Appendix — In re Gould, 109 S. Ct. 198 (1988) (No. 87-1989)
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IN THE
Supreme Court of the United States
OCTOBER TERM, 1987
IN RE THEODORE B. GOULD, HOLYWELL CORPORATION,
MIAMI CENTER LIMITED PARTNERSHIP,
CHOPIN ASSOCIATES, and MIAMI CENTER CORPORATION,
Petitioners
APPENDIX TO
PETITION FOR A WRIT OF MANDAMUS
TO THE UNITED STATES BANKRUPTCY COURT
FOR THE SOUTHERN DISTRICT OF FLORIDA,
CHIEF BANKRUPTCY JUDGE THOMAS C. BRITTON,
AND
SENIOR BANKRUPTCY JUDGE SIDNEY M. WEAVER
ROBERT M. MUSSELMAN *
413 7th Street, NE
Charlottesville, Virginia 22901
Telephone (804) 977-4500
Attorney for Petitioners Holywell
Corporation, Miami Center
Limited Partnership, Chopin
Associates and Miami Center
Corporation
THEODORE B. GOULD, pro se
Echo Hill Farm
Garth Road
Charlottesville, Virginia 22901
*Counsel of Record Telephone: (804) 295-7125
(ARREARS AE USM SE ATER DE TR ERI FR
WILSON - Epes PRINTING Co., Inc. - 789-0096 - WASHINGTON, D.C. 20001
TABLE OF CONTENTS
APPENDICES Page
5,
13.
Order of Eleventh Circuit Court of Appeals En-
tered January 22, 1988 (Denial of Petition for
Writs of Prohibition and Mandamus) ................ la
Opinion of Eleventh Circuit Court of Appeals en-
tered June 29, 1987 (Reported at 820 F2d 376).. 2a
“Order Affirming Confirmation Order and Plan,”
Entered March 20, 1986 (Reported at 59 B.R.
| ERR CE SERRE Ns BANC On Neen 8 ee Se er SO a lla
Final Order of Dismissal With Prejudice, U.S.
District Court (S.D. Fla.), filed April 30,
ci a 37a
Order of Eleventh Circuit Court of Appeals (On
Petition for Rehearing), entered September 8,
1987 (Reported at 826 F2d 1010) ~.........0002200000.... 40a
Order of Eleventh Circuit Court of Appeals (On
Petitions for Rehearing and Petition for Re-
hearing En Banc), entered on March 10, 1988
(Reported at 888 F2d 1547) ........................2...... 42a
“Order of Remand and Denial of Motion to Dis-
miss,” U.S. District Court (S.D. Fla.), entered
ie hin cada shesdan neccnetdcaxenecdsencan 65a
Memorandum Opinion of U.S. District Court (S.D.
Fia.), entered June 30, 1986 ..................0......00..... 83a
“Order Directing Closing of Chapter 11 Case,”
U.S. Bankruptcy Court (S.D. Fla.), entered
aces anciesnenonbiowsbeia’ 92a
Order of U.S. Bankruptcy Court, entered on
I a a a a ae 94a
. Order on Remand, U.S. Bankruptcy Court (S.D.
(Fla.), entered on January 29, 1986 ~........0000...... 96a
. Memorandum Decision of the U.S. Bankruptcy
Court (S.D. Fla.), entered on June 24, 1985
(Reported at 51 B.R. 56) ~....00....000222.... Pa ae re heer 137a
Memorandum Opinion of the U.S. District Court
(S.D. Fla.), entered on March 24, 1987 .............. 144a
ii
TABLE OF CONTENTS—Continued
APPENDICES Page
14. “Order Affirming Bankruptcy Court’s Order on
Claim 502,” U.S. District Court (S.D. Fla.),
entered on April 4, 1906 2... 16la
15. Memorandum Decision of the U.S. Bankruptcy
Court (S.D. Fla.), entered on September 27,
DODD oidincinntecincanitchaabigdiciecase dome 167a
16. Memorandum Opinion and Order of Remand,
U.S. District Court (S.D. Fla.), Entered on
RU DE; Se hited chctn te 170a
17. “Judgment Determining Amount, Validity and
Extent of Liens of The Bank of New York,”
U.S. Bankruptcy Court (S.D. Fla.), entered on
BERGE OO SOE ee ee ee 186a
18. “Order Affirming Decision of the Bankruptcy
Court,” U.S. District Court (S.D. Fla.), entered
am reneny Eh Tee ok 190a
19. Opinion of the Eleventh Circuit Court of Ap-
peals (Per Curiam), entered March 18, 1988... 201a
20. “Order on Debtors’ ‘Undersecurity’ Claim,”
U.S. Bankruptcy Court (S.D. Fla.), entered on
eceen BE De 5 re 202a
\
21. “Final Judgment” (With “Findings of Fact and
Conclusions of Law”), U.S. Bankruptcy Court
(S.D. Fla.), entered on April 28, 1988 204a
22. “Order of Certification of Contempt,” U.S.
Bankruptcy Court (S.D. Fla.), entered on April
Ty, - SII ck isesecensiectasiniscacn ail ciel aaa ee 218a
23. Order of the U.S. Bankruptcy Court (S.D.
Fla.), entered on December 31, 1984 _.......... 223a
24. “Order on Appellants’ Emergency Motion For
Stay Pending Appeal,” U.S. District Court
(S.D. Fla.), entered on October 4, 1985 _......... 227a
25. Excerpts from Transcript of July 18, 1985
(Hearing on Substantive Consolidation), U.S.
Bankruptcy Court (S.D. Fla.) 200000. 230a
Nccicieniasaeiaai
iii
TABLE OF CONTENTS—Continued
APPENDICES
26.
27.
28.
29.
30.
31.
32.
33.
“Confirmation Order,” U.S. Bankruptcy Court
(S.D. Fla.), entered on August 8, 1985 (Re-
ported at 54 B.R. 41) ......-.------.---------s-c-ee-ceeeeeeenees
“Order Appointing Trustee,” U.S. Bankruptcy
Court (S.D. Fla.), entered on August 12, 1985..
Excerpts from Transcript of January 18, 1986
(Hearing on Remand from Judge Aronovitz),
U.S. Bankruptcy Court (S.D. Fla.) .............-....---
Order on Remand, U.S. Bankruptcy Court (S.D.
Fla.), entered on November 10, 1986............-.---
Excerpts from Transcript of June 15, 1987
(Hearing on Remand from Judge Kehoe), U.S.
Bankruptcy Court (S.D. Fla.) -..........-.-.-------------
Excerpts from Transcript of May 15, 1987
“Conference (In Chambers),’””’ U.S. Bankruptcy
I Uy BMD seccnscsninictncs encecnncnccntepensernnsnesscone
Errors of Fact and Law (as contained in March
10, 1988 Order of Eleventh Circuit Court of
Appeals, 838 F2d 1547) ..........-..--..-------s-se-----0000---
Relevant Constitutional and Statutory Provi-
606 660650 06666 S 00050600 560500500505 580050050 900950800009 8088500808590 90000%
‘Page
246a
25la
258a
264a
300a
336a
la
APPENDIX 1
IN THE UNITED STATES COURT OF APPEALS
FOR THE ELEVENTH CIRCUIT
No. 87-6105
IN RE: THEODORE B. GOULD,
HOLYWELL CORPORATION,
MIAMI CENTER LIMITED PARTNERSHIP,
CHOPIN ASSOCIATES and
MIAMI CENTER CORPORATION,
Petitioners.
ON PETITION FOR WRIT OF PROHIBITION
AND MANDAMUS
[Filed Jan. 22, 1988]
Before TJOFLAT, HATCHETT and ANDERSON, Cir-
cuit Judges.
BY THE COURT:
The Petition for Writ of Prohibition and Writ of Man-
damus is DENIED.
2a
APPENDIX 2
UNITED STATES COURT OF APPEALS
ELEVENTH CIRCUIT
Nos. 86-5286, 86-5386
MIAMI CENTER LIMITED PARTNERSHIP, MIAMI CENTER
CORPORATION, THEODORE B. GOULD, CHOPIN ASSOCI-
ATES, and HOLYWELL CORPORATION,
Plaintiffs-A ppellants,
v.
BANK OF NEW York,
Defendant-A ppellee.
MIAMI CENTER CORPORATION and
CHOPIN ASSOCIATES,
Plaintiffs-A ppellants,
Vv.
THE BANK OF NEw YORK, et al.,
Defendants-A ppellees.
Appeals from the United States District Court
for the Southern District of Florida
June 29, 1987
eT
3a
OPINION OF THE COURT
Before GODBOLD and ANDERSON, Circuit Judges,
and SWYGERT", Senior Circuit Judge.
GODBOLD, Circuit Judge:
These consolidated appeals are before us on two separ-
ate but related district court decisions: (1) affirmance of
the bankruptcy court’s confirmation of a proposed reor-
ganization plan (No. 86-5286); and (2) dismissal of a
separate action against the Bank of New York (No. 86-
5386). We dismiss these appeals as moot.
BACKGROUND
Appellants are the five debtors in the underlying Chap-
ter 11 proceeding: Theodore Gould; Holywell Corporation
(Gould is sole stockholder and president); Miami Center
Corporation (wholly-owned subsidiary of Holywell with
Gould as president) ; Chopin Associates (general partner-
ship between Gould and Miami Center Corporation) ; and
Miami Center Limited Partnership (Gould and Miami
Center Corporation are general partners and owners of
some limited partnership shares). These debtors devel-
oped the Miami Center Project, which consisted of an
office building, a hotel, retail space and a garage in down-
town Miami. The Bank of New York financed the con-
struction of the Project.
Debtors filed voluntary petitions for bankruptcy when
the Bank instituted foreclosure proceedings against the
Project. The filing of the petitions automatically stayed
all actions against debtors, including the Bank’s fore-
closure action. Over 400 creditors have or had an interest
in the bankruptcy proceeding.
* Honorable Luther M. Swygert, Senior U.S. Circuit Judge for
the Seventh Circuit, sitting by designation.
4a
Both debtors and the Bank filed competing reorganiza-
tion plans in the bankruptcy proceeding.' The creditor
committees and individual creditors overwhelmingly ap-
proved the Bank’s plan and rejected debtors’ plan. The
bankruptcy court subsequently confirmed the Bank’s plan,
over debtors’ and debtor-affiliated entities’ objections.’
Debtors sought to stay the implementation of the re-
organization plan pending an appeal to the district court.
The bankruptcy court conditioned such a stay on the
posting of a $140 million bond, later reduced by the dis-
1 Although the five debtors submitted individual plans, the plans
were virtually identical.
2 The central features of the reorganization plan were:
(1) substantive consolidation of the estates of the five debtors;
(2) creation of the Miami Center Liquidating Trust, consisting
of all assets of debtors, for the payment of creditor claims by a
court-appointed liquidating trustee;
(3) purchase by the Bank or its designee of the project (in-
cluding furniture, fixtures and equipment) for the appraised value
of $255.6 million, which was to be funded by net amount owed to
the Bank by debtors (approximately $240 million) plus new cash
by the parchaser;
(4) release by the Bank of its cash collateral (approximately
$30 million), which would be added to the new trust;
(5) further financing commitment of approximately $15 million
by the Bank for payment of the claim of Miami Center Joint Ven-
ture (which is a general partnership between Gould and Olympia
& York Corporation) for the furniture, fixture and equipment leased
by the joint venture to the project (a) if and when such claim is
allowed over the Bank’s pending objections now on appeal in a
separate action; (b) to the extent that other assets of the trust
prove insufficient to pay the claim; and (c) only if it is ultimately
determined that the joint venture has been damaged by its allegedly
improper classification under the reorganization plan;
(6) classification of the claimants so that unaffiliated creditors of
Holywell are paid first, unaffiliated creditors of other debtors paid
next, and inter-debtor and related party claims paid last; and
(7) dismissal by the trustee of the pending related lawsuit by
debtors against the Bank.
5a
trict court to $50 million. We dismissed an interlocutory
appeal of this bond requirement for lack of jurisdiction.
Debtors failed to post the bond within the required time
limit, and the trustee began implementing the reorgani-
zation plan, including the sale of the Miami Center Proj-
ect to the Bank’s designee for $255.6 million.
Debtors appealed the bankruptcy court’s confirmation
of the reorganization plan. District Judge Aronovitz of
S.D. Florida denied the Bank’s motion to dismiss the ap-
peal and remanded the case to the bankruptcy court for
entry of explicit findings of fact and conclusions of law
upon which the district court could properly base its ap-
pellate review. On remand the bankruptcy court held an
evidentiary hearing and solicited proposed findings of fact
and conclusions of law from each party. The bankruptcy
court adopted the Bank’s proposed findings and again
confirmed the Bank’s proposed reorganization plan. On
appeal Judge Aronovitz affirmed the bankruptcy court’s
confirmation order. 59 B.R. 340.
Debtors also filed a separate action in district court
against the Bank, alleging fraud, RICO violations, and
other claims in connection with construction loans made
by the Bank for the Miami Center Project. District
Judge Hoeveler of S.D. Florida dismissed this related ac-
tion primarily because the reorganization plan, which was
confirmed by Judge Aronovitz, instructed the trustees to
dismiss the action. Debtors now appeal both Judge Aron-
ovitz’s confirmation of the reorganization plan (No. 86-
5286) and Judge Hoeveler’s dismissal of debtors’ related
action against the Bank (No. 86-5386) .*
8 Debtors object to the reorganization plan on several grounds:
substantive consolidation of the debtors’ estates was clearly erro-
neous; subordination of the claims of debtor-affiliated entities was
clearly erroneous; and modification and amendment of the reor-
ganization plan was improper where the Bank failed to issue a
disclosure statement regarding the proposed changes and the bank-
6a
DISCUSSION
The Bank’s motion to dismiss these appeals was car-
ried with the case. The Bank contends that the appeals
are moot because the reorganization plan has been sub-
stantially consummated. It relies primarily on our deci-
sions in In re Matos, 790 F.2d 864 (11th Cir.1986) and
In re Sewanee Land, Coal & Cattle, Inc., 735 F.2d 1294
(11th Cir.1984). We explained in In re Matos that
“when the debtor fails to obtain a stay pending appeal of
the bankruptcy court’s or the district court’s order set-
ting aside an automatic stay and allowing a creditor to
foreclose on property, the subsequent foreclosure and sale
of the property renders moot any appeal.” 790 F.2d at
865; see also In re Sewanee Land, 735 F.2d at 1295-96.
The rationale in these cases for dismissing an appeal
as moot for failure to obtain a stay pending appeal is
that a court cannot order relief without compromising
the integrity of the sale of the property to a good faith
purchaser. In re Matos, 790 F.2d at 866; Markstein v.
Massey Assocs., 763 F.2d 1325, 1327 (11th Cir.1985).
In this case debtors did not post the bond for the stay,
and the project has since been sold to a good faith pur-
chaser. This does not conclude our inquiry, however, be-
cause the reorganization plan governed more than just
the sale of the project, and an appeal is not moot if the
court can still order some effective relief. See In re
Matos, 790 F.2d at 865 n. 3 (although court could not
reverse title if the debtor failed to obtain a stay pending
appeal, the appeal was not moot where the debtor could
obtain an award of damages from the trustee) ; see also
In re AOV Indus., 792 F.2d 1140, 1146 (D.C.Cir.1986)
ruptcy court failed to require a hearing on the proposed changes.
Debtors also contend that the district court erred in dismissing
their related action against the Bank. The Bank makes two motions,
which were carried with the case; a motion to dismiss the appeals
as moot and a motion to strike debtors’ reply brief.
Ta
(“[FJailure to obtain a stay is not per se dispositive of
all the issues before [the appellate court].’’).
The proper standard to apply in this case is whether
the reorganization plan has been so substantially consum-
mated that effective relief is no longer available See In
re AOV Indus., 792 F.2d at 1147-48 (“Determinations
of mootness .. . require a case-by-case judgment regard-
ing the feasibility or futility of effective relief should a
litigant prevail.”); In re Sun Country Dev., Inc., 764
F.2d 406, 407 n. 1 (5th Cir.1985) (“To dismiss [an]
appeal on the basis of mootness, we must find that the
plan has been so substantially consummated that effective
judicial relief is no longer available to [the complaining
party].”) In re Information Dialogues, Inc., 662 F.2d
475, 476 (8th Cir.1981) (per curiam) (appeal moot when
it is “impossible for a court to grant effective relief”) ;
In re Roberts Farms, 652 F.2d 793, 797 (9th Cir.1981)
(appeal moot when reorganization plan “has been so far
implemented that it is impossible to fashion effective re-
lief for all concerned’’).
Debtors asked Judge Aronovitz to reverse both the
bankruptcy court’s substantive consolidation of their es-
tates and the court’s confirmation of the proposed reor-
‘ganization plan. They concede on appeal that circum-
stances have changed since the confirmation order was
entered and that complete reversal of the bankruptcy
court’s orders may no longer be possible. They instead
ask for partial reversal and more limited relief. First,
they ask us to reverse the bankruptcy court and essen-
tially restructure the reorganization plan so that debtor-
affiliated creditors have priority to all remaining funds
in the estate. Second, they ask us to reinstate their re-
lated lawsuit against the Bank.*
* Debtors request the following specific relief:
(1) reverse in part the substantive consolidation order and
unconsolidate the estates that are solvent (Holywell and Gould),
8a
The reorganization plan has been substantially con-
summated.’ The trustee has conveyed the project, worth
over $250 million, to a good faith purchaser pursuant to
the reorganization plan. With the exception of debtor-
affiliated creditors, the trustee has paid the undisputed
claims of all creditors and reserved funds to pay the
disputed claims of the remaining creditors. Effective re-
lief is therefore impossible. See In re Information Dia-
logues, Inc., 662 F.2d at 476 (effective relief impossible
close their cases, and let them emerge from bankruptcy with their
remaining assets;
(2) reverse in part the confirmation order and restore to their
proper status “super priority” loans made by Gould and Holywell
to the Miami Center Project so that they have priority over all
other creditor claims;
(3) reverse in part the confirmation order and modify the
reorganization plan so that leasing claims by debtor-affiliated credi-
tors are restored to the priorities to which they are entitled under
the Bankruptcy Code;
(4) reverse in part the confirmation order and vacate the
trustee’s certificate that entitles the Bank to recover any funds
it advances to the joint venture for furniture, fixtures and equip-
ment or modify the reorganization plan so that the Bank’s claim
for reimbursement is junior to debtor-affiliated claims;
(5) distribute the remaining funds in accordance with the re-
vised classification of the remaining creditor claims; and
(6) reverse Judge Hoeveler’s dismissal of debtors’ related action
against the Bank and reverse in part the confirmation order, thus
requiring the trustee to pursue debtors’ related action or per-
mitting debtors to pursue the action on their own.
511 U.S.C. §1101(2) defines “substantial consummation” for
purposes of bankruptcy as follows:
(A) transfer of all or substantially all of the property pro-
posed by the plan to be transferred;
(B) assumption by the debtor or by the successor to the
debtor under the plan of the business or of the management
of all or substantially all of the property dealt with by the
plan; and
(C) commencement of distribution under the plan.
LL
9a
where all undisputed creditor claims have been paid and
funds reserved for all disputed creditor claims).
Debtors’ reliance on In re AOV Indus., 792 F.2d 1140
(D.C.Cir.1986) is misplaced. In that case substantial
funds remained available to compensate the remaining
creditors. At the time of the hearing, “only $643,000 of
the $3 million made available by the [purchaser’s] letter
of credit had been drawn down, and none of [the debt-
or’s}] $800,000 contribution had been distributed.” Jd.
at 1149. Moreover, the court explained that on a motion
to dismiss an appeal as moot, a court must consider the
proposed relief’s “potential impact on the reorganization
scheme as a whole,” including whether the relief will
“implicate or have an adverse effect on the interests of
other, non-party creditors.” Jd. at 1148-49.
Unlike the situation in In re AOV Indus., the impact
of the proposed relief on the reorganization plan and in-
nocent creditors would be significant. Debtors can ob-
tain their requested monetary relief only at the expense
of the few remaining unaffiliated creditors whose claims
are still in dispute and of the Bank, which has complied
with all of its obligations under the reorganization plan.
This relief therefore would not be effective judicial relief.
Reinstating the related lawsuit against the Bank and
permitting the trustee or debtors to pursue the action
would be similarly ineffective relief. Dismissal of the
suit against the Bank was an integral part of the reor-
ganization plan, pursuant to which the Bank released
$30 million of its cash collateral and extended a further
financing commitment of $15 million. Because the Bank
has complied with its obligations under the reorganization
plan, and because the trustee has paid or reserved funds
to pay all creditors other than debtor-affiliated creditors,
this court cannot provide effective relief.
Following the submission of these appeals for decision
the appellants have moved to supplement the record by
| ieee
10a
filing orders and opinions entered by the Southern Dis-
trict of Florida and the bankruptcy court of the Southern
District of Florida, allegedly concerning the matters sub-
mitted to this court for decision. The motion is DE-
NIED. This court has, however, treated the motion as
though it had been filed under FRAP Rule 28(j) and has
considered the opinions and orders attached to the mo-
tion as supplemental citations. Having considered these
supplemental citations, the court remains of the view that
these appeals must be and are DISMISSED.
lla
APPENDIX 3
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF FLORIDA
Case. No.: 85-3225-Civ-Aronovitz (Appeal)
Bk. Nos.: 84-01590-BKC-TCD
84-01591-BKC-TCB
84-01592-BKC-TCB
84-01593-BKC-TCB
84-01594-BKC-TCB
HOLYWELL CORPORATION,
MIAMI CENTER LIMITED PARTNERSHIP,
MIAMI CENTER CORPORATION,
CHOPIN ASSOCIATES,
THEODORE B. GOULD,
Appellants,
V.
THE BANK OF NEW YORK,
Appellee.
ORDER AFFIRMING
CONFIRMATION ORDER AND PLAN
I. THE NATURE OF THE APPEAL
THIS APPEAL involves, as appellants, five (5) re-
lated debtors who simultaneously filed Chapter 11 pro-
ceedings in the United States Bankruptcy Court, sub-
mitting almost identical Plans for Reorganization; and
as appellee, the principal creditor, the Bank of New
York, a mortgage lien-holder for the subject real prop-
erty development.
12a
Appellants appeal from two (2) Orders of the Bank-
ruptcy Judge, intertwined and interdependent:
A. An Order approving the substantive consolida-
tion of the debtors’ estates (Court Paper [“CP”’]
840) ; and,
B. The trial court’s Order confirming the Plan of
Reorganization proposed by the appellee here,
the Bank of New York, the major creditor of
the debtors’ estates (CP 906).
These appeals are taken from the Order approving Sub-
stantive Consolidation of the debtors’ estates and the
Order Confirming the appellee’s Plan of Reorganization.
II. THE PARTIES AND THEIR
RESPECTIVE INTERESTS
The debtors are as follows:
1. Holywell Corporation (“Holywell”) is a Delaware
corporation, incorporated in 1976, which, together with
its subsidiaries, owns, operates, and provides a full range
of services for commercial real estate. Theodore B.
Gould is the sole stockholder of Holywell.
2. Miami Center Limited Partnership (“MCLP”) is a
Florida limited partnership which was formed in 1979.
The general partners are Theodore B. Gould and Miami
Center Corporation. There are numerous limited part-
ners, which include Theodore B. Gould and Holywell.
MCLP leased the land from Chopin Associates and then
constructed the Miami Center Project on that land.
3. Miami Center Corporation (“MCC”), a Florida
corporation, was incorporated in 1979. MCC is a sub-
sidiary of Holywell. Holywell, in turn, is the principal
stockholder of MCC.
4. Chopin Associates (“Chopin”), a Florida partner-
ship composed of Theodore B. Gould and MCC, was
13a
formed in 1979 and is the owner of the land underlying
the Miami Center.
5. Theodore B. Gould (“Gould”) is the sole stock-
holder, a director and president of Holywell, the presi-
dent and a director of MCC, a general partner of MCLP,
and a partner of Chopin Associates.
The Bank of New York (the “Bank”) was the con-
struction lender for the Miami Center Project.
Construction of the Miami Center Project commenced
in 1980. Chopin purchased the land and, together with
MCLP, obtained a construction loan from the Bank of
New York on March 23, 1980 in the initial amount of
$112,500,000. Chopin’s mortgage was $23,000,000.
Gould, in addition to his interest in the Miami Center
Project, also acquired four blocks of land, still vacant,
adjacent to the Miami Center Project. That vacant land
is not involved in these bankruptcy proceedings. Gould
then entered into a joint venture in May 1981 with
Olympia and York Florida Equity Corporation (“O&Y”),
called the Miami Center Joint Venture (“MCJV”), which
provided for the development of those blocks and fur-
ther provided that O&Y would loan to MCJV $7,775,000.
These funds were used by MCJV to acquire furniture,
fixtures, and equipment (“FF&E’’) which were leased to
MCLP for use in the Pavillon Hotel and Podium, which
are part of the bankruptcy estate. The MCJV-MCLP
leases of FF&E were referred to by the parties and the
Bank and in the proceedings below as Lease “A” and
Lease “B”. MCJV is solvent and has not filed under the
Bankruptcy Code.
MCLP also leased a@uitional FF&E, including elec-
tronic and telephone equipment, from two subsidiaries of
Holywell, Holywell Telecommunications Company (‘“Holy-
well Telecommunications’) and Holywell Leasing Com-
pany (‘Holywell Leasing’) (the “C” and “D” Leases,
Lie
14a
respectively) on February 1, 1983. Holywell and Gould
supplied capital to Holywell Leasing and Holywell Tele-
communications in the amount of $7,718,466 to purchase
the FF&E which was leased by Holywell Telecommunica-
tions and Holywell Leasing to MCLP. Like MCJV, Holy-
well Telecommunications and Holywell Leasing are sol-
vent companies and have not filed under the Bankruptcy
Code.
The appellants are five (5) related or affiliated debtors
which voluntarily sought reorganization under the Bank-
ruptcy Code. The debtors developed the Miami Center
Project in downtown Miami. Only Phase I of that proj-
ect was built. Phase I consists of an office building, a
hotel, retail space connecting them, and a parking gar-
age. The project failed financially, and several hundred
creditors are still owed money by the debtors for goods
and services. The appellee Bank was the construction
lender for the project, and was owed more than
$240,000,000. Total claims against the debtors exceed
$350,000,000.
Over 400 creditors have or had an interest in these
proceedings, of which at least 200 represent wage-earner
claims. Since the confirmation of the appellee’s proposed
plan of reorganization by the Bankruptcy Court’s Con-
firmation Order (which Order is the subject of this ap-
peal), the Liquidating Trustee has paid, or has reserved
funds to pay, all creditors in Classes 1 through 6, as
those classifications were drawn under the Plan.’ The
amount paid out to claimants or “reserved” for payment
by the Liquidating Trustee thus far is approximately $14
million, leaving approximately $8.9 million dollars re-
maining in the consolidated debtors’ estates to pay the
remaining creditors’ claims.
1 See Part IV., supra.
|
15a
III. PROCEDURAL HISTORY
The Chapter 11 proceedings, which culminated in the
Order of Confirmation from which this appeal is taken,
were initiated through the filing of voluntary petitions
under Chapter 11 by each of the five debtors/appellants
who are parties to this appeal. The voluntary petitions
for reorganization were filed by the debtors on August
22, 1984, less than a month after the appellee had ini-
tiated foreclosure proceedings in state court upon declar-
ing the debtors’ mortage loans on the Miami Center to
be in default.
In the course of Chapter 11 reorganization proceed-
ings, both the debtors and the Bank of New York filed
competing reorganization plans. The five debtors each
submitted a separately filed plan, but the content of the
five debtors’ plans was virtually identical. (The details
of the competing plans are discussed in Part IV of this
opinion, infra.) The various creditors’ committees and
individual creditors, upon consideration of the competing
plans, overwhelmingly approved the Plan of the appellee,
the Bank of New York, and rejected the debtors’ Plans.
The Bank’s Plan was subsequently confirmed by the
Bankruptcy Court (CP 906).
The debtors then sought, unsuccessfully, to stay the
implementation of the confirmed Plan, pending appeal to
the United States District Court. When the Bankruptcy
Court conditioned the issuance of such a stay upon the
posting of a supersedeas bond in the amount of $140
million dollars (CP 1013), the debtors filed an emer-
gency motion in the United States District Court seeking
relief from the bond requirement. That Court, by the
Order of Chief Judge James Lawrence King, reduced the
amount required to obtain a stay of the Bankruptcy
Court’s order to $50 million dollars (Docket Number
[“DN”] 4). Unable to post this reduced bond, the
debtors finally sought relief from Judge King’s order by
l6a
filing an appeal in the Eleventh Circuit Court of Ap-
peals. The appeals court dismissed the debtors’ appeal
on the basis of lack of jurisdiction on October 9, 1985.
On October 10, 1985, pursuant to the confirmed Plan of
Reorganization, the Miami Center property was sold to
the appellee’s designee for $255.6 million dollars.’
Prior to the sale of the Miami Center Project, on
October 1, 1985, the debtors initiated the instant appeal
to this Court from the Confirmation Order entered below.
This Court received extensive briefs as well as the par-
ties’ designated record on appeal, and heard oral argu-
ment by counsel for the debtors and for the Bank on
December 5, 1985. During the course of this appeal, and
prior to the hearing noted above, the appellee filed a
motion to dismiss this appeal on the ground of mootness.
Having considered the issues presented by the appeal,
the record before it, and the appellee’s motion to dis-
miss, this Court entered its Order of Remand and Denial
of Motion to Dismiss (DN 35) on December 30, 1985.
In that Order, this Court denied the appellee’s motion
to dismiss on the ground that the Court retained the
capacity to grant effective relief to the appellants herein
in the event that they should prevail on the merits in
this appeal. Upon the subsequent motion of the appellee,
the Court certified the question of mootness and the pro-
priety of its Order denying the motion to dismiss pursu-
ant to Title 28 U.S.C. § 1292 (DN 44), and the appellee
filed its interlocutory appeal in the Eleventh Circuit
Court of Appeals. Under date of March 17, 1986, the
Eleventh Circuit DENIED permission to appeal pursu-
ant to 28 U.S.C. § 1292(b).
2The purchase price of $255,600,000 was funded by the Bank
through elimination of its mortgage liens, the waiver of interest
owed by the debtors thereon, and the application of certain cash
collateral (approximately $30,000,000) derived from the sale by
the debtors of certain real estate holdings near Washington, D.C.
The closing also resulted in the Bank paying over to the Trustee
approximately $11.4 million dollars cash at closing.
| aa
17a
By the same Order of Remand and Denial of Motion
to Dismiss, this Court remanded the substantive appeal
to the Bankruptcy Court for the entry, by that court, of
explicit findings of fact and conclusions of law upon
which this Court could properly base its appellate re-
view. This remand was necessitated by the determina-
tion that the Confirmation Order entered by the Bank-
ruptcy Court was not sufficiently supported by such find-
ings and conclusions.
On remand, the Bankruptcy Court held an evidentiary
hearing on all matters requested by the parties. Addi-
tional evidence was adduced on the following requested
matters, to-wit:
A. The Value of the Miami Center Project;
B. The Value or “Cost/Benefit” of the District
Court Action; and,
C. The Calculation of the Bank’s Lien.
On January 29, 1986, the Bankruptcy Court concluded
its proceedings on remand, having solicited from all par-
ties their proposed findings of fact and conclusions of
law as well as the objections of each party to the sub-
missions of opposing parties. The Bankruptcy Court
thereupon entered its Order on Remand, in which it
adopted in toto and unaltered, the proposed findings of
fact and conclusions of law submitted by the appellee,
the Bank of New York.* Thus, the initial Confirmation
3 The appellants in their Brief Following Order on Remand have
severely chided the Bankruptcy Judge, and the appellee, for the
manner in which the findings of fact and conclusions of law were
adopted in this case. Specifically, the appellants take issue with
the decision by Judge Britton to adopt verbatim, without any
deletion or addition, the proposed findings and conclusions sub-
mitted by the appellee while rejecting totally those proposed by
appellants.
This Court is well aware of the censure which this practice often
elicits, and which the Court of Appeals for this Circuit has clearly
18a
Order, as amended by the adoption of these findings of
fact and conclusions of law, constitutes the basis of the
debtors’ substantive appeal.
IV. THE COMPETING PLANS OF
REORGANIZATION
The debtors’ plans (CP 466-470) differed substantially
from that submitted by the Bank of New York and later
confirmed by the Bankruptcy Court. The debtors’ plans
would have depended for their success upon the consum-
mation of an “option” for the sale of all property owned
by the debtors as part of the Miami Center property to
the Hadid Investment Group, Ine. (See, e.g., the Amended
Plan of Reorganization filed by the Miami Center Cor-
poration, CP 468, Exhibit A.). The plan(s) further pro-
vided, in pertinent part, for a classification scheme by
which, inter alia, the claims of the Bank of New York
expressed. Cabriolet Porsche-Audi, Inc. v. American Honda Motor
Company, 773 F.2d 1193, 1198 n.2 (11th Cir. 1985) (disapproving
the practice of verbatim adoption of findings and conclusions pre-
pared by one party to this litigation). This Court does not condone
the practice followed by the Bankruptcy Judge in this case. It is
the Court’s belief that a trial judge should not accept in toto the
findings and/or conclusions proposed by a party to litigation with-
out an independent analysis in which th® judge augments or re-
places the proposed findiiges with his own.
Notwithstanding this admonition, the Court is also aware of the
United States Supreme Court's ruling in Anderson v. Bessemer
City, 470 U.S. , 105 S.Ct. 1504 (1985). There, while disapprov-
ing of the practice of adopting unchanged the proposed findings
and conclusions of a party, the Court noted that such findings
“nevertheless are those of the Court and may be reversed only
if clearly erroneous.” 105 S.Ct. at 1511. Thus, whether this Court
approves of the procedure followed by Judge Britton upon remand
in this appeal is not determinative. In light of the ruling in
Anderson, but with a clear appreciation of the admonition of the
Eleventh Circuit in Cabriolet Porsche-Audi, this Court has given
close scrutiny to the findings of fact adopted below, but within
the scope allowed such review by the “clearly erroneous” standard
of Bankruptcy Rule 8013.
19a
under its mortgage liens would be equitably subordinated,
pursuant to Title 11 U.S.C. § 510(c), to Class 5, which
is subordinate to administrative claims, tax claims and
mechanics liens, inter alia. The claims of affiliated (with
the debtors) creditors would be relegated to the lowest
class (Class 10), and would include claims by one debtor,
appellant against another.
Lastly, the proposed plans of the debtors explicitly re-
served their rights to pursue claims which were the sub-
ject of litigation in other forums. One such case is a civil
action filed by the debtors against the Bank of New York
(Case No. 85-0228-Civ-HOEVELER) in the United
States District Court for the Southern District of Florida,
which complaint alleges fraud, usury, breach of contract,
and claims under the federal RICO statutes. As noted
above, the plans submitted by the debtors received little
support from the creditors ‘, and were found by the court
not to have met the standard for confirmation established
by Title 11 U.S.C. § 1129.
The plan submitted by the Bank of New York, adopted
by the requisite number of creditors, and finally con-
firmed by the Bankruptcy Court, contained the following
major provisions:
—The Bank would acquire the entire Miami Center
Project property, including the FF&E for $255.,-
600,000. The acquisition would be funded through
*See the Confirmation Order entered by Judge Britton (CP
906). At page 2 of that order, the Bankruptcy Court set out the
results of the creditor voting on the respective pians:
Debtors’ Plans BONY Plan
Holywell 97% Rejection 15% Rejection
MCLP 80% of 10% af
MCC 99% wd 10% ta
Chopin 99% = 0.1% wt
Gould 80% : 12% ™
5 Confirmation Order (CP 906), at 5.
20a
the net amount already owed to the appellee by the
debtors (approximately $240,000,000) to which
would be added, as cash collateral, the proceeds of
the sale by the debtors of certain realty owned by
them in Washington, D.C. ($32,000,000). This lat-
ter sum of $32,000,000 has been held and main-
tained as additional collateral by the Bank pur-
suant to Judge Britton’s order of December 31,
1984 (CY 303). The proceeds of closing would
also produce approximately $11.4 million dollars
in cash available for use under the Plan.
—A Liquidating Trustee would be appointed to over-
see the operations of the Miami Center in place of
the debtors in possession, and to effectuate the
terms of the Plan as directed by the Bankruptcy
Court. This Liquidating Trustee would be required,
by the terms of the Plan, to effect the dismissal of
the debtors’ civil action before Judge Hoeveler,
discussed previously.
—The Bank would set aside $15,000,000, backed by
surety bonds, to pay the claims of two creditors
which had leased FF&E to MCLP, namely, O&Y
and MCJV (the partnership comprised of Olympia
& York Florida Equity Corporation and debtor
Theodore Gould).
—The claims of Miami Center Joint Venture, Holy-
well Telecommunications and Holywell Leasing,
affiliated creditors who had leased the FF&E to
the Miami Center owners, would be equitably sub-
ordinated to, or given a classification junior to,
those of other creditors on the ground that these
were “insider” claims.
—The estates of the five debtors would be combined
through substantive consolidation.
The Bank’s proposed plan of reorganization was con-
firmed on August 8, 1985 by the Bankruptcy Court’s
2la
Confirmation Order (CP 906) and was implemented upon
the dismissal of the debtors’ appeal by the Eleventh Cir-
cuit Court of Appeals on October 9, 1985.
V. PRESENT STATUS AS TO CONSUMMATION
OF THE PLAN BY THE LIQUIDATING TRUSTEE
The United States Bankruptcy Judge noted the follow-
ing in his Findings at Paragraph 57 (Page 33 of Order
on Remand) :
“The Court has ‘now also had the unusual oppor-
tunity to observe the substantial consummation of
the Plan under evaluation (after the debtors failed
to post the appeal bond upon which a stay was con-
ditioned). The fairness, feasibility, and propriety of
the Plan have been verified by the following, as re-
ported by the parties and the Liquidating Trustee:
(a) All Class 1 administrative claims have
been paid or reserved for;
(b) The Project was sold on October 10, 1985,
resulting in the satisfaction in full of the claim
of the class 2 creditor (the Bank) and the ter-
mination of interest (accruing at over $2 million
per month) and negative cash flow from opera-
tions;
(c) The Class 3 creditor has been paid in full;
(d) Undisputed claims in Classes 4 through 6
have been paid in full, and funds have been re-
served for all disputed claims;
(e) Several disputed claims have been com-
promised, saving the estates millions of dollars
as against the amount claimed; and,
(f) There remain sufficient funds for the satis-
faction in full or in part of the claims of the
Gould-affiliated claimants (although the exact
22a
amount cannot yet be determined because so
many of the claims are unliquidated).
No stay is in effect, and the confirmed plan has been
consummated. The debtors’ property passed to the
Liquidating Trustee, and the debtors were discharged
under Code Section 1141... .”.
VI. STANDARD OF REVIEW
It is settled beyond dispute that a district court, in
deciding an appeal from a bankruptcy court’s ruling,
must accord substantial deference to the trial court’s
findings of fact, reversing these only when they are
“clearly erroneous”. Matter of Missionary Baptist Foun-
dation of America, 712 F.2d 206, 209 (5th Cir. 1983) ;
Bankruptcy Rule 8013. Conclusions of law, however, are
freely reviewable by the district court. Matter of Multi-
ponics, 622 F.2d 709, 713 (5th Cir. 1980).
VII. ISSUES ON APPEAL
In their appeal from the Bankruptcy Court’s Confir-
mation Order, the debtors/appellants raised seven dis-
tinct objections to the confirmed plan. In the course of
the extensive briefing and oral argument in which coun-
sel for the parties have participated, it has become evi-
dent to this Court, and acknowledged by counsel, that
two of the issues raised in this appeal predominate:
A. The Substantive Consolidation of the Debtors’
Estates; and,
B. The Equitable Subordination (or improper clas-
sification) of the claims of various creditors who
were affiliated with the debtors.
A. Substantive Consolidation
This Court is keenly aware of the seemingly harsh re-
sults which may be produced by substantive consolidation
eS
23a
if the Bankruptcy Court invokes it inappropriately or
contrary to law. Consequently, this phase of the appeal
has been studiously examined.
| The Bankruptcy Court, by its order of July 23, 1985
; (CP 840) ordered the substantive consolidation of the
debtors’ estates. This ruling was reinforced by that court
| in its Confirmation Order entered August 8, 1985 (CP
906). The effect of substantive consolidation upon the
debtors in this Chapter 11 proceeding is more than merely
procedural; it entails the combination of the assets and
liabilities of the individual debtors and the elimination
of inter-debtor claims, excepting those incurred under
the authorization of the Bankruptcy Court.* See gener-
ally 5 Collier on Bankruptcy, $1106 (15th Edition).
Substantive consolidation is within the power of a bank-
ruptcy court by virtue of its general equitable power to
issue those orders necessary to effectuate the provisions
of the Bankruptcy Code. In re Richton International
Corp., 12 Bankr. Rptr. 555, 557 (S.D.N.Y. 1981), citing
Pepper v. Litton, 308 U.S. 295, 60 S.Ct. 328 (1939).
oom emes
In order to justify the imposition of substantive con-
solidation upon debtors in a Chapter 11 proceeding, it is
incumbent upon the proponent of consolidation to show
that the creditors will suffer greater prejudice in the
| absence of consolidation than the debtors (and any ob-
jecting creditors) will suffer from its imposition. In re
Snider Brothers, 18 Bankr. Rptr. 230, 238 (D. Mass.
1982). As an aid to (but not as a substitute for) mak-
ing this determination of the balance of equities for and
against substantive consolidation, many courts employ a
seven-part objective inquiry into the interrelationships
*Certain inter-debtor loans were specifically allowed by the
Bankruptcy Court during the conduct of the Chapter 11 proceedings
below to enable the debtors in possession to continue operation
at the Miami Center. The so-called “super-priority” loans are
discussed more fully at Part VII.B(3), infra.
i — -
24a
of the entities to be consolidated. These seven factors
(not all of which must be found to support consolidation)
are:
(1) The presence or absence of consolidated finan-
cial statements;
(2) The unity of interests and ownership between
various corporate entities;
(3) The existence of parent and intercorporate
guarantees on loans;
(4) The degree of difficulty in segregating and as-
certaining individual assets and liabilities;
(5) The existence of transfers of assets without
formal observance of corporate formalities;
(6) The commingling of assets and business func-
tions;
(7) The profitability of consolidation at a single
physical location.
In Re Donut Queen, 41 Bankr. Rptr. 706, 709 (Bktcy.
E.D.N.Y. 1984).
In its Order of Remand to the Bankruptcy Court, this
Court instructed the court below in its findings of facts
and conclusions of law to address, inter alia, the Donut
Queen factors, and to enter specific findings and conclu-
sions thereupon. Having closely reviewed the findings of
fact and conclusions of law entered by the Bankruptcy
Court, and having considered the briefs and oral argu-
ment of counsel for the parties, the pertinent portions of
the record on appeal, and the applicable law, it is the
conclusion of this Court that the order imposing sub-
stantive consolidation upon the estates of the five debtors,
and that portion of the Confirmation Order which adopts
this ruling, was proper and correct as a matter of law
and was based on sufficient factual findings which were
not, themselves, clearly erroneous.
25a
In Paragraphs #30 to 41 of its Order on Remand, the
court below entered findings of fact in support of its
rulings on substantive consolidation. A review of these
findings in comparison to the Donut Queen factors re-
veals that there exists in this record strong and con-
vineing evidence to show the existence of at least five of
the seven factors enumerated in that decision:
1. The presence of consolidated financial statements
(inapplicable to debtors Holywell and Miami Cen-
ter Corp.) ;
2. The unity of interests and ownership between
the various corporate entities;
3. The existence of cross-claimants of guarantees
on loans to other debtors;
ee
Sig
6. The commingling of assets and business func-
tions; °
7. The profitability of consolidating the debtors in
one location.
As to the two remaining factors (the degree of dif-
ficulty in segregating individual assets and the transfer
of assets absent corporate formalities), no explicit find-
ings of fact were entered in the court’s Order on Re-
mand.
The Bankruptcy Court’s findings on five of the seven
Donut Queen factors constitute a factual basis for its
decision to order substantive consolidation in this case.
This Court, however, must go further than merely eval-
uating the correctness of these factual findings. It ‘must
assess the propriety of imposing substantive consolida-
tion as a matter of law. In this aspect of its review, this
Court will affirm those conclusions of law entered below
which correctly apply the law. Where the Bankruptcy
Court has erred in its conclusions, this Court will conduct
26a
a de novo review of the legal issues presented in this
appeal.
Therefore, this Court rules that the Bankruptcy Court
correctly determined, as a matter of law, that substantive
consolidation was proper in this case. At Paragraph 67
of its Order on Remand, that court applied the standard
of In Re Snider, supra, to the record facts in determin-
ing that greater prejudice would ensue to the proponents
of substantive consolidation if that remedy were denied
than would be suffered by the debtors through its im-
position. Furthermore, the court’s determination of the
effect of the five objective factors ({| Nos. 64 (a), (b),
(f) and (g)) as proper grounds for consolidation coin-
cides with this Court’s result upon review of the record
and the applicable law. For the foregoing reasons, this
Court AFFIRMS that portion of the Confirmation Or-
der (CP 906), and the separate Order on Substantive
Consolidation (CP 840), approving the substantive con-
solidation of the estates of the five debtors/appellants
which are parties to the instant appeal.
In Paragraph 66 of the Bankruptcy Judge’s Order on
Remand (Page 40), it is stated:
“66. The Debtors have claimed prejudice, but have
- not proven it. ... The debtors never demon-
strated prejudice as an unavoidable consequence
of substantive consolidation. . . .”.
The burden of demonstrating prejudice more properly
should have been placed upon the creditor/appellee. How-
ever, this Court has reexamined, in its totality, the entire
record herein and by de novo consideration, has deter-
mined that there was ample evidence to demonstrate that,
in fact, appellee had carried the burden of showing no
prejudice to the appellants, notwithstanding the Bank-
ruptey court’s findings that the debtors never demon-
strated prejudice. Accordingly, the determination of the
Snider principles have been appropriately applied and the
burden is found to have been carried by appellee.
Ee
27a
B. Equitable Subordination/Junior Classification
The second key element of the plan of reorganization
confirmed by the Bankruptcy Court’s Confirmation Order
is the equitable subordination (or, as appellee chooses to
characterize it, the junior classification) of certain
creditor’s claims, otherwise eligible for a higher priority,
on the ground that they represented “insider” claims.
The claims so subordinated include those of Miami Center
Joint Venture and Olympia & York (Class 7) and the
claims of the affiliated creditors which are the subsidi-
aries of debtor Holywell Corporation (Class 8). A third
category of claims affected by the “equitable subordina-
tion” aspect of the confirmed reorganization plan are
certain, so-called ‘‘super-priority” loans which were made
by various debtors to MCLP with the express authoriza-
tion of the Bankruptcy Court to supply necessary funds
for the operation of the Miami Center during Bank-
ruptey Court proceedings, or to satisfy pressing tax
obligations.
The Court has been especially sensitive to the equi-
table subordination aspect of this appeal and has there-
fore taken the utmost care in scrutinizing the record,
the findings and conclusions relevant to this issue, and
the treatment accorded this measure by the competing
plans. After careful analysis of all the briefs and oral
arguments received by the Court, it has become clear
that appellants are really complaining about three sets
of claims which were subjected to junior classification as
a result of the Bankruptcy Court’s rulings:
1.) The lease claims of Olympia & York and Miami
Center Joint Venture (the “A and B leases’’) arising
from their leases of furniture, fixtures and equipment
(FF&E) to Miami Center Limited Partnership
(MCLP).
2.) The lease claims of affiliated creditors Holywell
Telecommunications Company and Holywell Leasing
28a
Company (the “C and D leases’) for FF&E leased to
MCLP.
3.) The claims of debtors Gould and Holywell and
of affiliated creditor Twin Development Corporation
under their “super-priority loans” to MCLP.
Since each of these categories of subordinated claims
involves a distinct group of creditors, the Court deems it
appropriate to consider each in turn.’
(1) The Lease Claims of Creditors—Olympia & York
and Miami Center Joint Venture
Miami Center Joint Venture and Olympia & York en-
tered into certain lease agreements (the “A” and “B”
Leases) whereby these entities leased furniture, fixtures
and equipment to MCLP which were installed in the
Miami Center. The validity of these leases (i.e., the fact
and ruling that they are “true leases” as opposed to mere
financing devices) was determined by the Bankruptcy
Court in the course of an adversarial proceeding. (See
Memorandum Decision dated June 24, 1985—CP 781.)
The claims of O&Y and MCJV under these leases were
explicitly subordinated to the claims of the nonaffiliated
creditors (Class 6) by being placed under the confirmed
plan in Class 7.
7If this aspect of the confirmed Plan (i.e., equitable subordina-
tion or classification) rested solely on a review of the subordination
of claims which the appellants herein had standing to pursue, this
Court would be required to analyze the findings and conclusions
relevant to subordination under the standard of Matter of Mobile
Steel Co., 663 F.2d 692, 700 (5th Cir. 1977). Such an analysis is
not required here, however. For reasons that are set more fully
herein, none of these three subordinated claims are in a procedural
posture such that these appellants may properly raise them in the
context of the instant appeal.
we |
J
29a
From the Bankruptcy Court’s orders declaring the leases
as “true leases” and subordinating the creditors claims
under those leases, the respective parties in interest have
taken appeals to the District Court. These appeals, which
are currently pending before the Honorable C. Clyde
Atkins, Senior U.S. District Judge, are:
— Case No. 85-8230-CIV-ATKINS: An appeal by
creditors O&Y and MCJV from the Confirmation
Order of the Bankruptcy Court, specifically objecting
to the subordination of their lease claims under the
confirmed plan.
)
— Case No. 85-3430-CIV-ATKINS: An appeal by
the Bank of New York from the Memorandum Deci-
sion of the Bankruptcy Court (CP 781) which deter-
mined the “A” and “B” leases to be “true leases”’.
The appellants in the instant appeal have raised the
objections of those creditors as a method of attacking the
validity of the overall reorganization plan. However, the
issue of whether the claims of O&Y and MCJV have been
wrongly subordinated (or classified) is one which the
debtors/appellants in the instant appeal lack standing to
assert because they are not parties actually injured by
this classification. R.T. Vanderbilt Co. v. OSHA Rev.
Comm., 708 F.2d 570, 574 (11th Cir. 1983). This issue
is properly presented in the appeal before Judge Atkins,
brought by the parties which are directly affected by the
challenged ruling, and is therefore not a proper matter
for adjudication by this Court. It is possible that as a
result of Judge Atkins’ ruling, the classification of this
claim which Judge Atkins may grant, could possibly
affect the Plan overall—but this is purely a contingency
which may never occur and if it did, the Bankruptcy
Judge would still be vested with jurisdiction to review
the matter to ascertain a change or different classification
as directed by Judge Atkins. On the other hand, Judge
Atkins’ ruling may require no change in classification.
See eee
30a
(2) The Lease Claims of Affiliated Creditors—Holy-
well Telecommunications Company and Holywell
Leasing Company
For the same reasons discussed above with regard to
the “A” and “B” Lease claims, the appeals filed by credi-
tors Holywell Telecommunications Company (HTC) and
Holywell Telecommunications Company (HLC) and as-
signed to the Hon. James W. Kehoe (Case No, 85-3431-
CIV-KEHOE) are matters for which the appellants be-
fore this Court lack standing. One of these leases affects
the telephonic equipment installed in The Project by lease
arrangement, and the other affects certain electronics and
telecommunications equipment, including television cable.
Clearly here, and with regard to the “C” and “D” leases,
these matters involve parties other than the debtors and
who are truly the parties in interest (affiliated creditors).
It should be noted that it is not, and has never been,
the purpose of this Court to interfere in any way with
the matters pending before these judges. In particular,
as concerns the appeals before Judge Atkins, the deter-
mination of the validity of the “A and B” leases and the
proper classification of the creditors’ claims thereunder
are matters not properly before this Court, so the instant
order shall not affect those ongoing appeals.
(3) The So-Called “Super-priority Loans”
A third aspect of the proceedings in the Bankruptcy
Court which the appellants contend had the effect of sub-
ordinating (or eliminating) claims deserving higher prior-
ity was the apparent elimination of a “super-priority”
assigned, by orders entered in the Bankruptcy Court, to
loans made to Miami Center Limited Partnership with
the express authorization of the Bankruptcy Court. In
ther briefs to this Court, appellants have identified three
suci loans.®
8The existence of the three authorized loans to Miami Center
Limited Partnership from debtor Holywell Corporation, from
debtor Theodore Gould, and jointly by Gould, Holywell and Twin
8la
The confirmed Plan of Reorganization did not address
the classification of these “super-priority” loans directly.
It is the appellants’ contention that the portion of the
plan which provided for the substantive consolidation of
the debtors’ estates had the effect of eliminating these
inter-debtor claims. The appellee counters that it is im-
material whether these claims were, in fact, subordinated
(to Class 8) or retained their “superiority” status im-
mediately junior to the Bank’s mortgage lien, since any
payment from one creditor to another leaves those funds
in the combined pool which remains reachable by all the
creditors of any debtor (likewise an effect of the substan-
tive consolidation provision of the Confirmation Order).
The ultimate disposition of these “super-priority” liens
is a pending matter yet to be decided by the Bankruptcy
Court, and is therefore a matter not within the scope of
the Confirmation Order which is the subject of this ap-
peal. Because the record is silent as to how (and
whether) these liens were subordinated or eliminated,
Development Corporation is not disputed by either party. Although
larger amounts were authorized to be loaned to MCLP than were
actually released from the cash collateral fund from which the loan
proceeds derived, the record reflects the following actual transfers
of funds:
Holywell to MCLP: $1,419,921.99
Gould to MCLP: $2,489,507.78
Twin Development, et al.: $ 615,757.91
$4,525,187.68
The “super-priority” which attached to these loans was a pro-
tection granted by the Bankruptcy Court’s orders to preserve the
priority (subject to the Bank’s liens) of the claims of creditors of
the individual debtors (i.e. Gould and Holywell). The significance
of this “priority” was diminished by the substantive consolidation
of the five debtors’ estates, whereby creditors of Gould and/or
Holywell could reach the assets of MCLP, the recipient of these loan
proceeds. See Page 23, infra, with regard to further or future
actions open before the United States Bankruptcy Court regarding
these loans.
32a
it is incumbent upon the Bankruptcy Court to resolve
these questions after further adjudication. If the treat-
ment accorded to these loans materially and adversely
affects the rights of any party in interest, the terms of
the Bank’s Plan expressly permit any such party to as-
sert a claim for relief from the consolidation provision
[Article XIII, page 40, of the Plan; Debtors’ initial ap-
pendix, page 090]. Under Article XIV(e) of the Plan
(Id., page 091], the Bankruptcy Court would have con-
tinuing jurisdiction to hear and determine any dispute
regarding the appropriate treatment of these loan claims.
C. Other Issues Presented on Appeal
In addition to the two main elements of the confirmed
Plan of Reorganization from which this appeal is taken,
there have been raised several other aspects of the plan
which, the appellants contend, warrant reversal.
(1) The Authorization to the Liquidating Trustee
to Dismiss a Pending Lawsuit Filed by the
Debtors '
Since the inception of this appeal, the appellants have
urged this Court to reverse the Confirmation Order on
the ground that the confirmed plan called for the volun-
tary dismissal by the Liquidating Trustee of a civil ac-
tion filed by the debtors (the District Court action, [See
page 9-10, supra.)] On appeal, the debtors /appellants
contend that the Bankruptcy Court was without author-
ity to order the dismissal of that action, and that in
doing so it unconstitutionally ousted the District Court
from its proper jurisdiction.
In the first instance, the lawsuit was a chose in action
which was part of the debtors’ estate. 11 U.S.C. § 541
(a)(1). As such, it was within the power of the Bank-
ruptey Court to order its dismissal through the liquidat-
ing trustee. In re Tidwell, 19 Bankr. Rptr. 846 (E.D.
—so
33a
Va. 1982). Secondly, as a separate and independent
ground for upholding this aspect of the plan, the Court
notes that, upon the remand of this cause and upon the
request of the appellants, the Bankruptcy Court per-
formed a cost/benefit analysis of the value of this law-
suit to the debtors’ estates, and concluded that its value
was nil. This determination provides additional support
for the inclusion in the confirmed plan of reorganization
of the directive to the liquidating trustee to dismiss the
District Court action.
As a furhter basis for this ruling, evidence adduced
at a post-remand hearing held on January 18, 1986
showed that certain releases previously signed by the
debtors effectively barred them from pursuing their civil
action under principles of collateral estoppel. The Bank-
ruptecy Court was within the scope of its authority in
making this determination, as the debtors’ right to pur-
sue this action was a matter concerning the administra-
tion of the estates, and/or a counterclaim by the estate
against persons filing claims against the estate, and/or
confirmations of Plans, and/or other proceedings affect-
ing the liquidation of the assets of the estate, etc., and
therefore constituted a “core proceeding”. 28 U.S.C.
§ 157(b) (2) (A), (C), (L), and (O).
(2) The Valuation of the Property In The Debtors’
Estates
Appeliants have objected throughout this appeal to the
valuation assigned by the Bankruptcy Court, through
confirmation of the Bank’s plan, to the realty, improve-
ments and FF&E which constitute the Miami Center
property. The appellee has contended thoughout that the
valuation contained in the confirmed plan is the correct
one; i.e., $255,600,000. (Order on Remand, { No. 51).
The value proposed by the appellants for the property is
$275,000,000.
—t ce
34a
The Bankruptcy Court devoted a portion of its January
18, 1985 post-remand hearing to the issue of valuation,
and heard testimony from appraisers hired by both sides
who essentially defended the appraisals cited above. On
the basis of such testimony, as well as the formal ap-
praisals upon which its initial determination was made,
the Bankruptcy Court confirmed the original valuation
figure of $255,600,000. This Court has reviewed the rec-
ord evidence and has received written as well as oral
argument on this issue. In light of such review, this
Court concludes that the finding of the Bankruptcy Court
as to the value of the Miami Center property was not
clearly erroneous, and therefore will not be disturbed as
a result of this Court’s action.
(3) The Priority of Claims Based On Mechancs’
Liens
In their initial brief on appeal, the debtors appellants
challenged the classification of certain claims filed by
mechanics and materialmen who had furnished the Miami
Center. In addition to the fact that the appellants in the
instant appeal lack standing to raise those objections,
events have occurred through the implementation of the
confirmed plan of reorganization which render this issue
on appeal moot; i.e., that all of these Class 4 claims havc
been paid by the liquidating trustee.
(4) Unfair Classification of Certain Unsecured
Creditors
This previously asserted issue of appeal suffers from
the identical infirmities discussed at paragraph (3), su-
pra. First, the creditors allegedly injured by this mis-
classification are not parties to this appeal. Second, the
liquidating trustee has likewise paid out all of these Class
6 claims (or reserved the funds to do so) which were the
subject of this objection to the plan.
35a
(5) Amendment to the Plan of Reorganization With-
out Issuance of Diclosure Statements or
Hearing
In the last of their original issues on appeal, the
debtors objected to the fact that late modifications to the
Bank’s Reorganization Plan were adopted shortly before
entry of the Confirmation Order. These modifications
(CP 564,614,709c, and 854) consisted of stipulations and
amendments to the plan as filed. The purpose of these
modifications was to provide for a trustee’s certificate to
repay the Bank of New York for any outlay required to
acquire the FF&E which was the subject of the “A” and
“B” leases. The Bankruptcy Court concluded (Order on
Remand, { No. 81) that these modifications did not prej-
udice the debtors, and that since the plan had been ap-
proved by the requisite number of creditors, disclosure to
those classes which had rejected the plan was not re-
quired by 11 U.S.C. § 1127.
This Court agrees with the Bankruptcy Court’s con-
clusion that the adoption of amendments to the plan of
reorganization subsequently confirmed by that court did
not violate the applicable provision of the Bankruptcy
Code, did not prejudice these appellants, and therefore
does not constitute a basis for reversing the Confirmation
Order.
VIII. CONCLUSION
Having painstakingly reviewed the record in this ap-
peal, the voluminous briefs, appendices and vther sub-
missions of counsel for the parties, having heard extended
oral argument again on the merits of the appeal on
March 10, 1986, having considered the Order on Remand
entered by the Bankruptcy Court, the entire record
herein, and being otherwise fully advised in the premises,
it is
ORDERED AND ADJUDGED that the Confirmation
Order entered by the Bankruptcy Court on August 8,
36a
1985, as amended by the entry of that court’s Order on
Remand on January 29, 1986, is hereby AFFIRMED;
and thereupon, the Order approving Substantive Consoli-
dation is likewise AFFIRMED.
AFFIRMED
DONE AND ORDERED in Chambers at Miami,
Southern District of Florida this 20 day of March, 1986.
/3/ Sidney M. Aronovitz
SIDNEY M. ARONOVITZ
United States District Judge
Copy furnished to:
Raymond W. Bergan, Esq.
Fred H. Kent, Jr., Esq.
Vance E. Salter, Esq.
S. Harvey Ziegler, Esq.
Irving M. Wolff, Esq.
Albert I. Edelman, Esq.
John W. Kozyak, Esq.
Thomas F. Noone, Esq.
37a
APPENDIX 4
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF FLORIDA
Case No. 85-0228-Civ-Hoeveler
MIAMI CENTER LIMITED PARTNERSHIP, et al.,
Plaintiffs,
—VvVsS—
THE BANK OF NEw York, et al.,
Defendants.
FINAL ORDER OF DISMISSAL WITH PREJUDICE
[Filed April 30, 1986]
THIS CAUSE having come before the Court upon the
Motions to Dismiss filed by all defendants, and the Court
being fully advised in the premises and having heard
argument in the matter,
IT IS ORDERED AND ADJUDGED that this cause
be, and the same is, hereby dismissed with prejudice.
The Court quotes from the dispositive ruling made by
Judge Aronovitz in Case No. 85-3225-Civ.-Aronovitz
(S.D.Fla., March 20, 1986) at 24-25:
[T]he appellants [plaintiffs in the instant
cause] have urged this Court to reverse the Con-
firmation Order on the ground that the confirmed
plan called for the voluntary dismissal by the
Lquidating Trustee of a civil action filed by the
debtors (the District Court action . . .). On appeal,
the debtors/appellants contend that the Bankruptcy
38a
Court was without authority to order the dismissal
of that action, and that in doing so it unconstitution-
ally ousted the District Court from its proper juris-
diction.
In the first instance, the lawsuit was a chose in
action which was part of the debtors’ estate. 11
U.S.C. § 541(a) (1). As such, it was within the
power of the Bankruptcy Court to order its dismissal
through the liquidating trustee. In re Tidwell, 19
Bankr. Rptr. 846 (E.D.Va.1982). Secondly, as a
separate and independent ground for upholding this
aspect of the plan, the Court notes that, upon the
remand of this cause and upon the request of the
appellants, the Bankruptcy Court performed a cost/
benefit analysis of the value of this lawsuit to the
debtors’ estates, and concluded that its value was nil.
This determination provides additional support for
the inclusion in the confirmed of reorganization of
the directive to the liquidating trustee to dismiss the
District Court action.
As a further basis for this ruling, evidence adduced
at a post-remand hearing held on January 18, 1986
showed that certain releases previously signed by the
debtors effectively barred them from pursuing their
civil action under principles of collateral estoppel.
The Bankruptcy Court was within the scope of its
authority in making this determination, as the
debtors’ right to pursue this action was a matter
concerning the administration of the estates, and/or
a counterclaim by the estate against persons filing
claims against the estate, and/or confirmation of
Plans, and/or other proceedings affecting the liquid-
ation of the assets of the estate, etc., and therefore
constituted a “core proceeding”. 28 U.S.C. § 157 (b)
(2) (A), (C), (L), and (QO).
Accordingly, this dismissal is an administrative neces-
sity, for the actual decision has been compelled by the
39a
decision of the Bankruptcy Court below
tion of that decision by Judge Aronovitz.
DONE AND ORDERED this 30th d
in Chambers at Miami, Florida.
and the affirma-
ay of April, 1986
/S/ Wm. W. Hoeveler
United States District Judge
Copies furnished to counsel of record
40a
APPENDIX 5
UNITED STATES COURT OF APPEALS
ELEVENTH CIRCUIT
Nos. 86-5286, 86-5386
MIAMI CENTER LIMITED PARTNERSHIP,
MIAMI CENTER CORPORATION,
THEORDORE B. GOULD, CHOPIN ASSOCIATES, and
HOLYWELL CORPORATION,
Plaintiffs-Appellants,
Vv.
BANK OF NEW YORK,
Defendant-A ppellee.
MIAMI CENTER CORPORATION and CHOPIN ASSOCIATES,
Plaintiffs-Appellants,
se
THE BANK OF NEW York, et al.,
Defendants-A ppellees.
Sept. 8, 1987
—
Appeal from the United States District Court for the
Middle District of Alabama.
Before GODBOLD and ANDERSON, Circuit Judges,
and SWYGERT,* Senior Circuit Judge.
* Honorable Luther M. Swyegert, Senior U.S. Circuit Judge for
the Seventh Circuit, sitting by designation.
4la
ON PETITION FOR REHEARING
(Opinion June 29, 1987, 11 Cir., 820 F.2d 376).
PER CURIAM:
Petitioners are correct that neither the bankruptcy
court nor the district court made an express or implied
finding that the project was sold to a good faith pur-
chaser, and in this respect the opinion of the court is
corrected. This does not affect our conclusion because
debtors do not challenge the sale of the project or seek
reconveyance of the project.
In all other respects the petition for rehearing is
DENIED.
42a
APPENDIX 6
UNITED STATES COURT OF APPEALS
ELEVENTH CIRCUIT
Nos. 86-5286, 86-5386
MIAMI CENTER LIMITED PARTNERSHIP,
MIAMI CENTER CORPORATION,
THEODORE B. GOULD, CHOPIN ASSOCIATES, and
HOLYWELL CORPORATION,
Plaintiffs-A ppellants,
Vv.
BANK OF NEW YORK,
Defendant-Appellee.
MIAMI CENTER CORPORATION and CHOPIN ASSOCIATES,
Plaintiffs-A ppellants,
V.
BANK OF NEW YORK, et al.,
Defendants-A ppellees.
March 10, 1988
Before ANDERSON, Circuit Judge, SWYGERT* and
GODBOLD**, Senior Circuit Judges.
* Honorable Luther M. Swygert, Senior U.S. Circuit Judge for
the Seventh Circuit, sitting by designation. Judge Swygert did not
participate in the consideration of these petitions. This order is
entered by a auorum. See 28 U.S.C. § 46.
** See Rule 34-2, Rules of the U.S. Court of Appeals for the
Eleventh Circuit.
43a
ON PETITION FOR REHEARING AND REHEARING
EN BANC BY APPELLANTS AND PETITION FOR
REHEARING BY APPELLEES
(Opinion June 29, 1987, 11 Cir., 820 F.2d 376)
GODBOLD, Senior Circuit Judge:
On petition for rehearing by appellants/debtors we
entered an order on September 8, 1987, 826 F.2d 1010
(11th Cir. 1987), in which we attempted to correct what
we believed was an error in our opinion, 820 F.2d 376
(11th Cir.1987,;. In this order we reaffirmed cur con-
clusion that these consolidated appeals should be dis-
missed and denied appellants’ petition for rehearing.
Subsequently the appellants/debtors filed a petition for
rehearing en banc, and the appellees filed a petition for
rehearing with respect to the September 8 order.
It now appears that our correction was wrong. We
have, therefore, gone back to square one and have re-
viewed the record and the numerous briefs. There are
two appeals before us. No. 86-5286 is an appeal from an
order of the district court entered in an appeal to it
affirming two orders of the bankruptcy court. This ap-
peal to us is the primary subject of this opinion. We hold
that the district court should have dismissed the appeal
to it as moot, and we remand to the district court with
instructions that it do so. No. 86-5386, a related case,
is an appeal to us from an order of the district court
dismissing a civil action for damages brought in the
district court by the debtors in No. 86-5286 against the
major creditors. Our disposition of this appeal is con-
trolled by our decision in No. 86-5286. In No. 86-5386
we affirm the district court’s dismissal.
The appellants are five Chapter 11 debtors—an indi-
vidual debtor, Theodore B. Gould, and four other debt-
ors owned, controlled, or dominated by Gould. All have
been involved in development of the Miami Center proj-
ect, a modern thirty-five story hotel and office building
44a
structure, joined by a restaurant and shopping complex,
plus a parking garage, situated at a bay-front site in
downtown Miami, Florida. The Bank of New York fi-
nanced the construction of the project and is the principal
debtor. Its mortgage fell into default, and it began fore-
closure. The five debtors filed voluntary petitions for
bankruptcy, and the bankruptcy court consolidated the
estates. The debtors continued in possession.
The debtors and the bank filed competing reorganiza-
tion plans. The creditor committees and individual cred-
itors overwhelmingly approved the bank’s amended plan
and rejected the debtors’ plans. The bank’s amended plan
included a proposal that the estates of the five debtors
be consolidated. The bankruptcy court entered two orders
that are central to No. 86-5286. On July 23, 1985 it
approved substantive consolidation of the debtors’ estates
and overruled debtors’ objections to that aspect of the
reorganization plan. The court noted:
The consolidation of the five estates is for the pur-
pose of allowing all available funds and assets of the
estates to be used in accordance with the Bank's
Amended Plan, if confirmed, to pay all allowed cred-
itor’s [sic] claims.
The court reserved consideration of whether all other
aspects of the reorganization plan entitled it to confir-
mation.
On August 8, 1985 the bankruptcy court considered
whether to confirm the debtors’ plans or the bank’s plan.
The debtors’ major objections to the bank’s plan were,
first, that the assets were worth substantially more than
the bank was willing to pay. Second, the Gould interests
objected to the provision for consolidation of estates that
had been approved in the July 23 order. The court re-
jected debtors’ plans and approved the bank’s. In its or-
der, reported as In re Holywell Corp., 54 B.R. 41 (Bkrtcy.
S.D.Fla.1985), it noted that an application for rehearing
45a
and reconsideration of the July 23 order was pending;
the court denied the application for rehearing.
Under the amended reorganization plan that was con-
firmed a liquidating trustee would be appointed and
would take charge of the property. The Bank of New
York would acquire the Miami Center property from the
trustee, together with the furniture, fixtures, and equip-
ment therein, for $255,600,000, a valuation based upon
an MIA appraisal.' This purchase would be funded
through cancellation of the judgment lien held by the
bank (approximately $240 million)?, plus any new cash
necessary to come up to the $255.6 million figure. In
addition, the bank agreed to release to the trustee $30
million realized from the sale of unrelated property lo-
cated in Washington, D.C. that had been owned by some
of the debtors; this cash was additional collateral held by
the bank and subject to its lien.
Moreover, the bank was required to set aside $14 mil-
lion, backed by surety bonds, to protect the rights of
creditors affiliated with Gould, who had been found in a
separate order to be lessors of equipment and fixtures
located in Miami Center that had been included with the
sale to the bank. This order was the subject of a sepa-
rate appeal. Should the bond ultimately have to pay the
lessors for the FF & E under this arrangement it would
be entitled to seek reimbursement from the estate pur-
suant to a trustee’s certificate.
Also the plan provided that certain creditors affiliated
with the Gould interests would be “equitably subordi-
nated” to claims of otker creditors with lower priority
because these Gould-affiliated creditors were “insiders.”
' The furniture, fixtures and equipment had been obtained from
affiliates of the debtors pursuant to what the district court, in a
separate order, had found to be leases.
2 In separate proceedings the principal and interest due under the
mortgage had been established, and the bank had been granted a
final judgment for these amounts.
46a
The debtors had filed in the U.S. District Court a
separate suit for damages charging that in connection
with its loan the bank had committed fraud and various
RICO violations. The approved reorganization plan pro-
vided that this case, which the bank asserted was a chose
in action of the bankruptcy estate and thus due to be
under the control of the trustee, was to be dismissed by
the trustee.
Debtors moved in the bankruptcy court for a stay of
the confirmation order pending appeal. After a hearing
the bankruptcy court granted a stay conditioned upon
debtors posting a bond in the amount of $140 million,
based upon the court’s estimate that an appeal would
take a year. In October 1985, on review, the district
court reduced the amount of the bond to $50 million, on
the assumption an appeal could be expedited and deter-
mined in 90 days, and required the bond be filed by
October 10, 1985. The debtors appealed the bond ruling
to this court, which dismissed for lack of jurisdiction.
The debtors did not post a bond, and, beginning October
11, 1985, the trustee and the bank set about immediately
to consummate the reorganization plan as approved. The
trustee conveyed to the bank’s designee, a land trust, title
to Miami Center and its furniture, fixtures and equip-
ment. The bank gave up its judgment lien, and, in addi-
tion, paid approximately $13.6 million of new money, to
make up the total consideration of $255.6 million. Also,
it released the $30 million of additional cash collateral.
The trustee began making payments to 400-plus creditors
of the five estates.
On appeal to the district court the debtors attacked the
consolidation order and the confirmation order. They
asserted that: the necessary bases for the consolidation
order were not proved; various of their claims were im-
properly subordinated to claims of general creditors; the
bankruptcy court failed to have a hearing on valuation;
the reorganization plan improperly required the trustee
47a
to dismiss the separate suit filed by debtors in the fed-
eral district court: the reorganization plan discriminated
against mechanics and materialmen and some unsecured
creditors; and the bankruptey court denied debtors’ due
process.
In November 1985 the bank and the trustee moved to
dismiss the appeal to the district court as moot because no
stay of the reorganization plan had been obtained.
The district court (Sidney M. Aronovitz, D.J.) held
that the consolidation and confirmation orders were “in-
tertwined and independent” and that the order approving
the plan of reorganization “includes inferentially the
the effect of the learlier] Order of Substantive Consoli-
dation.” With respect to both orders, however, the court
held that the bankruptey court had failed to enter suffi-
cient findings of fact and sufficient explanations of its
legal reasoning to support adequate appellate review.
The court remanded the matter to the bankruptey court
with directions for it:
to schedule and to hold such further adversarial hear-
ings and to make and enter such findings of fact and
conclusions of law as are necessary to provide this
Court with an adequate basis to decide the instant
appeal on the merits.
Order, p. 12.
Despite its conclusion that there were insufficient find-
ings to support appellate review, the court proceeded to
address the appellees’ motion to dismiss the appeal for
mootness.* It looked to the mootness doctrine formerly
Stated in Bankruptcy Rule 805:
Unless an order approving a sale of property or
issuance of a certificate of indebtedness is stayed
° The trustee had filed a mootness motion but was not a party to
the appeal.
48a
pending appeal, the sale to a good faith purchaser
or the issuance of a certificate to a good faith holder
shall not be affected by the reversal or modification of
such order on appeal whether or not the purchaser or
holder knows of the pendency of the appeal.
It noted that although the mootness standard was not
carried forward in Rule 8005, which supplanted Rule 805
in 1983, it is widely accepted in‘ case law, including Jn re
Sewanee Land, Coal & Cattle, Inc., 785 F.2d 1294 (11th
Cir.1984). Relying upon a Ninth Circuit case, Matter of
Combined Metals Reduction Co., 557 F.2d 179 (9th Cir.
1977), the court held that where a debtor appeals from
several orders, some of which are orders approving the
sale of property, and fails to obtain a stay, the debtor
may proceed with the appeal of orders not involved in
the sale. Applying this principle, the district court con-
cluded that the appeal of the consolidation order was
not moot because it was not an order of sale, and because,
after remand, should it [the district court] rule in favor
of debtors on their appeal of the consolidation order, the
court could grant meaningful relief to them by reversing
that order and “that portion of the confirmation plan of
reorganization which incorporates this order.” Order, p.
15. Therefore, it held that it would decide the validity
of the consolidation order on the merits after receipt of
findings of fact and conclusions of law that it ordered
entered by the bankruptcy court.
The court then turned to the confirmation order. It
did not address the status of the bank as a good faith
purchaser within the meaning of the mootness cases. Nor
did it speak to its holdings that the consolidation order,
though standing alone was not an order approving the
sale of property, was an order “involved with the sale” and
indeed was “intertwined and interdependent.” Rather,
as appears from the portions of its order quoted below,
the court noted that the purchaser was a designee of the
bank and within its jurisdiction, and it analyzed its
49a
ability to give “effective relief” by considering whether
it was capable of undoing what had been done. The court
stated that it could reverse its subordination of debtors’
claims and return them to their pre-confirmation status;
it could require the trustee to reinstate the separate suit
that debtors had filed; and it could review alleged pro-
cedural flaws in the valuation proceedings leading up to
confirmation and in other unspecified proceedings. The
court put its finger on the central dispute:
This appeal is primarily directed at recovering title
to the Miami Center property held by the bank’s
designee and obtaining review of the bankruptcy
court’s substantive rulings noted above [the rulings
in the confirmation order].
Ms. Op. p. 17.
As to this central matter, the court held:
[S]hould this court decide the substantive appeal
before it in the appellants’ favor, the sale of the
Miami Center, and its equipment and fixtures, could
be undone.
Id. at p. 18.
Although the Miami Center is now held by the Bank’s
designee, it is still in the effective possession of the
Bank which, as appellee in this matter, is under the
jurisdiction of the court. Should this court decide,
after reviewing the findings made by the court below
on the remand, that the entire plan of reorganization
was erroneously approved, it could fairly order the
transfer of the Miami Center property back to the
debtors, on the condition that those funds taken from
the Thirty Million ($30,000,000) Dollars collateral
for payment to creditors remain undisturbed or be
applied in behalf of debtors. The Bank of New York
would be returned to its position as chief secured
creditor, and could either propose a different plan of
ae ee Ee eT RTT NE _ Ae ee te ee erento
5 ee
50a
reorganization before the bankruptcy court or pursue
remedies available to it as mortgagee. The appellants
would be returned to the status of debtors in posses-
sion of the property, and could likewise attempt to
obtain creditor approval for an alternate plan while
seeking a buyer for the Miami Center which would be
willing to pay what the debtors contend is the prop-
erty’s true value.
Id. at pp. 18-19.
Upon application by the bank the district court certified
to this court under 28 U.S.C. §1292(b) the issue of
whether the appeal to it was moot. This court declined
to accept the case.
On remand, on the consolidation issue, the bankruptcy
court conducted a hearing, took evidence, and heard argu-
ment. On the confirmation issues it invited evidence.
None was tendered except on valuation and calculation of
the amount of the bank’s lien.
The bankruptcy court entered lengthy findings and con-
clusions,* which included:
1. Holdings rejected the debtors’ reorganization
plans because, among other reasons, the debtors had
4In this court, as in the district court, the debtors question the
bankruptcy court’s having adopted in toto proposed findings and
conclusions submitted by the bank. The bankruptcy judge asked,
and received, proposed findings from the debtors and from the
bank. He adopted those from the bank. Debtors question this pro-
cedure (as has this court, Cabriolet Porsche-Audi, Inc. v. American
Honda Motor Company, 773 F.2d 1193, 1198 n. 2 (11th Cir. 1985)),
but this does not render the findings and conclusions invalid. An-
derson v. Bessemer City, 470 U.S. 564, 105 S.Ct. 1504, 84 L.Ed.2d
518 (1985). The district court examined the findings under the
plainly erroneous rule and affirmed them. We review them as
relevant to the mootness issue. Examining them in that constricted
scope, we find no error.
5la
no buyer and they were in litigation on nearly every
front.®
2. Elaborate findings on relations between the
debtors that supported the requirement of consolida-
tion.
3. Detailed findings of improprieties involving the
Gould interests that justified subordination of various
of the Gould-related claims.
4. As to valuation, that under one approach debt-
ors’ valuation was higher than that of the MIA
appraiser presented by the bank but the debtors had
produced no purchaser willing to pay the higher
figure, and that under another approach the valua-
tions of debtors and the MIA appraiser were very
near the same.
Following these findings and conclusions the court held:
Based upon all of the foregoing, the Court finds
that the $255.6 million purchase price offered by the
Bank for the Project (including the FF & E) is
fair and equitable, and is in the best interest of the
creditors. The Court further finds that the Bank is
a good faith purchaser.
With respect to the separate suit, the court found it
had no significant value because debtors had executed
releases as to transactions between them and the bank;
rather the suit was a detriment to the estate because of
the attorney fees it was generating.
The court also found that it had had the unusual op-
portunity to observe the substantial consummation of the
reorganization plan and that its “fairness, feasibility and
propriety” had been verified by these occurrences: ad-
ministrative claims had been paid or reserved; secured
* Including the City of Miami, IRS, the general contractor, their
former lawyers, the former operator and the leasing agent for the
hotel, and prospective tenants for the office building.
52a
claims had been paid in full; class 3 claims had been
paid in full; undisputed claims in classes 4 through 6
had been paid in full and funds reserved for disputed
claims; several disputed claims had been compromised,
saving the estates millions of dollars; there remained
sufficient funds for the satisfaction in full or in part of
the claims of the Gould-affiliated claimants (many of
which were unliquidated).
Finally the court went on to hold:
No stay is in effect, and the confirmed plah has been
consummated. The debtors’ property passed to the
Liquidating Trustee, and the debtors were discharged
under Code Section 1141. It is now legally and prac-
tically impossible to unwind the consummation of the
Bank’s plan or otherwise to restore the status quo
before confirmation.
With respect to consolidation, the court found the facts,
and applied the controlling law, at length. It found that
in most respects creditors had not objected to consolida-
tion, that the debtors would not be substantially preju-
diced by consolidation, and that the hundreds of creditors
(many not represented by counsel) should not be required
“to engage in a shell game” in attempting to determine
which of the interrelated debtors involved in the Miami
Center project would be able to pay them. The difficulty
in tracing the obligation of claims against the affiliated
creditors was, the court held, “completely attributable
to the labyrinth that Gould has created.”
The bankruptcy court confirmed the orders it previ-
ously had entered. The matter came back to the district
court with the bankruptcy court’s elaborate findings and
conclusions. Without addressing the mootness issue the
court considered the merits and entered an order on
March 20, 1986. It held that the confirmation order
before it for review consisted of the initial confirmation
order [entered August 8, 1985], as amended by the find-
53a
ings of fact and conclusions of law entered by the bank-
ruptey court on remand. It reiterated that the confirma-
tion order and the consolidation order were “intertwined
and interdependent.” With respect to each issue relating
to confirmation, including valuation, the district court
reviewed the facts as found by the bankruptcy court and
the applicable law and found no error. Following this
careful, point-by-point review, the district court affirmed
the August 8 confirmation order, as amended by the bank-
ruptey court’s order on remand, and affirmed the order
approving consolidation.
Arguably the district court should have dismissed the
appeal as moot when the case was first before it. But
we pretermit discussing this because we hold that the
court should have dismissed the appeal as moot when the
case came back to it after remand.°®
The mootness standard is preserved in the present bank-
ruptcy code at 11 U.S.C. § 3863(m), but this provision
applies only to the sale of the debtor’s property by the
trustee pursuant to $363(b) or (c). Section 363(m)
does not apply where the debtor’s assets have been sold,
as here, by a liquidating trustee pursuant to a plan of
liquidation. All parties agree that in this case we look
for guidance to the case law.
The Eleventh Circuit, like other circuits, has recog-
nized the continuing viability and applicability of the
mootness standard in situations other than transfers by a
trustee under § 363(b) or (ce). In re Sewanee Land, Coal
& Cattle, Inc., 735 F.2d 1294 (11th Cir.1984); Mark-
stein v. Massey Associates, Ltd., 763 F.2d 1325 (11th
Cir.1985).
6 See In re Bel Air Associates, Ltd., 706 F.2d 301 (10th Cir.
1983) (no explicit holding by bankruptcy court on good faith pur-
chaser issue. District court remanded to the bankruptcy court for
findings, and that court ruled good faith purchaser status applied.
District court adopted this determination and dismissed the appeal).
54a
In Sewanee the mortgagees/creditors were permitted
to foreclose, both district and circuit courts refused stay
pending appeal, and the property was sold at foreclosure
to the creditors. On appeal debtors asserted the sale
should be rescinded and the property returned to them.
Looking to the case law, this court dismissed the appeal
as moot. Markstein is similar to Sewanee. No stay was
obtained. Mortgagess/creditors purchased the property
themselves at foreclosure. On appeal the debtors sought
to have the sale rescinded and the property returned,
or other equitable relief. This court held that it was
powerless to rescind the sale. It ordered a limited re-
mand to the district court with direction that it make
specific findings as to the amount of the mortgage debt
and to determine whether the bankrupt estate was en-
titled to excess, if any, of the foreclosure bid over the
debt. The court noted that the appellant had been un-
able to locate, “any case where a court has granted re-
lief in the situation where property of a debtor was sold
at foreclosure to a good-faith purchaser after the debtor
had failed to obtain a stay of foreclosure pending ap-
peal.” But it had found no case where the amount of the
mortgage debt, and of the excess, if any, had not spe-
cifically been determined, thus it remanded on these is-
sues. 763 F.2d at 1327 n. 1. No such issue is involved
in the present case. With respect to the purpose of the
mootness rule, the court held:
This rule of law [lack of power in the court to
rescind sale where there has been no stay] was in-
tended to provide finality to orders of bankruptcy
courts and to protect the integrity of the judicial
sales process upon which good faith purchasers re-
lied.
Id. at 1327.
Matos follows in the same channel. The bankruptcy
court permitted foreclosure, debtors were granted a stay
conditioned on filing a bond, which they did not file. The
55a
mortgagee /creditor bought the property at foreclosure.
This court dismissed the appeal as moot. We said:
It is settled law in this circuit that when the
debtor fails to obtain a stay pending appeal of the
bankruptcy court’s or the district court’s order set-
ting aside an automatie stay and allowing a creditor
to foreclose on property, the subsequent foreclosure
and sale of the property renders moot any appeal.
Markstein v. Massey Associates, 763 F.2d 1325 (11th
Cir.1985) ; In re Sewanee Land, Coal & Cattle, Inc.,
735 F.2d 1294 (11th Cir. 1984). This rule of law,
which is permised upon considerations of finality,
protection of the integrity of the foreclosure sale
process, and the court’s inability to rescind the sale
and grant relief on appeal even if the purchaser of
the property is a party to the appeal, is fully ap-
plicable to this case. Accordingly, the appeal must
be dismissed as moot. (Note omitted.)
790 F.2d at 865-66.
The “good faith purchaser” is one who buys in good
faith, that is, free of any fraud or misconduct and for
value and without knowledge of any adverse claim. In
re Bel Air Associates, Ltd., 706 F.2d 301 (10th Cir.
1983) ; Greylock Glen Corporation v. Community Sav-
ings Bank, 656 F.2d 1 (1st Cir.1981). Knowledge of
claims asserted in a pending appeal does not deprive a
purchaser of good faith status. In re Dutch Inn of Or-
lando, Ltd., 614 F.2d 504 (5th Cir.1980).
When the present case was returned to the district
court following remand, the record before the district
court included the finding that the bank was a good faith
purchaser. It included the detailed findings that the plan
was fair, feasible, and proper, and that it had been sub-
stantially consummated. And it included the finding that
it was legally and practically impossible to unwind the
confirmation of the plan or otherwise to restore the
status quo. All these findings were affirmed.
—————
56a
The debtors urge, on several grounds, that the moot-
ness standard should not apply:
(1) The mootness rule has no applicability because
there has been no transfer to a third party. This argu-
ment ties in with the district court’s emphasis on the
fact that the sale was to a designee of the bank which
was within the jurisdiction of the court. No transfer to
a third party was involved in Sewanee, Markstein, or
Matos: in each of those cases the purchaser at fore-
closure was the mortgagee/creditor, just as the bank here
is the purchaser from the liquidating trustee. Other cases
rejecting the “not a third party” argument include
Algeran, Inc. v. Advance Ross Corp., 759 F.2d 1421 (9th
Cir.1985): Greylock Glen Corp. v. Community Savings
Bank, 656 F.2d 1, 4 (1st Cir.1981) (“[T]he fact that
the bank was both the seller and purchaser of the prop-
erty, and a party to the dismissed appeal does not affect
its status under Rule 805. The rule does not distinguish
between mortgage holders and other potential purchasers
of encumbered property. It is designed to give finality
to orders of the bankruptcy court that have not been
stayed pending appeal. ... No less than any other po-
tential purchaser, the bank was entitled to bid upon the
Greylock Glen property with the assurance that its title
to the property would not be affected by appellate re-
view months or even years later.”’)
(2) The bank has never been held to be a purchaser
in good faith. On remand the bankruptcy court held the
bank was a good faith purchaser, and the district court
affirmed the bankruptcy court’s findings and affirmed
the confirmation order, as amended by the bankruptcy
court’s findings and conclusions. No factual argument
is advanced why the bank is not entitled to good faith
purchaser status except that the purchaser is a designee
of the bank and within the jurisdiction of the court, an
argument already rejected above.
57a
(3) The mootness principle is inapplicable because the
debtors do not seek return of the property but only modi-
fication of the plan, or, restating, they do not attack the
sale but only matters that do not directly relate to the
sale.
(4) Mootness does not apply where the purchaser has
not taken irrevocable steps in reliance on the purchase.
Points (3) and (4) require us to look beyond Sewanee,
Markstein and Matos. These three Eleventh Circuit cases
concern single sales at foreclosure of property for which
in each instance there was a good faith purchaser. In
that confined context the cases are a firm application
by this circuit of a broader principle that mootness is
appropriate where a court cannot give effective relief, A
reorganization case, however, may sweep within its ambit
more than a discrete and consummated sale to a good
faith purchaser. Within a penumbra of the reorganiza-
tion plan outside of discrete consummated sales there
may be aspects of the reorganization that are not moot.’
Cases of this nature include Matter of Combined Metals
Reduction Co., 557 F.2d 179 (9th Cir.1977) ; In re AOV
industries, Inc., 792 F.2d 1140 (D.C.Cir.1986) ; and In
re Roberts Farms, Inc., 652 F.2d 793 (9th Cir.1981).
These cases tell us that in considering whether in a re-
organization case matters not directly related to sales
are within the mootness rule, the court may consider the
virtues of finality, the passage of time, whether the plan
has been implemented and whether it has been substan-
’ The possibility of effective relief for matters unrelated to con-
summated sales does not, however, subsume the central principle
that finality of judgments and certainty are to be protected where
there have been sales to good faith purchasers. In this case the
district court considered as a global question whether it could
grant effective relief and concluded that it could do so because it
had the power to undo the sale to the bank, restore the property
and possession to the debtor, and set aside the sale provision of the
reorganization plan. This analysis stood the law of mootness on its
head.
a is
58a
tially consummated, and whether there has been a com-
prehensive change in circumstances. AOV, 792 F.2d at
1148-49. The court will not, however, allow a “piecemeal
dismantling” of a reorganization plan. Jd. at 1149. In
AOV the court recognized a “strong presumption” of
mootness. Jd. The court may consider whether relief
granted by the court could implicate or have an adverse
effect on non-party creditors and will affect the re-emer-
gence of the debtor as a revitalized,entity. Id. In Rob-
erts Farm the court considered whether the property
transactions “stand independently and apart from the
plan of arrangement,” and found that “the many intri-
cate and involved transactions . . . were contemplated by
the plan of arrangement (even to and including liquida-
tion and reorganization of the debtor corporation) and
stand solely upon the order confirming the plan of ar-
rangement for court approval and confirmation of the
transactions.” 652 F.2d at 979. The court concluded that
to deny mootness and reverse would “knock the props out
from under the authorization for every transaction that
has taken place” and “create an unmanageable, uncon-
trollable situation for the Bankruptcy Court.” Jd. The |
Eighth Circuit, Jn re Information Dialogues, 662 F.2d
475 (8th Cir.1981), refers to the important policy of
bankruptcy law that court-approved reorganization plans
be able to go forward based on court approval unless a
stay is obtained. In Matter of National Homewoners
Sales Service Corp., 554 F.2d 636 (4th Cir.1977) the
Fourth Circuit, in sustaining good faith purchaser status
and dismissing the appeal as moot, relied upon substan-
tial investment that had been made upon reliance of
good title to the property having vested in the purchaser.
The debtors acknowledge that the plan of reorganiza-
tion has been substantially consummated, but, they say,
it remains not completed in several respects, as follows:
The trustee is claiming substantial additional sums from
the bank as a result of examination and audit of the
59a
bank’s interest charges and other closing adjustments in
the sale of the Miami Center property. If the bank must
pay the lessors for FF & E, it will seek repayment from
the estate pursuant to the trustee’s certificate, which will
deplete sums available to Gould-affiliated creditors. Some
disputed claims have yet to be resolved. It is unknown
whether claims of Gould-affiliated creditors will be paid
in full because some have been assigned a junior
priority.
We turn, then, to the relief that the debtors seek and
the relationship between it and the reorganization plan.
The debtors now say that, although they do not agree
with the validity of the sale to the bank, they do not
seek to overturn it; indeed, they specifically say that
they do not want the property back. They want the
sale to stand but the property revalued to a higher figure
and the sale price adjusted accordingly. They seek can-
cellation of the trustee’s certificate issued to the bank to
cover its exposure with respect to the FF & E. They
want a realignment of priorities of claims that will place
some of their claims ahead of other unpaid creditors and
give some “super priority” ahead of the bank as mort-
gagee. They want reinstatement of the separate suit
they filed against the bank.
The debtors recognize that the relief they request may
require the bank’s putting up additional cash to preserve
its position as purchaser; if so, the bank must sweeten
the pot. If it is unwilling to do this, it may have to fall
back on its rights as mortgagee.
These prayers for relief must be set against what
the bank bargained for, and received as part of the re-
organization plan, and the consequences of the plan of
granting the prayers. The bank agreed to give up its
judgment, calculated at closing at around $242 million.
The amount due under the mortgage and brought for-
ward into the judgment was calculated at “good stand-
60a
ing” interest rates; by agreeing to this calculation the
bank surrendered a claim to $5 million$$6 million of in-
terest at default rates. Presumably if the sale goes for
naught the bank would be entitled to this additional
amount.
Closing the sale to the bank stopped the running of
interest at approximately $2 million per month. If the
sale goes for naught, presumably the bank can seek in-
terest from October 1985, producing an accrual when
Judge Aronovitz entered his March 1986 order of ap-
proximately $11 million and currently approximately
$54 million.
The bank bargained for and purchased the FF & E
as part of the sale. Because litigation was in progress
over whether title to the FF & E was in lessors of the
bankrupt, the bank put up $14 million to pay the lessors
if they prevailed. But, since the bank would then have
paid twice for the same assets, it was given a trustee’s
certificate enforceable against assets of the estate to
protect it from the double payment. Without the trus-
tee’s certificate, if double payment ensues, the bank will
become an unsecured creditor to the extent of some $14
million. The debtors do not suggest any relief for this
risk.
The bank put up $12.5 million of its own money to
make up the purchase price. It surrendered $30 million
of cash collateral it was holding. These funds have been
the primary source for payments to creditors and re-
serves totalling approximately $30 million. The trustee
appeared before the district court when, after remand,
it heard argument. He pointed out that he had paid
some $14 million in claims, had reserved some $9 million
for claims disputed or in litigation, and held some $8
million-$9 million in cash plus some $7 million in a re-
serve for contested taxes. The trustee pressed his view
that the reorganization plan had to be accepted or re-
6la
jected in its entirety and that rejection would require
him to seek to reclaim what he had paid out, much of
which was unrecoverable.
The bank might, of course, not wish to become pur-
chaser of the property at an elevated price or to assume
the risk of paying twice for FF & E. It might wish to
realize on the cash collateral it had held and to foreclose
on the real estate. The debtors have not given a mean-
ingful suggestion of how the bank can get back its $12.5
million or get back the $30 million cash collateral: they
say only that creditors have some or all of it and are
entitled to be paid and that the trustee need not seek to
recover back from them.
The bank bargained for dismissal of the separate suit
as part of the consideration running to it. The debtors
want the case reinstated but do not point to any means
of restitution to the bank for being again placed at risk
of a fraud/RICO case and subjected to attorneys fees
for its defense.
All of this demonstrates that the consequences of what
debtors seek strike at the sale of the bank and the reor-
ganization plan as a whole. As in Roberts Farms the
sale of the primary asset does not “stand independently
and apart from the plan of arrangement,” but rather
“the many intricate and involved transactions . . . were
contemplated by the plan of arrangement ... and stand
solely upon the order confirming the plan of arrange-
ment.” 652 F.2d at 797.° It is “impossible to fashion
effective relief” for the bank. Jd. Granting the reme-
dies the debtors seek would “create an unmanageable,
uncontrollable situation for the Bankruptcy Court.” Jd.
The bankruptcy court did not err in finding, and the
district court did not err in affirming, that the plan
* The district court found twice that the consolidation order and
the confirmation order were intertwined and independent.
OOOO eee
62a
had been substantially consummated and that its fair-
ness, feasibility, and propriety had been verified, and
that it had become legally and practically impossible to
unwind the consummation of the plan or otherwise to
restore the status quo before confirmation. The district
court was required to dismiss the appeal as moot.
We turn to No. 86-5386: The district court held that
the bankruptcy court had the power to order the trustee
to dismiss the separate fraud/RICO case because: (1)
it was a chose in action which was part of the debtors’
estate; (2) on remand the bankruptey court had con-
ducted a cost/benefit analysis of the value of the suit
and concluded that its value was nil; (3) evidence ad-
duced at a post-remand hearing showed that releases
previously signed by debtors barred their pursuing the
civil action on principles of collateral estoppel.’
Judge Aronovitz entered his order affirming the con-
solidation and confirmation orders on March 20, 1986.
On April 30, 1986 District Judge Hoeveler dismissed the
fraud/RICO suit, quoting the grounds set out above
and, accordingly, entered a dismissal as “an adminisrta-
tive necessity . . . compelled by the decision of the Bank-
ruptecy Court below and the affirmation of that decision
by Judge Aronovitz.”’
Had the appeal to the district court on the consolida-
tion and confirmation orders been dismissed as moot, as
it should have been the judgment of the bankruptcy
court in that appeal would have become final. The issues
adjudicated by that judgment would then have been pre-
cluded from reexamination by Judge Hoeveler in his con-
® The bankruptcy court held that it was within the scope of its
authority in making this determination because the debtors’ right
to pursue this action was a matter concerning the administration
of the estates, and/or a counterclaim by the estate against persons
filing claims against the estate, and/or confirmation of plans,
and/or other preceedings, affecting the liquidation of the assets
of the estate, and therefore constituted a “core proceeding.”
63a
sideration of whether to dismiss the fraud/RICO case.
These same consequences will ensue now upon the entry
of an order by Judge Aronovitz dismissing the appeal
from the bankruptcy court as moot.
The debtors contend that as a matter of separation
of powers the bankruptcy court could not require the
district court to give up its jurisdiction. This is not
what happened. In October 1985, some five months be-
fore Judge Aronovitz affirmed the bankruptcy court, the
liquidating trustee, on behalf of the debtors, filed a
“stipulation” for dismissal with prejudice of the district
court case. All parties asked that consideration of the
trustee’s “motion” to dismiss be postponed until the bulk
of the bankruputcy proceedings had been resolved.
After Judge Aronovitz entered his ruling and plain-
tiffs failed to post an appeal bond to stay the implemen-
tation of the reorganization plan pending appeal to this
court, the liquidating trustee filed a new motion request-
ing the court to order dismissal of the district court case.
Thus, the liquidating trustee, found by the bankruptcy
court to be in control of the separate case as an asset
of the debtors’ estates, was directed to dismiss the sep-
arate suit, he sought to have it dismissed, and Judge
Hoeveler responded by entering a dismissal. Dismissal
of lawsuits that are assets of the estate is a not-unfamil-
iar feature of reorganization plans. Debtors’ suggestion
that the bankruptcy court lacks power, exercised pur-
suant to a reorganization plan, to direct a trustee to dis-
miss a suit in a court other than the bankruptcy court
is not supported by authority cited to us or by common
sense. The underpinnings of the bankruptcy court’s or-
der to the trustee will be finally determined by the bank-
ruptcy court order once the finality of that order is es-
tablished by the mootness of the appeal to the district
court. As now recognized, though retrospectively, the
district court’s order dismissing the separate suit, as
requested by the trustee, will be correct and will be
due to be affirmed.
64a
Conclusion
We VACATE the order of September 8, 1987 appear-
ing at 826 F.2d 1010.
In No. 86-5286 we VACATE the judgment of the
district court affirming the consolidation order and the
confirmation order of ihe bankruptcy court and RE-
MAND that case to the district court with instructions
to dismiss the appeal to it from the bankruptcy court as
moot.
Forthwith upon entry of the order by the district
court, as directed in No. 86-5286, the judgment in No.
86-5386 shall stand AFFIRMED.
The petiton for rehearing by the Bank of New York
is DENIED. The petition for rehearing by the appellants
is DENIED.
No member of this panel nor other Judge in regular
active service on the Court having requested that the
Court be polled on rehearing in bane (Rule 35, Federal
Rules of Appellate Procedure; Eleventh Circuit Rule
35-5), the Suggestion of Rehearing In Bane is DENIED.
65a
APPENDIX 7
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF FLORIDA
Case No. 85-3225-Civ-Aronovitz
Bk. Nos: 85-01590-BKC-TCB
85-01591-BKC-TCB
85-01592-BKC-TCB
85-01593-BKC-TCB
85-01594-BKC-TCB
HOLYWELL CORPORATION,
MIAMI CENTER LIMITED PARTNERSHIP,
MIAMI CENTER CORPORATION,
CHOPIN ASSOCIATES,
THEODORE B. GOULD,
Appellants/ (Debtors),
VS.
BANK OF NEW YORK,
Appellee/( Principal Creditor) .
ee
ORDER OF REMAND AND DENIAL OF
MOTION TO DISMISS
This is an appeal from Chapter 11 proceedings in the
United States Bankruptcy Court for the Southern Dis-
trict of Florida. Appellants (five) Chapter 11 debtors in
the proceeding below, appeal from two orders of the bank-
ruptcy judge:
a.) an order approving the substantive consolidation
of the debtors’ estates; and,
b.) the trial court’s order confirming the plan or
reorganization proposed by the Bank of New York,
the major creditor of the debtors’ estates and the
appellee herein.
————
66a
Both rulings are intertwined and interdependent. Also
before the Court are two motions filed by the appellee
and by the liquidating trustee appointed under the con-
firmed plan which seek to dismiss this appeal on the
grounds of mootness.
The five debtors who initiated the Chapter 11 proceed-
ings below and those estates were consolidated by order
of the Bankruptcy Judge, Thomas C. Britton are:
Miami Center Limited Partnership (hereinafter
“MCLP”), which developed the Miami Center Proj-
ect;
Chopin Associates, the owner of the land, leased to
MCLP, upon which the facility was built;
Holywell Corporation, an entity involved in servicing
and holding real property;
Miami Center Corporation, a subsidiary of Holywell
Corporation; and
Theodore B. Gould, the sole shareholder of Holywell
Corporation, president of the Miami Center Corpora-
tion, and a general partner of both Chopin Asso-
ciates and the Miami Center Limited Partnership.
The Bank of New York, the appellee, was the primary
secured creditor of the debtors, having advanced over
Two Hundred Million ($200,000,000) Dollars in mort-
gage loans for the purchase and construction of the
Miami Center Project.
Involved in these proceedings, among other assets of
the debtors and the claims of various other creditors, is
property known as the Miami Center, situated at a bay-
front site in downtown Miami, Flerida (roughly South
of Bayfront Park). The Miami Center, the debtors’
major asset, consists of a modern 35-story hotel (The
Pavillon) and office building structure (Edward Ball
Building) with two towers joined by a restaurant and
67a
shopping complex known as the Podium. The hotel and
office facilities were furnished with furniture, fixtures
and equipment (FF&E) which were leased from some
affiliated creditors of the debtors. Construction and man-
agement of the Miami Center was the responsibility of
MCLP. (Four additional vacant lots (blocks) adjacent
to the debtors’ property are owned by the Miami Center
Joint Venture, which is not a debtor in these proceed-
ings. Thus, these four blocks were not included in the
debtors’ estates for purposes of reorganization. )
HISTORY OF THE CHAPTER 11 PROCEEDINGS
Due to substantial disagreements among the five debt-
ors and the Bank of New York over the priority to be
given to the latter’s mortgage loans vis-a-vis subsequent
financing arrangements made by the debtors, the Bank
declared its mortgage loans secured by the Miami Center
property to be in default in early 1984, and filed fore-
closure proceeding against the property on July 27, 1984.
All five debtors thereupon filed petitions under Chapter
11 of the Bankruptcy Code in the court below. Between
the initial filing of those petitions on August 22, 1984
and the issuance of the court’s final order of confirmation
on August 8, 1985, Judge Britton considered and ruled
upon a myriad of motions and other matters, as can be
seen by the voluminous record before this Court on ap-
peal. Appellants here challenge the bankruptcy court’s
rulings on two of the most significant of these rulings:
1. The July 23, 1985 Order Approving the Substan-
tive Consolidation of the Debtors’ Estates (Court
Paper #840) .?
1 Substantive consolidation, in the context of a Chapter 11 pro-
ceeding, entails much more than the mere procedural consolidation
contemplated by Fed.R.Bankr.P. 1015. As the advisory committee
note to that rule explains, the substantive combination of the
estates of various debtors is only sometimes appropriate, depending
upon the factual circumstances of the case. Substantive consolida-
———————
68a
2. The August 8, 1985 Final Order of Confirmation,
confirming the plan of reorganization of the appellee
Bank of New York (Court Paper #906).
The major components of the plan approved by the
court below are as follows:
—The Bank would acquire the entire Miami Center
Project Property, including the furniture, fixtures
and equipment (FF&E) for the sum of Two Hun-
dred Fifty-five Million, Six Hundred Thousand
($255,600,000) Dollars. (This figure is based on a
valuation of the property performed by Charles V.
Failla & Associates and commissioned by the Bank
of New York. Appellants contest the validity of this
appraisal and the fact that the court below did not
hold hearings thereon.) This acquisition would be
funded through the net amount already owed to the
appellee by the debtors—approximately Two Hun-
dred Forty Million ($240,000,000) Dollars—to which
would be added Thirty Million ($30,000,000) Dol-
lars realized through the sale by debtors Holywell
and Gould of certain unrelated, distinct real property
in Washington, D.C. This latter sum of Thirty
Million ($30,000,000) Dollars has been held and
maintained as additional collateral by the Bank in a
separate collateral account. (See Judge Britton’s
Order of December 31, 1984. Court Paper #303.)
—The liquidating trustee, to be appointed under the
Plan, would have effective control over the opera-
tions of the Miami Center, ousting the debtors in
possession. In addition, the trustee would be re-
quired by the terms of the Plan to voluntarily dis-
miss the civil suit filed by the debtor/appellants in
tion has been defined as an equitable remedy in which “the assets
or liability of different entitites are consolidated and dealt with as
if the assets were held by, and the liabilities incurred by, a single
entity.”.’ Matter of Luth, 28 B.R. 564, 566 (D. Idaho 1983), citing
5 Collier on Bankruptcy, p. 1100-32, (15th Ed. 1980).
69a
this Court, Case No. 85-0228-Civ-Hoeveler, which
sought damages against appellee for breaches of its
loan agreements, violations of the federal RICO
statute, and other actions.
—The Bank would set aside Fifteen Million
($15,000,000) Dollars, backed by surety bonds, for
two creditors who had leased the equipment and fix-
tures to the MCLP. (The ruling is under separate
appeal by the Bank of New York in this Court be-
fore the Honorable C. Clyde Atkins who required
this sum in the nature of a Supersedeas Bond.)
The claims of Miami Center Joint Venture, Holy-
well Telecommunications, and Holywell Leasing Com-
pany, affiliated creditors who had leased the FF&E
to the Miami Center owners, would be equitably sub-
ordinated to those of other creditors with lower
priority on the grounds these creditors were “in-
siders”’.
—The Bank’s Plan further required the substantive
consolidation of the estates of the five debtors/appel-
lants. See f.n.', supra.
The substance of the two orders appealed from by the
debtors is discussed below. (In actuality the Order ap-
proving Plan of Reorganization includes inferentially the
effect of the Order of Substantive Consolidation.) At-
tached to this opinion for reference is a copy of each of
these Orders, as well as an excerpt from the transcript
of the hearing on substantive consolidation held before
Judge Britton on July 18, 1985, which can be deemed to
supplement the judge’s two-page Order on Substantive
Consolidation entered on July 23, 1985.
cians |
70a
THE SCOPE OF REVIEW AND NECESSITY OF
ADEQUATE FINDINGS OF FACT AND
CONCLUSIONS OF LAW
It is settled beyond dispute that a district court, in
deciding an appeal from a bankruptcy court’s ruling,
must accord substantial deference to the trial court’s
findings of fact, reversing these only when they are
“clearly erroneous”. Matter of Missionary Baptist Foun-
dation of America, 712 F.2d 206, 209 (5th Cir. 1983).
Conclusions of law, however, are subject to plenary re-
view by the district court. Matter of Multiponics, 622
F.2d 709, 713 (5th Cir. 1980). There is authority hold-
ing that, where the bankruptcy court’s findings are in-
adequate (or altogether absent) for purposes of review,
then the “clearly erroneous” standard can be discarded,
leaving the trial court’s entire determination of the case
freely reviewable. Watson v. Thompson, 456 F.Supp.
432, 436 (S.D. Ga. 1978).
The requirement that a trial court, acting without a
jury, make explicit findings of fact and conclusions of
law serves several purposes. Not only does it aid the
appellate court in clearly understanding the proceeding
below and the basis for the trial court’s ruling, but it
ensures that trial courts enage in a carefully reasoned
analysis of each case. Golf City, Inc. v. Wilson Sporting
Goods Co., Inc., 555 F.2d 426, 432 (5th Cir. 1977). The
requirement that trial courts enter findings of fact and
conclusions of law in appropriate cases has long been a
part of the Federal Rules of Civil Procedure. See Fed.
R. Civ. P. 52(a). Rule 52 is made applicable to certain
proceedings in bankruptcy by Fed.R.Bankr.P. 7052,
2 Rule 7052 has not been affected by the Bankruptcy Amendments
and Federal Judgeship Act of 1984, P.L. 98-353 (July 10, 1984), and
is widely cited by courts in their most recent decisions in the bank-
ruptcy area. Briden v. Foley, 776 F.2d 379 (1st Cir. 1985); In Re
Fossum, 764 F.2d 520 (8th Cir. 1985); Judson v. Levine, 50 B.R.
587 (S.D. Fla. 1985).
T1la
which requires the bankruptcy court to enter findings of
fact and conclusions of law in adversary proceedings.
Hearings on substantive consolidation and confirmation at
issue here were adversary proceedings as that term is
defined in Fed.R.Bankr.P. 7001. These hearings below
were “contested” matters as hereinafter defined. Also,
under general procedural and/or substantive provisions
applicable wherein the trial court is sitting in equity to
review rulings by a bankruptcy judge in matters founded
in equity, findings of fact and conclusions of law are
required. The requirements of Fed.R.Civ.P. 52(a) are
nonetheless applicable to the instant appeal.
Fed.R.Bankr.P. 9014 extends the application of Rule
7052 to “contested matters” and encompasses, (See Ad-
visory Notes to Rule 9014), the debtors’ objections to the
trial court’s order on substantive consolidation. The ap-
pellants’ objection to the final order of confirmation is
explictly made subject to Rule 9014 by Fed.R.Bankr.P.
3020(b). Thus, the Bankrupety Judge should have made
and entered clear and concise findings of fact and con-
clusions of law to support the orders from which this
appeal is taken. This was not done. Such findings and
conclusions as exist are inadequate for purposes of re-
view. Actually, findings and conclusions are almost non-
existent or absent, and to such extent that in this case
this Court does not consider that review by discarding
the “clearly erroneous” standard and proceeding “de
nove” should be undertaken.
THE GROUNDS OF THE DEBTORS’ APPEAL
In their appeal to this Court, the appellants state the
following substantive grounds for their appeal:
1.) that the equitable subordination of the claims
of creditors Miami Center Joint Venture, Holy-
well Leasing Co. and Holywell Telecommunica-
tions Co. was error, both substantively (since
their leases were determined to be “true leases”,
2.)
~)
°
=
T2a
thus meriting their treatment as outside credit-
ors) and procedurally (since no hearing was
held on the subject of equitable subordination).
that the substantive consolidation of the estates
of the five debtors was error, in that the Bank
of New York failed to carry its burden of prov-
ing the necessity of such consolidation and be-
cause two of the five debtors were solvent at the
time of the bankruptcy court’s order.
that the bankruptcy court’s failure to hold a
hearing on the validity of the valuation of the
Miami Center project which the Bank of New
York submitted was reversible error.
that the bankruptcy court’s action in upholding
that portion of Bank’s plan which directs the
liquidating trustee to dismiss the debtors’ pend-
ing civil suit against the appellee is unconstitu-
tional in that it allows a non-Article III court
to remove a case from the jurisdiction of this
court.
that the Bank’s plan, as confirmed by the bank-
ruptey court, unfairly discriminates against cer-
tain equally situated unsecured creditors by
favoring one (i.e. Holywell Corporation) in vio-
lation of 11 U.S.C. 1129(b).
that the approved plan wrongly subordinates the
claims of certain mechanics and materialmen.
that the bankruptcy court denied the debtors due
process by refusing their requests for hearings
on various amendments to the Bank’s proposed
plan of reorganization and for adequate dis-
closure by the Bank of such amendments.
As to each of these grounds, this Court has been left
with the impeded, if not impossible, task of trying to
apply a “clearly erroneous” standard of review to find-
73a
ings of fact that are either non-existent or too vague to
support adequate review. As the Fifth Circuit noted in
Echols v. Sullivan, 521 F.2d 206 (5th Cir. 1975), “find-
ings that are nothing more than broad general statements,
stripped of underlying analysis or justification shedding
some light on the reasoning employed, makes it impossible
for [an appellate court] to give meaningful review to the
judgment.” Jd. at 207. For example, in his order approv-
ing the substantive consolidation of the debtors’ estates,
the bankruptcy judge supported his ruling with the fol-
lowing statement: “The Court finds that the legal rela-
tionships among the debtors and the facts in this record
support the substantive consolidation of the estates .. .”
Order of July 23, 1985 (Court Paper # 840. (See Ap-
pendix A.)
In the bankruptcy court’s order confirming the Bank
of New York’s Plan of Reorganization, the lack of ex-
plicit findings is even more disturbing. The Bank’s plan
is the centerpiece of the entire Chapter 11 proceeding
below, affecting, as it does, significant rights and interests
of creditors and debtors alike. The plan consists of many
complex provisions, some of which form the basis of this
appeal. Yet, in his five page order approving this com-
plicated plan which would determine the disposition of
over Three Hundred Million ($300,000,000) Dollars in
assets, the bankruptcy court provided no more explana-
tion of its decision to approve the plan than a statement
that the plan “meets each of the requirements specified in
11 U.S.C, § 1129(a) and (b).” Final Order of Confirma-
tion, dated August 8, 1985 (Court Paper + 906). In
view of the important substantive rights which are in-
evitably affected by the Bank’s plan, much more detailed
treatment of both the legal reasoning and the underlying
facts supporting these order was required.
To support its order of substantive consolidation, for
instance, the trial court would have had to find the
existence of certain, widely accepted factors which justify
T4a
this extraordinary remedy which, if employed inappropri-
ately, can result in unfair treatment of both debtors and
creditors. In re Flora Mir, 432 F.2d 1060 (2nd Cir.
1970). Those factors are set out in In Re Donut Queen,
41 B.R. 706, 709 (S.D.N.Y. 1984) and include the follow-
ing:
1. The presence or absence of consolidated financial
statements.
»
2. The unity of interests and ownership between the
various corporate entities.
3. The existence of parent and intercorporate guar-
antees on loans.
1. The degree of difficulty in segregating and ascer-
taining individual assets and liabilities.
5. The commingling of assets without formal ob-
servance of corporate formalities.
6. The commingling of assets and business functions.
7. The profitability of consolidation at a single physi-
cal location.
In the same manner, a bankruptcy court, before it can
justly order the equitable subordination of otherwise prior
claims must first find that the following three tests are
satisfied :
1. The claimant must have engaged in some type of
inequitable conduct.
2. The misconduct must have resulted in injury to
the creditors of the bankrupt or conferred an unfair
advantage on the claimant.
3. Equitable subordination of the claim must not be
inconsistent with the provisions of the Bankruptcy
Act.
Matter of Mobile Steel Co., 563 F.2d 692, 700 (5th Cir.
1977).
75a
It is clear from the record on appeal that here the
bankruptcy judge never made the findings of fact neces-
sary to satisfy the requirements of the tests cited above
for equitable subordination and substantive consolida-
tion. The same lack of accessible findings prevents this
court from adequately reviewing the remainder of the
issues presented in this appeal. For this reason, this
Court has no alternative but to remand the entire matter
before it to the bankruptcy court. Faced with the same
situation, (lack of adequate findings of fact on appeal
from an order of equitable subordination), the Fifth
Circuit Court in Matter of Missionary Baptist Founda-
tion of America, Inc., 712 F.2d 296 (5th Cir. 1983)
remanded the matter to the bankruptcy court, explaining
that “we cannot conclude, in the absence of explicit find-
ings by the bankruptcy court on each element of the
Mobile test, that the [appellee] has discharged his burden
of proof thereunder.” Jd. at 212.
The Court fully acknowledged that a trial judge, in
ruling on a matter governed by the requirements of Fed.
R.Civ.P. 52, is not held to any formalistic style in preserv-
ing his findings, such as numbered paragraphs. All that
is required is that the factual and legal basis of every
significant ruling be stated in a clear and understandable
manner which permits the reviewing court to fairly decide
any appeal which may emanate from that ruling. The
record before this Court in this instant appeal fails to
meet this standard.
There also seems to be a paucity of facts emanating
from evidentiary hearings upon which the rulings should
be founded. It seems evident that whenever necessary,
upon remand, the bankruptcy court should review and
consider the advisability of holding additional evidentiary
hearings. At the very least, the bankruptcy court should
require each party to list, in writing, any further evi-
dentiary hearings they deem to be necessary. The bank-
76a
ruptey judge can then review these requests to determine
and then hold evidentiary hearings on any such requests
It is therefore
ORDERED AND ADJUDGED that this matter be, and
the same is, hereby REMANDED to the United States
Bankruptcy Court for the Southern District of Florida,
to schedule and to hold such further adversarial hearings
and to make and enter such findings of fact and con-
clusions of law as are necessary to provide this Court
with an adequate basis to decide the instant appeal on
the merits. This should all be accomplished WITHIN
THIRTY (30) DAYS herefrom.
THE DEBTORS’ APPEAL IS NOT SUBJECT TO
DISMISSAL FOR MOOTNESS
Earlier in this opinion, the Court examined the sub-
stantive elements of this appeal and the necessity of a
remand to the bankruptcy court for the complete findings
of fact and conclusions of law required by the applicable
rules of procedure. The Court’s discussion of those sub-
stantive issues makes it clear that the debtors’ appeal is
not a frivolous one and that, absent compelling cause, the
interests of justice would best be served by allowing the
appellants an opportunity to present their appeal from a
fully developed record below.
The debtors made several efforts to obtain a stay of
the bankruptey’s court’s orders pending the outcome of
this appeal. The bankruptcy court, in its order of Septem-
ber 27, 1985, agreed to grant such a stay on the condition
that the debtors post a supersedeas bond in the amount
of One Hundred Forty Million ($140,000,000) Dollars.
The debtors thereupon took an emergency appeal to this
Court from the bankruptcy court’s stay order. The ap-
peal was heard by Chief Judge James Lawrence King,
who affirmed the bankruptcy court’s grant of a stay, but
reduced the amount of the supersedeas bond required to
77a
Fifty Million ($50,000,000) Dollars to be posted on or
before October 10, 1985. Appellants then took an appeal
from the district court’s order to the Eleventh Circuit
Court of Appeals, which appeal was dismissed by that
court for lack of jurisdiction on October 9, 1985. Upon
the debtors’ failure to post the required bond, the bank-
ruptcy court’s stay terminated on October 10, 1985.
The Bank of New York, appellee in this cause, has
moved to dismiss the appeal of Holywell Corporation and
the other appellants on the ground that their appeal has
been rendered moot by the appellants’ failure, after
several attempts, to obtain a stay of the implementation
of the confirmation order pending this appeal. (A similar
motion has been filed by the liquidating trustee, who is
not a party to this appeal.) The appellee bases its motion
to dismiss upon the “mootness doctrine” first codified in
former Bankruptcy Rule 805 and followed by a signifi-
cant number of decisions by courts throughout the United
States. Rule 805 states, in pertinent part:
Unless an order approving a sale of property or
issuance of a certificate of indebtedness is stayed
pending appeal, the sale to a good faith purchaser
or the issuance of a certificate to a good faith holder
shall not be affected by the reversal or modification
of such order on appeal whether or not the purchaser
or holder knows of the pendency of the appeal.
Fed.R.Bankr.P. 8005, which replaced Rule 805 in 1983,
does not contain any reference to the mootness standard
of the previous rule. While that standard is preserved in
the current bankruptcy code at 11 U.S.C. § 363(m), this
statute applies the mootness doctrine only to the sale of
the debtor’s property by the trustee or the debtor himself.
Where, as here, the debtors’ assets have been sold by the
liquidating trustee, § 363(m) is not applicable.
In the absence of a controlling statutory standard, this
court must look to the applicable case law for guidance,
78a
as the Eleventh Circuit Court of Appeals did in Jn Re
Sewanee Land, Coal and Cattle Company, 735 F.2d 1294,
1296 (11th Cir. 1984). A survey of recent decisions re-
garding bankruptcy appeals filed without procurement of
a stay of the proceedings below shows that the “mootness
doctrine” stated by former Rule 805 is still widely ac-
cepted by courts throughout the United States. See, e.4.,
Algeran, Inc. v. Advance Ross Corp., 759 F.2d 1421 (9th
Cir. 1985); In re Sewanee Land, Coal and Cattle Co.,
supra; In Re Bel Aire Associates, 706 F.2d 301 (10th
Cir. 1983); Greylock Glen v. Community Savings Bank,
656 F.2d 1 (1st Cir. 1981). In each of these cases, how-
ever, the trial court order from which an appeal was
taken was one approving the sale of the debtor’s property.
Indeed, the text of former Rule 805, to which these deci-
sions refer, is specifically directed to “an order approv-
ing a sale of property.” Where a bankruptcy court’s
order concerns matters other than the sale of property,
the mootness doctrine may not apply. Thus, in Jn Re
Berg, 45 B.R. 899 (Bankr. App. 1984), the Bankruptcy
Appellate Panel of the Ninth Circuit ruled that the moot-
ness standard embodied in former Rule 805 did not apply
to an appeal from an order quieting title in the debtor’s
property, even where such property had been sold by
the trustees and the proceeds distributed.
In an earlier decision, the Court of Appeals for the
Ninth Circuit held that where a debtor appeals from
several orders of the bankruptcy court, some of which
are orders approving the sale of property, the debtor may
appeal those orders not involved with the sale even in the
absence of a stay. Matter of Combined Metals Reduction
Co., 557 F.2d 179 (9th Cir. 1977). While the Combined
Metals court considered appeals from ten separate orders
of the bankruptcy court, Holywell Corporation and the
other appellants before this Court appeal from only two
orders issued by Judge Britton in the proceedings below:
the July 23, 1985 Order Approving Substantive Con-
79a
solidation, and the Final Confirmation Order entered on
August 8, 1985.
The order regarding substantitve consolidation is clearly
not one approving a sale of property; rather, it requires
that the estates of the five debtors be combined to facili-
tate payments to their creditors. Should this court rule,
after remand of this matter, in favor of the appellants
on their appeal from the consolidation order, it can grant
meaningful relief to the appellants by reversing the order,
and that portion of the confirmed plan of reorganization
which incorporates this order. For these reasons, the
debtors’ appeal of the bankruptcy court’s order approving
substantive consolidation is not moot, and will be decided
by this court on its merits upon receipt of the findings of
fact and conclusions of law ordered from the bankruptcy
court.
The greater part of the present appeal concerns the
Final Order of Confirmation and specific aspects there-
of: the equitable subordination of certain creditors’
claims, the requirement that the liquidating trustee dis-
miss the appellants civil suit, the validity of the estate
valuation upon which the plan is based, and alleged pro-
cedural deficiencies in the conduct of the confirmation
proceedings. Of course, the heart of the confirmed plan
is the sale, by the liquidating trustee, of the Miami Center
property for a purchase price of Two Hundred Fifty-five
Million, Six Hundred Thousand ($255,600,000) Dollars.
The appellee contends that Judge Britton’s order con-
firming the Bank’s Plan of Reorganization, and hence this
sale, is shielded from appellate review by the “mootness
doctrine” of Rule 805 and the applicable case law.
The touchstone of those decisions, and of all determina-
tions that a given suit or appeal is moot, is not the pres-
ence or absence of a single factual element (e.g., a sale
of property). Rather, the fundamental criterion for judg-
ing whether a case on appeal has become moot has con-
sistently been whether the appellate court has been ren-
a nee roa er ne nN ee ee
,
80a
dered incapable of granting effective relief to a petitioner
due to a change in the circumstances of the case. Mulls v.
Green, 159 U.S. 651, 16 S. Ct. 182 (1895).
In the appeal before this court, the parties have in-
formed the court that certain transactions have already
taken place in accordance with the confirmation order
issued below. The Miami Center property has been trans-
ferred by the liquidating trustee to a designee of the
appellee, and certain claimants in classes three through
six of the reorganization plan have been paid. The ap-
pellants, however, have frequently stated their approval
of the payments made to such third-party creditors, and
their intention that such claimants be satisfied regardless
of the dispute between themselves and the appellee. This
appeal is primarily directed at recovering title to the
Miami Center property held by the Bank’s designee and
obtaining review of the bankruptcy court’s substantive
rulings noted above.
A crucial determination to be made is whether, accept-
ing various actions have been taken by the liquidating
trustee in reliance on the bankruptcy court’s confirma-
tion order, can effective relief be granted to the appel-
lants should this Court decide, after the appeal is re-
instated post-remand, that their appeal has merit? In
determining that it is capable of granting such relief,
this court has considered each of the points raised by the
present appeal.
Reversal of the bankruptcy court’s ruling on the equita-
ble subordination of Miami Center Joint Venture, Holy-
well Telecommunications, and Holywell Leasing, Inc.,
would likewise return these entities to their pre-confirma-
tion status; here, this would result in the three creditors
being given the higher priority for their claims accorded
to “arm’s length” creditors. Denia! of the liquidating
trustee’s authority to dismiss the appellants’ district court
suit would simply allow the action to remain viable, and
review of the alleged procedural flaws in the valuation and
8la
other procedings below would, at most, necessitate further
hearings on those matters. Thus, the posture of this
appeal, at least as it concerns the points of appeal dis-
cussed here, is by no means such that events have ren-
dered meaningful review impossible.
Finally, and most significantly, should this court decide
the substantive appeal before it in the appellants’ favor,
the sale of the Miami Center, and its equipment and fix-
tures, could be undone. The property was sold not to a
disinterested, third-party purchaser, but to the appellee
itself, through its designee, for a purchase price of Two
Hundred Fifty-five Million, Six Hundred Thousand
($255,600,000) Dollars. This purchase price was satisfied
by the Bank by combining the debtors’ outstanding mort-
gage obligations to the Bank with Thirty Million ($30,
000,000) Dollars in cash collateral which was derived
through a sale, by the debtors, of certain Washington,
D.C. property. Much of this latter cash fund has already
been applied to pay the claims of certain secured creditors,
which use the appellants have approved. Although the
Miami Center is now held by the Bank’s designee, it is
still in the effective possession of the Bank which, as
appellee in this matter, is under the jurisdiction of the
court. Should this court decide, after reviewing the find-
ings made by the court below on remand, that the entire
plan of reorganization was erroneously approved, it could
fairly order the transfer of the Miami Center property
back to the debtors, on the condition that those funds
taken from the Thirty Million ($30,000,000) Dollars col-
lateral for payment to creditors remain undisturbed or be
applied in behalf of debtors. The Bank of New York
would be returned to its position as chief secured creditor,
and could either propose a different plan of reoraganiza-
tion before the bankruptcy court or pursue remedies avail-
able to it as mortgagee. The appellants would be returned
to the status of debtors in possession of the property, and
could likewise attempt to obtain creditor approval for an
alternate plan while seeking a buyer for the Miami
VX
82a
Center which would be willing to pay what the debtors
contend is the property’s true value.
This Court may ultimately reject the appeal presented
by the debtors and uphold the bankruptcy court’s orders
on substantive consolidation and confirmation of the Bank
of New York’s plan. Today’s opinion merely constitutes
the court’s determination that the appeal is a viable one,
and that the court, should it determine that the appellants’
requested relief, or other suitable remedy, is appropriate,
would be able to grant it. Before any determination of
the merits of this appeal can be made, however, the court
must await the result of its remand of this matter to the
trial court for his provision of findings of fact and con-
clusions of law which will enable this court to make a
fair and informed judgment of the merits of the appeal.
For the foregoing reasons, it is
ORDERED and ADJUDGED that the appellee’s motion
to dismiss be, and the same is, hereby DENIED.*
DONE and ORDERED in Chambers at Miami, South-
ern District of Florida, this 30 day of DECEMBER 1985.
/s/ Sidney M. Aronovitz
SIDNEY M. ARONOVITZ
United States District Judge
Copy furnished to:
S. Harvey Ziegler, Esq.
Thomas F. Noone, Esq., (New York, N.Y.)
Vance FE. Salter, Esq.
Fred H. Kent, Esq.
Raymond W. Bergan, Esq (Wash., D.C.)
Irving M. Wolff, Esq.
3 There are several other appeals now pending in the United
States District Court from the bankruptcy iudze’s rulings. These
are before other judges, including two before Senior United States
District Judge C. Clyde Atkins, and another before United States
District Judge William Hoeveler.
83a
APPENDIX 8
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF FLORIDA
No. 85-3230-Civ-Atkins
IN RE: HOLYWELL CORPORATION, et al.,
Debtors.
OLYMPIA & YORK FLORIDA EQUITY CORP. and
MIAMI CENTER JOINT VENTURE,
Appellants,
vs.
THE BANK OF NEW YORK,
Appellee.
MEMORANDUM OPINION
Appellants, Olympia & York Florida Equity Corp.
(“O&Y’) and O&Y as general partner and on behalf of
Miami Center Joint Venture (“MCJV”), seek reversal
of the Confirmation Order approving the Bank of New
York’s modified plan which subordinates appellants’
claims to the payment of all other unaffiliated creditors.
After reviewing the confirmation order and the record,
I find that the bankruptcy court failed to provide the
findings of fact necessary to support its conclusions.
Without this information, I cannot adequately review and
decide the issues on appeal. Thus, I must remand the
case for further determination not inconsistent with this
order.
84a
Statement of the Case
The debtors, who are not parties to this appeal, ini-
tiated the underlying bankruptcy proceedings under
Chapter 11 on August 22, 1984. The appellants, Olympia
& York Florida Equity Corp. (“O&Y’) and O&Y as
general partner and on behalf of Miami Center Joint
Venture (“MCJV”), had transactions with two of the
debtors—Mr. Theodore B. Gould (“Gould”) and the
Miami Center Limited Partnership (““MCLP”’).
O&Y/MCJV’s claims are against MCLP for which
Gould and Miami Center Corporation (‘MCC’) are also
obligated as the general partners of MCLP. Appellants
claim is founded upon the FF&E lease agreements
(Leases “A” and “B’) in which MCJV purchased the
furniture, fixtures, and equipment necessary for the oper-
ation of MCLP’s hotel with funds advanced to MCJV by
O&Y. In turn, MCJV leased the FF&E MCLP under the
terms and conditions of the lease agreements."
Appellant O&Y’s claims are against Gould. These
claims relate to Gould’s obligations to O&Y as general
partner in the MCJV joint venture partnership. Cur-
rently, MCJV owes O&Y in excess of 60 million dollars.
Since Gould is a general partner, he is a guarantor of
MCJV’s debt to O&Y.
The Bank of New York (“Bank”), appellee, was the
largest creditor of the debtors holdings claims in excess
of 240 million dollars. The Bank formulated a single
substantively consolidated plan which, as amended, con-
sists of the following principle features.
(a) The Bank acquired the Miami Center project,
including the FF&E, for its MAI-appraised fair market
value of $255,600,000. That purchase price included (1)
1 These lease agreements were found to be “true leases” by the
bankruptcy court in its June 24, 1985 Memorandum Decision which
was recently affirmed by this Court.
85a
a credit for outstanding principal and interest with inter-
est computed at the lower, “good standing” rate and (2)
cash for the balance after giving effect to customary pro-
rations and closing expenses.
(b) The net cash proceeds of the sale, together with
the Bank’s cash collateral of approximately $30,000,000
and the debtor’s other remaining assets, were turned over
to a “Liquidating Trustee,” for the payment of all al-
lowed claims.
(c) The Bank agreed to provide $14,417,679 for pay-
ment by the Liquidating Trustee to O&Y and/or MCJV,
in the event that they prevail in amount and classifica-
tion of their FF&E claims. (This agreement is now
backed by a 15 million dollar Corporate surety bond.)
This provision was required because the appellants ob-
jected to the subordination of their claims to class 7
which is below the claims of general and unsecured
creditors.
Pursuant to the bankruptcy court’s orders, the con-
firmation hearing for the Bank’s Consolidated Plan and
the debtors’ Plans* was scheduled for April 29, 1985.
However, because of the number of objections filed by
various creditors, the court deferred holding a confirma-
tion hearing on the plans until the proponents assessed
and certified the creditors votes for the various plans,
and the clerk’s office certified the vote. No confirmation
hearing was held on objections to the Bank’s plan. Simi-
larly, no hearing was held on the issues of subordination
or classification of appellant’s claims and interest, and
no opinion was rendered regarding the subordinate clas-
sification of O&Y/MCJV’s lease claims in spite of the
adjudication of their status as owners/lessors of the
FF&E. Finally, no hearing was held regarding debtors’
and OBY [sic]/MCJV’s objection that the Bank’s plan
was not fair and equitable.
2 The debtor’s plans were rejected by the creditors and by the
bankruptcy court.
86a
The Bank and the Unsecured Creditors Committee of
the debtors negotiated a series of four stipulations. These
stipulations were designed to satisfy the creditors and
had the effect of amending the plan. The bankruptcy
court approved the stipulations in its Confirmation Order
without holding a hearing or ordering separate disclosure
statements.
The Bank filed a Second Amendment to its plan which
attempted to alleviate problems with the subordination
of the MCJV lease claim by agreeing to pay the claim
if subordination was found to be improper. O&Y/MCJV
objected to the terms of the amendment. Nevertheless,
the court approved it without holding a hearing or re-
quiring a new disclosure statement.
Judge Britton entered the Confirmation Order on
August 8, 1985. In it he stated:
I find that the Amended Plan (C. P. No. 478) filed
March 26 by the Bank of New York as modified by
the Second Amendment (C. P. No. 854) filed July
30 meets each of the requirements specified in 11
U.S.C. $1129(a) and (b). The bank has invoked
(C. P. No. 546) the cram down provisions of § 1129
(b) (1). They are justified in this instance because
the plan as amended does not discriminate unfairly
and is fair and equitable with respect to each class
of claims that is impaired under, and has not ac-
cepted, the bank’s plan. That plan, as amended, is
confirmed.
However, the court never articulated the basis for sub-
ordinating appellants’ claims to the payment of all other
unaffiliated creditors. The court did state, “[t]he cir-
cumstances do not require and time simply does not per-
mit a review and discussion of all these issues in this
order.”
87a
The Scope of Review and Necessity of Adequate
Findings of Fact and Conclusions of Law
It is well settled that a district court must accord
substantial deference to the bankruptcy court’s findings
of fact, reversing these only when they are “clearly er-
roneous.” In Re Missionary Baptist Foundation of Amer-
ica, 712 F.2d 206, 209 (5th Cir. 1983). Conclusions of
law, however, are subject to plenary review by the dis-
trict court. In Re Multiponics, 622 F.2d 709, 712 (5th
Cir. 1980). Yet, case law suggests that, where the bank-
ruptey court’s findings are inadequate (or altogether
absent) for purposes of review, then the “clearly erro-
neous” standard can be discarded, leaving the trial court’s
entire determination of the case freely reviewable. See
Watson v. Thompson, 456 F. Supp. 432, 436 (S.D. Ga.
1978). Furthermore, the district court may make its own
findings of fact, provided that there is no dispute as to
the underlying facts. See, e.g., In Re Neis, 723 F.2d 584,
589 (7th Cir. 1983).
In a related matter, Judge Aronovitz discussed the im-
portance of the trial court’s findings of fact and conclu-
sions of law.
The requirement that a trial court, acting without
a jury, make explicit findings of fact and conclusions
of law serves several purposes. Not only does it aid
the appeliate court in clearly understanding the pro-
ceedings below and the basis for the trial court’s
ruling, but it ensures that trial courts engage in a
carefully reasoned analysis of each case. The re-
quirement that trial courts enter findings of fact and
conclusions of law in appropriate cases has long been
a part of the Federal Rules of Civil Procedure. Rule
52 is made applicable to certain proceedings in bank-
ruptey by Fed. R. Bankr. P. 7052, which requires
the bankruptcy court to enter findings of fact and
conclusions of law in adversary proceedings. Hear-
ings on substantive consolidation and confirmation
88a
at issue here were adversary proceedings as that
term is defined in Fed. R. Bankr. P. 7001. These
hearings below were “contested” matters as herein-
after defined. Also, under general procedural and/or
substantive provisions applicable wherein the trial
court is sitting in equity to review rulings by a
bankruptcy judge in matters founded in equity, find-
ings of fact and conclusions of law are required.
The requirements of Fed. R. Civ. P. 52(a) are none-
theless applicable to the instant appeal.
Fed. R. Bankr. P. 9014 extends the application
of Rule 7052 to “contested matters.” The appellants’
objection to the final order of confirmation is ex-
plicitly made subject to Rule 9014 by Fed. R. Bankr.
P. 3020(b). Thus, the Bankruptcy Judge should
have made and entered clear and concise findings of
fact and conclusions of law to support the orders
from which this appeal is taken. This was not done.
Such findings and conclusions as exist are inadequate
for purposes of review.
Holywell Corp. v. Bank of New York, No. 85-3225 (S.D.
Fla. Dec. 30, 1985) (‘order of remand) (footnotes
omitted) (citations omitted).
Judge Aronovitz proceeded to examine the issues raised
on appeal. Many of the issues he addressed are similar
to those presented here. For example, both appeals in-
volve the following:
(a) the doctrine of equitable subordination;
(b) the need for a valuation hearing;
(ec) the unfair discrimination of similarly situated
creditors under the plan or reorganization; and
(d) whether the bankruptcy court denied the parties
due process by refusing their requests for hear-
ings and disclosure of amendments to the plan.
89a
He stated, “this Court has been left with the impeded,
if not impossible, task of trying to apply a ‘clearly er-
roneous’ standard of review to findings of fact that are
either non-existent or too vague to support adequate re-
view.” Jd. at 8. Concerning the confirmation order,
Judge Aronovitz noted:
In the bankruptcy court s order confirming the Bank
of New York’s Plan of Reorganization, the lack of
explicit findings is even more disturbing. The Bank’s
plan is the centerpiece of the entire Chapter 11 pro-
ceeding below, affecting, as it does, significant rights
and interests of creditors and debtors alike... .
In view of the important substantive rights which
are inevitably affected by the Bank’s plan, much
more detailed treatment of both the legal reasoning
and the underlying facts supporting these orders was
required.
. * * o
It is clear from the record on appeal that here the
bankruptcy judge never made the findings of fact
necessary to satisfy the requirements of the tests
cited above for equitable subordination and substan-
tive consolidation. The same lack of accessible find-
ings prevents this court from adequately reviewing
the remainder of the issues presented in this appeal.
For this reason, this Court has no alternative but to
remand the entire matter before it to the bankruptcy
court.
Id. at 9-11.
In the present appeal, I find myself in agreement with
Judge Aronovitz. In fact, with respect to the lease
claims, the appellant’s position is particularly compelling.
The bankruptcy court found that they were “true lease”
holders. Moreover, the record indicates that the Bank
filed the relevant UCC-1 forms reflecting and recording
certain priority rights. Further, the Bank’s counsel con-
90a
ceded the extreme importance of the subordinate classi-
fication of the lease claims.
Treatment of the FF&E/lease claims and the classi-
fication of the in Class 7 and the decision that those
claims are insider claims and should go behind the
payments to the general unsecured creditors, the
non-insider creditors, I would say that is the lynch
pin of the plan.
[Court paper #800 at p. 24].
In short, in view of the importance of the issues on
appeal and the conflicting evidence contained within the
record, a more detailed discussion of the law and facts
is required for an adequate review.
Conclusion
Judge Britton faced an extremely difficult task in
handling this bankruptcy proceeding. The bankruptcy
court dedicated a year to this matter. He considered over
1,000 pleadings and reams of evidence for the adversary
proceedings. He had to consider the interests of over
400 parties. Most significantly the court was aware of
the importance of resolving the matter quickly. Judge
Britton knew that substantial interest was accruing on
the $200 million construction loan which jeopardized the
collectability of the claims of all creditors. While I be-
lieve that Judge Britton probably has a sound ba
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