In Re: Sundale, LTD., f.k.a. Sundale Associates, Ltd. v. Florida Associates Capital Enterprises, LLC , 499 F. App'x 887 ( 2012 )

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[DO NOT PUBLISH]
IN THE UNITED STATES COURT OF APPEALS
FOR THE ELEVENTH CIRCUIT
________________________
No. 12-11450
Non-Argument Calendar
________________________
D.C. Docket No. 1:11-cv-20635-KAM,
BKCY No. 07-21016-LMI
In Re: SUNDALE, LTD., f.k.a. Sundale Associates, Ltd.,
lllllllllllllllllllllllllllllllllllllllDebtor.
___________________________________________
SUNDALE, LTD.,
KENDALL HOTEL AND SUITES, LTD.,
llllllllllllllllllllllllllllllllllllllllPlaintiffs - Appellants,
versus
FLORIDA ASSOCIATES CAPITAL ENTERPRISES, LLC,
llllllllllllllllllllllllllllllllllllllllDefendant - Appellee,
________________________
Appeal from the United States District Court
for the Southern District of Florida
________________________
(November 29, 2012)
Before MARCUS, FAY and ANDERSON, Circuit Judges.
PER CURIAM:
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Appellants Sundale, LTD (“Sundale”) and Kendall Hotel and Suites, LLC
(“KHS”) (collectively, “Sundale”) appeal from the district court’s judgment
upholding the bankruptcy court’s finding of fact and conclusions of law in support
of a final judgment in favor of Plaintiff/Counterdefendant Florida Associates
Capital Enterprises, LLC (“FACE”). In Sundale’s bankruptcy proceedings, FACE
sought a declaratory judgment regarding the extent, validity and priority of the
claims it had that stemmed from secured loans it had made to Sundale; in
response, Sundale asserted various affirmative defenses and filed counterclaims
against FACE, including a claim of recoupment of more than three million dollars
in payments Sundale had made to FACE concerning the secured loans. In this
appeal, Sundale argues that: (1) the district court erred in concluding that the
bankruptcy court had jurisdiction over Sundale’s counterclaims; (2) the district
court’s review of the bankruptcy proceedings did not cure the bankruptcy court’s
unconstitutional exercise of jurisdiction; and (3) the bankruptcy court misapplied
Florida law in ruling on the merits. After careful review, we affirm.
We review subject matter jurisdiction de novo. Adventure Outdoors, Inc. v.
Bloomberg, 552 F.3d 1290, 1294 (11th Cir. 2008). We review “the district court’s
decision to affirm the bankruptcy court de novo, which allows us to assess the
bankruptcy court’s judgment anew, employing the same standard of review the
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district court itself used.” In re Globe Mfg. Corp., 567 F.3d 1291, 1296 (11th Cir.
2009). The bankruptcy court’s factual findings are reviewed for clear error. Id.Factual findings are clearly erroneous if “the reviewing court on the entire
evidence is left with a definite and firm conviction that a mistake has been
committed.” Jones v. Childers, 18 F.3d 899, 904 (11th Cir. 1994) (quotation
omitted). “Conclusions of law, whether from the bankruptcy court or the district
court, are reviewed de novo.” In re Jennings, 670 F.3d 1329, 1332 (11th Cir.
2012) (quotation omitted). Mixed questions of law and fact are also reviewed de
novo. In re Piper Aircraft Corp., 244 F.3d 1289, 1295 n.2 (11th Cir. 2001).
The relevant facts are these. Phillip Scutieri, Jr. (“Mr. Scutieri”) is the
principal of both Sundale and KHS. Raymond G. Chambers (“Mr. Chambers”), a
successful businessman involved in leveraged buyouts in the 1980s, had a very
close personal and professional relationship with the Scutieri family for over forty
years.
On November 20, 1997, Mr. Scutieri’s mother, Delphine Scutieri (“Mrs.
Scutieri”), advised her son that she believed that Mr. Chambers had taken certain
assets from her husband’s estate to begin Chambers’s leveraged buyout business.
After Mrs. Scutieri’s suspicions were relayed to Mr. Chambers, Mr. Chambers sent
a letter to Mrs. Scutieri in which he promised to “share everything” with Mrs.
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Scutieri. Over the next five months, representatives from the two parties
attempted to resolve the dispute between them, and eventually Mr. Scutieri relayed
that the Scutieris would require $420,000,000 to resolve the dispute.
Thereafter, Mrs. Scutieri apparently asked Mr. Chambers to give $10
million to her son to develop a nine-acre tract of land in Miami, Florida owned by
Sundale (the “Sundale Property”), with the remaining amount due (approximately
$410,000,000) to be worked out. According to Mr. Chambers, he said he would
not loan the $10,000,000, but that he would tell his “financial advisors that they,
(A), help [Mr. Scutieri] get a conventional first mortgage loan on the [Sundale
Property] and, (B), if that loan fell short of the $10,000,000, that [Chambers]
would recommend to them that [Chambers’s] entities provide up to $2 million in a
subordinated second mortgage loan.” A witness to a meeting between the parties
testified otherwise, attesting that Mr. Chambers promised to give $10,000,000 as
an “initial payment of getting the monies back to [Mrs. Scutieri].” Shortly after
this meeting, Mr. Chambers’s representatives created FACE, the sole purpose of
which was to provide funding for Mr. Scutieri’s Sundale project.
Between July 30, 1999, and March 20, 2000, FACE (and/or its members)
loaned Sundale a total of $7,300,000, through various promissory notes, personal
guarantees, and mortgage and security agreements. On September 7, 2001,
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Sundale closed a $12,000,000 loan with Ocean Bank for the Sundale project (the
“Ocean Bank Loan”). The terms of the agreement provided for FACE’s loans to
be reduced to $3,250,000, and for FACE to subordinate its lien to the lien of
Ocean Bank with respect to the remaining indebtedness. Sundale was obligated to
make quarterly interest payments until November 29, 2002, and then monthly
payments thereafter. Sundale made all interest payments due to FACE through
May 2005.
On December 11, 2007, both Ocean Bank and FACE sent default notices to
Sundale. The next day, Sundale filed for protection under Chapter 11 of the
United States Bankruptcy Code, and KHS did the same on January 30, 2008. On
May 1, 2008, FACE initiated this adversary proceeding by filing a two-count
complaint seeking a determination of the extent, validity, and priority of its
asserted lien on the Sundale Property. On November 17, 2008, Sundale and KHS
responded by denying FACE’s allegations and asserting a number of affirmative
defenses. On July 30, 2009, Sundale and KHS filed a Second Amended Answer,
for the first time asserting two counterclaims, one seeking a declaration that
FACE’s liens were not valid and enforceable and one for recoupment.
Both Sundale’s affirmative defenses and counterclaims relied upon the same
factual and legal bases, namely that FACE’s lien was invalid and unenforceable
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because the funds advanced by FACE were intended to be a disguised loan as an
initial payment by Mr. Chambers to the Scutieri family as partial payment of the
monies Mr. Chambers wrongfully diverted from the estate of Mr. Scutieri’s father.
The Bankruptcy Court ultimately ruled in favor of FACE, finding that FACE
“overwhelmingly established a prima facie case that it holds a valid, perfected lien
against the Sundale Property and the Trustee Property. Conversely, the
Defendants failed to meet their burden of proof in every aspect with regard to their
affirmative defenses and their counterclaims.” The district court affirmed the
bankruptcy court’s determination of the extent, validity and priority of FACE’s
claims against Sundale, and it also held -- following the Supreme Court’s recent
decision in Stern v. Marshall, 131 S.Ct. 2594 (2011) -- that the bankruptcy court
had the authority to rule on these claims. The district court noted, in the
alternative, that if the bankruptcy court had exceeded its authority to enter a final
judgment, it was treating the bankruptcy court’s findings of fact and conclusions
of law as a report and recommendation, which the district court adopted and
ratified. This timely appeal follows.
First, we are unpersuaded by Sundale’s claim that the bankruptcy court
lacked jurisdiction to enter final judgment on its counterclaims. Congress has
divided bankruptcy proceedings into three categories: (1) those that arise under
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title 11; (2) those that arise in a title 11 case; and (3) those that are related to a case
under title 11. Stern, 131 S.Ct. at 2603 (citing 28 U.S.C. § 157(a)). “District
courts may refer any or all such proceedings to the bankruptcy judges of their
district,” and bankruptcy courts may “enter final judgments in ‘all core
proceedings arising under title 11, or arising in a case under title 11.’” Id.(quoting §§ 157(a), (b)(1)). Congress has chosen 16 specific types of proceedings
that are considered to be “core proceedings” in which bankruptcy courts are
statutorily authorized to render final judgments. See id. (citing §§ 157(b)(1)-(2)).
Section 157(b)(2)(C) defines “counterclaims by the estate against persons filing
claims against the estate” to be one of these “core proceedings.” “Parties may
appeal final judgments of a bankruptcy court in core proceedings to the district
court, which reviews them under traditional appellate standards.” Id. at 2603-04.
Stern involved a tortious interference counterclaim, arising under state
common law, which the bankruptcy court had determined to be a “core
proceeding” as defined by § 157(b)(2)(C). See id. at 2601-02. After determining
it had jurisdiction over the matter, the bankruptcy court rendered a final judgment
on the state law counterclaim. See id. at 2601. The Supreme Court determined
that the bankruptcy court had the statutory authority under 28 U.S.C. § 157(b) to
issue a final judgment on the state law counterclaim, but that it was a violation of
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Article III of the United States Constitution for Congress to confer that authority
upon the bankruptcy court. See id. The Supreme Court ultimately held that “[t]he
Bankruptcy Court below lacked the constitutional authority to enter a final
judgment on a state law counterclaim that is not resolved in the process of ruling
on a creditor’s proof of claim.” Id. at 2620. The Supreme Court also made clear
that it did not intend its decision in Stern to have broad implications: “We do not
think the removal of counterclaims such as [the debtor’s] from core bankruptcy
jurisdiction meaningfully changes the division of labor in the current statute; we
agree with the United States that the question presented here is a ‘narrow’ one.”
Id.
As the district court explained, Stern is inapplicable here. That case
involved a tortious interference counterclaim that was a “state law action
independent of the federal bankruptcy law and not necessarily resolvable by a
ruling on the creditor’s proof of claim in bankruptcy.” Id. at 2611. The complaint
in Stern was filed by a creditor seeking a declaration that his defamation claim was
not dischargeable in the bankruptcy proceedings. Id. at 2601. The “proof of
claim” at issue was “for the defamation action, meaning that [the creditor] sought
to recover damages for [the claim] from [the] bankruptcy estate.” Id. The debtor
“responded to [the creditor]’s initial complaint by asserting truth as a defense to
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the alleged defamation and by filing a counterclaim for tortious interference.” Id.
That counterclaim alleged that the creditor “had wrongfully prevented [the
debtor’s husband] from taking the legal steps necessary to provide [the debtor]
with half his property.” Id. The counterclaim for tortious interference was the
claim deemed by the Supreme Court to be a “state law action independent of the
federal bankruptcy law and not necessarily resolvable by a ruling on the creditor’s
proof of claim in bankruptcy.” Id. at 2611.
Here, the state law counterclaim Sundale travels on in its brief is
recoupment -- and as the Florida state courts have explained, recoupment is “a
purely defensive matter springing from the same transaction as the plaintiffs’
cause of action, which is available only to reduce or satisfy a plaintiffs’ claim . . . .
A recoupment defense is analogous to a compulsory counterclaim, in that both
‘spring’ from the same transaction as the plaintiff’s cause of action.” Kellogg v.
Fowler, White, Burnett, Hurley, Banick & Strickroot, P.A., 807 So. 2d 669, 670
n.2 (Fla. 4th Dist. Ct. App. 2001) (citing Metropolitan Cas. Ins. Co. of N.Y. v.
Walker, 9 So.2d 361, 362 (Fla. 1942)). Sundale argues to us that FACE’s proof of
claim hinged on the money that Sundale had not paid FACE, whereas its
recoupment counterclaim hinged on the money that Sundale had paid to FACE.
Sundale thus argues that resolving the proof of claim would not resolve its
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counterclaim. This distinction is without merit. Indeed, the crux of Sundale’s
case theory is that none of the money FACE transferred to Sundale was ever
intended to be a loan, but rather the first of many payments Mr. Chambers was to
make to the Scutieri family to satisfy a $420,000,000 debt. Sundale relied on this
theory to advance numerous affirmative defenses against FACE’s proof of claim
and as the premise for its recoupment (and declaratory judgment) counterclaims.
All of the affirmative defenses and the counterclaims thus have one common
thread -- whether both the money FACE transferred to Sundale and the money that
Sundale later transferred back to FACE was premised on a loan by FACE
(FACE’s version) or a repayment by FACE (Sundale’s version). As a result, a
rejection of Sundale’s version of the events as defenses to FACE’s claims also
undermines Sundale’s counterclaims. Similarly, a finding in favor of Sundale on
its defenses to FACE’s claims would necessarily result in a favorable ruling for
Sundale on its counterclaims. Either way, a resolution of the proof of claim
necessarily resolves the recoupment and declaratory judgment counterclaims.
Sundale also seems to suggest that under Stern, a bankruptcy court only has
jurisdiction to enter final judgment on federal bankruptcy law claims -- and no
state law claims. However, the Supreme Court made no such distinction. Under
the clear language of the decision, the Supreme Court held that bankruptcy courts
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lack “the constitutional authority to enter a final judgment on a state law
counterclaim that is not resolved in the process of ruling on a creditor’s proof of
claim.” 131 S.Ct. at 2620 (emphasis added). Because the underlined phrase is
included, it must follow that a bankruptcy court would have jurisdiction to enter
final judgment on state law counterclaims that are necessarily resolved in the
process of ruling on a creditor’s proof of claim. See also id. at 2618 (bankruptcy
court jurisdiction to enter final judgment exists if “the action at issue stems from
the bankruptcy itself or would necessarily be resolved in the claims allowance
process”).
In short, because Sundale’s counterclaims are necessarily resolved by
resolution of FACE’s proof of claim, the self-declared narrow holding in Stern is
distinguishable from the facts before us. Therefore, we agree with the district
court that the bankruptcy court had jurisdiction to enter a final judgment in this
case.
We also find no merit to Sundale’s argument that the bankruptcy court erred
in applying Florida law. As for Sundale’s claim that the bankruptcy court
misinterpreted Florida law by holding that Sundale could not have reasonably
relied on FACE’s misrepresentations because they were made in an adversarial
context, the lower court relied on binding Eleventh Circuit case law, in the Florida
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law context, which concluded that “plaintiffs were unjustified in relying on
representations made by the defendants” since, among other things, “the parties
had been in an adversarial relationship since well before the execution of the
Agreement.” Mergens v. Dreyfoos, 166 F.3d 1114, 1118 (11th Cir. 1999).
Moreover, all of the Florida state cases Sundale cites seem to rest on the principle
that one party had no notice that the other party could not be believed. See, e.g.,
Greene v. Kolpac Builders, Inc., 549 So. 2d 1150, 1152 (Fla. 3d App. Dist. 1989)
(allowing a misrepresentation claim “[a]bsent circumstances which would have
put Greene on notice that Kolpak’s word could not be believed”); Schlapper v.
Maurer, 687 So. 2d 982, 984 (Fla. 5th App. Dist. 1997) (a lawyer’s “professional
responsibility owed to the court and the opposing parties imposed on him an
obligation not to lie about or misrepresent facts critical to the case” (emphasis
removed)). Given the history of the parties in this case, it cannot be said that
Sundale had no notice of Mr. Chambers’s dealings with them. Thus, the lower
court did not misapply the Florida law of misrepresentation.
As for Sundale’s claim that the bankruptcy court’s analysis of duress
improperly relied on its speculative finding that Sundale could have obtained
funds by mortgaging the undeveloped adjacent property, the bankruptcy court
relied on various other factors in reaching the conclusion that Sundale was not
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under financial duress. Moreover, the bankruptcy court relied on record evidence
to find that the undeveloped adjacent property was unencumbered, and Sundale
fails to offer anything more than speculation to suggest that it could not have
obtained a mortgage on that property at the time of the alleged duress as it did a
year later.
As for Sundale’s claim that the bankruptcy court erred in finding that the
debtors could not prove misrepresentations relating to the 1999 transactions based
on the execution of the 2001 documents, as well as its claim that the bankruptcy
court’s conclusion that FACE was entitled to seek subordination was circular,
Sundale cites no case law or legal argument for these issues in his brief and
therefore has waived them. See Fed. R.App. P. 28(a)(9)(A) (providing that an
appellant’s brief must set forth his “contentions and the reasons for them, with
citations to the authorities and parts of the record on which the appellant relies”);
Continental Tech. Servs., Inc., v. Rockwell Int’l Corp., 927 F.2d 1198, 1199 (11th
Cir. 1991). Further, because there was no error in the rulings on duress and
misrepresentation, these arguments fail.
Finally, Sundale claims that the bankruptcy court erred in concluding that
the notes payable to FACE and mortgages in FACE’s favor were enforceable,
because, it says, Sundale received no consideration from FACE. As an initial
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matter, Sundale does not dispute that FACE’s subordination in 2001 of its security
interest in the Sundale property to Ocean Bank’s security interest constituted
consideration. Sundale argues, nonetheless, that FACE’s earlier “loans” to
Sundale did not constitute consideration because the money came from Mr.
Chambers’s trusts or other sources, rather than from FACE itself. However,
Sundale admits that some of these earlier transfers were in fact made in FACE’s
name, see Blue Br. at 5, and cites nothing for the proposition that these transfers
could not be considered valid consideration from FACE.
AFFIRMED.
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