State Court Interpreted Sale Order and Refuses to Reopen Case

The following is a summary of a Minnesota bankruptcy case or a case relevant to Minnesota bankruptcy law.

Minnesota Bankruptcy Case:

Mid-City Bank v. Skyline Woods Homeowners Assoc. (In re Skyline Woods Country Club, LLC), 431 B.R. 830 (B.A.P. 8th Cir. (Neb.) 6/17/10) (Venters, J.).

Case Summary:

Court Refuses to Reopen Case Where State Court has Interpreted Sale Order

The Eighth Circuit BAP affirms the bankruptcy court’s refusal to reopen a bankruptcy case after the state court has ruled on the questions at issue. The debtor country club sold its property in Chapter 11 and the court entered a sale order. The buyer decided not to continue operating as a country club, and the homeowners’ association sued in state court to enforce the restrictive covenant requiring that the property be operated as a golf course. The owners and their lender argued that the sale order made the sale free and clear of such a restriction. The state court held that the covenant runs with the land and continued to be enforceable, and interpreted the sale order accordingly. After the state supreme court affirmed that ruling, the buyers and lender sought to reopen the bankruptcy case so that the bankruptcy court could interpret its order – presumably in a way different from the state court. The bankruptcy court refused to reopen the case and the BAP affirms. Although the bankruptcy court had exclusive jurisdiction to enter the sale order, once the order was entered, a state court has concurrent jurisdiction to interpret it. The state court did not modify the sale order, and once it ruled, that ruling is res judicata: the state court had jurisdiction, its jurisdiction was final and on the merits, it involved the same parties, and it was based on the same claims.

Credit: The preceding was a summary of a case relevant to Minnesota bankruptcy law. The case summary was prepared by the U.S. Bankruptcy Court through Judge Robert J. Kressel & attorney Faye Knowles.

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