Opinion
Bankr. No. 8:15-bk-7039-MGW Case No. 8:17-cv-1555-T-27
2020-08-10
IN RE: KRAZ, LLC, Debtor. Branch Banking and Trust Company, Appellant, v. Kraz, LLC, Appellee.
Stephen R. Leslie, Mark F. Robens, Stichter, Riedel, Blain & Postler, P.A., Tampa, FL, for Debtor.
Stephen R. Leslie, Mark F. Robens, Stichter, Riedel, Blain & Postler, P.A., Tampa, FL, for Debtor.
ORDER
JAMES D. WHITTEMORE, United States District Judge
BEFORE THE COURT is Appellant Branch Banking and Trust Company's appeal of the Bankruptcy Court's Final Judgment in an adversary proceeding (8:15-ap-655-MGW). Upon consideration, the Bankruptcy Court's Final Judgment is VACATED , and the matter is REMANDED for proceedings consistent with this order.
I. BACKGROUND
The bankruptcy court outlined the relevant facts, which are largely undisputed. In 2006, Colonial Bank loaned Appellee Kraz, LLC (Kraz) the principal amount of $5,182,280 secured by a mortgage on real property used by Kraz for a commercial self-storage business. (Dkt. 14-377 at p. 4; Dkt. 16-261 at p. 2; Dkt. 16-262 at p. 2). The loan initially required monthly payments of interest, then monthly payments of principal and interest, and finally a balloon payment on the maturity date. (Dkt. 14-377 at p. 4; Dkt. 16-261 at p. 3).
Unless otherwise noted, all record citations refer to the civil docket in Case No. 8:17-cv-1555-T-27 and use CM/ECF pagination.
Kraz made timely monthly payments until Colonial Bank declared it to be in default in July 2009. (Dkt. 14-377 at p. 4 & n.5). Shortly thereafter, Colonial Bank failed, and the Federal Deposit Insurance Corporation (FDIC) took over its assets. (Id. at p. 4). In August 2009, Appellant Branch Banking and Trust Company (BB&T) purchased Colonial Bank's assets, including the loan to Kraz, through a Purchase and Assumption Agreement with the FDIC. (Id. at pp. 4-5; Dkt. 14-159). The Purchase and Assumption Agreement included a shared loss agreement by which the FDIC guaranteed BB&T a percentage of any losses incurred from the failed bank's loans. (Dkt. 14-377 at p. 5; Dkt. 14-159 at pp. 100-123).
BB&T "charged off" $1.8 million of Kraz' loan, triggering reimbursement from the FDIC, and initiated a state foreclosure action against Kraz in 2010. (Dkt. 14-377 at p. 8). In 2012, the state court entered final judgment in Kraz' favor, determining that Colonial Bank had improperly demanded that Kraz make curtailment payments and that BB&T had declared a "fraudulent default." (Dkt. 13-304 at pp. 3-4). The state court final judgment reinstated the loan nunc pro tunc to June 30, 2009, extended the maturity date fourteen months from the effective date of the order, and directed Kraz to resume loan payments after the parties agreed to a new payment schedule. (Id. at pp. 5-6). As for interest on the loan, the court explained, "[a]s there was no ‘default,’ there are no accrued principal and interest payments due from [Kraz]. Rather, [Kraz] will pick up payments where such payments left off in June 2009[.]" (Id. at p. 5). BB&T appealed the final judgment, which was affirmed in all pertinent respects. Branch Banking and Trust Co. v. Kraz, LLC , 114 So. 3d 273 (Fla. 2d DCA 2013). Kraz made the required monthly payments. (Dkt. 14-377 at p. 11).
The state court also awarded Kraz a credit against the loan principal in the amount of payments received by BB&T from the FDIC pursuant to the Purchase and Assumption Agreement. (Dkt. 13-304 at p. 6). That portion of the final judgment was reversed on appeal. Branch Banking and Trust Co. , 114 So. 3d at 276.
In February 2014, the state court granted BB&T's motion to compel resumption of monthly payments under the loan. (Dkt. 13-308). The court ordered that the effective date of the final judgment was February 28, 2014, Kraz was to make monthly payments of $30,760.49, and the loan would mature on April 28, 2015, fourteen months from the effective date of judgment. (Id. at p. 2).
Between October 2012 and December 2014, Kraz requested and received from BB&T four estoppel letters that included payoff information. (Dkts. 13-348, 13-349, 13-350, 13-309). BB&T has not appealed the bankruptcy court's finding that the estoppel letters overstated the loan balance by including accrued interest and attorney's fees. (Dkt. 20 at p. 18). The bankruptcy court noted that the December 2014 letter included an outstanding loan amount of $6,938,227.27, which was $2.1 million more than BB&T had previously stated Kraz owed. (Dkt. 14-377 at p. 12).
Section 701.04 of the Florida Statutes provides that "[w]ithin 14 days after receipt of the written request of a mortgagor ... the holder of a mortgage shall deliver ... to the person making the request at a place designated in the written request an estoppel letter setting forth the unpaid balance of the loan secured by the mortgage." Fla. Stat. § 701.04(1). It further states that "[i]f the mortgagor ... makes the request, the estoppel letter must include an itemization of the principal, interest, and any other charges properly due under or secured by the mortgage and interest on a per-day basis for the unpaid balance." § 701.04(1)(a).
In October 2014, iStorage expressed interest in purchasing the property from Kraz in letters of intent, eventually transmitting a $5,200,000 purchase offer. (Dkt. 14-377 at pp. 11-13; Dkt. 14-13). As discussed below, the bankruptcy court found that BB&T's failure to provide an accurate estoppel letter prevented the sale to iStorage from closing. (Dkt. 14-377 at p. 13). On the loan's maturity date in April 2015, Kraz failed to tender the balloon payment. (Id. at p. 14).
In its April 30, 2018 motion to dissolve a supersedeas bond, BB&T asserted that the property has since "been sold to an unknown buyer for an undisclosed amount." (Dkt. 30 at p. 1).
Procedural History
BB&T filed a foreclosure action against Kraz in the Middle District of Florida, which has since been dismissed. Branch Banking and Trust Co. v. Kraz, LLC , 8:15-cv-1042-T-17AEP, ECF: 1, 35. Approximately two months later, Kraz filed a Petition under Chapter 11 of the Bankruptcy Code. In re Kraz, LLC , 8:15-bk-7039-MGW, ECF: 1 (Bankr. M.D. Fla. July 7, 2015). Kraz also filed a complaint in an adversary proceeding that, as amended, objected to BB&T's proof of claim and brought claims against BB&T for breach of contract, breach of the covenant of good faith and fair dealing, and several torts. Kraz, LLC v. Branch Banking and Trust Co. , 8:15-ap-655-MGW, ECF 73 (Bankr. M.D. Fla. Feb 24, 2016).
BB&T moved twice to withdraw the reference. The first motion was transmitted to the district court in case number 8:15-cv-1932-MSS. The "renewed" motion was transmitted in case number 8:16-cv-1089-MSS. Additionally, a suit filed by Kraz in state court was removed to the Middle District, consolidated with BB&T's action, and ultimately dismissed. Kraz, LLC v. Branch Banking and Trust Co. , 8:15-cv-1181-EAK-AEP, ECF: 29 (M.D. Fla. Nov. 13, 2019).
In October 2015, the bankruptcy court entered a Memorandum Opinion on Amount of Claim, finding that the principal amount of BB&T's claim was $4,754,860.26 and that BB&T was not entitled to accrued interest from June 30, 2009 through April 28, 2015 or attorney's fees incurred from the state court final judgment through the petition date. (Dkt. 16-45 at pp. 6-7, 10-11, 14); see also In re Kraz, LLC , 539 B.R. 887 (Bankr. M.D. Fla. 2015). The remaining questions for trial were whether BB&T was entitled to default interest following the loan's maturity on April 28, 2015, reimbursement of property taxes it paid on behalf of Kraz, and whether Kraz was entitled to damages on its claims in the adversary proceeding. (Dkt. 14-377 at pp. 15-16).
In its Findings of Fact and Conclusions of Law following trial, the bankruptcy court determined that BB&T was not entitled to post-maturity default interest because, by providing an inaccurate estoppel letter, it prevented Kraz from tendering the balloon payment on the maturity date. (Id. at p. 16). The bankruptcy court further found that Kraz' breach of contract claim was necessarily resolved by BB&T's proof of claim, entered judgment in Kraz' favor on the basis that failure to provide an accurate estoppel letter constituted a breach of the contract, awarded $1,180,000 in damages to Kraz, and reduced the amount awarded to BB&T accordingly. (Id. at pp. 17, 32-34, 38). The bankruptcy court also determined that BB&T was not entitled to be reimbursed for the real property taxes it paid on behalf of Kraz, based on insufficient evidence and res judicata, that judgment in BB&T's favor on all of Kraz' remaining claims was appropriate, and that punitive damages were unwarranted. (Id. at pp. 28-32, 35-36).
The bankruptcy court entered final judgment on all claims in the adversary proceeding. (Dkt. 1 at pp. 4-5). BB&T appeals the bankruptcy court's determination of the amount of its claim against Kraz, specifically the decision not to include post-maturity default interest and the failure to award reimbursement of the paid property taxes. (Dkt. 20). BB&T also appeals the judgment in favor of Kraz on its breach of contract claim.
Kraz did not appeal the bankruptcy court's summary judgment order in BB&T's favor on Counts III, V, VI, and IX and its findings of facts and conclusions of law relating to Counts IV, VII, and VIII. In granting summary judgment, the bankruptcy court noted its order "constitute[s] findings and recommendations to the District Court with respect to entry of final judgment in favor of Defendant on Counts III, V, VI and IX." (Dkt. 14-298 at p. 2). Following trial, the bankruptcy court entered final judgment on those counts "in favor of BB&T and against Kraz pursuant to [the summary judgment order]," and judgment in BB&T's favor on Counts IV, VII, and VIII. (Dkt. 1 at p. 5). The bankruptcy court noted that Kraz "consented to entry of final judgment on its counterclaims." (Dkt. 14-377 at p. 19).
II. STANDARD OF REVIEW
Bankruptcy courts have statutory authority to determine core proceedings arising under Title 11. See 28 U.S.C. § 157(b)(1) ; see also Stern v. Marshall , 564 U.S. 462, 468, 131 S.Ct. 2594, 180 L.Ed.2d 475 (2011). In non-core proceedings related to a case under Title 11, a bankruptcy court submits proposed findings of fact and conclusions of law to the district court, which may then enter final judgment after conducting a de novo review of matters objected to. § 157(c)(1).
District courts have jurisdiction to hear appeals from final judgments, orders, and decrees of the bankruptcy courts. § 158(a)(1). A district court reviews the bankruptcy court's factual findings for clear error and its legal conclusions and mixed questions of law and fact de novo. In re Cox , 493 F.3d 1336, 1340 n.9 (11th Cir. 2007) (citation omitted).
III. DISCUSSION
In summary, because BB&T's inaccurate estoppel letter did not modify Kraz' contractual obligation to pay post-maturity default interest and Kraz never tendered the balloon payment to BB&T, the bankruptcy court erred in denying this part of BB&T's claim. Second, the bankruptcy court erred in finding that res judicata barred BB&T's claim for reimbursement of property taxes it advanced on behalf of Kraz. Finally, the bankruptcy court lacked authority to enter final judgment on Kraz' breach of contract claim.
A. BB&T's Claim for Post-Maturity Default Interest
In denying BB&T post-maturity default interest, the bankruptcy court found that BB&T's inaccurate estoppel letter prevented Kraz from selling its property and tendering the balloon payment at maturity. The court noted that in Florida, the "refusal to accept a proper tender will prevent the collection of interest because the failure to receive payment is due to the promisee's own action." (Dkt. 14-377 at p. 19). According to the bankruptcy court, since BB&T did not receive the balloon payment because of its own action in providing an inaccurate estoppel letter, it was likewise not entitled to post-maturity interest. (Id. at pp. 19-21). The bankruptcy court reasoned, "[t]he question here ... is not whether [Kraz] tendered the balloon payment. It obviously did not. The question is whether BB&T prevented [Kraz] from tendering the balloon payment." (Dkt. 14-377 at p. 20). While the bankruptcy court acknowledged that "failure to provide an accurate estoppel letter does not discharge the payment of interest," it opined that "where a lender's refusal to provide an accurate estoppel letter prevents a borrower from tendering a balloon payment is a different story." (Id. at p. 21).
BB&T contends that this reasoning conflates a refusal to accept tender with the obligation of a lender to provide an estoppel letter under Florida Statute § 701.04. It points out that Kraz never made a tender and argues that "[e]quitable protestations and allegations do not affect [its] contractual right" to post-maturity interest under the contract. (Dkt. 20 at pp. 33-39). After a de novo review of the bankruptcy court's legal conclusions and review of its factual findings for clear error, this court agrees.
Resolution of this issue is a matter of state law. Raleigh v. Illinois Dep't of Revenue , 530 U.S. 15, 20, 120 S.Ct. 1951, 147 L.Ed.2d 13 (2000). Florida recognizes a lender's right to charge default interest if the underlying loan document so provides, despite a failure to satisfy a statutory or contractual obligation. See, e.g., Eckert Realty Corp. v. Eckert , 941 So. 2d 426 (Fla. 4th DCA 2006) ; Smiley v. Manufactured Hous. Assoc. III Ltd. P'ship , 679 So. 2d 1229 (Fla. 2d DCA 1996). The promissory note between Colonial Bank and Kraz provided that "[i]nterest on all amounts not paid when due after maturity, acceleration, or otherwise ... will accrue and will be payable at the maximum rate of interest allowed by applicable law." (Dkt. 16-261 at pp. 3-4). And in Florida, a lender's failure to provide an accurate estoppel letter does not excuse the promisor's contractual obligation to pay interest due under the note. Eckert Realty Corp. v. Eckert, supra .
In Eckert , a mortgagor with a contract to sell its property requested estoppel letters from its lender. 941 So. 2d at 428. The lender refused and, "because the contract could not close without the estoppel information, the buyer terminated the contract." Id. When the mortgagor attempted to refinance the property, the lender provided estoppel information, which included default interest on the loan from the date of the last interest payment. Id. The appellate court upheld the lender's entitlement to interest, notwithstanding its failure to provide the estoppel letter, concluding
[the mortgagor's] obligation to pay the contractual interest on the notes was independent of [the lender's] statutory obligation to provide payoff information. [The mortgagor] was contractually obligated to make monthly interest payments on the notes, which he failed to do after October 1999. As the trial court noted, the fact that [the lender] failed to provide the estoppel letter did not discharge [the mortgagor's] obligations under the notes. Therefore, interest continued to be due even after the entry of the original final judgment, and [the mortgagor] was obligated to pay it. [The lender] was entitled to the interest until the notes were paid.
Id. at 429.
As noted in Eckert , a contractual obligation to pay interest is independent of the requirement to provide an estoppel letter under section 701.04. Similarly, Smiley reversed a trial court's finding that a lender's breach of a mortgage's covenant relating to a partial release precluded default interest. 679 So. 2d at 1231-32. The court noted that "in determining whether to grant the equitable relief of foreclosure, the trial court is not at liberty to modify terms of the note and mortgage that are unambiguous and undisputed." Id. at 1232 ; see also In re Sundale, Ltd. , 410 B.R. 101, 105-06 (Bankr. S.D. Fla. 2009) ("[A] trial court may not alter [the contractual right to charge default interest] based on equitable considerations even though mortgage foreclosures in Florida are equitable proceedings."); cf. In re Sagamore Partners, Ltd. , 620 F. App'x 864, 869 (11th Cir. 2015) (citing In re Sundale in finding that if "loan documents require the payment of default-rate interest and those provisions comply with Florida law, [a debtor] must pay default-rate interest to cure its default").
Kraz cites no authority applying the doctrine of prevention to the circumstances here. See In re iHeartMedia, Inc. , 597 B.R. 339, 352 (Bankr. S.D. Tex. 2019) (noting that prevention of performance is an "equitable doctrine" and that the court "was unable to locate a single instance of the prevention doctrine applied in the context of a lender or borrower"). And even if the doctrine was available, the bankruptcy court erred in finding that Kraz showed that BB&T's failure to provide accurate estoppel letters prevented it from tendering the balloon payment, such that it should be relieved of its contractual obligation to pay default interest.
"Under Florida law, the doctrine of prevention of performance may be applied when one party to a contract prevents another from performing its obligations under a contract; it bars the preventing party from availing himself of the other party's nonperformance." Buckley Towers Condo., Inc. v. QBE Ins. Corp. , 395 F. App'x 659, 662-64 (11th Cir. 2010). The doctrine generally applies "when a party to a contract is ready, willing and able to perform, but the other party prevents him from performing by imposing obstacles not contemplated within the contract." Id. at 663-64 (citations omitted) (finding district court erred in applying doctrine of prevention which would "impermissibly rewrite" the contract, and that "there is no indication that Florida courts would apply the doctrine to change the basic terms of the underlying contract").
To the extent the bankruptcy court's determination that BB&T prevented Kraz from tendering the balloon payment constitutes a factual finding, that finding is not supported by the record evidence and is therefore clearly erroneous. (Dkt. 14-377 at p. 13). First, the bankruptcy court's finding that the only way Kraz could tender the balloon payment would be to either sell or refinance the property has no evidentiary support. (Id. at p. 11). Second, although iStorage expressed interest in purchasing the property and provided Kraz letters of intent, there was no evidence that Kraz accepted an offer from iStorage or provided a counteroffer to its proposed terms. And despite the inaccurate estoppel letters, iStorage continued to express a willingness to negotiate a price contingent on an acceptable payoff amount. (Dkt. 14-357 at p. 135; Dkt. 14-124; Dkt. 14-130). But Kraz never attempted to negotiate with iStorage. (Dkt. 14-357 at pp. 111-12, 135). Kraz never provided BB&T with copies of a proposed contract or the letters of intent it received from iStorage. (Dkt. 14-99; Dkt. 14-358 at pp. 116, 188-89; Dkt. 14-357 at pp. 82-83). In short, Kraz' lack of engagement in the negotiation process belies its contention that it was ready to sell to iStorage.
The question, in any event, is not whether BB&T prevented a sale, but whether it prevented Kraz from tendering the balloon payment. In short, there is no evidence that BB&T prevented Kraz from making a tender. Nor does the evidence support a finding that Kraz was prevented from making a tender by the inaccurate estoppel letters. Since Kraz never tendered the balloon payment, under Florida law, it was not relieved of its obligation to pay interest as it accrued under the promissory note. Accordingly, the equitable doctrine of prevention is inapplicable. Since BB&T's failure to provide an accurate estoppel letter did not excuse Kraz' contractual obligation to pay interest due under the promissory note, this part of the bankruptcy court's ruling is reversed.
Florida courts have defined tender as "an unconditional offer of payment consisting in the actual production, in current coin of the realm, of a sum not less than the amount due on a specific debt or obligation." Rissman on Behalf of Rissman Inv. Co. v. Kilbourne , 643 So. 2d 1136, 1140 (Fla. 1st DCA 1994) (citation omitted). While refusal to accept tender may excuse a contractual obligation to pay interest, see Multach v. Adams , 418 So. 2d 1254 (Fla. 4th DCA 1982), Kraz never made the tender. And Kraz has not provided any authority applying this rationale in the context of an inaccurate estoppel letter.
Because providing an inaccurate estoppel letter does not affect entitlement to default interest under a contract, it is unnecessary to determine whether the bankruptcy court erred in relying on the shared loss agreement to determine BB&T's intent. See (Dkt. 20 at pp. 48-52; Dkt. 14-377 at pp. 22, 27).
B. BB&T's Claim for Reimbursement of Paid Property Taxes
The bankruptcy court denied BB&T's claim for reimbursement of $288,091.74 in property taxes it paid on behalf of Kraz on two grounds: res judicata and insufficient evidence. BB&T correctly contends that res judicata is inapplicable and the bankruptcy court erred in failing to consider evidence of payment of the property taxes.
BB&T also challenges the bankruptcy court's authority to apply res judicata sua sponte . (Dkt. 20 at p. 40). Generally, if a party does not affirmatively plead res judicata as a defense, it is waived. Norfolk S. Corp. v. Chevron, U.S.A., Inc. , 371 F.3d 1285, 1289 (11th Cir. 2004) ; see also Fed. R. Civ. P. 8(c) ; Fed. R. Bankr. P. 7008. Although BB&T contends that Kraz' "only stated reference to this defense appears in response to statement of claim for confirmation" (Dkt. 20 at p. 40; see Dkt. 16-117 at p. 5), in its complaint in the adversary proceeding Kraz objected "to the inclusion of the ad valorem taxes ... to the extent that ... BB&T failed to properly plead or obtain relief in the State Court Foreclosure Action." Kraz, LLC , 8:15-ap-655-MGW, ECF: 73 at 23. Considered in context, this is sufficient. See Akanthos Capital Mgmt., LLC v. Atlanticus Holdings Corp. , 734 F.3d 1269, 1272 (11th Cir. 2013) (applying res judicata, even though the party's filing "did not include the magic words ‘res judicata ,’ but it clearly stated that, because the district court planned to dismiss the antitrust lawsuit, it must necessarily dismiss the counterclaim in this lawsuit too").
Res Judicata
"In considering whether to give preclusive effect to state-court judgments under res judicata ..., the federal court must apply the rendering state's law of preclusion." Cmty. State Bank v. Strong , 651 F.3d 1241, 1263-64 (11th Cir. 2011) (citations omitted). In Florida,
To successfully invoke a res judicata defense, a party must satisfy two prerequisites. First, a judgment on the merits must have been rendered in a former suit. Second, four identities must exist between the former suit and the suit in which res judicata is to be applied: (1) identity in the thing sued for; (2) identity of the cause of action; (3) identity of the persons and parties to the actions; and (4) identity of the quality or capacity of the persons for or against whom the claim is made.
Zikofsky v. Mktg. 10, Inc. , 904 So. 2d 520, 523 (Fla. 4th DCA 2005) (internal quotation marks and citations omitted); see also Smith v. Time Customer Servs. , 132 So. 3d 841, 844 (Fla. 1st DCA 2013) ("The determining factor in deciding whether the cause of action is the same is whether the facts or evidence necessary to maintain the suit are the same in both actions.").
Relevant to whether the bankruptcy court correctly applied res judicata, the adjudication on the merits in the prior litigation must be "clear-cut" and constitute "a declaration of the law as to the respective rights and duties of the parties based upon the ultimate facts disclosed by the pleadings and evidence and upon which the right of recovery depends." Vasquez v. YII Shipping Co. , 692 F.3d 1192, 1199 (11th Cir. 2012) (citations omitted). And "it must be clear that the court in the previous action intended that the disposition there was to be without right to further proceedings by the plaintiff." W. Grp. Nurseries, Inc. v. Ergas , 167 F.3d 1354, 1358 (11th Cir. 1999) (quoting Equitable Fire & Marine Ins. Co. v. Bradford Builders, Inc. , 174 So. 2d 44, 45 (Fla. 3d 1965) ). "Redetermination of issues is warranted if there is reason to doubt the quality, extensiveness, or fairness of procedures followed in prior litigation." Kremer v. Chem. Const. Corp. , 456 U.S. 461, 480-81, 102 S.Ct. 1883, 72 L.Ed.2d 262 (1982). Turning to the state court action, BB&T alleged in its complaint that Kraz defaulted on the loan by, among other things, failing to make the required property tax payments. (Dkt. 16-118 at pp. 5-6). This purported default formed the basis of Count I, which sought damages, and Count III, which sought to foreclose the mortgage lien on the property. (Id. at pp. 6-7). After a bench trial, the state court found that, "on legal and equitable grounds, a bona fide default never occurred" and that BB&T "committed significant wrongdoing and breached the implied duty of good faith and fair dealing of a financial institution, such that the instant cause of action should be denied in its entirety." (Dkt. 13-304 at pp. 4-5; Dkt. 14-49 at p. 6). Based on this finding, the bankruptcy court concluded that the "fact that [the state court] tried BB&T's claim for unpaid taxes yet failed to award the bank the relief it sought precludes BB&T from seeking that relief here." (Dkt. 14-377 at p. 30).
The Supreme Court noted that while its "previous expressions of the requirement of a full and fair opportunity to litigate have been in the context of collateral estoppel or issue preclusion, it is clear from what follows that invocation of res judicata or claim preclusion is subject to the same limitation." Kremer , 456 U.S. at 481 n.22, 102 S.Ct. 1883. While the parties refer to collateral estoppel, the bankruptcy court's finding was based on res judicata.
However, the state court judgment did not expressly address the property taxes that BB&T paid on behalf of Kraz. Rather, the state court determined that, because of BB&T's wrongdoing, the entire action, which in significant part sought foreclosure, should be denied. No determination was made as to whether BB&T actually paid the property taxes or whether Kraz failed to reimburse BB&T for the taxes. Accordingly, even assuming the state court action and BB&T's proof of claim in the adversary proceeding shared the required "identities," it is not clear that there was a "clear-cut" adjudication on the merits as to the property taxes.
Nor is it clear that the state court intended that the resolution of the foreclosure action was to be "without right to further proceedings by the plaintiff." W. Grp. Nurseries, Inc. , 167 F.3d at 1358. First, the state court did not dismiss BB&T's claims with prejudice. Second, the state court reinstated the loan nunc pro tunc to June 30, 2009 (before default was declared) and ordered Kraz to "pick up payments where such payments left off in June 2009." (Dkt. 13-304 at p. 5). The nunc pro tunc effect of the order indicates that the state court did not intend to preclude BB&T from recovering expenses, including property taxes, advanced after June 30, 2009.
Notably, BB&T contends, and the record reflects, that it had paid the property taxes at issue after July 2009. (Dkt. 20 at p. 41). Indeed, when the state court complaint was filed in January 2010, BB&T had not yet advanced all of the property taxes at issue. BB&T amended its complaint in July 2010. (Dkt. 16-118; Dkt. 16-45 at p. 2).
Subsequent proceedings confirm that the state court did not intend that its order precluded BB&T from recovering property taxes advanced on behalf of Kraz after June 30, 2009. After the state court entered its judgment, BB&T moved for a stay pending appeal. In denying the motion, the state court noted:
Nothing in the Final judgment modifies any of the contractual provisions regarding [Kraz'] duty to pay the expenses to operate and maintain the property and BB&T's ability to incorporate into the amounts due under the Mortgage any amounts not paid by [Kraz], but paid by BB&T for taxes, insurance and other matters required for the maintenance and protection of the property.
(Dkt. 14-49 at p. 7) (emphasis added).
In addressing this order, the bankruptcy court noted that the state court had denied BB&T's complaint "in its entirety," and determined that "[i]t is obvious from the context of the order that [the state court] was dealing with real estate taxes prospectively," rather than the tax payments BB&T sought in the foreclosure action. (Dkt. 14-377 at p. 31). But this interpretation is inconsistent with the plain language of the order, which expressly applies to "any" of Kraz' contractual duties to pay expenses and "BB&T's ability to incorporate into the amounts due under the Mortgage any amounts not paid by [Kraz], but paid by BB&T for taxes ..." (Dkt. 14-49 at p. 7) (emphasis added).
In any event, even if the bankruptcy court's interpretation is plausible, any ambiguity in the order's effect casts further doubt on whether the state court intended its disposition "to be without right to further proceedings by the plaintiff." Accordingly, absent a clear indication that the state court intended its order to preclude future claims for reimbursement of the paid property taxes, res judicata does not preclude BB&T's claim.
Sufficiency of the Evidence
As to the evidence supporting BB&T's claim for reimbursement of the property taxes, the bankruptcy court explained:
Gregory Biegel, a BB&T employee, testified (with little foundation) that [Kraz] failed to pay the real estate taxes for 2008 and 2009. According to Biegel, BB&T apparently paid a little over $90,000, by cashier's check, in December 2009 as a partial payment on the 2008 taxes, the remainder of which were paid in March 2010. Biegel says the 2009 taxes were paid in May 2010. But BB&T concedes it does not have a copy of the $90,000 check, and it never offered into evidence copies of the checks for the March and May 2010 payments. So the sole documentary evidence in support of BB&T's claim for unpaid taxes is a printout of [Kraz'] loan history, which appears to reflect $288,091.74 in payments by BB&T for taxes (although even that is not clear).
(Dkt. 14-377 at p. 28 (parentheticals in original)). The bankruptcy court also noted that BB&T's evidence was contradicted by its state court filings, including its claims for $119,596.33 in property taxes as of July 2010 and $197,221.99 in December 2013. (Id. at pp. 28-29). The bankruptcy court found that "even if BB&T had put on competent, substantial evidence that it paid the property taxes, the Court agrees with the Debtor that BB&T is barred by the doctrine of res judicata ...." (Id. at p. 29).
Since res judicata did not preclude BB&T's claim, the bankruptcy court should have resolved the claim on the merits. As this Circuit has noted, if a proof of claim is objected to,
the bankruptcy court [is] required to determine, after notice and a hearing, whether the claims would be allowed and the amount of each claim.... When a proof of claim contains all the information required ... it constitutes prima facie evidence of the validity and amount of the claim. The burden then shifts to the objecting party to come forward with enough substantiations to overcome the claimant's prima facie case. If the objecting party overcomes the prima facie case, then the burden of proof falls to the party that would bear the burden outside of bankruptcy.
In re Walston , 606 F. App'x 543, 545-46 (11th Cir. 2015) (internal citations, quotation marks, and brackets omitted). Here, considering the evidence of record, BB&T appears to have satisfied its burden by its proof of claim in the amount of $288,091.74. The burden would then have shifted to Kraz of presenting "enough substantiations" to overcome BB&T's prima facie case. However, as this Circuit has noted,
Although the bankruptcy court and parties reference BB&T's proof of claim, the parties do not cite to the proof of claim in the record. (Dkt. 14-377 at p. 14; Dkt. 16-45 at p. 14 n.50; Dkt. 20 at p. 15 n.7). Notwithstanding, BB&T raised the issue of its entitlement to the $288,091.74 in property taxes in its motion for summary judgment, statements of claim, and at trial. (Dkt. 16-140; Dkt. 16-45 at p. 14 n.50; Dkt. 15-330). And BB&T presented the mortgage and promissory note. (Dkt. 15-331). Outside of bankruptcy, a valid promissory note and mortgage sued upon, with no notation of cancelation or discharge by payment, satisfies a mortgagee's initial burden, and the burden of proving an affirmative defense rests upon the mortgagor. Crum v. U.S. Fid. & Guar. Co. , 468 So. 2d 1004, 1006 (Fla. 1st DCA 1985) ; TLZ Properties v. Kilburn-Young Asset Mgmt. Corp. , 937 F. Supp. 1573, 1582 (M.D. Fla. 1996). Indeed, the bankruptcy court found that BB&T was entitled to the principal amount of the loan, as asserted in its proof of claim. (Dkt. 14-377 at pp. 14-15; Dkt. 16-45 at pp. 6, 14).
Additionally, upon review of the evidence, it appears that, contrary to the bankruptcy court's findings, the March and May checks were admitted into evidence, and reflected payments of $77,625.66 and $119,596.33. (Dkt. 16-281; Dkt. 13-94 at p. 163). Tax receipts showing BB&T's payments to Hillsborough County were also admitted. (Dkt. 16-260; Dkt. 13-94 at p. 162). At trial, Biegel testified to the discrepancy between the amount paid as reflected in the tax collector receipts and the checks. (Dkt. 13-94 at pp. 190-91). And a manager of Kraz testified that it did not have any evidence on the payment of the taxes. (Dkt. 13-94 at pp. 41, 68). The manager further testified as to Kraz' objections to the property taxes:
Yes, we have objected to [them]. We have asked constantly for BB&T to provide a copy of the checks and the backup and the support. And as of last week, I believe BB&T finally provided a couple of checks. The checks don't total the total amount of the claim and the checks don't reference whether or not the payments were taken out of the previous payments made by us to the Bank which is typical in a lot of loans to where taxes are part of the monthly payments. And so we wanted a clarification from the Bank, and you were unable to provide it until, I guess, less than five, six days ago.
(Dkt. 13-94 at pp. 59-60). He further observed that Kraz was "not sure that the Bank didn't pay taxes on an adjacent piece of property," that the taxes were paid "with the loss-share money" or "out of the payments that [Kraz] made to the Bank," or whether BB&T overpaid. (Id. at pp. 62-63, 66-67). However, Kraz did not raise these issues in its brief, or explain how they would affect its obligations under the loan documents. See (Dkt. 21 at pp. 43-47; Dkt. 16-261 at p. 2; Dkt. 16-262 at pp. 8-9).
Neither the district court nor this Court is authorized to make independent factual findings; that is the function of the bankruptcy court. If the bankruptcy court's factual findings are silent or ambiguous as to an outcome determinative factual question, the district court ... must remand the case to the bankruptcy court for the necessary factual determination.
In re Sublett , 895 F.2d 1381, 1384 (11th Cir. 1990) (internal citations and quotation marks omitted). Rather than make express factual determinations as to the amount paid by BB&T and whether Kraz reimbursed BB&T, the bankruptcy court determined that "even if BB&T had put on competent, substantial evidence that it paid the property taxes," res judicata barred the claim. (Dkt. 14-377 at p. 29). Accordingly, because the bankruptcy court's factual findings are silent or ambiguous as to outcome determinative factual questions, this Court "must remand the case ... for the necessary factual determination." In re Sublett , 895 F.2d at 1384. The bankruptcy court is therefore directed to resolve this portion of BB&T's proof of claim on remand.
C. Kraz' Breach of Contract Claim
In the adversary proceeding, Kraz alleged that BB&T's failure to provide accurate payoff information in the estoppel letters constituted a breach of contract. However, because this breach of contract claim was not necessarily resolved by BB&T's proof of claim, the bankruptcy court lacked authority to enter final judgment on the claim. Indeed, 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." Stern , 564 U.S. at 503, 131 S.Ct. 2594.
In its Findings of Fact and Conclusions of Law, the bankruptcy court reasoned that Kraz'
breach of contract counterclaim is necessarily resolved as part of adjudicating whether BB&T has a claim for post-maturity default interest. That is because the same evidence that is sufficient to deny BB&T post-default maturity interest—i.e., that BB&T's falsely inflated estoppel letter prevented [Kraz] from selling or refinancing its property—is sufficient to find in [Kraz'] favor on its contract claim.
(Dkt. 14-377 at pp. 18-19). The bankruptcy court further concluded that because "BB&T's breach ultimately forced [Kraz] into bankruptcy, ... [Kraz] is entitled to recover as damages the fees and costs it has incurred in this case." (Id. at p. 34).
In Florida, a breach of contract claim requires "(1) a valid contract; (2) a material breach; and (3) damages." Beck v. Lazard Freres & Co., LLC , 175 F.3d 913, 914 (11th Cir. 1999) (citation omitted). To resolve BB&T's proof of claim, it was unnecessary to find that the parties' contract incorporated section 701.04's obligation to provide an estoppel letter on request, such that failure to provide accurate payoff information constituted breach. And even assuming the contract incorporated section 701.04 and BB&T breached, it does not necessarily follow that the breach was material, that damages resulted, and that damages should be measured as attorney's fees and costs incurred in the bankruptcy action. See Dynegy Danskammer, L.L.C. v. Peabody COALTRADE Int'l Ltd. , 905 F. Supp. 2d 526, 532 (S.D.N.Y. 2012) (finding breach of contract claim not necessarily resolved by proof of claim).
Rather, because BB&T's failure to provide accurate estoppel letters did not affect its entitlement to post-maturity default interest, Kraz' breach of contract counterclaim was not necessarily resolved by BB&T's proof of claim. Accordingly, the bankruptcy court lacked authority to resolve the claim in its final judgment.
Nor did BB&T, which moved to withdraw the reference and dismiss the bankruptcy action (Dkt. 15-29), consent to the bankruptcy court's resolution of Kraz' claim. See Stern , 564 U.S. at 481-82, 131 S.Ct. 2594. Because the bankruptcy court was without authority to enter final judgment on the breach of contract claim, it is unnecessary to resolve BB&T's contentions that the bankruptcy court should not have "grafted" a remedy for a breach of section 701.04 onto the contract, or that Kraz failed to mitigate damages. (Dkt. 20 at pp. 44, 46).
CONCLUSION
The Bankruptcy Court's Final Judgment is VACATED . This case is REMANDED for proceedings consistent with this order. The Clerk is directed to close this case.
DONE AND ORDERED this 10th day of August, 2020.