IN RE: FELTRIM BALMORAL ESTATES (2025)

Chapter 11

ORDER DETERMINING PROPERTY OF THE ESTATE AND SCOPE OF AUTOMATIC STAY

THIS PROCEEDING came before the Court for hearing on February 3, 2025, for a determination as to which counts, if any, of the Plaintiff's Complaint in the action pending in the Circuit Court of the Ninth Judicial Circuit in and for Orange County, Florida, Case No. 2023-CA-000280-0 (the “State Court Action”)—previously removed to this Court and then remanded back to state court—are property of the bankruptcy estate.¹

The hearing colloquy focused primarily on Counts I, II, and III of the Complaint, which counts rely on allegations that Defendants Feltrim Resorts, LLC, Balmoral Estates, LP, and Feltrim Balmoral Estates, LLC are alter egos of Defendants Feltrim Group, Inc. and/or Garret Kenny (the Manager or President of the other named Defendants) and that Feltrim Group, Inc. and/or Mr. Kenny caused the Plaintiff to suffer damages by breaching certain lease agreements. Regarding these counts, the Court considered the ability of a trustee (or, in this case, debtor-in-possession)² to pursue these claims on behalf of the estate.

The Eleventh Circuit has held that for an alter ego claim to be property of the bankruptcy estate under 11 U.S.C. § 541(a), the claim should be (1) a general claim that is common to all creditors and (2) be allowed by state law (the “Alter Ego Test”).³

In the instant proceeding, the Court finds that Counts I, II, and III constitute claims that are common to all creditors because, assuming for argument's sake that the allegations are true, they resulted in injury to Debtors Balmoral Estates, LLC and Feltrim Balmoral Estates, PL, and, consequently, injury to these Debtors’ respective creditor bodies as a whole. Thus, the first prong of the test is satisfied.

Turning to the second prong, the Court must determine whether Florida law recognizes a cause of action by a corporation against its own principals for alter ego liability or, similarly, whether a corporation can pierce its own corporate veil. In support of its position that Florida law does not recognize such a cause of action, the Plaintiff relies primarily on Seminole Boatyard ⁴ for the proposition that under Florida law, a bankruptcy trustee never has standing to bring an alter ego claim against a debtor's principals. The Court reads this case differently—as applying a condition to whether a corporation may assert such a claim, with the condition being satisfaction of the first prong of the Alter Ego Test. Seminole Boatyard holds that a trustee lacks standing to bring an alter ego claim where the “obligation or liability runs to a corporate creditor personally, rather than to the debtor corporation.”⁵ This means that a bankruptcy trustee cannot collect money owed to a creditor of the estate but under no theory owed to the estate itself.⁶ Thus, the facts at issue in Seminole Boatyard failed to pass not the second prong, but rather the first prong of the Alter Ego Test, because the injury in that case was suffered by a single creditor and not by the entire creditor body; no money was owed to the estate.

Regarding the second prong, in In re Xenerga, this Court noted that “under Florida law, an injured party may pierce the corporate veil if insiders abused the corporate form and injured a party.”⁷ The Court then recognized that the trustee of a corporate debtor, who represents the interest of all unsecured creditors, is in the best position to assert claims against abusive insiders who have harmed the general creditor body as a whole. Thus, the Court concluded that “Florida law allows a Chapter 7 trustee to bring an alter ego action against a debtor's principals if they manipulated the corporation specifically to injure the corporation's creditors.”⁸ Similarly, in In re AAA Bronze Statues & Antiques, the court noted that “a bankruptcy trustee has exclusive standing to bring an alter ego action ‘if the injury alleged ․ is an injury to the corporation and thus suffered generally by all creditors and is not injury inflicted directly on any one creditor.’ ”⁹

Consistent with these bankruptcy cases, the Court finds that both prongs of the Eleventh Circuit's Alter Ego Test are satisfied here. Therefore, the Debtors in the underlying chapter 11 case, as debtors-in-possession, have the exclusive right to bring the alter ego or veil piercing claims alleged in Counts I, II, and III of the Complaint. These claims are property of the estate because they allegedly caused injury to the Debtors and, thereby, to their respective creditor bodies.

Counts IV, V, and VI—raising claims of negligence, violation of Florida's Deceptive and Unfair Trade Practices Act (“FDUTPA”), and conspiracy to violate FDUTPA (respectively), on the other hand, are not property of the estate because they allege injury suffered only by the Plaintiff.

Accordingly, for the reasons stated orally and recorded in open Court that shall constitute the decision of this Court, it is:

ORDERED:

1. Counts I, II, and III are property of the estate and may, therefore, be pursued by the Debtors only. The Plaintiff may not pursue these counts in the State Court Action.

2. Counts IV, V, and VI are not property of the estate. The Plaintiff may pursue these counts against the non-debtor defendants in the State Court Action.

3. The automatic stay of 11 U.S.C. § 362(a) remains in full force and effect as to all claims against the Debtors and as to property of their estates.

4. The Court directs the Clerk of the Bankruptcy Court to file this order in the Debtors’ jointly administered case under the lead case, Case No. 8:24-bk-02122-CPM.

5. The Court further directs the Clerk of the Bankruptcy Court to close this adversary proceeding.

FOOTNOTES

1.   The Court retained jurisdiction to determine which counts in the Complaint may be pursued in state court on remand (Doc. 17).

2.   11 U.S.C. § 1107(a) (chapter 11 debtor-in-possession has all the rights and performs the functions and duties of a trustee, subject to specified exceptions stated herein).

3.   Baillie Lumber Co., LP v. Thompson, 413 F.3d 1293, 1295 (11th Cir. 2005).

4.   Seminole Boatyard, Inc. v. Christoph, 715 So. 2d 987 (Fla. 4th DCA 1998)

5.   Id. at 989, citing In re Ozark Restaurant Equip. Co., 816 F.2d 1222, 1225 (8th Cir.1987).

6.   E.F. Hutton v. Hadley, 901 F.2d 979, 986 (11th Cir. 1990) (no provision of the Bankruptcy Code authorizes the trustee “to collect money not owed to the estate”) (citing Caplin v. Marine Midland Grace Trust Co., 406 U.S. 416 (1972)).

7.   In re Xenerga, 449 B.R. 594, 599 (Bankr. M.D. Fla. 2011) (Jennemann, J).

8.   Id. at 599-600.

9.   In re AAA Bronze Statues & Antiques, Inc., 598 B.R. 27, 29 (Bankr. N.D. Fla. 2019) (citations omitted). See also Brown v. Luboff (In re Sigma-Tech Sales, Inc.), 570 B.R. 408 (Bankr. S.D. Fla. 2017); Spence v. Hintze (In re Hintze), 570 B.R. 369 (Bankr. N.D. Fla. 2017).

Catherine Peek McEwen United States Bankruptcy Judge