Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca11-14-11590/USCOURTS-ca11-14-11590-0/pdf.json

Parties Involved:
SE Property Holdings, LLC
Appellant
Seaside Engineering & Surveying, Inc.
Appellee

Document Text:

[PUBLISH]

IN THE UNITED STATES COURT OF APPEALS

FOR THE ELEVENTH CIRCUIT

________________________

No. 14-11590

________________________

D.C. Docket Nos. 3:12-cv-00511-MW-EMT; 11-bkc-31637-WSS

In Re: SEASIDE ENGINEERING & SURVEYING, INC.,

 Debtor.

_________________________________________________________________

SE PROPERTY HOLDINGS, LLC,

Claimant-Appellant,

versus

SEASIDE ENGINEERING & SURVEYING, INC.,

 Defendant-Appellee.

________________________

Appeal from the United States District Court

for the Northern District of Florida

________________________

(March 12, 2015)

Before MARTIN and ANDERSON, Circuit Judges, and COTE,* District Judge.

_________

*Honorable Denise Cote, United States District Judge for the Southern District of New York, 

sitting by designation.

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ANDERSON, Circuit Judge:

SE Property Holdings, LLC, and affiliated entity Vision-Park Properties, 

LLC, (collectively “Vision”) appeal the district court’s order upholding decisions 

in the bankruptcy restructuring proceedings of Seaside Engineering and Surveying, 

LLC (“Seaside” or “Debtor”). After careful review of the record, and with the 

benefit of oral argument, we affirm. In doing so, we provide guidance to the 

Circuit’s bankruptcy courts with respect to a significant issue: i.e., the authority of 

bankruptcy courts to issue non-consensual, non-debtor releases or bar orders, and 

the circumstances under which such bar orders might be appropriate.

I. BACKGROUND

Seaside is a civil engineering and surveying firm that conducts forms of

technical mapping. Seaside provided services to, among other clients, the U.S. 

Army Corps of Engineers. Seaside’s principal shareholders prior to all bankruptcy 

litigation were John Gustin, James Mainor, Ross Binkley, James Barton, and 

Timothy Spears. The principals branched out from their work as engineers and 

entered the real estate development business, forming Inlet Heights, LLC, and 

Costa Carina, LLC. These wholly separate entities borrowed money from Vision 

with personal guaranties from the principals. Inlet Heights and Costa Carina 

defaulted on the loans, and Vision filed suit to recover amounts under the 

guaranties.

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Gustin filed for Chapter 7 bankruptcy protection for himself. Mainor and 

Binkley followed suit. All were appointed Chapter 7 trustees. Gustin, Mainor, and 

Binkley listed their Seaside stock as non-exempt personal property in their required 

filings. In April 2011, the Chapter 7 trustee in the Gustin case conducted an action 

to sell Gustin’s shares of Seaside stock. Gustin bid $95,500.00, and Vision

defeated the bid with a purchase price of $100,000.00. Seaside attempted to block 

sale of Gustin’s stock to Vision, but the bankruptcy court confirmed the sale. 

Following the sale of Gustin’s stock, Seaside filed for Chapter 11 bankruptcy

protection on October 7, 2011.1

Seaside proposed to reorganize and continue operations as the entity Gulf 

Atlantic, LLC (“Gulf”), an entity managed by Gustin, Mainor, Binkley, and 

Bowden, and owned by four members, the respective irrevocable family trust of 

each manager. The outside equity holders would receive promissory notes with 

interest accruing at a rate of 4.25% in exchange for their interest in Seaside and 

thus be excluded from ownership in Gulf. The bankruptcy court approved the 

Second Amended Plan of Reorganization (“Second Amended Plan” or 

“Reorganization Plan”), over objection of Vision, valuing Seaside at $200,000.00. 

The district court affirmed the bankruptcy court.

 1 It is worth emphasizing here that Vision was never an unsecured creditor as to Seaside. 

Vision was an unsecured creditor as to Inlet Heights, LLC, and Costa Carina, LLC. Vision was 

only an equity holder in Seaside.

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II. DISCUSSION

Vision raises myriad issues on appeal. The arguments all essentially reduce

to Vision’s objections to the bankruptcy court’s valuation and to the composition 

of the reorganized entity under the Second Amended Plan of Reorganization. We 

address each argument in turn.

A. Valuation of Seaside

Vision argues that the bankruptcy court improperly valued Seaside under a 

forced-sale analysis as opposed to a going-concern analysis. Vision continues that 

even under a forced-sale analysis, the bankruptcy court selected an inadequate 

discount rate by considering impermissible factors—particularly the risk of critical 

employees leaving the firm—and inadmissible expert testimony. The valuation of 

Seaside is a mixed question of law and fact. In re Ebbler Furniture & Appliances, 

Inc., 804 F.2d 87, 89 (7th Cir. 1986). Selection of a valuation method is a legal 

matter subject to de novo review, and findings made under that standard are facts 

subject to clear error review. Id.

We disagree with Vision that the bankruptcy court valued Seaside using a 

forced-sale method. To begin, the bankruptcy court explicitly stated that “the 

correct method of valuation of the [D]ebtor is that as a going concern.” The 

bankruptcy court also considered future losses, which are necessary to a discounted 

cash flow analysis, the core of a going-concern valuation. Most telling, the 

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bankruptcy court discussed and selected a discount rate, the critical input to 

calculate the present value of a business based on a cash flow.

Having established use of the proper valuation method, the bankruptcy court 

committed no error in considering the risk of losing key employees in selecting a 

discount rate. “[A]ll relevant factors to property value must be considered to arrive 

at a just valuation of a property.” In re Webb MTN, LLC, 420 B.R. 418, 435 

(Bankr. E.D. Tenn. 2009). Seaside’s civil engineering and mapping operations 

rely upon human expertise, and its client base relies upon established relationships. 

The loss of key employees could equate to a complete deterioration of Seaside’s 

value. Employee retention is certainly a relevant risk if not the key risk in 

calculating the discount rate in a case like this. The bankruptcy court also has 

discretion to weigh expert testimony and select portions to accept or reject. Id. 

Vision’s argument is that the bankruptcy court did just this, and therefore the 

argument is unavailing. To reiterate, the bankruptcy court committed no error in 

valuing Seaside.

B. The Non-debtor Release or Bar Order2

As part of the Reorganization Plan, the bankruptcy court approved releases 

of claims against non-debtors:

 2 Previous decisions of this Circuit have referred to non-debtor releases as “bar orders.” 

E.g. In re Munford, 97 F.3d 449 (11th Cir. 1996). The terms are used interchangeably in this 

opinion.

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[N]one of the Debtor, . . . Reorganized Debtor, Gulf Atlantic . . . (and 

any officer or directors or members of the aforementioned [entities]) 

and any of their respective Representatives (the “Releasees”) shall 

have or incur any liability to any Holder of a Claim against or Interest 

in Debtor, or any other party-in-interest ... for any act, omission, 

transaction or other occurrence in connection with, relating to, or 

arising out of the Chapter 11 Case, the pursuit of confirmation of the 

Amended Plan as modified by the Technical Amendment, or the 

consummation of the Amended Plan as modified by this Technical 

Amendment, except and solely to the extent such liability is based on 

fraud, gross negligence or willful misconduct.

Reorganization Plan Art. IX.C. The district court upheld the propriety of these 

non-debtor releases. Although this Circuit has considered the propriety of such a

release by a bankruptcy court, it has not done so recently. The issue warrants 

significant discussion.

1. History of Non-Debtor Releases in the Eleventh Circuit

This Circuit has spoken at least once on the validity of non-debtor releases in 

bankruptcy restructuring plans. We approved a release of claims against a nondebtor in In re Munford, 97 F.3d 449 (11th Cir. 1996). There, the debtor sued 

several defendants alleging breach of fiduciary duties related to a leveraged buy 

out. Id. at 452. One defendant offered to settle the claims but denied liability and 

conditioned its offer of settlement on issuance by the bankruptcy court of a 

protective order enjoining the non-settling defendants from pursuing contribution 

or indemnity claims against the settling defendant. Id. In order to make the 

settlement possible and to fund the bankruptcy estate, the bankruptcy court issued a 

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protective order barring the non-settling defendants from seeking contribution or 

indemnification from the settling defendant. Id. We held that 11 U.S.C. §105(a)3

gives bankruptcy courts authority to issue any order, process, or judgment that is 

necessary or appropriate to carry out the provisions of the Bankruptcy Code, 

including the bar order in that case. We upheld the non-debtor release because 

the settling defendant “would not have entered into the settlement agreement” 

without the bar order and because the bar order was “integral to settlement in an 

adversary proceeding.” Munford, 97 F.3d at 455.

Munford is the controlling case here, indicating that this Circuit permits nondebtor releases at least under some circumstances.

4 However, the facts of this case 

 3 “The court may issue any order, process, or judgment that is necessary or appropriate to 

carry out the provisions of this title. No provision of this title providing for the raising of an 

issue by a party in interest shall be construed to preclude the court from, sua sponte, taking any 

action or making any determination necessary or appropriate to enforce or implement court 

orders or rules, or to prevent an abuse of process.” 11 U.S.C. § 105(a).

4 Munford thus places this Circuit within the majority view discussed below. Although the 

Fifth Circuit in In re Vitro S.A.B. DE CV, 701 F.3d 1031, 1061 (2012), cited the Eleventh 

Circuit case of In re Jet Florida Systems, Inc., 883 F.2d 970 (1989), as being consistent with the 

minority view that non-consensual, non-debtor releases were prohibited by 11 U.S.C. §524(e), 

the Fifth Circuit citation was misplaced. Our Jet Florida case did not involve a non-debtor 

release. Rather, it involved the usual injunction against actions against the debtor itself. The 

case involved a suit by a tort claimant against a debtor, after the discharge of the debtor, seeking 

to establish the liability of the debtor for the tort in order to obtain recovery against the debtor’s 

insurer. We held that the injunction pursuant to 11 U.S.C. §524(a) arising from the discharge of 

the debtor applied only with respect to the personal liability of the debtor. Id. at 973. In so 

holding, we quoted from Collier as follows:

The provisions of 524(a) apply only with respect to the personal liability of the 

debtor. When it is necessary to commence or continue a suit against a debtor in 

order, for example, to establish liability of another, perhaps a surety, such suit 

would not be barred. Section 524(e) was intended for the benefit of the debtor

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differ from those considered in Munford. Instead of the settlement context in 

Munford, here the releases prevent claims against non-debtors that would 

undermine the operations of, and doom the possibility of success for, the 

reorganized entity, Gulf. Other Circuits have addressed substantively similar 

releases, which we now consider.

2. Non-debtor Releases in Sister Circuits

Other circuits are split as to whether a bankruptcy court has the authority to 

issue a non-debtor release and enjoin a non-consenting party who has participated 

fully in the bankruptcy proceedings but who has objected to the non-debtor release 

barring it from making claims against the non-debtor that would undermine the 

operations of the reorganized entity. Collier Bankruptcy Practice Guide5 reports 

the circuit split as follows. The authors indicate, as the minority view, that the 

 

but was not meant to affect the liability of third parties or to prevent establishing 

such liability through whatever means required. 

Id. at 973 (quoting 3 R. Babitt, A. Herzog, R. Mabey, H. Novikof, & M. Shinfeld, Collier on 

Bankruptcy, ¶524.01 at 524-16 (15th ed. 1987) (emphasis added in Eleventh Circuit opinion)). 

Jet Florida held that the tort claimant could proceed with suit against the debtor to establish the 

fact of liability for purposes of the insurance coverage; and that, as a practical matter, the insurer 

would be required to defend because the debtor, protected from personal liability, would be free 

to default. Jet Florida, 883 F.2d at 976. Thus, nothing in Jet Florida addresses the issue before 

us – i.e., the authority of bankruptcy courts to issue a non-consensual, non-debtor release. And, 

contrary to the citation of the Fifth Circuit, nothing in Jet Florida suggests that the Eleventh 

Circuit is aligned with the minority view discussed below.

5 5-84 Collier Bankruptcy Practice Guide ¶ 84.02[1][c][v] (Alan N. Resnick & Henry J. 

Sommer eds., 2014).

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Ninth and Tenth Circuits prohibit such bar orders.6 Our research reveals that the 

Fifth Circuit is also in the minority with respect to this issue. In In re Vitro S.A.V. 

DE CV, 701 F.3d 1031, 1061 (2012), the Fifth Circuit interpreted its prior 

precedent, saying that it “seem[s] broadly to foreclose non-consensual non-debtor 

releases in permanent injunctions.” The opinions for these minority circuits base 

their conclusion on 11 U.S.C. §524(e), which provides in relevant part: 

“[D]ischarge of a debt of the debtor does not affect the liability of any other entity 

on, or the property of any other entity for, such debt.” Collier cites the majority of 

the circuits as holding that such releases/injunctions are permissible, under certain 

circumstances, reporting the Second, Third, Fourth, Sixth, and Seventh Circuits as 

 6 With respect to the Ninth Circuit, Collier cites In re Lowenschuss, 67 F.3d 1394, 1401-02 

(9th Cir. 1995), cert. denied, 517 U.S. 1243 (1996), and In re American Hardwoods, Inc., 885 

F.2d 621, 625-26 (9th Cir. 1989). With respect to the Tenth Circuit, Collier cites In re Western

Real Estate Fund, Inc., 922 F.2d 592, 601 (10th Cir. 1990).

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so holding,7 and the First, Eleventh, and D.C. Circuits as indicating that they agree 

with the “pro-release” circuits.8

3. Eleventh Circuit Law is Consistent with the Majority View

As indicated in Part II.B.1 above, we believe that our Munford case places 

this Circuit within the majority rule on this issue. As noted above, in Munford, we 

held that §105(a) provided authority for the bankruptcy court to enter the bar order 

in that case, where the settling defendant provided funds for the bankruptcy estate, 

but would not have entered into the settlement in the absence of such bar order, 

and where the bankruptcy court found that the bar order was fair and equitable. In 

particular, we respectfully disagree with the position of the minority circuits with 

respect to §524(e). As noted, that section, in relevant part, provides that the 

“discharge of a debt of the debtor does not affect the liability of another entity on 

... such debt.” We agree with the Seventh Circuit in Airadigm: “The natural 

 7 Collier cites as support for this proposition: In re Drexel Burnham Lambert Group, Inc., 

960 F.2d 285, 292 (2d Cir. 1992); In re Continental Airlines, 203 F.3d 203, 214 (3d Cir. 2000); 

In re A.H. Robbins Co., Inc., 880 F.2d 694, 700-02 (4th Cir. 1989); In re Dow Corning Corp., 

280 F.3d 648, 658 (6th Cir. 2002); In re Specialty Equip. Cos., 3 F.3d 1043, 1047 (7th Cir. 

1993). Our research reveals that the Third Circuit in Continental Airlines expressly declined to 

decide whether or not there ought to be a blanket rule prohibiting all non-consensual releases and 

permanent injunctions of non-debtor obligations. Rather, the Third Circuit assumed the most 

flexible standard for testing the validity of such non-debtor releases, and held that the findings of 

fact below did not support such a bar order under that standard. 203 F.3d at 213-18. Our 

research also reveals that the Seventh Circuit case, In re Airadigm Communications, Inc., 519 

F.3d 640, 655-58 (7th Cir. 2008), more squarely supports the majority position than does the 

case cited by Collier. 

8 For this proposition, Collier cites In re Munford, Inc., 97 F.3d 449 (11th Cir. 1996); In re 

Monarch Life Ins. Co., 65 F.3d 973, 984-85 (1st Cir. 1995); and In re AOV Industries, 792 F.2d 

1140, 1152 (D.C. Cir. 1986). 

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reading of this provision does not foreclose a third-party release from a creditor’s 

claims.” 519 F.3d 640, 656 (2008). Pursuant to §524(e), the discharge of the 

debtor’s debt does not itself affect the liability of a third party, but §524(e) says 

nothing about the authority of the bankruptcy court to release a non-debtor from a 

creditor’s claims. As the Airadigm court noted, if Congress had meant to limit the 

powers of bankruptcy courts, it would have done so clearly, as it did in other 

instances, or it would have done so by creating requirements for plan confirmation 

as in 11 U.S.C. §1129(a) (“The court shall confirm a plan only if the following 

requirements are met ....”). 

Consistent with the majority view, we agree that §105(a) codifies the 

established law that a bankruptcy court “applies the principles and rules of equity 

jurisprudence.” Airadigm, 519 F.3d at 659 (quoting Pepper v. Litton, 308 U.S. 

295, 304, 60 S.Ct. 238, 244 (1939)). We also agree, however, with the majority 

view that such bar orders ought not to be issued lightly, and should be reserved for 

those unusual cases in which such an order is necessary for the success of the 

reorganization, and only in situations in which such an order is fair and equitable 

under all the facts and circumstances. The inquiry is fact intensive in the extreme. 

Like the Fourth Circuit in Behrmann v. National Heritage Foundation, 663 

F.3d 704, 712 (2011), we commend for the consideration of bankruptcy courts the 

factors set forth by the Sixth Circuit in Dow Corning Corp., 280 F.3d at 658. 

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There, the Sixth Circuit established a seven-factor test to guide bankruptcy courts, 

as follows:

[W]hen the following seven factors are present, the bankruptcy court 

may enjoin a non-consenting creditor’s claims against a non-debtor: 

(1) There is an identity of interests between the debtor and the third 

party, usually an indemnity relationship, such that a suit against the 

non-debtor is, in essence, a suit against the debtor or will deplete the 

assets of the estate; (2) The non-debtor has contributed substantial 

assets to the reorganization; (3) The injunction is essential to 

reorganization, namely, the reorganization hinges on the debtor being 

free from indirect suits against parties who would have indemnity or 

contribution claims against the debtor; (4) The impacted class, or 

classes, has overwhelmingly voted to accept the plan; (5) The plan 

provides a mechanism to pay for all, or substantially all, of the class 

or classes affected by the injunction; (6) The plan provides an 

opportunity for those claimants who choose not to settle to recover in 

full and; (7) The bankruptcy court made a record of specific factual 

findings that support its conclusions.

Id. Again, we agree with the Fourth Circuit in Behrmann that bankruptcy courts 

should have discretion to determine which of the Dow Corning factors will be 

relevant in each case. 663 F.3d at 712. The factors should be considered a nonexclusive list of considerations, and should be applied flexibly, always keeping in 

mind that such bar orders should be used “cautiously and infrequently,” id. at 712, 

and only where essential, fair, and equitable. Munford, 97 F.3d at 455.

Having set forth the foregoing standard, we turn next to review the 

bankruptcy court’s application of the Dow Corning factors.

4. Application of the Dow Corning Factors

Recognizing the existing split among the circuits as to whether a third-party 

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release is permissible for non-debtors, but then relying on decisions of other 

Florida bankruptcy courts, the bankruptcy court applied the Dow Corning factors

in a manner consistent with this opinion. We review a bankruptcy court’s approval 

of non-debtor releases for abuse of discretion. In re Munford, 97 F.3d 449, 456 

(11th Cir. 1996). Vision argues that this release satisfies none of the Dow Corning

factors. We disagree.

a. Factor One: An identity of interests between the debtor and the 

third party, usually an indemnity relationship, such that a suit against 

the non-debtor is, in essence, a suit against the debtor or will deplete 

the assets of the estate.

The bankruptcy court concluded that this factor favored Seaside and favored 

inclusion in the Reorganization Plan of the non-debtor release. The bankruptcy 

court concluded that Gulf would deplete its assets continuing to defend against the 

voluminous litigation. The releasees in this case include Gustin, Mainor, Binkley,

Bowden, and other former principals of Seaside who will be the key employees of 

the reorganized entity, Gulf. The reorganized entity’s business is completely 

dependent upon the skilled labor of the releasees, its professional surveyors and 

engineers, as was the former business of the Debtor. These releasees would also 

be defendants in any further litigation and, in the absence of the bar order, would 

expend their time in defense of litigation as opposed to focusing on their 

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professional duties for the reorganized entity. Applying this first factor flexibly,9

we agree with the bankruptcy court that this factor favors approving the non-debtor 

release. Time equates to money for the engineers. The principals’ preoccupation 

with additional lawsuits will interrupt the labor-intensive surveying, leading to a 

deterioration of the estate as Gulf loses valuable relationship-based work contracts.

b. Factor Two: The non-debtor has contributed substantial assets to 

the reorganization.

The bankruptcy court stated that “[n]one of the releases [sic] contributed any 

new value to the reorganized debtor other than the contribution of their labor.” As 

other findings of the bankruptcy court make clear, the contribution of their services 

to the reorganized entity is the very “life blood of the reorganized debtor.” Doc. 

474-1 at 47-48 (emphasis in original). We conclude that this factor too favors 

Seaside. 

c. Factor Three: The injunction is essential to reorganization, namely, 

the reorganization hinges on the debtor being free from indirect suits 

against parties who would have indemnity or contribution claims 

against the debtor.

The bankruptcy court noted the close relationship between the first factor 

and this factor. The bankruptcy court found that the bar order was absolutely 

essential. It found: “To say that this case has been highly litigious would be an 

 9 In Munford itself there was more identity as between the settling defendant and the nonsettling defendants than between the settling defendant and the debtor. However, the gist of 

factor one – i.e., in the absence of the bar order, there will be a depletion of the assets of the 

debtor – was present. The same is true in this case. 

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understatement.” Doc. 474-1 at 46. It found: “Without [the bar order] it would be 

doubtful that the engineers and surveyors would ever be able to perform their 

professional work, complete contracts and create receivables necessary for the life 

blood of the reorganized debtor.” Id. at 47-48. The court also found that the time 

and efforts expended by Vision “would appear disproportionate to the value of 

Vision’s equity interest.” Id. at 48. We agree that, without the bar order, the 

litigation would likely continue, bleeding Gulf dry and dashing any hope for a 

successful reorganization. We conclude that this factor weighs heavily in favor of 

inclusion of the non-debtor release.

d. Factor Four: The impacted class, or classes, has overwhelmingly 

voted to accept the plan.

The bankruptcy court noted that Vision did reject this plan, as did two of the 

bankruptcy trustees (for Mainor and Binkley). However, the bankruptcy court 

noted that all other classes of creditors, whether impaired or not, have unanimously 

accepted the Reorganization Plan. Significantly, the court found that the equity 

holders rejecting the Plan will be paid the full value of their interests under the 

Plan. We cannot conclude that this factor favors Vision.

e. Factor Five: The plan provides a mechanism to pay for all, or 

substantially all, of the class or classes affected by the injunction.

The bankruptcy court again noted that Vision will be paid in full for its share 

of Seaside. This factor weighs heavily in favor of the releases.

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f. Factor Six: The plan provides an opportunity for those claimants 

who choose not to settle to recover in full.

The bankruptcy court stated that this factor was inapplicable. We cannot 

conclude that the bankruptcy court abused its discretion in this regard. Other than 

its claims for payment for the full value of its equity interest in the Debtor—which 

of course is to be paid in full under the Plan—Vision’s identification of any other

claims is vague. To the extent we can identify such other claims that Vision may 

be asserting, we conclude that they were made by Vision in challenging the 

Reorganization Plan and were rejected.

g. Factor Seven: The bankruptcy court made a record of specific 

factual findings that support its conclusions.

The bankruptcy court made thorough factual findings in reaching its 

decision. Its findings are amply supported by the evidence. The bankruptcy 

court’s extensive consideration of this case weighs heavily against any abuse of 

discretion.

5. Additional Considerations Pursuant to Munford

Whether or not the bankruptcy court had specifically in mind the “fair and 

equitable” requirement of Munford, 97 F.3d at 455, it went on to further discuss 

considerations relevant to such a finding. The bankruptcy court referred to this 

case as a “death struggle” and recognized the apparently disproportionate 

expenditure of time for what Vision claimed to be a company valued at 

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$960,000.00. Also very telling of the fairness and equity of the releases is that the 

bankruptcy court required the Debtor to voluntarily cease litigation of its claims for 

sanctions against Vision. This requirement prevented an asymmetrical benefit for 

Seaside from the Reorganization Plan. Finally, the release itself is narrowly 

limited in scope to claims arising out of the Chapter 11 case10 and does not include 

claims arising out of fraud, gross negligence, or willful misconduct. See Airadigm, 

519 F.3d at 657 (the Seventh Circuit viewed a very similar bar order as “narrow: it 

applies only to claims ‘arising out of or in connection with’ the reorganization 

itself and does not include ‘willful misconduct.’ ... This is not ‘blanket 

immunity.’”).

6. Summary

We conclude that the bankruptcy court did not abuse its discretion in 

approving the non-debtor releases. The releases are fair and equitable, and wholly 

necessary to ensure that Gulf may continue to operate as an entity. This case has 

been a death struggle, and the non-debtor releases are a valid tool to halt the fight.

C. Bad Faith

Vision argues that Seaside proposed the Reorganization Plan in bad faith in 

 10 Vision argues that an additional provision of the Second Amended Plan serves as a broad 

release. “The treatment provided herein is in full satisfaction of all claims and interest such 

Holder has against the Debtor, the Reorganized Debtor, the Officers, Directors and Shareholders 

of the Debtor and the Members of the Reorganized Debtor.” Seaside concedes that this 

provision is to be considered no broader with respect to non-debtors than the Bar Order quoted in 

Part II.B above.

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contravention of the good faith requirement of 11 U.S.C. § 1129(a)(3). Vision 

characterizes the plan as intended “for the sole and exclusive benefit of its 

insiders.” In re Davis Heritage GP Holdings, LLC, 443 B.R. 448, 461 (Bankr. 

N.D. Fla. 2011).

The parties dispute the proper standard of review of the bad faith 

determination. Vision argues that the bankruptcy court refused to follow the law 

and allowed outside factors to influence its decision, so this is an issue of law to be 

reviewed de novo, citing In re Fielder, 799 F.2d 656, 657 (11th Cir. 1986). Seaside 

argues that this is an attempt to convert the standard of review and that controlling 

precedent requires this Court to use the clearly erroneous standard in reviewing the 

totality of the circumstances. When read in context, Fielder is clear. “This court 

as an appellate court gives deference to all findings of fact by the fact finder if 

based upon substantial evidence, but freely examines the applicable principles of 

law to see if they were properly applied and freely examines the evidence in 

support of any particular finding to see if it meets the test of substantiality.” Id.

“While the Bankruptcy Code does not define the term, courts have 

interpreted ‘good faith’ as requiring that there is a reasonable likelihood that the 

plan will achieve a result consistent with the objectives and purposes of the Code.” 

In re McCormick, 49 F.3d 1524, 1526 (11th Cir. 1995). Those purposes include 

preserving jobs in the community, allowing the business to continue to operate 

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instead of liquidation, and achieving a consensual resolution between debtors and 

creditors. In re United Marine, Inc., 197 B.R. 942, 947 (Bankr. S.D. Fla. 1996). 

“Bad faith exists if there is no realistic possibility of reorganization and the debtor 

seeks merely to delay or frustrate efforts of secured creditors.” Id. (citing In re 

Albany Partners, Ltd., 749 F.2d 670, 674 (11th Cir. 1984)). 

The Reorganization Plan benefits more than just the Seaside insiders. 

Seaside’s non-shareholder employees will maintain their jobs; other creditors will 

receive compensation over time; and the Corps of Engineers will continue to 

receive engineering services. The Plan falls well within the purposes of the 

Bankruptcy Code and is therefore proposed in good faith. Simply because one

creditor is dissatisfied is insufficient to show bad faith. Furthermore, with Vision 

as a shareholder, Seaside risked losing its small-business status, which would have 

eliminated a vital credit line, thus completely dooming the company. This 

consideration justifies Seaside’s desire to reorganize Gulf without Vision as a 

shareholder. See In re Texaco Inc., 84 B.R. 893, 907 (Bankr. S.D.N.Y. 1988) 

(concluding a plan that enables to bring current, and resume future payments on,

obligations signals good faith). The plan to remove Vision from control is not just 

some nefarious plot. Moreover, the record indicates that the key employees of the 

business would not continue to serve – the very life blood of the business – if 

Vision had a substantial role in the reorganized entity.

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D. Fairness, Equity, and Discrimination in the Reorganization Plan

Relying upon both 11 U.S.C. §1123(a)(4) (“A plan shall – ... (4) provide the 

same treatment for each claim or interest of a particular class”) and 11 U.S.C. 

§1129(b)(1) (a provision commonly known as the “cram down” provision), Vision 

argues that the Plan of Reorganization was unfair and inequitable in that it 

discriminated against Vision as a stockholder of the Debtor, in comparison to other 

stockholders of the Debtor. First, Vision argues that the Plan violated 

§1129(b)(2)(C)(i) (providing that each equity interest holder must receive the full 

value of its interest). The gist of this argument is that the bankruptcy court 

undervalued the equity interests, and therefore Vision did not receive full value for 

its stock. This argument merges with Vision’s valuation objection, which we 

disposed of earlier in this opinion.

Vision also argues that the Plan was discriminatory in that other 

stockholders of the Debtor received stock in the reorganized entity, while it did 

not. The bankruptcy court held that Vision received full value for its stock interest, 

and therefore §1129(b)(2)(C)(i) was satisfied, and thus there was no 

discrimination.11 Thus, the bankruptcy court concluded that there was no unfair 

discrimination. Especially in the unusual circumstances of the instant case, we 

 11 The bankruptcy court pointed to the obvious fact that §1129(b)(2)(C) can be satisfied in

either of two alternative ways: pursuant to (i) by paying the holder of the equity interest its full 

value, or by satisfaction of (ii) (the absolute priority rule). The bankruptcy court held that, 

because §1129(b)(2)(C)(i) was satisfied, it need not address §1129(b)(2)(C)(ii). 

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agree. Our research has uncovered no cases in which an objecting holder of an 

equity interest – who has been paid in full for the value of his interest – could 

prohibit a successful reorganization by insisting on becoming a stockholder in the 

reorganized entity. In none of the cases cited by Vision was an objecting equity 

holder paid the full value of its equity interest under the provisions of the 

Reorganization Plan.

E. Interest Rate on Promissory Notes Exchanged Pursuant to the Second 

Amended Restructuring Plan

Vision did not receive an immediate cash payment for its interest in Seaside; 

rather, Vision received promissory notes accruing with an interest rate of 4.25%. 

Vision argues that this rate does not adequately compensate for the highly 

prospective nature of the notes. This Court reviews the adequacy of the interest 

rate for clear error. In re Brice Rd. Devs., 392 B.R. 274, 280 (B.A.P. 6th Cir. 

2008).

The Supreme Court adopted the formula approach for determining the 

interest rate payable to creditors in bankruptcy proceedings. Till v. SCS Credit 

Corp., 541 U.S. 465, 478-79, 124 S. Ct. 1951, 1961 (2004). “Taking its cue from 

ordinary lending practices, the approach begins by looking to the national prime 

rate . . . . Because bankrupt debtors typically pose a greater risk of nonpayment 

than solvent commercial borrowers, the approach then requires a bankruptcy court 

to adjust the prime rate accordingly.” Id. Here, the bankruptcy court applied this 

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formula, adding a 1% adjustment to the prime rate of 3.25%. The 1% adjustment 

is within the range suggested by the Supreme Court in Till, 124 S. Ct. at 1962, and 

therefore the bankruptcy court committed no clear error.

F. Exams Pursuant to Bankruptcy Rule 2004

Vision contends that the bankruptcy court abused its discretion by allowing 

Seaside to take Bankruptcy Rule 2004 exams of Vision officers. See In re Piper 

Aircraft Corp., 362 F.3d 736, 738 (11th Cir. 2014) (concluding that this Court 

reviews any discovery order for abuse of discretion). This argument is wholly 

without merit. The bankruptcy court has wide discretion with respect to such 

discovery matters. A broad inquiry was necessary here to establish, for example, 

that Vision’s policies may result in continued litigation, thus bolstering the case for 

the non-debtor releases.

G. Constitutionality of the Bankruptcy Decision

Vision’s initial brief has wholly failed to articulate a constitutional claim of 

arguable merit. Even if Vision had adequately asserted a takings claim, the 

extinguishing of a property interest through bankruptcy proceedings—even if the 

creditor receives nothing—does not constitute a taking. In re Morel, 983 F.2d 104, 

105 (8th Cir. 1992).

III. CONCLUSION

The bankruptcy court committed no reversible error by approving the 

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Second Amended Plan.

AFFIRMED.12

 12 Seaside’s Motion to Dismiss Appeal as Moot is DENIED.

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