Claimants’ Response to Trustee’s Memorandum in Support of Trustee’s Motion for an Order Approving the Sale of the Debtor’s Real Property — In re Panthera Enterprises, LLC (Doc 364)

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Response filed 06/14/21 as Doc 364 in the Chapter 7 case of Panthera Enterprises, LLC, No. 2:19-bk-00787, in the U.S. Bankruptcy Court for the Northern District of West Virginia. Renick C. Williams, Betty P. Williams and Robert R. Williams, through James E. Smith, II, answer the Trustee's memorandum supporting his motion to sell the Debtor's real property free and clear under 11 U.S.C. Section 363. They argue that Restrictive Covenants 6, 7 and 8 of the Deed of Conveyance run with the land, are not executory contracts open to rejection under 11 U.S.C. 365(a), and cannot be stripped in a sale under 363(f). They say Covenant 6 limits the property to a training facility for certain governmental agencies, and Covenants 7 and 8 give them a right of first refusal or, if they decline, a percentage fee. They ask the court to deny the sale and declare that the covenants run with the land.

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No. 2:19-bk-00787 Doc 364 _ Filed 06/14/21 Entered 06/14/21 14:36:28 Page 1 of
12

IN THE UNITED STATES BANKRUPTCY COURT
FOR THE NORTHERN DISTRICT OF WEST VIRGINIA

IN RE:

PANTHERA ENTERPRISES, LLC, BANKRUPTCY CASE NO.:: 2:19-bk-00787
Debtor. CHAPTER 7

CLAIMANTS’ RESPONSE TO TRUSTEE’S MEMORANDUM IN SUPPORT OF
TRUSTEE’S MOTION FOR AN ORDER APPROVING THE SALE OF THE DEBTOR’S
REAL PROPERTY AND NOVATING CERTAIN GOVERNMENT CONTRACTS FREE
AND CLEAR OF LIENS, CLAIMS, INTERESTS AND ENCUMBRANCES PURSUANT

TO 11 U.S.C. SECTION 363

COMES NOW the Claimants, Renick C. Williams, Betty P. Williams, his wife, and
Robert R. Williams, by and through their attorney, James E. Smith, I], Esq, and would offer the
following as a Response to the Trustee’s Memorandum in Support of the Trustee’s Motion to
Sell Real Property and Novating Certain Government Contracts Free and Clear of Claims,

Interests, and Encumbrances Pursuant to 11 U.S. C. Section 363.

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12

COUNTER-STATEMENT OF FACTS AND
COUNTER- ARGUMENTS

The Claimants reassert and reiterate their Statement of Facts and Argument sections of
their Memorandum as if fully set forth below. Where there are inconsistencies between the
Claimants’ and Trustee’s Statement of Facts and Argument sections, the Claimants specifically
object and challenge such inconsistencies. Lastly, the Claimants accept the Trustee’s concession
that the Covenants within the parties’ Deed of Conveyance numbered One (1) through (5), Nine

(9) and Ten (10) indeed run with the land and shall not be stripped from the Deed of Conveyance

to the detriment of the Claimants.

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12

ARGUMENT

THE PERSISTENCE OF THE CHAPTER 7 TRUSTEE IN IGNORING THE INTENT
OF THE PARTIES AND THE PLAIN LANGUAGE OF THE RESTRICTIVE
COVENANTS WITHIN THE DEED OF CONVEYANCE IS CLEARLY ERRONEOUS,
PLAINLY WRONG, AND A MISAPPLICATION OF BANKRUPTCY LAW
RESULTING IN THE TAKING OF THE CLAIMANTS’ PROPERTY INTEREST
WITHOUT COMPENSATION AND A PERVERSION OF 11 U.S.C. 363(f) and 365(a).

A. Restrictive Covenants 6, 7, and 8 are not executory personal obligations that

qualify for rejection under 11 U.S. C. 365(a).

The Trustee’s refusal to acknowledge and give any credence to the intent of the parties
which culminated in all of the restrictive covenants contained within the Deed of Conveyance
running with and being appurtenant to the land, flies in the face of well established Bankruptcy
and State Law. Notwithstanding the Trustee’s failure to invoke 11 U.S. C. 365(a) in his initial 11
U.S.C. 363(f) Motion to Sell Free and Clear, he is now attempting to label the restrictive
covenants in question as executory contracts, capable not only of rejection, but branding them as
personal, contractual, in gross servitudes not running with the land.

Although the interpretation of restrictive covenants must be governed by state law (See

Butler v. United States, 440 U.S. 48, 99 S. Ct. 914, 59 L. Ed. 136 [1979]), the finding of whether

a contract is executory is a question of federal law. (See Benevides v. Alexander (In Re:

Alexander), 670 F. 2d 885 [9"" Cir 1982]). The Bankruptcy Code does not specifically define the
term “executory contract”, courts have applied the general definition as a contract on which

performance is due to some extent on both sides. (See NLRB v. Bildisco & Bildisco, 465 U. S.

513 [1984]). Many courts (including the Fourth Circuit) have deferred to Harvard Professor

Vern Countryman’s definition of executory contract “if the obligations of both parties are so far

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unperformed that the failure of either party to cbfaplete performance would constitute a material

breach and thus excuse the performance of the other.” (See Vern Countryman Executory

Contracts in Bankruptcy, 57 Minn. L. Re.439 [1973]; Gloria Mfg. Corp. V. Int’| Ladies’ Garment

Workers’ Union, 734 F. 2d 1020 [4" Cir. 1984}).

Numerous courts across the country have rejected arguments that restrictive covenants are

executory in nature, notwithstanding that restrictive covenants may have similarities to a

contractual obligation. The Seventh Circuit in Gouveia v. Tazhir, 37 F. 3d 295 (7" Cir. 1994)
held that the restrictive covenant was not an executory contract because neither the debtor nor the
other parties were obligated to do some affirmative act and, as a consequence the restrictive deed
covenant was in fact a fully executory contract. The Court reasoned that although the restrictive
covenants contain the characteristics of both a contract and an interest in land, the primary nature
of such covenants is preservation of a land interest, not future duties in contract. The Court
further noted that there will almost always be some incidental continuing obligations under a
restrictive covenant, those duties were not the kind of obligations Congress intended to impact in
enacting Section 365, resulting in the Court deciding that restrictive covenants on real estate are
not executory contracts subject to termination or assumption under Section 365. See also Sabine

Oil and Gas v. Nordheim Eagle Ford Gathering LLC, 73 Fed. Appx. 64 (2d Cir. 2018) and

Mancuso v. Meadowbrook Mall Co. Ltd. P’ship, 2007 WL 951849.

Restrictive Covenant Number 6 squarely falls under the Gouveia, Sabine, and Mancuso in

that it specifically compels and burdens the Grantee and its successors to only operate a facility
as a training facility for certain governmental agencies and “any substantial change in use of the
property following the execution of this sales agreement and thereafter, must first be authorized

by the Grantors and/or their then surviving children.”

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A few courts have permitted the rejectidi2 of restrictive covenants when they were in the

nature of a right of first refusal. (See In Re: Coordinated Financial Planning Corp., 65 B. R. 711

[B. A. P. 9" Cir 1986]; In Re: Fleishman, 138 B. R. 641 (Bankr. D. Mass 1992]; and In Re:

Hardie, 100 B. R. 284 [Bankr. E. D. N. C. 1989]). Those opinions embrace the Countryman
definition of executory contract. In this case however, restrictive covenant numbers 7 and 8 can
not be considered executory and personal in nature. At the time of the filing of the Debtor’s
Petition, neither Claimant nor Debtor had any unperformed obligations. Only upon the Trustee
crafting the terms and conditions supporting his Motion trigger the effect of these restrictive

covenants. The Fourth Circuit in RCI Technology Corporation v. Sunterra Corporation (In Re:

Sunterra Corporation), 361 F. 3d 254 [4" Cir 2004]) held that “applying the Countryman Test,
the Agreement was not executory unless it was executory as to both....” In addition, in BNY,

Capital Funding LLC v. US Airways, Inc., 345 B. R. 549 (E. D. Va. 2006), the court held that a

letter of intent to purchase was not an executory contract (failing Countryman definition) since
there were no unperformed obligations under the letter of intent at the time of the filing of the
Petition. “Unperformed obligations become due if, and only if, the optionee exercises the
option.... If the option is not exercised, the unperformed obligations never become due and
neither party commits a breach.” (/d at 551).

As is present here, there is no mutuality of obligations, thus Restrictive Covenants Nos. 7

and 8 are not executory. This analysis was followed in In Re: Bergt, 241 B. R. 17 (Bankr. D.

Alaska, 1999), as well as Creditors’ Committee v. Southmar Corp (In Re: Robert L. Helms

Constr. & Dev. Co., Inc., 139 F. 3d 702 (9" Cir. 1998). The Ninth Circuit went on to consider

noteworthy the fact that its ruling was important for the preservation of a valuable asset, whereas
if the court would allow rejection, the optioner (Panthera Training in this case) would receive an
undeserved windfall. The court went further and discussed that debtors fail to recognize the

value of such options and “fail to expressly assume them. This lead to a trap, as unassumed

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executory contracts may be deemed rejected...wlen the trustee has no intention of abandoning

the asset.” (id at 705-06).

In Hayes v. Water Ski Mania Estates Homeowners Ass’n (In Re: Hayes), 2077 Bankr.

Lexis 3397 [Bankr. D. Mont., ]) 2007, the debtors purchased lakeside property which was subject
to a series of restrictive covenants limiting the use of the property, providing for assessments, and
for providing ongoing maintenance. The debtors argued that such restrictions were executory
while the homeowner association argued that they were property rights and covenants running
appurtenant to the land. While the court the homeowner association’s actions unreasonable, the
court rejected the debtor’s argument that the covenants could be “extinguished” by deeming them

executory.

The Trustee’s arguments regarding Restrictive Covenant Numbers 6, 7 and 8 chant like a
litany; however no matter how many times the Trustee brands these covenants personal,
executory and capable of rejection, the nature and substance that was intended by the parties
does not change. All of the covenants were intended to run with and be appurtenant to the land,

thus establishing a valuable property right that must be protected.

B. Restrictive Covenants 6, 7 and 8 do not qualify for free and clear sales treatment

under 11 U.S. C. 363(f).

The majority of courts have refused to allow a trustee or debtor in possession to use 11 U.
S. C. 363(f) to strip covenants and other rights that run with the land, unless a party can
demonstrate a specific state of federal law that provides tor the covenants to be found invalid or

otherwise “disconnected” from the property. In Mancuso v. Meadowbrook Mall Co. Ltd. P’ship,

2007 WL 951849, the Court held “use” covenants were restrictions that ran with the land, and the

debtor could not sell the property free and clear of those covenants under Section 363(f), even

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though the purchaser attempted to show that the2ovenants could be avoided under the law of

eminent domain.

The West Virginia Supreme Court of Appeals has held that the intent of the parties
fundamentally control in construing and recognizing the existence of restrictive covenants. That
intention 1s gathered from the entire instrument by which the restriction is created, the
surrounding circumstances and the objects which the covenant is designed to accomplish. See

Foster v. Orchard Dev. Co., LLC, 227 W. Va 119, 705 S.E.2d 816 (2010). In McElroy Coal

Co. v. Dobbs, 853 S. E. 2d 620 (2020), in quoting the Restatement (Third) of Property

(Servitudes) Section 1.5 (1-3) further delineated the cause and effect of servitudes:

A right conveyed by a servitude can exist in several forms. A right is “appurtenant” if it
is tied to ownership or occupancy of a particular unit or parcel of land. It is “in gross”
when the opposite is true— when the exercise of the right “is not tied to ownership and
occupancy of a particular unit or parcel of land” A right that does not run with the land is
considered “personal” ... Whether an easement is appurtenant or in gross is to be
determined by the intent of the parties.

The McElroy Court elaborated upon the essence of a right of first refusal:

It is true that we have held that ‘[a]n easement will not be presumed t be in gross when it
can fairly be construed to be appurtenant’ (Post, 110 W. Va. at 504, 159 S. E. at 524), syl.
Pt. 3. However, a different presumption arises when the servitude in question involves a
right of first refusal. ‘Rights of first refusal are presumed to be personal, and are thus not
assignable unless either the clause granting the right refers to successor or assigns or the
instrument clearly shows that the right was intended to be assignable.’ 6A C. J. S.
Assignments Section 36; see also Mulberry v. Burns Concrete, Inc., 164 Idaho 729, 732,
435 P. 3d 509, 512 (2019) (noting that ‘the majority of case law...holds that [rights of first
refusal] are presumptively personal to the parties when the [right of first refusal] does not
contain language such as ‘assigns’ or ‘heirs’).

The West Virginia Supreme Court of Appeals specifically found that repurchase options run with

the land. See First Huntington Nat. Bank v. Gideon-Broh Realty Co., 79 S. E. 2d 675 (W. Va.

1953). “A right of first refusal is more accurately characterized as a pre-emptive right.” See John

D. Stump & Associates, Inc. And John Stump v. Cunningham Memorial Park, Inc., ef. al. , 419

S. E, 2d 699 (W. Va. 1992).

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Restrictive Covenant Nos. Seven and Hight are servitudes appurtenant to and running

with the land. The Trustee was bound to offer the Claimants herein the opportunity to purchase
the realty on no less favorable terms as offered by a disinterested purchaser. Since by the sworn
stipulations of facts previous filed in this matter, it must be considered as fact that the Buyer,
Panthera Training Center, LLC, is indeed a disinterested third party and not a “parent or
subsidiary corporation or entity associated with TenX Group. LLC.” ; the pre-emptive right of
first refusal should be followed. Likewise, it does not appear the right of first refusal should be
considered subordinate, since the Debtor is not attempting to claim to obtain financing using the
subject property as security, but is actually intending to sell the subject realty.

If the Claimants refuse their pre-emptive right of first refusal, they are entitled to their
percentage fee as outlined in Restrictive Covenant 8. Such a fee should be calculated as a cost of

the sale between the Buyer and the Debtor at the time of closing or as a deferred payment.

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The tone-deaf condition of the Trustee can not trample the fact that the Claimant and the
Debtor fully intended that the Restrictive Covenants enumerated within the Deed of Conveyance
would constitute restrictive covenants running with the land, touching and concerning the land,
and being appurtenant to the land. The covenants are not executory since the obligations were
not triggered until the Trustee’s Motion was filed. All the Restrictive Covenants were placed
within the Deed of Conveyance as a purposeful, intended act, inasmuch as the acreage was a part
of a larger tract from which the Claimants own neighboring parcels. The use by the Debtor was
envisioned to unduly hamper and create a nuisance as it would pertain to the neighboring tracts
owned by the family, thus resulting in the creation of the restrictive covenants. Without this
Court honoring the Restrictive Covenants, the use and enjoyment and value of the remaining
parcels of the Claimants will be damaged and the Claimants’ property rights will be put asunder.
West Virginia law clearly recognizes these restrictive covenants as those running with and
touching and concerning the subject realty and any sale must be made subject to these Restrictive

Covenants.

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WHEREFORE, the Claimants pray forltBe following:

1) That this Honorable Court accept this Response Memorandum as being timely filed;

2) That this Honorable Court deny this Chapter 7 Trustee’s Motion to Sell the subject real
estate free and clear of all liens, claims and encumbrances of the Claimants;

3) That is Honorable Court would declare that the Restrictive Covenants itemized within
parties’ Deed of Conveyance are Restrictive Covenants that run with the land, touch and
concern the land and act as a servitude running pertinent to the land; and

4) For such other relief as this Honorable Court deems equitable and just.

RENICK C. WILLIAM and BETTY P.
WILLIAMS, husband and wife ROBERT R.
WILLIAMS, PLAINTIFF, BY COUNSEL

~ James Ev SmithNLEsquire
West Virginia Supreme Court I. D. No.: 5447
122 East Street; P.O. Box 127

_-~ Keyser, West Virginia 26726

304.788.3478; 301.786.7201
Counsel for the Claimants

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CERTIFICATE OF SERVICE

I, James E. Smith, II, Esquire, a practicing attorney, do hereby certify that on the 14" day
of June, 2021, I served the foregoing Response to the Trustee’s Memorandum in Support of the
Trustee’s Motion to Sell Real Property and Novating Certain Government Contracts Free and
Clear of Claims, Interests, and Encumbrances Pursuant to 11 U.S. C. Section 363 by electronic
filing via CM/ECF with the Clerk of Court, which will send notification of such filing to all
interested parties and creditors having entered their appearance herein, as well as by Electronic
Mail transmission to the following:

Via Email:

Kelly T. Smith, ksmith@sek.com

Jack Lantzy, jlantzy@sek.com

Mark A. Lindsay, mlindsay@bernsteinlaw.com

Rob Duncan, tarpon777(@yahoo.com

Rob Duncan as manager of TR&L, tkelsey@woodsrogers.com

Bruce and Stacie Hardy, bsrhardy@comcast.neyt

CM/ECE

Debra Lee Allen, dallen@splimanlaw.com

Aaron C. Amore, aaron@amorelaw.com,

jackie@amorelaw.com:c.ar7027@notify. bestcase.com:alaina@amorelaw.com Aaron C. Amore,

amorewvt(@email.com

aca(@trustesolutions.net.jackiewvt@gmail.com:annwvt(@egmail.com

Robert S. Bernstein, rbernstein@bernsteinlaw.com,

cwirick@bernsteinlaw.com;cwirick@ecf.courtdrive.com;rbernstein@ecf.courtdrive.com

Elizabeth B. Carroll, elizabeth_carroll@vawb.uscourts.gov

Julia A. Chincheck, jchincheck@bowlesrice.com

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Spencer D. Elliott, selliott@lgcr.com 12

Douglas Kahle, dkahle@basnightkinser.com

Gary O. Kinder, gary.o.kinder@usdoj.gov

Travis Alan Knobbe, tknobbe@spilmanlaw.com, dambrose@spilmanlaw.com

Sabrina B. Lee, sabrina_lee@vawb.uscourts.gov

William J. Leon, jayleon@comcast.net

Salene Rae Mazur Kraemer, skraemer(@bernsteinlaw.com, salen(@ecf.courtdrive.com

John J. Richardson, jrichardson@bernsteinlaw.com

Zachary James Rosencrance, arosencrane@bowlesrice.com, ajones@bowlesrice.com

Anita M. Swaton, Anita Swaton@wvnb.uscourts.gov

United States Trustee, ustpregion04.ct.ecf@usdo}].gov

Eric Michael Wilson, eric.m.wilson@wv.gov., lora.|.rutledge(@wv.gov

Manual Notice List

Notice was not mailed to be parties below as no addresses were provided. To the extend
the Trustee has email addresses the below notice parties, they were emailed.

Rob Duncan
Manager/Duncan Development Group, LLC

Rob Duncan

Manager/TR&L, LLC,

a Virginia Limited Liability Company
Successor to SMI, LLC,

A Virginia Limited Liability Company

Bruce Hardy; Stacie Hardy; Anthony McLntyre; Timothy Miller

James E, Smith, II, Esq. \
__-- Counsel for the Claimants

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