Court Opinion

ID: 812019
Source: CourtListenerOpinion
Date Created: 2012-11-16 19:05:46+00
Date Added: 2024-06-11T18:00:43.541523
License: Public Domain

Case: 12-10601   Date Filed: 11/16/2012   Page: 1 of 13

                                                         [DO NOT PUBLISH]

            IN THE UNITED STATES COURT OF APPEALS

                    FOR THE ELEVENTH CIRCUIT
                     ________________________

                            No. 12-10601
                      ________________________

         D.C. Docket Nos. 0:11-cv-61398-KAM ; 0:06-13274-JKO

IN RE: NEW RIVER DRY DOCK, INC.,

                                                                       Debtor.
__________________________________

CHRISTOPHER “KIT” DENISON,
MARINE REALTY, INC.,

                                                         Plaintiffs-Appellants,

                                 versus

MARINA MILE SHIPYARD, INC.,

                                                          Defendant-Appellee.

                      ________________________

               Appeal from the United States District Court
                   for the Southern District of Florida
                     ________________________
                          (November 16, 2012)
               Case: 12-10601        Date Filed: 11/16/2012      Page: 2 of 13

Before HULL and BLACK, Circuit Judges, and WHITTEMORE,* District Judge.

PER CURIAM:

       Christopher (“Kit”) Denison and his company, Marine Realty, Inc.,

(collectively “Realtors”)1 appeal the district court’s affirmance of the bankruptcy

court’s grant of summary judgment in favor of Marina Mile Shipyard, Inc.

(“MMS”), one of the creditors of the bankruptcy estate. The Realtors challenge

the bankruptcy court’s order to disgorge $490,000 in commissions that they

received after brokering the sale of the debtor’s marina property. After review, we

affirm.

                               I. BACKGROUND FACTS

A.     The Realtors’ Role in the Bankruptcy Proceedings

       In 2006, the debtor, whose primary asset was a marina, filed a petition for

Chapter 11 bankruptcy. The debtor decided to hire the Realtors as a real estate

agent to sell the marina, and submitted an application to the bankruptcy court for

the approval of the Realtors’ employment. As part of the application, Denison

(one of the Realtors) submitted an unsworn declaration, in which he attested that

       *
         Honorable James D. Whittemore, United States District Judge, Middle District of Florida,
sitting by designation.
       1
       Denison contends that his wife owns Marine Realty and that he worked for the company as
an employee.

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neither he nor Marine Realty held or represented an interest adverse to the

debtor, and that both were “disinterested persons” within the meaning of 11 U.S.C.

§ 101(14). For their services, the Realtors were to receive a commission equal to

4% of the gross sale price. In October 2006, the bankruptcy court approved the

application for the Realtors’ employment and the proposed commission.

        As part of his efforts to sell the marina, Denison contacted Steve Israel, an

investor with whom Denison had a prior business relationship, and suggested that

Israel submit a “stalking horse” bid on the property.2 Israel eventually agreed to

submit a stalking horse bid of $12.25 million, far below the marina’s officially

appraised value, and partnered with another investor, Fred Scott, to provide most

of the funds to purchase the marina. There were no higher bids, and Denison

ultimately acted as a broker in the court-approved sale of the marina for $12.25

million to SPVEF-SKID, LLC, a joint venture company formed by Scott and Israel

for the purchase of the marina. The sale closed in June 2007.

        Sometime after the bankruptcy court’s approval of the Realtors’

employment, but before the closing, Scott and Israel offered Denison the

opportunity to manage the marina after the closing, or to acquire an ownership

        2
        A “stalking horse” bid is the first bid from a potential buyer on a bankrupt debtor’s assets.
The debtor solicits this bid to set the floor for the later competing bids of other potential purchasers,
thereby preventing lowball offers.

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interest in the marina. Denison never refused the buyers’ offers to be involved in

managing or owning the marina, and the buyers expected that Denison would be

involved after the closing. Additionally, Denison performed numerous tasks on

the buyers’ behalf before the closing, such as preparing capital expenditure

schedules, obtaining insurance on the marina, and meeting with prospective

contractors and tenants. Shortly after closing, Scott sent an e-mail to Denison,

Israel, and Israel’s attorney, stating, in part: “I want to personally thank you all for

getting to the point we are at today. A lot of hard work by all got us ownership of

a valuable asset at a below market price . . . .” Two or three months later, Denison

formalized an agreement to manage the marina and bought an ownership interest

in it.

         At no point prior to the closing did the Realtors disclose to the bankruptcy

court Denison’s discussions with the buyers about his intended post-closing

involvement with the buyers and the marina. The Realtors also failed to disclose

to the bankruptcy court that Denison paid $37,500 from his commission on the

sale to cover half of a “finder’s fee” owed by the buyers to a third party. And

Denison never disclosed to the court that he had a business relationship with one

of the buyers prior to being employed by the debtor. Furthermore, under their

contract with the debtor, the Realtors were to receive a four percent commission

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amounting to $490,000. However, the Realtors actually received a $535,000

payment, and admit that they were overpaid by $45,000.

      After the sale of the marina, the bankruptcy court confirmed the debtor’s

reorganization plan, which included a release by the debtor and creditors of claims

against professionals arising out of the bankruptcy case.

      Two years later, Marina Mile Shipyard, Inc. (“MMS”), the largest unsecured

creditor of the debtor, alerted the bankruptcy court about Denison’s relationship

with the buyers of the marina, Israel and Scott. The bankruptcy court sua sponte

ordered the Realtors to show cause why they should not disgorge their commission

fee. MMS also filed a separate motion seeking the disgorgement of the Realtors’

commission fees. A lengthy litigation ensued between the Realtors and MMS over

the commission fees, and both parties filed motions for summary judgment on the

issue of disgorgement. The bankruptcy court ultimately entered two orders that

are at issue in this appeal.

      First, the bankruptcy court ordered the Realtors to repay, in installments,

the $45,000 (with interest) that the Realtors received in excess of their authorized

commission on the sale of the marina. Although the Realtors never objected to

this order, and do not challenge it on appeal, they failed to comply with that order

and repay the $45,000 to the bankruptcy plan administrator. MMS then filed an

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emergency motion to sequester $25,981.41 of commissions that Marine Realty

received from an unrelated real estate transaction. The bankruptcy court granted

MMS’s motion and ordered the sequestration of the Realtors’ commission funds.

Denison filed a notice of exemption from garnishment under Fla. Stat. § 222.12

and requested a hearing on the matter. The bankruptcy court, however, ultimately

struck Denison’s notice of exemption and request for a hearing.

      The second court order at issue in this appeal is the bankruptcy court’s grant

of MMS’s motion for summary judgment on the issue of disgorgement. In that

order, the bankruptcy court concluded that Denison had an interest adverse to the

estate while employed by the estate, in light of Denison’s undisclosed pre-closing

relationship with the buyers. The bankruptcy court ordered the Realtors to

disgorge their $490,000 commission.

      The Realtors appealed to the district court, and the district court affirmed

the bankruptcy court’s grant of summary judgment to MMS. The Realtors now

appeal.

                                II. DISCUSSION

      We have jurisdiction under 28 U.S.C. § 158(d). Because the district court

affirmed the bankruptcy court, we review the bankruptcy court’s decision. Educ.

Credit Mgmt. Corp. v. Mosley (In re Mosley), 494 F.3d 1320, 1324 (11th Cir.

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                Case: 12-10601       Date Filed: 11/16/2012       Page: 7 of 13

2007). We review the bankruptcy court’s legal conclusions de novo and its factual

findings for clear error. Id.

A.     Standing

       Denison contends that MMS (the creditor) lacked standing to request a

disgorgement of fees because MMS had no authority to recover property of the

bankruptcy estate and the Plan Administrator did not have authorization to assign

this claim to MMS. This argument is meritless.

       A bankruptcy court may, on its own motion or on a motion from any “party

in interest,” reduce a fee award. 11 U.S.C. § 330(a)(2). As the underlying

debtor’s largest unsecured creditor, MMS was a party in interest in the bankruptcy

case. See 11 U.S.C. § 1109(b) (defining a “party in interest” to include creditors).

Therefore, MMS had standing to ask the bankruptcy court to order the

disgorgement of the fees paid to Denison from the bankruptcy estate.3 See id.

(stating that a creditor “may raise and may appear and be heard on any issue” in a

Chapter 11 case).

B.     Release of Liability

       3
         Even if we were to assume that MMS lacks standing, the bankruptcy court could have
ordered the same relief sua sponte. See 11 U.S.C. § 330(a)(2). In fact, the bankruptcy court’s show
cause order was entered sua sponte.

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      Denison contends that the bankruptcy court erred in ordering a

disgorgement of fees because the Chapter 11 plan released all claims against

professionals arising from the bankruptcy case. We disagree.

      A trustee administering the bankruptcy estate may employ professionals

such as real estate brokers, subject to the bankruptcy court’s approval. See 11

U.S.C. § 327. Before a professional can be paid, a bankruptcy court must review

and approve the fees to be paid. See 11 U.S.C. § 330(a); see also In re Marin, 256

B.R. 503, 507 (Bankr. D. Colo. 2000). A bankruptcy court may deny fees to a

professional, “if, at any time during such professional person’s employment under

section 327 . . . of this title, such professional person is not a disinterested person,

or represents or holds an interest adverse to the interest of the estate with respect

to the matter on which such professional person is employed.” 11 U.S.C.

§ 328(c); see Electro-Wire Prods., Inc. v. Sirote & Permutt, P.C. (In re Prince), 40

F.3d 356, 360 (11th Cir. 1994). A bankruptcy court retains jurisdiction over an

award of fees even after the conclusion of the bankruptcy case. See Dery v.

Cumberland Cas. & Surety Co. (In re 5900 Assocs., Inc.), 468 F.3d 326, 330–31

(6th Cir. 2006).

      Here, it is undisputed that Denison was a professional employed by the

debtor under 11 U.S.C. § 327. The plan’s release of liability against professionals

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did not affect the bankruptcy court’s authority over the fees paid to those

professionals. See 11 U.S.C. §§ 328(c), 330(a)(2). The bankruptcy court initially

reviewed and approved Denison’s fee without knowledge that he had an interest

adverse to the estate. Once the court learned this fact, it had the authority to

revisit Denison’s fee award. See id.

C.    Summary Judgment

      Denison argues that the bankruptcy court erred in granting summary

judgment to MMS because the court’s findings of fact were not supported by the

evidence. In essence, he contends that there was no evidence of an improper

relationship between him and the buyers during his employment as a real estate

agent for the debtor.

      In ruling on a motion for summary judgment, the bankruptcy court is

required to view the facts and draw all inferences in favor of the nonmoving party.

See Fed. R. Bankr. P. 7056 (incorporating Fed. R. Civ. P. 56 in adversary

proceedings); Garczynski v. Bradshaw, 573 F.3d 1158, 1165 (11th Cir. 2009).

Summary judgement is appropriate if there is no genuine dispute about a material

fact. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S. Ct. 2505,

2510 (1986).

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      Here, the material fact is whether Denison held an interest adverse to the

estate while employed by the estate. See 11 U.S.C. §§ 327 & 328(c). We have

said that a professional has an interest adverse to the estate when he:

      possess[es], or serv[es] as an attorney for a person possessing, either
      an economic interest that would tend to lessen the value of the
      bankruptcy estate or that would create either an actual or potential
      dispute in which the estate is a rival claimant . . . or . . . a
      predisposition under the circumstances that render such a bias against
      the estate.

Electro-Wire Prods., Inc., 40 F.3d at 361 (quoting Roger J. Au & Son, Inc. v.

Aetna Ins. Co., 64 B.R. 600, 604 (N.D. Ohio 1986) (internal quotation marks

omitted)).

      The undisputed evidence shows that, prior to closing, Denison discussed,

and had an expectation of, being involved with the buyers and the marina after the

closing. Both Scott and Israel (the buyers) testified in their depositions that they

discussed with Denison his prospective post-closing involvement with the marina

while he was still working for the estate. Specifically, the buyers discussed with

Denison the possibility of him either managing the marina post-closing, taking an

ownership interest in the marina, or both. E-mails between Scott, Israel, and

Denison confirm that these discussions took place. The emails also indicate that

Denison was working on the buyers’ behalf before the closing.

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         The discussions about post-closing employment or ownership of the marina

gave Denison a reason to close the sale even if it was not in the estate’s best

interest. There is no genuine issue of fact on this point. In fact, the record only

confirms that Denison was determined to see this particular sale go through. It is

undisputed that Denison paid $37,500 for the buyers’ benefit out of his

commission from the closing. And Denison has admitted that he paid this money

to keep the buyers from walking away from the sale.

         Denison contends that he had no formal agreement or understanding with

the buyers until after the closing. This fact is not material in this context. While

Denison may not have formalized his relationship with the buyers until after the

closing, he discussed working for them and had a strong expectation that he would

work for them. That strong expectation was enough to give him an interest

adverse to the estate, and he should have disclosed that interest to the bankruptcy

court.

         We acknowledge that the estate may not have suffered any actual financial

loss because of Denison’s relationship with the buyers, and Denison may not have

intended to enrich himself at the expense of the estate. However, the issue is not

whether Denison caused any actual harm, but whether he “could have unbiasedly

made decisions in the best interest” of the estate. See Electro-Wire Prods., Inc., 40

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F.3d at 360. Denison’s pre-closing discussions regarding his post-closing

involvement with the marina rendered him unable to make impartial decisions on

behalf of the estate, even if “fraud or unfairness [was] not shown to have resulted.”

See id. (quoting Woods v. City Nat’l Bank & Trust Co. of Chicago, 312 U.S. 262,

268, 61 S. Ct. 493, 497 (1941)). In this light, the bankruptcy court did not err in

granting MMS summary judgment on the ground that Denison acted under a

conflict of interest during his employment.

D.     Sequestration

       Denison argues that the bankruptcy court acted ultra vires when it

sequestered $25,981.41 of Marine Realty’s money. We reject this contention.

Denison agreed to repay the estate $45,000 plus interest, and the bankruptcy court

entered a judgment against Denison for that amount. Denison does not contest

that judgment on appeal, but only the court’s actions in sequestering the money to

satisfy the outstanding balance of the judgment.

       The bankruptcy court had authority under 11 U.S.C. § 105(a) to sequester

these funds to ensure compliance with its order and judgment to return the

$45,000 commission overpayment. See 11 U.S.C. § 105(a) (“The court may issue

any order, process, or judgment that is necessary or appropriate to carry out the

provisions of this title.”).

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      Denison also contends the bankruptcy court erred in denying his head-of-

household exemption under Fla. Stat. § 222.12 for the $25,981.41. This argument

fails. Florida law does not exempt from garnishment the proceeds of a business,

even a sole proprietorship, where the owner of that business does not pay himself

a set wage or salary. See Vining v. Segal, 731 So. 2d 826, 827 (Fla. 3d DCA

1999) (holding that the accounts of a dental practice, a sole proprietorship, were

not exempt from garnishment because the proprietor did not pay himself a wage or

salary from those accounts, which held the proceeds of the dental practice, but

used the accounts to pay both business and personal expenses); see also Vining v.

Martyn, 858 So. 2d 365, 366 (Fla. 3d DCA 2003) (holding that the proceeds of a

garnishee’s law practice were not exempt from garnishment under § 222.12).

      In this case, at the hearing concerning exemption, the bankruptcy court

found that the sequestered funds, when seized, belonged to Marine Realty—not

Denison. This finding was not clearly erroneous, as Denison admitted that the

funds, which consisted of a commission on an unrelated real estate transaction, did

not come from Denison’s bank account, but Marine Realty’s account. Thus, those

funds were not exempt from garnishment under Florida law. See Vining, 731 So.

2d at 827.

      AFFIRMED.

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