In re Bos

561 B.R. 868

In re: Peter Hendrik Bos, Jr., and Legendary Holding, Inc., Alleged Debtors.

Case Nos.: 15–30922–KKS

15–30923–KKS

United States Bankruptcy Court, N.D. Florida, Pensacola Division .

Signed March 11, 2016

Russell M. Blain, Stichter, Riedel, Blain & Postler, P.A., Tampa, FL, Austin Brian Calhoun, Jimerson & Cobb, P.A., Jacksonville, FL, Jodi Daniel Cooke, Stichter Riedel Blain & Postler, P.A., Pensacola, FL, Charles Jimerson, Jimerson & Cobb, P.A., Jacksonville, FL, for Alleged Debtor.

JOINTLY ADMINISTERED

FINDINGS OF FACT, CONCLUSIONS OF LAW AND MEMORANDUM OPINION ON ALLEGED DEBTORS' MOTIONS TO DISMISS INVOLUNTARY PETITIONS (DOCS.

21 & 15–30923: DOC. 27)¹

Karen K. Specie, United States Bankruptcy Judge

THIS CASE is before the Court on Chapter 7 Involuntary Petitions filed by SE Property Holdings, LLC ("SEPH") against Alleged Debtors, Peter H. Bos, Jr. ("Bos") and Legendary Holding, Inc. ("LHI") (collectively the "Alleged Debtors"). Alleged Debtors argue that the petitions should be dismissed because SEPH is the sole petitioning creditor, each Alleged Debtor has twelve or more qualifying creditors, and each is generally paying his and its debts as they become due. In the alternative, Alleged Debtors argue that this Court should abstain from these involuntary cases because they involve, inter alia , a two party dispute between them on the one hand and SEPH on the other.

The evidentiary hearing lasted several days and spanned more than two months. In rendering this decision the Court has reviewed the parties' motions, briefs and memoranda; has considered multiple ore tenus motions by Alleged Debtors; and has taken and considered testimony of numerous witnesses. The Court has also reviewed significant portions of the more than 15,000 pages of exhibits admitted in evidence. Upon the totality of the circumstances, having fully considered all of the arguments and evidence, and for the reasons set forth below the Court has determined that it should abstain and dismiss these cases pursuant to 11 U.S.C. § 305(a).

Background

Alleged Debtors

Bos is an individual. Since 1976 he and companies he has owned, operated or otherwise been affiliated with have developed, built, leased and managed hundreds of millions of dollars' worth of projects comprising over a million square feet of retail, lodging, residential, restaurant, resort facilities, hotels, drug rehabilitation facilities, marine and mixed-use space along the Emerald Coast of Florida. Bos is the sole owner and president of LHI. LHI is a holding company. It owns a 1% general partner stake and a 47% limited partner stake in Legendary Group, Ltd. Legendary Group, Ltd., in turn, owns many companies that operate a variety of different businesses.

Bos and LHI's affiliates and subsidiaries, together the "Legendary group," own and operate some of the most well-known properties in the North Gulf Coast of Florida: Sandestin Golf and Beach Resort, Destin Commons Shopping Center, Regatta Commons Office Park, HarborWalk Village, Emerald Grande, Legendary Marine, Legendary Yacht Club, and Regatta Bay Golf and Yacht Club. The Legendary group employs over 500 people in Okaloosa County, Florida.

Alleged Debtors assert that those employees' jobs are in jeopardy because of SEPH's filing of the involuntary petitions. They also claim that the Legendary group of "Companies" is an important part of the Emerald Coast community of Florida, and that the Companies were economically healthy and meeting their obligations as agreed as of the filing of the involuntary petitions.

Bos, Wendy Parker, and Pete Knowles are the corporate officers of LHI. In addition to being the COO of LHI, Pete Knowles is Vice–President of a number of the Legendary group entities. Bos is a sophisticated businessman who regularly relies on a team of attorneys, accountants and others. Bos and his team have made extensive use of corporations, limited liability companies, and various other operating entities. Bos and Pete Knowles testified that this form of doing business—use of single purpose entities to conduct different businesses—is common among real estate developers.

Alleged Debtors were affected significantly by the economic downturn, called by some the "great recession," that began in 2007–08. In recent years they had been unable to service, curtail, or pay off many loans so they sought and obtained, from all of their lenders but SEPH, workout agreements, loan restructures and forbearance agreements. According to Bos, as of the date SEPH filed the involuntary petitions Alleged Debtors had made peace with thirteen out of fourteen lenders holding $258 million out of a total of $270 million in debt on 27 separate loans; the only creditor that Alleged Debtors have been unable to come to terms with is SEPH.

SEPH's Claim

SEPH's claim originated in 2006 with a loan made by Vision Bank to 213B Development Co., Inc. ("213B"), one of Bos's companies and a member of the Legendary group. Bos and LHI each executed guaranty agreements in favor of Vision Bank. In 2009, after 213B defaulted on this loan and Bos and LHI failed to perform on their guarantees, SEPH filed suit against them in state court.² Bos, LHI and 213B responded with multiple affirmative defenses and a counterclaim. At some point apparently Bos and LHI apparently decided to fight SEPH to the death rather than pay its claim. The parties have been unable, or unwilling, to settle.³ After more than four years of extensive and costly litigation, in October of 2014 the case finally went to a three- day bench trial, resulting in a ruling for SEPH and against Bos, LHI and 213B on all matters. The economic result of this legal battle rendered Alleged Debtors liable to SEPH on a final judgment that more than doubled the amount of SEPH's original claim.⁴ To date, neither Bos nor LHI has made any post-judgment payment to SEPH.

SEPH's Filing of the Involuntary Petitions

The spark that ignited SEPH's filing of these involuntary petitions was its post-judgment discovery that Alleged Debtors had granted stipulated "charging orders" to two friendly insider creditors: SSI Destin LYC 1, LLC ("SSI Destin") and RB GOLF, LLC ("RB Golf"). These charging orders, entered within 90 days of SEPH's filing of the petitions, gave SSI Destin and RB Golf first priority liens on Alleged Debtors' ownership and membership interests in most, if not all, of the Legendary group entities.⁵ Because Bos owns 100% of the stock in LHI, and LHI in turn owns 48% of the Legendary group, the charging orders in favor of SSI Destin resulted, in effect, in SSI Destin's judgment claim being secured by all of Bos and LHI's valuable assets, to the detriment of SEPH.⁶

SEPH's Pre–petition Collection Efforts

SEPH's claim is partly secured by a mortgage on a vacant tract of land in Okaloosa County, Florida, owned by 213B. SEPH's final judgment was in part for foreclosure of the mortgage. As of the date it filed these Petitions, SEPH had not requested a foreclosure sale date. The evidence of the value of this parcel was from SEPH's expert appraiser, who testified that the value of this land as of the filing the involuntary petitions was $2.9 million.⁷

SEPH recorded a certified copy of its final judgment in the Official Records of Okaloosa, Escambia, Walton and Bay Counties, Florida, and filed a Judgment Lien Certificate ("JLC") with the Florida Department of State. By virtue of an uncontested charging order, SEPH's judgment claim became secured by a lien on LHI's interest in Lorna Properties, LLC.⁸ Although Alleged Debtors argue that SEPH's recording of the final judgment and JLC rendered SEPH's claim secured by "several liens on real and personal property," the evidence reveals that the opposite is likely true. The only real property that Bos has a direct ownership interest in is his exempt homestead to which SEPH's judgment did not attach. The only personal property that either Bos or LHI have disclosed ownership of is comprised of their membership and stock interests in the Legendary group entities. By the time SEPH recorded its judgment and JLC, all of these assets were fully encumbered by the charging orders entered in favor of SSI Destin and RB Golf. The record is devoid of evidence that LHI owns any real property to which SEPH's judgment lien could have attached.

SEPH garnished a bank account owned by Bos and his wife. Bos filed a Claim of Exemption for this account on the basis that he and his wife owned it as tenants by the entireties. SEPH did not challenge this exemption so the Writ of Garnishment was dissolved.

Procedural History of the Involuntary Petitions

SEPH filed the involuntary petitions on September 4, 2015. Before filing their motions to dismiss, Bos and LHI filed emergency motions to require SEPH to post an indemnity bond pursuant to 11 U.S.C. § 303(e). The Court held the initial hearing on those motions over two days, on October 1 and 5, 2015.⁹ With consent of the parties, the Court considered the Alleged Debtors' later-filed motions to dismiss, along with their ore tenus denials of SEPH's allegations, as answers to the petitions.

Initially, Bos filed a list of 39 alleged qualifying creditors. He then filed an amended list that contained 41 creditors and a second amended list that contained 37 creditors.¹⁰ LHI initially filed a list of 22 alleged qualifying creditors. It then filed an amended list of 23 creditors, and a second amended list of 25 creditors.

SEPH has had a reasonable opportunity to seek other creditors to join in the Petition pursuant to 11 U.S.C. § 303(c), but none have.

The issues on these contested petitions were tried on November 18–20, 2015 and January 12–13 and 15, 2016. The hearing on Alleged Debtors' bond motions was continued indefinitely, pending this ruling.

Alleged Debtors' Rule 15(b) Motion to Amend the Pleadings

At the conclusion of the evidence Alleged Debtors moved to amend their pleadings under Fed. R. Civ. P. 15(b). First, they requested that their lists of creditors be...