## Facts

- Tenn-Fla Partners (TFP), a Chapter 11 debtor-in-possession, owned an apartment complex in Florida financed through tax-exempt multifamily housing revenue bonds, with First Union serving as indenture trustee for bondholders.
- During the reorganization, the bankruptcy court valued the property at approximately $9 million and confirmed a plan under which TFP would satisfy bondholder claims for roughly $9.885–10 million (about a 75% recovery on bonds of roughly $12.5–12.7 million).
- After confirmation, TFP marketed the property and received interest and offers indicating a value substantially higher than the valuation used to confirm the plan.
- TFP disclosed an $8 million offer to the bankruptcy court but did not disclose higher indications of value and offers received during the same period.
- TFP later negotiated a transaction to sell the property and related bonds for approximately $12.44 million, about $2.5 million more than the amount required to pay under the confirmed plan.
- TFP planned to distribute the excess sale proceeds to insiders who had advanced funds rather than to bondholders or other creditors.
- First Union filed a postconfirmation adversary proceeding seeking revocation of confirmation under 11 U.S.C. § 1144 (fraud), plus damages and equitable relief for alleged breaches of fiduciary duty.
- After trial, the bankruptcy court found intentional concealment of material facts about market value and breach of fiduciary duties, revoked confirmation, and converted the case from Chapter 11 to Chapter 7, but declined to award punitive damages and certain additional monetary relief.
- TFP appealed the revocation and conversion; First Union cross-appealed the denial of punitive damages and broader monetary remedies.

## Issues

1. Whether confirmation was “procured by fraud” under 11 U.S.C. § 1144 based on the debtor-in-possession’s intentional nondisclosure of material information bearing on asset value and plan fairness.
2. Whether revocation of confirmation and conversion to Chapter 7 were proper remedies after the fraud finding.
3. Whether the bankruptcy court erred in denying punitive damages and additional monetary or equitable relief sought by the creditor.

## Decision

- The district court affirmed the bankruptcy court’s revocation of the confirmation order under § 1144.
- The court upheld the finding that TFP intentionally concealed material information regarding market value and higher offers, breaching its fiduciary duties as debtor-in-possession.
- The court affirmed conversion of the case to Chapter 7 as a permissible exercise of bankruptcy court discretion.
- The court rejected the creditor’s cross-appeal and affirmed the denial of punitive damages and other additional monetary relief.

## Legal Principles

- A Chapter 11 debtor-in-possession is a fiduciary for the estate and creditors and must provide full and fair disclosure of material information relevant to valuation, plan feasibility, and plan fairness.
- Under 11 U.S.C. § 1144, “fraud” includes intentional concealment of material facts that causally contributes to plan confirmation.
- Appellate review generally defers to bankruptcy court factfinding absent clear error and to remedial choices absent abuse of discretion.
- After revoking confirmation for fraud, a bankruptcy court may convert the case to Chapter 7 to place administration under an independent trustee.
- Even where fraud is found, bankruptcy courts are not required to award punitive damages; remedies may be limited to those necessary to address the fraud and protect parties who acted in good faith reliance on the confirmation order.

## Conclusion

The district court held that a debtor-in-possession’s intentional nondisclosure of material valuation information can constitute fraud sufficient to revoke plan confirmation under § 1144, and it affirmed conversion to Chapter 7 while leaving undisturbed the bankruptcy court’s refusal to impose punitive damages or broader monetary remedies.


Tenn-Fla Partners v. First Union Nat’l Bank of Fla., 229 B.R. 720 (W.D. Tenn. 1999)