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In Re: Christopher "Kit" Denison and Marine Realty, Inc v. Marina Mile Shipyard

January 10, 2012

IN RE: CHRISTOPHER "KIT" DENISON AND MARINE REALTY, INC., APPELLANTS,
v.
MARINA MILE SHIPYARD, INC., APPELLEE.
IN RE: CHRISTOPHER "KIT" DENISON AND MARINE REALTY, INC., APPELLANTS,
v.
MARINA MILE SHIPYARD, INC., APPELLEE.



The opinion of the court was delivered by: Kenneth A. Marra United States District Judge

OPINION AND ORDER AFFIRMING DECISIONS OF THE BANKRUPTCY COURT

Appellants Christopher "Kit" Denison ("Denison") and Marine Realty, Inc. ("Marine") (together "Brokers") filed this bankruptcy appeal challenging the following orders entered in bankruptcy court, case no. 06-13274-BKC-JKO, (1) Order Granting Emergency Motion by Marina Mile Shipyard, Inc. to Sequester Commission Income; (2) Partial Final Judgment in Favor of Mary Wickman, as Plan Administrator, and against Marine Realty, Inc. and Christopher "Kit" Denison, Individually; (3) Order on Partial Findings Granting Motion by MMS for Entry of Final Judgment for Return of Unauthorized Compensation to Broker; (4) Order Denying Kit Denison & Marine Realty, Inc.'s Compound Motion [ECF No. 489] in its Entirety; (5) Order Denying Kit Denison & Marine Realty, Inc.'s Motion for Summary Judgment [ECF No. 486]; and (6) Order Granting-in-Part Marina Mile Shipyard's Motion for Summary Judgment on Disgorgement Issues [ECF No. 521].*fn1 This appeal challenges orders arising out of the post-confirmation review by the bankruptcy court of fees paid to Denison and Marine as real estate brokers engaged on behalf of the debtor, New River Dry Dock, Inc. In summary, the Brokers argue that the bankruptcy court erred when it ordered them to disgorge $490,000.00 in commissions they received on the sale of the New River Dry Dock property, based upon their failure to disclose interests adverse to the estate. The parties have fully briefed the issues. The Court has carefully considered all filings, oral argument of counsel, and is otherwise fully advised in the premises. For the reasons stated below, the Court shall affirm all appealed orders of the bankruptcy court.

Standard of Review

On appeal, a district court reviews the factual findings of a bankruptcy court for clear error. Fed. R. Bankr. P. 8013; In re Fretz, 244 F.3d 1323, 1326 (11th Cir. 2001). Factual findings are not clearly erroneous unless this Court is left with "the definite and firm conviction" that the bankruptcy court erred. Anderson v. City of Bessemer City, 470 U.S. 564, 573 (1985). The district court reviews de novo the conclusions of law of the bankruptcy court and application of the law to the particular facts of the case. See In re JLJ Inc., 988 F.2d 1112, 1116 (11th Cir. 1993). Procedural History and Facts Below*fn2

Brokers, Denison and Marine, were court-appointed fiduciaries employed by the bankruptcy estate to sell a marina (the "Dry Dock Property") for the benefit of the estate. The order approving employment was entered on October 3, 2006. That order was premised upon the joint application of Denison and Marine Realty, Inc. as Brokers, which included a sworn declaration by Appellant Denison as President of Marine Realty, Inc. that he held no interest adverse to the estate of New River Dry Dock.

The debtor's property was sold for less than its appraised value at a price of $12,250,000 under an order approving competitive bidding on June 11, 2007. Thereafter, the bankruptcy court approved the debtor's Liquidating Plan of Reorganization which vested all the debtor's assets with the plan administrator. At a hearing on motion by the debtor to Approve Final Administrative Expenses and Distributions under Confirmed Plan Filed by Debtor, counsel for the post-confirmation plan administrator advised the bankruptcy court of reports that the Brokers had possibly acquired an undisclosed interest adverse to the debtor prior to the closing on the sale of the debtor's property. Concerned that this adverse interest had not been previously disclosed, and that the precise opposite had been represented, the bankruptcy court sua sponte ordered the Brokers to show cause why they should not be required to disgorge their brokerage commission.

A show cause hearing was set for September 16, 2009. Denison was ordered to appear with documents to explain the circumstances of the allegations, and permit the court to determine whether a disgorgement of the broker commission or any part thereof was appropriate. Denison did not file a written response to the Order to Show Cause. At the show cause hearing, counsel for Denison moved to continue the hearing stating he needed more time to assemble documents. That motion was granted. At this point, subject matter or personal jurisdiction was not challenged.

On November 13, 2009, Marina Mile Shipyard, Inc. ("Marina Mile"), the largest unsecured creditor of the New River Dry Dock estate, filed a Motion to Disgorge or to Compel Discovery supporting the return of monies from the Brokers to the plan administrator and seeking the production of documents which had been sought from the Brokers. Marina Mile was allowed to proceed in the plan administrator's stead, in order to conserve the plan administrator's resources, on the condition that Marina Mile would be entitled to reimbursement for its efforts only from monies it might recover on behalf of the estate.

In the course of discovery, it became apparent that, apart from the issue of whether the Brokers had held an undisclosed interest adverse to the debtor, the Brokers had been paid more than the four percent authorized under their listing agreement. Eventually, the Brokers agreed to repay an admitted overpayment of $45,000 to the plan administrator. After a full evidentiary hearing on October 9, 2010, the bankruptcy court entered a Partial Final Judgment in favor of the plan administrator and an Order on Partial Findings.*fn3

Following the production of documents and the taking of depositions, the Brokers filed a Motion for Summary Judgment seeking to dispose of the Court's Order to Show Cause and Marina Mile's Motion for Disgorgement. The Brokers also filed a Motion to Discharge the Order to Show Cause and Strike Various Motions and Vacate Various Orders. Marina Mile filed a Cross-Motion for Summary Judgment on Disgorgement Issues supported by e-mails to and from Denison and the depositions of representatives of the buyer entities. The bankruptcy court then granted the Brokers ore tenus motion to suspend further discovery on the disgorgement issue pending disposition of the pending motions.

Following briefing and oral argument, the bankruptcy court entered an omnibus order which (a) denied the Brokers' Motion to Discharge Order to Show Cause and Strike Various Motions, and Vacate Various Orders, (b) denied the Brokers' Motion for Summary Judgment, and (c) granted in part and denied in part Appellee Marina Mile Shipyard, Inc.'s Cross-Motion for Summary Judgment. See In re New River Dry Dock, Inc., 451 B.R. 586 (Bankr. S.D. Fla. 2011). Finding that the Brokers violated the Bankruptcy Code and Federal Rules of Bankruptcy Procedure by failing to disclose the conflict of interest presented by their relationship with the buyers, the bankruptcy court ordered the Brokers to disgorge the full remaining $490,000 of paid commissions.*fn4

DISCUSSION

Subject Matter Jurisdiction

The Brokers argue that the release language in the Liquidating Plan of Organization and the order confirming it divested the bankruptcy court of subject matter jurisdiction. They also assert that Marina Mile, as a creditor, lacked standing to pursue collection because the plan administrator did not have the right to delegate prosecution of claims to third parties. These issues were ...


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