Land Ventures for 2, LLC v. Fritz

In re LAND VENTURES FOR 2, LLC Plaintiff, v. MICHAEL FRITZ, SR., et. al., Defendants.

Bankruptcy Court Misc. No. 13-302 Civil Action No. 2:12cv240-SRW

UNITED STATES BANKRUPTCY COURT MIDDLE DISTRICT OF ALABAMA

July 18, 2014

REPORT AND RECOMMENDATION

This Civil Action has been referred to the undersigned by the District Court pursuant to its Order of February 14, 2013.¹ It is before the Court on cross motions for summary judgment. (Docs. 31-37, 40-44). For the reasons set out below, it is recommended that the District Court grant the motion for summary judgment filed by Defendants Michael A. Fritz, Sr. and Fritz, Hughes & Hill, LLC, deny the cross motion for summary judgment filed by Plaintiff Land Ventures for 2, LLC, and dismiss this civil action with prejudice.

I. PROPOSED FINDINGS OF FACT

A. History of This Civil Action

Plaintiff Land Ventures for 2, LLC, filed suit in the District Court on March 15, 2012, initiating Case No. 12-CV-240-SRW. Defendants Fritz and Fritz, Hughes & Hill, LLC,² are a lawyer and a law firm respectively, which represented Land Ventures in a bankruptcy case. Land Ventures claims that Fritz and his firm are guilty of malpractice in his representation of it in a bankruptcy case which was filed in the Middle District of Alabama. Land Ventures is a Florida limited liability company with its principal place of business in Santa Rosa Beach, Florida, Fritz is an Alabama resident and Fritz, Hughes & Hill, LLC, is an Alabama limited liability company, which practices law in Montgomery, Alabama. The amount in suit exceeds $75,000. The District Court has jurisdiction pursuant to 28 U.S.C. § 1332 (diversity of citizenship).

The District Court referred this civil action to the undersigned by its order of February 14, 2013. To permit the Bankruptcy Clerk to maintain the file of this civil action, the Bankruptcy Clerk opened Miscellaneous Proceeding 13-302 and it was directed that all pleadings and papers filed in the future be filed in the Bankruptcy Court under this Misc. Pro. number. Discovery has been completed and the parties have filed cross motions for summary judgment.³

B. History of the Bankruptcy Proceedings

On March 16, 2010, Fritz filed a petition in bankruptcy in the United States Bankruptcy Court for the Middle District of Alabama, pursuant to Chapter 11 of the Bankruptcy Code, on behalf of Land Ventures, initiating Case No. 10-30651. Under the Court's case assignment procedures, the Chapter 11 case was assigned to the undersigned. At the time the petition was filed, Farm Credit of Northwest Florida, ACA-Land Ventures' largest creditor-had begun foreclosure proceedings against two parcels of real property owned by Land Ventures. The two parcels in question will be called the Luverne property, consisting of 171 acres of unimproved real property south of Luverne, Alabama, and the Holmes County property, which is 107 acres of unimproved real property in Holmes County, Florida. Land Ventures was then in the business of buying, selling and leasing real property. At that time it filed bankruptcy, Land Ventures owned eight pieces of real property, which it valued in its schedules as follows:

Property

Scheduled Value⁴

1. 185 Garrett Dr., Daleville, AL

800,000

2. 1695 Scott Road, (Holmes Co.) Westville, FL

357,000

3. Highway 331 South, Luverne, AL

770,000

4. 2254 Beach Dr, Gulfport, MS

185,000

5. 34 Herons Watch Way, Santa Rosa, FL

127,000

6. 130 Elliott Dr., Bonnieville, KY

289,000

7. 5847 Coy Burgess Loop Rd., Defuniak Springs, FL

127,000

8. Highway 331 North Rutledge, AL

350,000

Total stated value

$3,005,000

On June 3, 2010, Farm Credit of Northwest Florida, ACA, filed a motion for relief from the automatic stay in the Bankruptcy Court, seeking leave to proceed with its foreclosure proceedings. (Case No. 10-30651, Doc. 50). Land Ventures owed Farm Credit $743,000 and had not made a payment on the indebtedness in over a year. The indebtedness was secured bymortgages on the the Holmes County, Florida, and Luverne, Alabama properties. Farm Credit had accelerated the indebtedness and begun foreclosure proceedings prior to the bankruptcy filing, which were stayed when Land Ventures filed bankruptcy.⁵ When Farm Credit filed its motion for relief from the automatic stay, it had appraisals of the property indicating values of $556,400 for Luverne and $357,000 for Holmes County, for a total of $913,400. The appraisals were a year old at the time the motion for relief from the automatic stay was filed. Farm Credit alleged in its motion that relief from the automatic stay should be granted because it lacked adequate protection for its interest in the two properties.

Land Ventures opposed Farm Credit's motion, contending that there was sufficient value in the property so as to provide an equity cushion to protect Farm Credit's interest.⁶ Land Ventures did not dispute Farm Credit's claim that payment had not been made in over a year, nor did it offer to make periodic payments to Farm Credit. On July 16, 2010, Farm Credit supplemented its motion, providing current appraisals which valued the Holmes County property at $256,000 and the Luverne property at $515,000, for a total value of $771,000. (10-30651, Doc. 78). According to these latest appraisals, the value of the two properties combined haddecreased by $142,000 in little more than a year. As no payments had been made on the debt, as of July 13, 2010, it had grown to $769,894.92.

On August 26, 2010, the Bankruptcy Court heard evidence on Farm Credit's motion. At that hearing, Farm Credit offered evidence of the amount of its debt and its most recent appraisals. The amount owed by Land Ventures had grown to $769,894.92 and the appraised value of the two parcels of real estate had dropped to $771,000, leaving virtually no equity, certainly not enough equity to protect Farm Credit for an indefinite period of time into the future. The financial reports on file with the Bankruptcy Court showed that Land Ventures did not have the ability to make periodic payments to Farm Credit. Specifically, the monthly reports filed by Land Ventures with the Bankruptcy Court are summarized as follows:

Period

Reported Net Income⁷

March 2010

(813.87)

April 2010

2,734.24

May 2010

264.25

June 2010

(185.83)

July 2010

1,272.23

Aug. 2010

1,610.27

Sept. 2010

(4,632.51)

Oct. 2010

33,080.44⁸

Nov. 2010

(10,191.41)

Dec. 2010

1,104.11

Land Ventures disputed Farm Credit's contentions as to the value of the Luverne and Holmes County properties. After hearing the evidence, the Bankruptcy Court found that the value of the properties were as set out in Farm Credit's property appraisals. Because Land Ventures lacked the ability to make periodic payments to Farm Credit and because there was no equity in the property, the Bankruptcy Court found that Land Ventures could not provide adequate protection to Farm Credit for its interest in the property and concluded that sufficient cause had been shown to grant Farm Credit relief from the automatic stay. At the conclusion of the August 26, 2010 hearing, the Bankruptcy Court granted Farm Credit's motion for relief from the automatic stay. (10-30651, Doc. 108). The significance of this is that Farm Credit was then free to proceed with its foreclosure proceedings against the two properties.

On September 3, 2010, Land Ventures filed a timely notice of appeal. (10-30651, Doc. 113). On September 15, 2010, Fritz filed a Motion to Stay Pending Appeal. (10-39651, Doc. 125). The Bankruptcy Court heard Fritz's motion for a stay on September 21, 2010, where the following was colloquy took place.

THE COURT: . . . I will tell you what I am going to do. We have got a couple other matters. You can talk with your client. I am not going to give you - I am not going to grant your motion for stay unless you agree to encumber the other properties to protect the bank. You understand I can tell the risk you are taking if you do that. So, you know, you can talk with your client. But if you don'tdo that, then I will deny your motion and you can take your chances with the District Court.

MR. FRITZ: Thank you, Your Honor.

(Whereupon the Bankruptcy Court heard matters in unrelated cases from 11:06 a.m. until 11:27 a.m.)

THE COURT: Mr. Fritz.

MR. FRITZ: Yes, you Honor. After conferring with my client, we are not going to make an offer to put up any more collateral for this.

THE COURT: All right. Well, then, I am going to take that - well, I am going to deny your motion, then because I think the property is about liened up. We have no, sort of, light at the end of the tunnel. I mean, your plan seems to be to hang onto the property indefinitely and just let the bank, I guess, sort of hang out there indefinitely, and I am not willing to do that. So I don't think - I didn't think the bank was adequately protected when I ruled in August. I offered you the opportunity to encumber other property. I mean, it is a risk but what it does is it puts the risk on your client where I think it ought to be.

My problem with this from the start has been you are wanting to put the bank in a situation where they are bearing the risk and, in the event you sell the property for a lot of money, your client gets the profit. I don't think that's the way bankruptcy is supposed to work.

* * *

THE COURT: All right. Well, for those reasons, I will deny the motion.

(10-30651, Doc. 141, pp. 16-17). The Bankruptcy Court denied Land Ventures' motion by its order dated September 23, 2010. (10-30651, Doc. 134).

Fritz them moved the District Court to reconsider the September 23 order denying his motion to stay. The District Court denied Land Ventures' motion to reconsider, which left Farm Credit free to proceed with foreclosure proceedings. Land Ventures v. Farm Credit, Civil No. 10-CV-839; 2010 WL 4176121 (M.D. Ala. Oct. 18, 2010). As Farm Credit's foreclosure proceeding was no longer stayed, it could proceed with the forced sale of the Luverne, Alabama and Holmes County,...