508 B.R. 468
Bankr. M.D. Fla.2014Background
- The Colony Beach & Tennis Club Resort (18 acres) is fractionally owned: Unit owners (condominium 15 acres), CBTC (45%) and CBI (35%) hold undivided interests in a 3-acre “Rec. Lease Property,” and Colony Lender holds 15%; debtors RMI, CBTC, CBI filed Chapter 11 in 2013.
- Long-running litigation: (AP 567) Partnership v. Association (restoration damages) and (AP 568) Association v. Lessors (Rec. Lease rejection damages); prior judgments were reversed/remanded and remain stayed by subsequent filings.
- Colony Lender acquired Bank of America’s loans and mortgage and bought a 15% interest; its financing statement lapsed post-petition (2010 lapse). Colony Lender holds large foreclosure judgments (~$14M).
- Debtors proposed a Joint Plan tied to a Global Settlement Agreement that would consolidate the Rec. Lease Property in the Association, pay ~ $5.3M via special assessments/notes, release many claims, and channel claims to Plan distributions — but Colony Lender and Field Trust objected.
- The Association sued in AP 196 to disallow or limit Colony Lender’s secured claim (arguing lapse/perfection and other defects). Bankruptcy court reconsidered whether a post-petition lapse of a financing statement renders a previously perfected lien unsecured.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Effect of post-petition lapse of financing statement on secured status (AP 196) | Association: lapse under revised UCC §9-515/FL §679.515 makes perfection cease and lien effectively avoidable under §544(a); creditor loses secured status. | Colony Lender: priority is measured at petition date; lapse post-petition does not strip secured status against trustee/DIP (freeze rule). | Court: Lapse does not extinguish secured interest; perfected status at petition controls for §544(a) purposes; lien remains subject to substantive challenges. |
| Confirmation of Joint Plan — sale "free and clear" of Colony Lender’s lien without credit-bid | Debtors/settling parties: plan consolidates ownership, resolves litigation, provides deferred payments and reconveyance if funding fails; offers indubitable equivalent or eventual payment. | Colony Lender: RadLAX requires credit-bid when plan effectuates sale free and clear; indubitable-equivalent not satisfied without credit-bid, valuation, or adequate interim protection. | Court: Denied confirmation — plan sells collateral free and clear but omits mandatory credit-bid protections and fails §1129(b)(2)(A)(ii)/(iii) requirements; too vague as to valuation, timing, and payments. |
| Approval of Settlement Agreement (global settlement & channeling injunction) | Settling parties: resolves complex, costly litigation; majority creditor support (except Colony Lender) and Unit Owner vote approve funding scheme. | Colony Lender/Field Trust: settlement improperly channeled claims, inadequately protects secured creditor rights, and fails to account for claimed Partnership assets. | Court: Denied approval — settlement falls below Justice Oaks reasonableness due to overbroad releases/channeling, lack of reserve for Colony Lender’s security, and dependency on a plan that cannot be confirmed. |
| Timeliness and propriety of Colony Lender’s §1111(b)(2) election | Debtors: election untimely and improper because collateral will be sold in connection with condominium termination. | Colony Lender: election filed before post-trial briefs due and while plan amendments outstanding — timely; election preserves rights. | Court: Motion to strike denied — election was timely; may be moot given denial of confirmation but is not stricken. |
Key Cases Cited
- In re Justice Oaks II, Ltd., 898 F.2d 1544 (11th Cir. 1990) (four-factor test for approving settlements in bankruptcy)
- RadLAX Gateway Hotel, LLC v. Amalgamated Bank, 132 S. Ct. 2065 (U.S. 2012) (a plan that sells collateral free and clear must allow secured creditor to credit-bid)
- In re Munford, Inc., 97 F.3d 449 (11th Cir. 1996) (standards on release and discharge provisions in chapter 11 plans)
- In re Martin, 490 F.3d 1272 (11th Cir. 2007) (discussing plan fairness and treatment of claims)
- Sandy Ridge Dev. Corp. v. La. Nat’l Bank, 881 F.2d 1346 (5th Cir. 1989) (indubitable equivalent analysis)
- Travelers Ins. Co. v. Pikes Peak Water Co., 779 F.2d 1456 (10th Cir. 1985) (valuation and remedy principles in cramdown contexts)
- In re Murel Holding Corp., 75 F.2d 941 (2d Cir. 1935) (historical discussion of deferred-payment indubitable-equivalent concerns)