In re Westport Holdings Tampa, Ltd. P'ship

595 B.R. 428
CourtUnited States Bankruptcy Court, M.D. Florida
DecidedDecember 18, 2018
DocketCase No. 8:16-bk-08167-MGW Jointly Administered
StatusPublished

This text of 595 B.R. 428 (In re Westport Holdings Tampa, Ltd. P'ship) is published on Counsel Stack Legal Research, covering United States Bankruptcy Court, M.D. Florida primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
In re Westport Holdings Tampa, Ltd. P'ship, 595 B.R. 428 (Fla. 2018).

Opinion

Michael G. Williamson, Chief United States Bankruptcy Judge

At the beginning of this case, CPIF Lending consented to the Debtors' use of cash collateral (rent and other income generated from an independent living facility) so long as it received adequate protection under Bankruptcy Code §§ 361 and 363. While there's been no allegation that the value of CPIF Lending's cash collateral decreased during the case, its non-cash collateral (real property owned by the Debtors) did decrease by $4 million.

Relying on broad language in the Court's earlier cash collateral orders, CPIF Lending now asks the Court to impose a $4 million diminution-in-value lien against the Debtors' real property. Because §§ 361 and 363 only authorized the Court to protect CPIF Lending's interest in cash collateral, the Court's cash collateral orders do not provide for-nor is CPIF Lending entitled to-a diminution-in-value lien against the Debtors' real property.

Background

The Debtors operate a continuing care retirement community known as University Village, which consists of an independent living facility and a health center. Four years ago, CPIF Lending loaned the Debtors $9.5 million. CPIF Lending's loan was secured by a first-priority lien on substantially all the Debtors' assets, including the independent living facility and the real property where the independent living facility operates, as well as rent, cash, deposit accounts, and other cash collateral generated by the independent living facility.

The Debtors seek permission to use CPIF Lending's cash collateral

When the Debtors filed this chapter 11 case, they immediately sought permission to use cash collateral.1 To the extent a creditor claimed a lien on cash collateral, the Debtors proposed a replacement lien as adequate protection. CPIF Lending, which claimed a lien on cash collateral, had *430no objection to the Debtors' use of cash collateral so long as the Debtors provided CPIF Lending adequate protection for its interest in the cash collateral under Bankruptcy Code §§ 361 and 363.2

The parties prepare a cash collateral order containing broad adequate protection language

After the Court granted use of cash collateral at a hearing, the Debtors and CPIF Lending negotiated the terms of an interim cash collateral order, which this Court entered.3 The interim cash collateral order granted CPIF Lending a replacement lien to protect against any postpetition diminution-in-value of its collateral:

As interim adequate protection for the Lender for any postpetition diminution-in-value ("Diminution-in-value") of the Lender's collateral ... including, but not limited to the Cash Collateral, the Lender is hereby granted, to the extent of any Diminution of Value, additional and replacement valid, binding, enforceable, and automatically perfected postpetition security interests in and liens on ... all property whether now owned or hereafter acquired or existing and wherever located, of each Debtor and each Debtor's "estate" (as created pursuant to section 541(a) of the Bankruptcy Code ), of any kind of or nature whatsoever, real or personal ... (collectively, the "Collateral").4

Leading up to confirmation, the Court entered another nineteen interim cash collateral orders, each of which contained the same adequate protection language.5

CPIF Lending relies on the broad cash collateral language to argue for a diminution-in-value lien on non-cash collateral

At confirmation, CPIF's expert, Ed Smith, testified that the Debtors' independent living facility was worth $12.9 million as of confirmation-$4 million less than what it was worth as of the petition date ($16.9 million). So, after confirmation, CPIF Lending requested that the Court grant it a $4 million diminution-in-value lien against the independent living facility,6 which is supposed to be sold (along with the health center) under the confirmed plan in this case.

Rather than seeking immediate payment of the claimed $4 million diminution-in-value lien, CPIF Lending is content to be paid from the proceeds from the sale of University Village.7 To the extent the $4 million diminution-in-value lien (coupled with payment of the $12.9 million) is insufficient to make CPIF Lending whole, then CPIF Lending requests a superpriority administrative claim under § 507(b).8

CPIF Lending's request for a $4 million diminution-in-value lien has significant ramifications. Under the confirmation order, CPIF Lending is only entitled to $12.9 million from the sale of University Village.9 Although CPIF Lending's proof of claim is *431for less than $9.8 million, it is seeking millions more in postpetition attorney's fees and costs as an oversecured creditor. From CPIF's perspective, $12.9 million will not be enough to pay its secured claim (including postpetition fees and interest) in full.

Granting CPIF Lending a diminution-in-value lien could jeopardize a successful reorganization

The problem is that in order to confirm their plan, the Debtors were required to pay their attorneys and other professionals in full by the effective date of confirmation, unless the Debtors' attorneys and other professionals agreed otherwise.10 Because there was not enough money to pay the Debtors' attorneys and professionals by the effective date of confirmation, the attorneys and other professionals deferred their fees (which total in the millions) and agreed to be paid out of any sale of University Village.

If the Court were to grant CPIF Lending a $4 million diminution-in-value lien, then CPIF Lending would be entitled to the first $16.9 million-rather than $12.9 million-in proceeds from the sale of the independent living facility. As a practical matter, that means there likely will not be enough sales proceeds to pay the Debtors' attorneys and other professionals. Naturally, the Debtors, their professionals, and others oppose the relief CPIF Lending requests.

This Court must now decide whether CPIF Lending is entitled to a $4 million diminution-in-value lien. CPIF Lending contends that the broad language in the cash collateral orders grants CPIF Lending a replacement lien to protect against the postpetition diminution in the value of any of its collateral-not just its cash collateral. According to CPIF Lending, the parties negotiated that broad language twenty-one separate times. And in CPIF Lending's view, if the Court declines to enforce the agreement the way CPIF Lending says the parties intended, then it will be contravening public policy encouraging parties to settle disputes.11

Conclusions of Law

While this Court does encourage parties to settle disputes, it is this Court-not the parties-that has the final say over the meaning of its orders.12 That's because this Court is in the best position to interpret its own orders.13 Having reviewed the cash collateral orders, this Court does not interpret them as granting a diminution-in-value lien to protect against a decline in the independent living facility's value.

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Cite This Page — Counsel Stack

Bluebook (online)
595 B.R. 428, Counsel Stack Legal Research, https://law.counselstack.com/opinion/in-re-westport-holdings-tampa-ltd-pship-flmb-2018.