IN RE GENERAL DEVELOPMENT CORP., 84 F.3d 1364 (11th Cir. 1996)

No. 95-4379 Non-Argument Calendar.United States Court of Appeals, Eleventh Circuit.
Decided June 7, 1996.

Jennifer S. Carroll, Metzger, Sonneborn Rutter, P.A., West Palm Beach, FL, for appellants.

Kenneth Bruce Robinson, Arthur J. England, Jr., Christopher L. Kurzner, Greenberg, Trauig, Hoffman, Lipoff, Rosen Quentel, P.A., Miami, FL, for Atlantic Gulf Communities Corp. and General Development Corp.

Appeal from the United States District Court for the Southern District of Florida.

Page 1365

(No. 94-95 CIV-SMA), Sidney M. Aronovitz, Judge.

Before TJOFLAT, Chief Judge, and KRAVITCH and HATCHETT, Circuit Judges.

PER CURIAM:

[3] APPENDIX

BEFORE THIS COURT is an appeal the Bankruptcy Court’s Order
Granting Atlantic Gulf’s Motion to Enforce Executory Contract,
Discharge and Injunction Provisions of Plan and Confirmation
Order, and Denying Motion for Ex Parte Relief from the Automatic
Stay, dated November 5, 1993. In addition, currently pending
before the Court are three motions: (1) Appellee General
Development Corporation’s (“GDC”) Motion to Strike Appendix A,
Appendix B and Appendix C to Appendix to Appellants’ Reply Brief,
file dated April 4, 1994; (2) Appellee GDC’s Motion to Supplement
Appellate Record, file dated April 4, 1994; and (3) Appellants’
John E. Sipes and Mildred B. Sipes (the “Sipes”) Motion to
Supplement Appellate Record, file dated April 21, 1994.

This Court heard oral argument on this appeal on October 7,
1994, and has carefully considered all briefs submitted on
appeal, oral argument of counsel, the entire record including but
not limited to the three pending motions and responses filed
thereto, applicable law and is otherwise fully advised in the
premises. For the following reasons, it is ORDERED AND ADJUDGED
that:

1. Appellee GDC’s Motion to Strike Appendix A, Appendix B and
Appendix C to Appendix to Appellants’ Reply Brief be, and the
same, is hereby GRANTED IN PART. Only Appendix C to Appendix to
Appellants’ Reply Brief shall be stricken from the appellate
record, and Appendix A and B shall be considered part of the
appellate record.

2. Appellee GDC’s Motion to Supplement Appellate Record be,
and the same, is hereby GRANTED.

3. Appellants Sipes’ Motion to Supplement Appellate Record be
and the same, is hereby DENIED.

4. The Bankruptcy Court’s Order Granting Atlantic Gulf s
Motion to Enforce Executory Contract, Discharge and Injunction
Provisions of Plan and Confirmation Order, and Denying Motion for
Ex Parte Relief from the Automatic Stay, dated November 5, 1993,
is hereby AFFIRMED in its entirety.

Factual and Procedural Background

The Sipes appeal from an Order Granting Atlantic Gulf’s
Motion to Enforce Executory Contract, Discharge and Injunction
Provisions of Plan and Confirmation Order, and Denying Motion for
Ex Parte Relief From the Automatic Stay, entered by the Honorable

Page 1366

A. Jay Cristol, United States Bankruptcy Judge and dated November
5, 1993. By this Order, Judge Cristol ruled, among other things,
that an installment land sale contract between the Sipes and
Debtor GDC was an executory contract subject to rejection by GDC
pursuant to § 365 of the Bankruptcy Code.

The installment land sales contract at issue, entitled the
“Homesite Purchase Agreement”, was entered into by the Sipes and
GDC for the sale of a homesite in Port St. Lucie, Florida (the
“Property”) on July 15, 1972. The Agreement provided that GDC
would deliver to the purchaser a Warranty Deed once the purchaser
made all monthly payments. The Sipes completed all of their
payments due under the contract in March of 1983. However, due to
alleged construction delays, the homesite remained undeveloped as
of December of 1987.

GDC and its affiliates and subsidiaries ultimately filed
voluntary Chapter 11 petitions on April 6, 1990. On October 26,
1990, the Bankruptcy Court approved GDC’s proposed Homesite
Purchaser Assurance Program (the “Program”), which set forth a
mechanism to assure purchasers that they will receive their deeds
upon payment of a reduced purchase price. Under the Program,
purchasers such as the Sipes whose homesites were on land which
GDC did not intend to develop were afforded the option to
participate in the Program and have their contract transferred to
a developed lot. The Sipes declined to participate and as a
result, GDC rejected the Sipes’ Homesite Purchase Agreement on
June 19, 1992. The Sipes filed an objection to the rejection on
July 9, 1992.

Meanwhile, on March 27, 1992, GDC’s reorganization plan was
confirmed. The GDC Plan provided that homesite purchasers whose
contracts were rejected would receive a Class 2.2 (secured) claim
in respect to their lien rights under § 365(j) of the Code,
a Class 10 (unsecured) claim in respect of prepetition principal
and interest payments not covered by § 365(j), and an
administrative claim for any payments made after filing date. The
Confirmation Order provided that “all of the property of the
estate, wherever situated, is vested in the Reorganized Company,
free and clear of all claims and interests of creditors and of
security equity holders, except as provided in the Plan and this
Order.” It also discharged all prepetition debts and enjoined all
persons from recovering on their claim.

On June 20, 1992, GDC sent the Sipes a special proof of claim
form, calculating the Sipes’ claim to be $5,088.00. The Sipes
disagreed and asserted a claim of $5,096.26. In November of 1992,
the Sipes filed a state court action against GDC, seeking
specific performance and damages. The action was dismissed with
prejudice due to GDC’s pending bankruptcy.

After learning of GDC’s efforts to replat and redevelop the
subdivision in which their property is located, the Sipes filed
in the bankruptcy court a pro se Motion for Ex Parte Relief From
the Automatic Stay on September 24, 1993. GDC thereafter filed a
motion to enforce the executory contract, discharge and
injunction provisions of the Confirmation Order against the
Sipes. GDC sought an order (i) declaring that any claim or
interest of the Sipes in the property was terminated by GDC’s
rejection of the Homesite Purchase Agreement and that the
Property vested in Atlantic Gulf free and clear of any interest
or claim of the Sipes; (ii) declaring that any prepetition claim
of the Sipes was discharged pursuant to the Confirmation Order
and § 1141(d) of the Code; and (iii) enjoining the Sipes
from seeking to enforce or assert an interest in the Property and
from interfering with GDC’s use and development thereof.

Following a hearing on the two motions, Judge Cristol denied
the Sipes’ ex parte motion and granted GDC’s enforcement motion.
He found that the Agreement was an executory contract subject to
rejection under 11 U.S.C. § 356(a) and that the Property was
vested in Atlantic Gulf free and clear of any interest of claim
of the Sipes. He also enjoined the Sipes from asserting an
interest in the property or otherwise interfering with Atlantic
Gulf’s use and development of the Property. The Sipes appeal this
Order.

As noted herein, also pending before this Court are three
motions: (1) Appellee GDC’s

Page 1367

Motion to Strike Appendix A, Appendix B and Appendix C to
Appendix to Appellants’ Reply Brief; (2) Appellee GDC’s Motion to
Supplement Appellate Record; and (3) Appellants Sipes’ Motion to
Supplement Appellate Record.

In the course of examining the record, the appellate briefs
and the outstanding motions in preparation for oral argument on
the merits of the appeal, it became apparent that the Bankruptcy
Court’s Order on appeal was devoid of any factual findings to
support its ruling with respect to the Appellants’ procedural due
process claim. This claim was raised at the trial level in the
Response to Reorganized Debtors’ Motion to Enforce Executory
Contract, Discharge and Injunction Provisions of Plan and
Confirmation Order, dated October 26, 1993.

In addition, it was apparent that the Bankruptcy Court’s
Order contained no citations to authority to support its ruling
that the Homesite Purchase Agreement at bar was an executory
contract subject to rejection pursuant 11 U.S.C. § 365. No
citations to legal authority, other than “courts and commentators
alike,” and no findings of fact were made to support the ruling.
Issues of fact therefore remained undetermined. Accordingly, on
May 11, 1994, this Court entered an Order remanding this case to
the United States Bankruptcy Court to (1) hold an evidentiary
hearing and make findings of fact and conclusions of law
regarding the Appellants’ procedural due process claim, and to
determine which documents should be admitted into the record on
that issue; and (2) to make findings of fact and further
conclusions of law, and to hold an evidentiary hearing if
necessary, regarding the issue of whether the Homesite Purchase
Agreement at issue was an executory contract for rejection
purposes under § 365 of the Bankruptcy Code. On September 16,
1994, the Bankruptcy Court entered its Order on Evidentiary
Hearing Pursuant to Remand. (“Order on Remand”) This Court has
carefully considered said Order on Remand and the arguments
presented on appeal, including oral argument of counsel on
October 7, 1994.

Standard of Review

In accordance with Federal Rule of Bankruptcy Procedure 8013,
the Bankruptcy Court’s findings of fact will not be set aside
unless clearly erroneous. In re Chase Sanborn Corp., 904 F.2d 588
(11th Cir. 1990); In re T B General Contracting, Inc.,
833 F.2d 1455 (11th Cir. 1987). Equitable determinations by the
Bankruptcy Court are subject to review under an abuse of
discretion standard. In re Red Carpet Corp. of Panama City Beach,
902 F.2d 883 (11th Cir. 1990). Conclusions of law are subject to
de novo review. In re Chase Sanborn Corp., 904 F.2d at 593; In
re Sublett, 895 F.2d 1381 (11th Cir. 1990).

While the Bankruptcy Court’s factual findings are subject to
a clearly erroneous standard, that standard does not apply when
determining the propriety of the Bankruptcy Judge’s conclusions
of law, (i.e.) determination of what law applies or determination
of the ultimate legal conclusions resulting from the application
of the law to the facts. Legal conclusions made by the Bankruptcy
Judge may not be approved by the District Court without an
independent determination. In re Columbia Data Products, Inc.,
99 B.R. 682, 684 (D.Md. 1989), affirmed, 892 F.2d 26 (4th Cir.
1989); citing, In re Hunter Sav. Ass’n., 34 B.R. 368, 374
(Bankr.S.D. Ohio 1983), reversed on other grounds, 750 F.2d 536
(6th Cir. 1984); In re Hollock, 1 B.R. 212, 215 (Bankr.M.D.Pa.
1979).

Three Pending Motions

1. Appellee GDC’s Motion to Strike Appendix A, B and C of
Appellants’ Appendix to Reply Brief

When the Sipes filed their reply brief, they also filed a
second appendix containing, among other things, GDC’s certificate
of service regarding the conformation hearing (“Appendix A”),
GDC’s certificate of service regarding the disclosure statement
(“Appendix B”), and an 10/27/93 GDC letter to the Sipes
(“Appendix C”). According to the reply brief, these documents
were added in support of the Sipes’ claim that they were denied
procedural due process in connection with the confirmation
hearing.

Page 1368

GDC moved to strike these documents on the ground that they
were never designated as part of the record on appeal, that they
are misleading, and that the Sipes never moved to supplement the
record with these documents pursuant to Fed.R.App.P. 10(e). It
further contends that the GDC letter (Appendix C) is a privileged
settlement offer that should be stricken as an improper
disclosure of settlement discussions.

In response, the Sipes contend that the two certificates of
service (Appendices A and B) are and were part of the record
below and therefore should not be stricken on appeal. These
documents were attached to their reply brief in direct response
to new arguments raised by GDC for the first time in GDC’s answer
brief. As to Appendix C, the letter was not, as GDC maintains, a
settlement offer but rather, GDC’s proposed final resolution of
the Sipes’ claim.

2. Appellee GDC’s Motion to Supplement Appellate Record

In a separate motion, GDC has moved pursuant to Fed.R.App.P.
10(e) to supplement the record on appeal to include John Sipes’
Ballot rejecting the GDC Plan (“Exhibit A”); Mildred Sipes’
Ballot rejecting the GDC Plan (“Exhibit B”); and GDC’s Ballot and
Disclosure Statement (“Exhibit C”). These documents are offered
to rebut the Sipes’ claim that they should not be bound by the
GDC Plan or Confirmation Order because they allegedly did not
receive notice thereof. The Ballots (Exhibits A and B) advised
the Sipes that “The Second Amended Joint Plan of
Reorganization . . . can be confirmed by the Bankruptcy Court and
thereby made binding on you if it is accepted . . .” The Sipes
executed the Ballots by rejecting the Plan on November 1, 1991.
(The Plan was confirmed in 1992). Exhibit C is a compilation of
documents which GDC submits was sent with the ballots. Included
in Exhibit C is the notice of the confirmation hearing. GDC
argues that the Sipes could not have received the ballots without
receiving Exhibit C.

GDC further submits that the Sipes’ claim of no notice should
not be considered on appeal because it was not raised below, and
that it is contrary to the lower court’s finding in a December
20, 1991 Memorandum Opinion that proper notice was given to all
affected claimants.

In response, the Sipes maintain that the documents at issue
should not be placed into the appellate record because they were
not part of the record in the trial court.[1] They also argue
that the documents are irrelevant.

3. Sipes’ Motion to Supplement the Record

The Sipes move to supplement the appellate record to include
the transcript of a March 27, 1992 hearing which they maintain
shows (1) that the final confirmation hearing occurred on March
27, 1992; and (2) that GDC’s assumptions/rejections of many of
the homesite contracts were made after the confirmation.

In response, GDC opposes said supplementation on the ground
that the transcript is not a document which was considered by the
bankruptcy court in its deliberations. It then argues that the
Sipes have mischaracterized the proceedings in the March 27, 1992
hearing.

Discussion on Three Pending Motions

All of the contested documents relate to and stem from the
Sipes’ claim that they are not bound by the GDC Plan and
Confirmation Order because they did not receive adequate notice
of the confirmation hearing and therefore, were denied procedural
due process. GDC erroneously asserts that the due process
argument is being raised for the first time in this case at the
appellate level. The argument was raised at the trial level in
the Sipes’ response to GDC’s Motion to Enforce Executory
Contract, Discharge and Injunction Provisions of Plan and
Confirmation Order. Moreover, it was included in the Sipes’
Statement of Issues to be Presented on Appeal.[2] Appellants’
initial brief, however, did not address the claim at all.

Page 1369

Because the Bankruptcy Court’s Order on appeal did not
address the procedural due process issue, this Court remanded the
issue back to the Bankruptcy Court for further findings. On
remand, the Bankruptcy Court specifically found that:

Based upon the documentary and testimonial evidence
presented, the Court finds that the Sipes were
afforded and received full due process. They received
all requisite notice that the law requires be
provided to creditors in a Chapter 11 case. Moreover,
despite their claims to the contrary, they were provided
the opportunity to participate in GDC’s Chapter 11
case and object thereto. [footnote omitted] . . . The
Court notes that in previous pleadings filed with the
district court, the Sipes denied receiving notice of
the confirmation hearing as well as the Disclosure
Statement and Summary of Plan. Apparently, these
documents were subsequently located by the Sipes
who stipulated prior to the evidentiary hearing in
the Joint Pre-Evidentiary Order entered by the Court on
June 14, 1994 that they “did receive copies of the
Disclosure Statement for Creditors for Classes 2.3,
3.3, 10, 13, 14, and 16, Accompanying Summary of Second
Amended Joint Plan of Reorganization of General Development
Corporation, GDC documents Accompanying the Ballot and
Disclosure Statement, “and that “any prior claims by
the Sipes that they did not receive the aforementioned
documents prior to the December 1991 confirmation
hearings is withdrawn.” (Joint Pre-Evidentiary Hearing
Order at ¶ 3) Accordingly, this issue is now moot.
(underlining supplied) Order on Remand, pp. 7-9.

A review of the Order on Remand reflects that the contested
documents as described above, with the exception of the 10/27/93
GDC letter to the Sipes (“Appendix C”), and the transcript of a
March 27, 1992 hearing, were considered by the Bankruptcy Court
in its determination that the Sipes were afforded and received
full due process. Because the 10/27/93 GDC letter to the Sipes
(“Appendix C”), and transcript of a March 27, 1992 hearing were
not considered by the Bankruptcy Court they shall not be
permitted to become part of the appellate record. However, those
contested documents as described above, except for the 10/27/93
GDC letter to the Sipes (“Appendix C”), and transcript of a March
27, 1992 hearing, shall be allowed to become part of the
appellate record. Accordingly, it is ORDERED AND ADJUDGED that:

1. Appellee GDC’s Motion to Strike Appendix A, Appendix B and
Appendix C to Appendix to Appellants’ Reply Brief be, and the
same, is hereby GRANTED IN PART. Only Appendix C to Appendix to
Appellants’ Reply Brief shall be stricken from the appellate
record, and Appendix A and B shall be considered part of the
appellate record.

2. Appellee GDC’s Motion to Supplement Appellate Record be,
and the same, is hereby GRANTED.

3. Appellants Sipes’ Motion to Supplement Appellate Record be
and the same, is hereby DENIED.

Appellants Sipes’ Arguments on Appeal

The Sipes maintain that the dispositive issue on appeal is
whether the Homesite Purchase Agreement is executory in nature.
Section 366(a) of the Code provides that the trustee, subject to
the court’s approval, may assume or reject any executory contract
of the debtor. The court below reasoned that the Homesite
Purchase Agreement was an executory contract. The Sipes argue
that the Agreement was not an executory contract because
installment land sale contracts are only security devices under
Florida law.[3] See First Federal Savings Loan Ass’n v. Fox,
440 So.2d 662 (Fla. 2d DCA 1983); Cain Bultman, Inc. v. Miss
Sam, Inc., 409 So.2d 114 (Fla. 6th DCA 1982). In such

Page 1370

situations, the purchaser is initially vested with equitable
title and legal title remains in the seller only as security
for the payment of the purchase price.

The Sipes further submit that the legislative history of
§ 366 indicates that the term “executory contract” refers to
a contract on which performance remains due to some extent on
both sides. In re Charter Co., 52 B.R. 267 (Bankr.M.D.Fla. 1985);
In re Adolphsen, 38 B.R. 776 (Bankr.D.Minn. 1983). In this case,
since they had fully completed their performance under the
contract seven years prior to GDC’s bankruptcy filing, the
contract is not executory. The remedy they seek is specific
performance; to compel GDC to convey an executed warranty deed
for the Property at issue.

The Sipes argue that they are not bound by the GDC Plan
because they were never given notice of the confirmation hearing
and therefore, were denied due process. Citing, Reliable Electric
Co., Inc v. Olson Construction Co., 726 F.2d 620 (10th Cir.
1984). As evidence of the lack of notice, the Sipes attached to
their Reply Appendix copies of the certificates of service on the
confirmation hearing (Appendix A) and on the Disclosure Statement
(Appendix B). Neither lists the Sipes as a recipient.[4]

The Sipes claim that they are entitled to specific
performance, which is an equitable remedy available when the
legal remedies are inadequate. The legal remedies here are
inadequate in that the Sipes were never offered a full refund of
their payments but only a fraction thereof, and any alternative
property offered to them was considerably less in value than the
lot they originally purchased. In addition, given the unique
nature of land, it is well established that money damages to a
purchaser of land is inadequate. See Henry v. Ecker, 415 So.2d 137
(Fla. 5th DCA 1982). The Sipes further rely on Ocean Dunes of
Hutchinson v. Colangelo, 463 So.2d 437 (Fla. 4th DCA 1985), where
the court held that specific performance was proper where the
contractual remedies were neither reasonable nor mutual.

The Sipes argue that the United States Supreme Court in
Butner v. United States, supra, made clear that state law governs
questions of property rights in bankruptcy. Nevertheless, they
assert that the contract in question is not an executory contract
under either state or federal law. The controlling definition of
an executory contract is found in the legislative history of the
Code, which provides that executory contracts are those “on which
performance remains due to some extent on both sides.” The Sipes
further assert that their equitable lien or interest in the
Property was not extinguished by the bankruptcy because the
Homesite Purchase Agreement was not an executory contract subject
to rejection. Moreover, that the GDC Plan has already been
confirmed and substantially consummated is irrelevant. The Sipes
contend that the specific performance relief they seek will not
affect the reorganization.

Appellee GDC’s Arguments on Appeal

In rebuttal, GDC argues that aside from the issue of whether
the Homesite Purchase Agreement was or was not an executory
contract, the fact remains that any claims or interests the Sipes
may have had were extinguished by the GDC Plan and the
Confirmation Order. It is well established that confirmation of a
Chapter 11 plan has three effects: (1) all creditors are bound by
the plan; (2) all property vests in the debtor free and clear of
all claims and interest of creditors, except as otherwise
provided in the plan or confirmation order; and (3) the debtor is
discharged of all prepetition debts. In re American Properties,
Inc., 30 B.R. 239, 246 (Bankr.D.Kan. 1983); In re Holywell Corp.,
93 B.R. 780 (S.D.Fla. 1988), affirmed, Miami Center v. Bank of
New York, 881 F.2d 1086 (11th Cir. 1989). Two years after the
confirmation of the GDC Plan, the Sipes ask the Court to
exonerate them from these well established principles, to ignore
the fresh start and rehabilitative purposes of the Bankruptcy
Code, to disregard the discharge and injunction provisions of the
Confirmation Order, and to modify the GDC Plan as it pertains to
the treatment of

Page 1371

homesite purchasers for them alone. The GDC Plan was confirmed,
the Sipes did not object to the confirmation nor did they appeal
it. GDC argues that it is now too late for them to claim that
they are entitled to different treatment. Citing, In re Dore
Associates Contracting, Inc., 43 B.R. 717
(Bankr.E.D.Mich. 1984); In re Horne, 99 B.R. 132
(Bankr.M.D.Ga. 1989).

GDC concedes that although state law generally governs
questions of property rights in bankruptcy in the absence of any
conflict between state law and bankruptcy law, this deferral to
state law gives way where there is a specific federal interest
governing the relationship between the parties in bankruptcy.
Such a federal interest exists here, GDC maintains. As recognized
by one court “Congress has expressed an overriding federal
interest in certain executory contracts, i.e., collective
bargaining agreements and real property sales contracts when the
debtor is the seller . . .” In re Buchert, 69 B.R. 816
(Bankr.N.D.Ill. 1987), affirmed, 1987 WL 16019 (N.D.Ill. 1987)
(emphasis added).

The distinction between a debtor as the seller versus a buyer
of real property is fundamental to the determination of whether
the sales contract may or may not be deemed executory, GDC
asserts. This is because:
.
. . non-debtor vendees, by virtue of Sections 365(i)
and 365(j), may receive more favorable treatment
in bankruptcy than debtor/vendees. And debtor/vendors,
because of other policies and provisions in the Code,
may fair better than debtor/vendees. It may be argued
that this disparity in treatment is warranted because
of the risk of default when debtor is vendor, or because
the non-debtor . . . is an innocent victim.

In re Booth, 19 B.R. 53, 63 (Bankr.D. Utah 1982). The court
concluded that:
.
. . it is the consequences of applying Section
365 to a party, especially in terms of benefits to
the estate and the protection of creditors, not the
form of contract between vender and vendee, which
controls.

Id. at 57. Where the debtor is the seller of real estate, the
courts have found the contract to be an executory one. See, e.g.,
In re Waldron, 36 B.R. 633 (Bankr.S.D.Fla. 1984), reversed on
other grounds, 785 F.2d 936 (11th Cir. 1986) (option to purchase
real estate was executory contract); In re Hardie, 100 B.R. 284
(Bankr.E.D.N.C. 1989) (debt/or/vendor’s contract to sell option
to purchase property would be permitted to reject option as
executory contract); In re W. L. Associates, Inc., 71 B.R. 962
(E.D.Pa. 1987) (debtor/vendor may reject contract to sell
notwithstanding that non-debtor/vendee had fully performed under
contract). GDC argues that in each of the cases cited by the
Sipes, the debtor was the buyer of real property, not the seller.

GDC further adds that its ability to reject the tens of
thousands of homesite contracts was critical to its
reorganization. Moreover, the non-debtor buyers were protected by
the provisions of the Code. Section 365(j) provides that a
non-debtor purchaser who is not in possession of the property “has a
lien on the interest of the debtor in such property for the
recovery of any portion of the purchase price that such purchaser
or party has paid.” 11 U.S.C. § 365(j).

The Sipes’ argument that their Homesite Purchase Agreement
was merely a security device under Florida misconstrues the
nature of the agreement, GDC submits. Unlike the agreements for
deed involved in the cases cited by the Sipes, the Sipes received
neither possession nor ownership of the property at the time of
entering into the Homesite Purchase Agreement. In addition,
Florida courts have recognized that not all installment land sale
contracts are security devices. In H. L. Land Co. v. Warner,
258 So.2d 293 (Fla. 2d DCA 1972), the court held that a vendor
under an installment land sale contract who gave the purchaser
possession of the land and the benefits and burdens of ownership
was in no different position than a vendor who conveyed legal
title and took back a mortgage. The court also held that its
ruling did not apply to a contract “that is not specifically
enforceable or to one under which the buyer has no right to
possession or other benefits and burdens of ownership.” Id. at
296.

Page 1372

GDC argues that Sipes’ requested relief of specific
performance is foreclosed by the language of their Homesite
Purchase Agreement. That agreement limited the Sipes’ remedies in
the event of GDC’s default to: (1) a refund of all payments made;
or (2) an exchange of the Property for other property of similar
value in any of GDC’s communities. The Sipes failed to avail
themselves of these remedies. Moreover, even if the Sipes had a
right of specific performance under the contract, such relief is
barred by the applicable one year statute of limitations under
Florida law. See Fla.Stat. § 95.11(5)(a); City of Orlando v.
Williams, 493 So.2d 15 (Fla. 5th DCA 1986).

Discussion on Appeal

Bankruptcy Court’s Order Granting Atlantic Gulf’s Motion to Enforce
Executory Contract, Discharge and Injunction Provisions of Plan and
Confirmation Order, and Denying Motion for Ex Parte Relief from the
Automatic Stay, dated November 5, 1993

Upon careful consideration of the arguments made by the
parties and a review of the entire record, including all
appellate briefs, as well as the Order on Remand, this Court
agrees and adopts the Bankruptcy Court’s well reasoned analysis
in its Order on Remand. The two dispositive issues in this case
are (1) whether Appellants’ were denied procedural due process
and (2) whether the Homesite Purchase Agreement at issue is an
executory contract subject to rejection under § 365 of the
Bankruptcy Code.

Appellants Were Not Denied Due Process

On remand, the Bankruptcy Court made the following detailed
findings:

As early as 1980, GDC began sending correspondence
to the Sipes advising of problems which prevented
GDC from completing development of and deeding the
Sipes the specific homesite lot for which they
had contracted. This correspondence continued
not only through GDC’s filing of its Chapter 11
petition but continued throughout GDC’s
Chapter 11 case. (See GDC Exhibit Nos. 2, 3, 4, 5 and 7) . . .

The Sipes were clearly put on notice that
the homesite lot identified in their homesite
purchase agreement was undeveloped
and that they could elect to be transferred
to another lot pursuant to HPAP. [Homesite
Purchaser Assurance Program] Dispositively,
the Florida Public Offering
Statement which was mailed to the Sipes,
as well as tens of thousands of other homesite
purchasers offered HPAP, left no
question as to GDC’s plans with respect to
Port St. Lucie Section 38, the section in
which the homesite lot identified in the
Sipes’ homesite purchase agreement was
located . . .

The Sipes were also advised of the consequences
of their decision not to accept HPAP . . . This
notice was consistent with correspondence which
the Sipes received from the Special Representative
James Paul, [footnote omitted] as well as a letter
sent by GDC to the Sipes dated February 6, 1991
in which the Sipes were advised that GDC apologized
“for not being able to comply with your request,”
that GDC immediately deliver a warranty deed
and title insurance policy to the Sipes in connection
with the homesite lot covered by their homesite
purchase agreement. (See Exhibit Nos. 6 and 7) . . .

In October, 1991, in connection with confirmation
of GDC’s proposed plan of reorganization, the Sipes
also received (i) a Disclosure Statement for
Creditors of Classes 2.2, 3.3, 10, 13, 14 and 16
Accompanying Summary of Second Amended Joint Plan
of Reorganization of General Development Corporation,
(ii) Documents Accompanying the Ballot and Disclosure
Statement, and (iii) Ballots for Accepting or Rejecting
the Second Amended Joint Plan of Reorganization.
(GDC Exhibit Nos. 16, 17, 18 and 19) Indeed, not only
did the Sipes receive these documents, but as testified
to by Mr. Sipes, evidently took the time and effort to
scrutinize the same in great detail, highlighting
and underlining sections which Mr. Sipes testified he
believed relevant. The Sipes thereupon executed and
returned ballots rejecting GDC’s Second Amended Joint
Plan of Reorganization (the “GDC Plan”). (GDC Exhibit
Nos. 18 and 19)

Page 1373

The confirmation hearing on the GDC Plan, of which
the Sipes received notice in the Documents Accompanying
the Ballot and Disclosure Statement, was held in
December, 1991 . . . After confirmation of the GDC
Plan and entry of the Court’s Order Confirming Second
Amended Joint Plan of Reorganization of General
Development Corporation, dated March 27, 1992
(the “Confirmation Order”), the Sipes were notified of
GDC’s rejection of their homesite purchase agreement
and provided with a special proof of claim form in
which they could assert a claim arising from rejection
of their homesite purchase agreement. The Sipes duly
noted their objection to the amount that GDC claimed was
due and owing ($5,088.00) and returned this special
proof of claim form to the court setting forth and
reiterating their previously filed claim for $5,096.26
(GDC Exhibit No. 24). With respect to GDC’s notice advising
the Sipes of the rejection of their homesite purchase
agreement, the Sipes did file a response objecting thereto.
(GDC Exhibit No. 25) Order on Remand, pp. 3-6.

As previously noted herein, the Bankruptcy Court further found:

Based upon the documentary and testimonial evidence
presented, the Court finds that the Sipes were
afforded and received full due process. They
received all requisite notice that the law requires
be provided to creditors in a Chapter 11 case. Moreover,
despite their claims to the contrary, they were
provided the opportunity to participate in GDC’s
Chapter 11 case and object thereto. (emphasis added)
[footnote omitted]. Order on Remand, pp. 7-8.

The Bankruptcy Court goes on to state:

The Court has considered the Sipes’ claim that
they did not receive the full GDC Plan, but
rather a summary of the same. The Court does
not find this argument convincing as the Sipes
were advised that the full and complete GDC Plan
was on file for review or could be obtained upon
request. That the Sipes took the time to review
the documents which they did receive and voted to
reject the GDC Plan is indicative that the Sipes
had sufficient information with respect to the
treatment of their claim to make an informed
decision as to whether to vote to accept or reject
the GDC Plan.

Finally, the fact that the Sipes did not file an
objection to the Disclosure Statement or contest
confirmation based upon their claimed mistaken belief
that they were not affected by the GDC Plan or the
bankruptcy as a whole does not lend any support to
an argument that the Sipes were denied due process.
The Sipes were provided with all of the information
and documentation which creditors similarly situated
could have expected and were required to expect in
a case of this size . . . There is simply no evidence
from the record presented to this Court or of which
the Court is independently aware that the Sipes were
denied due process. (emphasis added) Order on Remand,
pp. 9-10.

Upon review of these specific findings and the arguments
presented, Appellants have not demonstrated to this Court that
the Bankruptcy Court clearly erred in its findings and conclusion
on remand that the Sipes were not denied due process. Moreover,
this Court agrees with the Bankruptcy Court that the Sipes were
provided with all of the information and documentation which
creditors similarly situated could have expected and were
required to expect in a case of this size. This Court adopts and
affirms the Bankruptcy Court’s findings and conclusion that the
Sipes were not denied due process.

The Homesite Purchase Agreement is an Executory Contract Subject
to Rejection Under § 365 of the Bankruptcy Code

The Bankruptcy Court’s analysis on remand as to this issue is
well reasoned and worthy of restating in relevant part.
Specifically, the Bankruptcy Court states on remand:

Section 365(a) of the Bankruptcy Code, as made
applicable to a debtor-in-possession by Section
1107(a) of the Bankruptcy Code, permits a debtor
to “assume or reject any executory contract or
unexpired lease of the debtor.” The power of a
debtor to reject a contract as part of its

Page 1374

reorganization efforts is consistent with the fresh
start and rehabilitative purposes of the Bankruptcy
Code. [citations omitted]

The Sipes argue that their homesite purchase
agreement was not an executory contract because
they had fulfilled all performance obligations
under such agreement by completing payments of
principal and interest in March, 1983. They urge
this Court to apply the definition of “executory”
contract as articulated by Professor Vern Countryman
in a law review article published in the Minnesota
Law Review in 1963, which definition requires
unperformed mutual obligations on both sides.
Countryman, Executory Contracts and Bankruptcy,
Part 1, 57 Minn.L.Rev. 439 (1963).

However, this court as well as other courts and
commentators have consistently expanded the definition
of “executoriness” beyond the static definition
articulated by Professor Countryman and beyond that
urged by the Sipes. [citations omitted] while
counsel for the Sipes argued that the legislative
history of Section 365 reflects that Congress
intended an executory contract to be one in which
there remained mutual obligations due and owing
from the parties, this Court must respectfully
disagree. As this Court stated in Arrow Air,

The legislative history of § 365 and the statute
itself, establish that it is not always the case
that there must be outstanding obligation on the
part of both parties to a contract in order for
a contract to be deemed executory . . . The express
language of § 365 reflects that congress did not
adopt a specific definition of an “executory contract”
which would require mutual obligations, in spite of
its clear opportunity to do so. Legislative history for
that section evidences that congress considered mutual
obligation to be indicative of an executory contract in
some [sit], but not all, cases . . . Even though there
may be material obligations outstanding on the part
of only one of the parties to the contract, it may
nevertheless be deemed executory under the functional
approach if its assumptional rejection would ultimately
benefit the estate and its creditors. (emphasis added)
In re Arrow Air, Inc., 60 B.R. 117, 121-22 (Bankr.S.D.Fla.
1986) . . . In the instant case, GDC’s ability to reject
homesite purchase agreements which obligated it to
improve and deed developed homesite lots to tens of
thousands of lot purchasers, when it was simply
financially unable to fill such contractual obligations,
was critical to GDC’s reorganization. The very purpose
of rejection, as even recognized by Professor
Countryman, was thus served in the instant case
by GDC’s ability to reject such homesite purchase
agreements . . .

While the concept of executoriness will no doubt
engender additional debate in the future, this
court finds no support in the Code itself or
the legislative history of section 365 to apply
as rigid a definition of “executory” contract as
Sipes would urge this Court to apply. It is
clear that the Sipes’ homesite purchase agreement
represented an unperformed contract. Whether the
Sipes were required to undertake any further actions
after completing payments of principal and interest
under their agreement is not determinative of
whether the purposes of rejection and reorganization
would be served by defining such homesite purchase
agreement as an executory contract. [footnote omitted] In the instant case, it is undisputed that at least
GDC, as seller, had unfulfilled obligations under the
terms of the homesite purchase agreement as of its
Chapter 11 filing. Rejection permitted GDC to
avoid obligations which it was financially unable to
meet and which would have prevented a meaningful
reorganization for the benefit of hundreds of thousands
of creditors who might not have otherwise received
any recovery in respect of their claims. [footnote
omitted] Accordingly, the Court finds that the Sipes’
homesite purchase agreement was an executory contract
subject to rejection pursuant to section 365 of the
Bankruptcy

Page 1375

Code. (underlining supplied) Order on Remand,
pp. 11-16.

This Court has reviewed de novo the Bankruptcy Court’s
conclusion that Sipes’ Homesite Purchase Agreement was an
executory contract subject to rejection pursuant to section 365
of the Bankruptcy Code. The Court agrees with the application by
the Bankruptcy Court of the “functional approach” in this case.
Under this approach, the question of whether a contract is
executory is determined by the benefits that assumption or
rejection would produce for the estate. See In re G-N Partners,
48 B.R. 462 (Bankr.Minn. 1985); In re Norquist, 43 B.R. 224
(Bankr.Wash. 1984); In re Booth, 19 B.R. 53 (Bankr.D. Utah 1982).
GDC’s ability to reject contracts which obligated it to improve
and deed developed homesite lots was critical to its
reorganization since it did not have the financial ability to
fulfill such contractual obligations.

While it does not appear that the. Eleventh Circuit has
adopted the “functional approach” over the “Countryman approach”,
the Eleventh Circuit in In re Martin Brothers Toolmakers, Inc.,
796 F.2d 1435 (11th Cir. 1986) appears more inclined to embrace
the “functional approach.” In In re Martin Brothers Toolmakers,
Inc., the Eleventh Circuit stated in dicta:

It is true that a real estate lease, as well as
an installment sales contract, may be the
functional equivalent of a secured financing
transaction. [citations omitted] The determination
in bankruptcy, however, of whether a particular
agreement is in fact a lease or a security agreement
for purposes of § 365 often depends on which
characterization will best serve the interests of
the estate. Section 365 enables the bankruptcy
trustee to affirm or reject leases and executory
contracts, and is based on the trustee’s long-standing
power to abandon obligations burdensome to the estate.

Id. at 1439. Citing to the Sixth Circuit, the Eleventh Circuit
continued:

The key, it seems, to deciphering the meaning of
[§ 365’s lease-executory contract provision] is to work backward, proceeding from an examination
of the purposes rejection is expected to accomplish.
If those objectives have already been accomplished,
or if they can’t be accomplished through rejection,
the [agreement] is not [a lease or executory contract] within the meaning of the Bankruptcy Act.

Id. (citing In re Becknell Crace Coal Co., Inc., 761 F.2d 319,
322 (6th Cir. 1985)). Since it appears the Eleventh Circuit is
more amenable toward the functional approach, the Bankruptcy
Court properly applied said approach to the case at bar.
Moreover, this Court agrees with the Bankruptcy Court’s
conclusion that the Homesite Purchase Agreement did not
constitute a security device under Florida law where the Sipes
neither had possession nor incurred the benefits and burdens of
ownership at any time since their execution of said Agreement in
July, 1972. Rather, the Bankruptcy Court properly found that:

It is clear from the facts presented to this
Court that their homesite purchase agreement
was indeed a contract to convey real property
which GDC, as a debtor/seller, was entitled to
reject as an executory contract pursuant to
Section 365(a) of the Bankruptcy Code. Order
on Remand, p. 19.

Appellants, therefore, have not demonstrated that the
Bankruptcy Court erred as matter of law in concluding that Sipes’
Homesite Purchase Agreement was an executory contract subject to
rejection pursuant to section 365 of the Bankruptcy Code.
Likewise, Appellants have not shown that the Bankruptcy Court
erred in its Order Granting Atlantic Gulf’s Motion to Enforce
Executory Contract, Discharge and Injunction Provisions of Plan
and Confirmation Order, and Denying Motion for Ex Parte Relief
from the Automatic Stay. To the contrary, the Bankruptcy Court’s
legal determinations are well reasoned and supported by law.
Accordingly, this Court affirms and ratifies the Bankruptcy
Court’s (1) Order Granting Atlantic Gulf’s Motion to Enforce
Executory Contract, Discharge and Injunction Provisions of Plan
and Confirmation Order, and Denying Motion for Ex Parte Relief
from the Automatic Stay, dated November 5, 1993, and its

Page 1376

(2) Order on Evidentiary Hearing Pursuant to Remand, dated
September 16, 1994.

In summary and for the reasons set forth herein, it is
ORDERED AND ADJUDGED that:

* * *

1. Appellee GDC’s Motion to Strike Appendix A, Appendix B and
Appendix C to Appendix to Appellants’ Reply Brief be, and the
same, is hereby GRANTED IN PART. Only Appendix C to Appendix to
Appellants’ Reply Brief shall be stricken from the appellate
record, and Appendix A and B shall be considered part of the
appellate record.

2. Appellee GDC’s Motion to Supplement Appellate Record be,
and the same, is hereby GRANTED.

3. Appellants Sipes’ Motion to Supplement Appellate Record be
and the same, is hereby DENIED.

4. The Bankruptcy Court’s Order Granting Atlantic Gulf’s
Motion to Enforce Executory Contract, Discharge and Injunction
Provisions of Plan and Confirmation Order, and Denying Motion for
Ex Parte Relief from the Automatic Stay, dated November 5, 1993,
is hereby AFFIRMED in its entirety.

DONE AND ORDERED in Chambers at Miami, Florida, this 27 day
of January, 1995.