Court: United States Bankruptcy Court, M.D. Florida; July 3, 1989; Us Bankruptcy; United States Bankruptcy Court
A Motion for Summary Judgment was filed by co-Trustees Robert E. Vinney and Jeffrey W. Warren of Berkley Multi-Units, Inc., a Chapter 11 Debtor-in-Possession, seeking a court order to determine the validity, priority, and amount of liens held by various Defendants against the proceeds from the sale of the Deerfield Yacht Basin. Berkley Multi-Units, Inc. filed for Chapter 11 relief on February 25, 1985, and underwent several trustee appointments, with Vinney and Warren eventually serving as co-Trustees. The Court approved the sale of the Deerfield property, allowing liens to attach to the sale proceeds, which amounted to over $1.3 million held in escrow.
The co-Trustees initiated an adversary proceeding on January 17, 1989, to establish the priority of liens against these proceeds, which were held by "equal dignity mortgagees" through mortgages recorded in Broward County between July 1983 and March 1984. Three groups of equal dignity second mortgages were identified, totaling $1.2 million across 96 individual mortgages. The first group, dated July 8, 1983, consisted of 45 mortgages totaling $600,000; the second group, dated July 15, 1983, had 32 mortgages totaling $300,000; and the third group, dated July 19, 1983, included 19 mortgages totaling $300,000. All noted mortgages had specific due dates and conditions for payment.
The document outlines a series of equal dignity second mortgages involving Berkley and various individual mortgagees, as well as one group involving State Capital Corporation. Key details include:
1. **Callable Notes**: Each group of mortgages allows the mortgagee to call the notes with 30 days written notice on specific dates in 1984.
2. **First Group of Mortgages**:
- **Date**: July 25, 1983
- **Total Amount**: $78,000 (three mortgages)
- **Recording**: Official Record Book 11025, Pages 389-397, recorded on July 27, 1983
- **Due Date**: August 1, 1988
3. **Second Group of Mortgages**:
- **Date**: July 28, 1983
- **Total Amount**: $100,000 (three mortgages)
- **Recording**: Official Record Book 11042, Pages 767-775, recorded on August 3, 1983
- **Due Date**: August 1, 1988
4. **Third Group of Mortgages**:
- **Date**: August 5, 1983
- **Total Amount**: $111,000 (five mortgages)
- **Recording**: Official Record Book 11087, Pages 771-785, recorded on August 24, 1983
- **Due Date**: August 15, 1988
5. **Fourth Group of Mortgages**:
- **Date**: September 13, 1983
- **Total Amount**: $80,000 (five mortgages)
- **Recording**: Official Record Book 11158, Pages 121-135, recorded on September 26, 1983
- **Due Date**: September 15, 1988
6. **Total Mortgages**: There are 112 second mortgages with a combined lien total of $1,500,000, all stating they are "one second mortgage of equal dignity."
7. **Future Advances Clause**: The mortgages allow for future advances up to the original amount of the note plus $1,500,000, secured by the mortgage.
8. **Eighth Group of Mortgages**: Recorded on March 6, 1984, these mortgages were dated January 25, 1984, totaling $1,500,000 across 102 mortgages, with 15 to individual mortgagees and 87 to State Capital. They are due February 1, 1989, and callable on January 26, 1985.
The excerpt emphasizes the structured approach to the mortgage agreements, including call options, recording details, due dates, and provisions for future advances.
Mortgages in this batch are second mortgages executed between July 1983 and January 1984, with a total limit of $3,000,000 under a future advance clause. An August 19, 1986, court order authorized the co-Trustees to auction the Deerfield property, establishing procedures for bids, notices, and fees. The co-Trustees' Motion for Partial Final Summary Judgment seeks to prioritize distributions from the sale proceeds in the following order: first, legal fees and expenses related to distribution priorities; second, a pro-rata share of unpaid administrative expenses of the Debtor; third, legal fees awarded to class representatives; and fourth, a pro-rata distribution of remaining proceeds to second equal dignity mortgage holders.
Several Defendants have raised claims: the Foxes assert priority based on a mortgage from July 13, 1983; the Mayers support pro-rata distribution; the Cortezes and the Palmers claim full payment based on mortgages from July 20, 1983, and June 6, 1984, respectively. The Court allowed Defendants until April 1, 1989, to file cross-claims. The Reis and Menzl families seek summary judgment for $10,000 and pro-rata distributions, respectively. The co-Trustees aim for equal distribution among all second mortgage holders while allowing surcharges against sale proceeds. Key issues include whether equal dignity mortgage holders should share proceeds with those whose mortgages were recorded after reaching a $1.5 million threshold and whether surcharges for unrelated expenses are permissible. Defendants argue against sharing net proceeds with those whose mortgages were recorded post-threshold.
EDM holders classified as Category A second mortgages assert their entitlement to priority over Category B second mortgage holders, arguing against a pro rata distribution of net proceeds. Defendants, including Mayer, Palmer, and others, advocate for a pro rata distribution among all second equal dignity mortgage holders based on the principle that those in the same priority group should share proceeds collectively. The Court acknowledges Florida’s recording statutes, which establish that the first mortgage recorded holds priority, but notes that this can be modified by party agreement. Although the first group of equal dignity mortgages was recorded first, their priority is not absolute due to the potential for future advances secured by the same mortgage, capped at the original note amount plus $1.5 million. The first batch of EDM holders argues that they were not adequately notified about sharing priority with subsequent mortgage holders, as the future advances were to be limited to amounts advanced by themselves. The Court finds this interpretation illogical, asserting that all first batch mortgagees understood they were part of a shared group of equal dignity mortgagees. Consequently, the Court determines that the future advances language indicates a shared position among mortgagees, justifying a pro rata sharing of proceeds among all second equal dignity mortgage holders. The co-Trustees’ Motion for Partial Summary Judgment is granted, affirming that all second equal dignity mortgagees will share pro rata in the distribution of the remaining sale proceeds.
The Motion for Partial Summary Judgment filed by the co-Trustees concerning surcharges for expenses related to the sale of the Deerfield property is under consideration. Some Defendants oppose these surcharges, claiming the expenses are unrelated to the property and asserting that only reasonable and necessary expenses for preserving the property and its sale proceeds should be permitted. The co-Trustees rely on Section 506(c) of the Bankruptcy Code, which allows surcharges against sale proceeds but imposes specific limitations. Recovery is restricted to the benefits received by secured claim holders and requires the trustee to demonstrate that expenses were directly incurred to protect and preserve the collateral in quantifiable terms. While the Court recognizes the co-Trustees' general entitlement to surcharge, it finds it cannot determine the specific nature or amount of the requested surcharges due to insufficient information regarding whether the administrative expenses pertain to the Debtor’s general case administration or should be charged against the sale proceeds. Consequently, the Court concludes that there remains a factual issue, resulting in the denial of the Motion for Partial Summary Judgment regarding the surcharge for administrative expenses. The order is formally issued denying the motion.
