Opposition Brief — Holywell Corp. v. Smith

Supreme Court brief1988

Ask Donna

What actually matters in this document.

Text

NO. 88-80 .

in the

Supreme Court

of the

United States

OCTOBER TERM, 1988

HOLYWELL CORPORATION and

THEODORE B. GOULD,

Petitioners

Vs.

FRED STANTON SMITH, Trustee of the

Miami Center Liquidating Trust, and

THE BANK OF NEW YORK,

Respondents

BRIEF IN OPPOSITION TO PETITION

FOR WRIT OF CERTIORARI TO

THE UNITED STATES COURT OF

APPEALS FOR THE ELEVENTH CIRCUIT

HERBERT STETTIN, ESQUIRE

AmeriFirst Building Suite 2215

One S.E. Third Avenue

Miami, Florida, 33131

Telephone: (305) 374-3353

Attorney for Respondent

Fred Stanton Smith, as Trustee

of the Miami Center Liquidating Trust

Mie ee

QUESTIONS FOR REVIEW

1. Whether the Petition for Writ of Certiorari

is moot in light of the opinion of the United States

Court of Appeals for the Eleventh Circuit in Miami

Center Limited Partnership v. Bank of New York,

838 F.2d 1547 (11th Cir. 1988), which held the plan

of reorganization is substantially consummated and

no effective relief is available to the parties?

2. Whether the petitioners have standing to

maintain this appeal on behalf of Twin

Development Corporation?

3. Whether the Court of Appeals for the

Eleventh Circuit and the United States District

Court correctly applied the doctrine of equitable

estoppel?

TABLE OF CONTENTS

QUESTIONS PRESENTED ........... Sp aihwe aie

ppt Bi ges Dr ra

WAR UP RFR RRGE RAM 56 ccc scccceencas

STATUTUSe S MAP TTS oc ice en sssabenya

ARGUMENT

THE DISTRICT COURT’S APPLICATION

OF THE DOCTRINE OF EQUITABLE ES-

TOPPEL WAS ENTIRELY PROPER ...

A. THE DISTRICT COURT HAD

AUTHORITY TO BASE ITS DECI-

SION ON THE DOCTRINE OF

EQUITABLE ESTOPPEL.........

1. A district court reviewing a

bankruptcy court decision of a

contested matter has discretion

to consider an issue raised for

the first time on appeal .......

PAGE

TABLE OF CONTENTS—(Continued)

B. THE PETITIONERS ARE EQUITA-

BLY ESTOPPED FROM CLAIMING

THE FUNDS ALLEGEDLY DUE

TWIN ARE NOT ASSETS OF THE

oe ee RO See SG eras

1. The debtors’ statements, -

conduct and acquiescence, as

well as Twin’s conduct and

acquiescence regarding the

proceeds from the sale of the

Washington properties caused

the bankruptcy court and the

creditors to believe the funds

were “owned” by Holywell as

dividends and were available

Op pay Greareers ..............

2. Gould, Holywell and Twin

acted willfuly or negligently

in misleading the bankruptcy

court and creditors with

respect to the Washington

a a Fe wc a's cc sess

3. The liquidating trustee and

creditors relied upon the

petitioners’ representations and

conduct to their detriment.....

ili

PAGE

IIT.

IV.

CONCLUSION

TABLE OF CONTENTS (Continued)

THE ARGUMENT THAT TWIN WAS

SUBSTANTIVELY CONSOLIDATED

WITH THE DEBTORS AND THAT ITS

ASSETS WERE SEIZED WITHOUT

DUE PROCESS IS FRIVOLOUS AND

PEPE eV Tee eee

THE PETITION FOR WRIT OF

CERTIORARI IS MOOT............

A. THE EFFECT OF GRANTING THE

PETITION FOR WRIT OF CER-

TIORARI WOULD BE A MODIFICA-

TION OF THE SUBSTANTIALLY

CONSUMMATED PLAN, WHICH IS

Oe ee

THE PETITIONERS LACK STANDING

TO RAISE THE CLAIMS ASSERTED

IN THE PETITION FOR WRIT OF

GHEE 6S Swed be RWas doce ccee

APPENDIX

PAGE

TABLE OF AUTHORITIES

Case Page

Baker v. Carr,

ee ee, kin py cca Ves bbs oe we 22

Central States v. Central Transport, Inc.,

TUB LS Eo LS errr 19

Claybrook Driling Co. v. Divanco, Inc.,

336 F.2d 687 (10th Cir. 1964) ............06. 21

Highland Ins. Co. v. Trinidad & Tobago,

739 F.2d 536 (11th Cir. 1984) ............... 10

In re AOV Industries, Inc.,

792 F.2d 1140 (D.C. Cir. 1986)............... 19, 20

In re AT of Maine, Inc.,

56 B.R. 55 (Bkrtcy. D. Me. 1985)............. 21

In re Baldwin,

70 BR. 612 Oth Cir. B.A.P. 1967) ........... 9

In re Blumer,

66 B.R. 109 (9th Cir. B.A.P. 1986), affirmed,

826 F.2d 1069 (9th Cir. 1987) ............... 10, 19

In re Deak & Co., Inc.,

63 B.R. 422 (Bkrtcy. S.D. N.Y. 1986) ......... 23

In re Garfinkle,

672 F.2d 1340 (11th Cir. 1982) .............. 10

In re Golden Plan of California, Inc.,

37 BR. 167 Gertey. Ca. 1964)... 2.212022 0ee. 23

TABLE OF AUTHORITIES—(Continued)

Case Page

In re Golden Plan of California, Inc.,

820 F.2a TOS Gt Cle. 1GGG) on ccccccccccces 19, 23

In re Heatron,

34 B.R. 526 (Bkrtcy. W.D. Mo. 1983) ......... 21

In re Information Dialogues, Inc.,

662 F.2d 476 (th Cir. 1961) ...... ccc eccces 21

In re Johns-Manville Corp.,

68 B.R. 618 (Bkrtcy. S.D. N.Y. 1986) ......... 22

In re Kenitra, Inc.,

64 B.R. 841 (9th Cir. B.A.P. 1986) ........... 10

In re Koch,

14 B.R. 64 (Bkrtcy. Kan. 1981) .............. 23

In re Matos,

790 F.2d 664 (lith Cir. 1966) ........cccceee 19

In re Northampton Corp.,

OD Tim ee Ges BOs BODE occ cccccccccccccs 21

In re Peoples Bankshares, Ltd.,

68 B.R. 536 (Bkrtcy. N.D. Iowa 1986)......... 23

In re Revere Copper and Brass, Inc.,

gs S'mores ee 19

In re Roberts Farms, Inc.,

652 F.2d 768 (th Cir. 1961) ......cccccccces 21

TABLE OF AUTHORITIES—(Continued)

Case

In re Saint Louis Freight Lines, Inc.,

45 B.R. 546 (Bkrtcy. E.D. Mich., N.D. 1984) ...

In re Seminole Park & Fairgrounds, Inc.,

505 F.2d 1011 (5th Cir. 1974) ...............

In re Sun Country Dev., Inc.,

764 F.2d 406 (Sth Cir. 1985) ................

In re Sun Valley Ranches, Inc.,

823 F.2d 1373 (9th Cir. 19867) ...............

In re Wallace,

66 B.R. 834 (Bkrtcy. E.D. Mo. 1986)..........

In re Windmill Farms, Inc.,

70 B.R. 618 (9th Cir. B.A.P. 1987) ...........

In re Zerodec Megacorp, Inc.,

60 B.R. 884, on remand 59 B.R. 272

Irvine v. Cargill Investor Services, Inc.,

799 F.2d 1461 (11th Cir. 1986) ..............

Johnson v. Fairco Corp.,

Ge es Se ED dc ccccccciveccocs

Lord v. Local Union No. 2088,

481 F.Supp. 419, affd in part, rev'd in part

646 F.2d 1057, rehearing denied,

654 F.2d 723 cert. denied, 458 US 1160.......

TABLE OF AUTHORITIES—(Continued)

Case Page

Matter of Andy Frain Services, Inc.,

798 F.2d 1113 (7th Cir. 1983) ............... 19

Matter of Combined Metals Reduction Co.,

Be ae NS OED cc cccsccccccccns 19

Matter of King Resources Co.,

651 F.2d 1326 (10th Cir. 1980) .............. 19

Matter of Louisiana Indus. Coatings, Inc.,

53 B.R. 464 (D.C. La. 1985) ....... kanes a a a 9

Miami Center Limited Partnership v.

The Bank of New York,

59 B.R. 340 (S.D. Fl. 1986), dismissed as moot,

838 F.2d 1547 (11th Cir. 1988) .............. 3, 15,

18, 20, 25

Minerals and Chemicals Philip Corp. v.

Milwhite Co.,

414 F.2d 428 (Sth Cir. 1969) ................ 10

Richards v. Dodge,

150 So.2d 477 (Fla. App. 1963) .............. 10

Rite-Research Improves Environment, Inc. v. Costle,

78 F.R.D. 321, rev'd, 650 F.2d 1312 .......... 21

R.T. Vanderbilt Co. v. OSHA Rev. Comm.,

708 F.2d 570 (lith Cir. 1983) ............... 22

State ex rel. Watson v. Gray,

I, ED oc cccncccccscacnececs 10

viii

TABLE OF AUTHORITIES—(Continued)

Case Page

Travelers Indem. Co. v. Swanson,

662 F.2d 1098 (llth Cir. 1981) .............. 11

Valley Forge Christian College v. Americans United

for Separation of Church and State, Inc.,

102 S. Ct. 752, 768, _._. US. __,

70 L.Ed. 2d 700 (1962) ......... cece renee 22

STATUTES:*

BE Wee I UD ab oS ic cccccccscccccscsves 17

Se ey IEE wieeccccbsccesessnsesesens 12

11 U.S.C. Section 541(a)..............000008- ‘4, 17, 22

BE WR, GOTO BRI vc ccc ct cccvcccsdsces 21

Se RE IE Fo dde cb oc et ccccverescnss 12

BD CEG, BTN FO occ ce ccccccccccsceces nea 8

BE Ge MN wesc crcccsscccccccesies 6, 8

Pi ED danas ncdceccccecccessebone 8

*The statutes have been printed in the appendix to this

brief.

STATEMENT OF THE CASE

Petitioners Holywell Corporation (“Holywell”) and

Theodore B. Gould (“Gould”) are two of five debtors! who filed

voluntary petitions under Chapter 11 in August, 1984. The

filing of these bankruptcy petitions followed the institution

of foreclosure actions by Respondent Bank of New York

(“‘bank’’) after the debtors defaulted on their obligations to

the bank. The bank had financed construction of the “Miami

Center Project,” a hotel and office complex in Miami with

a parking garage and shopping arcade (a5).?

Petitioner Gould is the sole shareholder and president

of Petitioner Holywell, which in turn is the sole shareholder

of Twin Development Corporation (“Twin”). In addition,

Gould is the president, director and sole agent of Twin (a6;

A 1).

On June 23, 1983, Holywell pledged, inter alia, Twin’s

stock to the bank to secure Holywell’s guaranty of the bank’s

construction loans to Holywell. Upon the debtors’ default of

their obligations to the bank and the resulting bankruptcy.

Twin’s stock became the “unfettered” property of the bank

under the terms of the agreement between the bank and

Holywell (a6).

Prior to the bankruptcy of its sole stockholder and its

president, Twin had entered into a contract to sell real and

‘Debtors Miami Center Corporation, a wholly owned subsidiary of

Holywell, Chopin Associates, a partnership in which Gould and Miami

Center Corporation are the sole general partners, and Miami Center

Limited Partnership, a limited partnership in which Gould and Miami

Center Corporation are the general partners, did not appeal the bankruptcy

court’s order which is the subject of this appeal.

*Petitioners’ appendix will be referred to as (a___). Respondent

liquidating trustee’s appendix will be referred to as (A___).

personal property owned by Twin and four limited

partnerships, all controlled by petitioners Gould and Holywell

(a6; a25). On October 22, 1984, the bankruptcy court entered

an order upon motion of Holywell and Gould authorizing and

approving the sale of this property, known as the Washington

properties (a25). The bankruptcy court ordered Holywell and

Gould to consummate the sale and to segregate the net

proceeds due Holywell and Gould until further court order

(a26). Gould testified during the course of the bankruptcy

proceedings that Twin’s share of the sale proceeds “has to

go to Holywell as dividends” (a 10). In Gould and Holywell’s

motion filed in the bankruptcy court to authorize and approve

the sale of Twin’s Washington properties, the petitioners

represented that

Consummation of the transaction proposed herein

is in the best interest of creditors in these

proceedings in that immediate cash infusion from

such sale which inures to Holywell and Gould will

provide the Debtors with capital much needed as

an essential part of the reorganization sought in

these proceedings (emphasis added) (A 4).

Following the sale of the Washington properties, the

bankruptcy court ordered Gould and Holywell to cause the

net proceeds received by Twin, Holywell and Gould from the

sale to be deposited into a segregated account, subject to

further court order (a17-19). Neither the petitioners nor Twin

appealed. In fact, Holywell and Gould deposited all funds

received as sale proceeds.

Thereafter, the bankruptcy court entered a cash collateral

order whereby all of the funds deposited by the petitioners

and Twin were deemed cash collateral of the bank (A 6).

Again, neither the petitioners nor Twin, which the petitioners

entirely controlled, appealed that order.

Subsequently, the bank and the five debtors submitted

proposed plans of reorganization. The bank’s plan was funded

in part by this cash collateral—the entirety of the proceeds

from the sale of the Washington properties (a6-7). That aspect

of the plan was revealed in the bank’s disclosure statement

(A 14).

The Holywell disclosure statement made it clear to the

bankruptcy court and all creditors that the cash proceeds

derived from the sale of the Washington properties accruing

to Twin would be available to pay creditors (A 10-13; a10).

The petitioners also filed certificates with the bankruptcy

court regarding their plans of reorganization in which the

petitioners stated the funds due Twin from the sale would

be used to pay creditors (a10).

The creditors overwhelmingly approved the bank’s plan,

and the bankruptcy court confirmed the bank’s Amended

Consolidated Plan of Reorganization, which expressly

included the entire proceeds from the sale of the Washington

properties. The United States District Court for the Southern

District of Florida affirmed the order of confirmation, as

amended after remand, and the United States Court of

Appeals for the Eleventh Circuit dismissed the five debtors’

appeal as moot because no stay was in effect,? the plan was

substantially consummated and the court could not grant

meaningful relief. Miami Center Limited Partnership v. The

Bank of New York, 838 F.2d 1547 (11th Cir. 1988). In June,

1988, the five debtors filed petitions for writs of certiorari

and mandamus in this Court, case numbers 87-1988 and

87-1989, directed to the Eleventh Circuit and the bankruptcy

*The bankruptcy court ordered a stay of the implementation of the plan

upon the posting of a $140 million bond. There were over 400 creditors

and claims of approximately $350 million. Although the district court

reduced the bond to $50 million, effective for ninety days, the debtors did

not post a bond and the plan became effective on October 10, 1985.

court. Respondent Fred Stanton Smith, as trustee of the

Miami Center Liquidating Trust (“liquidating trustee’’), and

the bank have filed briefs in opposition to those petitions,

and the matters pend before the Court. Twin never objected

to the bank’s plan and never appealed the order of

confirmation.

The plan provided for the substantive consolidation of the

debtors and the creation of the Miami Center Liquidating

Trust, which was funded by all of the debtors’ 11 U.S.C.

Section 541(a) defined assets (A 17), and by the Washington

proceeds, including the sums due Twin from that sale.

Several months after the plan was confirmed and

implemented, and with no stay in effect, Gould filed an

emergency motion with the bankruptcy court for clarification

regarding the ownership and control of two United States

Treasury Bills held in the name of Twin, account no.

0002842207 at Florida National Bank of Miami, and having

a par value of $13,949,000. The bankruptcy court entered

an order in which it determined that the liquidating trustee

was the sole party entitled both to direct Florida National

Bank of Miami to cash the treasury bills at issue, and to

distribute the funds in accordance with the terms of the

confirmed plan (al5-16). Gould and Holywell appealed that

order. Twin did not. The district court affirmed (see opinion

at a5), as did the Eleventh Circuit (see opinion at a3), which

also denied Gould and Holywell’s petitions for rehearing and

rehearing en banc (see opinion at al). The Eleventh Circuit,

in affirming the district court, held:

The district court found that appellants were

equitably estopped with respect to their claim to

the proceeds of Twin Development Corporation’s

assets. We find no error in the district court’s

analysis, and the record abundantly supports the

district court’s findings. Appellants’ other claims

on appeal are frivolous (a3).

Twin never appealed the bankruptcy court’s order regarding

the proceeds from the sale of the Washington properties held

at the Florida National Bank of Miami, nor did it seek to

intervene in the appeal which was filed. Lastly, Twin is not

a party to the instant petition for writ of certiorari.

SUMMARY OF THE ARGUMENT

The district court correctly applied the doctrine of

equitable estoppel, for the debtors repeatedly represented to

the bankruptcy court and to their creditors that Twin’s

portion of the proceeds from the sale of the Washington

properties would be available to pay creditors of the debtors.

The failure of the bank and the liquidating trustee to plead

the doctrine of equitable estoppel in response to Gould’s

emergency motion is inconsequential, for under the

applicable Bankruptcy Rules no response, including

affirmative defenses, was required absent a cuurt order, and

there was no court order to do so. Moreover, the bank

thoroughly briefed the elements of the doctrine of equitable

estoppel in its answer brief filed with the district court. That

court had discretion to consider all issues presented in the

record.

The petitioners’ arguments regarding substantive

consolidation are entirely irrelevant in light of the Miami

Center Liquidating Trust’s right to Twin’s share of the funds,

as conferred in the confirmed plan.

The petitioners lack standing to maintain this appeal.

They seek to enforce the alleged rights of a third party rather

than their own rights, in derogation of well settled law. More

importantly, the Miami Center Liquidating Trust, not

Holywell, now controls Twin’s stock in accordance with the

plan of reorganization.

Lastly, this petition for writ of certiorari is moot in light

of the fact that, as no stay was in effect, the plan has been

implemented and the “Twin monies” were commingled with

other cash and used to pay creditors pursuant to the plan.

No effective relief is available to the petitioners who would

not be due the money in any event, unless and until the plan

provisions have been carried out.

ARGUMENT

THE DISTRICT COURT’S APPLICATION OF

THE DOCTRINE OF EQUITABLE ESTOPPEL

WAS ENTIRELY PROPER

The district court’s application of the doctrine of equitable

estoppel was proper under the circumstances of the appeal.

The District Court held authority to base its

decision on the doctrine of equitable estoppel

The petitioners’ contention that the district court could

not premise its ruling on the doctrine of equitable estoppel

because estoppel was not pled at the bankruptcy court level

is without merit, for Gould’s request for clarification as to

the ownership rights to the proceeds in Twin’s account at

Florida National Bank of Miami was brought as an

emergency motion to which no response was mandated except

as required by court order.

Gould’s emergency motion was not brought as an

adversary proceeding. His request for clarification was

governed by Bankruptcy Rule 9014, which provides:

CONTESTED MATTERS

In a contested matter in a case under the Code not

otherwise governed by these rules, relief shall be

requested by motion, and reasonable notice and

opportunity for hearing shall be afforded the party

against whom relief is sought. No response is

required under this rule unless the court orders an

answer to a motion. The motion shall be served in

the manner provided for service of a summons and

complaint by Rule 7004, and, unless the court

otherwise directs, the following rules shall apply:

7021, 7025, 7026, 7028-7037, 7041, 7042, 7052,

7054-7056, 7062, 7064, 7069, and 7071. The court

may at any stage in a particular matter direct that

one or more of the other rules in Part VII shail apply.

An entity that desires to perpetuate testimony may

proceed in the same manner as provided in Rule

7027 for the taking of a deposition before an

adversary proceeding. The clerk shall give iistice to

the parties of the entry of any order directing that

additional rules of Part VII are applicable or that

certain of the rules of Part VII are not applicable.

The notice shall be given within such time as is

necessary to afford the parties a reasonable

opportunity to comply with the procedures made

applicable by the order. 11 U.S.C. Section 9014

(emphasis added).

The bankruptcy court never required the bank or the

liquidating trustee to answer the motion, nor did the court

direct that any of the other rules contained in Part VII of

the Bankruptcy Rules be made applicable to the proceeding.

The petitioners complain that the Eleventh Circuit, by

affirming the district court, “has vitiated rules of procedure

promulgated by this Court and significantly departed from

accepted standards of review” (petition for writ of certiorari,

p.21). The only aspects of the law “vitiated” by the

petitioners’ argument are the rules governing bankruptcy

proceedings, for in their analysis the petitioners entirely

ignore the Bankruptcy Rules. Gould filed an emergency

motion, not an adversary complaint,‘ and motions are

governed by Bankruptcy Rule 9014. Rule 9014 incorporates

a number of rules relating to adversary proceedings, but it

does not include Rules 7008 or 7012, which would have

required the liquidating trustee or the bank to file a

responsive pleading containing affirinative defenses. This

specific exclusion is consistent with Rule 9014’s express

provision that no formal response is required unless the court

orders one. Notably, the petitioners do not argue that

Bankruptcy Rule 9014 is unconstitutional. They simply

ignore it and its effect.

The bankruptcy court did not order the filing of a response

to Gould’s emergency motion, nor did that court make any

of the other Bankruptcy Rules applicable. In light of these

uncontroverted facts, the petitioners cannot assert in good

faith that the failure of the liquidating trustee to file a

responsive pleading containing the affirmative defense of

equitable estoppel prevented the district court from basing

its decision on that theory. The petitioners entirely avoid

reference to the Bankruptcy Rules in their analysis of this

question, relying instead on Rule 52(a) of the Federal Rules

of Civil Procedure, and cases that have no applicability to

these facts.

The bank analyzed the elements of equitable estoppel in

detail in its answer brief to Gould and Holywell’s appeal of

“Rule 52(a) of the Federal Rules of Civil Procedure, relied upon by the

petitioners to support their claim that the district court lack authority

to base its decision on the doctrine of equitable estoppel, is applicable to

adversary proceedings, not motions. See 11 U.S.C. Section 7052.

the bankruptcy court’s order (A 19-39). The petitioners ignore

this fact as well. The district court properly relied on the

factors raised in the bank’s answer brief to support its

application of equitable estoppel. The decisions of the

bankruptcy court, district court and Eleventh Circuit should

be left undisturbed.

A district court reviewing a bankruptcy court

decision of a contested matter has discretion to

consider an issue raised for the first time on appeal

A number of courts have held that a reviewing court has

discretion to consider for the first time an issue not expressly

raised before the bankruptcy court.

In the Ninth Circuit, a bankruptcy appellate panel has

held it is not precluded from considering an issue not raised

before the bankruptcy court where such consideration is

determinative of the outcome of the appeal. Jn re Windmill

Farms, Inc., 70 B.R. 618 (9th Cir. B.A.P. 1987). Another court

has held that where refusal to consider an issue raised for

the first time on appeal will result in a miscarriage of justice,

its consideration is appropriate. Matter of Louisiana

Industrial Coatings, Inc., 53 B.R. 464 (D.C. La. 1985). In

addition, an appellate court may also consider an issue not

raised before the bankruptcy court where the issue appears

in the record, or sufficient facts have been pled so that the

debtor is appraised of the issue. See In re Baldwin, 70 B.R.

612 (9th Cir. B.A.P. 1987); Johnson v. Fairco Corp., 61 B.R.

317 (N.D. Ill. 1986); and Jn re Zerodec Megacorp, Inc., 60 B.R.

884, on remand, 59 B.R. 272 (E.D. Pa. 1985).

The record below, replete with references to the

petitioners’ conduct, more than adequately put the petitioners

on notice of the issue on which the district court based its

decision. More importantly, that record is clear that the

district court properly exercised its discretion in this case,

as a substantial miscarriage of justice would otherwise have

resulted. See In re Blumer, 66 B.R. 109 (9th Cir. B.A.P. 1986);

In re Kenitra, Inc., 64 B.R. 841 (9th Cir. 1986), This is

particularly true where the Bankruptcy Rules not only do

not require a written response to a motion, they also do not

require written affirmative defenses, such as equitable

estoppel.

The petitioners are equitably estopped from

claiming the funds allegedly due Twin are not

assets of the trust

All of the elements of equitable estoppel are present in

this case. The petitioners do not dispute what constitutes the

essential elements of an equitable estoppel:

1. words, acts, conduct or acquiescence by the

party to be estopped that have the effect of

misrepresenting material facts;

2. such words, acts, conduct or acquiescence by the

party to be estopped are willfull or negligent; and

3. the other party relies in good faith on such

words, acts, conduct or acquiescence, and is harmed

as a result of that reliance.

In re Garfinkle, 672 F.2d 1340, 1347 (11th Cir. 1982), citing

Minerals & Chemicals Philip Corp. v. Milwhite Co., 414 F.2d

428 (5th Cir. 1969); Richards v. Dodge, 150 So.2d 477 (Fla.

App. 1963); and State ex rel. Watson v. Gray, 48 So.2d 84 (Fla.

1950); see also Irvine v. Cargill Investor Services, Inc., 799

F.2d 1461 (11th Cir. 1986); Highland Ins. Co. v. Trinidad &

Tobago, 739 F.2d 536 (11th Cir. 1984); and Travelers Indem.

Co. v. Swanson, 662 F.2d 1098 (11th Cir. 1981). Each one of

these elements is present in this case.

The debtors’ statements, conduct and acquiescence,

as well as Twin’s conduct and acquiescence

regarding the proceeds from the sale of the

Washington properties caused the bankruptcy court

and the creditors to believe the funds were “owned”

by Holywell as dividends and were available to pay

creditors

Prior to filing the emergency motion, the debtors and

Twin led all of the creditors and the bankruptcy court to

believe the funds would be available to pay creditors of the

debtors.

First, Gould and Holywell represented in their 1984

motion to approve the sale of the Washington properties that

the transaction would result in an “immediate cash

infusion. . . . which inures to Holywell and Gould [which]

will provide the Debtors with capital much needed as an

essential part of the reorganization sought in these

proceedings” (emphasis added) (A 4). The petitioners now

argue that this statement excluded funds due Twin, yet this

contention contradicts other statements of Gould and

Holywell. In that same motion, the petitioners sought an

order “‘authorizing and approving the sale by Holywell and

Gould of certain real and personal property owned by

Holywell and Gould as partners and stockholders in

Twin. . . .” (emphasis added) (A 2).

In addition, the district court found that prior to

confirmation of the bank’s plan, Holywell submitted a

disclosure statement and a proposed plan of reorganization

which made it “manifestly” clear to the bankruptcy court

and all creditors that these funds would be available to pay

creditors (10a). The district court also found that Holywell

and Gould filed certificates with the bankruptcy court

regarding their proposed plans which revealed that funds in

excess of $14 million, including Twin’s proceeds from the sale

of the Washington properties, would be available to “quench”

creditors’ claims (10a). The district court also relied upon

statements made by Gould, who testified that Twin’s share

of the Washington sale proceeds “had to go to Holywell as

dividends” (10a). It is important to note that his testimony

was given during a Rule 2004 examination immediately after

the Washington sale.

The district court went on to cite additional findings with

respect to the petitioners’ misrepresentations:

In addition to these express representations, Gould

and Holywell acquiesced in the Bank’s justifiable

presumption that Twin’s proceeds from the

Washington properties would be included within

the debtors’ estates. For example, the bankruptcy

court directed Holywell to deposit into a segregated

account any net funds payable to Twin from the sale

of the Washington properties. Neither Gould nor

Holywell [nor Twin] appealed this order by the

bankruptcy court, but rather tacitly accepted the

order of the court. Moreover, after the Bank moved

for a determination that all funds, including the

Twin proceeds, were cash collateral subject tw the

Bank’s lien, the bankruptcy court ordered that the

proceeds constituted ‘cash collateral as defined in

Section 363 of the Bankruptcy Code’. Neither Gould

nor Holywell [nor Twin] took appeal from this order.

Subsequently, the Bank filed its proposed plan of

reorganization, which directed that the proceeds

from the Washington properties attributable to

Twin be incorporated with funds in the Miami

Center Liquidating Trust and serve as a font for

permissible claims against the debtors’

estates. ...

In totality, the express statements made by Gould

and Holywell, amalgamated with their conduct and

acquiescence respecting the availability of Twin’s

proceeds from the sale of the Washington

properties, results in the conclusion that their

representations caused the Bank to believe in, and

rely on, the existence of a certain state of things:

namely, that the Twin funds could be applied to

creditors’ claims against the liquidation fund

established by the bankruptcy court. Accordingly,

the first element of estoppel is satisfied (10-11a).

Gould, Holywell and Twin acted willfully or

negligently in misleading the bankruptcy court and

creditors with respect to the sale prcveeds

The district court correctly found that the second element

of equitable estoppel was also met:

There can be no doubt that Holywell and Gould

were, at the very least, negligent in not informing

the Bank prior to this motion before the bankruptcy

court that it did not intend to allow Twin’s proceeds

to be applied to creditors’ claims. In point of fact,

there is a strong inference stemming from

Holywell’s disclosure statement, the appellants’

proposed plan of reorganization, Gould and

Holywell’s statement that the sale of the

Washington properties would be beneficial to

creditors, and Gould’s testimony, that the actions

of Gould and Holywell were willful. In any event,

it seems indisputable that Gould and Holywell

failed to conduct themselves in a reasonable

manner; by neglecting to object to the numerous

orders of the bankruptcy court establishing the

propriety of applying Twin’s proceeds to creditors’

claims, and by concealing from the Bank their true

intention to thwart such a use of the proceeds if at

all legally possible, the appellants evidenced the

requisite intent under equitable estoppel (12a).

The facts go beyond those relied upon by the district court

to support equitable estoppel in this case. In their initial brief

on the appeal to the district court from’ the August 8, 1985

order of confirmation, the debtors stated:

Holywell and Gould also had equity participations

in limited partnerships that owned three office

buildings in the District of Columbia and Virginia

[the Washington properties at issue]. The

partnerships sold those office buildings for an

aggregate price in excess of $100,000,000. The sales

were closed on December 31, 1984 and January 5,

1985. Holywell and Gould realized approximately

$32 million from these sales (case no. 85-3225-CIV-

Aronovitz) (emphasis added).

Clearly, when the petitioners were atiacking confirmation

they did not acknowledge, as they do now, that Twin had any

genuine participation in the $32 million.

The petitioners claimed in their brief to the district court

in their appeal from the Order on Emergency Motion for

Clarification that they “raised vociferous objections as soon

as it became clear in January 1986 how the Liquidating

Trustee planned to use the Twin funds” (Appellants’ Brief,

p. 30). That statement belies the facts. The bank’s plan,

served on the petitioners in the first part of 1985, states the

balance of the Washington Proceeds will be available for

distribution to the creditors (A 17). In addition, the November

22, 1985 report of the Liquidating Trustee, which was

approved by order of the bankruptcy court, lists these funds

as an asset of the trust. Neither the petitioners nor Twin

appealed that order. Lastly, the debtor-petitioners never

properly took issue with the plan provision regarding the

Washington proceeds. In the bankruptcy court’s findings and

conclusions contained in the order of confirmation on remand,

the court found that the proceeds from the sale of the

Washington properties, some $32 million, were the bank’s

cash collateral to be used to fund the trust and pay the

debtors’ creditors (A 6-9). The district court affirmed those

findings, Miami Center Limited Partnership v. The Bank of

New York, 59 B.R. 340 (S.D. Fla. 1986), and specifically noted

the plan used “the proceeds from the sale by the debtors of

certain realty owned by them in Washington, D.C.” 59 B.R.

at 345. The Eleventh Circuit held the debtor/petitioners’

appeal was moot, as the plan had been substantially

consummated and the court could not fashion effective relief.

Miami Center Limited Partnership v. The Bank of New York,

838 F.2d 1547 (11th Cir. 1988). Twin never objected to the

plan, never appealed from the order of confirmation, and never

sought to intervene. That inaction is fatal to this proceeding.

The liquidating trustee and creditors relied upon the

petitioners’ representations and conduct to their

detriment

The bankruptcy court, the creditors, and later the

liquidating trustee all relied to their detriment upon the

petitioners’ conduct and representations as to the use of the

sale proceeds. The district court found that because of the

debtors’ representations and conduct, the bank included the

sale proceeds in its plan for distribution to creditors (12-13a).

The district court concluded that the petitioners’ statement

that the sale of the Washington properties would accrue to

the ultimate benefit of creditors with its cash infusion into

the debtors’ estates was relied upon by the bank in deciding

not to object to the transaction (al2). The same could be said

for all creditors who voted in favor of the bank’s plan. In

addition, the district court found that the bank relied on

Holywell’s disclosure statement, the petitioners’ failure to

complain about the part of the bank’s plan in question and

Gould’s testimony, “all of which suggested expressly or

implicitly that Twin’s share of the proceeds from the sale of

the Washington properties was available for payment to

creditors” (al2-13). Again, the same statement regarding

reliance could be said to apply to all creditors. Even more

importantly, neither the petitioners nor Twin ever appealed

the cash collateral order, which deemed the entirety of the

sale proceeds to be the bank’s cash collateral. In reliance on

the petitioners’ conduct, the bank funded the plan, in part,

with the sale proceeds (its cash collateral), and the creditors

voted for that plan. The plan was implemented in 1985, and

the liquidating trustee has used the Twin proceeds to pay

creditors since that date.

The liquidating trustee, the bankruptcy court and all of

the creditors have relied to their detriment on the petitioners’

representations. The petitioners are estopped from changing

the story at this stage of the proceedings.

Il.

THE ARGUMENT THAT TWIN WAS

SUBSTANTIVELY CONSOLIDATED WITH

THE DEBTORS AND THAT ITS ASSETS

SEIZED WITHOUT DUE PROCESS IS

FRIVOLOUS AND IRRELEVANT

The petitioners argue that the inclusion of the

Washington proceeds in the plan is the equivalent of

substantively consolidating Twin with the five debtors and

that the inclusion of the Washington proceeds constitutes a

seizure of property without due process. These arguments

have no merit whatever in light of the fact that early in the

bankruptcy proceedings Gould testified the funds in question

are dividends due Holywell’s estate, and all of Holywell’s

Section 541(a) defined assets became assets of the Miami

Center Liquidating Trust upon confirmation of the plan.

The plan, as confirmed, did not substantively consolidate

Twin with the debtors. There is no order of such substantive

consolidation. The plan simply provided that the funds in

question would become an asset of the trust available to pay

creditors of the debtors.

No other assets of Twin, if there are any,’ were

consolidated with the debtors’ assets, “‘substantively”’ or

otherwise. Substantive consolidation simply never happened,

either as provided in 11 U.S.C. Section 105, or in any other

way. The district court found that there was no substantive

consolidation, for ““Twin’s assets and liabilities, with the

exception of the proceeds from the sale of the Washington

‘In its Schedule to its Statement of All Liabilities of Debtor, Holywell

lists itself as the 100% stockholder of Twin. That schedule does not list

any of Twin’s liabilities. Rather, it lists Twin’s value at $13,210,000—the

amount of the Washington proceeds payable to Twin (A 28).

properties, remained wholly intact under the plan of

reorganization” (al3).

There has been no taking of a third party’s property

without due process, as the property in question (the

Washington proceeds), as petitioner Gould testified, ““had to

go to Holywell as dividends” (al0). Thus, these funds,

although technically earmarked as belonging to Twin, in fact

belonged to Holywell by Gould’s own admission. It is

important to note that Gould, the sole shareholder of

Holywell, was also the president, director, and sole agent of

Twin. Because the funds belonged to a debtor’s bankruptcy

estate, it was entirely proper that they were utilized to pay

creditors. The petitioners’ argument to the contrary is

meritless in light of these facts.

Ill.

THE PETITION FOR WRIT OF CERTIORARI

IS MOOT

The petition for writ of certiorari is moot in light of the

Eleventh Circuit’s recent decision in Miami Center Limited

Partnership v. The Bank of New York, 838 F.2d 1547 (11th

Cir. 1988), in which the Eleventh Circuit dismissed the

debtors’ appeal of the order of confirmation as moot because

no stay was in effect, the plan had been substantially

consummated, and thus the court could not fashion

meaningful relief. That opinion is the subject of other

proceedings in this Court by the petitioners by way of

petitions for writs of certiorari and mandamus, case numbers

87-1988 and 87-1989, in which proceedings the liquidating

trustee has filed briefs in opposition. The plan, as confirmed,

is the law of the case.

This petition for writ of certiorari is moot because the

asset in question was specifically made part of a plan of

reorganization, which was confirmed and substantially

consummated. The money that the petitioners claim is due

Twin was commingled with other trust monies and was used

to pay over 400 innocent creditors. The law is well settled

that an appeal will be dismissed as moot when events occur

which prevent the court from fashioning meaningful relief,

for Article III of the Constitution envisions a live controversy;

it does not encompass the rendering of advisory opinions.

Central States v. Central Transport, Inc., 841 F.2d 92 (4th

Cir. 1988); In re Sun Valley Ranches, Inc., 823 F.2d 1373 (9th

Cir. 1987); In re Golden Plan of California, Inc., 829 F.2d 705

(9th Cir. 1986); In re AOV Industries, Inc., 792 F.2d 1140 (D.C.

Cir. 1986); In re Matos, 790 F.2d 864 (11th Cir. 1986); Matter

of Andy Frain Services, Inc., 798 F.2d 1113 (7th Cir. 1983);

Matter of King Resources Co., 651 F.2d 1326 (10th Cir. 1980);

In re Revere Copper, & Brass, Inc., 78 B.R. 17 (Bkrtcy. S.D.

N.Y. 1987); In re Blumer, 66 B.R. 109 (9th Cir. B.A.P. 1986).

It is equally well settled that in a bankruptcy proceeding,

with no stay in effect, a court cannot undo a sale to a third

party purchaser who is not before the court. See In re Sun

Valley Ranches, Inc., 823 F.2d at 1375; Central States v.

Central Transport, Inc., 841 F.2d at 96; Matter of King

Resources Co., 651 F.2d at 1331-32; In re AOV Industries,

Inc., 792 F.2d at 1147-48; and Matter of Combined Metals

Reduction Co., 557 F.2d at 188.

In this case, the Washington Properties were sold to a

third party not before the Court. The sale proceeds have been

used to fund the trust and pay creditors.

In determining that the court could not award the debtors

effective relief, the Eleventh Circuit analyzed the effect of

undoing this plan:

(The bank] surrendered $30 million of cash

collateral it was holding [the proceeds from the sale

of the Washington properties]. These funds have

been the primary source for payments to creditors

and reserves totaling approximately $30

million. . . . The trustee pressed his view that

. . rejection [of the plan] would require him to

seek to reclaim what he had paid out, much of

which was unrecoverable. Miami Center Limited

Partnership v. The Bank of New York, 838 F.2d at

1556.

The Eleventh Circuit further stated that should the plan be

unwound, as the debtors suggest, the bank might wish to

realize on the cash collateral it held, but the court noted that

“the debtors have not given a meaningful suggestion of

how. . . . to get back the cash collateral; they say only that

the 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.” Ibid.

The effect of the petition for writ of certiorari

would be a modification of the substantially

consummated plan, which is prohibited.

The debtor/petitioners seek a piecemeal dismantling of

a confirmed plan of reorganization, in derogation of well

settled law. In re AOV Industries, Inc., 792 F.2d 1140, 1149

(D.C. Cir. 1986), cited with approval by the Eleventh Circuit

in Miami Center Limited Partnership v. The Bank of New

York, supra. The attempt to return Twin’s share of the

proceeds from the sale of the Washington properties is

nothing more than an attempt to modify a substantially

consummated plan. This the petitioners cannot do. See 11

U.S.C. Section 1127(b);§ In re Sun Country Dev., Inc., 764 F.2d

406, 407 (5th Cir. 1985); In re Information Dialogues, Inc.,

662 F.2d 475, 476 (8th Cir. 1981); In re Roberts Farms, Inc.,

652 F.2d 793, 797 (9th cir. 1981); In re Seminole Park and

Fairgrounds, Inc., 505 F.2d 1011, 1014 (5th Cir. 1974);

Claybrook Drilling Co. v. Divanco, Inc., 336 F.2d 697, 701

(10th Cir. 1964); In re AT of Maine, Inc., 56 B.R. 55, 57

(Bkrtcy. D. Me. 1985); In re Northampton Corp., 59 B.R. 963,

968-69 (E.D. Pa. 1984); and In re Heatron, 34 B.R. 526 (Bkrtcy.

W.D. Mo. 1983).

The confirmed and unstayed plan, which specifically

includes the funds at issue, is binding on all parties to the

proceeding regardless of whether they accepted the plan. It

is no longer subject to modification. See In re St. Louis Freight

Lines, Inc., 45 B.R. 546, 552 (Bkrtcy. E.D. Mich., N.D. 1984).

IV.

THE PETITIONERS LACK STANDING TO

RAISE THE CLAIMS ASSERTED IN THE

PETITION FOR WRIT OF CERTIORARI

All of the arguments contained in Petition for Writ of

Certiorari center on the premise that the disputed funds

belong to Twin. Assuming for the sake of argument that this

is true, then the petitioners lack standing to raise these

claims on behalf of Twin, as the petitioners cannot assert the

rights of a third party. See Lord v. Local Union No. 2088,

481 F.Supp. 419, affirmed in part, revised in part, 646 F.2d

1057, rehearing denied, 654 F.2d 723, cert. denied, 458 U.S.

1160; Rite-Research Improves Environment, Inc. v. Costle, 78

F.R.D. 321, revised, 650 F.2d 1312.

*Section 1127(b) of the Bankruptcy Code provides: “The proponent of

a plan or a reorganized debtor may modify such plan any time after

confirmation of such plan and before substantial consummation of such

plan. . . .” (emphasis added).

“At an irreducible minimum, Article III requires the

party who invokes the court’s authority to ‘show that he

personally has suffered some actual or threatened injury as

a result of the putatively illegal conduct of the defendant,’

and that the injury ‘fairly can be traced to the challenged

action’ and is likely to be redressed by a favorable decision.”

Valley Forge Christian College v. Americans United for

Separation of Church and State, Inc., 102 S.Ct. 752, 758,

___U.S.___, 70 L.Ed. 2d 700 (1982) (citations omitted). This

the petitioners have failed to do. Their only claim is that

Twin’s assets, not theirs, have been taken.

As the Court has observed in Baker v. Carr, “the gist of

the question of standing” is whether the petitioners have

alleged ‘‘such a personal stake in the outcome of the

controversary as to assure that concrete adverseness which

sharpens the presentation of issues upon which the court so

largely depends for illumination of difficult constitutional

questions.” 369 U.S. 186, 204 (1962). Assuming that the

petitioners’ claim that the funds belonged to Twin is true,

then the petitioners clearly have no personal stake in the

outcome of the controversy. Moreover, in light of the tenor

of the petitioners’ arguments, it should be noted that

“standing is not measured by the intensity of the litigant’s

interest or the fervor of his advocacy.” Valley Forge Christian

College, 102 S.Ct. at 765. The petitioners cannot confer

standing on themselves by asserting the rights of others. R.T.

Vanderbilt Co. v. OSHA Rev. Comm., 708 F.2d 570, 574 (11th

Cir. 1983); Matter of Johns-Manvilie Corp., 68 B.R. 618

(Bkrtcy. S.D. N.T. 1986).

The plan, as confirmed, provides that all of the debtors’

assets, as defined by Section 541(a) of the Bankruptcy Code,

are assets of the trust. Section 541(a) includes “‘all legal or

equitable interests of the debtor in property as of the

commencement of the case.” 11 U.S.C. Section 541(aX1). The

scope of the definition of “property” in Section 541(aX1) is

extraordinarily broad and includes all types of property and

rights to property which the debtor possesses. Jn re Golden

Plan of California, Inc., 37 B.R. 167 (Bkrtcy. Ca. 1984); In

re Koch, 14 B.R. 64 (Bkrtcy. Kan. 1981). This property right

encompasses all the stock owned by a debtor, including the

stock of wholly owned subsidiary companies of a corporate

debtor. In re Deak and Co., Inc., 63 B .R. 422 (Bkrtcy. S.D.

N.Y. 1986) (shares of stock owned or controlled by the debtor

were property of the estate thereby providing the bankruptcy

court with in rem jurisdiction in an adversary proceeding to

declare stock pledge a voidable preference); In re Peoples

Bankshares, Ltd., 68 B.R. 536 (Bkrtcy. N.D. lowas 1986); Jn

re Wallace, 66 B.R. 834 (Bkrtcy. E.D. Mo. 1986). Thus, all

of the stock owned by the petitioners, including the stock of

Twin, became property of the Miami Center Liquidating

Trust pursuant to the express terms of the confirmed plan.

The petitioners lack standing to assert otherwise.’

Even if Holywell were still entitled to claim and use the

stock of Twin, Holywell would not have standing to raise the

issues contained in the petition for writ of certiorari; only

Twin would have this power,and it never has exercised it.

A shareholder may institute a derivative lawsuit to

enforce rights of a corporation under certain conditions, but

this never happened here. No shareholder’s derivative action

7Twin has brought suit against the liquidating trustee in his individual

capacity in the United States District Court for the Western District of

Virginia, for a preliminary and permanent injunction to prevent the

trustee from taking any action with respect to the stock, to quiet title,

to recover its stock certificates on behaif of Holyweil, to establish that

Holywell is the sole shareholder and to recover money damages (A 81-86).

Interestingly enough, Holyweli, the real party in interest, is not a party

in that proceeding.

on behalf of Twin was begun by Holywell (assuming Holywell

still controls Twin’s stock, a fact which the liquidating trustee

strongly disputes) or by the Miami Center Liquidating Trust.

The present appeal arose out of an emergency motion filed

by Gould and Holywell for clarification of the ownership of

the proceeds from the sale of the Washington properties. All

other issues are collateral.

CONCLUSION

The instant petition is yet another of the debtors’

collateral attacks on the confirmed plan. That Twin never

appealed any of the relevant orders and that the petitioners

seek to assert a claim on behalf of Twin lends further credence

to the bankruptcy court’s finding that the difficulty in tracing

the obligations and claims against the affiliated creditors was

“completely attributable to the labyrinth that Gould has

created.”’ Miami Center Limited Partnership v. The Bank of

New York, 838 F.2d at 852. It is now too late to modify the

confirmed plan, for the funds at issue have been co-mingled

with other trust assets and used to pay creditors. The plan

has been substantially consummated and the Court cannot

award meaningful relief. The issue is moot. Moreover, the

petitioners lack standing to raise the claims presented in

their petition.

Lastly, the district court was correct in applying the

doctrine of equitable estoppel to prevent Gould and Holywell

from reneging on their earlier representations as to the

availability of the funds in question to pay creditors. The

petitioners and Twin misled the bankruptcy court and the

creditors into believing these monies were to be used to pay

creditors of the debtors.

The petition for writ of certiorari should be denied on the

merits. Alternatively, these proceedings should be dismissed

on the ground of mootness and on the additional ground that

the petitioners lack standing to assert claims belonging to

a third party.

RESPECTFULLY SUBMITTED,

Herbert Stettin, Esquire

Appendix

PS Awe OE

Mi y CNS TO WN ed a OY PON ed SA ed ee 0 Le * ON

TABLE OF CONTENTS

1. Verification signed by Theodore B. Gould,

Gis AI oi sk 6 kk seeks wes 1

2. Motion filed in the Bankruptcy Court for

Order Approving and Authorizing Holywell

Corporation and Theodore B. Gould to

Consummate the Sale of Certain Real and

Personal Property, dated September 28, 1984 . 2

3. Bankruptcy Court Order on Emergency

Motion to Treat Proceeds of the Sale as Cash

Collateral, to Segregate and Account for Cash

Collateral, dated December 31, 1984 ........ 6

4. Excerpts from Disclosure Statement of

eg eee 10

5. Excerpts from Amended Consolidated

Disclosure Statement of the Bank of New

nate eae El a OP ee ig ag a a 14

6. Excerpts from confirmed Amended

Consolidated Plan Of Reorganization ........ 17

Answer Brief of Appellee Bank of New York,

case no. 86-0848-CIV-Ryskamp, United States

District Court of Appeals for the Southern

District of Florida, dated November 7, 1986 .. 19

8. United States Bankruptcy Court for the

Southern District of Florida, Order on

Remand, dated January 29, 1986 ........... 40

10.

11.

12.

13.

14.

15.

TABLE OF CONTENTS—(Continued)

Complaint and Application for Preliminary

and Permanent Injunction, styled Twin

Development Corporation v. Fred Stanton

Smith, The Bank of New York and Irving

Wolff, in the United States District Court for

the Western District of Virginia,

Charlottesville Division ...................

BE 7 OT ns ne in kp en ena eweee

413: USC. Beeties O68. ian ii ce cndenee

St UB. Siem O68 ok. ke haa eee

11 USA. Sookion FOSS oi ccc ine ccesanseus

1] USL. Section BOM: ......k00s ens eeeas

ORANG PO. GE. ik che dh eae eee

PAGE

VERIFICATION

Theodore B. Gould, being first duly sworn, deposes and

says:

I am the President of Twin Development Corporation, the

Plaintiff herein; I have read the contents of this Complaint,

including the request for Preliminary Injunction, Permanent

Injunction, and Declaratory Relief, and belief the same to

be true according to the best of my knowledge, information,

and belief.

/s)/ THEODORE B. GOULD

Theodore B. Gould, President

Twin Development Corporation

Sworn to and Subscribed before me this 4th day of August,

1987.

/s/ FAYE M. McBURNEY

Notary Public

My Commission Expires: My Commission Expires June 29,

1990

UNITED STATES BANKRUPTCY COURT

SOUTHERN DISTRICT OF FLORIDA

Chapter 11

Case Nos. 84-01590-BKC-TCB

through 84-01594-BKC-TCB

In Re:

HOLYWELL CORPORATION, et al.,

Debtors.

MOTION FOR ORDER APPROVING AND

AUTHORIZING HOLYWELL CORPORATION AND

THEODORE B. GOULD TO CONSUMMATE THE

SALE OF CERTAIN REAL AND PERSONAL PROPERTY

Holywell Corporation (“Holywell”) and Theodore B.

Gould (‘“‘Gould’”’), debtors and debtors-in-possession, move this

court for an order authorizing and approving the sale by

Holywell and Gould of certain real and personal property

owned by Holywell and Gould as partners and stockholders

in Twin Development Corporation, a Virginia corporation

(“Twin”), 1300 North 17th Street Associates, a Virginia

limited partnership (‘1300’), 1616 Reminc Limited

Partnership, a Virginia limited partnership (“1616”), Eleven

DuPont Circle Associates, a District of Columbia limited

partnership (“Eleven”) and DuPont Land Associates, a

District of Columbia limited partnership (“DuPont Land’’)

(collectively the ‘Sellers’’), pursuant to §363(b) of the

Bankruptcy Code and as grounds therefor state:

1. On August 22, 1984 (the “Filing Date’’), Holywell,

Gould and the other debtors herein (collectively the

“Debtors’’) each filed a petition for reorganization under

Chapter 11, §301 of the Bankruptcy Code (the ‘‘Code’’) and

each has continued in the management and operation of its

respective business and properties as a debtor-in-possession

pursuant to §1107 and §1108 of the Code. The within Chapter

11 cases are being jointly administered pursuant to order of

this Court. No trustee or examiner has been appointed.

2. The Debtors are principally engaged in the business

of owning and operating office buildings, hotels and other

commercial real property.

3. Gould, one of the Debtors herein, is the President of

Twin and is the managing general partner of 1300, 1616,

Eleven and DuPont Land. Holywell, one of the Debtors

herein, owns all of the issued and outstanding shares of

common stock of Twin. Gould owns all of the issued and i

outstanding shares of common stock of Holywell.

4. Sellers have entered into a Purchase Agreement (the

“Purchase Agreement’’), dated July 26, 1984, with Hadid

Investment Group, Inc., a Virginia corporation, and/or

assigns (““Hadid’’), which was amended by First Amendment

to Purchase Agreement between Sellers and Hadid dated

August 28, 1984 (the “First Amendment’’), whereby Hadid

shall acquire all of Seller’s right, title and interest in and

to two office buildings located in Arlington, Virginia, and

commonly referred to as the 1616 Property and the Twin

Property, and one office building located in Washington, D.C.

and commonly referred to as the Washington Property, for

a purchase price of One Hundred Twelve Million Dollars

($112,000,000). A copy of the Purchase Agreement and the

First Amendment are annexed hereto and incorporated

herein as Exhibit “A” and reference should be made thereto

for the specific terms and provisions thereof. Since the

inception of these Chapter 11 proceedings, Holywell and

Gould have been unable to proceed with the closing of the

Purchase Agreement inasmuch as their status as Debtors-

in-Possession has effectively precluded the Seller’s ability to

close and consummate the sale transaction as contemplated

by the Purchase Agreement. Additionally, the entry of an

Order of this Court authorizing Holywell and Gould, Debtors

herein, to sell their right, title and interest in the real and

personal property is a condition precedent to the closing of

the transaction.

5. The purchase price for the subject properties, as set

forth in the Purchase Agreement, is fair and equitable, and

represents not less than the fair market value of such

property, having been negotiated at arm’s length. The

Purchaser has no affiliation with any Seller entity or with

any Debtor in these proceedings.

6. Consummation of the transaction proposed herein is

in the best interest of the Debtors and of the creditors in these

proceedings in that the immediate cash infusion from such

sale which inures to Holywell and Gould will provide the

Debtors with capital much needed as an essential part of the

reorganization sought in these proceedings.

7. Under §363(b) of the Code, a Debtor-in-Possession,

after notice and a hearing, may use, sell or lease, other than

in the ordinary course of business, property of the estate.

Bankruptcy Rule 2002(a) (2) provides that in the event of a

sale pursuant to §363(b), the Debtor-in-Possession shall give

all creditors not less than Twenty (20) days notice of the

hearing on such sale. The Debtors intend to comply with the

notice requirements set forth in Bankruptcy Rule 2002.

WHEREFORE, movants pray for the entry of an order:

(a) Approving and authorizing Holywell and Gould to

consummate the sale of the 1616 Property, the Twin Property

and the Washington Property to Hadid upon the terms and

conditions set forth in the Purchase Agreement and the First

Amendment; and

a ate v

(b) Granting such other and further relief as this Court

deems just and proper.

Dated: Miami, Florida

September 28, 1984

KENT, WATTS, DURDEN, KENT,

NICHOLS & MICKLER

By /s/ Fred H. Kent, Jr.

Fred H. Kent, Jr.

Robert C. Nichols

850 Edward Ball Building

Jacksonville, FL 32202

904/354-1600

Attorneys for Debtors

UNITED STATES BANKRUPTCY COURT

SOUTHERN DISTRICT OF FLORIDA

Cases Nos.: 84-01590-BKC-TCB

84-01591-BKC-TCB

84-01592-BKC-TCB

84-01593-BKC-TCB

84-01594-BKC-TCB

Proceedings in Chapter 11

IN RE: HOLYWELL CORPORATION, et al.,

Debtors.

ORDER ON EMERGENCY MOTION TO TREAT

PROCEEDS OF THE SALE AS CASH COLLATERAL,

TO SEGREGATE AND ACCOUNT

FOR CASH COLLATERAL

The Bank of New York (“BNY’”’, a secured creditor,

moves this Court, pursuant to Bankruptcy Code § 363

and Bankruptcy Rules 4001 and 9014, for an order to

compel the Debtors in these jointly administered Chapter

11 proceedings to deem the proceeds of the saie of certain

real and personal property (the ‘Washington Proper-

ties’) pursuant to a Purchase Agreement dated as of

July 26, 1984, as amended on August 28, 1984, between

Hadid Investment Group as purchaser and Twin Devel-

opment Corporation (“TDC”), 1300 North 17th Street

Associates (“1300”), 1616 Remine Limited Partnership

(“1616”), Eleven Dupont Circle Associates (“Dupont

Circle”), and Dupont Land Associates (“Dupont Land’’)

as sellers (the “Purchase Agreement’) as cash collateral.

The Court examined the memoranda which were filed

both in support of and in opposition to the Motion of

Aé6

BNY, and having heard representation by the attorneys

for Debtors, Holywell Corporation (“Holywell”) and

Theodore B. Gould (“Gould’’), as well as argument by

the parties hereto, the Court finds as follows:

(a) This Court entered an Order on the 11th day of

December, 1984, requiring that all of the beneficial in-

terests of Gould and Holywell to the net proceeds from

the sale of the Washington Properties are to be placed

in a segregated, interest bearing account and held pur-

suant to further order of this Court.

(b) BNY appears to have a first lien on the interests

of Holywell and Gould in the net proceeds from the sale

of the Washington Properties, except for an amount of

$264,669. Attorneys for the Creditors’ Committees did

not object to the claim of BNY at this hearing, although

they have reserved the right to contest BNY’s claim to

a first lien at a future time if they desire to do so.

of the selling entities, their partners, limited partners,

and to the service companies which heretofore have been

providing services to the Washington Properties. It will

be necessary for Holywell to continue to provide these

services until such time as the affairs of these companies,

their partners and limited partners are terminated and

all obligations to the Internal Revenue Service are de-

termined and paid.

(d) Holywell, after the sale of the Washington Prop-

erties, no longer will have any source of income except

from the net proceeds of that sale and any interest it

may receive from the investment of those net proceeds.

Therefore, Holywell requires the use of a portion of the

net proceeds of that sale in the immediate future to pay

current, ordinary business expenses, including salaries,

and will continue to require monies from either the net

proceeds of the sale or interest income from the invest-

ment of thuse proceeds until such time as Holywell can

wind up the affairs of those selling entities.

(e) BNY has agreed to the use of the proceeds of the

sale and/or interest for the expenses of Holywell subject

to the prior approval by BNY of those expenses, and has

agreed to an amount of $70,000 to be released immedi-

ately for the payment of December salaries payable on

December 31, 1984, and other business expenses payable

in January, 1985.

Upon consideration of the following, it is

ORDERED and ADJUDGED as follows:

1. This Court’s Order of December 11, 1984 shall con-

tinue unchanged except as supplemented herein.

2. The net proceeds of the Washington sale constitute

cash collateral as defined in § 363 of the Bankruptcy

Code.

3. The Bank of New York has a first lien on all of

the net proceeds due Gould and Holywell from the sale

‘of the Washington properties, as well as the interest

which shall accrue from the investment of those proceeds,

except for an amount of $264,669. However, the Holy-

well and Gould Creditors’ Committees or other creditors

of Holywell and Gould, or the Debtors, may contest the

lien of Bank of New York in subsequent, appropriate

proceedings.

4. An amount of $70,000 shall be released immediately

to Holywell to pay its salaries and other business ex-

penses due on December 31, 1984 and during January

1985.

5. Holywell shall submit to the Bank of New York

each month its anticipated expenses, including salaries,

for the subsequent month. If the Bank of New York

approves those expenses as submitted, they will be re-

leased without further order of this Court.

DONE and ORDERED in Miami, Florida this 31 day

of December 1984.

s/ Thomas C. Britton

THOMAS C. BRITTON

U.S. Bankruptcy Judge

Copies to:

Fred H. Kent, Jr., Esq.

All Members of the Creditors’ Committees

All Attorneys of Record

Service of this Order to be performed

by Fred H. Kent, Jr.

UNITED STATES BANKRUPTCY COURT

SOUTHERN DISTRICT OF FLORIDA

Case No. 84-01590-BKC-TCB

In re:

HOLYWELL CORPORATION, a Delaware corp.,

Debtor.

DISCLOSURE STATEMENT

A 10

Exhibit “‘E”’ [to Holywell’s Disclosure Stmt]

HOLYWELL CORPORATION

(DEBTOR IN POSSESSION)

LIQUIDATION ANALYSIS

FEBRUARY 15, 1985

Cash

Advances due from MCLP

Loans due from Officer

Note due from MCLP

Mortgage note due (Charleston)

Accounts receivable

Furniture and equipment, net

8. Investments—Twin

Development Corp.

9. Investments—Washington

subsid. corps.

10. Investments—Miami

subsid. corps.

11. Investments—Affiliated

ptns.—1300

12. Investments—Affiliated

ptns.—MCLP

TOTAL LIQUIDATION VALUE

PRIORITIES (2/15/85)

1. Secured debt

2. Estimated costs and expenses

of liquidation

3. Post-petition priority creditors

4. IRS—corp. taxes

TOTAL PRIORITIES

TOTAL AVAILABLE FOR

DISTRIBUTION TO UNSECURED

CREDITORS

NOAP ON

ASSETS

(2/15/85)

$15,110,000

4,080,000

2,015,000

490,000

50,000

183,000

64,400

13,128,533

550,000

9,168,000

925,000

_ 5,250,000

$51,013,933

$ 2,015,000

150,000

20,000

$ 2,185,000

$48,828,933

LIQUIDATION

__VALUE

$15,110,000

490,000

50,000

170,000

20,000

13,128,533

550,000

$29,518,533

$ 2,015,000

150,000

20,000

$12,333,533

[This Liquidation Analysis is qualified by and should be read in conjunction

with the notes that follow it.|

Exhibit ‘‘C’’ [to Holywell’s plan]

HOLYWELL CORPORATION

PRO FORMA BALANCE SHEET

FEBRUARY 15, 1985

ASSETS

INVESTMENTS

Twin Development Corp.—Cash

Other subsidiary corps.—Washington

Other subsidiary corps.—Miami

Affiliated partnerships—1300

—MCLP

OTHER ASSETS

Cash°

Advances and interest receivable—MCLP

Loans and interest receivable—Officer

Note receivable—MCLP

Mortgage note receivable

Accounts and interest receivable

Furniture and equipment, net

TOTAL ASSETS

LIABILITIES

Accounts payable

Notes payable—1300

Notes and interest payable—BNY

NET EQUITY

A 12

$13,128,533

550,000

9,168,000

925,000

5,250,000

$29,021,533

$15,110,000

4,080,000

2,015,000

490,000

50,000

183,000

64,400

$21,992,400

$51,013,933

$ 900,000

380,000

2,015,000

$ 3,295,000

$47,718,933

HOLYWELL CORPORATION

(DEBTOR IN POSSESSION)

NOTES TO LIQUIDATION ANALYSIS

FEBRUARY 15, 1985

A. ASSET LIQUIDATION VALUE

Values shown are based on the company’s estimation that

on forced liquidation, the Company’s assets would produce

the following percentage of recovery:

Cash 100%

Advances, loans and other due from MCLP 9%

Accounts and mortgages receivable 94%

Investments—Washington subsidiary corps. 100%

Personal property 31%

B. BOOK VALUE OF INVESTMENTS—WASHINGTON

SUBSIDIARY CORPS.

The book value for wholly owned Washington, D.C. based

subsidiary corporations is based on the net realizable value

of receivables due to the corporations by independent third

parties.

C. AMOUNT OF SECURED DEBT

The amount of secured debt shown involves interest, all

of which is due to the Bank of New York.

D. SECURED DEBT GUARANTEES AND

CONTINGENCIES

The Miami Center Limited Partnership and Chopin

Associates construction and land loan of $195,086,028 and

accrued interest of approximately $30,492,880 are secured

by (1) first deeds of trust on the land and leasehold; (2)

substantially all the assets of Holywell! Corporation; and (3)

the personal guarantee of Theodore B. Gould.

A 13

UNITED STATES BANKRUPTCY COURT

SOUTHERN DISTRICT OF FLORIDA

CASE NOS. 84-01590-BKC-TCB

84-01591-BKC-TCB

84-01592-BKC-TCB

84-01593-BKC-TCB

84-01594-BKC-TCB

Proceedings in Chapter 1]

In re:

HOLYWELL CORPORATION, et al.,

Debtors.

AMENDED CONSOLIDATED DISCLOSURE

STATEMENT OF HOLYWELL CORPORATION,

MIAMI CENTER LIMITED PARTNERSHIP,

CHOPIN ASSOCIATES, MIAMI CENTER

CORPORATION AND THEODORE B. GOULD

PROPOSED BY THE BANK OF NEW YORK

AMENDED CONSOLIDATED

DISCLOSURE STATEMENT

This Amended Disclosure Statement is submitted on

behalf of The Bank of New York (“BNY’”’) in support of its

Consolidated Plan of Reorganization (“BNY’s Plan”). BNY’s

Plan, dated February 26, 1985, as amended, is on file with

the Bankruptcy Court and a copy is annexed hereto as

Exhibit 1.

BNY is the major secured creditor of each of the Debtors.

The Debtors are indebted to BNY, under direct and guarantee

obligations, in the amount of approximately $234,342,743 as

A 14

of March 1, 1985, which amount does not include expenses

of approximately $1,611,563 to March 14, 1985. Interest and

expenses are currently accruing at a rate of approximately

$2,390,000 per month. BNY holds, as security for the

indebtedness, inter alia, first mortgages on Miami Center,

which has an appraised value of $255,600,000 and a first

security interest in approximately $32,422,798 in cash. Under

BNY’s Plan, which contemplates a substantive consolidation

of the estates and a liquidation of the assets, BNY will

purchase Miami Center for $255,600,000, within 45 days from

the Effective Date. Upon such purchase, BNY will release

all other collateral that it holds as security for the BNY Debt,

including its security interest in the $32,422,798 in cash,

subject, however, to the security interest in such cash and

other collateral that BNY will retain as collateral for the

BNY-Holywell Loan in the principal amount of $1,750,000.

Based on a prompt sale of Miami Center and the release of

those funds, it is anticipated that all administrative claims,

all priority claims and all claims of unsecured creditors, other

than Affiliated Creditors, will be paid substantially in full

or in full. Based on the Debtors’ analysis of the outstanding

claims, an equity may remain for the Debtors.

THE FINANCIAL INFORMATION CONTAINED IN

THIS DISCLOSURE STATEMENT RELATING TO THE

INDEBTEDNESS OF THE DEBTORS TO BNY AND THE

SECURITY THEREFOR WAS PREPARED BY BNY FROM

ITS RECORDS AND THE INFORMATION TO THE BEST

KNOWLEDGE OF BNY IS ACCURATE AND COMPLETE.

CERTAIN FINANCIAL AND OTHER INFORMATION

WAS OBTAINED FROM THE DEBTORS’ PLANS.

ACCORDING TO THE DEBTORS’ PLANS, SUCH

INFORMATION WAS PREPARED BY AGENTS AND

EMPLOYEES OF THE DEBTOR AND HAS NOT BEEN

AUDITED; HOWEVER, ACCORDING TO THE DEBTORS’

PLANS THE INFORMATION IS ACCURATE AND

eT eT

COMPLETE TO THE BEST KNOWLEDGE OF SUCH

AGENTS AND EMPLOYEES. CERTAIN OTHER

INFORMATION WAS PROVIDED BY GOULD AND

CERTAIN OTHER DEBTORS TO BNY FROM TIME TO

TIME PRIOR TO THE FILING OF THESE CASES. BNY

HAS NO INDEPENDENT KNOWLEDGE OF THE TRUTH,

COMPLETENESS OR ACCURACY OF SUCH

INFORMATION.

ie SS

A 16

UNITED STATES BANKRUPTCY COURT

SOUTHERN DISTRICT OF FLORIDA

CASE NOS. 84-01590-BKC-TCB

84-01591-BKC-TCB

84-01592-BKC-TCB

84-01593-BKC-TCB

84-01594-BKC-TCB

CHAPTER 11 Proceedings

IN RE:

HOLYWELL CORPORATION, et. al.

Debtors

AMENDED CONSOLIDATED PLAN OF

REORGANIZATION PROPOSED BY

THE BANK OF NEW YORK

V. CREATION OF TRUST

1. A Trust is hereby declared and established on behalf

of the Debtors effective on the Effective Date and an

individual to be appointed by the Court (and if requested,

after nominations by any party-in-interest) is designated as

Trustee of all property of the estates of the Debtors within

the meaning of §541(a) of the Code, including but not limited

to, Miami Center, the Washington Proceeds, and all claims

and causes of action, if any, of the Debtors described in

Exhibit C and those pending in the litigation against BNY

(“Trust Property’) to hold, liquidate, and distribute such

Trust Property according to the terms of this Plan. The Trust

shall be known as the “Miami Center Liquidating Trust’.

2. Onthe Effective Date, all right, title and interest of

the Debtors in and to the Trust Property, including Miami

Center, shall vest in the Trustee, without further act or deed

by the Debtors or any other of them, and without the filing

or recording of any instrument of conveyance, assignment

or transfer, subject however, to all existing liens, mortgages,

security interests and encumbrances.

A 18

UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF FLORIDA

CASE NO. 86-0848-Civ-Ryskamp

(Bankruptcy Cases No.

84-01590-BKC-TCB and

84-01594-BKC-TCB)

HOLYWELL CORPORATION, and

THEODORE B. GOULD,

Debtor/Appellants,

THE BANK OF NEW YORK, and

FRED STANTON SMITH,

as Liquidating Trustee,

Appellees.

On Appeal from the United States Bankruptcy Court

for the Southern District of Florida

ANSWER BRIEF OF APPELLEE,

THE BANK OF NEW YORK

S. Harvey Ziegler, Esquire

Kirkpatrick & Lockhart

Suite 400

1428 Brickell Avenue

Miami, Florida 33131

Of Counsel: (305) 374-8112

Thomas F. Noone, Esquire Vance E. Salter, Esquire

Emmet Marvin & Martin Steel Hector & Davis

48 Wall Street 4000 Southeast Financial Center

New York, New York 10005 Miami, FL 33131-2398

(212) 422-2974 (305) 577-2804

TABLE OF CONTENTS

Tee OF GOI oi i's a in cud ds anne cacesckes

Teebe OE CRMEBOMG ona ccc cnc iccccecncine

IE, 5.5 6k. o0S5 0 60S kh os cee obi ck eens es

Statement of The Issues ..... 1.0... cee cece:

Standard of Review ..... 2... ccc ccccccccccnecs:

Statement of The Case ...........2 0 cece escnce:

PUIIIOE ok ccc docs eno rensnccsendeveeenecies

I. THE BANKRUPTCY COURT RULED

CORRECTLY THAT TWIN’S FUNDS

WERE PART OF THE LIQUIDATING

WE Nan bo EER dW 6 EN RNA ei 5k sn dees

A. Substantive Consolidation ............

B. The Guarantees and Stock Pledge......

II. THIS APPEAL IS MOOT ................

CN ii hace iT en ere bee adetscdasnauen

Lg RE CCCEERERER TT TEECT UTE ee

ee a rr

A 20 |

ewe

TABLE OF CITATIONS

Page

In re AOV Industries, Inc.,

792 F.2d 1140 (D.C. Cir. 1986) ............. 17

In re Cada Investments, Inc.,

664 F.2d 1158 (9th Cir. 1981) .............. 16

Dade County Classroom Teachers’ Ass’n. v Rubin,

238 So.2d 284 (Fla. 1979), cert. den.,

400 U.S. 1009, 91 S.Ct. 569,

Be Rae ee EE ak nv ekc Con kvsatusees 13

In re Garfinkle,

672 F.2d 1340 (1ith Cir. 1982) ............. 2

Hildreth v. Union News Co.,

315 F.2d 548 (6th Cir. 1963) ............... 13

Locke v. Board of Public Instruction of

Palm Beach County,

499 F.2d 360 (Sth Cir. 1974) ............... 18

In re Matos,

790 F.2d 864 (11th Cir. 1986) .............. 2,18

R. T. Vanderbilt Co. v. OSHA Rev. Comm.,

7086 F.2d 570 (llth Cir. 1963) ...........:.. 14

In re Roberts Farms, Inc.,

G62 F.2a 700 Gt Gir. 1GG1) 2.00 ccea aves 16

In re Sewanee Land, Coal, & Cattle, Inc.,

708 F.28 1906 Citta Cl: 1988 . i ok 2,18

A 21

TABLE OF CITATIONS

(Continued)

620.63 Florida Statutes

11 U.S.C. 105

11 U.S.C. 363

11 U.S.C. 1101(2) .

28 U.S.C. 158

Bankruptcy Rules

5 Collier on Bankruptcy

§ 1100.06[1] (15th ed. 1985)

A 22

Page

JURISDICTION

This Court has jurisdiction over appeals from orders of

the Bankruptcy Court under 28 U.S.C. §158 and Bankruptcy

Rule 8001 et seq. However, as set forth in Section II of this

brief, the Court should decline to exercise jurisdiction over

the subject matter of this particular appeal on grounds of

mootness. The funds in controversy below have been paid or

otherwise irrevocably applied in accordance with the terms

of a plan of reorganization proposed by appeliee, The Bank

of New York (the “Bank”’), duly confirmed on August 8, 1985

by the Bankruptcy Court. The Confirmation Order was

subsequently affirmed by the United States District Court

on March 20, 1986.' The appellants did not post a supersedeas

bond (as required by the District Court) in order to stay the

consummation of the plan, and it has now been substantially

consummated. Mr. Gould himself, who is one of the appellants

here and was also sole shareholder of the other appellant,

stated in open court on June 9, 1986, that, “this plan has

obviously been substantially consummated.’”

Thus, the relief sought by the appellants would

dismember a plan of reorganization that has been confirmed,

affirmed, and substantially consummated, and that has not

been stayed. That relief is neither fair nor possible, and

accordingly this appeal should be dismissed as moot. Jn re

Matos, 790 F.2d 864 (11th Cir. 1986); In re Sewanee Land,

Coal & Cattle, Inc., 735 F.2d 1294 (11th Cir. 1984); 11 U.S.C.

§1101(2).

‘Holywell Corp., et al, v. The Bank of New York, Case No. 85-3225-Civ-

Aronovitz

*Court Paper Number 1314, page 73; excerpt attached as Bank's App.

1. “Bank's App. " is a reference, by tab number, to the record excerpts

attached to this brief.

A 23

STATEMENT OF THE ISSUES

I. Was the Bankruptcy Court’s Order of January 28,

1986 “Clearly Erroneous’’?

Il. Is This Appeal Moot?

STANDARD OF REVIEW

The Bankruptcy Court’s finding of fact are to be affirmed

unless “clearly erroneous”. Bankruptcy Rule 8013. To the

extent that the Bankruptcy Court’s findings were affirmed

by District Judge Aronovitz’s Order affirming confirmation

of the Plan [Dbt. App. 387], the clearly erroneous standard

must be given “strict application”. Jn re Garfinkle, 672 F.2d

1340, 1344 (11th Cir. 1982).

STATEMENT OF THE CASE

The appellants are two of five related debtors in the

Chapter 11 bankruptcy proceedings below. Debtor Theodore

B. Gould (“Gould”) owned 100% of the stock of Debtor

Holywell Corporation (“Holywell”), and also served as

President and a director of Holywell. In turn, Holywell owned

100% of the stock of Debtor Miami Center Corporation

(“MCC”); Gould served as President and a director of MCC

as well. Gould and MCC were the sole general partners of

Debtor Chopin Associates (“Chopin”) and of Debtor Miami

Center Limited Partnership (“MCLP”). All five Debtors were

involved in developing the Miami Center Project, an office

building and hotel complex in downtown Miami. The complex

interrelationships among the Debtors and other affiliated

entities are depicted on Bank’s App. 2.

debtor/appellants’ brief

A 24

EE —

Debtor Holywell owned many subsidiaries other than

Debtor MCC. One such non-debtor subsidiary, wholly-owned

by Holywell, was Twin Development Corporation (““Twin’’).

Gould served as President and as a director of Twin as well.

The Bank was the construction lender for the Miami

Center Project, and held a secured claim in the bankruptcies

for over $200 million. In an adversary proceeding to establish

its lien, the Bank obtained a judgment for over $234 million

as of March 14, 1985, with interest accruing at over $2 million

per month thereafter [Bank’s App. 3]. The Bank disputes the

Debtors’ chronology in their “Statement of the Facts” as to

both accuracy and relevance. Since the focus of this appeal

should be upon the rights of various parties to the $13,163,490

realized by Twin from the sale of its Washington, D.C. office

building, it is important to review carefully the record on that

subject.

1. On June 23, 1983, Holywell pledged the stock of Twin

(and other subsidiaries) to the Bank to secure Holywell’s

guaranty of the construction loans [Dbt. App. 258).

2. On February 1, 1984, Holywell and the other Debtors

defaulted on the loan obligations, and the loans remained

in default through the filing of the bankruptcy petitions on

August 22, 1984 [C.P. No. 385h, pages 176-77].* By virtue

of the default and the terms of the stock pledge, the Bank

had the right to exercise all rights of ownership over the Twin

stock [Dbt. App. 272-77].

3. The money realized by Twin was part of the

“Washington Proceeds” —approximately $30 million in net

*““C.P. No. ___” refers to the Bankruptcy Court Paper Number of a

document in the Bankruptcy Court record below. “Adv. Pro. No. —_”

indicates that a particular document was separately docketed in a

designated adversary proceeding within the five bankruptcy cases.

A 25

proceeds received by the five debtors (the “Gould Group’’)

from the sale of three properties in Washington D.C. in

December, 1984 and January, 1985. Until they filed the

motion at issue here, Gould and Holywell always recognized

and agreed that the Washington Proceeds would be used to

pay allowed claims against the debtors:

(a) Gould and Holywell admitted their ability to

control Twin and its assets by seeking Bankruptcy Court

approval in October, 1984 for the sale of Twin’s real estate

{[Dbt. App. 1]. In that motion, Gould and Holywell

acknowledged that Bankrutcy Court approval of the sale of

Twin’s real estate was a condition precedent to the closing

[Dbt. App. 3, Paragraph 4; Dbt. App. 64]. More significantly,

Gould and Holywell represented to the Bankruptcy Court and

to the hundreds of creditors (including the Bank) that:

6. Consummation of the transaction proposed

herein is in the best interest of the Debtors and of

the creditors in these proceedings in that the

immediate cash infusion from such sale which

inures to Holywell and Gould will provide the

Debtors with capital much needed as an essential

part of the reorganization sought in these

proceedings. [Dbt. App. 3; emphasis supplied].

Thus, Holywell and Gould represented and admitted that

Twin’s share of the net proceeds of sale (ultimately $13.1

million) was to be controlled and/or utilized by Holywell and

Gould. If, as the appellants now argue, Twin was an

independent entity, there would have been no reason or

necessity for Gould and Holywell to have sought Bankruptcy

Court approval for the sale of Twin’s property.

(b) Based upon the representations by Gould and by

Holywell that Twin’s proceeds would be a “cash infusion”’

for the two Debtors, the Bank and other creditors did not

A 26

oppose the sale, and all parties agreed that the sales proceeds

should be (a) segregated and (b) subject to the jurisdiction of

the Bankruptcy Court [Dbt. App. 68 to 71]. The Bankruptcy

Court directed that:

1. Holywell shall cause Twin Development

Corp. (“Twin’’), a wholly owned subsidiary of

Holywell, to deposit into a segregated account,

subject to further order of this Court, any net funds

payable to Twin from the sale of certain improved

real and personal property (the ‘Washington

Properties’’) pursuant to a Purchase Agreement

dated as of July 26, 1984, as amended August 26,

1984, between Hadid Investment Group, Inc., as

purchaser and Twin, 1300 North 17th Street

Associates, 1616 Reminc Limited Partnership,

Eleven Dupont Circle Associates and Dupont Land

Associates as sellers (the “Purchase Agreement’’).

* * *

3. Holywell and Gould shall deposit all funds,

including any beneficial interest, into a segregated

account, subject to further order of this Court

including any and all funds payable to or by Gould,

Holywell or to any other entity or entities which

are owned (wholly or partially) or controlled (wholly

or partially) by Holywell and/or Gould as a result

of the sale of the Washington Properties. The funds

shall not include the proceeds payable to any

independent person or entity in which neither

Gould, Holywell, nor any related entity has any

interest of any nature whatsoever. [Dbt. App. 68-70]

Neither Twin nor either of the appellants appealed that

Order of December 16, 1984.

A 27

that all such funds, including the Twin proceeds, were cash

collateral subject to the Bank’s lien [Bank’s App. 4]. After

a hearing, the Bankruptcy Court granted that motion [Dbt.

App. 77 to 80]. Specifically, the Bankruptcy Court determined

in an Order of December 31, 1984, that, “‘the net proceeds

of the Washington sale constitute cash collateral as defined

in §363 of the Bankruptcy Code” [Dbt. App. 79]. Once again,

neither Twin nor either of the appellants took an appeal from

the entry of that Order.

(d) Subsequently the Debtors filed Schedules and

Statements of Affairs listing their respective assets and

liabilities. Holywell admitted its 100% control over Twin, and

the absence of any liabilities on the part of Twin, by

scheduling Twin’s value in the Holywell Schedules as

$13,210,000.00—the amount of Washington Proceeds payable

to Twin. [C.P. No. 275, Schedule B-2; Bank’s App. 5).

(e) Thereafter, the Debtors promulgated separate (but

similar) disclosure statements and plans of reorganization.

The Holywell disclosure statement advised creditors that

Twin’s cash from the “Washington Proceeds” would be used

to pay the claims of creditors [C.P. No. 466, page 4].

(f) Next, the Bank proposed a plan of reorganization

and companion disclosure statement (the ““Bank’s Plan’’). As

amended, the Bank’s Plan clearly disclosed that the

‘“‘Washington Proceeds’, including Twin’s proceeds, would

(1) become part of the Miami Center Liquidating Trust and

(2) be used to pay Allowed Claims (Dbt. App. 96, 101-02, 115,

124-25]. The Bank’s disclosure statement listed the exact

amount of the Washington Proceeds, $32,422,798.37, so it

was unmistakeable that Twin’s proceeds were included [Dbt.

App. 96, 101). The Bank reiterated that, “the Bankruptcy

Court has determined that the Washington Proceeds are

BNY’s (the Bank’s] cash collateral” [Dbt. App. 102]. Although

A 28

the debtors and various related entities filed numerous

objections to the Bank’s Plan [C.P. No. 534, 545, 580, 849,

888a], neither Twin nor either of the appellants ever objected

to the inclusion and use of Twin’s proceeds as part of the

Bank’s Plan.

(g) Pursuant to the Bankruptcy Court’s Orders, both

the debtors and the Bank were required to file certificates

relating to the voting by creditors and to the source of cash

to fund their respective plans of reorganization. On May 13,

1985, counsel for the appellants certified that $14,738,000

was available to fund the debtors’ proposed plans, including

funds in the “Twin Development Trust Account” at Florida

National Bank [C.P. No. 664; Bank’s App. 6]. In so certifying,

the debtors again evidenced their complete control over

Twin’s interests in the Washington Proceeds, and the clear

understanding that such funds would be used—under both

the debtors’ and the Bank’s proposed plan—to pay creditors.

(h) When the Bankruptcy Court confirmed the Bank’s

Plan [August 8, 1985, Dbt. App. 237], (1) Twin did not take

an appeal and (2) the debtors never raised, as an issue on

appeal, the disposition of Twin’s $13.1 million pursuant to

the terms of the Bank’s Plan. To the contrary, in their initial

brief in the appeal from the Confirmation Order,’ the debtors

stated as a fact that:

Holywell and Gould also had equity participations

in limited partnerships that owned three office

buildings in the District of Columbia and Virginia.

The partnerships sold those office buildings for an

aggregate price in excess of $100,000,000. The sales

were closed on December 31, 1984 and January 5,

1985. Holywell and Gould realized approximately

$32 million from these sales. [emphasis supplied].

5Case No. 85-3225-Civ-Aronovitz; the initial brief is docket item number

13 in that case, and the quotation is from page 9 of the brief.

A 29

Similarly, Twin and the appellauts did not raise the

argument that they now raise—that substantive consolidation

was a “subterfuge” to take Twin’s money—at the hearing

on substantive consolidation on July 18, 1985 [Dbt. App. 417].

(i) Thereafter, neither Twin nor either of the

appellants posted an appeal bond (as required by the District

Court) in order to stay the implementation of the Bank’s Plan.

Accordingly, the Liquidating Trustee was appointed [Dbt.

App. 241] and began to pay creditors with the funds in the

Liquidating Trust. If Twin or the appellants truly intended

to prevent the use of Twin’s proceeds to pay allowed claims

as provided by the Bank’s Plan, it was incumbent upon Twin

and/or the appellants to post an appeal bond as required.

(j) On November 22, 1985, the Liquidating Trustee

filed his first report, which clearly listed the Twin cash as

an asset subject to disposition by the Liquidating Trustee

[Dbt. App. 293, 300]. The Bankruptcy Court entered an Order

approving the report on November 26, 1985 [Dbt. App.

301-03]. Neither Twin nor either of the appellants took an

appeal from that Order.

(k) On December 30, 1985, the District Court

remanded the Debtors’ appeal from the Confirmation Order

back to the Bankruptcy Court for che entry of more detailed

findings of fact and conclusions of law [Dbt. App. 309].

Although invited and directed to raise any issue during the

remand, the appellants never mentioned the Plan’s

utilization of Twin’s proceeds. The Bankruptcy Court entered

detailed findings and conclusions on January 29, 1986, as

requested [Dbt. App. 329], reciting again that the Washington

Proceeds of approximately $30 million (which included Twin’s

share) were the Bank’s cash collateral [Dbt. App. 344] and

were to be used to pay creditors. The District Court affirmed

those findings [Dbt. App. 387], noting specifically that the

Bank’s Plan utilized, “the proceeds of the sale by the debtors

A 30

of certain real property owned by them in Washington, D.C.

($32,000,000)” [Dbt. App. 396]. In their appeal to the Eleventh

Circuit from that District Court Order,* the debtors have not

disputed that determination by the District Court.

(1) Nonetheless, the appellants asked the Bankruptcy

Court to “clarify” that Twin’s portion of the Washington

Proceeds could not be used by the Liquidating Trustee to pay

creditors [Dbt. App. 244]. When the Bankruptcy Court ruled

against the appellants and they initiated this appeal,

however, they did not obtain a stay pending the appeal.

Accordingly, the Liquidating Trustee has continued to use

Twin’s proceeds (as provided by the Bank’s Plan) to pay

creditors.

4. Twin never appeared separately in the bankruptcies

below. In keeping with its membership in the Gould Group

and its 100% ownership by debtor/appellant Holywell,

Gould’s and Holywell’s lawyers always spoke on behalf of

Gould and Holywell for Twin (as they continue to do in this

appeal). Twin never filed objections to the Bank’s Plan, and

Gould (as President of Twin) controlled Twin’s funds. Gould

testified that Twin’s funds had to be paid to Holywell:

Q. Twin Development Corporation?

A. It’s a wholly-owned subsidiary of Holywell.

Q. What does it do?

. It owned the general partnership in 1300 North 17th

Street.

Case No. 86-5286, pending in the Eleventh Circuit.

A 31

Q. That had something to do with the Washington

property?

A. It is one of the buildings in the Washington area.

Q. If one of those subsidiaries had some money coming

out of that closing, that would have gone to Holywell?

A. It has to go to Holywell as dividends.

[C.P. No. 385h, pages 49-50, emphasis supplied).

The foregoing facts, omitted from the appellants’

“Statement of the Case’’, demonstrate that the appellants

always understood and agreed that Twin’s assets were under

the control of the appellants and would be used to pay

creditors under the debtors’ plans or the Bank’s Plan,

whichever the Bankruptcy Court confirmed.

ARGUMENT

I. The Bankruptcy Court Ruled Correctly

That Twin’s Funds Were Part of The

Liquidating Trust.

A. Substantive Consolidation.

The debtor/appellants argue that the Bankruptcy Court,

“in effect sanctioned the substantive consolidation of Twin

Development with the Debtors” [appellants’ brief at 14]. That

is not correct.

Substantive consolidation is an equitable doctrine,

available under Section 105 of the Bankruptcy Code, under

which, “‘the assets and liabilities of different entities may

be consolidated and dealt with as if the assets were held by,

and the liabilities were incurred by, a single entity”. 5 Collier

A 32

on Bankruptcy §1100.06{1] at 1100-32 (15th ed. 1985). The

Bank’s Plan provided for the substantive consolidation of the

five debtors, but never purported to make Twin liable for the

obligations of the debtors. Instead, the Bank’s Plan did what

the debtors’ plans had proposed to do, and what the creditors

themselves could have ultimately done in the absence of the

bankruptcies—the Bank’s Plan provided that Twin’s share

of the Washington Proceeds would be used to pay creditors.

The appellants have already attacked substantive

consolidation on appeal, and have lost that appeal [Dbt. App.

399-404]. District Judge Aronovitz “studiously examined”

that issue, and concluded that substantive consolidation,

‘“‘was proper and correct as a matter of law and was based

on sufficient factual findings which were not, themselves,

clearly erroneous” [/d.]. That opinion characterizes the

evidence in the record justifying substantive consolidation

as “strong and convincing” [Dbt. App. 401]. The Order

affirming substantive consdlidation is “law of the case’’, and

may not be attacked again by the debtor/appellants in the

District Court. Hildreth v. Union News Co., 315 F.2d 548,

550 (6th Cir. 1963); Dade County Classroom Teachers’ Ass’n.

v. Rubin, 238 So.2d 284, 289 (Fla. 1970), cert. den., 400 U.S.

1009, 91 S.Ct. 569, 27 L.Ed.2d 623 (1971).

The debtor/appellants have noted in their brief that

substantive consolidation is, ‘one of the issues on appeal to

the Eleventh Circuit’’,’ so it is doubtful that this Court can

even consider the issue.

Twin was not “substantively consolidated” with the

debtors. Twin’s obligation and liability to pay its share of

the Washington Proceeds to Holywell—expressly and

repeatedly admitted by the debtors—was a property right of

Holywell’s. When the Plan was consummated on October 10,

’Appellants’ initial brief at page 15, note 7.

A 33

1985, the Liquidating Trustee acquired and utilized that

property right.

The creditors of debtors Gould, Holywell, MCLP, and

Chopin could have reached Twin’s share of the Washington

Proceeds. Under Section 620.63, Fla.Stat., Gould was

personally liable to all creditors of MCLP and of Chopin, as

well as to all of his own creditors.* All such creditors—MCLP’s

Chopin’s, and Gould’s—could have levied or executed upon

his 100% ownership interest in Holywell. In turn, all of those

creditors and all of Holywell’s creditors could have levied or

executed upon Holywell’s 100% ownership interest in Twin,

which included the $13.1 million portion of the Washington

Proceeds. Thus, the provisions of the Bank’s Plan and the

actions of the Liquidating Trustee were entirely consistent

with Florida’s creditors’ rights law, and did not prejudice

Twin. The appellants argue that the use of Twin’s funds

“would be grossly unfair to Twin’s creditors and equity

holders’’, but of course:

(a) The appellants lack standing to complain about

hypothetical or supposed injuries to creditors that are not

before this Court. [Dbt. App. 406; R.T. Vanderbilt Co. v.

OSHA Rev. Comm., 708 F.2d 570, 574 (11th Cir. 1983)]; and

(b) The only “equity holder” of Twin is debtor/

appellant Holywell, which has already taken and lost an

appeal from the confirmation and operation of the Bank’s

Plan.

All of the “substantive consolidation” cases raised by the

appellants were taken into account by District Judge

Aronovitz in approving the confirmation of the Plan. A case-

by-case analysis of the authorities cited by the appellants

‘Because Gould was a general partner of debtors MCLP and Chopin,

which are both Florida partnerships.

A 34

would serve no purpose here, because they are the same

authorities that have been cited (a) by the debtors in their

unsuccessful appeal from the order of substantive

consolidation and from the Confirmation Order, (b) by District

Judge Aronovitz in approving substantive consolidation and

the other aspects of the Bank’s Plan attacked by the debtors,

and (c) by the debtors in their further appeal from Judge

Aronovitz’s Order to the Eleventh Circuit. In addition, the

Plan’s use of Twin’s portion of the Washington Proceeds did

not amount to “substantive consolidation” as argued by the

debtors. Twin’s existence as a corporation, its other assets,

and all of its liabilities were unaffected by the Plan. Only

the funds that “‘had”’ to be dividended to Holywell? and that

were part of the Bank’s cash collateral were affected by the

Plan. That is far short of “substantive consolidation’’.

B. The Guarantees and Stock Pledge.

The appellants next argue that their own guarantees and -

Holywell’s pledge of Twin’s stock to the Bank, “did not mean

{the Bank] could simply grab the Twin assets” [appellant’s

initial brief at 26).

The Bank did not “grab the Twin assets”. Twin’s share

of the Washington Proceeds has been applied to pay the Gould

Group’s creditors, which is a result that the creditors could

have obtained by execution against Gould and Holywell. The

Bank’s Plan did precisely what the debtors repeatedly

proposed to do—it used the Washington Proceeds to pay the

Gould Group’s creditors. The cash collateral Order [Dbt. App.

77) brought Twin’s portion of the Washington Proceeds under

the jurisdiction of the Bankruptcy Court. If Twin had an

objection to that result (which Twin plainly did not, since it

was controlled by Holywell and Gould ard neither appealed

the Order), it was required to file an appeal on or before

%See the testimony of appellant Gould at page 12 of this brief.

A 35

January 10, 1985. Bankruptcy Rule 8002. Twin failed to do

so, and thereby abanduned any right to dispute the

Bankruptcy Court’s jurisdiction over Twin’s share of the

Washington Proceeds or to claim that the debtors had no

control over those funds.

ll. This Appeal Is Moot.

In the absence of an order staying the implementation

of a plan of reorganization or disposition of property, an

appeal becomes moot. Jn re Cada Investments, Inc., 664 F.2d

1158, 1160 (9th Cir. 1981). The same is true with respect to

an unstayed appeal from a plan that has been substantially

consummated. In re Roberts Farms, Inc., 652 F.2d 793, 797

(9th Cir. 1981).'° The Bank’s Plan has been substantially

consummated as defined by 11 U.S.C. §1101(2), as specifically

determined by the Bankruptcy Court [Dbt. App. 367-68,

Paragraph 57], and as admitted in open court by appellant

Gould himself [Bank’s App. 1). There is simply no way that

the Liquidating Trustee can identify Twin’s portion of the

Washington Proceeds or reclaim it from the creditors who

were paid over the past year (consummation of the Plan began

over a year ago, on October 10, 1985). Nor can Twin simply

recover its $13 million and walk away into the sunset, as

the appellants apparently hope and urge.'' The use of that

money by the debtors was a material aspect of the Bank’s

Plan. The Bank would not have (a) released its lien over that

See also In re AOV Industries, Inc., 792 F.2d 1140 (D.C. Cir. 1986).

That opinion notes that the failure to obtain a stay is fatal, “to the extent

reversal of the confirmation order would require the invalidation of good

faith transfers.” Jd. at 1147.

"Such a result would allow over $13 million to leave the five estates

out a “side door” before all creditors were paid and the five cases closed

Bécause of Gould's direct and complete control over Twin, he would in

effect receive the $13 million as an equity distribution before payment

of all creditors.

A 36

» & ee et ee: a SOT e~ es

cash and the balance of the Bank’s cash collateral, (b) waived

the default interest differential on its construction loans to

the debtors (several million dollars), or (c) bought the Miami

Center Project for $255.6 million, including approximately

$14 million of new cash, if Twin’s funds had been unavailable

as a matte: of law for the payment of other creditors. Since

the sale closed on October 10, 1985 and Twin’s portion of the

Washington Proceeds was turned over to the Liquidating

Trustee as of that date pursuant to the terms of the Plan and

of that sale, it is now too late to unwind the transaction. Jn

re Matos, 790 F.2d 864 (11th Cir. 1986); Jn re Sewanee Land,

Coal & Cattle Co., Inc., 735 F.2d 1294 (11th Cir. 1984).

Mootness is jurisdictional, and this appeal should be

dismissed on that basis. Locke v. Board of Public Instruction

of Palm Beach County, 499 F.2d 359, 363-64 (5th Cir. 1974).

CONCLUSION

Having lost a direct attack on the Bank’s Plan in this

Court [Dbt. App. 387], the debtors are now attempting to raise

an argument on behalf of one of their many wholly-owned

and totally-controlled subsidiaries [Bank’s App. 2]. For their

own purposes, the debtors repeatedly represented that Twin’s

share of the Washington Proceeds were available to Holywell

and for the payment of the Gould Group’s creditors. In

seeking permission to sell the Washington, D.C. properties

that generated Twin’s cash, the appellants told the

Bankruptcy Court that “the immediate cash infusion” would

inure to their benefit and would be “‘an essential part of the

reorganization” [Dbt. App. 3].

Now the appeliants want to argue that Twin was outside

the sphere of the bankruptcies, and that the Bankruptcy

Court and the Bank’s Plan could not deal with Twin’s share

of the Washington Proceeds, even though those funds “had”

A 37

to be paid to Holywell [see Mr. Gould’s testimony at page

12 of this brief).

The Bankruptcy Court correctly rejected that transparent

change in position by the debtors. Moreover, District Judge

Aronovitz has already heard and rejected the appellants’

objections to the Bank’s Plan; this appeal is merely another

bite at the apple. Accordingly, it is respectfully submitted

that this Court should dismiss this appeal as moot or, in the

alternative, affirm the Bankruptcy Court’s Order below.

Respectfully submitted,

Attorneys for

The Bank of New York

KIRKPATRICK & LOCKHART

1428 Brickell Avenue

Miami, Florida 33131

Telephone: (305) 374-8112

By: /s/ [illegible], for

S. Harvey Ziegler

Of Counsel: STEEL HECTOR & DAVIS

Thomas F. Noone 4000 Southeast Financial Center

EMMET MARVIN & MARVIN 200 South Biscayne Boulevard

48 Wall Street Miami, Florida 33131-2398

New York, New York 10005 Telephone: (305) 577-2804

Telephone: (212) 422-2974

By: /s/ [illegible), for

Vance E. Salter

A 38

eee

wtedt

ee ee

CERTIFICATE OF SERVICE

I HEREBY CERTIFY that a true copy of the foregoing

Motion to Dismiss Appeals as Moot was furnished by

overnight courier this 7th day of November, 1986 to Fred H.

Kent, Jr., Esq., Kent, Watts & Durden, 1400 Florida National

Bank Tower, 225 Water Street, Florida 32202, and Raymond

Bergan, Esq., Williams & Connolly, 839 Seventeenth Street

N.W., Washington, D.C., 20006, as attorneys for appellants;

and by messenger to Irving M. Wolff, Esq., Holland & Knight,

1200 Brickell Avenue, Miami, Florida 33131, as attorney for

the Liquidating Trustee.

/s/ [illegible], for

Vance E. Salter

A 39

UNITED STATES BANKRUPTCY COURT

SOUTHERN DISTRICT OF FLORIDA

Case No. 84-01590-BKC-TCB

Case No. 84-01591-BKC-TCB

Case No. 84-01592-BKC-TCB

Case No. 84-01593-BKC-TCB

Case No. 84-01594-BKC-TCB

Chapter 11

IN RE: HOLYWELL CORPORATION,

MIAMI CENTER LIMITED PARTNERSHIP,

MIAMI CENTER CORPORATION,

CHOPIN ASSOCIATES, and THEODORE B. GOULD,

Debtors,

—

ORDER ON REMAND

The District Court Order of Remand dated December

30 reached this court on January 6 (C. P. No. 1145).

It requires that one or more hearings be held, proposed

findings and conclusions be entertained, and that this

court not later than January 29:

“make and enter such findings of fact and conclu-

sions of law as are necessary to provide the Dis-

trict Court with an adequate basis to decide the

... appeal on the merits.”

At a conference held January 14, the debtor requested

and on January 18 the court held an evidentiary hear-

ing to receive additional evidence on three issues: (a)

the value of the Miami Center Project, (b) the value

to the estate of a lawsuit pending before Judge Hoeveler,

and (c) amount of the Bank’s lien. The parties also re-

A 40

3: at aE Siero arate RM eee

quested leave to submit their proposed findings and con-

clusions by January 23. The parties agreed that no

other hearings were necessary.

Although counsel for MCJV and O&Y attended both

hearings, neither they nor any party other than the

debtors and the Bank participated.

On January 23, both the debtors (C. P. No. 1175) and

the Bank (C. P. No. 1176) submitted comprehensive and

detailed proposed findings and conclusions, respectively

43 and 52 pages in length.’ In addition, the debtors

filed on January 28 the debtors’ 22-page response to the

Bank’s proposed findings and conclusions.

I presume counsel understand what will best assist

Judge Aronovitz. Recognizing the weight accorded to

adopted findings, Anderson v. Bessemer City, 470 U.S.

, 84 L.Ed.2d 518, 527 (1985), I have used the time

available to me to review carefully the proposed findings

and conclusions and the debtors’ Response together with

the entire record, instead of attempting to reword and

retype forty to fifty pages of similar detail. For the

most part the facts flow from uncontroverted matters of

record. The parties differ in the emphasis they give and

the inferences they draw from the undisputed events.

I reject the proposals of the debtors as reflecting in

essential respects the contentions I considered and re-

jected previously. I adopt the Bank’s proposed findings

of fact and conclusions of law, copies of which are at-

tached and incorporated in this Order. They accurately

represent my own considered conclusions as to both the

facts and legal principles implicit in the Confirmation

Order of August 8, 1985 (C. P. No. 906) and the earlier

1 Official Form 31, prescribed by the Judicial Conference pursu-

ant to Bankruptcy Rule 9009 as the form for a chapter 11 Order

Confirming Plan, is a page and a half and contains only the eight

statutory requirements of 11 U.S.C. §1129(a) rephrased as mixed

A 41

Consolidation Order (C. P. No. 840). The earlier order

followed one session of the extended confirmation hear-

ing and resolved one bitterly contested element of the

confirmation issues. It was not possible, in this case, to

hear all the issues and parties during one uninterrupted

session.

In a matter of this magnitude, fought as hard as this

one has been, it is easy to lose sight of the forest while

concentrating on the trees. Neither this review, the ad-

ditional evidence tendered, nor the subsequent events

have caused me to recede from the decisions I reached

after spending a year with all the parties and the -is-

sues they presented, which I attempted to put into per-

spective in the Confirmation Order.

FINDINGS OF FACT AND CONCLUSIONS

OF LAW UPON REMAND

Findings of Fact

A. Parties

1. The debtors are Holywell Corporation, a Delaware

corporation (‘‘Holywell’), of which debtor Theodore B.

Gould (“Gould”) is the sole stockholder and president;

Miami Center Limited Partnership, a Florida limited

partnership (““MCLP”) of which Gould and debtor Miami

Center Corporation (‘““MCC’’) are sole general partners

and are also limited partners; MCC, a Florida corpora-

tion and wholly-owned subsidiary of Holywell (Gould is

also president of this entity) ; Chopin Associates, a Flor-

ida general partnership (“Chopin”) of which Gould and

MCC are the sole general partners; and Gould himself.

2. The Bank was the construction lender for Phase I

of the debtors’ “Miami Center” complex. That Phase con-

sists of the Edward Ball Office Building, the Pavillon

Hotel, retail space between them known as the “Podium”,

A 42

ee ee ee ee ee ee eee

and an adjoining parking garage (collectively, the “Miami

Center Project”). The Bank has its offices in New York,

New York, and is chartered under the laws of the State

of New York.

3. Miami Center Joint Venture (‘““MCJV”) is a Flor-

ida general partnership formed by debtor Gould and

Olympia & York Florida Equity Corp. (“O&Y’’), a Flor-

ida corporation established by a large Canadian real es-

tate development company. At all material times, Gould

served as “managing venturer” and general partner of

MCJV. MCJV owns four vacant lots near the Phase I .

Project. Gould and O&Y originally planned to construct

Phases II and III of Miami Center on those lots, but

disputes and litigation between the two partners pre-

vented any such construction.

4. Holywell Leasing Company (“HLC’’) and Holywell

Telecommunications Company (“HTC”) are two of nu-

merous non-debtor subsidiaries wholly owned by debtor

Holywell (wholly owned, in turn, by Gould). Gould was

president of each at all material times.

5. Over 400 other creditors have an interest in these

proceedings, including the IRS, the Dade County Tax

Collector, many of the contractors and subcontractors in-

volved in the construction, former employees, and others.

Creditors’ committees were appointed by this Court, and

have been active, for the Holywell, MCLP, and MCC

estates.

B. Jurisdiction

6. This Court has jurisdiction over these reorganiza-

tion proceedings and over the parties pursuant to 28

U.S.C. § 157, the standing order of reference in this

District, and the Order of Remand.

C. The Debtors’ Plans

7. The debtors filed a separate, amended disclosure

statement and plan for each estate; however, all were

A 43

nearly identical in form and substance [C.P. No. 466-

470].

8. The debtors’ plans were predicated upon:

(a) the sale of the Miami Center Project to Hadid

Investment Group, Inc. (‘‘Hadid’”’) for $260 million;

(b) the payment of undisputed claims from approxi-

mately $32 million realized by Holywell, a wholly-owned

subsidiary, and Gould in January, 1985 from the sale of

other real estate in the Washington, D.C. area (by Order

entered December 31, 1984, C.P. No. 303, such funds

were determined to be cash collateral under 11 U.S.C.

§ 363, subject to the Bank’s first lien) ;

against the Bank and its participating lenders (Miami

Center Limited Partnership, et al. v. The Bank of New

York, et al., Case No. 85-0228-Civ-Hoeveler; the “District

Court Action”) for alleged fraud, usury, breach of con-

tract, and civil claims under the federal RICO act; and

(d) equitable subordination of the Bank’s construction

loan and mortgages under 11 U.S.C. § 510(c).

D. Objections to the Debtors’ Plans

9. Objections to the debtors’ amended plans were filed

by:

(a) O&Y [C.P. No. 533], upon the grounds that:

(1) the debtors’ plans were based on a “wholly specu-

lative agreement” with Hadid, “replete with holes and

contingencies” ;

(2) O&Y and MCJV, “would be subjected to contin-

uing delays, mounting costs and interest charges”, and:

The past record of the Debtors, and notably of Mr.

Gould as the controlling and dominating person, is

replete with evidence of unfounded representations,

A 44

ei rie ain ie al: hig Rl Alas UR RO Dg

Liev I A He.

= Tes thle BSL:

ATE A Bor PUT! 00

commitments and undertakings breached, and a myr-

iad of obligations, assurances and agreements un-

fulfilled and repudiated. The record in these very

proceedings, reflect the repeated experiences of part-

ners and creditors with such abandoned commit-

ments and undertakings.

(Id., Paragraph 3];

(3) “Gould, as proponent of the Debtors’ consolidated

plans, in light of his loss of credit and credibility in the

real estate and financial markets, is perhaps the least

likely prospect to achieve a prompt sale and disposition

of the properities concerned and a discharge of the claims

of creditors.” [Jd., Paragraph 5];

(4) the debtors’ plans classified the O&Y claims “in a

separate and subordinate class’, below those of other un-

secured creditors;

(5) the debtors’ plans lacked “sufficient funds . . . to

provide for the repayment of all of [O&Y’s] claims”;

(6) the debtors’ plans failed to provide for the dis-

charge of the claims of O&Y under two agreements

covering certain furniture, fixtures and equipment (the

“FF&E”’) ; and

(7) the debtors’ plans failed to provide for the pay-

ment of debtor Holywell’s liability, “to MCJV and

[O&Y] of an amount of approximately $1.7 million ...

arising from Gould’s and Holywell’s acts of diversion and

misappropriation” [Id., Paragraphs 13 and 14].

(b) the Bank [C.P. No. 535}, upon the grounds that:

(1) the debtors’ plans were misleading, and were

based upon contingencies unlikely to materialize and re-

quiring years of litigation to resolve;

(2) the debtors’ plans failed to meet the “‘best interest

of creditors” (Section 1129(a)(7)), feasibility (Section

1129(a)(11)), and “cram down” (Section 1129(b) (1) )

requirements under the Code; and

A 45

(3) the debtors’ “equitable subordination proposal in

respect to the Bank’s liens was moot in light of this

Court’s March 20, 1985 decision [C.P. No. 20 in Adv.

Pro. No. 85-0160-BKC-TCB-A] holding that two releases

executed by the debtors in favor of the Bank and its

participating lenders) barred the debtors’ claims of

wrongdoing.

No. 567], upon the grounds that:

(1) the debtors’ plans were not feasible, because the

Hadid contract was “not a true and valid offer’;

(2) the matter of equitable subordination of the

Bank’s claim had been adjudicated against the debtors;

(3) the debtors’ plans would eliminate the estates’

equity because of the accrual of interest on the Bank’s

mortgages during the litigation and the Hadid contract

delays;

(4) the debtors’ plans unfairly discriminated against

creditors and were not fair and equitable;

(5) the debtors failed to comply with 11 U.S.C. § 1129

(a) (5) (A) (i) ; and

(6) the debtors made solicitations of creditors through

improper “telephone calls and a mailgram, which did not

truthfully represent the facts’, attempting in bad faith

to obtain acceptances, in contravention of 11 U.S.C.

§ 1126(e).

(d) Julian J. Studley, Inc. [C.P. No. 526], an un-

secured creditor, because of the improper classification of

its claims and failure to comply with 11. U.S.C. § 1123

(a) (4).

(e) the Holywell Creditors’ Committee [C.P. No.

516], upon the following grounds: %

(1) the “illusory” nature of the debtors’ plans because,

“they do not present a binding contract with a purchaser,

A 46

but represent merely an option to a real estate broker

which can be extended through September, 1985, under

the Contract”, and the “down payment” was merely 2

promissory note; and

(2) the debtors’ plans would entail substantial delays

because of (i) the “study period” and extensions under

the Hadid contract and (ii) the litigation involved in the

attempt to subordinate the Bank’s claims.

E. The Bank’s Plan

10. The Bank filed an amended, consolidated disclo-

sure statement and plan [C.P. No. 478] which was fur-

ther amended [C.P. No. 854] during the course of the

confirmation proceedings. The Bank also entered into

certain stipulations with the Creditors’ Committees [C.P.

No. 564, 614, 709c, and 876a]. Neither the stipulations

nor the second amendment to the Bank’s plan adversely

affected any party other than the Bank.

11. The central features of the Bank’s amended, con-

solidated plan are:

(a) the purchase by the Bank (or its designee) of

the Miami Center Project, including the FF&E, for its

MAI-appraised value of $255.6 million, comprised of (i)

satisfaction of the Bank’’s judgment lien, computing in-

terest at the contract or “good standing” rate rather

than the higher default rate, and (ii) the balance, after

closing adjustments and prorations, in new cash;

(b) the establishment of the “Miami Center Liquidat-

ing Trust”, consisting of all other assets of the debtors,

for the payment of all other claims by a court-appointed

Liquidating Trustee;

proximately $30 million), for addition to the new cash

generated by the sale of the Miami Center Project (ap-

proximately $13.6 million), with the combined funds to

A 47

be used by the Liquidating Trustee to pay the claims of

all other creditors;

(d) a further financing commitment of approximately

$14.4 million by the Bank for payment of the claim of

MCJV for the FF&E, (i) if and when such claim is

allowed over the Bank’s pending objections, (ii) to the

extent other assets of the Liquidating Trust prove in-

sufficient to pay the claim, and (iii) if it is ultimately

determined that MCJV has been damaged by its (al-

legedly) improper classification under the Bank’s plan;

(e) dismissal of the District Court Action by the

Liquidating Trustee; and

(f) the consolidation of all five estates in a manner

such that the unaffiliated creditors of Holywell are paid

first, the unaffiliated creditors of the other debtors are

paid next, and the many inter-debtor and related party

claims are paid thereafter.

F. Objections to the Bank’s plan

12. Objections to the Bank’s Plan were filed by:

(a) the Holywell Creditors’ Committee [C.P. No. 515],

but these objections were subsequently withdrawn by

stipulation [C.P. No. 614, paragraph 6];

(b) O&Y [C.P. No. 532, 817a, 871], upon the grounds

that:

(1) the Bank’s plan assumes title to the MCJV FF&E

without adequate and priority payment of sums allegedly

due under the FF&E agreements; and

(2) the Bank’s plan, “fails to provide for payment of

Gould’s and Holywell Corporation’s obligations to O&Y

through MCJV of an amount of approximately $1.7

million . . . arising from Gould’s and Holywell’s acts of

diversion and misappropriation ...”.

ing the debtors [C.P. No. 537a], upon the grounds that:

A 48

(1) the Bank’s plan is “unfairly discriminatory and is

not fair and equitable” to impaired classes;

(2) the Bank’s valuation of assets and claims is errone-

ous;

(3) the Bank’s plan assumes liabilities of MCJV;

(4) the Liquidafing Trust is violative of 11 U.S.C.

§ 1129(5) (A) (i) ; and

(5) the plan’s priority scheme does not comply with 11

US.C. § 1129.

(d) MCJV [C.P. No. 808], though comprised of Gould

and O&Y, in separate objections alleging that the plan

fails to provide proper payment and priority for the

MCJV FF&E claims.

(e) the debtors [C.P. No. 534, 545, 580, 849, and 888a],

upon the grounds that:

(1) the Bank’s plan fails to pay in full for the FF&E;

(2) the Bank’s plan deprives mechanics’ lien claimants’

of their security;

(3) the Bank’s plan and disclosure statement are mis-

leading;

(4) substantive consolidation would only result in “un-

just enrichment” to the Bank and other creditors;

(5) the Bank’s plan would cause the limited partners

to lose their investment and to become liable for addi-

tional taxes;

(6) the District Court Action would be “summarily”

dismissed, “without due process of law’; and

(7) the appointment of a Liquidating Trustee violates

11 U.S.C. § 1104 (a).

G. Voting by the Creditors

13. After the debtors’ and the Bank’s disclosure state-

ments were approved, and pursuant to this Court’s order

A 49

[C.P. No. 405], separate ballots for the debtors’ plans

and for the Bank’s plan were transmitted to all creditors

for return by April 29, 1985. On that date, the Court held

an initial confirmation hearing and, with the assistance

of counsel, established a procedure for the tabulation of

the ballots and for certification by the plan proponents of

the availability of all funds necessary for consummation

should a plan be confirmed [C.P. No. 611, 612, 619].

14. The requisite certificates respecting the voting and

the funding were filed by each side on May 13, 1985, as

directed [C.P. No. 658-664], and were reviewed by the

Court.

15. The voting indicated overwhelming support for the

Bank’s plan among the creditors, and rejection of the

debtors’ plans. Creditors in Classes 1 through 6 approved

the Bank’s plan by well over the minimum margins re

quired (one-half in number and two-thirds in dollar

amount, per 11 U.S.C. § 1126(c)). However, O&Y and

MCJV (Class 7 under the Bank’s plan), certain wholly-

owned subsidiaries of Holywell controlled by Gould (Class

8), and the debtors themselves (Class 9), voted against

the Bank’s plan. Accordingly, the Court was required to

determine whether the plan met the requirements of 11

U.S.C. § 1129(b).

H. Establishment of the Bank’s Lien

16. In order to establish the amount, validity, and

priority of its lien over the debtors’ property, the Bank

filed an adversary proceeding against the debtors (Adv.

Pro.No. 85-0160-BKC-TCB-A).

17. The debtors sought a stay of the scheduled trial

of the lien proceeding (a) initially in the Bankruptcy

Court [C.P. No. 3A in Adv.Pro. 85-0160], and (b) then

in the District Court Action. Both Courts refused to enter

such a stay, and the trial went forward as scheduled.

A 50

18. That proceeding culminated in the entry by this

Court of:

(a) a final judgment in favor of the Bank for principal

and interest of $234,342,742.93, plus interest of over

$75,000 per day from March 14, 1985, forward [C.P. No.

21 in Adv.Pro. 85-0160] ; and

(b) a memorandum decision upholding the two releases

executed by the debtors in favor of the Bank (and its

participating lenders), and determining that those re-

leases barred the fraud, breach of contract, usury, and

RICO theories raised by the debtors as purported defenses

in this Court and as claims in the District Court Action

(C.P. No. 20 in Adv.Pro. 85-0160}.

At the remand hearing on January 18, 1986, the debtors

presented evidence which purported to show a discrepancy

in the amount of the Bank’s lien. However, since that

amount has been embodied in a final judgment [C.P. No.

21 in Adv. Pro. 85-0160) that is now en appeal before

the District Court (Gould et al. v. The Bank of New

York, Case No. 85-2263-Civ-NCR), the Court will not

revisit that issue. The Court has also been directed to the

debtors’ brief in that appeal which states, at page 23,

that the debtors, “do not contest that the principal amount

advanced by The Bank of New York is $196,711,481.58”,

exactly the amount set forth in the final judgment [tran-

script of hearing of January 18, 1986, page 11).

I. The FF&E Leases

19. Next, as part of the continuing confirmation proc-

ess, the parties advised the Court that characterization of

two agreements, relating to the FF&E and between MCJV

and MCLP (debtor Gould was managing general partner

of each), as “true leases” cr as “financing agreements”

could be dispositive of the FF&E claims asserted by O£Y

and MCJV. The Bank filed [Adv.Pro.No. 85-0566-BKC-

TCB-A] an adversary proceeding against the affected

parties seeking a determination of the nature (secured

A 5l

or unsecured), extent, and value of such claims. The

Bank also filed an objection to the FF&E claim filed by

O&Y and MCJV [C.P. No. 811], which remains pending.

20. After an evidentiary hearing, the Court entered

an extensive memorandum opinion [C.P. No. 26 in Adv.

Pro. 85-0566] holding that the two agreements were

“true leases” (and, therefore, that MCJV owned the

FF&E subject to debtor MCLP’s option rights under the

leases). The Court was not asked to, and did not, de-

termine in that proceeding the priority of MCJV’s claim

or the proper amount of that claim assuming exercise of

MCLP’s option to acquire the FF&E (as provided by the

Bank’s plan).

J. Substantive Consolidation

21. Thereafter, the parties furthered the confirmation

process by noticing an evidentiary hearing upon the debt-

ors’ objections to the substantive consolidation feature

of the Bank’s plan. Both sides presented evidence and

argument [C.P. No. 844] on the issue.

22. The Court determined, based upon facts and au-

thorities detailed below (Paragraphs 29-41 and 58-67),

that substantive consolidation is in the best interest of

creditors, is not prejudicial to the debtors, and is ap-

propriate on the record before the Court [Consolidation

Order, C.P. No. 840]. Under the plan, the creditors have

received or will receive more than they would in liquida-

tion. 11 U.S.C. § 1129(a) (7).

K. Further Hearings

23. During the confirmation process (April 29 through

August 8, 1985), the Court held numerous other hearings

and invited counsel to submit such memoranda and re-

quest such hearings as they might deem appropriate or

necessary to supplement the already-voluminous record

before the Court. During that time, no further evidenti-

ary hearings were requested.

A 52

24. However, pursuant to the Order of Remand and

the written request of counsel for the debtors, a further

evidentiary hearing was conducted on January 18, 1986,

for the submission of evidence regarding:

(a) the value of the Miami Center Project;

(b) the value or “cost/benefit” of the District Court

Action; and

L. Findings As to the Debtors’ Plans

25. At the instance of the Bank, the deposition of the

President of Hadid Investment Group, Inc. (the proposed

purchaser of the Miami Center Project for $260 million

under the terms of the debtors’ plans), Mohammed A.

Hadid, was taken on April 19, 1985 [C.P. No. 649].

Hadid’s testimony and the deposition exhibits demon-

strate, and the Court finds, that:

(a) the Hadid contract had no fixed closing date, and

was little more than an open-ended option;

(b) Hadid was still searching for a principal to finance

or acquire the Project under the contract, and did not

have the wherewithal independently to close the purchase;

the Project until the “cloud of bankruptcy” was removed;

and

(d) the “down payment” was a mere promissory note

of dubious enforceability.

26. As is evident from the results of the voting (see

Paragraphs 14 and 15, supra), numerous classes of

creditors voted against the debtors’ plans.

27. The “equitable subordination” of the Bank’s judg-

ment, as proposed by the debtors, would not have been

permitted because the debtors had specifically released any

A 53

and ali such claims against the Bank and its participating

lenders [C.P. No. 20 in Adv.Pro. 85-0160].

28. The debtors’ numerous disputes and litigation on

nearly every front—with the IRS, the City of Miami, the

al valorem tax authorities, the general contractor, the

Jebtors’ former lawyers, the former hotel operator (Trust-

house Forte), O&Y, the leasing agent (Julian J. Studley,

Inc.), prospective tenants, and the Bank—would have

continued or even increased under the debtors’ plans, such

that the funds of the estates otherwise available for the

payment of claims to creditors would have been substan-

tially eroded by legal fees and other costs of litigation.

All such litigation is detailed in the debtors’ amended

schedules [C.P. No. 275-278] and disclosure statements

[C.P. No. 877-381]. It is likely that consummation of the

debtors’ plans would have been followed by liquidation or

by a need to further reorganize. 11 U.S.C. § 1129(a)

(11).

M. Findings on Substantive Consolidation As Proposed

by the Bank’s Plan.

29. All of the Creditors’ Committees supported sub-

stantive consolidation. No creditor (except for those con-

trolled by Gould) objected to substantive consolidation.

30. Gould’s testimony at deposition, to which the Court

was directed at the hearing on substantive consolidation

(C.P. No. 385h], was:

Q: Is it fair for us to conclude that Holywell, the

parent company, is the ultimate beneficiary of

any and al! profits that these companies make?

A: [Mr. Gould]: Yes, it is. [Page 31].

Q: Has it been customary for these interrelated

companies to move money back and forth?

A: Yes. [Page 202].

A 54

Did either of these two corporations operate at

a profit?

A: All of them did.

Q: All of that money was dividended up to Holy-

~ well?

A: Yes.

Q: Then you, as the sole stockholder in Holywell,

got a dividend from Holywell?

A: No. All the funds during the past four years

have been loaned to this project.

Holywell—

A: All of the funds that Holywell has earned during

the past four years have been loaned to the

Miami Center Limited Partnership. {Page 55].

Moreover, the debtors specifically asked the Court to ap-

prove (and the Court did approve) as undisputed liabili-

ties of the debtors, payments to terminated employees of

Holywell’s wholly-owned subsidiaries: Parkwell, Inc.;

Parkwell of Florida; Holywell Construction Co.; Holywell

Telecommunications Co.; Florida Viking Properties; Orion

Engineering Services; Whitehall Building Services; White-

hall Security Corp.; and Holywell Hotels, Inc. [C.P. No.

609, Exhibit “B”]. All such employees performed services

for the Miami Center Project owned by debtors MCLP

and Chopin.

31. The debtors’ schedules [C.P. No. 275-278] show,

and the debtors have never disputed that:

(a) Gould owns 100% of debtor Holywell;

(b) Gould is jointly and severally liable for all of the

debts of debtor MCLP and of debtor Chopin because he

is a general partner of each (Sections 620.62 and 620.625,

Florida Statutes) ;

A 55

well’s numerous other subsidiaries; and

(d) MCC is also jointly and severally liable for all

debts of MCLP and Chopin, because MCC is a general

partner of each.

32. The debtors’ outside accountant testified, and the

Court thus finds, that Holywell’s financial statements were

consolidated with those of debtor MCC [C.P. No. 844,

pages 37-38].

33. The debtors cross-guaranteed each other’s liabili-

ties to the Bank and to various other creditors. Many

creditors filed claims against the wrong debtor or debtors

as a result. For example:

(a) Holywell Construction Company, a wholly-owned

subsidiary of debtor Holywell, was “an agent of [debtor]

Miami Center Limited Partnership” [C.P. No. 788, page

37; see also page 100].

(b) Holywell Real Estate Corporation, another of the

many wholly-owned subsidiaries of debtor Holywell, en-

tered into a contract for work at Miami Center that was

always to be paid by debtor MCLP [Id. at page 45; the

Court held debtor Holywell liable].

lieved its claims were against “Holywell Hotels, Inc.,

trading as Pavillon Hotel’, rather than against debtor

Holywell [Id. at page 99).

(d) Debtor MCLP acknowledged indebtedness for pur-

chases made by Whitehall Security Corporation, another

wholly-owned subsidiary of debtor Holywell [Id. at page

104).

(e) Debtor Holywell furnished credit information in

support of credit extended for purchases by debtor MCLP,

and was invoiced for those purchases [Id. at 123-29).

A 56

(f) A Miami law firm invoiced debtor Holywell for

services allegedly obtained for debtor MCLP, apparently

by Holywell Construction Company [Id. at 147-49].

34. The creditors filed overlapping claims because of

their confusion. The debtors objected to over 300 claims

on the grounds that the claims were filed against the

wrong debtors [C.P. No. 577-579, 584-86, 588, 589).

35. The schedules claim the following inter-company

indebtedness, among others, between various debtors and

their wholly-owned subsidiaries:

(a) MCLP owes Holywell $4,080,395.21.

(b) MCLP owes Holywell’s wholly-owned subsidiary

“Charleston Center Corp.” $2,067.801.71.

(d) MCLP owes Holywell’s wholly-owned subsidiary

“Holywell Construction Co.” $500,832.12.

(e) MCLP owes Holywell’s wholly-owned subsidiary

“Holywell Hotels, Inc.” $1,923,862.81.

(f) MCLP owes Holywell’s wholly-owned subsidiary

“Holywell Management Co.” $222,004.55.

(g) MCLP owes Holywell’s wholly-owned subsidiary

HTC $64,489.59.

(h) MCLP owes Holywell’s wholly-owned subsidiary

“Orion of Washington” $499,333.00.

(i) MCLP owes Holywell’s wholly-owned subsidiary

“Orion Engineering Services” $275,704.74.

(j) MCLP owes Holywell’s wholly-owned subsidiary

“Parkwell, Inc.” $114,249.21. ~

(k) MCLP owes Holywell’s wholly-owned subsidiary

“PBA Architects, Inc.” $856,709.17.

(1) MCLP owes Holywell’s wholly-owned subsidiary

“Pietro Belluschi, Inc.” $300,833.

A 57

(m) MCLP owes Gould $2,215,539.09.

(n) MCLP owes Holywell’s wholly-owned subsidiary

“Whitehall Building Services, Inc.” $26,385.47.

(o) MCLP owes Holywell’s wholly-owned subsidiary

“Whitehall Security Corp.” $1,543,938.86.

(p) Gould owes Holywell $1,750,000 plus interest.

(q) Holywell is owed the following by its wholly-owned

subsidiaries:

Charleston Center Corp. $1,814,066.09

PBA, Inc. 1,201,578.97

TBG Institute 1,199.00

Parkwell of Florida 1,937.54

Whitehall Security Corp. 2,535.35

Whitehall Building Services, Inc. 7,617.15

Orion Engineering 3,359.28

Holywell Management 59,724.88

Racing Club 82,597.81

Holywell Hotels, Inc. 5,000.00

Holywell Trading 834.35

Holywell Real Estate 137,784.49

Holywell Telecommunications Co. 471,115.39

Holywell Insurance Company 10,541.46

Studley/Holywell Associates, Inc. 30,493.08

36. The foregoing intercompany indebtedness exceeds

$31,800,000. Since Gould controlled both the purported

obligor and the obligee with respect to each such liability,

and since he admitted on deposition that he advanced all

of the income from all of the debtors through Holywell to

assist with MCLP’s development of the Miami Center

Project [See Paragraph 30, supra], such advances cannot

be characterized at arms’-length or as founded upon ade-

quate consideration.

37. Exhibit 4, Question 19b, in Holywell’s Statement

of Financial Affairs [C.P. No. 275] indicates that Gould

paid himself (because he owned and controlled Holywell)

$1,051,844.67 from debtor Holywell’s cash during the 11-

A 58

month period before the bankruptcy, and that Holywell

made a loan of $1,750,000 to Gould on October 14, 1983.

During the hearing on this issue on July 18, 1985, Holy-

well’s chief financial officer conceded [C.P. No. 844, page

57, lines 19-24] that the Holywell-Gould loans were not

evidenced by a written note. Schedule B-2 to the State-

ment of Financial Affairs shows that Holywell owned

100% of 19 different subsidiaries (only one, MCC, is a

debtor), and that 14 of those subsidiaries allegedly owed

money (about $3.8 million) to Holywell.

38. MCLP’s Statement of Financial Affairs [C.P. No.

276] also reflects numerous inter-debtor transactions and

debts (most are summarized at Paragraph 35, supra).

MCLP, though admittedly in default under its loans with

the Bank at the time, paid Holywell over $1.2 million

{Id., Exhibit 13(a)] in the seven months preceding the

bankruptcies.

39. MCC’s schedules [C.P. No. 277, Schedule B-2]

show that Holywell owed MCC $898,779, and that MCC

(wholly owned by Holywell) owned a 47.88% partnership

interest in MCLP and a 64% partnership interest in

debtor Chopin. The schedules also confirm [Schedule A-2]

that MCC is liable as a general partner for the debts of

MCLP and of Chopin.

40. Gould’s schedules [C.P. No. 278, Schedule A-1]

show claims against him by the IRS of over $2.5 million

because (a) Gould was on officer of debtor Holywell’s

wholly-owned subsidiaries Holywell Construction Com-

pany and Holywell Hotels, Inc., and (b) he failed to cause

those entites to pay federal withholding taxes. The sched-

ules also admit [Schedule A-2] Gould’s liability as gen-

eral partner for MCLP’s debts (other than any non-

recourse mortgages) and for Chopin’s debts. Finally,

Gould listed ownership cneauune B-2] of 17% of MCLP

and 36% of Chopin.

41. Thus, debtor Gould owned all of debtor Holywell,

which in turn owned all of debtor MCC. Gould therefore

A 59

owned, directly or indirectly through Holywell and MCC,

general and limited partnership interests constituting

64.8890 of MCLP and 100% of Chopin. The debtors have

never disputed that Gould personally controlled all five

of the co-debtors.

N. Findings on Classification Under the Bank’s Plan

42. The objections relating to the classification struc-

ture of the Bank’s plan came only from entities which

Gould controlled (MCJV, of which he was “managing

venturer” and general partner, and HTC and HLC, of

which he was president—and which he owned through

his 100% ownership of Holywell), or with whom he was

a partner (O&Y and the minority limited partners of

MCLP).

43. The claims of MCJV and O&Y were classified as

“Class 7” under the Bank’s plan, junior in priority of

distribution to the claims of general unsecured creditors

that were not affiliated with Gould (Class 6). The MCJV

and O&Y claims are not substantially similar to the

claims of those unaffiliated creditors, because;

(a) Any distribution to MCJV increases the value of

debtor Gould’s 50% equity in MCJV;

(b) MCJV has recourse to Gould’s equity interest in

MCJV’s valuable real estate, while the unaffiliated unse-

cured creditors have no such recourse (the MAI ap-

praisal filed by the debtors indicated that the four unim-

proved parcels owned by MCJV were worth $104 million

[C.P. No. 149, Exhibit “C’”; also of record at C.P. No.

822, Exhibit “A”], while the liabilities of MCJV have

been represented to be approximately $60 million;

creditor (MCJV) controlled by a debtor (not the case for

any Class 6 creditor) ; and

(d) similarly, O&Y stands to realize 50% of any dis-

tribution to MCJV, and has recourse against Gould’s

A 60

50% equity in MCJV, for O&Y’s claims against the

debtors.

44. Similarly, the claims of HTC and HLC (each

wholly owned by debtor Holywell and controlled by

Gould), assigned to Class 8, are substantially dissimilar

to the claims of the unaffiliated, Class 6 unsecured cred-

itors. 100% of any payment to HTC or HLC directly

benefits (and is readily available to) debtors Holywell

and Gould. Payments to unaffiliated creditors, on the

other hand, do not result in any other direct or indirect

benefit to any debtor.

45. The limited partners of MCLP hold equity inter-

ests rather than claims, and were assigned to Class 9.

Such interests are not substantially similar to the claims

of any of the senior classes under the Bank’s plan.

O. Findings on Equitable Subordination

46. The entities affiliated with Gould and objecting

to classification junior to the claims of general unsecured

creditors have consistently maintained that this Court

lacked a sufficient factual basis to equitably subordinate

such claims. The Order of Remand directed the Court to

enter detailed findings on the issue. As the conclusions of

law demonstrate (see Paragraphs 68-74, infra), the

Court approved the junior classification accorded such

claims by the Bank’s plan because the Court found that

those claims were not substantially similar to the claims

of the senior classes (as specified by 11 U.S.C. § 1122)

that had no such affiliation with the debtors.

47. So that the record is clear, however, the factual

prerequisites for equitable subordination of the MCJV,

O&Y, HTC, and HLC claims are also established by the

record. Gould engaged in inequitable conduct, including:

(a) The payment of enormous sums of money to him-

self (see Paragraph 37, supra), at a time when he was

refusing to pay numerous unaffiliated creditors of all of

the debtors;

A 61

(b) conflicts of interest resulting from his control of

both lessor and lessee under the MCJV-MCLP FF&E

agreements, the HTC-MCLP FF&E agreement, the HLC-

MCLP FF&E agreement, and the Chopin-MCLP ground

lease; and

Hotels, Inc. and Holywell Construction Company (see

Paragraph 40, supra), with the result that his estate

was charged for the $2.5 million in penalties under 26

U.S.C. § 6672, to the detriment of creditors.

48. Gould’s misconduct injured his creditors and, but

for the substantive consolidation of the five estates and

junior classification of the related-party claims as pro-

vided by the Bank’s plan, Gould’s inter-company liabili-

ties would have permitted Gould, and non-debtor entities

controlled by him, to receive distributions from the “cash-

rich” estates (the Gould and Holywell estates, if con-

tingent liabilities are disregarded), while unaffiliated

creditors of the cash-poor estates (principally MCLP)

would have received dividends (if any) amounting to

less than full payment of their claims. All such miscon-

duct is imputed as a matter of law to the entities for

which Gould acted (see Paragraph 62(a) in the Con-

clusions of Law which follow).

P. Valuation of the Project

49. Prior to confirmation, no party or attorney for a

party requested a valuation hearing. The Court had be-

fore it the following evidence as to the value of the |

Miami Center Project: |

(a) the debtors’ appraisal [C.P. No. 392], setting the

value of the Project at $260.5 million (land and build-

ings) plus $14.5 million (FF&E) as of October 1, 1984;

(b) the Hadid contract [Exhibit “A” to C.P. No. 378]

of February 11, 1985, for a gross purchase price of

$260 million, apparently exclusive of the FF&E;

A 62

the debtors in their disclosure statements: $210 million

for the structures [Exhibit “E” to C.P. No. 378] and

$23.4 million for the underlying land [Exhibit “E” to

C.P. No. 380], or a total of $233.4 million without the

FF&E; and

(d) the Bank’s appraisal [C.P. No. 479, 796], setting

the value of the Project including the FF&E at $255.6

million as of November 15, 1984.

50. Upon remand, the parties presented the testimony

of their respective appraisers. Each appraiser adhered

to his prior estimate of value [transcript of hearing of

January 18, 1986 (not yet docketed), pages 62-108].

51. Upon the record before the Court prior to con-

firmation, the Court found that the Bank’s proposed pur-

chase price of $255.6 million, including the FF&E, was

fair and equitable, and considerably in excess of the

liquidation value of the Project as computed by the

debtors. The Bank’s offer was the only firm offer availi-

able, and had the added benefit of releasing over $30

million of the Bank’s cash collateral for the payment of

other creditors. In the Confirmation Order of August

8, 1985, this Court noted:

The debtor’s major contention has been that the

assets are worth substantially more than the bank

has offered to pay. The only way to be certain with

respect to this issue is to delay liquidation as long

as Gould requests. If I did so and if he produced

no more tangible results during the next year than

he did in the past year, virtually every creditor ex-

cept the bank would be wiped out and the substan-

tial loss now faced by the bank would become a blood

bath. To me, the decision appears clear.

The absence of offers in excess of the Bank’s proposal

is significant. The Bank’s purchase price and MAI ap-

praisal ($255.6 million, including FF&E) are between

A 63

the debtors’ liquidation estimate ($233.4 million, with-

out FF&E) and the debtors’ MAI appraisal ($260.5

million without FF&E, or $275 million with FF&E). The

two appraisers agree that the income approach to value

should be given the greatest weight. The debtors’ ap-

praisal computed a value of $267 million under that ap-

proach [C.P. No. 392, page 99], while the Bank’s ap-

praiser’s comparable estimate was $255.6 million. The

difference between the values, less than 5%, apparently

occurred because the debtors used estimated taxes and

assessments of $4 million per year, while the Bank’s ap-

praiser used the actual taxes and assessments imposed

by Dade County and the City of Miami (approximately

$5.2 million per year) [transcript of hearing of January

18, 1986 (not yet docketed), page 91].

52. The Court has not been presented with any new

evidence upon remand that would alter the findings in

the Confirmation Order. The evidence upon remand does,

however, make it clear that the debtors are taking in-

consistent positions for purposes of these proceedings on

the one hand and Dade County property tax proceedings

on the other. The County appraised the facilities at

$183.7 million in 1984, while the debtors’ “good faith

estimate” of value for the Project was only $87 million

{see Exhibit “A” to C.P. No. 491, “Debtors’ Emergency

Motion for Authorization to Pay Good Faith Deposit on

1984 Dade County, Florida Real Estate Taxes”, also

marked as Exhibit “D’” at the hearing of January 18,

1985}.

53. 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 pur-

chaser.

A 64

Q. District Court Action

54. In the Confirmation Order, the Court noted the

litigiousness of the parties:

If this court had permitted the attorneys to do so,

the charges, countercharges, law suits, briefs and oral

arguments with respect to these issues would almost

certainly continue until the last available penny had

been spent to pay counsel. If the creditors are to

salvage anything from these cases, they must be re-

solved as rapidly as the law permits in order that

the assets may be liquidated and the continuing

losses may be ended.

The District Court Action is an illustration of that point.

In the memorandum decision respecting the releases

signed by each of the debtors [C.P. No. 20 in Adv.Pro.

85-0160], this Court held that the releases barred both

future and existing claims relating to the transactions

between the debtors and the Bank. Notwithstanding the

releases and this Court’s ruling on the releases, however,

the debtors continued to maintain the District Court

Action.

55. It is not surprising that the Bank required dis-

missal of the District Court Action as a condition to

close the purchase under its Plan. It would make little

sense for the Bank to invest new money, discharge its

judgment lien, and release millions of dollars of cash

collateral, only to remain exposed to continuing litigation

costs (probably unrecoverable from the debtors). In light

of the releases, no significant value can be assigned to

the District Court Action; to the contrary, the continu-

ance of the suit is a significant detriment because of the

first-priority attorneys’ fees that would have to be in-

curred to do so.

56. This analysis was confirmed upon remand by the

expert testimony of a seasoned, local trial lawyer (and

former Florida Circuit Court Judge), presented by the

A 65

Bank upon remand [transcript of hearing of January 18,

1986 (not yet docketed), pages 34-39]. I find that the

District Court Action has no significant value to the

debtors.

R. Consummation of the Bank’s Plan

57. 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 conditioned).

The fairness, feasibility, and propriety of the plan have

been verified by the following, and propriety of the plan

have been verified by the following, as reported 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 Octuber 10, 1985, result-

ing in the satisfaction in full of the claim of the Class 2

creditor (the Bank) and the termination of interest (ac-

cruing at over $2 million per month) and negative cash

flow from operations;

(d) Undisputed claims in Classes 4 through 6 have

been paid in full, and funds have been reserved for all

disputed claims;

(e) several disputed claims have been compromised,

saving the estates millions of dollars as against the

amount claimed; and

(f) there remain sufficient funds for the satisfaction

in full or in part of the claims of the Gould-affiliated

claimants (although the exact amount cannot yet be de-

termined because so many of the claims are unliqui-

dated).

No stay is in effect, and the confirmed plan has been

consummated. The debtors’ property passed to the Liqui-

A 66

dating Trustee, and the debtors were discharged under

Code Section 1141. It is now legally and practically im-

possible to unwind the consummation of the Bank’s plan

or otherwise to restore ‘ne status quo before confirma-

tion.

Conclusions of Law

S. Substantive Consolidation

58. Substantive consolidation, derived from _ this

Court’s general equitable powers under 11 U.S.C. § 105,

is a case-by-case inquiry. 5 Collier on Bankruptcy,

7 1100.06 at 1100-33 (15th ed.). In substantive consoli-

dation cases, “the relationship between entities with re-

spect to which consolidation is sought is far more im-

portant than the nature of such entities”. Jd. Thus it

is not significant that the debtors sought to be consoli-

dated are an individual, two partnerships, and two

corporations.

59. Certain objective criteria should be considered in

evaluating whether substantive consolidation is war-

ranted:

(a) The presence or absence of consolidated financial

statements;

(b) The unity of interests and ownership between

various corporate entities;

antees on loans;

(d) The degree of difficulty in segregating and as-

certaining individual assets und liabilities;

(e) The existence of transfers of assets without for-

mal observance of corporate formalities;

(f) The commingling of assets and business function;

and

A 67

(g) The profitability of consolidation at a single phys-

ical location.

In Re Donut Queen, Ltd., 41 B.R. 706, 709 (Bktey.,

E.D.N.Y. 1984).

60. However, “there is no one set of elements which,

if established, will mandate consolidation in every in-

stance.” In ve Snider Bros., Inc., 18 B.R. 230, 234

(Bktey., D. Mass. 1982). Instead, “the enumerated fac-

tors should be evaluated within the larger context of bal-

ancing the prejudice resulting from the proposed order

of consolidation with the prejudice the moving creditor

alleges it suffers from debtor separateness”. Jn re Donut

Queen, supra, at 709-10.

61. The Court also may approve substantive consoli-

dation when the expense and difficulty of determining

intercompany claims, liabilities, and ownership of assets

is substantial. Chemical Bank New York Trust Co. v.

Kheel, 369 F.2d 845, 847 (2d. Cir. 1966); In re Nite

Lite Inns, 17 B.R. 367, 371 (Bktey. 8.D. Cal. 1982).

62. On the facts established here (Paragraphs 29

through 41, above), substantive consolidation is appro-

priate. Because of controlling provisions of Florida law

relating to creditors’ rights, substantive consolidation un-

der the Bank’s plan here does little more than to adopt

and implement state law. For example:

(a) In due course, a creditor of MCLP could reach

(i) Gould’s assets (because of his liability as a general

partner), (ii) MCC’s assets (because of MCC’s role as a

general partner), (ili) Holywell’s assets (net of its lia-

bilities), by levying upon Gould’s ownership of 100% of

the stock of Holywell, and (iv) Chopin’s assets (net of

its liabilities), since it is owned 36% by Gould and 64%

by MCC. The pertinent provisions of Florida’s partner-

ship laws are:

A 68

wk AR afin:

io tae ate

(1) 620.62 Partnership bound by partner’s

wrongful act. When loss or injury is caused to a

partner in the partnership . .. the partnership is

liable for it to the same extent as the partner so

acting or omitting to act.

(2) 620.625 Partnership bound by partner’s

breach of trust. The partnership is bound to make

good the loss:

(i) When one partner acting within the scope of

his apparent authority receives money or property

of a third person and misapplies it; and

(ii) When the partnership in the course of its

business receives money or property of a third per-

son and the money or property so received is mis-

applied by a partner while it is in the custody of

the partnership.

(3) 620.63 Nature of partner's liability. All

partners are liable:

(i) Jointly and severally for everything charge-

able to the partnership under §§ 620.62 and 620.625.

(b) The foregoing statutes, which extend to breaches

of contract by Gould, also make MCLP and Chopin re-

sponsible for any liabilities of Gould incurred in con-

nection with the Miami Center Project.

reach (i) MCC’s assets (net of its liabilities), because

MCC is 100% owned by Holywell, (ii) MCC’s ownership,

in turn, of 47.88% of MCLP and 64% of Chopin, (iii)

Gould to the extent he acted as director or president of

Holywell to misapply Holywell’s funds (see Paragraph

37, above), and (iv) MCLP because of Holywell’s al-

leged ownership of a claim for over $4 million against

MCLP (see Paragraph 35(a), above).

(d) Finally, creditors of MCC and Chopin eventually

could reach those debtors’ partnership interests in MCLP

A 69

and therefore the net assets of MCLP itself (under Sec-

tions 620.62 and 620.625, Florida Statutes, supra), and

a creditor of Chopin could reach the assets of both MCC

and Gould (because each is a general partner of Chopin).

63. The Court found [C.P. No. 844, page 97], that

the alternative to substantive consolidation, “would ap-

pear to be an unnecessarily circuitous, time-consumming,

and expensive exercise that might conceivably lead to the

diversion of some assets which, under the principles of

law as I understand them, ought to be available for the

satisfaction of these obligations”. In short, if the credi-

tors of the five separate estates seek to assert their claims

against the primary obligors, the other estates which have

contingent or secondary liability under Florida law for

those claims may be closed (and any residue diverted or

misapplied) before the primarily liable estate is ex-

hausted. Substantive consolidation avoids the unfairness

inherent in such a result.

64. Analyzing the seven factors enumerated in Jn re

Donut Queen, supra, the Court concludes that:

(a) Consolidated financial statements were prepared

as to Holywell, MCC, and MCC’s interests in Chopin and

MCLP (see Paragraphs 32 and 39, supra). In addition,

even the debtors’ bi-weekly debtor-in-possession reports

were prepared on a consolidated basis during the period

before confirmation [see, for example, C.P. No. 423}.

(b) There is a single common element of interest,

control, and ownership of all five debtors: Theodore B.

Gould.

guaranties of loans and other obligations of the debtors.

In particular, all five debtors guaranteed all of the Bank’s

advances to MCLP and to Chopin (totalling over $240

million in principal and interest).

A 70

(d) The inter-company debts, in excess of $31.8 mil-

lion, would require substantial accounting and legal ex-

penditures to investigate and adjust. The costs of such

an investigation would delay payments to unaffiliated

creditors and would reduce the amount available to pay

creditors. In light of the joint and several liability of

several of the debtors under Florida law, such expendi-

tures are not warranted.

(e) Gould operated the debtors without regard to

their separate identities. He caused Holywell, for exam-

ple, to advance $1.75 million to him without the formality

of even a promissory note {see Paragraph 37, supra).

He testified to numerous pre-petition transfers among

the debtors and their affiliates [C.P. No. 885h, page

202}.

(f) Business functions and assets were commingled.

Certain debtors regularly paid obligations and performed

services for other debtors and ‘their affiliates, instead of

letting the beneficiary pay or perform directly [C.P. No.

385h, pages 45, 55, 67-69, 141].

(g) The debtors can operate (and are operating)

successfully at a single location. Having announced an

intention to leave Miami, the debtors’ single office is now

in Charlottesville, Virginia [C.P. No. 844, page 50].

65. Each of the seven factors supports substantive

consolidation in this case. Moreover, there is no preju-

dice to the creditors. The creditors did not object to sub-

stantive consolidation, and the Creditors’ Committees sup-

ported that aspect of the Bank’s plan..

66. The debtors have claimed prejudice, but have not

proven it. At the hearing on July 18, 1985 [C.P. No.

844, page 68], the debtors indicated no objection to con-

solidation except in the case of Holywell’s consolidation

with MCLP:

[The Court]: ... if the—well, let me ask a prelim-

inary question—the nub here, the serious problem

A 71

and the only serious problem, I take it, that the

debtor has with consolidation is the attempted con-

solidation of Holywell and MCLP?

{[Debtors’ Counsel]: That’s correct, and Holywell

is the one objecting.

The debtors never demonstrated prejudice as an unavoid-

able consequence of substantive consolidation. There has

been no evidence to substantiate the debtors’ claim that

substantive consolidation will somehow cost them “ap-

proximately $17 million in Federal income taxes” [C.P.

No. 580, page 2].

67. Based upon all of these factors and the authori-

ties previously cited, and in the exercise of its equitable

powers under Code Section 105(a), the Court finds that

substantive consolidation in the minimal form proposed

by the Bank is equitable, is in the best interest of the |

creditors, and (because of the substantial unity of own-

ership interests in all five debtors in Gould) does not

unfairly prejudice the debtors. As provided by the Bank’s

plan, each debtor will retain its individual name, form of

organization, and the right to continue business, after

discharge. The debtors will not disappear in a merger-

like consolidation as is sometimes sought in such cases.

The Bank’s plan does require that each debtor’s assets be

exposed to the claims of creditors of all cf the related

estates, however, so the Bank has labelled that aspect of

its plan as “substantive consolidation.” The Court finds

that the Bank has accepted and satisfied its burden under

applicable precedent. The Court does not believe that the

hundreds of creditors involved here should be required

to engage in a shell game or to have to guess which

debtor is most likely to be able to pay. Many of the

creditors are not represented by counsel and apparently

are not even aware that they have claims against several

of the estates under Florida law, rather than just the

single estate of the primary obligor. The need for credi-

A 72

tors to file such claims and to trace assets is completely

attributable to the labryinth that Gould has created.

Consolidation here will not make any debtor pay any

creditor unless that debtor or one of its secondarily-

liable co-debtors (principally Gould) was legally respon-

sible for the claim involved.

T. Classification

68. Section 1122(a) of the Code directs that, with a

single exception not applicable here, ‘a plan may place a

claim or interest in a particular class only if such claim

or interest is substantially similar to the other claims or

interests of such class.”

69. The creditors that have objected to a junior clas-

sification hold claims that are markedly dissimilar, both

as to the ultimate effect of payment of the claim and as

to the special property held by the claimant (see Para-

graphs 42 through 45 above). In the case of MCJV:

(a) Payment of MCJV’s claim will benefit debtor

Gould’s 50% equity interest in MCJV by 50% of the

payment. MCJV’s claim is in essence a hybrid of debt

(to the extent that O& Y, a non-debtor is benefitted) and

equity (to the extent that a debtor, Gould, is benefitted.

(b) MCJV’s claim can readily be satisfied from spe-

cial property (the four downtown lots, appraised at $104

million) held by MCJV and not directly available to

satisfy the claims of creditors that are not affiliated with

Gould. MCJV’s claim can be satisfied by merely reduc-

ing Gould’s equity interest in, and other claims against,

NCJV. Under the equitable principle of marshalling,

MCJV may be required to look first to a source of re-

covery unavailable to other competing creditors. Jn re

All American Holding Corp., 10 B.R. 71, 73 (Bktey.

S.D. Fla. 1981), aff'd 17 B.R. 926, 928-29 (S.D. Fla.

1982). Matter of Emerald Hills Country Club, 32 B.R.

408, 421-22 (Bktcy. S.D. Fla. 1983).

A 73

70. In the case of HTC and HLC, both are wholly-

owned subsidiaries of a debtor and are completely con-

trolled by Gould. It would be inequitable to permit such

claimants to share ratably with unaffiliated unsecured

creditors. To do so here would be to violate the absolute

This text is long and has been trimmed here. Open the source document for the complete record.

This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.