Daake et al v. 331 Partners, LLC

Filing 15

ORDER, affirming orders of the U. S. Bankruptcy Court for the Southern District of Alabama as set forth in order. Signed by Judge Callie V. S. Granade on 8/8/2011. (copy to Bankruptcy Court) (mab)

IN THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF ALABAMA
SOUTHERN DIVISION
IN RE:
331 PARTNERS, LLC,
Debtor.
THOMAS DAAKE AND
ADELE DAAKE,
Appellants,
v.
331 PARTNERS, LLC,
Appellee.

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CIVIL NO. 11-00049-CG-C

ORDER
This is an appeal arising from the Chapter 11 bankruptcy proceeding of
Appellee, 331 Partners, LLC (“331 Partners”). Appellants, Thomas and Adele
Daake seek review of three orders entered by the bankruptcy court. At issue is
whether the bankruptcy court erred in sustaining the objections of 331 to the claim
submitted by the Daakes. This court finds the decisions of the bankruptcy court are
due to be AFFIRMED.
Facts1
331 Partners is an Alabama corporation formed by Bill Clay on June 14,

These facts are taken, essentially verbatim, from the bankruptcy court’s order
sustaining objection to claim, as the Daakes have not raised any specific objections
to the bankruptcy court’s findings of fact.
1

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2004, for the purpose of acquiring Sandestin parcel number 331 in Sandestin,
Florida. Parcel 331 was the only remaining tract of undeveloped single-family use
property in the Sandestin resort. On June 15, 2004, 331 Partners signed a contract
with Intrawest, developer of Sandestin resort, providing for the purchase of parcel
331 for $13,945,100.00. On June 24, 2004, IPC Industries (“IPC”) acquired a twothirds ownership interest in 331 Partners and Bill Clay retained a one-third
ownership interest. Initially, both Bill Clay and IPC were managers of 331
Partners.
After acquiring the parcel, 331 Partners drafted agreements with Boardwalk
at Baytowne, LLC, which called for Clay and IPC to transfer their interests in 331
Partners to Boardwalk at Baytowne and serve as its managers. Local home builder
C-D Jones, owned by Dennis, Cynthia, and Chris Jones, would be responsible under
the draft agreements for building homes, supervising infrastructure, obtaining
permits, providing home warranties, and managing construction budgets. In
exchange, C-D Jones was to receive twenty-five percent of profits after repayment of
capital contributions and loans. The arrangement between 331 Partners,
Boardwalk at Baytowne, and C-D Jones fell through and the draft agreements were
never executed.
On its 2004 tax returns, 331 Partners listed the value of parcel 331 as
$14,112,711.00. On July 20, 2005, C-D Jones executed a Real Estate Sales Contract
with 331 Partners to purchase parcel 331 for the purpose of developing the
property. On November 3, 2005, C-D Jones and 331 Partners amended that
contract. Under the amended contract the purchase price of the property was

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$49,915,857.00 of which $17,800,000.00 was to be paid in cash, $16,759,475.00 was
financed under a “Lot Sales Note” with a maturity date of December 31, 2006, and
$15,356,382.00 was financed under a “Houses Note” with a maturity date of
December 31, 2009. Upon executing the amended contract on November 3, 2005,
331 Partners conveyed the property to C-D Jones.
The sales price of parcel 331 on November 3, 2005, was substantially higher
than what 331 Partners determined the property was worth at the time it
completed its 2004 tax returns. 331 Partners member McGowin Patrick testified
that the large increase between when the 2004 taxes were completed and when the
amended contract was entered on November 3, 2005, reflected improvements in the
Florida real estate market during that time period in which the Florida panhandle
experienced a short period of marked improvement a few months after Hurricane
Katrina had passed in August 2005, and also reflected the demand for the last
remaining property inside the Sandestin Resort Community. He stated that further
evidence supporting the increased value of parcel 331 could be found in appraisals
done in connection with refinancing the mortgage on the property with Whitney
Bank which was completed on December 4, 2004. Appraisals preceding the
refinancing valued the parcel at approximately $28,000,000.00 – meaning the value
of the property doubled in a matter of months soon after 331 Partners acquired it.
Under the November 3, 2005, Lot Sales Note, payments were due upon the
sale of any lot in the subdivision equal to the greater of 80.25% of the gross sales
price or the applicable minimum release price, and interest was due upon the sales
of lots computed based on the outstanding principal balance. The Lot Sales Note

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was secured by a first mortgage on all unsold lots. Under the Houses Note,
principal payments were due upon the receipt of any construction proceeds in the
amount of 25.20% of the gross construction proceeds and interest was to be paid
quarterly in arrears computed on the then outstanding principal balance. The
Houses Note was secured by a collateral assignment of all building contracts
between C-D Jones and the lot buyers.
On November 3, 2005, 331 Partners and C-D Jones also executed an
Assignment of Purchase Documents setting forth their agreement as to
representations and warranties, covenants and further assurances, event of default
and remedies, expenses, notices, successors and assigns, changes in writing,
governing law, and counterparts/integration. Schedule II of that document, the
Minimum Release Payments schedule, listed sixty-five lots to be sold by C-D Jones
to various buyers in closings that occurred contemporaneously with the execution of
the Assignment of Purchase Documents. The minimum release schedule prices for
the lots ranged from $239,948.00 to $300,938.00. Between the November 3, 2005,
closing and March 2007, C-D Jones sold twenty-seven more lots in what ultimately
became the Villa Lago development. There were forty-four remaining unsold lots as
of March 2007.
In May 2006, Dennis and Cynthia Jones sought to sell their interest in C-D
Jones. Bill Clay purchased a 50% interest in the company with Chris Jones owning
the remaining 50%. Since Bill Clay was also a member of 331 Partners, IPC
amended the operating agreement of 331 Partners to remove Mr. Clay as a manager
in order to avoid conflicts. 331 Partners and C-D Jones also modified the Lot Sales

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and Houses Notes to add Bill Clay as a guarantor and to remove Dennis and
Cynthia Jones as guarantors. On December 29, 2006, C-D Jones and 331 Partners
amended the Lot Sales Note to extend the maturity date from December 31, 2006,
to January 31, 2007. The parties also amended the Houses Note to extend the
maturity date of the interest payment from December 31, 2006, to January 31,
2007.
On March 23, 2007, Bill Clay purchased the remaining shares of C-D Jones
from Chris Jones and became the sole shareholder of C-D Jones. As a part of the
share sale agreement, C-D Jones was to deliver to Chris Jones seven unencumbered
lots in Villa Lago and $250,000.00. On April 3, 2007, C-D Jones, Chris Jones, Bill
Clay, and 331 Partners executed the agreement in which C-D Jones conveyed seven
Villa Lago lots to Chris Jones, free of 331 Partners’ mortgage, as well as
$250,000.00 which was labeled a “restructuring fee.” That agreement states that
331 Partners released the lots to C-D Jones pursuant to a “Settlement Agreement”
incorporated by reference. In the same document Chris Jones conveyed his interest
in Stonegate, LLC, to Genoa Development, LLC; he resigned as managing member
of Mack Bayou, LLC; he conveyed half of his interest in TRDH, LLC, to Bill Clay
with the agreement that TRDH, LLC, would execute and deliver a lease to CD
Jones; and he conveyed his interest in The Boardwalk at 30-A, LLC, to W. Clay
Properties, LLC.
On the same day, 331 Partners and C-D Jones amended the Lot Sales Note
to release Chris Jones as a guarantor and increased the amount of net sales
proceeds paid to 331 Partners from lot sales to 100%. McGowin Patrick testified

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that this benefited 331 Partners because it significantly increased the amount the
company would be paid. The parties also amended the Houses Note to remove
Chris Jones as a guarantor, to extend the maturity date from December 31, 2009, to
December 31, 2010, and to alter the housing progress payments listed in Schedule I
of the amendment by increasing the payment to 331 Partners from house sales.
Additionally, 331 Partners and C-D Jones executed a Collateral Assignment
Modification Agreement. After the transactions on April 3, 2007, 331 Partners
retained thirty-seven lots.
During this time period C-D Jones also had contracts for other construction
projects in the Genoa and Sacred Oaks subdivisions, and Boardwalk at 30-A, as well
as for the construction of custom homes in addition to its project with 331 Partners.
Bill Clay testified that during this time the market began to fail and construction
substantially slowed on all projects, including Villa Lago.
Then, in May 2007, C-D Jones, Tracey Clay, Clay & Co., and William Clay
were sued regarding the Villa Lago development in a dispute known as the “Alcan
Litigation.” The plaintiffs in that case alleged violations of the interstate Land
Sales Disclosure Act, fraudulent misrepresentation, fraudulent suppression,
fraudulent inducement, and several contract claims among other things. 331
Partners was added as a defendant in that case in February 2008. The Daakes
were not a party to that litigation.
On February 1, 2008, 331 Partners declared C-D Jones in default for failure
to pay under the Lot Sales and Houses Notes. Following the default, C-D Jones sole
shareholder Bill Clay negotiated with IPC manager, McGowin Patrick, and on April

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30, 2009, C-D Jones and 331 Partners executed a Loan Workout Agreement in
which (1) C-D Jones agreed to complete unfinished amenities at Villa Lago
(including landscaping, pool, and clubhouse) by August 10, 2009, (2) C-D Jones
conveyed all remaining lots to 331 Partners in lieu of foreclosure, (3) third party
litigation was settled, (4) 331 Partners agreed to allow C-D Jones to release settling
plaintiffs in other litigation, (5) 331 Partners and C-D Jones agreed to mutual
releases, and (6) C-D Jones agreed that it would not file a bankruptcy proceeding
and in the event it did, the automatic stay would not apply to 331 Partners with
regard to assets under the Lot Sales and Houses Notes.
After the execution of the Loan Workout Agreement, C-D Jones failed to meet
its obligation to complete the Villa Lago amenities. The Villa Lago Homeowners
Association completed the unfinished amenities and 331 Partners repaid the HOA
for the cost of completing the work.
On July 30, 2009, C-D Jones filed a voluntary chapter 11 bankruptcy petition
in the Northern District of Florida. In its schedules, it listed 331 Partners as a
secured creditor with a contract claim for unbuilt homes and a first mortgage on
thirty-seven vacant lots. 331 Partners obtained relief from the automatic stay as to
assets under the Lot Sales and Houses Notes. C-D Jones’ schedules also listed the
Daakes as unsecured judgment creditors.
The Daakes’ judgment against C-D Jones originated in January 2004 when

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the Daakes sued C-D Jones2 on breach of contract, building code violation, and
fraud claims in Walton County, Florida, Circuit Court. The Daakes had a home
construction contract with C-D Jones as to property unrelated to the Villa Lago
project, and the Daakes contract with C-D Jones predated the existence of 331
Partners. The Daakes’ claims against C-D Jones and its co-defendant, A.F.A.B.
Contractors, Inc., were tried by jury from June 22, 2009, through July 2, 2009. The
jury returned a verdict in favor of the Daakes and awarded them a total judgment
of $5,196,707.67 (with a statutory interest rate of 8%). The Daakes filed a proof of
claim in the C-D Jones bankruptcy on October 20, 2009 in the amount of
$6,127,273.01.
On January 26, 2010, a jury returned a $1,625,538.44 judgment in favor of
the plaintiffs in the Alcan litigation. 331 Partners filed its own voluntary chapter
11 petition on February 27, 2010. Russell Myles, one of the Alcan litigation
plaintiffs, filed an adversary proceeding against 331 Partners on June 7, 2010
objecting to discharge under 11 U.S.C. § 523(a)(2)(A) and § 727(a)(4) and/or 11
U.S.C. § 1141. The Daakes filed a proof of claim in 331 Partners’ bankruptcy on
August 18, 2010. Attached to their proof of claim was the final judgment they
received in Walton County, Florida, against C-D Jones. On October 14, 2010, the
Daakes amended that claim to $6,333,453.73 to include attorneys’ fees, costs, and
post judgment interest. On August 31, 2010, 331 Partners filed an objection to the

2 That case actually began with a complaint filed by C-D Jones for breach of
contract and to foreclose on a construction lien. The Daakes’ claims were raised in a
counterclaim to that complaint.

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Daakes’ claim. On September 10, 2010, the Daakes filed an emergency motion to
allow claim, arguing that 331 Partners is an alter ego of and a joint venture partner
with C-D Jones, and is therefore liable for their claim. On September 21, 2010, 331
Partners filed their second amended Chapter 11 plan which proposed that the
Daakes’ claim not be paid.
The bankruptcy court held a day-long hearing on the 331 Partners’ claim
objection on October 18, 2010, and took the matter under advisement. On October
19, 2010, the bankruptcy court held a hearing on the confirmation of 331 Partners’
second amended Chapter 11 plan. The only unresolved objection to confirmation
came from the Daakes. Because it was dependent upon the resolution of the
Daakes’ claim, confirmation was taken under advisement by the bankruptcy court.
The Daakes were also given two weeks to obtain the deposition of Chris Jones in
pursuit of their claim.
Chris Jones’ deposition was not taken, and on November 9, 2010 the
bankruptcy court entered an order sustaining 331 Partners’ objection to claim.
(Doc. 267). That same day the bankruptcy court overruled the Daakes’ objection
and confirmed 331 Partners’ second amended plan of reorganization. (Doc. 268).
On November 24, 2010 the bankruptcy court entered a supplemental order
confirming a modified and restated second amended plan of reorganization, which
incorporated minor changes in the plan agreed to at the confirmation hearing. (Doc.
278). These three orders form the basis of this appeal.
Discussion
I Standard of Review

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When this court sits in its capacity as an appellate court in review of the
orders of the bankruptcy court, it reviews the bankruptcy court’s legal conclusions
de novo. In re Englander, 95 F.3d 1028, 1030 (11th Cir. 1996). “The district court
must accept the bankruptcy court's factual findings unless they are clearly
erroneous, and give due regard to the bankruptcy court's opportunity to judge the
credibility of the witnesses.” Id. This court may not make independent factual
findings. Id. The Daakes do not challenge the bankruptcy court’s findings of fact,
so the orders at issue will be reviewed on a de novo basis using the facts as found by
the bankruptcy court. The Daakes bear the burden of persuasion to establish the
validity and amount of their claim by a preponderance of the evidence. In re Winn
Dixie Stores, Inc., 418 B.R. 475, 476 (Bankr. M.D. Fla. 2009).3
II. Successor Liability
This appeal centers on the Daakes’ argument that 331 Partners should be
liable for the debts of C-D Jones. As the parties recognize, if 331 Partners is liable,
then the Daakes’ claim would be allowed, and 331 Partners’ plan of reorganization
would have to be rejected. The Daakes first argue that 331 Partners is liable under
the theory of successor liability. Pursuant to that theory, under either Florida or
Alabama law, the liabilities of a predecessor corporation are generally not imposed

3 As the bankruptcy court noted, where there is an objection to a creditor’s proof of
claim, the usual procedure is to have the objecting debtor present evidence to rebut
the presumptive validity of that proof of claim, at which point the burden shifts to
the creditor to establish its claim by a preponderance of the evidence. Winn Dixie,
418 B.R. at 476. However, where the claim is a complicated one, it is appropriate to
require the creditor to present its claim first. Id.

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upon a successor corporation.4 Amjad Munim, M.D., P.A. v. Azar M.D., 648 So.2d
145 (Fla. Dist. Ct. App. 1994); Matrix-Churchill v. Springsteen, 461 So.2d 782, 786
(Ala. 1984). Liability will be imposed on a successor only where: “(1) the successor
expressly or impliedly assumes obligations of the predecessor, (2) the transaction is
a de facto merger, (3) the successor is a mere continuation of the predecessor, or (4)
the transaction is a fraudulent effort to avoid the liabilities of the predecessor.”
Azar, M.D., 648 So.2d at 153-154 (citing Bernard v. Kee Mfg. Co., 409 So.2d 1047,
1049 (Fla. 1982)); Springsteen, 461 So.2d at 786.
a. De Facto Merger
On appeal, the Daakes claim that the bankruptcy court erred when it failed
to find that there was a de facto merger between 331 Partners and C-D Jones. A de
factor merger occurs where one corporation is absorbed by another without formal
compliance with the statutory requirements for a merger. Lab. Corp. of America. v.
Professional Recovery Network, 813 So.2d 266, 270 (Fla. Dist. Ct. App. 2002). “To
find a de facto merger there must be continuity of the selling corporation evidenced
by the same management, personnel, assets and physical location; a continuity of
the stockholders, accomplished by paying for the acquired corporation with shares
of stock; a dissolution of the selling corporation; and assumption of the liabilities.”
Azar M.D., 648 So.2d at 153-154; see also Springsteen, 461 So.2d at 787. “The
bottom line question is whether each entity has run its own race, or whether there
has been a relay-style passing of the baton from one to another.” 300 Pine Island

4 The law of Alabama and Florida is the same regarding successor liability, so the
court need not determine which state’s law applies in this case.

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Associates, LTD v. Steven L. Cohen & Associates, P.A., 547 So.2d 255, 256 (Fla.
Dist. Ct. App. 1989) (internal citation omitted).
The Daakes argue that the April 2007 transactions involving 331 Partners
and C-D Jones constituted in essence a de facto merger, so that 331 Partners
became the successor to C-D Jones. This court does not agree. The Daakes’ claim is
centered on the fact that, after the April 2007 transactions, Bill Clay was both a
member of 331 Partners and the sole owner of C-D Jones. While this is certainly
true, it overlooks the important fact that Clay had only a noncontrolling one-third
interest in 331 Partners, and that the operating agreement of 331 Partners had
been amended in May 2006 to remove Clay as a manager and name IPC as the sole
manager of the company. That agreement specifically excluded Clay from any voice
with respect to any transactions with C-D Jones. Accordingly, the April 2007
transactions did not result in any continuity of management between 331 Partners
and C-D Jones.
Further, the Daakes presented no evidence indicating that Clay exerted any
influence over the actions of 331 Partners in the April 2007 transactions, or that
331 Partners had any control over the corporate decisions of C-D Jones. The
evidence that is available indicates that Clay acted in his own interests and that of
C-D Jones in securing the best possible terms for himself and his now wholly owned
company.
Also, after the April 2007 transactions, C-D Jones continued its own separate
existence and continued doing business as a separate entity. The undisputed
testimony of Clay establishes that all of C-D Jones’ home construction activity

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began after April 2007. In addition, C-D Jones began or continued home
construction activities in at least two other developments in which 331 Partners
had no interest. This is clearly inconsistent with a company in the process of
ceasing its business activities or dissolving itself.
In addition, the Daakes presented no evidence that Clay received any
additional stock in 331 Partners as a result of this alleged de facto merger.
Throughout its dealings with C-D Jones, Clay’s ownership interest in 331 Partners
remained at one-third. Also, there is absolutely no evidence that 331 Partners ever
agreed to assume the normal business liabilities of C-D Jones. On the contrary, the
April 2007 transactions increased the liability of C-D Jones to 331 Partners by
making the terms of the lot sales note and the houses note more favorable to 331
Partners. Finally, the fact that 331 Partners filed a successful foreclosure suit
against C-D Jones is wholly inconsistent with the internal operations of a merged
company.
The Daakes submit as the only evidence of the assumption of liability by 331
Partners the fact that 331 Partners reimbursed the Villa Lago homeowners
association for its costs in completing the amenities in that development. As the
bankruptcy court recognized, this is not the sort of assumption of liabilities
encompassed in the case law. The type of assumption of liability that points to de
facto merger is of those liabilities “ordinarily necessary for the uninterrupted
continuation of the business of the predecessor.” U.S. Automatic Sprinkler Co. v.
Reliable Automatic Sprinkler Co., 719 F.Supp.2d 1020, 1029 (S.D. Ind. 2010) see
also Hinds County, Miss., 708 F.Supp.2d 348, 363 (S.D. N.Y. 2010); State ex rel.

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H.C.F., Inc. v. Ohio Bureau of Workers’ Comp., 687 N.E.2d 763, 768 (Ohio 1998);
Wessinger v. Vetter Corp., 685 F.Supp. 769, 773 (D. Kan. 1987).
Here the payment to the association was not necessary to the continuation of
C-D Jones’ business. Under the terms of the April 2009 loan workout agreement, CD Jones no longer would own any property in Villa Lago, and would therefore have
no further business interest in that development. On the other hand,
reimbursement of the association was in the interest of 331 Partners. It was that
company that would own a large number of properties in Villa Lago and would
benefit from an increase in property values generated by the completion of the
amenities. Therefore, this payment by 331 Partners is not a factor in the de facto
merger calculus.
b. Piercing the Corporate Veil
The Daakes next argue that the corporate veil of C-D Jones should be pierced
and liability imposed upon 331 Partners for the debts of C-D Jones. They claim that
C-D Jones was a mere instrumentality of 331 Partners and was used to perpetrate a
fraud upon the Daakes. Under either Alabama or Florida law, piercing the
corporate veil is not a power that is lightly exercised. Gilbert v. James Russell
Motors, Inc., 812 So.2d 1269, 1273 (Ala. Civ. App. 2001); Dania Jai-Alai Palace, Inc.
v. Sykes, 450 So.2d 1114, 1120-1121 (Fla. 1984). This is because the concept of
limited liability is one of the purposes for which the law created the corporation. In
re Coala, Inc., 182 B.R. 887, 894 (Bankr. N.D. Ala. 1995). However, “[a] separate
corporate existence will not be recognized when a corporation is so organized and
controlled and its business so conducted as to make it a mere instrumentality of

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another or the alter ego of the person owning and controlling it.” Id. “For the
separate corporate existence to be disregarded under the ‘instrumentality’ rule, the
control by the stockholders must amount to total domination of the subservient
corporation, to the extent that the subservient corporation manifests no separate
corporate interests of its own and functions solely to achieve the purposes of the
dominant corporation.” Id. (citing Springsteen, 461 So.2d at 788). “In order to
pierce the corporate veil, the complaining party must show not only that the
dominant party has complete control and domination of the subservient
corporation's finances, policy, and business practices but also that it misused that
control to his detriment.” Id. at 895 (citing Johnston v. Green Mountain, Inc., 623
So.2d 1116, 1120 (Ala. 1993)); Sykes, 450 So.2d at 1121 (corporate veil may not be
pierced absent a showing of improper conduct).
Here, there simply is no evidence of any control of C-D Jones by 331 Partners,
much less complete dominion and control. Once again, the only connection is that
Clay, a one-third owner of 331 Partners was the sole owner of C-D Jones. As noted
above, Clay had no management authority within 331 Partners, and was
specifically excluded from any influence in dealings with C-D Jones. The Daakes
do not point to a single incident or transaction in which C-D Jones was not pursuing
its own interests, but rather the interests of 331 Partners.

The Daakes claim

that control by 331 Partners is demonstrated by the terms of sales contract for the
331 parcel between it and C-D Jones. In addition to the fact that the sale occurred
in 2005, well before Clay had any ownership interest in C-D Jones, this claim is
incorrect for at least two reasons. First, the evidence shows that after it purchased

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the 331 parcel in June 2004, there were efforts made by 331 Partners to reach a
partnership agreement with C-D Jones whereby 331 Partners would be the
developer of the parcel and C-D Jones the exclusive builder, with the parties
sharing the profits from the project. The fact that this plan was rejected by C-D
Jones indicates a clear lack of control by 331 Partners. Secondly, the Daakes assert
that the sales price for the parcel was “absurdly high.” However, they provide no
facts in support of this contention. To the contrary, the evidence established at the
hearing shows that the value of the parcel doubled, from approximately $14 million
to $28 million, between the time when 331 Partners purchased the parcel from
Intrawest to the time it secured a loan from Whitney Bank, a period of just six
months. Given that, a further increase in the value of the parcel to approximately
$50 million in an eleven month period is not in and of itself unreasonable. The
Daakes presented no evidence that this price was out of line in the Destin, Florida
real estate market of 2005.
The remainder of the Daakes’ arguments are similarly just conclusory
allegations with no factual support. In short, the Daakes have clearly not met their
burden of establishing that the corporate veil of C-D Jones should be pierced and
331 Partners held liable for their claim.
III. Confirmation of Plan
The Daakes contend that the bankruptcy court erred in confirming the
second amended plan of reorganization and the modified and restated second
amended plan of reorganization submitted by 331 Partners. They claim that the
plans of reorganization were proposed in bad faith, that all impaired classes did not

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vote in favor, and that the plans were not feasible. They also argue that the plans
should not have been confirmed because they improperly include releases for nondebtor third parties who were members of 331 Partners. Though not specifically
identified, this objection presumably refers to the mutual releases contemplated
between 331 Partners on one hand, and IPC and its owners McGowin Patrick and
Clifton Inge on the other.
As an initial matter, this court finds that the Daakes have no standing to
raise these issues on appeal. This court has determined above that the Daakes’
claim was properly disallowed by the bankruptcy court. Accordingly, the Daakes
are not creditors and are no longer entitled to object to 331 Partners’ confirmation
plans.
Even if they were permitted to interpose objections to the plans, the court
finds that the bankruptcy court properly overruled the Daakes’ objection. With
respect to the objections based on bad faith, lack of unanimous support of the
impaired classes and infeasibility, these are expressly based upon the Daakes’
arguments that their claim should have been allowed. Because this court has
determined that their claim was properly disallowed, these arguments must fail as
moot.
As to the Daakes’ claim that the plans improperly include releases for IPC,
Patrick and Inge, the court finds this objection not well taken. The Daakes assert
that these releases were provided “without explanation or justification.” This is
simply incorrect. The modified and restated second amended plan provides at
paragraph 5.1 that funding for the plan was to come, in part, from funds provided

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by IPC.5 Counsel for 331 Partners represented at the confirmation hearing that the
amount of IPC funding was approximately $750,000. The releases of IPC, Patrick
and Inge were to be given “[i]n consideration of and as a condition to such funding
by IPC . . . .”6 So, to the extent that the Daakes’ legal argument is correct and that
these releases must play an important role in 331 Partners’ plan, that standard was
clearly met here. There can be no doubt that providing a significant amount of
funding is an important part of the plan. The plan would not have been feasible
without the money.
In addition, the court finds that the Daakes’ argument here is misplaced.
The cases they cite all concern instances in which the releases under consideration
sought to protect third parties from being pursued for the bankrupt debtor’s debt.
In the instant case, however, the releases simply provide that 331 Partners, the
debtor, may not pursue claims it may have against IPC, Patrick and Inge. Under
11 U.S.C. § 1123(b)(3)(A), a plan of reorganization may provide for “ the settlement
or adjustment of any claim or interest belonging to the debtor or to the estate.” The
releases in question are part of just such a settlement of some of 331 Partners’
claims.
Accordingly, this court finds that the bankruptcy court properly confirmed
331 Partners’ second amended plan of reorganization and its modified and restated
second amended plan of reorganization.

The remaining funding was to be provided by the sale of two Villa Lago lots.
plan also included the dismissal of the appeal and adversary proceeding of
Myles, and the exchange of mutual releases between IPC, Patrick, and Inge on one
side, and Myles and Atchison on the other.
5

6 The

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CONCLUSION
For the reasons stated herein, the court finds that the orders of the U.S.
Bankruptcy Court for the Southern District of Alabama, in Bankruptcy Case
Number 10-846, (1) sustaining 331 Partners’ objection to claim (Doc. 267); (2)
overruling the Daakes’ objection and confirming 331 Partners’ second amended plan
of reorganization (Doc. 268); and (3) confirming the modified and restated second
amended plan of reorganization (Doc. 278) are hereby AFFIRMED.
The Daakes’ request for oral argument, contained within their brief, is
accordingly DENIED AS MOOT.
DONE and ORDERED this 8th day of August, 2011.
/s/ Callie V. S. Granade
UNITED STATES DISTRICT JUDGE

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