Peter Ullrich v. Kenneth A. Welt , 810 F.3d 781 ( 2015 )

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[PUBLISH]
IN THE UNITED STATES COURT OF APPEALS
FOR THE ELEVENTH CIRCUIT
________________________
No. 14-14685
________________________
D.C. Docket Nos. 0:13-cv-62111-KAM; 12-bkc-32686-JKO
In Re: NICA Holdings, Inc.,
Debtor.
_________________________________________________________
PETER ULLRICH,
Plaintiff-Appellant,
versus
KENNETH A. WELT,
LESLIE S. OSBORNE,
Defendants-Appellees.
________________________
Appeal from the United States District Court
for the Southern District of Florida
________________________
(December 17, 2015)
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Before ED CARNES, Chief Judge, MARTIN, Circuit Judge, and WALTER,∗
District Judge.
MARTIN, Circuit Judge:
This case originated in the U.S. Bankruptcy Court. Peter Ullrich was a
substantial investor in a farm that raised tilapia in Nicaragua. The fish farm failed,
and we consider claims arising out of a fight for the limited assets that remain from
that enterprise.
I. BACKGROUND
A. THE FAILED ABC
Nica Holdings, Inc. (“Nica”) is now the debtor in the underlying bankruptcy,
but it once had valuable assets. Nica held stock in Mares Nica Noruegos S.A.
(“Nicanor”), the company that ran the Nicaraguan fish farm, and it owned several
parcels of land associated with that operation. Mr. Ullrich and a Norwegian firm
called Biotec Holdings (“Biotec”) owned the remaining shares of Nicanor.
By 2007, Nica faced financial problems. As a result, Nica executed what is
known as an Assignment for the Benefit of Creditors (ABC) on July 12, 2007. An
ABC is a creature of state law (here Florida), which serves as an alternative to
bankruptcy. To establish an ABC, one irrevocably assigns their assets to another,
∗
Honorable Don Walter, United States District Judge for the Western District of Louisiana,
sitting by designation.
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then the assignee in turn disposes of those assets in accordance with state law.
Kenneth Welt was the assignee for Nica’s ABC. He hired Tina Talarchyk of the
law firm of Squire Sanders LLP 1 to assist him with the ABC liquidation.
Exactly what happened next is hotly disputed, but at least the following
seems to be uncontested. During the ABC, Mr. Ullrich and Biotec independently
expressed interest in acquiring control over Nicanor by purchasing its stock from
Nica. Mr. Welt, as Nica’s ABC assignee, executed a separate sales contract with
and accepted a separate deposit from each of the aspiring buyers. Then, without
court authorization, he paid himself and other ABC expenses with these deposits.
Eventually, Mr. Welt did get court approval for the stock sale to Mr. Ullrich, but
Biotec blocked that sale on the basis of certain corporate stock restrictions. The
sale to Mr. Ullrich was never consummated. As a result of continuing uncertainty
over Nicanor’s future ownership, investors stopped investing and the fish farm
closed operation. This rendered the Nicanor stock, Nica’s primary asset in the
ABC, worthless.
Someone—and there’s no shortage of finger-pointing—prevented Nica’s
effective liquidation. Mr. Ullrich blamed Mr. Welt in a civil suit brought in state
court (“the Adversary Proceeding”) and separately sought his removal as Nica’s
1
Squire Sanders LLP is now Squire Patton Boggs, but we will refer to it by its previous name,
which was in use when this case began.
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ABC assignee. Mr. Welt, in turn, filed a malpractice suit against Ms. Talarchyk
and Squire Sanders in state court (“the Malpractice Claim”). These two lawsuits
are the only things of value Nica has left.
B. THE CHAPTER 7 BANKRUPTCY
After this rush to the courthouse was underway, Mr. Welt purported to file a
voluntary Chapter 7 bankruptcy petition on Nica’s behalf on September 24, 2012.
He claimed that bankruptcy was “the most expeditious and effective means of
administering the remaining assets of Nica” namely the litigation. Leslie Osborne
was appointed trustee (“the Trustee”) of Nica’s bankrupt estate.
Mr. Ullrich opposed the bankruptcy from the beginning. He claimed (and
continues to claim) that Mr. Welt filed the bankruptcy merely to block his removal
as ABC assignee and to insulate himself from personal liability. Mr. Ullrich
moved to dismiss the bankruptcy petition on October 8, 2012, claiming that Mr.
Welt lacked the authority to put Nica into bankruptcy. His motion to dismiss was
denied, as was his motion to take an interlocutory appeal from that denial.
C. THE ADVERSARY PROCEEDING
Mr. Ullrich’s Adversary Proceeding against Mr. Welt was taken over by the
Trustee and settled. First, Mr. Welt removed Mr. Ullrich’s state court action to the
Bankruptcy Court. Next, the Trustee claimed the Adversary Proceeding as an asset
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of the estate and intervened as sole plaintiff. Finally, the Trustee moved to settle it
(“the Adversary Settlement”).
For our purposes, we consider the following terms of the Adversary
Settlement: In exchange for (1) control over the Malpractice Claim litigation and
recovery, (2) the subordination of Mr. Welt’s administrative claims against Nica,
and (3) Mr. Welt’s partially reimbursable funding of the Malpractice Claim
litigation, Mr. Welt would receive a bar order granting him complete personal
immunity from pre-petition liability. 2 Effectively, the Adversary Settlement shut
down the Adversary Proceeding against Mr. Welt in favor of pursuing the
Malpractice Claim against Ms. Talarchyk and Squire Sanders.
Mr. Ullrich believes this was an improper maneuver that harmed the estate.
He objected to the Adversary Settlement, advancing many of the same arguments
he raises now. Several days later, he also filed what he called a competing
settlement offer under 11 U.S.C. § 363(b)(1) (“the Competing Settlement Offer”).
In the Competing Settlement Offer, Mr. Ullrich offered to (1) litigate the
Adversary Proceeding, including paying (partially reimbursable) fees, and (2)
litigate the Malpractice Claim jointly with the Trustee (but not on behalf of Mr.
Welt), in exchange for (1) barring Mr. Welt’s administrative claims, (2) giving Mr.
2
The text of the Settlement Agreement suggests that Mr. Welt receives immunity both
personally and in his capacity as ABC assignee. The latter protection was determined to be a
“scrivener’s error.” We accept that the Settlement Agreement gave Mr. Welt personal immunity,
but no immunity for his acts as ABC assignee.
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Ullrich priority recovery on some claims, and (3) entering a bar order in Mr.
Ullrich’s favor. Effectively, the Competing Settlement Offer contemplated
pursuing both lawsuits but giving Mr. Ullrich some control over them and some
additional reward from them.
D. THE SETTLEMENT HEARING AND APPROVAL
On July 15, 2013, the Bankruptcy Court held a hearing on the Adversary
Settlement and Mr. Ullrich’s objections to it. The court ruled, with little analysis,
that the Trustee accepted the Adversary Settlement through “the exercise of
business judgment,” which “should be upheld.” Specifically, the Bankruptcy
Court reasoned that the Adversary Settlement was “in the best interest of the estate
and of the creditors generally.” The agreement also subordinated Mr. Welt’s
administrative claims and did not release him from liability in his capacity as ABC
assignee. The Bankruptcy Court did not discuss the Competing Settlement Offer.
Two weeks later, the court issued a summary order granting the Trustee’s motion
to proceed with the Adversary Settlement and entered a bar order in favor of Mr.
Welt personally. Nica’s creditors got no payout as a result of the Adversary
Settlement. The Adversary Proceeding was later dismissed with prejudice.
Mr. Ullrich appealed the Bankruptcy Court’s ruling to the District Court. He
argued that the Bankruptcy Court erred by failing to treat the Adversary Settlement
as an asset sale under 11 U.S.C. § 363—which would require review of competing
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bids—and by failing to treat the Competing Settlement Offer as a competing bid.
The District Court rejected Mr. Ullrich’s arguments, and affirmed the ruling of the
Bankruptcy Court. It found that the Bankruptcy Court had evaluated the
Adversary Settlement according to the proper factors, even though it had not
explicitly discussed the application of each. Mr. Ullrich timely filed this appeal.
E. THE MALPRACTICE CLAIM SETTLEMENT
Shortly before the District Court affirmed the Bankruptcy Court’s approval
of the Adversary Settlement, the Trustee separately moved the Bankruptcy Court
to settle the Malpractice Claim (“the Malpractice Settlement”).3 Once again
relying on his “business judgment,” the Trustee proposed a settlement that would
impact the estate as follows: (1) Squire Sanders would pay $210,000 to the estate;
(2) the estate would keep Mr. Welt’s $50,000 contribution toward fees (pursuant to
the Adversary Settlement); and (3) Squire Sanders would waive any claims it had
against the estate. Mr. Ullrich quickly moved to stay the Malpractice Settlement
and “all proceedings in this Court” due to his concern about equitable mootness if
things went forward. The Bankruptcy Court denied his motion for a stay.
3
Other than a footnote in Mr. Ullrich’s initial brief, the Malpractice Settlement is not mentioned
in the record before us. However, we are “free to take judicial notice of subsequent
developments in cases that are a matter of public record and are relevant to the appeal.”
Rothenberg v. Sec. Mgmt. Co., 667 F.2d 958, 961 n.8 (11th Cir. 1982). The outcome of the
Malpractice Claim—one of Nica’s two principal assets and the lawsuit deemed superior by the
Settlement Agreement—is directly relevant to this appeal.
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Mr. Ullrich then objected to the Malpractice Settlement, arguing that the
lawsuit was being prematurely settled as well as undervalued, and that the
settlement would net little or nothing for Nica’s creditors. He also renewed his
request for a stay. Once again, when the Bankruptcy Court held a hearing on the
Malpractice Settlement, Mr. Ullrich orally moved for a stay. The Bankruptcy
Court did not stay the proceedings and it approved the Malpractice Settlement.
Mr. Ullrich persisted. After being told in the written order following the
hearing that his oral motion was premature, Mr. Ullrich filed another motion for
stay pending appeal. This time the Trustee opposed it, arguing that Mr. Ullrich
was actually too late, because the parties already consummated the Malpractice
Settlement “[i]mmediately following the Court’s oral ruling.” After a hearing, the
Bankruptcy Court denied Mr. Ullrich’s motion for a stay. Squire Sanders has paid
the estate and the estate has retained Mr. Welt’s fee contribution under the terms of
the Malpractice Settlement, but none of the creditors has been paid anything.
II. STANDARD OF REVIEW
In bankruptcy appeals, we act as a second court of review, independently
examining the decisions of the Bankruptcy Court and applying the same standards
as the District Court. Brown v. Gore (In re Brown), 742 F.3d 1309, 1315 (11th
Cir. 2014). When the District Court affirms a Bankruptcy Court’s order, as here,
we consider the Bankruptcy Court’s decision directly, reviewing factfindings for
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clear error and legal conclusions de novo. Id. Questions concerning a court’s
subject matter jurisdiction are reviewed de novo. Mesa Valderrama v. United
States, 417 F.3d 1189, 1194 (11th Cir. 2005).
III. DISCUSSION
We are confronted with a pair of threshold questions about whether this case
is properly before us. First, the Appellees argue that this controversy may be
equitably moot because both the Adversary Proceeding and the Malpractice
Claim—Nica’s only assets—have been settled. Second, Mr. Ullrich renews his
argument that the Bankruptcy Court lacked jurisdiction because Mr. Welt, as an
ABC assignee, had no authority to put Nica into bankruptcy. We reject the
equitable mootness argument because we find that relief is still possible. However,
as to the second argument, we come to a different conclusion than the Bankruptcy
Court about whether an ABC assignee may file a voluntary bankruptcy petition on
behalf of the assignor without explicit authorization to do so.
A. EQUITABLE MOOTNESS
The Appellees note in passing that this case may be equitably moot.
Equitable mootness is a doctrine that permits courts sitting in bankruptcy appeals
to dismiss challenges (typically to confirmation plans) when effective relief would
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be impossible.4 “Central to a finding of mootness is a determination by an
appellate court that it cannot grant effective judicial relief.” First Union Real
Estate Equity & Mortg. Invs. v. Club Assocs. (In re Club Assocs.), 956 F.2d 1065,
1069 (11th Cir. 1992) (emphasis added). Deciding whether a case is equitably
moot requires a multifactor analysis:
Has a stay pending appeal been obtained? If not, then why not? Has
the plan been substantially consummated? If so, what kind of
transactions have been consummated? What type of relief does the
appellant seek on appeal? What effect would granting relief have on
the interests of third parties not before the court? And, would relief
affect the re-emergence of the debtor as a revitalized entity?
Id. at 1069 n.11. No single factor is determinative, 5 and a court must consider “all
the circumstances of the case to decide whether it can grant effective relief.” Id. at
1069. The equitable mootness doctrine seeks to avoid an appellate decision that
4
The equitable mootness doctrine “normally arises where a Chapter 11 reorganization plan is at
issue” because it “responds to the particular problems presented by the consummation of plans of
reorganization under Chapter 11.” Tech. Lending Partners, LLC v. San Patricio Cty. Cmty.
Action Agency (In re San Patricio Cty. Cmty. Action Agency), 575 F.3d 553, 558 (5th Cir. 2009)
(quotations omitted). As a result, some courts have questioned whether the doctrine applies to
Chapter 7 proceedings. See, e.g., Szwak v. Earwood (In re Bodenheimer, Jones, Szwak, &
Winchell, LLP), 592 F.3d 664, 668–69 (5th Cir. 2009). We assume without deciding that
equitable mootness applies in the Chapter 7 context, because even if it does, the Appellees have
not shown this appeal is equitably moot. See id. at 669 (“[E]ven if equitable mootness applies in
some Chapter 7 bankruptcies, it does not do so here.”). Like the Second Circuit, “we leave to a
future panel of our Court the question whether [one] may [] invoke equitable mootness in the
context of a Chapter 7 liquidation.” Beeman v. BGI Creditors’ Liquidating Tr. (In re BGI, Inc.),
772 F.3d 102, 109 n.13 (2d Cir. 2014).
5
In particular, we have noted that “substantial consummation by itself does not resolve the
issue,” id. at 1069, and “[d]espite the appearance that a failure to obtain a stay is a blanket
discharge of an appellate court’s duty to review a bankruptcy court’s confirmation order, the fact
remains that the absence of a stay does not compel a finding of mootness,” id. at 1070 n.13
(emphasis omitted).
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“would knock the props out from under the authorization for every transaction that
has taken place and create an unmanageable, uncontrollable situation for the
Bankruptcy Court.” Miami Ctr. Ltd. P’ship v. Bank of NY, 838 F.2d 1547, 1555
(11th Cir. 1988) (“Miami Center II”) (quotation omitted).
Our decision here will not have that effect. First, while the bankruptcy
proceedings have not been stayed pending appeal, we must also consider why not.
See In re Club Assocs., 956 F.2d at 1069 n.11. It’s not entirely for Mr. Ullrich’s
lack of trying. It’s true that he did not move for a stay after the Bankruptcy Court
approved the Adversary Settlement on July 15, 2013, which in turn allowed the
Adversary Proceeding to be dismissed with prejudice on December 19, 2013. But
no third parties were affected by that settlement, and no money was distributed
from the estate as a result.6 The Adversary Settlement was simply a means of
dropping the Adversary Proceeding in favor of pursuing the Malpractice Claim. In
contrast, the Malpractice Settlement contemplated extinguishing Nica’s only
remaining asset in exchange for a potential payout to creditors. When Mr. Ullrich
6
The equitable mootness doctrine is primarily concerned with the finality interests of third
parties, such as good-faith purchasers or investors, as opposed to the parties before the court—
who know better than to heedlessly rely on the ruling below. See, e.g., Miami Ctr. Ltd. P’ship v.
Bank of NY, 820 F.2d 376, 379 (11th Cir. 1987) (“Miami Center I”) (“The rationale in these
cases . . . is that a court cannot order relief without compromising the integrity of the sale of the
property to a good faith purchaser.”); In re Club Assocs., 956 F.2d at 1070 (noting concern over
the fact that “a number of investors, who were not parties to this case, had committed new funds
to the [revitalized debtor] with the expectation of receiving a preferred return on their
investments”).
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became aware of this, he quickly and diligently sought a stay. But his motions
were repeatedly denied—first for being too early, then for being too late. If we are
to believe that Mr. Ullrich’s oral motion at the end of the Malpractice Settlement
hearing was “premature”, while his written motion was too late because the parties
had consummated the settlement “[i]mmediately following the Court’s oral ruling
[at the hearing],” then apparently there was never a time when Mr. Ullrich could
file a motion to stay the Malpractice Settlement. On this record, we cannot fault
him for not getting a stay.
Second, it’s not clear that the two settlements have been substantially
consummated, as we understand that term. The U.S. Bankruptcy Code defines
“substantial consummation” as:
(A) transfer of all or substantially all of the property proposed by the
plan to be transferred; (B) assumption by the debtor or by the
successor to the debtor under the plan of the business or of the
management of all or substantially all of the property dealt with by the
plan; and (C) commencement of distribution under the plan.
11 U.S.C. § 1101(2) (emphasis added). It is important to note, and the Appellees
agree, that no creditors have yet been paid anything as a result of either settlement.
Instead of being distributed, what few funds were transferred as a result of the
settlements remain in the bankrupt estate. This case is not like Miami Center I,
where the plan was substantially consummated because a $250 million property
had been conveyed to a good-faith purchaser and “the trustee ha[d] paid the
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undisputed claims of all creditors.” 820 F.2d at 380. Here, a relatively small sum
of $260,000 7 has been paid by two interested—possibly blameworthy—parties into
the estate, where the money remains. These facts do not fit the statutory definition
of “substantial consummation.”
Even if they did, the “kind of transactions” involved here are neither
particularly complicated nor irreversible. In re Club Assocs., 956 F.2d at 1069
n.11. The settlements do not contemplate a revitalization of Nica that would be
thwarted by our decision. They do not involve intricate third-party transactions or
otherwise present a substantial obstacle to relief. Again, they involve the
straightforward settlement of litigation claims in exchange for the payment of lump
sums by two interested and perhaps blameworthy parties—Mr. Welt and Squire
Sanders. 8 This contrasts starkly with the types of transactions in appeals we have
ruled equitably moot. See generally, e.g., In re Club Assocs., 956 F.2d 1065 (plan
that involved large securities offering to third-party investors and partners,
7
This amount represents Squire Sanders’s $210,000 payment to the estate plus Mr. Welt’s
$50,000 fee contribution under the terms of the Malpractice Settlement.
8
While the settlement payments are easily reversible, somewhat more difficulty may arise from
the dismissals with prejudice of the Adversary Proceeding and the Malpractice Claim, on which
the statute of limitations has apparently run. However, because we conclude in Part III.B, infra,
that the ABC assignee lacked authority to initiate this bankruptcy in the first place, such
difficulties should be mitigated. The state dismissals were based on orders from an unauthorized
bankruptcy, and the limitation period expired during this bankruptcy. In these circumstances, the
claimants may well be able to revive their suits by operation of equitable tolling. See Sandvik v.
United States, 177 F.3d 1269, 1271 (11th Cir. 1999) (per curiam) (“Equitable tolling is
appropriate when a movant untimely files because of extraordinary circumstances that are both
beyond his control and unavoidable even with diligence.”).
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restructuring of multimillion-dollar note, payment of all administrative expenses,
payment of all trade creditors, repayment of all tenant security deposits,
restructuring of another note, and assumption of a management contract); Miami
Center I, 820 F.2d 376 (plan that involved substantive consolidation of five
debtors, creation of a liquidating trust of all the debtors’ assets, payment of creditor
claims, purchase of a $250 million building project, significant financing
commitments by a bank, a special priority scheme, and dismissal of pending
litigation). These transactions are much simpler.
Our equitable mootness analysis, as applied to the facts and circumstances of
this case, leads us to conclude that effective relief is not precluded here. Perhaps
Mr. Ullrich should have tried to stay the Adversary Settlement pending appeal in
the same way he tried to stay the Malpractice Settlement. But his failure to do so
is not fatal to this appeal. See Russo v. Seidler (In re Seidler), 44 F.3d 945, 948
(11th Cir. 1995) (“Failure to obtain a stay of proceedings related to the bankruptcy
does not automatically render an appeal moot.”). Equitable mootness does not
dictate dismissal here.
B. AUTHORITY TO FILE
Mr. Ullrich argues that the Bankruptcy Court had no jurisdiction over this
case because Mr. Welt lacked the authority, as an ABC assignee, to put Nica into
bankruptcy. To the extent he argues the Bankruptcy Court lacked jurisdiction even
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to decide the authority-to-file question, Mr. Ullrich is surely wrong.9 “[I]t is
familiar law that a federal court always has jurisdiction to determine its own
jurisdiction.” United States v. Ruiz, 536 U.S. 622, 628, 122 S. Ct. 2450, 2454
(2002). Indeed, bankruptcy courts have consistently ruled on authority-to-file
questions after implicitly assuming jurisdiction pursuant to 28 U.S.C. § 1334. 10
See generally, e.g., Winter v. Bel-Aire Invs., Inc. (In re Bel-Aire Invs., Inc.), 97
B.R. 88 (Bankr. M.D. Fla. 1989); In re Am. Int’l Indus., Inc., 10 B.R. 695 (Bankr.
S.D. Fla. 1981); In re Al-Wyn Food Distribs., Inc., 8 B.R. 42 (Bankr. M.D. Fla.
1980). Rather than dismissing the case for lack of subject matter jurisdiction based
on an authority-to-file challenge, these courts rightly assumed jurisdiction in order
to address the challenge. The Bankruptcy Court here was not wrong to do the
same. Its ruling once it got to the merits, however, was wrong. 11
As we discussed, an ABC is a state-law alternative to bankruptcy. The idea
is that bankruptcies have a spate of potentially useful but complex procedures and
protections, while ABCs may offer a simpler and cheaper process. See generally
Jeffrey Davis, Florida’s Beefed-Up Assignment for the Benefit of Creditors as an
9
Counsel seems to have conceded as much at oral argument.
10
Section 1334(a) states that “district courts shall have original and exclusive jurisdiction of all
cases under title 11.” 28 U.S.C. § 1334(a).
11
We reject the Appellees’ contention that Mr. Ullrich waived his authority-to-file argument on
appeal. He has challenged the propriety of this bankruptcy from the beginning, and he
repeatedly raised the issue during the proceedings below, in both the Bankruptcy Court and the
District Court. Although the District Court does not seem to have addressed the argument, its
failure to do so does not convert Mr. Ullrich’s diligent presentation of the issue into a waiver.
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Alternative to Bankruptcy, 19 U. Fla. J. L. & Pub. Pol’y 17 (2008). Entities may
opt to use the ABC process because, in their particular circumstance, it’s more
flexible, faster, more private, and less supervised than bankruptcy. See Jonathan T.
Edwards, The Crossroads: The Intersection of State Law Remedies and
Bankruptcy, 18 J. Bankr. L. & Prac. 2, Art. 4 (April 2009). Florida courts have
described the ABC as “an alternative to bankruptcy [that] allows a debtor to
voluntarily assign its assets to a third party in order to liquidate the assets.”
Hillsborough Cty. v. Lanier, 898 So. 2d 141, 143 (Fla. 2d DCA 2005). ABCs and
bankruptcies are alternative proceedings. An entity deliberately chooses to pursue
one or the other.
Nica certainly did. When it selected Mr. Welt to serve as its ABC assignee
and irrevocably transferred its assets to him, Nica intended the application of a
specific statutory mechanism, and conferred powers consistent with that scheme.
Nica did not, however, grant Mr. Welt the freewheeling power to pull it out of the
very framework from which his powers as assignee arose and plunge it into a
different legal system not of its choosing. To the extent any entity would ever
desire to confer such a power in these circumstances, it must do so explicitly and
plainly. We will not read this extraordinary power into the template language from
Florida’s ABC statute.
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“It is well-settled that a bankruptcy filing is a specific act requiring specific
authorization.” In re N2N Commerce, Inc., 405 B.R. 34, 41 (Bankr. D. Mass.
2009) (quotation omitted) (collecting cases). In determining whether a bankruptcy
filing was authorized, we look to state law. Price v. Gurney, 324 U.S. 100, 106, 65
S. Ct. 513, 516 (1945) (“If the District Court finds that those who purport to act on
behalf of the corporation have not been granted authority by local law to institute
the proceedings, it has no alternative but to dismiss the petition.”). Florida courts
have long held that the authority to file a bankruptcy petition rests with a
corporation’s board of directors. 12 See, e.g., In re Bel-Aire Invs., Inc., 97 B.R. at89–90 (“There is no question that the authority to manage the affairs of the
corporation does not include the right to file a [bankruptcy] petition.”); In re Am.
Int’l Indus., Inc., 10 B.R. at 696–97 (requiring “a specific resolution of the board
of directors authorizing the action” in order to file a voluntary Chapter 7
bankruptcy petition); In re Al-Wyn Food Distribs., Inc., 8 B.R. at 43 (“The few
cases that have been reported on this topic are old, but they are uniform in result.
They hold that the president of a corporation has no general power to file a
petition, nor is such a power implied. . . . [T]he filing of any sort of bankruptcy
petition is a special act requiring special authorization.”) (emphasis added)). Thus,
12
The same is true of most other courts. See In re Arkco Props., Inc., 207 B.R. 624, 628 (Bankr.
E.D. Ark. 1997) (“In virtually every instance, this authority [to file bankruptcy petitions] has
been held to rest solely with the board of directors.”).
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in order to decide whether Mr. Welt had the power to singlehandedly take Nica
from its ABC into bankruptcy, we must examine whether Nica ever granted him
“specific,” “special” authorization to do so.
Mr. Welt drew his powers as ABC assignee from the ABC agreement
executed on July 12, 2007. This agreement tracks almost exactly the language of
Florida’s ABC statute.13 Compare Doc. 20-2, with Fla. Stat. § 727.104(b). The
relevant provisions are set out below:
The ASSIGNEE shall take possession and administer the estate
in accordance with the provisions of chapter 727, Florida Statutes, and
shall liquidate the assets of the ESTATE with reasonable dispatch and
convert the ESTATE into money, collect all claims and demands
hereby assigned as may be collectible, and pay and discharge all
reasonable expenses, costs, and disbursements . . . .
If funds of the ESTATE shall not be sufficient to pay [] debts
and liabilities in full, then the ASSIGNEE shall pay from funds of the
ESTATE such debts and liabilities, on a pro rata basis and in
proportion to their priority as set forth in s. 727.114, Florida Statutes.
....
To accomplish the purposes of this assignment, the ASSIGNOR
hereby appoints the ASSIGNEE its true and lawful attorney,
irrevocable, with full power and authority to do all acts and things
which may be necessary to execute the assignment hereby created; to
demand and recover from all persons all assets of the ESTATE; to sue
13
The few deviations are immaterial to this case. In the fifth paragraph, the ABC agreement
omits “and protect and preserve” from the sentence beginning: “The assignee shall take
possession of, and protect and preserve, all such assets and administer the estate in accordance
with the provisions of chapter 727 . . .” Fla. Stat. § 727.104(b). In the seventh paragraph, the
ABC agreement uses “In the event that” instead of “If.” Id. Neither of these differences speaks
to the assignee’s authority to file a bankruptcy petition on the assignor’s behalf.
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for the recovery of such assets; to execute, acknowledge, and deliver
all necessary deeds, instruments, and conveyances; and to appoint one
or more attorneys under her or him to assist the ASSIGNEE in
carrying out her or his duties hereunder.
The ASSIGNOR hereby authorizes the assignee to sign the
name of the ASSIGNOR to . . . any instrument in writing, whenever it
shall be necessary to do so, to carry out the purpose of this
assignment.
The ASSIGNEE hereby accepts the trust created by the
assignment, and agrees with the ASSIGNOR that the ASSIGNEE will
faithfully and without delay carry out her or his duties under the
assignment.
Doc. 20-2:2–3 (emphasis added). Clearly, none of this language authorizes (much
less, specifically or specially authorizes) the assignee to initiate bankruptcy
proceedings.14 Bankruptcy is never mentioned in the ABC agreement or in the
form language from the Florida statute. Instead, as one would expect, the
procedures, rights, and duties associated with an ABC proceeding are thoroughly
delineated, with repeated references to Florida’s ABC statute and none to the U.S.
Bankruptcy Code.
Under Florida law, that should be the end of it. See In re Al-Wyn Food
Distribs., Inc., 8 B.R. at 43 (noting that power to file a bankruptcy petition will not
be implied, but rather “is a special act requiring special authorization”). Without
specific authorization to file a bankruptcy petition, Mr. Welt lacked the authority to
14
We have not located—and the parties have not identified—any Florida case law addressing
whether the ABC statute confers authority to file a bankruptcy petition on an assignee.
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do so. But one might still claim (as the Bankruptcy Court did) that the residual
power granted to an ABC assignee by the power-of-attorney paragraphs is broad
enough to encompass the authority to file a bankruptcy petition. As this argument
goes, the ABC agreement granted Mr. Welt “full power and authority” to do
anything, including signing Nica’s name to “any instrument in writing”—such as a
voluntary bankruptcy petition.
However, this argument overlooks the full import of those clauses, which all
come back to giving only the authority “necessary to execute the assignment
hereby created” and “necessary . . . to carry out the purpose of this assignment.”
Fla. Stat. § 727.104(b) (emphasis added); Doc. 20-2:2–3 (emphasis added). These
power-of-attorney paragraphs gave Mr. Welt broad power to act on behalf of Nica,
yes, but only in furtherance of the ABC. Pulling Nica out from the ABC and
casting it into bankruptcy did not “execute the assignment” or “carry out [its]
purpose.” Just the opposite—it terminated the assignment. We cannot say that
Florida’s ABC statute carries within it the seeds of its own destruction. Its form
language, which “shall be” adopted “in substantially the [listed] form” in all ABCs,
Fla. Stat. 727.104(b), does not grant an assignee the authority to unilaterally
override the assignor’s original choice of a legal regime. Absent explicit and plain
authorization by the assignor, a Florida ABC assignee cannot initiate Chapter 7
bankruptcy proceedings.
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Nica deliberately selected an ABC as its preferred mode of liquidation and
executed an agreement manifesting that intent, consistent with Florida law. It
trusted Mr. Welt to “faithfully and without delay carry out her or his duties under
the assignment.” Fla. Stat. § 727.104(b); Doc. 20-2:3. He didn’t do that. Instead,
when trouble started, he terminated the ABC by purporting to send Nica into
bankruptcy. Mr. Welt had no such authority. We therefore REVERSE and
REMAND with instructions to the District Court to remand to the Bankruptcy
Court for dismissal of the bankruptcy case.
REVERSED and REMANDED.
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