Kim et al v. Nyce et al

Filing 82

MEMORANDUM OPINION. Signed by Judge Alexander Williams, Jr on 9/2/2011. (ranks, Deputy Clerk)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MARYLAND
SOUTHERN DIVISION

EUN O. KIM, et al.,
Plaintiffs,
v.

Civil Action No. 8:09-CV-01572-AW

DOUGLAS A. NYCE, et al.,
Defendants.

MEMORANDUM OPINION
Pending before the Court are Defendant Parcel K-Tudor Hall Farm, LLC (“PK-THF”)’s
motion for summary judgment, Doc. No. 76, and Plaintiffs’ cross motion for summary judgment,
Doc. No. 79. The Court has reviewed the entire record with respect to the instant motions. The
issues have been fully briefed and no hearing is deemed necessary. See D. MD. LOC. R. 105.6
(2010). For the reasons stated more fully below, the Court GRANTS Plaintiffs’ motion and
DENIES Defendant’s motion.

I.

FACTUAL & PROCEDURAL BACKGROUND
The following facts are drawn from the Court’s prior Memorandum Opinion with

changes as necessary to reflect subsequent developments in the discovery record. This case is
brought by several Plaintiffs who invested in a real estate business, Sunchase Capital Partners
XI, LLC, (“Sunchase”). Defendant Nyce & Co., Inc., owned by Defendant Douglas A. Nyce
(“Nyce”), was the class B Member of Sunchase and had sole authority to appoint, remove, and

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replace the manager of Sunchase. Defendant Nyce was at all relevant times the manager of
Sunchase with sole authority to make all decisions with respect to its management and
operations. Sunchase has not been named as a defendant, however; suit has been brought against
Defendant Parcel K-Tudor Hall Farm, LLC, (“PK-THF”) a company created in the real estate
transaction that underlies the dispute.
Sunchase signed an agreement of sale dated April 6, 2004 agreeing to purchase property
(“the Property”) from Tudor Hall Farm, Inc.(“the Seller”) for $15 million. The sale agreement
provided Sunchase with title to 141 acres of unimproved real property, save a 7.88 acre area
(“Parcel K”), which was to be titled in the name of PK-THF. PK-THF’s initial membership
consisted of Sunchase, with an 80% stake, and the Seller, with a 20% stake.
In order to raise the $15 million, Sunchase created an offer and sale to investors of
securities, described as Class A Membership Units in Sunchase. The proposed investment is
described in a Confidential Summary of Offering, dated April 13, 2005. One hundred shares
were offered at a cost of $150,000 each, for a total of $15 million. Each investor was supposed
to complete an Investor Questionnaire, sign a Subscription Agreement, and sign the Operating
Agreement of Sunchase. None of the Plaintiffs in this matter were provided with or asked to
complete an Investor Questionnaire. Plaintiffs purchased subscriptions for Class A Membership
Units during the period from around May 1, 2005 through July 31, 2005. The Operating
Agreement expressly required Defendant Nyce, as Manager of Sunchase, “to act at all times in a
fiduciary manner toward the Company and the Members.” Doc. No. 1-3, Ex. C.
The Confidential Summary represents that Class A subscription payments would be held
in escrow pending acquisition of the Property at closing under the sale agreement. The
Confidential Summary defines the “Minimum Offering” as 50 Class A Membership Units, or

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$7.5 million. The Subscription Agreement states, “if subscription [sic] for at least 50 Units are
not received and accepted by the Company on or prior to April 29, 2005, the offering shall
terminate and each Investor’s $150,000 per Unit subscription payment shall be returned, without
interest.” Doc. No. 1-2, Ex. B. The Confidential Summary further represented that Sunchase
would not acquire the Property if less than the Maximum Offering ($15 million) was raised and
“Sunchase was not able to obtain additional funds, whether from the Class B Member or
otherwise.” Doc. No. 1-1, Ex. A.
Sunchase closed on the acquisition of the Property on May 2, 2005, even though at that
point Nyce had raised only $3,125,000 through the sale of Class A Membership Units.
Sunchase, at that point, had been unable to obtain a commitment from any investor or lender to
provide the remaining $11,875,000. During a period of around three months after the closing on
the acquisition of the Property, Sunchase sold $3,972,000 in Class A Membership subscriptions,
bringing the total to $7,097,000: $403,000 short of the Minimum Offering and $7,903,000 short
of the Maximum Offering. Sunchase failed to acquire an investor or lender to make up the
$7,903,000 difference.
Sunchase then negotiated a modification of its sale agreement with the Seller in order to
acquire the property. The modification allowed Sunchase to pay the Seller over time in return for
a $500,000 increase in the sale price, bringing the total price to $15.5 million. Using funds from
the Class A Membership offering, Sunchase paid $3 million to the Seller at closing on May 2,
2005 and agreed to pay the balance according to the terms of a seven-percent Purchase Money
Note which matured on May 2, 2006. Among other things, the Purchase Money Note required
Sunchase to make monthly interest payments until maturity and principal payments on the Note
as follows: $2 million on July 2, 2005; $5.25 million on November 16, 2005; and $5.25 million

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(less $750,000) on May 2, 2006. The Purchase Money Note was secured by a first deed of trust
on the Property.
Sunchase found itself unable to pay on the Purchase Money Note. Consequently, Nyce
solicited a business associate, William D. Pleasants, to make a $5.25 million investment in
Sunchase. In an e-mail to Pleasants, Nyce explained that Sunchase needed the investment to
meet the November 16, 2005 payment on the Purchase Money Note. One week before payment
was due, Nyce e-mailed Pleasants again on a more desperate note. Pleasants, acting through the
2003 Trust of the Descendants of William D. Pleasants, Jr. (the “Pleasants Trust”), agreed to
make a $5,315,000 investment (roughly 34% of the $15 million total) in Sunchase in exchange
for a 42% ownership interest in Class A. Defendants Nyce and Nyce and Co., Inc. agreed to
preferential investment terms for the Pleasants Trust including additional cash flow distributions,
accelerated payment of cash flow distributions, and a pledge of collateral to secure these
obligations.
To manage the investment, the Pleasants Trust created Tudor Hall Funding, Inc., which
was owned 95% by the Pleasants Trust. On April 27, 2006, prior to the final maturity date of the
Purchase Money Note, Tudor Hall Funding agreed to purchase the Purchase Money Note from
Tudor Hall Farm, Inc. to avoid default by Sunchase. At this point, the Pleasants Trust, through
Tudor Hall Funding, Inc., became Sunchase’s principal secured lender with a first lien on the
Property (not including Parcel K). The undercapitalized Sunchase soon defaulted on its
obligation to Tudor Hall Funding, Inc. who then initiated foreclosure proceedings against the
Property (not including Parcel K) in the Circuit Court for St. Mary’s County, Maryland, on
August 23, 2007.

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On September 10, 2007, one day before the scheduled foreclosure sale, Sunchase filed a
voluntary petition under Chapter 11 of the U.S. Bankruptcy Code in the United States
Bankruptcy Court for the District of Maryland, Case No. 07-18677 DWK. On March 13, 2009,
the Bankruptcy Court confirmed a Chapter 11 plan jointly proposed by Sunchase and Tudor Hall
Funding. The plan provided for the sale and transfer of the Property (not including Parcel K) to
Tudor Hall Funding, free and clear of liens, claims, and encumbrances, and in full and complete
satisfaction of the secured claim of Tudor Hall Funding. Under the confirmed plan, the equity
interests of the Class A Members of Sunchase, including Plaintiffs, were eliminated. Class A
Members, including Plaintiffs, received nothing on account of their equity interests in Sunchase
under the confirmed plan. Under the plan, the parties agreed that Sunchase may assign
Sunchase’s 80% membership interest in PK-THF to Tudor Hall Funding. Tudor Hall Funding
separately acquired the remaining 20% interest in PK-THF from Tudor Hall Farm. Thus, Parcel
K currently remains in the possession of PK-THF, although Tudor Hall Funding now owns all of
the membership interests in PK-THF.1
Plaintiffs charge that a constructive trust was created in Parcel K for the Plaintiffs by
Defendants Nyce and Nyce & Co., Inc. They allege that Nyce and Nyce & Co. obtained funds
from Plaintiffs by means of fraud, misrepresentation, or other improper conduct, and that such
funds were used to purchase Parcel K, titled as it was in the name of PK-THF. Plaintiffs contend
that under these circumstances, Plaintiffs have a paramount equitable claim to the Parcel K
Property.

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Plaintiffs argue in their reply brief that there is no evidence in the record that Tudor Hall Funding ever acquired
ownership and control of Parcel K LLC.” See Doc. No. 81 at 2. However, Plaintiffs basically admit this issue in their
initial motion for summary judgment. See Doc. No. 79 at 38 (“the fact that Tudor Hall Funding now owns all of the
membership interests in Parcel K LLC…”). Thus, the Court will treat this issue as settled.

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On October 1, 2009, the Court entered default judgments against Defendants Douglas A
Nyce and Nyce & Co., jointly and severally, in the amount of $3.12 million, for securities fraud
in violation of 15 U.S.C. § 78j(b) and 17 C.F.R. 10b-5 (Count I), violations of §20(a) of the
Exchange Act (Count II), common law deceit (Count III), and negligent misrepresentation
(Count IV). The only claim remaining is Plaintiffs’ constructive trust claim (Count V) against
Defendant PK-THF.
The parties have filed cross motions for summary judgment. For the following reasons,
the Court GRANTS Plaintiffs’ motion and denies PK-THF’s motion.

II.

STANDARD OF REVIEW
Summary judgment is only appropriate “if the pleadings, the discovery and disclosure

materials on file, and any affidavits show that there is no genuine issue as to any material fact
and that the movant is entitled to judgment as a matter of law.” Fed. R. Civ. P. 56(c); see Celotex
Corp. v. Catrett, 477 U.S. 317, 323-25 (1986). The Court must “draw all justifiable inferences in
favor of the nonmoving party, including questions of credibility and of the weight to be accorded
to particular evidence.” Masson v. New Yorker Magazine, Inc., 501 U.S. 496, 520 (1991) (citing
Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255 (1986)). On cross-motions for summary
judgment, “each motion [is] considered individually, and the facts relevant to each [are] viewed
in the light most favorable to the non-movant.” Mellen v. Bunting, 327 F.3d 355, 363 (4th Cir.
2003).
To defeat a motion for summary judgment, the nonmoving party must come forward with
affidavits or other similar evidence to show that a genuine issue of material fact exists. See
Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986). A disputed fact

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presents a genuine issue “if the evidence is such that a reasonable jury could return a verdict for
the non-moving party.” Anderson, 477 U.S. at 248. Although the Court should believe the
evidence of the nonmoving party and draw all justifiable inferences in his or her favor, a party
cannot create a genuine dispute of material fact “through mere speculation or the building of one
inference upon another.” Beale v. Hardy, 769 F.2d 213, 214 (4th Cir. 1985).

III.

ANALYSIS
The doctrine of Constructive Trust under Maryland law is an equitable remedy, designed

“to convert the holder of the legal title to property into a trustee for one who in good conscience
should reap the benefits of the possession of said property.” Jahnigen v. Smith, 795 A.2d 234,
239 (Md. 2002) (citing Wimmer v. Wimmer, 414 A.2d 1254, 1258 (Md. 1980)), cert. denied,
802 A.2d 439 (Md. 2002). The remedy is available only: (1) when property is acquired by fraud,
misrepresentation, or other improper method; or (2) where the circumstances would render it
inequitable for the party holding title to retain it, such as unjust enrichment. See Wimmer, 414
A.2d at 1258. The Court of Appeals in Wimmer stated that “[t]he purpose of the remedy is to
prevent the unjust enrichment of the holder of the property.” 414 A.2d at 1258 (citing Siemiesz
v. Amend, 206 A.2d 723 (Md. 1965)).
Plaintiffs contend that summary judgment on their constructive trust claim is proper
because: (1) Plaintiffs’ investment funds were used to purchase Parcel K; (2) Plaintiffs’ funds
were procured by fraud, deceit, and other improper conduct; and (3) because Plaintiffs’ funds
supported the creation of PK-THF and its ownership of Parcel K, it would be unjust for PK-THF
to retain the benefit. PK-THF argues for summary judgment in its favor on the grounds that: (1)
Plaintiffs’ investment funds cannot be traced to Parcel K; (2) Plaintiffs’ constructive trust claim

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is barred by res judicata because Plaintiffs failed to assert their interests in Parcel K in the
Bankruptcy case; and (3) Plaintiffs’ claim is barred under the Bankruptcy Court’s Confirmed
Sunchase/Funding Plan. The Court will address each issue separately.

A.

Plaintiffs’ Investment Funds were Used to Purchase Parcel K

The first issue the Court must address is whether Plaintiffs’ investment funds are
traceable to Parcel K. Parties requesting the imposition of a constructive trust must be able to
trace their funds to the property upon which the trust is to be impressed. Bregman, Berbert &
Schwartz, L.C.C. v. United States, 145 F.3d 664, 669 (4th Cir. 1998). Plaintiffs contend that
Parcel K was contributed to PK-THF as part and parcel of the overall sales agreement between
Sunchase and Tudor Hall Farm, Inc., the Seller. PK-THF asserts that Parcel K was not
transferred for payment by Sunchase but rather was contributed by the Seller to PK-THF as a
capital contribution.
Both parties contentions are premised on the language in the April 6, 2004 Agreement of
Sale. Pursuant to that agreement, Sunchase agreed to pay $15 million (ultimately $15.5 million
as set forth in a later amendment to the Agreement of Sale) for title to 141 acres of unimproved
real property. As to a remaining 7.88 acre area, Parcel K, the parties agreed that the parcel would
be titled in the name of PK-THF, with Sunchase holding an 80% stake and the Seller holding a
20% stake. The recital in the Agreement of Sale states that Sunchase desires to “purchase certain
property owned by Seller referred to as Outparcels A, B, C, E, F, G, H, I, J, and K…” This is
important evidence substantiating Plaintiffs’ position that its funds went toward the purchase of
Parcel K. However, language contained in Paragraph 16 relating to Parcel K makes the issue less
clear-cut. That provision states, in pertinent part:

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Outparcel K. Notwithstanding anything to the contrary contained herein, at the Closing,
Seller shall contribute Outparcel K to a newly formed Buyer affiliated limited liability
company (the “Outparcel K Owner”) for no additional payment. Seller will have a
capital account in such Outparcel K Owner equal to the fair market value of Outparcel K,
be entitled to a 20% membership interest in Outparcel K Owner and the receipt of an
accrued return of 8% on such capital account, and shall have reasonable consent rights
with respect to such major decisions as the sale, financing/refinancing and the proposed
development of Outparcel K.
Doc. No. 46, Ex. 1 at 12 (emphasis added). PK-THF points to the fact that Parcel K was
contributed by the Seller for “no additional payment,” construing that phrase to mean that Parcel
K was not transferred for any payment by Plaintiffs and rather was transferred as a capital
contribution by the Seller.
Although the Court notes that in fact, the Seller did receive a 20% membership interest in
PK-THF in exchange for its contribution of Parcel K, the Court finds that PK-THF’s
interpretation fails to comport with the agreement as a whole. The Court finds it far more likely,
in light of the language including Parcel K in the recital of properties to be purchased by
Sunchase, that by “no additional payment” the parties meant no additional payment over and
above the $15.5 million consideration already being paid for all the parcels, including Parcel K.
Moreover, PK-THF does not allege that the Seller would have contributed Parcel K to PK-THF
for a 20% membership interest if Sunchase had not agreed to pay the $15.5 million purchase
price for the entire Tudor Hall Farm property. It is undisputed that Plaintiffs’ investment funds
were used to pay the $15.5 million purchase price under the Agreement of Sale. Accordingly, the
Court finds that Plaintiffs’ investment funds were used to purchase Parcel K.

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B.

Whether Plaintiffs’ Investment Funds were Procured by Fraud, Deceit, and other
Improper Conduct

On October 1, 2009, the Court entered default judgments against Defendants Douglas A
Nyce and Nyce & Co. (“Nyce”), jointly and severally, in the amount of $3.12 million, for
securities fraud in violation of 15 U.S.C. § 78j(b) and 17 C.F.R. 10b-5 (Count I), violations of
§20(a) of the Exchange Act (Count II), common law deceit (Count III), and negligent
misrepresentation (Count IV). See Doc. No. 35. Plaintiffs argue that res judicata precludes PKTHF from re-litigating these fraud claims. PK-THF does not contest that the doctrine of res
judicata applies to default judgments. See Sheahy v. Primus Auto. Fin. Serv., 284 F. Supp. 2d
278, 281 (D. Md. 2003) (“for res judicata purposes a default judgment is given the same effect
as a judgment entered after a trial on the merits.”). Rather, PK-THF argues that the default
admissions of Nyce are not binding as to PK-THF, who still has the right to present its defenses
to the complaint. In support of its argument, PK-THF cites to a Maryland Court of Special
Appeals case which held that “The default of one defendant, although an admission by it of the
allegations in the complaint, does not operate as an admission of such allegations as against a
contesting co-defendant even though the defendants may be inextricably joined.” Chromacolour
Labs, Inc. v. Snider Bros. Prop. Mgmt., Inc., 503 A.2d 1365, 1370 (1986).
While the Court agrees with PK-THF’s contention that Nyce’s default judgments do not
operate as binding admissions on PK-THF, the crucial fact is that they operate as final and
conclusive judgments as to Nyce’s fraud and deceit. Accordingly, the Court declines to
reconsider whether Nyce concealed Sunchase’s lack of adequate capitalization and inability to
pay the $15.5 million purchase price for the Tudor Hall Farm property. Moreover, the Court

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determines that Nyce’s affidavit and the other evidence submitted by PK-THF fail to create a
genuine dispute of material fact on this issue.

C.

Because Plaintiffs’ Fraudulently Procured Investment Funds Supported the
Creation of PK-THF and its Ownership of Parcel K, it would be unjust for
PK-THF to retain the benefit

Although the Court acknowledges that PK-THF itself played no role in raising funds
from investors, PK-THF came into existence and received Parcel K, its only relevant asset, as
part of the property sales agreement Nyce entered into as manager of Sunchase. Accordingly,
PK-THF’s very existence and its ownership of Parcel K were made possible by Plaintiffs’
purchase of Class A Membership Units and Nyce’s decision to use those funds to enter into a
fraudulent sales agreement. The crucial factor is not whether PK-THF itself engaged in
fraudulent or deceitful conduct, but whether Plaintiffs conferred a benefit on PK-THF and
whether it would be unjust for PK-THF to retain that benefit. See Starleper v. Hamilton, 666
A.2d 867, 869-70 (1995) (Maryland courts may impose a constructive trust even absent
wrongdoing by the defendant-trustee). Because it would be unjust for PK-THF to retain the
benefit of Parcel K, a benefit derived from a fraudulent transaction which inured to the detriment
of Plaintiffs, the Court finds that a constructive trust in favor of Plaintiffs is proper here.

D.

Plaintiffs’ Constructive Trust Claim is not Barred by res judicata

PK-THF contends that Plaintiffs’ constructive trust claim is barred by res judicata
because Plaintiffs failed to argue during the bankruptcy case that they, rather than PK-THF, were
the true owners of Parcel K. The doctrine of res judicata bars successive attempts to relitigate the
same cause of action between the same parties, as well as any other claim or issue that could

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have been raised in the earlier action. Meekins v. United Transp. Union, 946 F.2d 1054, 1057
(4th Cir. 1991). The purpose of the doctrine is to prevent a plaintiff from rehashing claims that
were or could have been litigated in an earlier proceeding. Parklane Hosiery Co. v. Shore, 439
U.S. 322, 326 (1979). Res judicata applies when there is: (1) a final judgment on the merits in a
prior suit; (2) an identity of the cause of action in both the earlier and the later suit; and (3) an
identity of parties or their privies in the two suits. Pueschel v. United States, 369 F.3d 345, 34555 (4th Cir. 2004); Frank v. Home Depot, U.S.A., Inc., 481 F. Supp. 2d 439, 442 (D. Md. 2007).
Applying the three prerequisites of res judicata to this case, there is no dispute that the
first requirement is met. The parties agree that the bankruptcy court’s confirmation order
constitutes a final judgment on the merits. The parties disagree about the other two requirements:
whether PK-THF is in privity with Sunchase, and whether the chapter 11 proceeding involved
the same cause of action that Plaintiffs assert here. Because the Court concludes that the chapter
11 proceeding did not involve the same cause of action, it will not reach the issue of whether PKTHF is in privity with Sunchase.
Claims are part of the same cause of action for res judicata purposes when they arise out
of the same transaction or series of transactions. Anyanwutaku v. Fleet Mortg. Group, Inc., 85 F.
Supp. 2d 566,571 (D. Md. 2000). Plaintiffs contend that the facts underlying their present claim
were not at issue in the confirmation proceeding. Specifically, Plaintiffs argue that the
bankruptcy court did not consider, and had no obligation to consider, any factual dispute relating
to Plaintiffs’ fraud or constructive trust claims in connection with the bankruptcy court’s
consideration of the proposed sale of Sunchase’s assets. The Court agrees with this contention.
It is undisputed that the facts at the core of Plaintiffs’ constructive trust claim were
neither raised nor litigated in the chapter 11 proceeding. The bankruptcy court did not purport to

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rule on whether Nyce breached any contractual or fiduciary duty to Plaintiffs, and no party
introduced any evidence regarding those alleged breaches. There is simply no indication in the
record that the facts put at issue by Plaintiffs’ present action were raised or litigated before the
bankruptcy court. This is important evidence that the chapter 11 case did not involve the same
cause of action as the present suit. PK-THF maintains, however, that the facts underlying
Plaintiffs’ constructive trust claim played an integral part in the chapter 11 proceeding such that
the Court should consider the two actions as arising out of the same transaction or series of
transactions, even though the relevant facts were never actually raised in the bankruptcy court.
Specifically, PK-THF contends that the bankruptcy court necessarily considered the ownership
of Parcel K in the process of confirming the Sunchase/Funding plan.2 The Court finds this
argument unpersuasive.
Res judicata extends to all matters that were properly before the bankruptcy court or
could have properly been brought there. The confirmation process in a chapter 11 case is
primarily an inquiry into the viability of the proposed plan and the disposition of the debtor’s
assets; a bankruptcy court’s jurisdiction does not extend to property that is not part of a debtor’s
estate. Rutherford Hosp., Inc. v. RNH Partnership, 168 F.3d 693, 699 (4th Cir. 1999). Because
Parcel K is owned by PK-THF and not Sunchase, it was not considered part of Sunchase’s
bankruptcy estate for purposes of the bankruptcy proceedings. This much PK-THF
acknowledges. The bankruptcy court, in confirming the Sunchase/Funding plan, was not
determining the proper ownership of Parcel K, but rather was determining whether the plan as
presented met the requirements and objectives of the Bankruptcy Code under 11 U.S.C. § 1129.

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PK-THF argues that the “confirmed Sunchase/Funding Plan was premised, in part, upon the facts disclosed in the
Disclosure Statement that PK-THF owned Parcel K (including the valuation of Sunchase’s 80% interest in PK-THF,
which would have been lower had the Bankruptcy Court ruled that Plaintiffs were the actual beneficial owners of
Parcel K, PK-THF’s only asset).” Doc. No. 80 at 21.

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The court certainly could have found that the Sunchase/Funding plan met the requirements of
section 1129 without delving into facts surrounding Sunchase’s misconduct in its capacity as
pre-bankruptcy corporate debtor.
Simply put, the issue in a res judicata is “whether the same facts are involved in both
cases, so that the present claim could have been effectively litigated with the prior one.” In re
Baudoin, 981 F.2d 736, 743 (5th Cir. 1993). Looking at the facts that the bankruptcy court was by
law required to consider, and the facts that it actually did consider, we simply cannot infer that
the facts underlying Plaintiffs’ constructive trust claim were sufficiently put at issue by the
confirmation process to support res judicata.
Even if the Court found that all the prerequisites of res judicata had been met, PK-THF
would still not be entitled to relief because Plaintiffs’ constructive trust claim could not have
been brought in the bankruptcy proceeding.3 PK-THF argues that Plaintiffs could still have
asserted their constructive trust theory as an objection to confirmation of the Sunchase/Funding
plan. However, merely objecting to the Sunchase/Funding plan would not have been the
equivalent of pursuing Plaintiffs’ constructive trust claim. Moreover, filing an objection would
have at best resulted in denial of the confirmation; Plaintiffs’ fraud and constructive trust claims
would still have required the filing of a separate adversary proceeding. Given the limited
jurisdiction of the bankruptcy court, Plaintiffs’ right to object to the Sunchase/Funding plan
would not have provided an adequate vehicle to fully assert their constructive trust claim. See In
re Piper Aircraft Corp., 244 F.3d 1289, 1295-1301 (11th Cir. 2001). Thus, even if Plaintiffs
could have raised a constructive trust theory before the bankruptcy court, the Court finds that

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As discussed supra, a bankruptcy court’s jurisdiction does not extend to property that is not part of a debtor’s
estate, and Parcel K, being owned by PK-THF rather than Sunchase, was not part of Sunchase’s bankruptcy estate.
Thus, Parcel K was not property over which the bankruptcy court had jurisdiction.

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Plaintiffs had no obligation to do so. Accordingly, Plaintiffs’ constructive trust claim is not
barred by res judicata.

D.

Plaintiffs’ Claim is not Enjoined under Sunchase’s Plan of Reorganization

Lastly, PK-THF argues that summary judgment in its favor is appropriate because
Plaintiffs’ claims are enjoined under Article 6.4(b) of the confirmed Sunchase/Funding plan.
Article 6.4(b) enjoins litigation claims against Tudor Hall Funding, LLC that arise out of its preand post-bankruptcy transactions with the debtor and bankruptcy estate. However, Plaintiffs in
this action are suing PK-THF rather than Tudor Hall Funding, LLC. Although Tudor Hall
Funding, LLC now owns all of the membership interests in PK-THF, a claim against PK-THF is
not legally considered an indirect or a direct claim against Tudor Hall Funding, LLC. See
Gebhardt v. Nations Title, 752, A.2d 1222, 1226 (Md. App. 2000) (finding that an LLC member
has no interest in property owned by the LLC and “[t]o hold otherwise would be to disregard the
nature and viability of limited liability companies.”).
Furthermore, Article 6.4(a), which enjoins the assertion of claims against Sunchase, its
bankruptcy estate, assets, and property, does not apply to this action because Parcel K was not an
asset of the Sunchase bankruptcy estate, being owned by PK-THF. Thus, the Court finds that
Plaintiffs’ constructive trust claim is not enjoined under the confirmed Sunchase/Funding plan.

IV.

CONCLUSION
For the aforementioned reasons, Plaintiffs’ motion for summary judgment is GRANTED

and PK-THF’s motion for summary judgment is DENIED. The Court will permit Plaintiffs to

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submit a proposed order respecting the issuance of a constructive trust consistent with this
opinion. A separate order will follow.

September 2, 2011
Date

/s/
Alexander Williams, Jr.
United States District Judge

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