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In a victory for Jenner & Block client First American Bank, the U.S. District Court for the Middle District of Florida summarily affirmed a bankruptcy court’s prior disallowance of an opponent creditor’s claim. The district court decision cites the bankruptcy court’s “well reasoned” order and states that the "factual findings contained in the [bankruptcy court's] order were supported by the evidence.”
When Titan Cruise Lines filed for Chapter 11 relief in August 2005, First American Bank asserted a timely secured claim against the debtor’s estate. Subsequently, the opponent filed an untimely unsecured claim for an alleged personal injury that was the subject of a state court lawsuit.
In early 2006, the bankruptcy court permitted the opponent’s unsecured claim and also approved a sale of “substantially all” the debtor’s property. As negotiated by the parties, the sale order provided that a portion of the sale proceeds would be carved out from the Bank’s lien for the estate’s unsecured creditors, while the remainder of the proceeds would be placed in an account for secured creditors.
At issue in this dispute was a second claim filed by the opponent after the property transaction closed, which recharacterized his original unsecured claim as a secured lien “that took priority over the Bank’s ship mortgage and over the Bank’s interest in the account for secured creditors.” According to the Firm’s brief, the claim was “not grounded in fact,” but was a “bait-and-switch” borne out of “cynical opportunism” that would prejudice both the Bank and the other parties involved in the debtor’s reorganization.
Evaluating the opponent’s secured claim under factors set forth in United States v. International Horizons, Inc. (11th Cir. 1985), the bankruptcy court agreed that the Bank relied to its detriment on the unsecured status of the opponent’s claim and that the reliance was justified under the circumstances. The bankruptcy court disallowed the claim and the federal court affirmed the ruling in favor of First American Bank.
Partners Ronald R. Peterson and Terence G. Banich led the Jenner & Block team representing First American Bank in this matter. According to Mr. Peterson, “this decision properly gives effect to the parties’ complex set of compromises that took place prior to the sale of the debtor’s vessels.”
“If bankruptcy courts allowed deals to be undone as casually as the opponent wanted, the collaborative, resolution-minded atmosphere of most successful reorganization cases would be irreparably chilled,” said Mr. Banich.