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[DO NOT PUBLISH]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.
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Appeal from the United States District Court
for the Southern District of Florida
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(November 16, 2012)
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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.
2
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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.
3
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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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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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