Sabella et al v. Smith et al

Filing 32

CONSOLIDATED OPINION AND ORDER Closing Case. Signed by Judge Robin L. Rosenberg on 3/24/2017. (lan) NOTICE: If there are sealed documents in this case, they may be unsealed after 1 year or as directed by Court Order, unless they have been designated to be permanently sealed. See Local Rule 5.4 and Administrative Order 2014-69.

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF FLORIDA
CASE NO. 9:16-CV-81277-ROSENBERG/HOPKINS
In re:
GCC REALTY COMPANY, LLC,
Debtor.
____________________________________________/
RICHARD J. SABELLA and
ALLERAND 675 COMPANY, LLC,
Appellants,
v.
PHILIP KASSOVER, individually and as executor
of the Estates of Nathan Kassover and Ruth Kassover,
and MARGARET SMITH, Trustee,
Appellees.
____________________________________________/
CASE NO. 9:16-CV-81278-ROSENBERG/HOPKINS
In re:
GCC REALTY COMPANY, LLC,
Debtor.
____________________________________________/
RICHARD J. SABELLA and
ALLERAND 675 COMPANY, LLC,
Appellants,
v.
PHILIP KASSOVER, individually and as executor
of the Estates of Nathan Kassover and Ruth Kassover,
and MARGARET SMITH, Trustee,
Appellees.
____________________________________________/

CASE NO. 9:16-CV-81279-ROSENBERG/BRANNON
In re:
GCC REALTY COMPANY, LLC,
Debtor.
____________________________________________/
MARGARET SMITH, as Chapter 7 Trustee
of the Estate of GCC Realty Company, LLC,
Plaintiff,
v.
PRISM VENTURE PARTNERS, LLC,
RICHARD SABELLA, and RJS REALTY CORP.,
Defendants.
____________________________________________/
RICHARD SABELLA,
Appellant,
v.
MARGARET SMITH, Trustee,
Appellee.
____________________________________________/
CONSOLIDATED OPINION AND ORDER
This Consolidated Opinion and Order addresses three bankruptcy appeals filed by
Appellants, Richard J. Sabella and Allerand 675 Company, LLC. 1 Through these appeals, Appellants
challenge the bankruptcy court’s orders (1) dismissing the underlying Chapter 7 bankruptcy case and
denying as moot a motion to approve the settlement of a related adversary proceeding,2 (2) denying a

1

Neither GCC Realty Company, LLC, the Debtor in the underlying bankruptcy case, nor Margaret Smith, the
Trustee, has joined in these appeals.
2
Case no. 9:16-cv-81278-RLR.

2

motion to approve the sale by auction of the adversary proceeding, 3 and (3) dismissing the adversary
proceeding.4 The Court has carefully considered the briefs of the parties and the entire record on
appeal. In addition, the Court heard oral argument on March 3, 2017, and is otherwise fully advised
in the premises. For the reasons set forth below, the bankruptcy court’s orders are AFFIRMED and
Appellants’ appeals are DENIED.
I.

BACKGROUND

Appellee Philip Kassover and his family owned The Garden City Company, Inc. until 2002,
when Appellant Richard Sabella acquired the company through merger following a bankruptcy
auction. The Garden City Company, Inc. subsequently merged into what is now GCC Realty
Company, LLC. 5 Several years after Sabella acquired GCC, Kassover obtained a judgment in New
York state court against GCC and Peyton Gibson, the shareholder trustee of the GCC merger
proceeds, for amounts owed in connection with Sabella’s acquisition of GCC.
To date, Kassover has not collected on that judgment. Kassover asserts that he has been
unable to do so because Sabella has manipulated GCC’s assets to ensure that the company never has
cash on hand. For that reason, on August 14, 2008, Kassover initiated a fraudulent conveyance action
in New York state court against GCC, Sabella, and others by filing a summons with notice.6
One month later, on September 15, 2008, GCC filed a voluntary Chapter 11 bankruptcy case
in the Southern District of Florida, staying Kassover’s fraudulent conveyance action. After three
years, on September 22, 2011, the Chapter 11 bankruptcy case was dismissed on GCC’s own motion
as a two-party dispute between Sabella and Kassover.
3

Case no. 9:16-cv-81277-RLR.
Case no. 9:16-cv-81279-RLR.
5
Throughout the remainder of this Consolidated Opinion and Order, the Court refers to The Garden City Company,
Inc. and its successor-in-interest, GCC Realty Company, LLC as “GCC”.
6
New York Rules of Civil Procedure permit the commencement of an action by filing either a summons and
complaint or a summons with notice. See N.Y. C.P.L.R. 304(a). In actions commenced by filing a summons with
notice, the time for service of a complaint is determined pursuant to N.Y. C.P.L.R. 3012(b).
4

3

Very shortly thereafter, on October 4, 2011, petitioning creditor Warren Malone initiated an
involuntary Chapter 7 bankruptcy case7 (the “Chapter 7 Case”) against GCC in the Southern District
of Florida, which again stayed Kassover’s fraudulent conveyance action. Kassover, Sabella, and
Allerand 675 Company, LLC (“Allerand”), a company owned and controlled by Sabella, were
among the creditors in the Chapter 7 Case. On November 10, 2011, Michael Bakst was appointed
and immediately resigned as trustee in the Chapter 7 Case. Later that same day, Robert Furr replaced
Bakst as trustee. After a couple of years, Sabella and Allerand filed a motion to remove Furr as
trustee, asserting that he had failed to properly administer the bankruptcy estate. Before that motion
was heard, on January 17, 2014, Furr resigned as trustee and was replaced by Margaret Smith (the
“Trustee”).
On March 5, 2015, Kassover’s fraudulent conveyance action was removed from New York
state court and transferred to bankruptcy court in the Southern District of Florida. The Trustee
identified this action (the “Adversary Proceeding”)8 as an asset of the bankruptcy estate and sought
to substitute herself as plaintiff. On December 1, 2015, the bankruptcy court entered an order
approving the substitution of the Trustee as plaintiff in the Adversary Proceeding.
On December 8, 2015, the Trustee filed a Motion to Approve Settlement Agreement
Between (I) Margaret Smith, Trustee; and (II) Richard J. Sabella; and for Entry of Bar Order (the
“Second Settlement Motion”). 9 Pursuant to the parties’ settlement agreement, the Trustee would
voluntarily dismiss the Adversary Proceeding in exchange for a $200,000 payment from Sabella and
the waiver, subordination, and release of certain claims by Sabella and Allerand. Kassover objected
to the Second Settlement Motion and sought dismissal of the Chapter 7 Case.

7

Case no. 11-37985-PGH.
Case no. 15-01134-PGH.
9
The bankruptcy court had previously denied the parties’ first settlement motion.
8

4

On December 10, 2015, Kassover filed his Third Renewed Motion to Dismiss the Chapter 7
Case. In that Motion, Kassover argued that the Chapter 7 Case had become a two-party dispute
between Sabella and Kassover since Allerand had acquired six other creditors’ claims on November
24, 2015. Kassover also argued that dismissal was appropriate because there was nothing left to
administer—the Adversary Proceeding was the bankruptcy estate’s only asset and the value of that
asset was insufficient to allow a meaningful distribution to GCC’s creditors.
On January 13, 2016, the bankruptcy court held a hearing on the Trustee’s Second Settlement
Motion and Kassover’s Third Renewed Motion to Dismiss. During that hearing, the court explained
that it would either approve the settlement of the Adversary Proceeding or dismiss the Chapter 7
Case:
I think it boils down to whether your proposed settlement is reasonable settlement.
That’s what I really think it boils down to. Because if it is a reasonable settlement, the
case shouldn’t be dismissed. If it is not a reasonable settlement, the case should be
dismissed. I really think that’s what it boils down to.
Mr. Mrachek’s client [Kassover] thinks it’s worth a lot of money. The trustee’s
proposed settlement, I think says it’s not with a lot of money, it’s worth a couple
hundred grand. I think I have to hear testimony on that issue, and either approve or
not approve the settlement. And if I approve it, I’m not going to dismiss the case. If I
don’t approve it, I’ll dismiss the case.
See Hrg. Tr. 16:19–17:8. The court later reiterated: “And I’ve told you all what’s going to happen. If
I approve the compromise, the case is not going to get dismissed. If I don’t, it’s going to get
dismissed.” See Hrg. Tr. 20:23–21:1. Following this hearing, it became clear that pursuing the
Second Settlement Motion would require extensive discovery and additional fees.
In recognition of that fact, on April 11, 2016, the Trustee filed a Motion for Entry of Order
Approving Sale by Auction of Cause of Action, Free and Clear of Liens, Claims and Encumbrances
(the “Auction Motion”), seeking to sell the Adversary Proceeding at auction as an alternative to
settlement. The Second Settlement Motion was not, however, withdrawn; it remained pending as a

5

backup in the event the bankruptcy court denied the Auction Motion. The Trustee disclosed in the
Auction Motion that Sabella had made an initial bid of $25,000 for the Adversary Proceeding.
Kassover objected to the Auction Motion and, on April 14, 2016, filed an Amended Third Renewed
Motion to Dismiss the Chapter 7 Case.
On May 3, 2016, the bankruptcy court held a hearing on the Trustee’s Auction Motion.
During that hearing, counsel for the Trustee represented that Sabella’s $25,000 bid was intended only
as a starting point and that she expected there to be “vigorous bidding” at the auction. For example,
counsel for the Trustee stated: “We had hoped for a higher offer to start the bidding. And this is just a
starting offer of $25,000.” See Hrg. Tr. 5:22–24. Counsel for the Trustee also said: “So far we have
gotten four serious inquiries. We’ve sent out a bunch of documents, and hopefully we can get some
more interest. Mr. Kassover has indicated he is going to bid at the auction. We expect there to be
vigorous bidding at the auction.” See Hrg. Tr. 6:14–19. Finally, counsel for the Trustee stated: “[W]e
think that this will be a good way to determine what the parties think this cause of action is worth,
and have Your Honor decide if it’s a fair price. If not we can always go back to the settlement.” See
Hrg. Tr. 9:18–22. Also during that hearing, the bankruptcy court noted that it was inclined to dismiss
the Chapter 7 Case as a two-party dispute rather than approve the Auction Motion:
I’m going to continue this until next week and just see what I do on the motion to
dismiss. I will tell you, I’m inclined to dismiss the case, because it really is a two
party dispute now. That’s my inclination. . . . I frankly, don’t see the benefit to the
estate any longer.”
See Hrg. Tr. 19:14–24.
On May 10, 2016, the bankruptcy court held a hearing on Kassover’s Amended Third
Renewed Motion to Dismiss and the Trustee’s Auction Motion. During that hearing, the bankruptcy
court noted that the Chapter 7 Case had essentially become a two-party dispute, but explained that it
may not technically be one in light of the fact that, in addition to the claims of Sabella, Allerand, and
6

Kassover, there remained a relatively small claim by the IRS and the Trustee’s administrative fees
and expenses. See Hrg. Tr. 4:5–16. The court also noted Kassover’s concerns about the auction—in
which Sabella (a creditor holding the majority of claims) had placed an initial bid of $25,000 for the
Adversary Proceeding that had begun as a fraudulent conveyance action brought by Kassover against
Sabella and others—and about whether there would ever be enough in the bankruptcy estate to allow
a meaningful distribution to GCC’s creditors after payment of administrative expenses:
I’ll make the other observations concerning the motion to sell. And Mr. Mrachek
[counsel for Kassover] has raised a couple of issues. Most—the two large issues
is, number one, there’s no benefit to the estate, because there will never be
enough money from the sale, in his opinion, and his client’s opinion, to pay off
the administrative expenses. And if even if there were, one of the potential
purchasers of the cause of action would potentially receive 90 percent of the
proceeds. And that’s a valid concern.
The other is, if one of the potential purchasers is the prevailing purchaser, there’s
an issue concerning good faith, or lack thereof, in making the—in being the
successful bidder. I’m not sure I agree with that position, but is it a valid concern.
Ms. Cloyd [counsel for the Trustee] has also indicated that she, her firm, her firm
is owed in excess of $200,000, but that she recognizes that, or concedes that her
firm may not get paid in full, and has not made any concrete offers, this is not an
offer, but in essence saying, her firm may have to cut some of their fees.
See Hrg. Tr. 4:17–5:13. Next, the court explained that it would allow the auction to proceed but
would wait until it had additional information before final approval of the sale:
So this is what I’m going to do. I’m going to authorize the sale to go forward, but
not approve the results of the sale. I am going to wait to see who the successful
bidder is, the amount of the bid.
And in deciding whether to accept the bid or not, I’m going to consider a number
of criterions, including the amount of the successful bidder, that the successful
bidder bid, who the successful bidder is, whether Ms. Cloyd’s firm has finalized
an agreement to reduce their fees. And I am in no way requiring Ms. Cloyd’s firm
to do so, but I think it’s important for the trustee to make a guesstimate after the
sale as far as what distributions there will be to the various creditors, whether
there will be money payable to the various creditors above the administrative
expenses, and the IRS, including the proceeds of any potential settlement with
Mr. Furr.
At that point I think I can make an educated decision as to whether I should
approve the sale, and/or dismiss the case. Without that information I really can’t
7

make an educated decision, an informed decision. Everything else until then is
hypothesis theories. I don’t know what the answer is. Okay.
See Hrg. Tr. 5:20–6:17. The court ultimately decided:
“[T]his is my inclination, unless someone has got a strong feeling otherwise. Set
the sale for the 14th, and set the motion to dismiss and the approval of the sale for
the 21st. And the reason I say that is, have the bid, everyone understands who the
ultimate high bidder is. That gives Ms. Smith time to, in essence, comply with
what I’ve just said, that is, give me a guesstimate of what the distributions are for
the creditors.”
See Hrg. Tr. 8:17–25. Also during that hearing, the bankruptcy court granted the Trustee’s
motion for extension of time to file a complaint in the Adversary Proceeding through July 11,
2016. See Hrg. Tr. 13:13–14. 10 Finally, the court noted that it would either approve the auction
or dismiss the Chapter 7 Case:
If the sale price is low, and is not even enough to pay a portion of the
administrative expenses, that is a double edged sword. The double edged sword in
that means that the cause of action isn’t worth very much, and therefore, I should
probably approve the sale.
At the same time, it accents, or emphasizes, that there is really nothing here for
the Court to do, and the case maybe should be dismissed. It’s a double edged
sword. Just so both sides know. I’m not sure how I will come out on that sword,
one way or the other.
See Hrg. Tr. 14:8–19.
Consistent with what it stated on the record during the that hearing, on May 16, 2016, the
bankruptcy court entered a written order setting the auction of the Adversary Proceeding for June
14, 2016, and setting a hearing for final approval of the sale for June 21, 2016. The minimum
opening bid (made by Sabella) was set at $25,000, with competing bids to be in $10,000
increments.

10

As noted above, the Adversary Proceeding began as a fraudulent conveyance action in New York state court. New
York law permits a plaintiff to initiate a case by filing a summons with notice, with the complaint to be filed after
the defendant has appeared. After the fraudulent conveyance action was removed to bankruptcy court and became
the Adversary Proceeding, the bankruptcy court granted multiple extensions of time to file a complaint. This was the
last extension of time granted.

8

On June 14, 2016, the auction of the Adversary Proceeding was held in open bankruptcy
court. At the outset, counsel for the Trustee stated: “[W]e’re not going to have much of an
auction because, besides the initial offer of Richard Sabella, no other parties have submitted a
bid.” See Hrg. Tr. 4:13–16. After asking whether there were any objections not already of record,
the bankruptcy court said he would approve the sale: “Anyone have any objection to the sale that
has not already raised the objection, and that objection having been resolved? Meaning, Mr.
Mrachek’s client [Appellee] objected at the first hearing, and I’ve overruled some of those
objections. So hearing none, then I will approve the sale.” See Hrg. Tr. 5:3–9.
On June 17, 2016, Sabella submitted a Memorandum in Support of Final Approval of
Auction. In that Memorandum, Sabella acknowledged that, “[p]ursuant to the Approval Order, a
hearing to consider ‘final approval’ of the sale is to be conducted on June 21, 2016 at 1:00 p.m.”
Sabella argued that the auction should be finally approved because the acceptance of Sabella’s
bid was in the sound business judgment of the Trustee, the price was not grossly inadequate,
there was not fraud or collusion, and the factors set forth in In re Justice Oaks II, Ltd., 898 F.2d
1544 (11th Cir. 1990) were satisfied.
On June 21, 2016, the bankruptcy court held a hearing on Kassover’s Amended Third
Renewed Motion to Dismiss the Chapter 7 Case and the final approval hearing for the auction of
the Adversary Proceeding. During that hearing, counsel for Kassover explained—and counsel for
Allerand and Sabella did not dispute—that the IRS had a claim of about $20,000, the Sabella
entities had claims of about $19 million, and the Kassover entities had claims of about $7.8
million. As a percentage, Sabella had 70% of the claims (91% if claims to which the Trustee
objected were excluded) and Kassover had about 30% of claims (8% if claims to which the
Trustee objected were excluded). The only asset the bankruptcy estate had was the Adversary

9

Proceeding. The Trustee’s fees and costs were approximately $246,000. There was just over
$62,000 in the bankruptcy estate, not counting Sabella’s winning $25,000 bid (or the alternative
proposed $200,000 settlement) for the Adversary Proceeding. See Hrg. Tr. 5:13–6:21.
The bankruptcy court noted that even with the $25,000 from the auction of the Adversary
Proceeding, and a potential $20,000 from Furr (the former trustee against whom the bankruptcy
estate may have had a claim for inadequate administration), there would still be nothing in the
bankruptcy estate for unsecured creditors after the Trustee’s fees and the IRS’s claim were paid.
See Hrg. Tr. 21:17–21. The Trustee’s counsel said her firm would reduce their fees in order to
resolve the Chapter 7 Case, but the bankruptcy court said it would not expect her to take such an
enormous cut. See Hrg. Tr. 21:22–22:8.
Counsel for Sabella and Allerand stated that, after the bankruptcy court denied the first
motion to approve settlement of the Adversary Proceeding, Allerand had acquired a number of
other creditors’ claims in order to facilitate another settlement. In other words, if the case were
essentially a two-party dispute at that point, it was only because Allerand had acquired other
creditors’ claims to facilitate settlement. See Hrg. Tr. 27:2–23. But the bankruptcy court noted
that there may have been a moral obligation to get one of those creditors paid, and also that a
number of the other creditors were related to or controlled by Sabella and/or Allerand. Counsel
for Sabella and Allerand acknowledged that this was true. See Hrg. Tr. 27:24–28:23.
Ultimately, the bankruptcy ruled as follows:
I’m going to grant the motion to dismiss. There is nothing here for the general
unsecured creditors. I am going to retain jurisdiction to rule on Ms. Cloyd and
Ms. Smith’s fee applications. I am ordering that the trustee not distribute or turn
over the funds in the estate until I make such a determination. . . . I also retain
jurisdiction over any claims of any professional involved in this case for any act
that gave rise to the claim that occurred during this case.
The reason I’m dismissing the case is, there’s really no assets to administer, other
than the cause of action against Mr. Sabella. And frankly, it’s a – at that point it’s
10

a two party dispute between Mr. Kassover and Mr. Sabella. And there is nothing –
no upside to the estate.
I accept Ms. Cloyd’s representation that the trustee and she have thoroughly
investigated the potential cause of action against Mr. Sabella, and that there is not
any value to the estate in pursuing that cause of action.
I also find evidence in that Mr. Sabella’s offered $25,000 for that cause of action.
That shows that the claim is basically for nuisance value.
I’m not going to approve that sale, because I find it inequitable to allow Mr.
Sabella to pay a nominal amount for a claim that, once I dismiss the case, is really
a case between Mr. Kassover and Mr. Sabella, Mr. Sabella and Mr. Kassover,
resolve the matter, ignore the matter, do whatever they’re going to do.
See Hrg. Tr. 32:14–33:24. When asked whether the bankruptcy court would retain jurisdiction
over the Adversary Proceeding, the court said: “I am not. I’m dismissing the adversary when I
dismiss the [Chapter 7] case.” See Hrg. Tr. 35:3–6.
On June 23, 2016, the Trustee’s counsel filed a final fee application requesting legal fees
in the amount of $240,393.00 and expenses in the amount of $6,089.64. On July 14, 2016, the
bankruptcy court entered written orders granting the Amended Third Renewed Motion to
Dismiss (in which all pending motions, including the Second Settlement Motion, were denied as
moot), denying the Auction Motion, and dismissing the Adversary Proceeding for the reasons
stated on the record during the hearing held June 21, 2016. On August 15, 2016, the bankruptcy
court awarded the Trustee’s counsel $96,816.50 in fees and $6,089.64 in expenses.
On September 6, 2016, the Trustee filed a Motion to Approve Agreement Between the
Trustee, Former Trustee, Robert C. Furr, and Furr and Cohen, P.A., with Respect to Turnover of
Interim Fee Award Paid to Furr and Cohen, PA, in Exchange for Release from Bankruptcy
Estate. On September 26, 2016, the bankruptcy court granted that Motion. Pursuant to the
settlement reached, Furr paid $20,000, all of which went toward the Trustee’s administrative fees
and expenses.

11

On July 15, 2016, Sabella and Allerand filed Notices of Appeal as to the bankruptcy
court’s orders dismissing the Chapter 7 Case and denying as moot the Second Settlement
Motion, denying the Auction Motion, and dismissing the Adversary Proceeding.
II.

JURISDICTION

This Court has jurisdiction over each of the bankruptcy court’s orders on appeal pursuant
to 28 U.S.C. § 158(a)(1).
III.

STANDARD OF REVIEW

The bankruptcy court’s orders may not be disturbed on appeal absent an abuse of that
court’s discretion. See In re Pegasus Wireless Corp., 391 F. App’x 802, 803 (11th Cir. 2010); In
re Air Safety Int’l, L.C., 336 B.R. 843, 852 (S.D. Fla. 2005); In re State Street Houses, Inc., 305
B.R. 738, 741 (S.D. Fla. 2003). An abuse of discretion occurs if the bankruptcy judge fails to
apply the proper legal standard, or to follow proper procedures in making its determination, or
bases its award upon findings of fact that are clearly erroneous. In re Red Carpet Corp. of
Panama City Beach, 902 F. 2d 883, 890 (11th Cir. 1990). To the extent Appellants preserved
their claim that they were denied due process by the bankruptcy court’s failure to review the
merits of the Second Settlement Motion, that issue is a question of law that this Court reviews de
novo. In re Seare, 515 B.R. 599, 615 (B.A.P. 9th Cir. 2014).
IV.

DISCUSSION

The Court addresses the appeals before it in the following order: (1) the bankruptcy court’s
order dismissing the Chapter 7 Case and denying as moot the Second Settlement Motion (case no.
9:16-cv-81278-RLR); (2) the bankruptcy court’s order denying the Auction Motion (case no. 9:16cv-81277-RLR); and (3) the bankruptcy court’s order dismissing the Adversary Proceeding (case no.
9:16-cv-81279-RLR).

12

A. Order Dismissing Chapter 7 Case and Denying as Moot Second Settlement Motion
In their briefs and at oral argument, Appellants contended that the bankruptcy court
abused its discretion in dismissing the Chapter 7 Case as a two-party dispute when (1) there were
additional creditors other than Allerand and Kassover and (2) a large number of creditors’ claims
were extinguished by Allerand’s purchase and consolidation of those claims. Appellants further
contended that the bankruptcy court abused its discretion in dismissing the Chapter 7 Case for
there being nothing left to administer when (1) there was a pending settlement that could have
brought $200,000 into the estate, (2) there was an ability to sue or enter into a settlement with the
former trustee, Robert Furr, for inadequate administration, and (3) there was an ability to sue
Peyton Gibson for contribution on any funds the estate disbursed to Kassover. Finally,
Appellants contended that the bankruptcy court abused its discretion and violated their due
process rights in denying as moot the Second Settlement Motion without holding an evidentiary
hearing or otherwise evaluating the merits.
However, in their proposed Memorandum Order submitted following oral argument,
Appellants appear to have abandoned many of these arguments. See Case No. 9:16-cv-81277RLR, DE 31-1 at 9–10. Appellants’ proposed Memorandum Order would reverse the bankruptcy
court’s order denying the Auction Motion, rendering moot their appeal of the bankruptcy court’s
order denying the Second Settlement Motion. See id. at 7–10. Although the proposed
Memorandum Order suggests that dismissal of the Chapter 7 Case as a two-party dispute was
inappropriate, it concludes that dismissal for there being nothing left to administer was
appropriate because (1) the appeal of the order denying the Second Settlement Motion had been
rendered moot, (2) the Trustee had entered into a settlement with Robert Furr, which had been
approved by the bankruptcy court, and (3) “there is no current ability to sue Peyton Gibson for

13

contribution where there has been no distribution made to Appellee Kassover and therefore such
alleged asset is not yet ripe, is contingent, and is highly speculative.” See id. at 9–10. Ultimately,
Appellants’ proposed Memorandum Order would affirm the bankruptcy court’s dismissal of the
Chapter 7 Case and denial of the Second Settlement Motion. See id. at 10.
Despite Appellants’ apparent abandonment, the Court addresses each of Appellants’
challenges to the bankruptcy court’s order dismissing the Chapter 7 Case and denying as moot the
Second Settlement Motion.
1. Dismissal of Chapter 7 Case as Two-Party Dispute
The bankruptcy court may dismiss a case when that court is used as “an alternative to
proceeding with pending State Court litigation to resolve what is essentially a two-party dispute.”
In re Kass, 114 B.R. 308, 309 (Bankr. S.D. Fla. 1990). Appellants have never argued otherwise
before this Court.
Rather, Appellants first argue that virtually all bankruptcy cases dismissed as two-party
disputes were dismissed relatively quickly, within months after they were filed. According to
Appellants, this means that the bankruptcy court’s dismissal of the Chapter 7 Case nearly five
years after it was filed was untimely and therefore improper. However, Appellants cite no
statute, case law, or other authority suggesting that a bankruptcy court cannot dismiss a case as a
two-party dispute after a certain amount of time. To the contrary, Appellants acknowledged at
oral argument that the bankruptcy court has fairly broad discretion under 11 U.S.C. § 707(a)11
and 11 U.S.C. § 305(a) 12—the statutes pursuant to which Kassover sought and the bankruptcy
11

11 U.S.C. § 707(a) permits the court to “dismiss a case under this chapter only after notice and a hearing and only
for cause . . .” “With only minor exception, the power of bankruptcy courts under § 707 to dismiss ‘for cause’ has,
since its enactment, been understood by courts as the power to prevent ‘manifestly inequitable result[s].’” In re
Piazza, 719 F.3d 1253, 1264 (11th Cir. 2013).
12
11 U.S.C. § 305(a) provides that: “The court, after notice and a hearing, may dismiss a case under this title, or
may suspend all proceedings in a case under this title, at any time if . . . the interests of creditors and the debtor
would be better served by such dismissal or suspension.”

14

court granted dismissal of the Chapter 7 Case—and that neither sets any time limit on dismissal.
Indeed, 11 U.S.C. § 305(a) explicitly permits dismissal “at any time.” Moreover, as Appellee
notes, there are in fact a number of cases demonstrating that dismissal as a two-party dispute
during the later stages of a bankruptcy case is not unusual. See, e.g., In re Adell, 332 B.R. 844,
849 (Bankr. M.D. Fla. 2005) (dismissing a case that was commenced as a Chapter 11 and
converted to a Chapter 7 nearly two years after the commencement of the case). GCC’s own
prior Chapter 11 bankruptcy case serves as an example: In September of 2011, GCC (controlled
at the time by Sabella) sought and was granted dismissal of its Chapter 11 bankruptcy case as a
two-party dispute between Sabella and Kassover, more than three years into that proceeding.
During oral argument, Appellants were unable to explain why the timing of the dismissal of the
Chapter 7 Case was problematic while the timing of the dismissal of the Chapter 11 case was
not. For all of these reasons, the Court cannot conclude that dismissal of the Chapter 7 Case as a
two-party dispute was untimely.
Appellants next argue that the Chapter 7 Case was not a two-party dispute at the time of
dismissal because, in addition to Allerand’s and Kassover’s claims, there remained the IRS’s
claim and the Trustee’s administrative claims. While there were a number of creditors at the
beginning of the Chapter 7 Case, Allerand acquired six creditors’ claims on November 24, 2015.
Even after Allerand acquired these claims, there remained the claims of Allerand (controlled by
Sabella), Kassover, and the IRS, as well as the administrative claims of the Trustee. However, as
Appellee points out, the IRS claim amounted to a fraction of 1% of the total claims, and
administrative claims are not to be considered in this analysis. See In re Steffen, 426 B.R. 907
(Bankr. M.D. Fla. 2010); In re Adell, 332 B.R. 844 (B.R. M.D. Fla. 2005); In re Energy
Partners, Ltd., 409 B.R. 211, 216 (Bankr. S.D. Tex. 2009) (the purpose of the bankruptcy estate

15

“is not principally to serve as fund for payment of professional fees”). Accordingly, the Court
cannot conclude that the bankruptcy court abused its discretion in determining that the Chapter 7
Case had become a two-party dispute at the time of dismissal.
Finally, Appellants argue that—if the Chapter 7 Case was a two-party dispute at the time
of dismissal—it had only become one due to Allerand’s acquisition of other claims in an effort to
facilitate settlement. Dismissal of the Chapter 7 Case as a two-party dispute therefore runs
contrary to public policy in favor of settlement. While Appellants cite authority for the general
policy in favor of settlement, they cite no statute, case law, or other authority suggesting that a
case may not be dismissed as a two-party dispute after claims have been consolidated through
acquisition by a single creditor, even where the purpose of consolidation is to facilitate
settlement. Furthermore, as Appellants acknowledge, Allerand’s acquisition of other claims was
not purely to facilitate settlement. During a hearing held on June 21, 2016, the bankruptcy court
noted that Allerand and Sabella controlled or were connected to at least some of the creditors
whose claims Allerand acquired, and that there may have been a moral obligation to see that
those creditors were paid. Counsel for Allerand and Sabella acknowledged as much during that
hearing, stating: “That is correct. I mean, there was some relation between all the parties.” See
Hrg. Tr. 27:24–28:23. Appellants again conceded this fact at oral argument before this Court.
Appellants stress, and the Court acknowledges, that these related creditor claims did not meet the
definition of “insider” claims set forth in the Bankruptcy Code. See 11 U.S.C. § 101(31).
Nevertheless, it is clear that Allerand was motivated, at least in part, by considerations other than
settlement. Accordingly, the Court cannot conclude that the bankruptcy court abused its
discretion in dismissing the Chapter 7 Case as a two-party dispute after Allerand purchased and
consolidated a number of creditors’ claims.

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2. Dismissal of Chapter 7 Case for There Being Nothing Left to Administer
A bankruptcy court may dismiss a case when continued administration will not promote
the fundamental purposes of Chapter 7, one of which is to liquidate the debtor’s non-exempt
assets for the benefit of the debtor’s unsecured creditors. See In re Steffen, 426 B.R. 907, 915
(Bankr. M.D. Fla. 2010). In other words, as Appellants acknowledge, a bankruptcy court may
dismiss a case when there is nothing left to administer.
Appellants argue that, at the time of dismissal, there were sufficient assets in the
bankruptcy estate to allow a meaningful distribution to GCC’s creditors, including: (1) the
Adversary Proceeding; (2) a potential claim against the former trustee, Robert Furr, for his
failure to adequately administer the estate; and (3) to the extent any distribution was made to
Kassover, a potential claim for contribution against Peyton Gibson (a co-obligor under
Kassover’s judgment against GCC) worth 50% of the amount of any distribution to Kassover.
With respect to the Adversary Proceeding, Appellants argue that the Second Settlement
Motion remained pending at the time of dismissal and, if granted, would have brought $200,000
into the bankruptcy estate. However, after filing the Second Settlement Motion, the Trustee filed
the Auction Motion and an auction was held, at which Sabella placed the highest bid of
$25,000. 13 The Court notes that the Second Settlement Motion was never withdrawn and
remained pending as a backup in the event that the Auction Motion was denied. However, the
Court declines to assume that the bankruptcy court would ultimately have granted the Second
Settlement Motion rather than approve the sale of the Adversary Proceeding to Sabella for
$25,000. To do so would require this Court to engage in speculation.

13

Appellants conceded at oral argument that, had the bankruptcy court approved the sale of the Adversary
Proceeding to Sabella for $25,000, there could not have been a meaningful distribution to GCC’s creditors.

17

Even assuming the bankruptcy court denied the Auction Motion, the parties would have
had to conduct additional discovery—and incur additional fees—in order to proceed on the
Second Settlement Motion. This was the very reason the Trustee sought to sell the Adversary
Proceeding by auction instead. At least some of the $200,000 received by the bankruptcy estate
pursuant to the settlement would have been consumed by these additional fees.
Setting these additional fees aside, it is unlikely that the Trustee’s administrative fees
would have been reduced to the extent they were had the Second Settlement Motion been
granted. Following dismissal of the Chapter 7 Case, the Trustee sought legal fees in the amount
of $240,393.00 and expenses in the amount of $6,089.64. The Trustee was ultimately awarded
$96,816.50 in fees and $6,089.64 in expenses. The Court declines to use this reduced fee award
to calculate the potential distribution to creditors if either the Second Settlement Motion or
Auction Motion had been approved, when that amount was a substantial reduction from the
actual fees incurred as of the time of dismissal. It is far more likely that, had the bankruptcy
estate received money from the settlement or auction of the Adversary Proceeding, the Trustee
would have been awarded more for her fees and expenses. The total amount of fees and expenses
sought by the Trustee far exceeded and could easily have consumed even the $200,000
settlement amount, in which case there still would not have been a meaningful distribution to
GCC’s creditors. 14
With respect to Robert Furr, the former bankruptcy trustee, the parties reached a settlement
following dismissal of the Chapter 7 Case pursuant to which the bankruptcy estate received $20,000.
That entire amount went toward the Trustee’s fees and expenses rather than being distributed to
GCC’s creditors. Appellants argue that the bankruptcy estate could have received more if the case
14

Trustee’s counsel represented to the bankruptcy court that she was willing to reduce her fees to allow for a
distribution to Kassover. However, the Court notes that the bankruptcy court indicated this would require a
substantial reduction beyond anything the bankruptcy court would expect.

18

had not been dismissed prior to settlement. Such an argument requires the Court to engage in
speculation, which it will not do. Moreover, Appellants conceded during oral argument that this
argument is now essentially moot.
Finally, Appellants argue that they could have sued Peyton Gibson for contribution for any
funds the bankruptcy estate disbursed to Kassover, who held a judgment against GCC and Gibson,
jointly and severally. The Court notes, however, that this claim for contribution would only ripen
after the bankruptcy estate made a distribution to Kassover. GCC’s claim against Gibson never
matured and could not have done so unless and until a distribution was made to Kassover.
For all of the reasons, the Court cannot conclude that the bankruptcy court’s dismissal of the
Chapter 7 Case for there being nothing left to administer was an abuse of that court’s discretion.
3. Denial of Second Settlement Motion as Moot
The bankruptcy court denied all pending motions, including the Second Settlement Motion,
as moot when it dismissed the Chapter 7 Case. The bankruptcy court did not hold a hearing or
otherwise evaluate the merits of the Second Settlement Motion prior to denying it as moot.15
Appellants argue that this was an abuse of discretion and violated their due process rights because
they were deprived of a property interest (i.e., their substantive rights or benefits under the settlement
agreement) without due process.16

15

While they initially argued that it was error for the bankruptcy court not to hold an evidentiary hearing on the
Second Settlement Motion, Appellants conceded at oral argument that an evidentiary hearing was not required.
Appellants then refined their position, arguing that it was error not to hold a “meaningful” hearing or otherwise
engage in a “meaningful” evaluation of the merits of the Second Settlement Motion.
16
Appellants also argued that the settlement should have been approved because it was fair and equitable, it was
above the lowest point in the range of reasonableness, and it satisfied the Justice Oaks factors. However, at oral
argument, Appellants indicated that it would be inappropriate for this Court to consider these matters when the
bankruptcy court did not. Appellants therefore suggested that—assuming the Court agrees that the bankruptcy court
should have evaluated the merits of the Second Settlement Motion—the appropriate course would be for this Court
to remand the case to the bankruptcy court to do so. Because the Court concludes that the bankruptcy court did not
err in denying the Second Settlement Motion as moot without evaluating the merits, the Court does not reach these
issues.

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As an initial matter, the Court notes that Appellants likely had no property interest in any
substantive rights or benefits under the settlement agreement, as the settlement agreement was
subject to court approval under Federal Rule of Bankruptcy Procedure 9019(a) and under the terms
of the settlement agreement itself. Even if Appellants had some property interest, they waived
their due process argument by failing to raise it with the bankruptcy court. Appellants could have
done so in a written response to Kassover’s Amended Third Renewed Motion to Dismiss, during
the hearing held June 21, 2016, or in a motion for reconsideration after the Chapter 7 Case was
dismissed. Finally, the Court notes that there is no requirement in any statute, case law, or other
authority that a bankruptcy court hear argument on, evaluate the merits of, and resolve all
outstanding motions prior to dismissal. Having determined that dismissal of the Chapter 7 Case
was appropriate, the bankruptcy court properly denied the Second Settlement Motion as moot.
B. Order Denying Auction Motion
Appellants argue that the bankruptcy court abused its discretion in denying final approval of
the Auction Motion because the court created a reasonable expectation that it would be granted.
Specifically, Appellants assert that they had a reasonable expectation because the bankruptcy court
permitted the auction to go forward knowing that the initial bid—which might ultimately be the final
bid—was Sabella’s bid of $25,000 and because the bankruptcy court stated on the record
immediately following the auction on June 14, 2016, “I will approve the sale.”
The Court rejects Appellants’ argument that, by permitting the auction to go forward, the
bankruptcy court implicitly accepted that Sabella’s initial bid of $25,000 may ultimately be the
winning bid. While the bankruptcy court and the Trustee presumably knew it was possible that there
would be no additional bids, the Trustee represented during the May 3, 2016 hearing preceding the

20

auction that Sabella’s $25,000 bid was intended to be an initial bid only, not the final amount for the
sale, and that she expected there would be “vigorous bidding” at the auction.
More importantly, the bankruptcy court was very clear that it was reserving final approval
until a hearing was held on June 21, 2016, one week after the auction. During the hearings held on
May 3, 2016 and May 10, 2016, and in its written order dated May 16, 2016, the bankruptcy court
was explicit that it was only approving the auction to go forward and that it would consider final
approval of the auction at a later date when it had more information, including the total amount of
fees and expenses requested by the Trustee, the final amount bid at the auction, and who the winning
bidder was. The bankruptcy court also made it clear that it would either approve the auction or
dismiss the case. Contrary to Appellants’ argument, the bankruptcy court’s single statement
immediately following the auction on June 14, 2016—“I will approve the sale”—is not enough to
negate all other statements to the effect that final approval would be addressed separately after the
bankruptcy court had more information. The fact that Sabella submitted a Memorandum in Support
of Final Approval of Auction on June 17, 2016, suggests that Sabella understood as much. All parties
were on notice of the procedure that the bankruptcy court intended to follow and, therefore, there was
no reasonable expectation that the auction would receive final approval.
Finally, the Court notes that—even if the auction had received final approval—it is almost
certain that the additional $25,000 received by the bankruptcy estate would have gone toward the
Trustee’s fees and expenses. Rather than extinguish the Adversary Proceeding with no benefit to
GCC’s unsecured creditors, the bankruptcy court dismissed the Adversary Proceeding, allowing it to
proceed between Sabella and Kassover in state court. As noted above, there is no requirement that
the bankruptcy court determine the merits of every pending motion before dismissal.

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For all of these reasons, the Court’s denial of the Auction Motion was not an abuse of
discretion.
C. Order Dismissing Adversary Proceeding
In their written briefs and at oral argument, Appellants contended that the bankruptcy court
abused its discretion when it dismissed the Adversary Proceeding for the reasons stated on the record
during the June 21, 2016 hearing because the Adversary Proceeding should have been dismissed on
other grounds. Specifically, Appellants argued that the Adversary Proceeding was a “legal nullity”
because it had been improperly initiated and that the Adversary Proceeding should have been
dismissed for failure to timely file a complaint. Finally, Appellants argued that dismissal of the
Adversary Proceeding prior to a meaningful evaluation of the merits of the Second Settlement
Motion was an abuse of discretion and a violation of due process. 17
However, in their proposed Memorandum Order submitted following oral argument,
Appellants appear to have abandoned these arguments. See Case No. 9:16-cv-81277-RLR, DE
31-1 at 10. Instead, the proposed Memorandum Opinion would reverse the dismissal of the
Adversary Proceeding only to the extent necessary to effectuate the sale by auction of the
Adversary Proceeding to Sabella. See id. Accordingly, Appellants suggest that “[t]he Court need
not address the other issues presented in relation to the Adversary Order.” See id. Nevertheless,
the Court addresses the arguments previously raised by Appellants.
Appellants argue that the Adversary Proceeding was never formally commenced because
Kassover’s summons with notice did not provide sufficient notice of the nature of the action and no
complaint was ever filed. Appellants further argue that, if an action is commenced with a summons
with the notice, New York law requires that a complaint be filed within 20 days after a defendant
17

The Court has already addressed and rejected this argument. See supra Section IV.A.3. The Court has also
determined that it was not error to deny the Auction Motion. See supra Section IV.B. The dismissal of the
Adversary Proceeding therefore need not be reversed on that ground.

22

serves a notice of appearance; this and other procedural requirements under New York law were not
satisfied. Finally, Appellants argue that the bankruptcy court’s final extension of the deadline to file a
complaint in the Adversary Proceeding expired on July 11, 2016, and that case was not dismissed
until July 14, 2016; thus, at the time of dismissal, the bankruptcy court’s deadline to file a complaint
had passed. However, Appellants conceded at oral argument that the bankruptcy court indicated
during the hearing held on June 21, 2016, that it was dismissing the Adversary Proceeding. At that
time, the final extension of the deadline to file a complaint had not passed. Appellants’ argument on
this point is therefore unavailing.
More broadly, as Appellee notes, Appellants point to no statute, case law, or other authority
requiring a bankruptcy court to rule on the merits of an adversary proceeding when the main
bankruptcy case has been dismissed. The bankruptcy court was therefore not required to reach these
issues before dismissing the Adversary Proceeding along with the Chapter 7 Case. Declining to do so
was not an abuse of the bankruptcy court’s discretion. Appellants may raise their arguments related
to the sufficiency of the summons with notice and the timing of filing a complaint in the state court to
which that case returns.
V.

CONCLUSION

For the reasons set forth above, the Court concludes that the bankruptcy court’s orders on
appeal were not an abuse of that court’s discretion or otherwise reversible error. Accordingly, it
is hereby ORDERED and ADJUDGED as follows:
1. The orders of the bankruptcy court (1) granting Kassover’s Amended Third Renewed
Motion to Dismiss the Chapter 7 Case and denying as moot the Second Settlement
Motion, (2) denying the Auction Motion, and (3) dismissing the Adversary
Proceeding are AFFIRMED.
2. Appellants’ appeals (case no. 9:16-cv-81277-RLR, 9:16-cv-81278-RLR, and 9:16-cv81279-RLR) are DENIED.

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3. The Clerk of the Court is directed to CLOSE THIS CASE (case no. 9:16-cv-81277RLR). All pending motions are denied as moot, all deadlines are terminated, and all
hearings are cancelled.
DONE and ORDERED in Chambers, West Palm Beach, Florida, this 24th day of
March, 2017.

_______________________________
ROBIN L. ROSENBERG
UNITED STATES DISTRICT JUDG

Copies furnished to:
Counsel of record

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