Sundale, Ltd. v. Florida Associates Capital Enterprises, LLC (In re Sundale, Ltd.)

Summarized by Kevin Gray , Alabama Farmers Cooperative, Inc.
13 years 3 months ago

Citation:

Sundale, LTD. v. Florida Associates Capital Enterprises, LLC, No. 12-11450 (11th Cir. Nov. 29, 2012).

Tag(s):

Ruling:

Considering Stern v. Marshall, 131 S. Ct. 2594 (2011), the bankruptcy court had jurisdiction to adjudicate a debtor's state law counterclaims, including a claim for recoupment, in adjudicating the extent, validity and priority of a secured creditor's claims against the debtor. Resolving state law counterclaims such as recoupment is necessarily part of the process of ruling on a creditor's proof of claim because recoupment "springs" from the same transaction as the secured creditor's claim; one may not be resolved without the other.

Procedural context:

Appeal from the United States District Court for the Southern District of Florida, affirming the judgment of the United States Bankruptcy Court for the Southern District of Florida, in an adversary proceeding regarding the extent, validity and priority of a secured creditor's claim, reviewed de novo.

Facts:

Florida Associates Capital Enterprises, LLC ("FACE") brought an adversary proceeding against Sundale, LTD and Kendall Hotel and Suites, LLC (collectively, "Debtor") to determine the extent, validity and priority of its secured claims. The Debtor counterclaimed, asserting recoupment and other claims based on the same facts and circumstances constituting recoupment. FACE maintained that its financial accommodations to the Debtor were secured loans, while the Debtor maintained that the financial accommodations from FACE to the Debtor and payments from the Debtor back to FACE were part of an agreement by FACE's principal to pay back monies due a family estate behind the Debtor's entities. The bankruptcy court concluded that the Debtor had wholly failed to carry its burden of proof and found that FACE's financial accommodations were secured loans. The bankruptcy court, affirmed by the district court, ruled that a resolution of FACE's proof of claim necessarily resolved the Debtor's recoupment and other counterclaims. In affirming the district court, the Eleventh Circuit relied on Stern's express language that bankruptcy courts lack "the constitutional authority to enter a final judgment on a state law counterclaim that is not resolved in the process of ruling on a creditor's proof of claim." As recoupment was necessarily resolved in the process of ruling on FACE's proof of claim, the bankruptcy court had the authority to enter a final order.

Judge(s):

MARCUS, FAY and ANDERSON, Circuit Judges.

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