United States Court of Appeals,
Eleventh Circuit.
No. 95-4379
Non-Argument Calendar.
In re GENERAL DEVELOPMENT CORPORATION, Debtor.
John E. SIPES; Mildred B. Sipes, Plaintiffs-Appellants,
v.
ATLANTIC GULF COMMUNITIES CORPORATION; General Development
Corporation, Defendants-Appellees.
June 7, 1996.
Appeal from the United States District Court for the Southern
District of Florida (No. 94-95 CIV-SMA), Sidney M. Aronovitz,
Judge.
Before TJOFLAT, Chief Judge, and KRAVITCH and HATCHETT, Circuit
Judges.
PER CURIAM:
We affirm on the basis of the opinion of the district court,
dated January 27, 1995, 177 B.R. 1000. The relevant portions of
the district court's opinion are attached as an appendix.
AFFIRMED.
APPENDIX
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF FLORIDA
IN RE: GENERAL DEVELOPMENT CORPORATION, et al., Debtors.
JOHN E. SIPES AND MILDRED B. SIPES, Appellants,
vs.
GENERAL DEVELOPMENT CORPORATION, n/k/a ATLANTIC GULF COMMUNITIES
CORPORATION, Appellee.
Case No. 94-0095-CIV-ARONOVITZ
BKC No. 90-12231-BKC-AJC
JAN 27 1995
ORDER ON PENDING MOTIONS AND AFFIRMING THE BANKRUPTCY COURT'S
ORDER GRANTING ATLANTIC GULF'S MOTION TO ENFORCE EXECUTORY
CONTRACT, DISCHARGE AND INJUNCTION PROVISIONS OF PLAN AND
CONFIRMATION ORDER, AND DENYING MOTION FOR EX PARTE RELIEF FROM THE
AUTOMATIC STAY, DATED NOVEMBER 5, 1993
BEFORE THIS COURT is an appeal from the Bankruptcy Court's
Order Granting Atlantic Gulf's Motion to Enforce Executory
Contract, Discharge and Injunction Provisions of Plan and
Confirmation Order, and Denying Motion for Ex Parte Relief from the
Automatic Stay, dated November 5, 1993. In addition, currently
pending before the Court are three motions: (1) Appellee General
Development Corporation's ("GDC") Motion to Strike Appendix A,
Appendix B and Appendix C to Appendix to Appellants' Reply Brief,
file dated April 4, 1994; (2) Appellee GDC's Motion to Supplement
Appellate Record, file dated April 4, 1994; and (3) Appellants'
John E. Sipes and Mildred B. Sipes (the "Sipes") Motion to
Supplement Appellate Record, file dated April 21, 1994.
This Court heard oral argument on this appeal on October 7,
1994, and has carefully considered all briefs submitted on appeal,
oral argument of counsel, the entire record including but not
limited to the three pending motions and responses filed thereto,
applicable law and is otherwise fully advised in the premises. For
the following reasons, it is ORDERED AND ADJUDGED that:
1. Appellee GDC's Motion to Strike Appendix A, Appendix B and
Appendix C to Appendix to Appellants' Reply Brief be, and the same,
is hereby GRANTED IN PART. Only Appendix C to Appendix to
Appellants' Reply Brief shall be stricken from the appellate
record, and Appendix A and B shall be considered part of the
appellate record.
2. Appellee GDC's Motion to Supplement Appellate Record be,
and the same, is hereby GRANTED.
3. Appellants Sipes' Motion to Supplement Appellate Record be
and the same, is hereby DENIED.
4. The Bankruptcy Court's Order Granting Atlantic Gulf's
Motion to Enforce Executory Contract, Discharge and Injunction
Provisions of Plan and Confirmation Order, and Denying Motion for
Ex Parte Relief from the Automatic Stay, dated November 5, 1993, is
hereby AFFIRMED in its entirety.
Factual and Procedural Background
The Sipes appeal from an Order Granting Atlantic Gulf's Motion
to Enforce Executory Contract, Discharge and Injunction Provisions
of Plan and Confirmation Order, and Denying Motion for Ex Parte
Relief From the Automatic Stay, entered by the Honorable A. Jay
Cristol, United States Bankruptcy Judge and dated November 5, 1993.
By this Order, Judge Cristol ruled, among other things, that an
installment land sale contract between the Sipes and Debtor GDC was
an executory contract subject to rejection by GDC pursuant to § 365
of the Bankruptcy Code.
The installment land sales contract at issue, entitled the
"Homesite Purchase Agreement", was entered into by the Sipes and
GDC for the sale of a homesite in Port St. Lucie, Florida (the
"Property") on July 15, 1972. The Agreement provided that GDC
would deliver to the purchaser a Warranty Deed once the purchaser
made all monthly payments. The Sipes completed all of their
payments due under the contract in March of 1983. However, due to
alleged construction delays, the homesite remained undeveloped as
of December of 1987.
GDC and its affiliates and subsidiaries ultimately filed
voluntary Chapter 11 petitions on April 6, 1990. On October 26,
1990, the Bankruptcy Court approved GDC's proposed Homesite
Purchaser Assurance Program (the "Program"), which set forth a
mechanism to assure purchasers that they will receive their deeds
upon payment of a reduced purchase price. Under the Program,
purchasers such as the Sipes whose homesites were on land which GDC
did not intend to develop were afforded the option to participate
in the Program and have their contract transferred to a developed
lot. The Sipes declined to participate and as a result, GDC
rejected the Sipes' Homesite Purchase Agreement on June 19, 1992.
The Sipes filed an objection to the rejection on July 9, 1992.
Meanwhile, on March 27, 1992, GDC's reorganization plan was
confirmed. The GDC Plan provided that homesite purchasers whose
contracts were rejected would receive a Class 2.2 (secured) claim
in respect to their lien rights under § 365(j) of the Code, a Class
10 (unsecured) claim in respect of prepetition principal and
interest payments not covered by § 365(j), and an administrative
claim for any payments made after filing date. The Confirmation
Order provided that "all of the property of the estate, wherever
situated, is vested in the Reorganized Company, free and clear of
all claims and interests of creditors and of security equity
holders, except as provided in the Plan and this Order." It also
discharged all prepetition debts and enjoined all persons from
recovering on their claim.
On June 20, 1992, GDC sent the Sipes a special proof of claim
form, calculating the Sipes' claim to be $5,088.00. The Sipes
disagreed and asserted a claim of $5,096.26. In November of 1992,
the Sipes filed a state court action against GDC, seeking specific
performance and damages. The action was dismissed with prejudice
due to GDC's pending bankruptcy.
After learning of GDC's efforts to replat and redevelop the
subdivision in which their property is located, the Sipes filed in
the bankruptcy court a pro se Motion for Ex Parte Relief From the
Automatic Stay on September 24, 1993. GDC thereafter filed a
motion to enforce the executory contract, discharge and injunction
provisions of the Confirmation Order against the Sipes. GDC sought
an order (i) declaring that any claim or interest of the Sipes in
the Property was terminated by GDC's rejection of the Homesite
Purchase Agreement and that the Property vested in Atlantic Gulf
free and clear of any interest or claim of the Sipes; (ii)
declaring that any prepetition claim of the Sipes was discharged
pursuant to the Confirmation Order and § 1141(d) of the Code; and
(iii) enjoining the Sipes from seeking to enforce or assert an
interest in the Property and from interfering with GDC's use and
development thereof.
Following a hearing on the two motions, Judge Cristol denied
the Sipes' ex parte motion and granted GDC's enforcement motion.
He found that the Agreement was an executory contract subject to
rejection under 11 U.S.C. § 356(a) and that the Property was vested
in Atlantic Gulf free and clear of any interest of claim of the
Sipes. He also enjoined the Sipes from asserting an interest in
the property or otherwise interfering with Atlantic Gulf's use and
development of the Property. The Sipes appeal this Order.
As noted herein, also pending before this Court are three
motions: (1) Appellee GDC's Motion to Strike Appendix A, Appendix
B and Appendix C to Appendix to Appellants' Reply Brief; (2)
Appellee GDC's Motion to Supplement Appellate Record; and (3)
Appellants Sipes' Motion to Supplement Appellate Record.
In the course of examining the record, the appellate briefs
and the outstanding motions in preparation for oral argument on the
merits of the appeal, it became apparent that the Bankruptcy
Court's Order on appeal was devoid of any factual findings to
support its ruling with respect to the Appellants' procedural due
process claim. This claim was raised at the trial level in the
Response to Reorganized Debtors' Motion to Enforce Executory
Contract, Discharge and Injunction Provisions of Plan and
Confirmation Order, dated October 26, 1993.
In addition, it was apparent that the Bankruptcy Court's Order
contained no citations to authority to support its ruling that the
Homesite Purchase Agreement at bar was an executory contract
subject to rejection pursuant 11 U.S.C. § 365. No citations to
legal authority, other than "courts and commentators alike," and no
findings of fact were made to support the ruling. Issues of fact
therefore remained undetermined. Accordingly, on May 11, 1994,
this Court entered an Order remanding this case to the United
States Bankruptcy Court to (1) hold an evidentiary hearing and make
findings of fact and conclusions of law regarding the Appellants'
procedural due process claim, and to determine which documents
should be admitted into the record on that issue; and (2) to make
findings of fact and further conclusions of law, and to hold an
evidentiary hearing if necessary, regarding the issue of whether
the Homesite Purchase Agreement at issue was an executory contract
for rejection purposes under § 365 of the Bankruptcy Code. On
September 16, 1994, the Bankruptcy Court entered its Order on
Evidentiary Hearing Pursuant to Remand. ("Order on Remand") This
Court has carefully considered said Order on Remand and the
arguments presented on appeal, including oral argument of counsel
on October 7, 1994.
Standard of Review
In accordance with Federal Rule of Bankruptcy Procedure 8013,
the Bankruptcy Court's findings of fact will not be set aside
unless clearly erroneous. In re Chase & Sanborn Corp., 904 F.2d
588 (11th Cir.1990); In re T & B General Contracting, Inc., 833
F.2d 1455 (11th Cir.1987). Equitable determinations by the
Bankruptcy Court are subject to review under an abuse of discretion
standard. In re Red Carpet Corp. of Panama City Beach, 902 F.2d
883 (11th Cir.1990). Conclusions of law are subject to de novo
review. In re Chase & Sanborn Corp., 904 F.2d at 593; In re
Sublett, 895 F.2d 1381 (11th Cir.1990).
While the Bankruptcy Court's factual findings are subject to
a clearly erroneous standard, that standard does not apply when
determining the propriety of the Bankruptcy Judge's conclusions of
law, (i.e.) determination of what law applies or determination of
the ultimate legal conclusions resulting from the application of
the law to the facts. Legal conclusions made by the Bankruptcy
Judge may not be approved by the District Court without an
independent determination. In re Columbia Data Products, Inc., 99
B.R. 682, 684 (D.Md.1989), affirmed, 892 F.2d 26 (4th Cir.1989);
citing, In re Hunter Sav. Ass'n., 34 B.R. 368, 374 (Bankr.S.D.Ohio
1983), reversed on other grounds, 750 F.2d 536 (6th Cir.1984); In
re Hollock, 1 B.R. 212, 215 (Bankr.M.D.Pa.1979).
Three Pending Motions
1. Appellee GDC's Motion to Strike Appendix A, B and C of
Appellants' Appendix to Reply Brief
When the Sipes filed their reply brief, they also filed a
second appendix containing, among other things, GDC's certificate
of service regarding the conformation hearing ("Appendix A"), GDC's
certificate of service regarding the disclosure statement
("Appendix B"), and an 10/27/93 GDC letter to the Sipes ("Appendix
C"). According to the reply brief, these documents were added in
support of the Sipes' claim that they were denied procedural due
process in connection with the confirmation hearing.
GDC moved to strike these documents on the ground that they
were never designated as part of the record on appeal, that they
are misleading, and that the Sipes never moved to supplement the
record with these documents pursuant to Fed.R.App.P. 10(e). It
further contends that the GDC letter (Appendix C) is a privileged
settlement offer that should be stricken as an improper disclosure
of settlement discussions.
In response, the Sipes contend that the two certificates of
service (Appendices A and B) are and were part of the record below
and therefore should not be stricken on appeal. These documents
were attached to their reply brief in direct response to new
arguments raised by GDC for the first time in GDC's answer brief.
As to Appendix C, the letter was not, as GDC maintains, a
settlement offer but rather, GDC's proposed final resolution of the
Sipes' claim.
2. Appellee GDC's Motion to Supplement Appellate Record
In a separate motion, GDC has moved pursuant to Fed.R.App.P.
10(e) to supplement the record on appeal to include John Sipes'
Ballot rejecting the GDC Plan ("Exhibit A"); Mildred Sipes' Ballot
rejecting the GDC Plan ("Exhibit B"); and GDC's Ballot and
Disclosure Statement ("Exhibit C"). These documents are offered to
rebut the Sipes' claim that they should not be bound by the GDC
Plan or Confirmation Order because they allegedly did not receive
notice thereof. The Ballots (Exhibits A and B) advised the Sipes
that "The Second Amended Joint Plan of Reorganization ... can be
confirmed by the Bankruptcy Court and thereby made binding on you
if it is accepted ..." The Sipes executed the Ballots by rejecting
the Plan on November 1, 1991. (The Plan was confirmed in 1992).
Exhibit C is a compilation of documents which GDC submits was sent
with the ballots. Included in Exhibit C is the notice of the
confirmation hearing. GDC argues that the Sipes could not have
received the ballots without receiving Exhibit C.
GDC further submits that the Sipes' claim of no notice should
not be considered on appeal because it was not raised below, and
that it is contrary to the lower court's finding in a December 20,
1991 Memorandum Opinion that proper notice was given to all
affected claimants.
In response, the Sipes maintain that the documents at issue
should not be placed into the appellate record because they were
not part of the record in the trial court.1 They also argue that
the documents are irrelevant.
3. Sipes' Motion to Supplement the Record
The Sipes move to supplement the appellate record to include
the transcript of a March 27, 1992 hearing which they maintain
shows (1) that the final confirmation hearing occurred on March 27,
1992; and (2) that GDC's assumptions/rejections of many of the
homesite contracts were made after the confirmation.
In response, GDC opposes said supplementation on the ground
that the transcript is not a document which was considered by the
bankruptcy court in its deliberations. It then argues that the
Sipes have mischaracterized the proceedings in the March 27, 1992
hearing.
Discussion on Three Pending Motions
All of the contested documents relate to and stem from the
Sipes' claim that they are not bound by the GDC Plan and
Confirmation Order because they did not receive adequate notice of
the confirmation hearing and therefore, were denied procedural due
process. GDC erroneously asserts that the due process argument is
being raised for the first time in this case at the appellate
level. The argument was raised at the trial level in the Sipes'
response to GDC's Motion to Enforce Executory Contract, Discharge
and Injunction Provisions of Plan and Confirmation Order.
1
See, In re Neshaminy Office Building Ass'n, 62 B.R. 798
(E.D.Pa.1986).
Moreover, it was included in the Sipes' Statement of Issues to be
Presented on Appeal.2 Appellants' initial brief, however, did not
address the claim at all.
Because the Bankruptcy Court's Order on appeal did not address
the procedural due process issue, this Court remanded the issue
back to the Bankruptcy Court for further findings. On remand, the
Bankruptcy Court specifically found that:
Based upon the documentary and testimonial evidence presented,
the Court finds that the Sipes were afforded and received full
due process. They received all requisite notice that the law
requires be provided to creditors in a Chapter 11 case.
Moreover, despite their claims to the contrary, they were
provided the opportunity to participate in GDC's Chapter 11
case and object thereto. [footnote omitted] ...
The Court notes that in previous pleadings filed with the
district court, the Sipes denied receiving notice of the
confirmation hearing as well as the Disclosure Statement and
Summary of Plan. Apparently, these documents were
subsequently located by the Sipes who stipulated prior to the
evidentiary hearing in the Joint Pre-Evidentiary Order entered
by the Court on June 14, 1994 that they "did receive copies of
the Disclosure Statement for Creditors for Classes 2.3, 3.3,
10, 13, 14, and 16, Accompanying Summary of Second Amended
Joint Plan of Reorganization of General Development
Corporation, GDC documents Accompanying the Ballot and
Disclosure Statement," and that "any prior claims by the Sipes
that they did not receive the aforementioned documents prior
to the December 1991 confirmation hearings is withdrawn."
(Joint Pre-Evidentiary Hearing Order at ¶ 3) Accordingly,
this issue is now moot. (underlining supplied) Order on
Remand, pp. 7-9.
A review of the Order on Remand reflects that the contested
documents as described above, with the exception of the 10/27/93
GDC letter to the Sipes ("Appendix C"), and the transcript of a
March 27, 1992 hearing, were considered by the Bankruptcy Court in
2
One of the listed issues to be presented on appeal is
"[w]hether GDC's Reorganization Plan is applicable to John and
Mildred Sipes."
its determination that the Sipes were afforded and received full
due process. Because the 10/27/93 GDC letter to the Sipes
("Appendix C"), and transcript of a March 27, 1992 hearing were not
considered by the Bankruptcy Court they shall not be permitted to
become part of the appellate record. However, those contested
documents as described above, except for the 10/27/93 GDC letter to
the Sipes ("Appendix C"), and transcript of a March 27, 1992
hearing, shall be allowed to become part of the appellate record.
Accordingly, it is ORDERED AND ADJUDGED that:
1. Appellee GDC's Motion to Strike Appendix A, Appendix B and
Appendix C to Appendix to Appellants' Reply Brief be, and the same,
is hereby GRANTED IN PART. Only Appendix C to Appendix to
Appellants' Reply Brief shall be stricken from the appellate
record, and Appendix A and B shall be considered part of the
appellate record.
2. Appellee GDC's Motion to Supplement Appellate Record be,
and the same, is hereby GRANTED.
3. Appellants Sipes' Motion to Supplement Appellate Record be
and the same, is hereby DENIED.
Appellants Sipes' Arguments on Appeal
The Sipes maintain that the dispositive issue on appeal is
whether the Homesite Purchase Agreement is executory in nature.
Section 365(a) of the Code provides that the trustee, subject to
the court's approval, may assume or reject any executory contract
of the debtor. The court below reasoned that the Homesite Purchase
Agreement was an executory contract. The Sipes argue that the
Agreement was not an executory contract because installment land
sale contracts are only security devices under Florida law. 3 See
First Federal Savings & Loan Ass'n v. Fox, 440 So.2d 652 (Fla. 2d
DCA 1983); Cain & Bultman, Inc. v. Miss Sam, Inc., 409 So.2d 114
(Fla. 5th DCA 1982). In such situations, the purchaser is
initially vested with equitable title and legal title remains in
the seller only as security for the payment of the purchase price.
The Sipes further submit that the legislative history of § 365
indicates that the term "executory contract" refers to a contract
on which performance remains due to some extent on both sides. In
re Charter Co., 52 B.R. 267 (Bankr.M.D.Fla.1985); In re Adolphsen,
38 B.R. 776 (Bankr.D.Minn.1983). In this case, since they had
fully completed their performance under the contract seven years
prior to GDC's bankruptcy filing, the contract is not executory.
The remedy they seek is specific performance; to compel GDC to
convey an executed warranty deed for the Property at issue.
The Sipes argue that they are not bound by the GDC Plan
because they were never given notice of the confirmation hearing
and therefore, were denied due process. Citing, Reliable Electric
Co., Inc. v. Olson Construction Co., 726 F.2d 620 (10th Cir.1984).
As evidence of the lack of notice, the Sipes attached to their
Reply Appendix copies of the certificates of service on the
confirmation hearing (Appendix A) and on the Disclosure Statement
3
The Sipes assert that the law of the state where the
property is situated governs questions of property rights, even
in the context of a bankruptcy proceeding. See Stellwagen v.
Clum, 245 U.S. 605, 38 S.Ct. 215, 62 L.Ed. 507 (1918); Butner v.
United States, 440 U.S. 48, 99 S.Ct. 914, 59 L.Ed.2d 136 (1979);
Johnson v. First Nat'l Bank of Montevideo, MN, 719 F.2d 270 (8th
Cir.1983); Heartline Farms, Inc. v. Daly, 128 B.R. 246
(Bankr.D.Neb.1990); Shaw v. Dawson, 48 B.R. 857
(Bankr.D.C.N.M.1985).
(Appendix B). Neither lists the Sipes as a recipient.4
The Sipes claim that they are entitled to specific
performance, which is an equitable remedy available when the legal
remedies are inadequate. The legal remedies here are inadequate in
that the Sipes were never offered a full refund of their payments
but only a fraction thereof, and any alternative property offered
to them was considerably less in value than the lot they originally
purchased. In addition, given the unique nature of land, it is
well established that money damages to a purchaser of land is
inadequate. See Henry v. Ecker, 415 So.2d 137 (Fla. 5th DCA 1982).
The Sipes further rely on Ocean Dunes of Hutchinson v. Colangelo,
463 So.2d 437 (Fla. 4th DCA 1985), where the court held that
specific performance was proper where the contractual remedies were
neither reasonable nor mutual.
The Sipes argue that the United States Supreme Court in Butner
v. United States, supra, made clear that state law governs
questions of property rights in bankruptcy. Nevertheless, they
assert that the contract in question is not an executory contract
under either state or federal law. The controlling definition of
an executory contract is found in the legislative history of the
Code, which provides that executory contracts are those "on which
performance remains due to some extent on both sides." The Sipes
further assert that their equitable lien or interest in the
Property was not extinguished by the bankruptcy because the
Homesite Purchase Agreement was not an executory contract subject
4
These certificates of service are the subject of GDC's
motion to strike discussed supra.
to rejection. Moreover, that the GDC Plan has already been
confirmed and substantially consummated is irrelevant. The Sipes
contend that the specific performance relief they seek will not
affect the reorganization.
Appellee GDC's Arguments on Appeal
In rebuttal, GDC argues that aside from the issue of whether
the Homesite Purchase Agreement was or was not an executory
contract, the fact remains that any claims or interests the Sipes
may have had were extinguished by the GDC Plan and the Confirmation
Order. It is well established that confirmation of a Chapter 11
plan has three effects: (1) all creditors are bound by the plan;
(2) all property vests in the debtor free and clear of all claims
and interest of creditors, except as otherwise provided in the plan
or confirmation order; and (3) the debtor is discharged of all
prepetition debts. In re American Properties, Inc., 30 B.R. 239,
246 (Bankr.D.Kan.1983); In re Holywell Corp., 93 B.R. 780
(S.D.Fla.1988), affirmed, Miami Center v. Bank of New York, 881
F.2d 1086 (11th Cir.1989). Two years after the confirmation of the
GDC Plan, the Sipes ask the Court to exonerate them from these well
established principles, to ignore the fresh start and
rehabilitative purposes of the Bankruptcy Code, to disregard the
discharge and injunction provisions of the Confirmation Order, and
to modify the GDC Plan as it pertains to the treatment of homesite
purchasers for them alone. The GDC Plan was confirmed, the Sipes
did not object to the confirmation nor did they appeal it. GDC
argues that it is now too late for them to claim that they are
entitled to different treatment. Citing, In re Dore & Associates
Contracting, Inc., 43 B.R. 717 (Bankr.E.D.Mich.1984); In re Horne,
99 B.R. 132 (Bankr.M.D.Ga.1989).
GDC concedes that although state law generally governs
questions of property rights in bankruptcy in the absence of any
conflict between state law and bankruptcy law, this deferral to
state law gives way where there is a specific federal interest
governing the relationship between the parties in bankruptcy. Such
a federal interest exists here, GDC maintains. As recognized by
one court "Congress has expressed an overriding federal interest in
certain executory contracts, i.e., collective bargaining agreements
and real property sales contracts when the debtor is the seller
..." In re Buchert, 69 B.R. 816 (Bankr.N.D.Ill.1987), affirmed,
1987 WL 16019 (N.D.Ill.1987) (emphasis added).
The distinction between a debtor as the seller versus a buyer
of real property is fundamental to the determination of whether the
sales contract may or may not be deemed executory, GDC asserts.
This is because:
.. non-debtor vendees, by virtue of Sections 365(i) and
365(j), may receive more favorable treatment in bankruptcy
than debtor/vendees. And debtor/vendors, because of other
policies and provisions in the Code, may fair better than
debtor/vendees. It may be argued that this disparity in
treatment is warranted because of the risk of default when
debtor is vendor, or because the non-debtor ... is an innocent
victim.
In re Booth, 19 B.R. 53, 63 (Bankr.D.Utah 1982). The court
concluded that:
... it is the consequences of applying Section 365 to a party,
especially in terms of benefits to the estate and the
protection of creditors, not the form of contract between
vender and vendee, which controls.
Id. at 57. Where the debtor is the seller of real estate, the
courts have found the contract to be an executory one. See, e.g.,
In re Waldron, 36 B.R. 633 (Bankr.S.D.Fla.1984), reversed on other
grounds, 785 F.2d 936 (11th Cir.1986) (option to purchase real
estate was executory contract); In re Hardie, 100 B.R. 284
(Bankr.E.D.N.C.1989) (debtor/vendor's contract to sell option to
purchase property would be permitted to reject option as executory
contract); In re W. & L. Associates, Inc., 71 B.R. 962
(E.D.Pa.1987) (debtor/vendor may reject contract to sell
notwithstanding that non-debtor/vendee had fully performed under
contract). GDC argues that in each of the cases cited by the
Sipes, the debtor was the buyer of real property, not the seller.
GDC further adds that its ability to reject the tens of
thousands of homesite contracts was critical to its reorganization.
Moreover, the non-debtor buyers were protected by the provisions of
the Code. Section 365(j) provides that a non-debtor purchaser who
is not in possession of the property "has a lien on the interest of
the debtor in such property for the recovery of any portion of the
purchase price that such purchaser or party has paid." 11 U.S.C.
§ 365(j).
The Sipes' argument that their Homesite Purchase Agreement was
merely a security device under Florida misconstrues the nature of
the agreement, GDC submits. Unlike the agreements for deed
involved in the cases cited by the Sipes, the Sipes received
neither possession nor ownership of the property at the time of
entering into the Homesite Purchase Agreement. In addition,
Florida courts have recognized that not all installment land sale
contracts are security devices. In H. & L. Land Co. v. Warner, 258
So.2d 293 (Fla. 2d DCA 1972), the court held that a vendor under an
installment land sale contract who gave the purchaser possession of
the land and the benefits and burdens of ownership was in no
different position than a vendor who conveyed legal title and took
back a mortgage. The court also held that its ruling did not apply
to a contract "that is not specifically enforceable or to one under
which the buyer has no right to possession or other benefits and
burdens of ownership." Id. at 296.
GDC argues that Sipes' requested relief of specific
performance is foreclosed by the language of their Homesite
Purchase Agreement. That agreement limited the Sipes' remedies in
the event of GDC's default to: (1) a refund of all payments made;
or (2) an exchange of the Property for other property of similar
value in any of GDC's communities. The Sipes failed to avail
themselves of these remedies. Moreover, even if the Sipes had a
right of specific performance under the contract, such relief is
barred by the applicable one year statute of limitations under
Florida law. See Fla.Stat. § 95.11(5)(a); City of Orlando v.
Williams, 493 So.2d 15 (Fla. 5th DCA 1986).
Discussion on Appeal
Bankruptcy Court's Order Granting Atlantic Gulf's Motion to
Enforce Executory Contract, Discharge and Injunction Provisions of
Plan and Confirmation Order, and Denying Motion for Ex Parte Relief
from the Automatic Stay, dated November 5, 1993
Upon careful consideration of the arguments made by the
parties and a review of the entire record, including all appellate
briefs, as well as the Order on Remand, this Court agrees and
adopts the Bankruptcy Court's well reasoned analysis in its Order
on Remand. The two dispositive issues in this case are (1) whether
Appellants' were denied procedural due process and (2) whether the
Homesite Purchase Agreement at issue is an executory contract
subject to rejection under § 365 of the Bankruptcy Code.
Appellants Were Not Denied Due Process
On remand, the Bankruptcy Court made the following detailed
findings:
As early as 1980, GDC began sending correspondence to the
Sipes advising of problems which prevented GDC from completing
development of and deeding the Sipes the specific homesite lot
for which they had contracted. This correspondence continued
not only through GDC's filing of its Chapter 11 petition but
continued throughout GDC's Chapter 11 case. (See GDC Exhibit
Nos. 2, 3, 4, 5 and 7) ...
The Sipes were clearly put on notice that the homesite lot
identified in their homesite purchase agreement was
undeveloped and that they could elect to be transferred to
another lot pursuant to HPAP. [Homesite Purchaser Assurance
Program] Dispositively, the Florida Public Offering Statement
which was mailed to the Sipes, as well as tens of thousands of
other homesite purchasers offered HPAP, left no question as to
GDC's plans with respect to Port St. Lucie Section 38, the
section in which the homesite lot identified in the Sipes'
homesite purchase agreement was located ...
The Sipes were also advised of the consequences of their
decision not to accept HPAP ... This notice was consistent
with correspondence which the Sipes received from the Special
Representative James Paul, [footnote omitted] as well as a
letter sent by GDC to the Sipes dated February 6, 1991 in
which the Sipes were advised that GDC apologized "for not
being able to comply with your request," that GDC immediately
deliver a warranty deed and title insurance policy to the
Sipes in connection with the homesite lot covered by their
homesite purchase agreement. (See Exhibit Nos. 6 and 7) ...
In October, 1991, in connection with confirmation of GDC's
proposed plan of reorganization, the Sipes also received (i)
a Disclosure Statement for Creditors of Classes 2.2, 3.3, 10,
13, 14 and 16 Accompanying Summary of Second Amended Joint
Plan of Reorganization of General Development Corporation,
(ii) Documents Accompanying the Ballot and Disclosure
Statement, and (iii) Ballots for Accepting or Rejecting the
Second Amended Joint Plan of Reorganization. (GDC Exhibit
Nos. 16, 17, 18 and 19) Indeed, not only did the Sipes
receive these documents, but as testified to by Mr. Sipes,
evidently took the time and effort to scrutinize the same in
great detail, highlighting and underlining sections which Mr.
Sipes testified he believed relevant. The Sipes thereupon
executed and returned ballots rejecting GDC's Second Amended
Joint Plan of Reorganization (the "GDC Plan"). (GDC Exhibit
Nos. 18 and 19)
The confirmation hearing on the GDC Plan, of which the Sipes
received notice in the Documents Accompanying the Ballot and
Disclosure Statement, was held in December, 1991 ... After
confirmation of the GDC Plan and entry of the Court's Order
Confirming Second Amended Joint Plan of Reorganization of
General Development Corporation, dated March 27, 1992 (the
"Confirmation Order"), the Sipes were notified of GDC's
rejection of their homesite purchase agreement and provided
with a special proof of claim form in which they could assert
a claim arising from rejection of their homesite purchase
agreement. The Sipes duly noted their objection to the amount
that GDC claimed was due and owing ($5,088.00) and returned
this special proof of claim form to the court setting forth
and reiterating their previously filed claim for $5,096.26
(GDC Exhibit No. 24). With respect to GDC's notice advising
the Sipes of the rejection of their homesite purchase
agreement, the Sipes did file a response objecting thereto.
(GDC Exhibit No. 25) Order on Remand, pp. 3-6.
As previously noted herein, the Bankruptcy Court further found:
Based upon the documentary and testimonial evidence presented,
the Court finds that the Sipes were afforded and received full
due process. They received all requisite notice that the law
requires be provided to creditors in a Chapter 11 case.
Moreover, despite their claims to the contrary, they were
provided the opportunity to participate in GDC's Chapter 11
case and object thereto. (emphasis added)[footnote omitted].
Order on Remand, pp. 7-8.
The Bankruptcy Court goes on to state:
The Court has considered the Sipes' claim that they did not
receive the full GDC Plan, but rather a summary of the same.
The Court does not find this argument convincing as the Sipes
were advised that the full and complete GDC Plan was on file
for review or could be obtained upon request. That the Sipes
took the time to review the documents which they did receive
and voted to reject the GDC Plan is indicative that the Sipes
had sufficient information with respect to the treatment of
their claim to make an informed decision as to whether to vote
to accept or reject the GDC Plan.
Finally, the fact that the Sipes did not file an objection to
the Disclosure Statement or contest confirmation based upon
their claimed mistaken belief that they were not affected by
the GDC Plan or the bankruptcy as a whole does not lend any
support to an argument that the Sipes were denied due process.
The Sipes were provided with all of the information and
documentation which creditors similarly situated could have
expected and were required to expect in a case of this size
... There is simply no evidence from the record presented to
this Court or of which the Court is independently aware that
the Sipes were denied due process. (emphasis added) Order on
Remand, pp. 9-10.
Upon review of these specific findings and the arguments
presented, Appellants have not demonstrated to this Court that the
Bankruptcy Court clearly erred in its findings and conclusion on
remand that the Sipes were not denied due process. Moreover, this
Court agrees with the Bankruptcy Court that the Sipes were provided
with all of the information and documentation which creditors
similarly situated could have expected and were required to expect
in a case of this size. This Court adopts and affirms the
Bankruptcy Court's findings and conclusion that the Sipes were not
denied due process.
The Homesite Purchase Agreement is an Executory Contract Subject
to Rejection Under § 365 of the Bankruptcy Code
The Bankruptcy Court's analysis on remand as to this issue is
well reasoned and worthy of restating in relevant part.
Specifically, the Bankruptcy Court states on remand:
Section 365(a) of the Bankruptcy Code, as made applicable to
a debtor-in-possession by Section 1107(a) of the Bankruptcy
Code, permits a debtor to "assume or reject any executory
contract or unexpired lease of the debtor." The power of a
debtor to reject a contract as part of its reorganization
efforts is consistent with the fresh start and rehabilitative
purposes of the Bankruptcy Code. [citations omitted]
The Sipes argue that their homesite purchase agreement was not
an executory contract because they had fulfilled all
performance obligations under such agreement by completing
payments of principal and interest in March, 1983. They urge
this Court to apply the definition of "executory" contract as
articulated by Professor Vern Countryman in a law review
article published in the Minnesota Law Review in 1963, which
definition requires unperformed mutual obligations on both
sides. Countryman, Executory Contracts and Bankruptcy, Part
1, 57 Minn.L.Rev. 439 (1963).
However, this court as well as other courts and commentators
have consistently expanded the definition of "executoriness"
beyond the static definition articulated by Professor
Countryman and beyond that urged by the Sipes. [citations
omitted] While counsel for the Sipes argued that the
legislative history of Section 365 reflects that Congress
intended an executory contract to be one in which there
remained mutual obligations due and owing from the parties,
this Court must respectfully disagree. As this Court stated
in Arrow Air,
The legislative history of § 365 and the statute itself,
establish that it is not always the case that there must
be outstanding obligation on the part of both parties to
a contract in order for a contract to be deemed executory
... The express language of § 365 reflects that congress
did not adopt a specific definition of an "executory
contract" which would require mutual obligations, in
spite of its clear opportunity to do so. Legislative
history for that section evidences that congress
considered mutual obligation to be indicative of an
executory contract in some [sit], but not all, cases ...
Even though there may be material obligations outstanding
on the part of only one of the parties to the contract,
it may nevertheless be deemed executory under the
functional approach if its assumptional rejection would
ultimately benefit the estate and its creditors.
(emphasis added) In re Arrow Air, Inc., 60 B.R. 117, 12-
22 (Bankr.S.D.Fla.1986) ...
In the instant case, GDC's ability to reject homesite
purchase agreements which obligated it to improve and
deed developed homesite lots to tens of thousands of lot
purchasers, when it was simply financially unable to fill
such contractual obligations, was critical to GDC's
reorganization. The very purpose of rejection, as even
recognized by Professor Countryman, was thus served in
the instant case by GDC's ability to reject such homesite
purchase agreements ...
While the concept of executoriness will no doubt engender
additional debate in the future, this court finds no
support in the Code itself or the legislative history of
section 365 to apply as rigid a definition of "executory"
contract as Sipes would urge this Court to apply. It is
clear that the Sipes' homesite purchase agreement
represented an unperformed contract. Whether the Sipes
were required to undertake any further actions after
completing payments of principal and interest under their
agreement is not determinative of whether the purposes of
rejection and reorganization would be served by defining
such homesite purchase agreement as an executory
contract. [footnote omitted] In the instant case, it is
undisputed that at least GDC, as seller, had unfulfilled
obligations under the terms of the homesite purchase
agreement as of its Chapter 11 filing. Rejection
permitted GDC to avoid obligations which it was
financially unable to meet and which would have prevented
a meaningful reorganization for the benefit of hundreds
of thousands of creditors who might not have otherwise
received any recovery in respect of their claims.
[footnote omitted] Accordingly, the Court finds that the
Sipes' homesite purchase agreement was an executory
contract subject to rejection pursuant to section 365 of
the Bankruptcy Code. (underlining supplied) Order on
Remand, pp. 11-16.
This Court has reviewed de novo the Bankruptcy Court's
conclusion that Sipes' Homesite Purchase Agreement was an executory
contract subject to rejection pursuant to section 365 of the
Bankruptcy Code. The Court agrees with the application by the
Bankruptcy Court of the "functional approach" in this case. Under
this approach, the question of whether a contract is executory is
determined by the benefits that assumption or rejection would
produce for the estate. See In re G-N Partners, 48 B.R. 462
(Bankr.Minn.1985); In re Norquist, 43 B.R. 224 (Bankr.Wash.1984);
In re Booth, 19 B.R. 53 (Bankr.D.Utah 1982). GDC's ability to
reject contracts which obligated it to improve and deed developed
homesite lots was critical to its reorganization since it did not
have the financial ability to fulfill such contractual obligations.
While it does not appear that the Eleventh Circuit has adopted
the "functional approach" over the "Countryman approach", the
Eleventh Circuit in In re Martin Brothers Toolmakers, Inc., 796
F.2d 1435 (11th Cir.1986) appears more inclined to embrace the
"functional approach." In In re Martin Brothers Toolmakers, Inc.,
the Eleventh Circuit stated in dicta:
It is true that a real estate lease, as well as an installment
sales contract, may be the functional equivalent of a secured
financing transaction. [citations omitted] The determination
in bankruptcy, however, of whether a particular agreement is
in fact a lease or a security agreement for purposes of § 365
often depends on which characterization will best serve the
interests of the estate. Section 365 enables the bankruptcy
trustee to affirm or reject leases and executory contracts,
and is based on the trustee's long-standing power to abandon
obligations burdensome to the estate.
APPENDIX—Continued
Id. at 1439. Citing to the Sixth Circuit, the Eleventh Circuit
continued:
The key, it seems, to deciphering the meaning of [§ 365's
lease-executory contract provision] is to work backward,
proceeding from an examination of the purposes rejection is
expected to accomplish. If those objectives have already been
accomplished, or if they can't be accomplished through
rejection, the [agreement] is not [a lease or executory
contract] within the meaning of the Bankruptcy Act.
Id. (citing In re Becknell & Crace Coal Co., Inc., 761 F.2d 319,
322 (6th Cir.1985)). Since it appears the Eleventh Circuit is more
amenable toward the functional approach, the Bankruptcy Court
properly applied said approach to the case at bar. Moreover, this
Court agrees with the Bankruptcy Court's conclusion that the
Homesite Purchase Agreement did not constitute a security device
under Florida law where the Sipes neither had possession nor
incurred the benefits and burdens of ownership at any time since
their execution of said Agreement in July, 1972. Rather, the
Bankruptcy Court properly found that:
It is clear from the facts presented to this Court that their
homesite purchase agreement was indeed a contract to convey
real property which GDC, as a debtor/seller, was entitled to
reject as an executory contract pursuant to Section 365(a) of
the Bankruptcy Code. Order on Remand, p. 19.
Appellants, therefore, have not demonstrated that the
Bankruptcy Court erred as matter of law in concluding that Sipes'
Homesite Purchase Agreement was an executory contract subject to
rejection pursuant to section 365 of the Bankruptcy Code.
Likewise, Appellants have not shown that the Bankruptcy Court erred
in its Order Granting Atlantic Gulf's Motion to Enforce Executory
Contract, Discharge and Injunction Provisions of Plan and
Confirmation Order, and Denying Motion for Ex Parte Relief from the
Automatic Stay. To the contrary, the Bankruptcy Court's legal
determinations are well reasoned and supported by law.
Accordingly, this Court affirms and ratifies the Bankruptcy Court's
(1) Order Granting Atlantic Gulf's Motion to Enforce Executory
Contract, Discharge and Injunction Provisions of Plan and
Confirmation Order, and Denying Motion for Ex Parte Relief from the
Automatic Stay, dated November 5, 1993, and its (2) Order on
Evidentiary Hearing Pursuant to Remand, dated September 16, 1994.
In summary and for the reasons set forth herein, it is ORDERED
AND ADJUDGED that:
* * *
1. Appellee GDC's Motion to Strike Appendix A, Appendix B and
Appendix C to Appendix to Appellants' Reply Brief be, and the same,
is hereby GRANTED IN PART. Only Appendix C to Appendix to
Appellants' Reply Brief shall be stricken from the appellate
record, and Appendix A and B shall be considered part of the
appellate record.
2. Appellee GDC's Motion to Supplement Appellate Record be,
and the same, is hereby GRANTED.
3. Appellants Sipes' Motion to Supplement Appellate Record be
and the same, is hereby DENIED.
4. The Bankruptcy Court's Order Granting Atlantic Gulf's
Motion to Enforce Executory Contract, Discharge and Injunction
Provisions of Plan and Confirmation Order, and Denying Motion for
Ex Parte Relief from the Automatic Stay, dated November 5, 1993, is
hereby AFFIRMED in its entirety.
DONE AND ORDERED in Chambers at Miami, Florida, this 27 day of
January, 1995.