On Aug. 30, 2011, in In re Safety Harbor Resort & Spa a/k/a S.H.S. Resort LLC , the U.S. Bankruptcy Court for the Middle District of Florida addressed whether the U.S. Supreme Court’s holding in Stern v. Marshall prevented the bankruptcy court from imposing certain “lock-up” restrictions on the debtor and certain nondebtor guarantors to prevent the disposal of assets by those parties. The bankruptcy court found that the Supreme Court’s decision in Stern was, as acknowledged by the Supreme Court itself, a “narrow” one, and that the Stern decision had no impact on the bankruptcy court’s authority to impose the restriction requested by the creditor in Safety Harbor .
The Safety Harbor Case
According to the opinion, Safety Harbor Resort and Spa (the debtor) filed for Chapter 11 bankruptcy protection in 2010. Before bankruptcy, the debtor operated a 175-room resort in downtown Safety Harbor, Fla. In December 2004, the debtor acquired the resort for $25 million, $17 million of which was financed through a loan from BB&T Bank. In October 2006, the debtor refinanced its loan through Wells Fargo Bank, using the $29.7 million proceeds of the refinancing to renovate the resort. Under its loan agreement with Wells Fargo, the debtor was required to develop or sell 15 acres of undeveloped land adjacent to the resort. The principals of the debtor’s parent company, Olympia Investment Group LLC, personally guaranteed the debtor’s debt to Wells Fargo.
