CORRECTED OPINION

UNPUBLISHED

UNITED STATES COURT OF APPEALS

FOR THE FOURTH CIRCUIT

In Re: PAVILION PROPERTIES LIMITED 

PARTNERSHIP,

Debtor.

PAVILION PROPERTIES LIMITED  No. 99-1871 PARTNERSHIP,

Plaintiff-Appellant,

v.

BEAL BANK, S.S.B.,

Defendant-Appellee. 

In Re: PAVILION PROPERTIES LIMITED 

PARTNERSHIP,

Debtor.

PAVILION PROPERTIES LIMITED  No. 99-1872 PARTNERSHIP,

Plaintiff-Appellant,

v.

BEAL BANK, S.S.B.,

Defendant-Appellee. 
In Re: PAVILION PROPERTIES LIMITED 

PARTNERSHIP,

Debtor.

PAVILION PROPERTIES LIMITED  No. 99-1947 PARTNERSHIP,

Plaintiff-Appellee,

v.

BEAL BANK, S.S.B.,

Defendant-Appellant. 

In Re: PAVILION PROPERTIES LIMITED 

PARTNERSHIP,

Debtor.

PAVILION PROPERTIES LIMITED  No. 99-1948 PARTNERSHIP,

Plaintiff-Appellee,

v.

BEAL BANK, S.S.B.,

Defendant-Appellant. 

Appeals from the United States District Court

for the District of South Carolina, at Columbia.

Dennis W. Shedd, District Judge.

(CA-98-3144-3-19, BK-97-2186-B, AP-97-80241-B,

AP-97-80242-B)

Argued: October 30, 2000

Decided: November 21, 2000

Corrected Opinion Filed: January 12, 2001

2 IN RE: PAVILION PROPERTIES
Before WIDENER, WILLIAMS, and MOTZ, Circuit Judges.

Affirmed in part and vacated and remanded in part by unpublished

per curiam opinion. Judge Widener wrote a dissenting opinion. 

COUNSEL

ARGUED: Stephen Jahue Moore, KIRKLAND, WILSON, MOORE,

ALLEN, TAYLOR & O’DAY, P.A., West Columbia, South Carolina,

for Appellant. John Goode McJunkin, JENKENS & GILCHRIST,

P.C., Washington, D.C., for Appellee. ON BRIEF: Frederick A.

Gertz, GERTZ & MOORE, Columbia, South Carolina, for Appellant.

Charles R. Gibbs, AKIN, GUMP, STRAUSS, HAUER & FELD, Dallas, Texas; James W. Sheedy, SPENCER & SPENCER, Rock Hill,

South Carolina, for Appellee. 

Unpublished opinions are not binding precedent in this circuit. See

Local Rule 36(c). 

OPINION

PER CURIAM: 

In this case involving the interpretation of a mortgage provision, a

mortgagor appeals a district court’s order granting the mortgagee

rights to an arbitration award. We affirm in part and vacate and

remand in part. 

I.

Pavilion Properties Limited Partnership was formed for the purpose

of developing four, mid-rise apartment buildings and an office buildIN RE: PAVILION PROPERTIES 3
ing, in Columbia, South Carolina. To assist in financing the construction of the complex, Pavilion secured a mortgage loan from the

Department of Housing and Urban Development ("HUD"), and

signed an accompanying note. Paragraph 9 of the mortgage provides

in relevant part that the mortgagor covenants and agrees with the

mortgagee: 

That all awards of damages in connection with any condemnation for public use of or injury to any of said property,

shall be paid to the mortgagee to be applied to the amount

due under the Note secured hereby in (1) amounts equal to

the next maturing installment or installments of principal

and (2) with any balance to be credited to the next payment

due under the Note. . . . 

Through an assignment of the mortgage from HUD to Beal Bank,

S.S.B. on December 30, 1996, Beal Bank became the mortgagee. 

During and after construction of the Pavilion complex, various construction defects came to Pavilion’s attention. Pavilion expressed its

dissatisfaction to the contractor, regarding defects in the roof, the

exterior insulation and finish system, and the apartment balconies. At

various times, the contractor attempted to repair the construction

defects but failed to do so adequately. 

Pavilion filed a lawsuit in state court against the contractor, but

because of the complexity of the litigation, the parties consented to

arbitration. In arbitration, Pavilion claimed a sum of $6,987,218 in

damages. This total claim was comprised of various subclaims,

including approximately $1.6 million for damage to the exterior insulation and finish system, approximately $2.4 million for damage to

the balconies, approximately $198,000 for prior lost rentals due to

water leakage, and approximately $850,000 for future lost rentals in

the course of future repairs. Pavilion prevailed in the arbitration and

obtained a net arbitration award of $2,486,997.62; the award was not

itemized to indicate how much was attributable to each kind of damage claimed by Pavilion. 

On April 14, 1997, Pavilion filed for Chapter 11 bankruptcy. During bankruptcy proceedings, Beal Bank asserted entitlement to the

4 IN RE: PAVILION PROPERTIES
proceeds of the arbitration award and moved for summary judgment,

arguing that the phrase "injury to property" in paragraph 9 of the

mortgage covered the arbitration award. The bankruptcy court

rejected Beal Bank’s argument. The court reasoned that Pavilion’s

claim "was against the contractor for breach of contract, and the Arbitration Award was for breach of contract, not for injury to property"

and, therefore, paragraph 9 did not entitle Beal Bank to the proceeds

of the arbitration award. 

Beal Bank appealed the bankruptcy court’s decision to the district

court. That court rejected the bankruptcy court’s interpretation of

paragraph 9 of the mortgage. The district court held that "the whole

damage award is in connection with the injury to the property" under

paragraph 9. Pavilion appeals the district court’s judgment. 

At oral argument before this court, both Pavilion and Beal Bank

repeatedly stated in response to questions from the court that if

granted rights to the proceeds of the arbitration award, they would

reinvest those proceeds in the Pavilion Properties complex. Beal Bank

did qualify this statement in one respect — it would reinvest the arbitration award proceeds in rehabilitation of the Pavilion complex provided the bankruptcy court adopted its proposed plan. However, Beal

Bank represented to us that as soon as the bankruptcy court did this,

it would promptly apply the proceeds from the arbitration award to

rehabilitation of the complex. 

II.

We have reviewed the record, briefs, and applicable law, and considered the oral arguments of the parties, and we are persuaded that

the district court reached the correct result as to the interpretation of

the mortgage agreement. We therefore affirm the district court’s judgment entered on July 15, 1999, directing that the proceeds of the arbitration award be paid to Beal Bank. 

However, we vacate both the district court’s judgment entered on

May 28, 1999, concerning the valuation of Beal Bank’s secured

claim, and the bankruptcy court’s order entered on September 15,

1998, valuing Beal Bank’s secured claim at $6,340,000. This is necessary because the bankruptcy court’s valuation of Beal Bank’s secured

IN RE: PAVILION PROPERTIES 5
claim is based on two incorrect premises. First, the bankruptcy court

held that the proceeds of the arbitration award are the property of the

bankruptcy estate, i.e., the proceeds belong to Pavilion, not Beal

Bank. Second, when the bankruptcy court valued Beal Bank’s secured

claim at $6,340,000, it assumed that the debtor, Pavilion, would spend

$5,700,000 on repair of the construction defects and that the proceeds

of the arbitration award were, as part of the debtor’s (Pavilion’s)

estate, subject to the bankruptcy court’s order limiting their use "to

the correction of construction defects." Because we have now held

that the proceeds of the arbitration award are the property of Beal

Bank, not Pavilion, these bases for the bankruptcy court’s valuation

are no longer viable. Accordingly, Beal Bank’s secured claim must be

revalued in a manner consistent with this opinion, and with the reorganization plan ultimately chosen by the bankruptcy court. We, of

course, expect Beal Bank to honor its commitment to apply the proceeds from the arbitration award to the revitalization of the Pavilion

complex, if the bankruptcy court accepts Beal Bank’s proposed reorganization plan. In light of our ruling, we find it unnecessary to consider Beal Bank’s cross claim.

AFFIRMED IN PART AND

VACATED AND REMANDED IN PART

WIDENER, Circuit Judge, dissenting: 

I respectfully dissent. 

I would affirm the decision of the bankruptcy court on its opinion.

The decision of the bankruptcy court appealed from provides in

part that: 

The Fund [arbitration proceeds] is property of the estate

subject to further order of this court limiting its use to the

correction of construction defects. 

By providing in its order that the money is property of the bankruptcy estate, the bankruptcy court has assured its application, a condition not obtaining under the majority decision. 

6 IN RE: PAVILION PROPERTIES
This is not to suggest that the bankruptcy court was in error in

deciding that the bank had no interest in the money. In my opinion,

the bankruptcy court was also correct in that aspect of the case.

IN RE: PAVILION PROPERTIES 7