Southpoint Global Invs., LLC v. Warren (In re Westport Holdings Tampa, Ltd.)

607 B.R. 715

IN RE: WESTPORT HOLDINGS TAMPA, LIMITED PARTNERSHIP, and Westport Holdings Tampa II, Limited Partnership, Debtors.

SouthPoint Global Investments, LLC, Appellant,

v.Jeffrey W. Warren, as Liquidating Trustee, and CPIF Lending, LLC, Appellees.

Case No. 8:18-cv-2896-T-33

Bankr. No. 8:16-bk-8167-MGW

United States District Court, M.D. Florida, Tampa Division.

Signed September 6, 2019

Filed September 10, 2019

Robert A. Soriano, Soriano Law, P.A., Tampa, FL, for Appellant.

Adam Lawton Alpert, Bryan D. Hull, Jeffrey Wayne Warren, Laura Labbee, Edmund S. Whitson, III, Bush Ross, PA, Tampa, FL, Traci H. Rollins, West Palm Beach, FL, Mark A. Salzberg, Squire Patton Boggs (US) LLP, Washington, DC, for Appellees.

ORDER

VIRGINIA M. HERNANDEZ COVINGTON, UNITED STATES DISTRICT JUDGE

In the context of a Chapter 11 bankruptcy proceeding, Appellant SouthPoint Global Investments, LLC, appeals the Bankruptcy Court's order authorizing the Debtors to obtain replacement post-confirmation financing from another lender and granting that lender liens and administrative expense claims that would have priority over those held by SouthPoint. The appeal is fully briefed and, as discussed below, the Court affirms the Bankruptcy Court's order.

I. Background

University Village is a continuing care retirement community in Tampa, Florida. (Doc. # 10-21 at 9). University Village is comprised of 446 independent living apartments and 46 independent living villas and condominium units (the Independent Living Facility), along with an assisted living and skilled nursing facility (the Health Center). (Id. ). The Independent Living Facility is owned by Westport Holdings Tampa, Limited Partnership and Westport Holdings Tampa II, Limited Partnership (collectively, the Debtors), both of which are debtors in the underlying bankruptcy proceeding. (Id. at 2, 9). At all times relevant to this appeal, the Health Center was owned by Westport Nursing Tampa, LLC (WNT), which is not a debtor in the underlying bankruptcy proceeding. (Id. at 3, 9; Doc. # 10-7 at 3).

On September 22, 2016, the Debtors filed voluntary petitions for relief under Chapter 11 of the Bankruptcy Code. (Doc. # 10-7 at 3; Doc. # 10-30 at ¶ 3). The Bankruptcy Court later appointed Jeffrey Warren as Liquidating Trustee to administer the Debtors' estates. (Doc. # 10-20 at 38-39; Doc. # 10-30 at ¶ 4).

As part of the bankruptcy proceedings, CPIF Lending, LLC, one of the Debtors' creditors, filed a secured claim in the amount of $9,781,224.58 based on a $9.5 million pre-petition loan from CPIF in favor of the Debtors. (Doc. # 10-6 at 1, 4; Doc. # 10-7 at 4-5; Doc. # 10-30 at ¶ 5; Doc. # 10-47 at 1, 4). CPIF asserts that the loan was secured by a first-priority lien on substantially all of the Debtors' assets, including the Independent Living Facility, any cash collateral generated by the Independent Living Facility, and substantially all personal property owned by the Debtors. (Doc. # 10-6 at 5; Doc. # 10-7 at 5; Doc. # 10-30 at ¶ 5; Doc. # 10-47 at 5). CPIF's secured claim was subject to objections and an adversary proceeding, which remained pending before the Bankruptcy Court when this appeal was filed. (Doc. # 10-7 at 5; Doc. # 10-30 at ¶ 5). In addition, USAmeriBank¹ loaned money pre-petition to WNT, secured by a first-priority lien on substantially all of WNT's assets, including the Health Center. (Doc. # 10-7 at 5; Doc. # 10-30 at ¶ 6).

In a May 8, 2018, order, the Bankruptcy Court determined that the value of the Independent Living Facility, as collateral for any secured claims, was $12.9 million for purposes of confirmation of the Debtors' modified plan of reorganization. In re Westport Holdings Tampa, L.P., et al., Case No. 8:16-bk-8167-MGW, (Doc. # 1010) (Bankr. M.D. Fla. May 8, 2018) (hereafter Bankruptcy Court Docket). Similarly, it determined that the maximum amount of CPIF's pre-petition secured claim was $12.9 million, less outstanding taxes. Id. On appeal, this Court affirmed that valuation on June 28, 2019. (Bankruptcy Court Docket, Doc. # 1505).

The Debtors required approximately $2 million in post-petition financing for, among other things, capital improvements to the Independent Living Facility, including roof repairs, and operational expenses until a sale could be completed. (Doc. # 10-7 at 6-7; Doc. # 10-18 at 6, 9; Doc. # 10-30 at ¶ 7). In April 2018, SouthPoint agreed to extend the Debtors this financing pursuant to a revolving line of credit facility with a $2 million maximum balance (the SouthPoint Loan Facility). (Doc. # 10-7 at 7-8, 10; Exh. A to Doc. # 10-7). Accordingly, the Liquidating Trustee filed a motion to obtain post-petition financing under the terms of the SouthPoint Loan Facility. (Id. at 1).

The Bankruptcy Court found that the Debtors had "an immediate and critical need" for the funds, and the financing would be "necessary and vital to the preservation and maintenance of the going concern values of the Debtors." (Doc. # 10-18 at 9). Accordingly, on May 2, 2018, the Bankruptcy Court entered an order authorizing the Debtors to borrow up to $2 million from SouthPoint under the terms of the SouthPoint Loan Facility (the SouthPoint Financing Order). (Id. at 4-6; Doc. # 10-30 at ¶ 7).

Under the SouthPoint Financing Order and the SouthPoint Loan Facility, Southpoint received the following liens and security interests: (1) a first-priority lien on any unencumbered assets of the Debtors (subject to certain exceptions under the Bankruptcy Code), (2) a second-priority lien on all encumbered assets owned by the Debtors, junior only to those liens held by CPIF and any tax liens, and (3) a junior-priority lien on all encumbered assets of WNT. (Doc. # 10-7 at 7; Doc. # 10-18 at 7; Doc. # 10-30 at ¶ 8).

The SouthPoint Financing Order also granted SouthPoint a superpriority administrative claim under 11 U.S.C. § 364(c)(1) :

The Debtors' obligations to repay [SouthPoint] for advances pursuant to [the SouthPoint Loan Facility] shall be accorded superpriority administrative expense status pursuant to Section 364(c)(1) of the Bankruptcy Code, superior to any other claims under Section 364(c)(1) of the Bankruptcy Code, and priority over any and all other claims against the Debtors, now existing or hereafter arising, of any kind whatsoever, including, without limitation, all administrative expenses of the kind specified in Sections 503(b) and 507(b) of the Bankruptcy Code (the "Superpriority Claim" ), without the need to file any proof of claim. The Superpriority Claim of [SouthPoint] shall be entitled to the full protection of Section 364(e) of the Bankruptcy Code in the event that this Order or any provision hereof is vacated, reversed or modified, on appeal or otherwise.

(Doc. # 10-18 at 7-8).

The Bankruptcy Court found that the SouthPoint Loan Facility had been negotiated in good faith and at arms' length, and found that SouthPoint was acting in good faith, thereby triggering the "protections offered by Section 364(e) of the Bankruptcy Code, and [SouthPoint] shall be entitled to the full protection of Section 364(e) of the Bankruptcy Code in the event that this Order or any provision hereof is vacated, reversed, or modified, on appeal or otherwise." (Id. at 10).

The SouthPoint Financing Order further provided that all outstanding amounts drawn under the SouthPoint Loan Facility would become due and payable upon the occurrence of a default. (Id. at 8). As pertinent to this case, the SouthPoint Loan Facility documents defined an "Event of Default" as: (1) an order "entered by the Bankruptcy Court in the Bankruptcy Cases, without the prior written consent of [SouthPoint], (i) to revoke, reverse, stay, modify, supplement or amend the Financing Order, or (ii) to grant or permit the grant of a Lien on the property or assets of either Borrower other than a Permitted Lien," and (2) where a person "shall attempt to grant a Lien in any of Borrowers' properties or assets" or when "any action is commenced by a Borrower that contests any provision of the Financing Order." (Doc. # 10-12 at ¶¶ 8.1(j), (l)).

After the SouthPoint Loan Facility closed, the Liquidating Trustee requested $969,605 for a proposed project to repair and replace portions of the Independent Living Facility's roof. (Doc. # 10-30 at ¶¶ 10, 11). According to the Liquidating Trustee, the roofs at University Village suffered from water intrusion and were in "great disrepair." (Doc. # 10-46 at 8). SouthPoint approved the roofing contract and advanced a $10,000 down payment. (Doc. # 10-30 at ¶ 12). The Liquidating Trustee then entered into the roofing contract. (Id. ). SouthPoint funded an additional $100,000 for a progress payment on the roof but then refused two later requests for additional funds. (Id. at ¶¶ 13-15). Up to that point, SouthPoint had advanced a total of $488,000 on the SouthPoint Loan Facility, with $110,000 advanced for the roofing project. (Doc. # 10-46 at 7-8). The roofing contractor ceased any further work pending payment of its unpaid invoices. (Doc. # 10-30 at ¶ 16).

After approaching several lenders to obtain replacement financing, the Liquidating Trustee filed an expedited motion for approval of a replacement financing facility from Rosemawr Management, LLC, pursuant to 11 U.S.C. §§ 364(c) and (d). (Doc. # 10-25; Doc. # 10-30 at ¶¶ 18-19; Doc. # 10-46 at 9-11). Under the terms of the proposed loan, Rosemawr would make advances of up to $2 million, with an "accordion" feature allowing Debtors to borrow up to an additional $500,000. (Doc. # 10-25 at 7).² The proposed replacement financing would be secured by priming liens on all assets of the Debtors and WNT, subject only to existing liens on the assets of WNT. (Id.; Doc. # 10-30 at ¶ 27). In addition, the lender would be granted a superpriority administrative expense claim. (Id. ).

CPIF filed a written objection to the requested replacement financing, (Doc. ## 10-27, 10-28), but prior to the hearing, CPIF offered to provide the replacement financing on...