at § 5.04(a)(2) (emphasis added).
9 Doc. Nos. 1684 & 1685.
10 Doc. No. 1684 at ¶ 2.
11 Id. at ¶¶ 3 – 4.
living facility as of the effective date of confirmation and therefore should be
deducted from the reserve.12
CPIF Lending doesn’t dispute that a lien goes into effect on January 1. But it
basically takes the position that the date the lien goes into effect is irrelevant because,
under the plain language of the confirmation order, the lien must secure
“outstanding” property taxes.13 And, as CPIF Lending points out, property taxes are
not due and payable until November 1.14 Thus, although there may have been a lien
that existed as of May 10, 2018, there were no property taxes for the lien to secure
until November 1, 2018—the date the taxes first became due and payable.15
II. CONCLUSIONS OF LAW
This case comes down to a matter of plan interpretation: The Court must
determine what the drafters of the plan meant when they said, in § 5.04(a)(2) of the
confirmed plan, that the Liquidating Trustee could exclude from the $12.9 million
reserve “any outstanding real estate and personal property tax claims secured by the
Independent Living Facility as of the Effective Date.”
12 Id. at ¶ 4.
13 Doc. No. 1685 at 1 – 2.
14 Id. (citing § 197.333, Fla. Stat.).
15 Id.
Although a confirmed plan is a judgment rendered by a federal court,16 the
chapter 11 plan itself is essentially a contract between a debtor and the creditors of
the bankruptcy estate.17 For that reason, the Eleventh Circuit follows principles of
contract interpretation when interpreting a confirmed plan of reorganization.18
Interpretation of a contract under Florida law is governed by the parties’
intent.19 The best evidence of the parties’ intent is the contract itself.20 Thus, absent
some ambiguity, the intent of the parties must be ascertained from the words used in
the contract.21
16 Miller v. United States, 363 F.3d 999, 1004 (9th Cir. 2004).
17 In re Sunnyland Farms, Inc., 2016 WL 1212723, at *3 (Bankr. D.N.M. Mar. 28, 2016) (explaining
that a “Chapter 11 bankruptcy plan is essentially a contract between the debtor and his creditors”);
In re W. Integrated Networks, LLC, 322 B.R. 156, 160-61 (Bankr. D. Colo. 2005) (“A chapter 11 plan is
a contract between a debtor and the creditors of the bankruptcy estate.).
18 In re FFS Data, Inc., 776 F.3d 1299 (11th Cir. 2015) (“The Court follows principles of contract
interpretation to interpret a confirmed plan of reorganization.”); see also In re Stratford of Texas, Inc.,
635 F.2d 365, 368 (5th Cir. 1981) (explaining that although a confirmed Chapter XI plan under the
Bankruptcy Act of 1898 was “tantamount to a judgment of a bankruptcy court,” the “arrangement
represents a kind of consent decree which has many attributes of a contract and should be construed
basically as a contract”).
19 L&H Constr. Co. v. Circle Redmont, Inc., 55 So. 3d 630, 634 (Fla. 5th DCA 2011) (“It is well-
established that the parties’ intent governs contract construction and interpretation.”).
20 Key v. Allstate Ins. Co., 90 F.3d 1546, 1549 (11th Cir. 1996) (explaining that courts should interpret a
contract according to its plain meaning “because the terms of a contract provide the best evidence of
the parties’ intent”).
21 WSC-L Lakeside Investors V, LLC v. Pulte Homes Corp., 2010 WL 1688008, at *3 (M.D. Fla. Apr. 22,
2010) (“Absent some ambiguity, the intent of the parties to a written contract must be ascertained
from the words used in the contract, without resort to extrinsic evidence.”) (citing Wheeler v. Wheeler,
Erwin & Fountain, P.A., 964 So. 2d 745, 749 (Fla. 1st DCA 2007)).
But, when a contract is ambiguous, courts may look to well-established rules
of contract interpretation to give meaning to the contract.22 Under Florida law, a
contract is ambiguous “if it is susceptible of more than one meaning and reasonably
intelligent persons would differ as to which meaning is the proper one.” Here, §
5.04(a)(2) is susceptible of more than one meaning.
On the one hand, § 5.04(a)(2) could reasonably be read to authorize the
Liquidating Trustee to deduct from the $12.9 million reserve all the taxes for 2018
because a lien securing the payment of those taxes arose on January 1—five months
before the effective date of confirmation. On the other hand, because the taxes
ordinarily are not due until November 1, the taxes secured by the lien arguably were
not “outstanding” as of the effective date, in which case the Liquidating Trustee
would not be authorized to deduct any property taxes for 2018.23
Because § 5.04(a)(2) is susceptible to more than one meaning, it is ambiguous,
which means the Court must look to well-established rules of contractual
22 11 Fla. Jur. 2d Contracts § 139 (2020) (“Thus, if the language of a contract is clear and
unambiguous, it does not call for judicial interpretation, but where the agreement is badly drafted or
contains language that is ambiguous, uncertain, and susceptible of more than one construction, a
court may, under the well-established rules of construction, interfere to reach a proper construction
and make certain that which in itself is uncertain.”)
23 This interpretation requires outstanding to mean “due and payable.” Courts are required to give
the words in a contract their natural, ordinary meaning. United States ex rel. v. FEDCON Joint Venture,
2019 WL 5295329, at *12 (M.D. Fla. Oct. 18, 2019). To determine a word’s natural, ordinary
meaning, courts general look to the dictionary. Id. According to Merriam-Webster dictionary,
outstanding means “unpaid.” https://www.merriam-webster.com/dictionary/outstanding.
Although Merriam-Webster doesn’t define “outstanding” as meaning due and payable, “owed” and
“payable” are listed as synonyms. So, while the Court is not convinced the taxes are not
“outstanding” until November 1, CPIF Lending’s interpretation is still a reasonable one.
interpretation to determine the parties’ intent. One of those well-established rules is
that courts are discouraged from applying a “strained and unnatural construction” to
a contract.24
Although it may not be obvious at first glance, both the Liquidating Trustee
and CPIF Lending are asking the Court to apply a strained and unnatural
construction to the contract. To see how, let’s start with the result of the construction
that each party advocates for.
The Liquidating Trustee contends that § 5.04(a)(2) authorizes him to deduct
all the 2018 property taxes from the $12.9 million reserve, while CPIF Lending says
the Liquidating Trustee is not authorized to deduct any property taxes.25 In fact, even
though § 5.04(a)(2) appears to peg the amount of property taxes to be deducted to
the plan’s effective date, the outcome under the parties’ competing interpretations is
binary: Either all the taxes are deducted or none of them are.
It’s hard to envision a more roundabout—and unnatural—way to say that the
Liquidating Trustee should either deduct all or none of the 2018 property taxes than
by using the phrase “less any outstanding real estate and personal property tax claims
24 Tampa Elec. Co. v. Travelers Indem. Co. of Am., 2017 WL 3911562, at *4 (M.D. Fla. 2017) (“The
Court simply notes that ‘damages resulting from . . . for statutory violation’ arguably is an unnatural
reading of the provision, and, as a general rule, courts are discouraged from applying a ‘strained and
unnatural construction’ to a contract.”) (quoting Health Options, Inc. v. Kabeller, 932 So. 2d 416, 420
(Fla. 2d DCA 2006)).
25 To be fair, CPIF Lending acknowledges that the result of the construction it advocates for would
be excessive and unfair. Doc. No. 1685 at 3 n.2. So, as a compromise, CPIF Lending asks the Court
to direct the Liquidating Trustee to deduct only those taxes that had accrued on a per diem basis as
of the May 10, 2018 effective date. As explained below, the Court is convinced this is the outcome
the plan drafters intended all along.
secured by the Independent Living Facility as of the Effective Date.” It is unlikely that the
highly skilled lawyers who drafted the plan in this case took a Goldbergian approach
to contract drafting and crafted such complicated language to achieve such a simple
result.
If the parties had intended the Liquidating Trustee to deduct all the 2018
taxes, wouldn’t it have been more natural for the parties’ lawyers to say that the
Liquidating Trustee shall establish a reserve equal to $12.9 million less the 2018
property taxes? Or, if the parties intended for the Liquidating Trustee to deduct none
of the taxes, wouldn’t it have been more natural to omit any reference to deducting
property taxes: “The Trustee shall establish a $12.9 million reserve.”
Surely the plan drafters intended the reference to the confirmed plan’s effective
date to have some meaning. Indeed, it is a cardinal rule of contractual interpretation
that courts must interpret a contract in a way that gives meaning to all a contract’s
terms.26 Yet, under the parties’ competing interpretations here, the reference to the
confirmed plan’s effective date is essentially rendered meaningless.
There is, however, a natural reading of § 5.04(a)(2) that gives meaning to the
provision’s reference to the plan’s effective date: The parties intended that the
26 SRQ Taxi Mgmt., LLC v. Sarasota Manatee Airport Auth., ___ B.R. ___, 2020 WL 1158469 (Bankr.
M.D. Fla. Mar. 10, 2020) (“When interpreting a contract, the Court must do so in a way that gives
meaning to all the contract’s provisions.”) (citing BVS Acquisition Co. v. Brown, 649 F. App’x 651, 652
(11th Cir. 2016)).
Liquidating Trustee should deduct from the $12.9 million reserve the amount of
2018 property taxes that had accrued on a per diem basis through the effective date.
Under this interpretation, the reference to the effective date determines the
amount of property taxes the Liquidating Trustee can deduct. This interpretation
also gives meaning to the other terms in § 5.04(a)(2): Taxes that have accrued as of
the plan’s effective date are outstanding (i.e., unpaid) and secured by the independent
living facility should be deducted.
To be sure, property taxes technically don’t accrue on a per diem basis under
Florida law. But the Court is not convinced that the plan drafters had in mind the
intricacies of Florida property tax law when drafting § 5.04(a)(2). There certainly is
no reason to think the drafters used knowledge of the intricacies of Florida property
tax law to devise a legal version of a Rube Goldberg machine.
III. CONCLUSION
Ultimately, this Court is charged with determining what the drafters of the
plan intended when they said that the Liquidating Trustee could exclude from the
$12.9 million reserve “any outstanding real estate and personal property tax claims
secured by the Independent Living Facility as of the Effective Date.” The answer lies
in the reference to the plan’s effective date.
Only one reading—indeed the most natural one—gives meaning to the
reference to the plan’s effective date: The parties intended that the Liquidating
Trustee should deduct from the $12.9 million reserve the amount of 2018 property
taxes that had accrued on a per diem basis through the effective date. Accordingly,
the Court will enter a separate order directing the Liquidating Trustee to use the
proceeds from the sale of the independent living facility to fund a reserve in the
amount of $12.9 million less any property taxes that accrued on a per diem basis
from January 1, 2018 through May 10, 2018.
Attorney Mark A. Salzberg is directed to serve a copy of this Memorandum Opinion
on interested parties who do not receive service by CM/ECF and file a proof of
service within three days of entry of this Memorandum Opinion.
Mark A. Salzberg, Esq.
Squire Patton Boggs (US) LLP
Counsel for CPIF Lending, LLC
Adam Lawton Alpert, Esq.
Bush Ross, P.A.
Counsel for Jeffrey W. Warren, as Liquidating Trustee for Westport Holdings Tampa,
Limited Partnership and Westport Holdings Tampa II, Limited Partnership