In Re Domistyle, Inc.
United States Court of Appeals for the Fifth Circuit
811 F.3d 691 (2015)
Home-goods manufacturer Domistyle, Inc. (debtor) owned a candle factory with three mortgages. When Domistyle was placed in receivership, a recent appraisal valued the property at $6 million, while the largest lienholder, Southwest Securities FSB (Southwest) (creditor) held the primary lien of $3.69 million. Receiver Milo Segner thought Domistyle had enough equity to reorganize and hired a commercial real estate firm to market the property, but the best offer would not cover Southwest’s loan. Segner converted to liquidation, and the court approved a liquidation plan with a May 1, 2014, deadline to sell the property for enough to cover Southwest’s mortgage. The plan obligated Segner to “maintain reasonable insurance” and own the property “as a reasonably prudent owner would own it” and authorized surcharge for actual funds paid to third parties that “directly related to preserving or enhancing the Real Property.” Listed examples included security, repairs, and electricity. Segner paid for security, repairs, mowing, landscaping, utilities, and insurance. After May 1, Segner told Southwest he would stop paying expenses, and Southwest objected, claiming “such action would virtually destroy any value remaining in the Laredo property.” Segner moved to abandon the property and surcharge the expenses. Segner’s real estate broker testified that the amount spent preserved at least as much value. Southwest agreed to pay only those expenses incurred after Segner announced intent to abandon the property, but the bankruptcy court granted a surcharge for expenses beforehand as well. Southwest appealed, and the Fifth Circuit accepted a direct appeal.
Rule of Law
Holding and Reasoning (Costa, J.)
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