The Sea Pines Bankruptcy Case

Nelson Mullins Riley & Scarborough LLP

Nelson Mullins Riley & Scarborough LLP

In the fall of 1986, a number of involuntary bankruptcy petitions were filed in the United States Bankruptcy Court for the Southern District of New York against certain debtor companies that owned and operated 40% to 60% (depending on what was being measured) of the island of Hilton Head, South Carolina. In response, debtors’ counsel filed voluntary petitions in South Carolina, and venue was changed to South Carolina. There were 14 petitions filed involving many planned developments, the original was called The Sea Pines Company, and the group of bankruptcy cases were referred to as Sea Pines.

Shortly thereafter, the Chief Judge of the United States District Court for the District of South Carolina, the Honorable Sol Blatt Jr., withdrew the reference to the United States Bankruptcy Court for South Carolina, but directed the Clerk of Court for the Bankruptcy Court to maintain the file, accept all pleadings for filing, handling notices, etc. At the time the bankruptcy case began, Judge Blatt was presiding over about 10 District Court cases involving the debtors. Approximately another 20 suits were pending in other courts involving these debtors.

Judge Blatt was a wonderful person and very interesting. While he was presiding over Sea Pines, he was 64 years old and he had his own District Court caseload. He would mediate his own cases and meet with parties separately in that mediator role. As Chief Judge he stayed on top of General Services Administration (GSA) in the construction of the new District Court in downtown Charleston. Because the Federal Court was located at the four corners of law (Broad and Meeting streets), history advocacy groups took a keen interest in the renovations and new additions. Judge Blatt would mediate between competing interests involved in the design and construction of the courthouse facilities. At one-point GSA threatened to make this the three corners of law (God’s law, a church; Charleston Municipal Court and the Charleston County courthouse) by building a new facility in North Charleston, where it was rumored that there were no zoning laws. Judge Blatt prevailed and the fourth corner, federal law, was preserved.

Some of the unusual aspects of the Sea Pines cases:

  • The cases began with involuntary petitions filed in the Bankruptcy Court in the Southern District of New York. Judge Blatt contacted the presiding bankruptcy judge in New York and suggested that venue be changed to South Carolina, and it was.
  • Judge Blatt got involved in saving the PGA Golf Tournament, the Heritage.
  • The Court appointed a committee of Hilton Head Island residents under section 1102 of the bankruptcy code (dealing with committees in bankruptcy cases), to provide their opinion on topics such as sales of land, development parameters.
  • One-week court was held at a golf conference center at the end of Hilton Head Island so that all lawyers and litigants participating that week would have to drive through and see the various resorts and developments in the bankruptcy cases. The night before the first day of court, Judge Blatt hosted a reception for all the participating lawyers and litigants. His goal was to try to get the parties to work together for a consensual solution.
  • Court was on a very fast schedule. Judge Blatt often held court four days a week in Charleston in a temporary courthouse. One day Judge Blatt ran court until after 1 a.m. in the morning, giving the participants one hour for meals, while he held criminal hearings in chambers.
  • The day that a key witness involving the prior management was to testify, Judge Blatt received in the mail a package of newspaper reports about this witness being a third-generation member of organized crime, involved in various crimes. It was suggested, and his law clerks agreed, that they not tell the judge about the clippings until he made his rulings.
  • The Federal Savings and Loan Insurance Corporation moved to recuse Judge Blatt based on conflicts, ex parte communications between the bench and certain parties, among other grounds. On July 11, 1988, the Fourth Circuit Court of Appeals ordered Judge Blatt to recuse himself. But by then, the plan of reorganization had been confirmed.
  • In 2006, Judge Blatt became the longest serving federal judge in South Carolina history. His father had been the longest serving state legislator. Judge Blatt continued to serve until his death in 2016 at the age of 94.
  • Most observers agreed that the Hilton Head debtors were saved and preserved due to the actions of Judge Blatt. His contributions were recognized by:
    • “Sol Blatt Day” was celebrated on Hilton Head Island at the end of 1987.
    • The law library at the Charleston School of Law was named the Sol Blatt Jr. Law Library.
    • The main road bisecting the Island of Hilton Head is named the “Sol Blatt Jr. Expressway.”
    • In 2018, a bronze life size statue of Judge Blatt was erected on the grounds of the District Court in Charleston.
  • Lessons as to venue: Following up on Gary Freedman’s Aug. 23, 2021 blog on venue “Between a Rock and a Hard Place,” the law as presently written could have resulted in the Sea Pines bankruptcy cases remaining in New York. Acknowledging much of this is conjecture, this is what could have happened in these cases:
    • But for Judge Blatt’s discussion with the presiding bankruptcy judge, the cases might have stayed in New York;
    • Confirmation of the plan of reorganization would have taken more than a year;
    • There would have been no committee of residents to provide input on case direction;
    • The Heritage Golf Tournament would have ended in Hilton Head;
    • The unsecured creditors pool, primarily small vendors and contractors, would have had less of a voice in New York;
    • The extensive press coverage provided by the Hilton Head Island newspaper, The Island Packet, could not have been as comprehensive covering court 800 miles away; and
    • Sales of residences improved during the bankruptcy in South Carolina. Many of the local bankers, realtors and businessmen had confidence in Judge Blatt and were willing to take risks with him at the helm.

Without a doubt, other bankruptcy or district court judges could have successfully presided over these cases. But it is unlikely that another judge would have managed these cases this quickly or devoted so much bench time. Judge Blatt paid a price for his actions, but South Carolina and the Island of Hilton Head were the beneficiaries of his actions.

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Nelson Mullins Riley & Scarborough LLP

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