McIntyre Land Company, Inc. v. Truist Bank

IN THE UNITED STATES DISTRICT COURT

FOR THE MIDDLE DISTRICT OF ALABAMA

NORTHERN DIVISION

)

IN RE MCINTYRE BUILDING )

COMPANY INC., )

)

Debtor, ) CASE NO. 2:12-cv-555-ALB

)

)

MCINTYRE LAND COMPANY, )

INC., )

)

Plaintiff-Appellant, )

)

v. )

)

SERVISFIRST BANK, )

)

Intervenor Plaintiff-Appellant )

)

v. )

)

BRANCH BANKING AND TRUST )

COMPANY, INC., MCINTYRE )

BUILDING COMPANY INC., AND )

INNES T. MCINTYRE, IV. )

)

Defendants-Appellees. )

)

v. )

)

SUSAN SHIROCK DEPAOLA )

)

Trustee-Defendant-Appellee )

)

MEMORANDUM OPINION AND ORDER

This litigation is about whether a bank has a mortgage on undeveloped

property or on a shopping center. It comes to the Court after the Bankruptcy Court

entered Proposed Findings of Fact and Conclusions of Law to resolve an adversary

proceeding between, on one side, Plaintiffs McIntyre Land Company and Servisfirst

Bank and, on the other side, Defendants Branch Banking and Trust Company, Inc.,

and the Bankruptcy Estates of McIntyre Building Company Inc. and Innes T.

McIntyre.1 After extensive briefing and an evidentiary hearing, the Bankruptcy

Court recommended that this Court: (1) deny Plaintiffs’ claims, including its claims

quiet title and for fraud and (2) declare that Branch Banking and Trust Company,

Inc., has a valid mortgage lien on the shopping center and no mortgage lien on the

undeveloped property. See Doc. 1-6.

Both sides disagree with aspects of the Bankruptcy Court’s order. Plaintiffs

argue that the Bankruptcy Court (1) did not have subject matter jurisdiction over the

dispute (2) should have abstained from adjudicating the dispute and (3) was wrong

on the merits. Defendants agree with the Bankruptcy Court’s bottom-line

conclusions on jurisdiction, abstention, and the merits. But they argue that this

matter is a “core proceeding” such that the Bankruptcy Court should have entered a

1 The case once included First American Title Insurance Company as an additional defendant, but

it was dismissed by joint stipulation of the parties. See Doc. 32.

final order instead of proposed findings of fact and conclusions of law. See 28

U.S.C. § 157(b)(2)(B).

Having reviewed the record and applicable law de novo and with the benefit

of oral argument, this Court agrees with the Bankruptcy Court’s bottom-line

conclusions. Accordingly, to the extent the litigation is a “noncore” proceeding or

a “core” proceeding subject to de novo review, the Court adopts the Bankruptcy

Court’s Proposed Findings of Fact and Conclusions of Law as modified by this

opinion. In the alternative, if the matter were a “core” proceeding, then it would

properly be reviewed on appeal to this Court under 28 U.S.C. § 158, and the Court

would affirm the Bankruptcy Court’s decision. Either way, the Plaintiffs’ objections

to the Bankruptcy Court’s decision are overruled, and the Bankruptcy Court’s

decision is adopted as modified by this opinion.

Background

The Court adopts the Bankruptcy Court’s factual findings to which no party

objected. The most salient of those facts are summarized below.

Innes McIntyre (“Innes”) was in the construction and real estate development

business. Innes was the sole owner of Mclntyre Building Co., Inc. (“Building”).

Innes’ wife owned McIntyre Land Co., Inc. (“Land”). Innes was the President of

both companies.

Colonial Bank (“Colonial”) loaned $3.1 million to Building, which was

secured by the Prattville Square Shopping Center, which is owned by Land.2

ServisFirst Bank (“ServisFirst”) loaned money to Land, and that loan was also

secured by a mortgage on the same shopping center.

It made no business sense for a loan to Building to be secured by property

owned by Land. Recognizing as much in 2006, Innes asked Colonial whether it

would substitute as collateral a 165-acre parcel of unimproved land owned by

Building for the Prattville Shopping Center owned by Land. Presumably, Innis made

this request as President of both companies. A representative of Colonial wrote Innes

the following letter:

Dear Innes:

This is to advise that Colonial Bank (Colonial) has agreed to release

the Prattville Square Shopping Center as collateral on the referenced

loan and replace it with 140 acres of land in Prattville. This is subject

to a new appraisal being ordered to confirm that the proper loan to

value on the property will be maintained. By signing this letter you

agree to pay for the appraisal on the 140 acres.

Sincerely,

/s/ Bill R. Renfroe

Vice President

BY: ___________________

Innes McIntyre Date

2 The loan was also secured by real property owned by Building, but that lien is not as issue here.

All parties agree, and the Bankruptcy Court found, that the letter proposed to

substitute the 165 acres of undeveloped property at issue in this case, even though it

erroneously referred to the real estate as 140 acres.

The parties meant to complete this “collateral swap” agreement. But the

parties never completed the deal. The undeveloped land was appraised, but Innis

never signed the letter as the President of either Building or Land. Colonial and Land

never executed a release of the mortgage on the Prattville Square Shopping Center.

Colonial never recorded a mortgage on the unimproved property owned by Building.

Accordingly, public records continued to reflect a Colonial mortgage on Land’s

Prattville Square Shopping Center and no Colonial mortgage on Building’s 165

acres.

In December 2008, Colonial and Building renewed the original $3.1 million

loan in a document that states the loan remained secured by Land’s Prattville Square

Shopping Center.

In 2009, Colonial went broke and was taken over by the Federal Deposit

Insurance Corporation.

Branch Banking and Trust Company (“BB&T”) purchased Colonial’s

relevant assets from the FDIC and is the successor in interest to the Colonial loan.

Procedural History

In 2010, Innes and Building both filed for bankruptcy. Land and Innes’ wife

remained solvent. 3

When Building filed for bankruptcy, it listed BB&T as having a mortgage lien

on the 165 acres of unimproved land.

Land filed an adversary proceeding in Building’s bankruptcy, which asserted

claims against Building, Innes, and BB&T. The complaint (which was later

amended) alleged that BB&T (as Colonial) had promised that it would release

Land’s Prattville Shopping Center. The complaint asked the Bankruptcy Court to

order the parties to complete the collateral swap agreement, that is, to order Building

to execute a mortgage on the 165 acres that Building owned and to compel BB&T

to execute a release of the mortgage on the shopping center that Land owned.

After filing a proposed amended complaint to add additional parties, drop

Building as a defendant, and modify its theories of relief, Land moved to dismiss its

own action.

3 For the purposes of this litigation, the Court assumes without deciding that Land and Building

are separate entities. But there has been litigation elsewhere about whether Innes’ wife’s ownership

of Land was a sham such that those assets should be included in bankruptcy. Indeed, the problem

in this case appears to arise entirely from Innes disregarding Land’s and Building’s corporate

separateness in pledging the property of the former as collateral for a loan to the latter.

BB&T filed an answer and counterclaim in which it sought a declaration that

it had a valid lien on Land’s Shopping Center or, in the alternative, a valid lien on

Building’s165 acres. BB&T also opposed Land’s motion to dismiss.

The Bankruptcy Court granted Land’s motion to dismiss because it concluded

that the dispute did not involve property of the bankruptcy estate. But the very next

day the Bankruptcy Court issued an order stating that it may have made an error

because it had overlooked BB&T’s answer and counterclaim. BB&T also filed a

motion for relief from judgment, arguing that the Bankruptcy Court had erred.

While the Bankruptcy Court was trying to determine whether it had erred in

dismissing Land’s adversary proceeding, Land filed a new complaint in state court

that made essentially the same allegations it had made in its proposed amended

complaint in the bankruptcy. The state-court complaint did not list Innes or Building

in the caption as parties. The complaint did, however, include this allegation in

paragraph 8:

In 2006, Codefendants McIntyre Building Company and Innes

McIntyre as well as [Land] entered into an agreement with BB&T. That

agreement required BB&T to release its mortgage on Prattville Square

Shopping Center and, in turn, McIntyre Building agreed to encumber a

165 acre parcel of property located in Prattville, Alabama with a

mortgage loan with BB&T.

BB&T removed the state-court complaint to federal court, creating another

adversary proceeding in the bankruptcy.

For its part, Land opposed the motion to reopen Land’s previously dismissed

adversary proceeding and argued that its state-court complaint in the new adversary

proceeding should be remanded. The gist of Land’s argument in both cases was that

its claims did not affect Building’s bankruptcy estate.

After holding hearings and reviewing extensive briefing, the Bankruptcy

Court ultimately decided that it would reopen the dismissed case, keep the state-

court case, and consolidate the two actions. The Bankruptcy Court explained that it

had jurisdiction over the disputes and would need to resolve them to administer the

bankruptcy estate:

While the form of these proceedings is somewhat complex, the central

question is whether the mortgage of BB&T encumbers land of

McIntyre Land, as contended by BB&T, or whether the mortgage of

BB&T encumbers land of McIntyre Building, as contended by

McIntyre Land. . . . In bankruptcy parlance, McIntyre Land argues that

BB&T holds a secured claim against property of the estate while BB&T

argues that it does not. Therefore, the Court concludes that it has subject

matter jurisdiction pursuant to 28 U.S.C. § 1334(e)(1), and that these

are core proceedings within the meaning of 28 U.S.C. § 157(b)(2)(B).

Doc. 7-17 at 7 (Memorandum Decision).

The litigation continued, and the Bankruptcy Court entered the Proposed

Findings of Fact and Conclusions of Law on review here. In the Bankruptcy Court’s

proposed conclusions, it apparently changed its mind about whether the dispute was

a core proceeding:

[T]his proceeding is noncore. This conflict arises under contracts,

promissory notes, and mortgages. The dispute could have arisen absent

a bankruptcy filing. On the other hand, a core proceeding can only arise

in the context of a bankruptcy case. To be sure, the bankruptcy filing

made by Building complicated things for Land, but the underlying

dispute here is one involving state law rights under contract and

property.

Recommendation at 14.

Jurisdiction and Standard of Review

There are two potential grounds for this Court to review the Bankruptcy

Court’s order. Bankruptcy courts are Article I courts, and their authority is limited

both by statute and Article III of the Constitution. In “core proceedings,” the

bankruptcy court may enter a final order, 28 U.S.C. § 157(b)(1), that is subject to

appellate review by the district court, see 28 U.S.C. § 158, which applies the usual

deferential standards of appellate review, see Fed. Rule Bkrtcy. Proc. 8013. In a

noncore proceeding, the bankruptcy court submits proposed findings of fact and

conclusions of law and “any final order or judgment shall be entered by the district

judge . . . after reviewing de novo those matters to which any party has timely and

specifically objected.” 28 U.S.C. § 157(c)(1).

Article III further complicates this area. Even though the bankruptcy statute

contemplates that bankruptcy courts will enter final orders in all core proceedings,

the Supreme Court has held that, for certain state-law core proceedings, a bankruptcy

court lacks the constitutional authority to enter a final order. See Stern v. Marshall,

564 U.S. 462 (2011). Instead, if the parties do not consent to the bankruptcy court’s

jurisdiction, the bankruptcy court must treat the core proceeding as if it were a

noncore proceeding and enter proposed findings of facts and conclusions of law for

de novo review by the district court. See Executive Benefits Insurance Agency v.

Arkison, 573 U.S. 25 (2014).

The parties dispute whether the adversary proceeding at issue here is core or

noncore. As explained below, the Court concludes that this matter is a core

proceeding. But the Court’s resolution of that dispute does not affect the Court’s

jurisdiction to review the order or the bottom-line result under the applicable

standard of review. If the Bankruptcy Court’s order were properly construed as a

final order at the conclusion of a “core” proceeding—instead of the recommendation

that is currently is—that order would properly be on appeal to this Court and this

Court would have jurisdiction to review it. Although a deferential standard of review

would apply if this matter were on appeal from a core proceeding, the Court finds

that the standard of review is immaterial. Even applying the most rigorous and

demanding standard—de novo review—the Court concludes that the Bankruptcy

Court’s proposed findings and conclusions are due to be adopted. For the same

reason, the Court concludes that it is irrelevant whether the Bankruptcy Court may

have had the constitutional authority under Stern to issue a final order in this case.

Even if the Bankruptcy Court were correct under the statute or the Constitution to

issue proposed findings and conclusions, the Court would adopt those proposed

findings and conclusions after de novo review as modified by this Opinion.

Discussion

A business school professor should write a case study on this collateral swap

to teach students about turn-of-the century business practices and the circa 2008 real

estate boom and bust. The Bible tells us that “[t]he prudent see danger and take

refuge, but the foolish keep going and pay the penalty.” Proverbs 27:12. The latter

is what we have here: a deal that everyone wanted done, but no one bothered to

complete. Considering the cavalier way that Innes, Land, Building, and Colonial all

approached securing the multi-million-dollar loan at issue in this case, it’s no wonder

three of the four went broke when the market dropped.

Land and ServisFirst object to the Bankruptcy Court’s rulings on jurisdiction

and the merits. Neither argument is persuasive.

I. Subject Matter Jurisdiction

There are three parts to Land’s argument that the Bankruptcy Court lacked

subject matter over this adversary proceeding. First, Land argues that the bankruptcy

court improperly reopened the adversary proceeding that Land itself filed in

Building’s bankruptcy case. Second, Land argues that the Bankruptcy Court lacked

jurisdiction over its state-court complaint because, invoking the well-pleaded

complaint rule, there was no bankruptcy issue on the face of the complaint between

non-debtors Land and BB&T. Third, Land argues that the bankruptcy court was

required to abstain from adjudicating its state-court complaint under 28 U.S.C. §

1334(c)(2).

A. The Bankruptcy Court properly reopened the first adversary

proceeding.

Land argues that the Bankruptcy Court erroneously reopened and

reconsidered its dismissal of the original lawsuit, which Land filed in the bankruptcy

court. There is no real question that the Bankruptcy Court had jurisdiction over that

adversary proceeding. It was filed in the Building bankruptcy and, at the very least,

“could conceivably have [had] an effect on the estate being administered in

bankruptcy” by “alter[ing] the debtor’s rights, liabilities, options, or freedom of

action (either positively or negatively)” or otherwise “impacting upon the handling

and administration of the bankrupt estate.” Lawrence v. Goldberg, 573 F.3d 1265,

1270–71 (11th Cir. 2009).

The only real question is whether the Bankruptcy Court had the discretion to

withdraw and correct its order granting Land’s voluntary motion to dismiss its

lawsuit. The procedural history of the original action is short, but complicated. The

Bankruptcy Court summarized it as follows:

Adversary Proceeding 10-3029, first came before the Court for a

hearing on June 8, 2010. At that time, the Court made the parties aware

of its concern that the alleged “collateral swap” may be a fraudulent

conveyance . . . [or] a voidable preference within the meaning of 11

U.S.C. § 547.

Shortly after the June 8 hearing, and possibly in response to the

Court’s concerns, McIntyre Land filed an Amended Complaint (10-

3029, Doc. 18), without first seeking leave to amend as required by

Rule 15(a), Fed. R. Civ. P. and Rule 7015, Fed. R. Bankr. P. . . .

The Amended Complaint differs from the original complaint in

that McIntyre Land has abandoned its “collateral swap” theory and

elected to proceed on fraud and breach of contract theories, contending

that the Bank has promised to release its lien on the Prattville Square

Shopping Center, but purports to take no position that other property

owned by McIntyre Building was to be mortgaged. To further

complicate matters, McIntyre Land joined additional Defendants (i.e.

Mississippi Valley Title Insurance Company, Pro Abstract Co., Inc.,

First American Title Insurance Company and Macon County Abstract

and Title Company, Inc.). None of these new Defendants were named

in the caption of the Amended Complaint nor were the now apparently

superfluous Defendants (i.e. Innes McIntyre and McIntyre Building)

dismissed, creating some confusion as to who were the true parties to

Adversary Proceeding 10-3029, in light of the Amended Complaint.

In response to [a] Motion to Strike the Amended Complaint filed

by BB&T, McIntyre Land did them one better and moved to dismiss its

own complaint, without prejudice. Notwithstanding the fact that BB&T

has previously moved to dismiss the original complaint (albeit with

prejudice), BB&T then opposed the motion to dismiss, without

prejudice, filed by McIntyre Land. As it then appeared to the Court that

the Amended Complaint affected only the rights of nonbankrupt

parties, the Court granted the motion to dismiss by McIntyre Land on

October 21, 2010. (10-3029; Docs. 36, 37).

Unfortunately, the [Bankruptcy Judge] was not aware that BB&T

had filed an Answer, Counterclaim and Crossclaim at the time he

entered the October 21 order granting the motion to dismiss. (10-3029,

Doc. 34). Within several hours of entry of the October 21 Order, the

[Bankruptcy Judge] became aware of the Counterclaim and, by Order

dated October 22, 2010, sua sponte, set a Status Conference with the

intention of determining whether the October 21 order of dismissal

should be vacated. After hearing from the parties at the November 19

hearing, the Court entered an order calling for briefs on its sua sponte

motion to reconsider. (10-3029, Doc. 40).

Doc. 7-17 at 4-5.

The Bankruptcy Court ultimately decided to withdraw its order dismissing the

adversary proceeding “as having been improvidently entered in light of the

Counterclaim and Crossclaims which BB&T had timely filed, but were not

considered by the Court.” Doc. 7-17 at 8. The Bankruptcy Court rejected Land’s

argument that it did not have the authority to sua sponte reconsider its order:

McIntyre Land argues that the Court’s Order of Dismissal entered

October 21, 2010 was dispositive and that it became final 14 days

thereafter as no appeal was filed. If that is the case, McIntyre Land

contends that Adversary Proceeding 10-3084 is dismissed, and that 10-

3029 should be remanded to Montgomery County for trial on the State

law questions raised. Admittedly the procedural history of this case is

ragged and the Court bears a share of the blame, first for failing to

consider the Counterclaim and Crossclaim at the time the Order of

Dismissal was entered and second for failing to make clear in its Order

of October 22, that it would reconsider, sua sponte, its October 21

Order. As the Court moved to reconsider sua sponte its October 21

Order, BB&T needed not nor could not file an appeal until the

reconsideration was determined. Much of the discussion in the brief

filed by McIntyre Land centers on Rule 60, Fed. R. Civ. P., contending

that a Rule 60 motion is not a substitute for a timely appeal. While this

statement is a correct statement of the law, it is not applicable here as

the Court, acting sua sponte, timely took action to reconsider its

October 21Order.

Doc. 7-17 at 9.

Land raises two issues about the Bankruptcy Court’s order. First, Land argues

that the Bankruptcy Court was wrong as a matter of procedure because it did not

have the discretion to reconsider its order under Rule 60 of the Federal Rules of Civil

Procedure. Second, Land argues that the Bankruptcy Court was wrong as a matter

of substance because its initial dismissal order was correct.

The Court rejects Land’s arguments.

First, the Bankruptcy Court had discretion to reconsider its order. Land relies

extensively on cases about the correction of clerical errors under Rule 60(a) of the

Federal Rules of Civil Procedure, which imposes no time limit on a correction. But

the Bankruptcy Court acted quickly and had discretion to reconsider its order under

Rule 60(b). Rule 60(b)(1) provides that, within a reasonable time not more than a

year, a court “may relieve a party or its legal representative from a final judgment,

order” for “mistake, inadvertence, surprise, or excusable neglect.” Fed. R. Civ. P.

60(b). The Eleventh Circuit has held that the “broad language” of Rule 60(b)(1)

includes “mistakes of fact as well as mistakes of law.” Nisson v. Lundy, 975 F.2d

802, 806 (11th Cir.1992). “In the original version of the Rule, relief was permitted a

party for ‘his mistake’; the 1946 amendments changed to language to make clear

that relief from judgment was available for any mistake, including the mistake of the

court.” In re 310 Assocs., 346 F.3d 31, 34–35 (2d Cir. 2003) (citing rule comments).

Procedurally, the Bankruptcy Court had discretion to reconsider its order and correct

what it viewed as a mistake.4

4 Most authority suggests that a trial court may corrects it errors under 60(b) sua sponte. E.g.

Kingvision Pay-Per-View Ltd. v. Lake Alice Bar, 168 F.3d 347 (9th Cir.1999); Simer v. Rios, 661

F.2d 655, 663 n. 18 (7th Cir.1981); International Controls Corp. v. Vesco, 556 F.2d 665, 668 (2d

Cir.1977). But, even if a motion were required, BB&T filed a timely motion.

Second, the Bankruptcy Court did not err on the merits when it reconsidered

its order on Land’s motion for voluntarily dismissal under Rule 41(a)(2). Because

“the purpose of the rule is primarily to prevent voluntary dismissals which unfairly

affect the other side,” a trial court “considering a motion for dismissal without

prejudice should bear in mind principally the interests of the defendant, for it is the

defendant’s position that the court should protect.” McCants v. Ford Motor Co., 781

F.2d 855, 856 (11th Cir. 1986)(internal quotations marks and citations committed).

As the Bankruptcy Court explained, Land’s position that its amended complaint5

would not impact BB&T’s lien against Building’s undeveloped land or the

administration of the bankruptcy estate was “disingenuous:”

The only sensible way to consider all of the claims of all of the parties

in these two adversary proceedings is in a single proceeding. Otherwise

there is a possibility of inconsistent adjudications as well as the very

real problem that a State Court would be making determinations that

would directly affect property of the estate of McIntyre Building.

Doc. 7-17 at 7. The Bankruptcy Court reasonably concluded that BB&T’s interest

in adjudicating the priority of its lien against the bankruptcy estate, and the broader

societal interest of address all related claims in the same bankruptcy, meant that

5 Because Land was never granted leave to file an amended complaint as required under Rule 15(a)

of the Rules of Civil Procedure, it is not clear that the amended complaint was the operative

pleading when the Bankruptcy Court reconsidered its order on Land’s motion to dismiss. There is

no debate that the original complaint affected the bankruptcy estate as it was filed against Building

and put the collateral swap front and center.

Land’s voluntary motion to dismiss should be denied. Accordingly, the Bankruptcy

Court had jurisdiction over the original adversary proceeding filed by Land.

B. The Bankruptcy Court also had jurisdiction over Land’s second state-

court complaint and was not required to abstain.

The Bankruptcy Court also had jurisdiction over Land’s second state-court

complaint and was not required to abstain.6 These issues ultimately come down to

the whether this adversary proceeding was about “core” or “noncore” issues.7

Because the Court concludes the issues in this case were “core,” it will not fault the

Bankruptcy Court for maintaining jurisdiction and declining to abstain.

There are four basic types of litigation that bankruptcy courts have jurisdiction

to resolve: (1) cases “under” title 11; (2) proceedings “arising under” title 11; (3)

proceedings “arising in” a case under title 11; and (4) proceedings “related to” a case

under title 11. See 28 U.S.C. § 157. Cases “under title 11” and proceedings “arising

6 The Court questions whether the Bankruptcy Court’s jurisdiction over the second state-court

lawsuit even matters if the Bankruptcy Court properly reopened Land’s first lawsuit. Nothing

about the outcome of this federal case would have changed had the Bankruptcy Court remanded

Land’s successive state-court lawsuit. Moreover, as of this writing, the Bankruptcy Court has

decided all the relevant issues as between the parties in ruling on the first adversary proceeding,

so there would be nothing left for the parties to litigate in state court even if this Court were to

remand the state-court lawsuit. Nonetheless, the Court will assume for the sake of argument that

the Bankruptcy Court’s jurisdiction over the removed state-law complaint matters.

7 The parties make waiver arguments. BB&T argues that Land waived this core/noncore issue by

failing to appeal the Bankruptcy Court’s initial order. Land argues that BB&T waived the issue

by failing to file a timely objection to the Bankruptcy Court’s order issuing proposed findings and

fact and conclusions of law. Considering the procedural irregularity of the Bankruptcy Court’s

rulings on this issue—a dismissal followed by a sua sponte reopening followed by an apparent sua

sponte reversal in its final opinion—the Court does not fault the parties for litigating this issue as

they did.

under title 11” are cases where the bankruptcy code itself creates a cause of action.

See Cont'l Nat'l Bank of Miami v. Sanchez (In re Toledo), 170 F.3d 1340, 1345 (11th

Cir.1 999). Proceedings “arising in a case under title 11” are “core proceedings,”

which include “matters concerning the administration of the estate . . . allowance or

disallowance of claims against the estate . . . [and] determinations of the validity,

extent, or priority of liens” against the estate’s property. 28 U.S.C. § 157(b)(2).

“Related to” jurisdiction is a catchall where “the outcome of the proceeding could

conceivably have an effect on the estate being administered in bankruptcy” by

“alter[ing] the debtor’s rights, liabilities, options, or freedom of action (either

positively or negatively) and which in any way impacts upon the handling and

administration of the bankrupt estate.” Lawrence v. Goldberg, 573 F.3d 1265, 1270–

71 (11th Cir. 2009).

A bankruptcy court must abstain from lawsuits that are removed to federal

court under the bankruptcy court’s “related to” jurisdiction if certain conditions are

met. See Christo v. Padgett, 223 F.3d 1324, 1331 (11th Cir. 2000). Abstention is

mandatory if there is a (1) “timely motion;” (2) the proceeding is based on a state

law claim or cause of action; (3) the proceeding is not a “core” proceeding, (4)

federal courts would not have jurisdiction over the claim but for its relation to a

bankruptcy case; (5) an action “is commenced” in a state forum of appropriate

jurisdiction; and (6) the action can be “timely adjudicated” in a state forum of

appropriate jurisdiction. 28 U.S.C. § 1334(c).

The parties appear to agree that Land timely moved for abstention, the

proceeding was based on state law, there is no non-bankruptcy basis for federal

jurisdiction, the action was commenced in state court, and the state court could have

timely adjudicated it. The only dispute is whether the adversary proceeding was a

“core” proceeding. If Land’s state-court complaint raised core issues, then there was

no requirement that the bankruptcy court abstain. If it raised only noncore issues,

then there was.

As with all statutory interpretation, the right place to start in answering the

core/noncore question is the text of the statute. See CBS Inc. v. PrimeTime 24 Joint

Venture, 245 F.3d 1217, 1227 (11th Cir. 2001)(“The language of our laws is the

law.”). The statute states that “[c]ore proceedings include, but are not limited to— .

. . allowance or disallowance of claims against the estate or exemptions from

property of the estate . . . [and] determinations of the validity, extent, or priority of

liens” on the debtor’s property. 28 U.S. Code § 157(b)(2)(B)&(K).

Under that statute, this litigation raised core issues. When Building declared

bankruptcy, it listed BB&T as a secured creditor with a mortgage lien on the

undeveloped property as an asset of the estate. BB&T disputed that it had a

mortgage lien on the undeveloped property. Land filed suit for a declaration that

BB&T did not have lien on its property because it had agreed to swap that lien for

a mortgage lien on Building’s property. The lawsuit turned on a swap agreement

that had three parties: Building (the debtor in bankruptcy), Land, and BB&T. And

paragraph eight of the complaint in Land’s state-court lawsuit recognized that

Building was a proper defendant and necessary party. Normally, a prospective

creditor like BB&T argues that it does have a mortgage lien and the bankruptcy

estate argues that it does not; here, BB&T argues that it does not have a mortgage

and the bankruptcy estate initially took the position that it did.8 But that unusual

turnabout does not change what the litigation was about. The litigation was about

the “allowance or disallowance” of BB&T’s claim against Building’s estate and the

“validity” and “extent” of BB&T’s lien on the undeveloped property that Building

owned.

The Eleventh Circuit has also provided a helpful shortcut for identifying when

litigation might be core or noncore. A core issue usually “stems from the bankruptcy

itself or would necessarily be resolved in the claims allowance process.” In re Fisher

Island Invs., Inc., 778 F.3d 1172, 1190 (11th Cir. 2015). A bankruptcy court’s

primary function is to exercise jurisdiction over the debtor’s property and make an

equitable distribution of that property to creditors. Here, as part of the claims

allowance process, the Bankruptcy Court necessarily had to resolve whether BB&T

8 When the bankruptcy trustee took over the debtor, she supported BB&T.

had a secured claim against Building’s undeveloped property as listed in Building’s

bankruptcy schedules. In fact, Building’s 160 acres has been sold during the

bankruptcy, and the trustee is waiting for this litigation to conclude before applying

the proceeds either to BB&T’s mortgage (if the collateral swap is enforceable) or to

the claims of unsecured creditors (if it is not). Moreover, the trustee argued that her

“strong arm powers” under 11 U.S.C. § 544(a)(3) prevented Land from requiring

specific performance of the collateral swap agreement, which is an issue that could

arise only in bankruptcy. See Doc. 7-34 (Trustee’s post-trial brief). These insights

were the reason the Bankruptcy Court originally held this dispute to be “core.”

For its part, the Bankruptcy Court’s second, and cursory, opinion on this issue

was contrary to applicable law. The Bankruptcy Court erroneously stated that the

matter was noncore because the “conflict arises under contracts, promissory notes,

and mortgages.” Doc. 1-6 at 14. It said that the mere fact that “the underlying dispute

here is one involving state law rights under contract and property” made it a noncore

proceeding. Doc. 1-6 at 14. But the statute expressly states that a “determination that

a proceeding is not a core proceeding shall not be made solely on the basis that its

resolution may be affected by State law.” 28 U.S.C. § 157(b)(3). Moreover, the

Eleventh Circuit has warned lower courts to be “mindful that the dependence of the

merits of an action on state law . . . does not, in and of itself, mean that the action is

non-core.” In re Toledo, 170 F.3d 1340, 1349 (11th Cir. 1999). In other words, the

statute and Eleventh Circuit cases expressly contemplate that some state-law

disputes will be “core.” This dispute is one of them, as the Bankruptcy Court

properly recognized in its initial order on this issue.

Perhaps recognizing the persuasiveness of the above logic, Land argues that

it pleaded around the Bankruptcy Court’s jurisdiction by limiting the relief it sought

in its state-court complaint to fraud damages and a judgment that BB&T’s lien

against Land’s shopping center was invalid. That relief, Land argues, has nothing

to do with the property of Building, BB&T’s claim against the bankruptcy estate, or

administering the bankruptcy estate. But Land’s argument ignores at least three

points.

First, Land’s argument is deeply impracticable. These matters were going to

be litigated in a bankruptcy court one way or another. There was no way for the

Bankruptcy Court to resolve the Building bankruptcy without deciding whether

BB&T had a lien on the 160 acres. And, to do that, it had to address the collateral

swap agreement. Given that the Bankruptcy Court had to adjudicate these claim-

and-lien issues as core proceedings, it would make no sense to abstain from Land’s

state-court complaint on the same issues. See In re Hearthside Baking Co., Inc., 391

B.R. 807, 817-818 (Bkrtcy.N.D.Ill. 2008) (“It would be terribly inefficient to have

this Court decide core matters filed under title 11 in the direct adversary proceeding

and to have a state court adjudicate a case based on the same facts and similar causes

of action.”); In re EZ Pay Services, Inc., 390 B.R. 421, 430-431 (Bkrtcy. M.D. Fla.

2007) (denying motion to abstain where action is inextricably intertwined with a

core issue); In re CRD Sales and Leasing, Inc., 231 B.R. 214 (Bankr.D.Vt.1999)

(same).

Second, no matter Land’s requested relief, Building is a party to the alleged

collateral swap agreement. Building’s rights under the collateral swap are property

of the estate and its liabilities under the agreement are claims against the estate. As

a party to the agreement, Building was an indispensable party to Land’s lawsuit. E.g.

Caribbean Telcoms., Ltd. v. Guy. Tel. & Tel. Co., 594 F.Supp.2d 522, 532 (D.N.J.

2009) (“a contracting party is the paradigm of an indispensable party”).

Third, Land tipped its hand by referring to Building as a defendant in

paragraph eight of the complaint and stating that the collateral swap encumbered

Building’s “165 acre parcel of property located in Prattville, Alabama with a

mortgage loan with BB&T.” “Bankruptcy courts have exclusive jurisdiction over a

debtor’s property, wherever located, and over the estate.” Tennessee Student

Assistance Corp. v. Hood, 541 U.S. 440, 447 (2004). Even if the well-pleaded

complaint rule applied in this situation, the Bankruptcy Court was not required to

ignore paragraph eight’s allegations about the debtor and its property in determining

whether to exercise jurisdiction or abstain.

II. Merits

The merits are substantially more straightforward than jurisdiction. The

Bankruptcy Court held that Land’s claim for fraud failed for lack of an intentional

misrepresentation and that Land’s claim for quiet-title/breach-of-contract failed

because (1) 12 U.S.C. § 1823(e) prohibits enforcing an unexecuted agreement

against a purchaser of FDIC assets like BB&T and (2) the collateral swap is also not

enforceable for lack of consideration. Land did not object to the Bankruptcy Court’s

ruling on its fraud allegations. See Doc. 1-8 (Land’s objections). Instead, Land

argues that the Bankruptcy Court was wrong to reject its quiet-title/breach-of-

contract claim because “[Section 1823(e) does] not apply to its claims and [] the

agreement to release the Prattville Square Shopping Center is enforceable against

BB&T.” Doc. 1-8 at 5.

After de novo review of the evidentiary hearing that the Bankruptcy Court

held on these claims, the Court adopts the Bankruptcy Court’s un-objected-to rulings

on Land’s allegations of fraud and the Bankruptcy Court’s ruling on Section 1823(e).

Section 1823(e) was enacted by Congress to codify the Supreme Court’s decision in

D’Oench, Duhme & Co. v. FDIC, 315 U.S. 447 (1942). It states that unwritten or

unexecuted agreements are not enforceable against the FDIC or its successors in

interest:

No agreement which tends to diminish or defeat the interest of the

Corporation in any asset acquired by it under this section or section

1821 of this title, either as security for a loan or by a purchase or as

receiver of any insured depository institution, shall be valid against the

Corporation unless such agreement—

(A) is in writing

(B) was executed by the depository institution and any person

claiming an adverse interest thereunder, including the obligor,

contemporaneously with the acquisition of the asset of the

deposition institution,

(C) was approved by the board of directors of the depository

institution or its loan committee, which approval shall be

reflected in the minutes of said board or committee, and

(D) has been, continuously, from the time of its execution, an

official record of the depository institution.

12 U.S.C. § 1823(e)(emphasis added). The Eleventh Circuit has explained that

“executed” under Section 1823(e) “must mean that the [party] has ‘signed’ the

agreement[; t]hat a piece of paper merely recites obligations of more than one party

is insufficient.” Twin Const., Inc. v. Boca Raton, Inc., 925 F.2d 378, 383 (11th Cir.

1991). No representative of Land signed anything that would meet the dictates of

Section 1823(e)—a release, a collateral swap, or Colonial’s letter about the collateral

swap. A non-signatory cannot enforce a contractual right that is affected by 1823(e).

Id. Accordingly, the Bankruptcy Court was correct to reject Land’s quiet title and

breach of contract claims.

Because the Court agrees with the Bankruptcy Court’s ruling under Section

1823(e), the Court expresses no opinion on whether the collateral swap is also

unenforceable because it lacked consideration.

Conclusion

The Bankruptcy Court’s Proposed Findings and Fact and Conclusions of Law

(Doc. 1-6) are ADOPTED as modified by this Memorandum Opinion and Order.

In the alternative, the Bankruptcy Court is AFFIRMED.

A final judgment will issue separately.

DONE and ORDERED this 8th day of October 2019.

/s/ Andrew L. Brasher

ANDREW L. BRASHER

UNITED STATES DISTRICT JUDGE