In Re: Optical Technologies, Inc. v. Larson Pharmacy Inc.

425 F.3d 1294, 55 Collier Bankr. Cas. 2d 74, 2005 U.S. App. LEXIS 20095, 45 Bankr. Ct. Dec. (CRR) 89, 2005 WL 2276420
CourtCourt of Appeals for the Eleventh Circuit
DecidedSeptember 20, 2005
Docket03-15756
StatusPublished
Cited by101 cases

This text of 425 F.3d 1294 (In Re: Optical Technologies, Inc. v. Larson Pharmacy Inc.) is published on Counsel Stack Legal Research, covering Court of Appeals for the Eleventh Circuit primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
In Re: Optical Technologies, Inc. v. Larson Pharmacy Inc., 425 F.3d 1294, 55 Collier Bankr. Cas. 2d 74, 2005 U.S. App. LEXIS 20095, 45 Bankr. Ct. Dec. (CRR) 89, 2005 WL 2276420 (11th Cir. 2005).

Opinion

TJOFLAT, Circuit Judge:

This case involves a scheme to use electronic billboards and kiosks (collectively “kiosks”) for advertising. The promoters of the scheme 1 executed it in the following way. First, they organized Optical Technologies, Inc., and a group of affiliated companies, Recomm International Display Corp., Recomm Operations, Inc., and Re-comm Enterprises, Inc. (hereafter referred to collectively with Optical Technologies, Inc., as “Recomm”). 2 Recomm, in turn, (1) *1297 convinced several advertising agencies of the merits of advertising via kiosks, and (2) convinced pharmacists, veterinarians, optometrists, and others of the profits they would earn by locating the kiosks at their places of business. Having accomplished this, Recomm (3) acquired the necessary kiosks, leased them to the pharmacists and others (the “Lessees”), assigned the leases to finance companies (the “Lessors”), 3 and (4) entered into advertising contracts with the Lessees. These contracts provided that the Lessees would receive a stated percentage of the fees Recomm received from the advertising agencies. Recomm, the Lessees, and the Lessors contemplated that the Lessees’ share of the advertising fees would more than cover the Lessees’ lease payments.

The scheme worked for the benefit of all parties for a few years, until mid-1995, when Recomm began to experience cash-flow problems and ceased remitting to the Lessees their portions of the advertising fees. The Lessees responded in two ways. First, they quit paying the Lessors the rent due on the kiosk leases; then, they sued Recomm. As the law suits multiplied, Recomm turned to the bankruptcy court for relief. In January 1996, Recomm filed a Chapter 11 petition 4 in the Bankruptcy Court for the Middle District of Florida. 5

While reorganization efforts proceeded, Recomm’s business was carried on, made possible in part by contributions from some of the Lessors, including FINOVA Capital Corporation (“FINOVA”), the ap-pellee in this case. Over the course of the bankruptcy litigation, several reorganization plans were proposed. Only the third and fourth plans are relevant here.

The bankruptcy court balked at the third plan — entitled the Third Amended Joint Plan of Reorganization of the Debtors (“Third Amended Plan”) — after discovering that Recomm essentially had no assets of any value because the kiosk network had remained in the hands of Re-comm affiliates that had not filed for bankruptcy. The proponents of the plan argued that there had been a de facto merger between Recomm and these affiliates, but this did not satisfy the court. It refused to confirm the Third Amended Plan. 6 See In re Optical Techs., Inc., 216 B.R. 989 (Bankr.M.D.Fla.1997).

In January 1998, just a month after the bankruptcy court denied confirmation of *1298 the Third Amended Plan, the remaining Recomm affiliates — Recomm International Corporation, Recomm International Display Corporation, and Recomm International Display, Ltd. (“RID”) — also filed for bankruptcy. All of the Recomm cases were thereafter consolidated. See In re Optical Techs., Inc., 221 B.R. 909 (Bankr. M.D.Fla.1998). With no questions lingering about whether the primary assets were actually part of the bankruptcy estate, a Fourth Amended Plan of Reorganization of the Debtors (“Fourth Amended Plan” or “Plan”) soon evolved. Although the Lessees did not receive a copy of the Plan itself, they were served with a summary of the Plan, which highlighted differences from the Third Amended Plan. 7 They also were served with an Order Modifying Schedule of Confirmation Related Dates, which set a confirmation hearing for April 28, 1998. The Lessees did not appear at the hearing, but attorneys for the Committee of Unsecured Creditors did appear and approved the Fourth Amended Plan. The bankruptcy court confirmed the Plan on May 3,1998.

Sometime later, after the confirmation order became final and nonappealable, FI-NOVA sent Statements of Revised Lease Terms and Options Under Fourth Amended Plan (the “Statements”) to the Lessees whose leases it held as Recomm’s assignee. FINOVA claimed that the Statements reflected its understanding of the new lease terms as modified by the Fourth Amended Plan. Taking a less charitable view, these Lessees, the appellants here, claimed that the effect of the Statements was “unilaterally [to] revive and [to] extend Leases between non-Debtor entities pursuant to terms which Finova propounded only after the Confirmation Order appeal period had expired.” Appellants’ Br. 10. Seeking to enforce the terms outlined in these Statements, FINOVA initiated an adversary proceeding against each FINOVA Lessee in the bankruptcy court, essentially asking the court to declare that the Plan modified their leases and that the Statements comported with the Plan.

I.

In the adversary proceedings, some of these Lessees, responding to FINOVA’s prayer for relief, claimed that their leases with RID had expired before RID filed for bankruptcy, reasoning that the Fourth Amended Plan could not have modified a lease that was no longer in effect. The bankruptcy court adopted this logic without reservation or elaboration, concluding with regard to appellant Lokensgard’s expired lease, for example: “[f|rom this follows the obvious, that ... there was no longer a live lease, which could have been modified.” The court reached similar conclusions respecting the expired leases of appellants Groveport, Falk’s Woodland, and Larson.

Some of the FINOVA Lessees with expired leases also had leases that were still in effect at the time RID filed for Chapter 11 relief. They and the remaining FINO-VA Lessees claimed that they were not afforded sufficient notice that their leases would be modified by the Fourth Amended Plan and that the bankruptcy court lacked jurisdiction to enforce such a modification as the leases were exclusively between nondebtor parties. Once again, the bankruptcy court held for the Lessees. Regarding appellant Lokensgard’s unexpired lease, the court explained:

This Court has serious misgivings to accept the proposition that this Court has the power and jurisdiction to modify *1299 leases between non-debtors notwithstanding the Order of Confirmation, which was not appealed. . Be as it may, this Court is constrained to reject the proposition that these [Lessees], who never filed a proof of claim, who never participated in the Chapter 11 case of Recomm, were given a meaningful opportunity to make an intelligent judgment to agree or not to agree to be a “Participating Lessee.”

For its part, FINOVA argued (1) that the confirmation order was res judicata, barring reevaluation of the bankruptcy court’s subject matter jurisdiction to enter the confirmation order, and also (2) that the Lessees were estopped from raising affirmative defenses in the first place.

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425 F.3d 1294, 55 Collier Bankr. Cas. 2d 74, 2005 U.S. App. LEXIS 20095, 45 Bankr. Ct. Dec. (CRR) 89, 2005 WL 2276420, Counsel Stack Legal Research, https://law.counselstack.com/opinion/in-re-optical-technologies-inc-v-larson-pharmacy-inc-ca11-2005.