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In re McIntyre Land Company, Inc.

United States District Court, M.D. Alabama, Northern Division

October 8, 2019

IN RE MCINTYRE BUILDING COMPANY INC., Debtor,
v.
SERVISFIRST BANK, Intervenor Plaintiff-Appellant MCINTYRE LAND COMPANY, INC., Plaintiff-Appellant,
v.
BRANCH BANKING AND TRUST COMPANY, INC., MCINTYRE BUILDING COMPANY INC., AND INNES T. MCINTYRE, IV. Defendants-Appellees.
v.
SUSAN SHIROCK DEPAOLA Trustee-Defendant-Appellee

          MEMORANDUM OPINION AND ORDER

          ANDREW L. BRASHER UNITED STATES DISTRICT JUDGE

         This litigation is about whether a bank has a mortgage on undeveloped property or on a shopping center. It comes to the Court after the Bankruptcy Court entered Proposed Findings of Fact and Conclusions of Law to resolve an adversary proceeding between, on one side, Plaintiffs McIntyre Land Company and Servisfirst Bank and, on the other side, Defendants Branch Banking and Trust Company, Inc., and the Bankruptcy Estates of McIntyre Building Company Inc. and Innes T. McIntyre.[1] After extensive briefing and an evidentiary hearing, the Bankruptcy Court recommended that this Court: (1) deny Plaintiffs' claims, including its claims quiet title and for fraud and (2) declare that Branch Banking and Trust Company, Inc., has a valid mortgage lien on the shopping center and no mortgage lien on the undeveloped property. See Doc. 1-6.

         Both sides disagree with aspects of the Bankruptcy Court's order. Plaintiffs argue that the Bankruptcy Court (1) did not have subject matter jurisdiction over the dispute (2) should have abstained from adjudicating the dispute and (3) was wrong on the merits. Defendants agree with the Bankruptcy Court's bottom-line conclusions on jurisdiction, abstention, and the merits. But they argue that this matter is a “core proceeding” such that the Bankruptcy Court should have entered a final order instead of proposed findings of fact and conclusions of law. See 28 U.S.C. § 157(b)(2)(B).

         Having reviewed the record and applicable law de novo and with the benefit of oral argument, this Court agrees with the Bankruptcy Court's bottom-line conclusions. Accordingly, to the extent the litigation is a “noncore” proceeding or a “core” proceeding subject to de novo review, the Court adopts the Bankruptcy Court's Proposed Findings of Fact and Conclusions of Law as modified by this opinion. In the alternative, if the matter were a “core” proceeding, then it would properly be reviewed on appeal to this Court under 28 U.S.C. § 158, and the Court would affirm the Bankruptcy Court's decision. Either way, the Plaintiffs' objections to the Bankruptcy Court's decision are overruled, and the Bankruptcy Court's decision is adopted as modified by this opinion.

         Background

          The Court adopts the Bankruptcy Court's factual findings to which no party objected. The most salient of those facts are summarized below.

         Innes McIntyre (“Innes”) was in the construction and real estate development business. Innes was the sole owner of Mclntyre Building Co., Inc. (“Building”). Innes' wife owned McIntyre Land Co., Inc. (“Land”). Innes was the President of both companies.

         Colonial Bank (“Colonial”) loaned $3.1 million to Building, which was secured by the Prattville Square Shopping Center, which is owned by Land.[2]

         ServisFirst Bank (“ServisFirst”) loaned money to Land, and that loan was also secured by a mortgage on the same shopping center.

         It made no business sense for a loan to Building to be secured by property owned by Land. Recognizing as much in 2006, Innes asked Colonial whether it would substitute as collateral a 165-acre parcel of unimproved land owned by Building for the Prattville Shopping Center owned by Land. Presumably, Innis made this request as President of both companies. A representative of Colonial wrote Innes the following letter:

         Dear Innes:

This is to advise that Colonial Bank (Colonial) has agreed to release the Prattville Square Shopping Center as collateral on the referenced loan and replace it with 140 acres of land in Prattville. This is subject to a new appraisal being ordered to confirm that the proper loan to value on the property will be maintained. By signing this letter you agree to pay for the appraisal on the 140 acres.
Sincerely,
Bill R. Renfroe Vice President
BY: Innes McIntyre
Date

         All parties agree, and the Bankruptcy Court found, that the letter proposed to substitute the 165 acres of undeveloped property at issue in this case, even though it erroneously referred to the real estate as 140 acres.

         The parties meant to complete this “collateral swap” agreement. But the parties never completed the deal. The undeveloped land was appraised, but Innis never signed the letter as the President of either Building or Land. Colonial and Land never executed a release of the mortgage on the Prattville Square Shopping Center. Colonial never recorded a mortgage on the unimproved property owned by Building. Accordingly, public records continued to reflect a Colonial mortgage on Land's Prattville Square Shopping Center and no Colonial mortgage on Building's 165 acres.

         In December 2008, Colonial and Building renewed the original $3.1 million loan in a document that states the loan remained secured by Land's Prattville Square Shopping Center.

         In 2009, Colonial went broke and was taken over by the Federal Deposit Insurance Corporation.

         Branch Banking and Trust Company (“BB&T”) purchased Colonial's relevant assets from the FDIC and is the successor in interest to the Colonial loan.

         Procedural History

          In 2010, Innes and Building both filed for bankruptcy. Land and Innes' wife remained solvent.[3]

         When Building filed for bankruptcy, it listed BB&T as having a mortgage lien on the 165 acres of unimproved land.

         Land filed an adversary proceeding in Building's bankruptcy, which asserted claims against Building, Innes, and BB&T. The complaint (which was later amended) alleged that BB&T (as Colonial) had promised that it would release Land's Prattville Shopping Center. The complaint asked the Bankruptcy Court to order the parties to complete the collateral swap agreement, that is, to order Building to execute a mortgage on the 165 acres that Building owned and to compel BB&T to execute a release of the mortgage on the shopping center that Land owned.

         After filing a proposed amended complaint to add additional parties, drop Building as a defendant, and modify its theories of relief, Land moved to dismiss its own action.

         BB&T filed an answer and counterclaim in which it sought a declaration that it had a valid lien on Land's Shopping Center or, in the alternative, a valid lien on Building's165 acres. BB&T also opposed Land's motion to dismiss.

         The Bankruptcy Court granted Land's motion to dismiss because it concluded that the dispute did not involve property of the bankruptcy estate. But the very next day the Bankruptcy Court issued an order stating that it may have made an error because it had overlooked BB&T's answer and counterclaim. BB&T also filed a motion for relief from judgment, arguing that the Bankruptcy Court had erred.

         While the Bankruptcy Court was trying to determine whether it had erred in dismissing Land's adversary proceeding, Land filed a new complaint in state court that made essentially the same allegations it had made in its proposed amended complaint in the bankruptcy. The state-court complaint did not list Innes or Building in the caption as parties. The complaint did, however, include this allegation in paragraph 8:

In 2006, Codefendants McIntyre Building Company and Innes McIntyre as well as [Land] entered into an agreement with BB&T. That agreement required BB&T to release its mortgage on Prattville Square Shopping Center and, in turn, McIntyre Building agreed to encumber a 165 acre parcel of property ...

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