Tenn-Fla Partners v. First Union National Bank of Florida

229 B.R.720 (1999)

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Tenn-Fla Partners v. First Union National Bank of Florida

United States District Court for the Western District of Tennessee
229 B.R.720 (1999)

Facts

Tenn-Fla Partners (TFP) (debtor), a Tennessee general partnership, owned an apartment in Florida (property). A Florida state agency had issued $12.5 million in bonds to finance TFP’s acquisition of the property. The bond trustee was First Union National Bank of Florida (First Union) (creditor). TFP filed a Chapter 11 bankruptcy petition. In April 1993, the bankruptcy court found that the property was worth about $9 million. The bankruptcy court accepted TFP’s disclosure statement and confirmed TFP’s reorganization plan. Under the plan, TFP was to pay about $10 million to First Union, giving the bondholders about a 75 percent recovery. In late 1993 and throughout 1994, TFP discussed the sale of the property with potential buyers. TFP disclosed to the court an $8 million offer for the property but did not disclose higher offers. After the plan was confirmed, TFP sold the property to United Dominion for over $12 million, realizing $2.5 million more than TFP had agreed to pay creditors under the plan. TFP planned to distribute the excess to insiders who had borrowed money to finance TFP. First Union sued, asking the bankruptcy court to revoke the plan’s confirmation. Section 1144 of the United States Bankruptcy Code empowered a court to revoke a plan’s confirmation procured by fraud. The bankruptcy court found that TFP had intentionally concealed a material fact, that is, the market value of the property, for the purpose of obtaining confirmation of the plan. The court further found that as a debtor-in-possession, TFP was a fiduciary of the creditors and had violated its duties by concealing the value of the property. The bankruptcy court revoked its confirmation of the plan and converted TFP’s Chapter 11 petition into a Chapter 7 liquidation. However, the court declined to order reimbursement of First Union.

Rule of Law

Issue

Holding and Reasoning (Turner, J.)

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