Bay United Holdings, LLC v. INXS 7 LLC

Filing 29

ORDER: The bankruptcy court's order is AFFIRMED. The clerk is directed to ENTER JUDGMENT, which shall read: "The order of the bankruptcy court is affirmed," TERMINATE any pending deadlines, and CLOSE this case. Signed by Judge Kathryn Kimball Mizelle on 1/6/2025. (SJR)

UNITED STATES DISTRICT COURT
MIDDLE DISTRICT OF FLORIDA
TAMPA DIVISION
In re: AEGIS ASSET TRUST
MANGEMENT, LLC,

Case No. 8:19-bk-8036-CPM

Debtor.
___________________________________
BAY UNITED HOLDINGS, LLC,
Appellant,
v.

Case No. 8:23-cv-2370-KKM

INXS 7 LLC,
Appellee.
___________________________________
ORDER
Bay United Holdings, LLC, appeals a bankruptcy court’s order granting summary
judgment disallowing three of its claims. Because Bay United fails to point to any evidence
that its predecessor in interest had the right to enforce the notes and mortgages underlying
its claims when those claims were ?led, the bankruptcy court’s order is a?rmed.

I.

BACKGROUND
?is appeal arises from the Chapter 7 bankruptcy of Aegis Asset Management,

LLC. See (Doc. 10-8) at 1–3. ?e appellee, INXS VII, LLC, purchased sixty-eight
properties from the bankruptcy estate free and clear of liens under 11 U.S.C. § 363(f ). See
(Doc. 10-9) ¶¶ 9-10; (Doc. 10-21) ¶ 1; Appellees’ Br. (Doc. 25) at 2, 14. Material to this
appeal, the estate sold INXS VII properties at: 1901 West Sligh Avenue, Tampa; 6807 East
North Bay Street, Tampa; and 1127 Sycamore Street, Lakeland. (Doc. 10-9) at 19–20. ?e
bankruptcy court approved that purchase in an order dated March 29, 2021, which provided
that any claims against the proceeds of the sale would be barred after thirty days. (Doc. 1013) ¶ 24.
On the last day of that period—April 28, 2021—Cloud 9 Properties, LLC, the
appellant’s predecessor in interest, ?led three proofs of claim. See (Docs. 10-73, 10-74, &
10-75.) Claim 100 alleged an indebtedness of $90,345.43 secured by a mortgage on the
West Sligh Avenue property and included an attached mortgage in favor of Margaret J.
Mitchell. (Doc. 10-73) at 2, 5–6. Claim 101 alleged an indebtedness of $16,444.80 secured
by a mortgage on the Sycamore Street property and included an attached mortgage in favor
of Bob Mitchell Associates, Inc. (Doc. 10-74) at 2, 5–6. And claim 102 alleged an
indebtedness of $42,572.26 secured by a mortgage on the East North Bay Avenue property

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and included an attached mortgage also in favor of Bob Mitchell Associates, Inc. (Doc. 1075) at 2, 5–6. None of the three proofs of claim included a writing evidencing a debt.
INXS VII objected to all three proofs of claim. (Docs. 10-21, 10-22, & 10-23.) 1 It
contended that each claim was “facially de?cient” because it lacked a “promissory note or
other evidence of the existence of a debt or other consideration for the mortgage.” (Doc.
10-21) ¶ 3; (Doc. 10-22) ¶ 3; (Doc. 10-23) ¶ 3. Cloud 9 responded by ?ling copies of the
three promissory notes that the mortgages secured. (Doc. 10-27) at 15–45. Yet none of the
three notes were in favor of Cloud 9. Like the mortgages, the West Sligh Avenue note was
in favor of Margaret J. Mitchell, id. at 15, while the Sycamore Street and East North Bay
Street notes were in favor of Bob Mitchell Associates, Inc., id. at 25, 41.
After responding, Cloud 9 assigned its interest in all three claims to appellant Bay
United Holdings, LLC. (Docs. 10-39, 10-40, 10-42, 10-43, 10-45, & 10-46.)
INXS VII then moved for summary judgment on its objections because the claims
were “unenforceable under applicable non-bankruptcy law” because “there was . . . no
evidence that the entity ?ling the claims had the power or authority to enforce the claims.”
INXS VII claims standing to object to these claims because after the bankruptcy court approved the
settlement of controversies related to the sale of the sixty-eight properties, see (Doc. 10-15), “the [Chapter
7] Trustee and the bankruptcy estate have no further obligations relating to any claims ?led or asserted
against any of the 68 properties,” (Doc. 10-21) ¶ 2; (Doc. 10-22) ¶ 2; (Doc. 10-23) ¶ 2; see also Appellee’s
Br. at 18 (“Appellee had standing as a party in interest to object to the claims because it has a ?nancial stake
in an order allowing or disallowing the claims because such an order ‘diminishes their property, increases
their burdens or impairs their rights.’ ” (quoting In re Westwood Cmty. Two Ass’n, Inc., 293 F.3d 1332,
1335 (11th Cir. 2002))).
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(Doc. 10-30) at 1, 7. With its motion, INXS VII submitted evidence of the notes’
subsequent transfers. ?e West Sligh Avenue note and its mortgage passed to Margaret J.
Mitchell’s estate following her death on March 11, 2022. See (Doc. 10-31) at 15–16. Bob
Mitchell Associates, Inc., assigned the Sycamore Street note and its mortgage to Joseph
Quinn Mitchell on February 27, 2023, who in turn assigned it to himself and Larry Michael
Rushing on March 14, 2023. (Doc. 10-32) at 15–18. On that same day, the two men
assigned the note to Cloud 9. Id. at 19–21. ?e East North Bay Street note and mortgage
followed the same path as the Sycamore Street note, winding up assigned to Cloud 9 on
March 14, 2023. (Doc. 10-33) at 11–20. INXS VII argued that because Cloud 9 did not
become the holder of the notes and mortgages until almost two years after it ?led its proofs
of claim, those claims were invalid when they were ?led and should be disallowed. (Doc.
10-30) at 8. Bay United responded brie?y that the objections should be overruled because
no party disputes the validity of the debts or mortgages. (Doc. 10-52) ¶¶ 7–11.
?e bankruptcy court held a hearing on the motion on September 1, 2023, at which
it gave Bay United an opportunity to present evidence that Cloud 9 acquired the right to
enforce the notes and mortgages prior to ?ling its proofs of claim on April 28, 2021. See,

e.g., (Doc. 10-55) at 1, 18. After Bay United failed to do so, it gave Bay United more time
to submit evidence that the West Sligh Avenue note—held at one point by Margaret J.
Mitchell—had come into Cloud 9’s possession prior to Cloud 9 ?ling its proofs of claim.
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Id. at 28, 30. In response, Bay United ?led two a?davits, neither of which establish that
Cloud 9 owned any of the notes and mortgages on or before April 28, 2021. See (Docs. 1058, 10-59, & 10-60.) 2 In the absence of any evidence that Cloud 9 owned the notes and
mortgages on April 28, 2021, the bankruptcy court granted summary judgment in favor of
INXS VII. (Docs. 10-3 & 10-72). Bay United appeals. (Doc. 10-2.)
II.

LEGAL STANDARD
A district court serves in an appellate role when reviewing a bankruptcy court’s

decisions. See Williams v. EMC Mortg. Corp., 216 F.3d 1295, 1296 (11th Cir. 2000). I
“review a bankruptcy court’s grant of summary judgment de novo, applying the same legal
standard used by the bankruptcy court.” In re Delco Oil, Inc., 599 F.3d 1255, 1257 (11th
Cir. 2010).
Summary judgment is appropriate if no genuine dispute of material fact exists, and
the moving party is entitled to judgment as a matter of law. FED. R. CIV. P. 56(a); see FED.
R. BANKR. P. 7056 (incorporating Civil Rule 56). A fact is material if it might a?ect the
Gregory Richard’s a?davit does shed some light on the whole transaction. According to Richards, the late
Margaret J. Mitchell was the sole owner of both Bob Mitchell Associates, Inc., and Cloud 9, and Mitchell
had intended to have the three notes and mortgages in favor of her and Bob Mitchell Associates assigned
to Cloud 9, but never did so. (Doc. 10-59) ¶¶ 5, 7. Her son, Joseph Quinn Mitchell, was her attorney-infact, was designated to be the personal representative of her estate and was the president of both Cloud 9
and Bob Mitchell Associates. Id. ¶¶ 4, 8; see (Doc. 10-32) at 16. Joseph Quinn Mitchell believed that
Cloud 9 held all three notes and mortgages based on his mother’s representations and so ?led the proofs of
claim in its name. (Doc. 10-59) ¶ 8. Only after his mother’s death did he discover that the notes and
mortgages were held elsewhere. Id. ¶¶ 9–10. ?e a?davit also explains that the West Sligh Avenue note
and mortgage were probated following Mitchell’s death, became part of the Mitchell estate, and were later
transferred to Cloud 9. Id. ¶ 11.
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outcome of the suit under governing law. See Anderson v. Liberty Lobby, Inc., 477 U.S.
242, 248 (1986).
?e movant always bears the initial burden of informing the district court of the
basis for its motion and identifying those parts of the record that demonstrate an absence
of a genuine issue of material fact. See Clark v. Coats & Clark, Inc., 929 F.2d 604, 608
(11th Cir. 1991). When that burden is met, the burden shifts to the nonmovant to present
evidentiary materials (e.g., a?davits, depositions, exhibits, etc.) demonstrating that there is
a genuine issue of material fact, which precludes summary judgment. Id. A moving party
is entitled to summary judgment if the nonmoving party “fail[s] to make a su?cient
showing on an essential element of [his] case with respect to which [he] has the burden of
proof.” Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986).
?e Court reviews the record evidence as identi?ed by the parties and draws all
legitimate inferences in the nonmoving party’s favor. See Sconiers v. Lockhart, 946 F.3d
1256, 1262 (11th Cir. 2020). Here, to the extent that the record is disputed or capable of
multiple inferences, the Court draws them in favor of the non-movant.
III.

ANALYSIS
Because Bay United fails to produce any evidence that its predecessor—Cloud 9—

had the right to enforce the obligations central to the three proofs of claim at issue here,
the bankruptcy court rightly granted summary judgment in favor of INXS VII.
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?e Bankruptcy Code lays out a multi-step framework for evaluating proofs of
claim. 11 U.S.C. § 502; see In re Eddy, 572 B.R. 774, 778 (Bankr. M.D. Fla. 2017). A proof
of claim is presumptively allowed if ?led in compliance with 11 U.S.C. § 501. See 11 U.S.C.
§ 502(a); see also FED. R. BANKR. P. 3001(f ) (“A proof of claim signed and ?led in
accordance with these rules is prima facie evidence of the claim’s validity and amount.”); In

re Baggett Bros. Farm Inc., 315 F. App’x 840, 843 (11th Cir. 2009) (per curiam). After a
proof of claim has been ?led, any party in interest may object. 11 U.S.C. § 502(a). Once a
party in interest has objected, the bankruptcy court must determine whether the claim
should be allowed. Id. § 502(b). ?e party asserting the claim has the burden of showing
that the claim should be allowed. See Bagget Bros. Farm, 315 F. App’x at 843.
Cloud 9 did not originally ?le its three proofs of claim in compliance with the
Bankruptcy Code and Rules, so Bay United’s claims are not presumptively valid. ?e
Bankruptcy Rules require that, for a claim to be prima facie valid, a claimant whose claim
is based on a writing must ?le a copy of the writing establishing that claimant’s right to
payment. FED. R. BANKR. P. 3001(c)(1); see In re ?ornburg, 596 B.R. 766, 769 (Bankr.
M.D. Fla. 2018) (“Attaching supporting documentation is a mandatory prerequisite to
establishing a claim’s prima facie validity.”). ?e three claims lack documentary evidence
showing that Cloud 9 had an enforceable claim against the properties, as they lacked both
notes in favor of Cloud 9 and either mortgages in favor of Cloud 9 or documents evidencing
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the assignment of those mortgages to Cloud 9. See Forty One Yellow, LLC v. Escalona,
305 So. 3d 782, 787 (Fla. 2d DCA 2020) (“An assignment of the mortgage without an
assignment of the debt creates no right in the assignee.” (quoting Vance v. Fields, 172 So.
2d 613, 614 (Fla. 1st DCA 1965))). ?e proofs of claim thus lack prima facie validity and
may be “quickly disallowed upon a valid objection, unless the claimant then provides
su?cient evidence to establish the validity of the claim by a preponderance of the evidence.”

In re Taylor, 363 B.R. 303, 308 (Bankr. M.D. Fla. 2007).
Bay United has not met its burden here. A bankruptcy court must disallow a claim
if the “claim is unenforceable against the debtor and property of the debtor, under any
agreement or applicable law for a reason other than because such claim is contingent or
unmatured.” 11 U.S.C. § 502(b)(1). Except to the extent that a claimed right to payment is
“contingent or unmatured,” id., it “must be enforceable against the debtor under applicable
state law when the claim is ?led,” In re Food Mgmt. Grp., LLC, 484 B.R. 574, 589 n.8
(S.D.N.Y. 2012) (quoting In re J & S Conveyors, Inc., 409 B.R. 635, 647 (Bankr. W.D.N.Y.
2009)); see also 11 U.S.C. § 101(10)(A) (de?ning “creditor” as any “entity that has a claim
against a debtor” (emphasis added)); FED. R. BANK P. 3001(a), (b) (providing that “[a]
proof of claim is a written statement of a creditor’s claim”). It goes without saying that only
an entity with the right to enforce a note and mortgage may lawfully do so. See Bank of

N.Y. Mellon v. Welker, 194 So. 3d 1078, 1080 (Fla. 2d DCA 2016). And Bay United has
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put forward no evidence that its predecessor in interest, Cloud 9, had a right to payment
on April 28, 2021. 3 Indeed, the a?davit that Bay United itself ?led establishes that Cloud
9 did not come to hold the notes and mortgages until March 14, 2023. See (Doc. 10-59)
¶¶ 11–12). 4 Bay United points to no authority that prima facie invalid claims must be
allowed if a claimant acquires rights in the instruments that would have supported the
claims almost two years after the bar date had passed. In the absence of such authority, the
bankruptcy court correctly granted summary judgment.
IV.

CONCLUSION
Accordingly, the bankruptcy court’s order is AFFIRMED. ?e clerk is directed to

ENTER JUDGMENT, which shall read: “?e order of the bankruptcy court is a?rmed,”
TERMINATE any pending deadlines, and CLOSE this case.
ORDERED in Tampa, Florida, on January 6, 2025.

Bay United repeatedly claims that the upshot of INXS VII’ s argument is the invalidation of the mortgages.
See Appellant’s Br. at 12, 15, 17–19, 21, 23–25, 27–28. Not so. ?e question is not whether the mortgages
(or the notes) were valid but whether Cloud 9 had a right to payment under them. Whether an instrument
is valid and enforceable and whether a particular party has the right to sue on an instrument are separate
inquiries.
3

Because the a?davits support a?rmance, I need not address INXS VII’s argument that they should not
be considered at all. See Appellee’s Br. at 33–36.

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