Peterson v. Hans Imhof et al
OPINION. Signed by Judge William J. Martini on 6/30/14. (gh, )
NOT FOR PUBLICATION
UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEW JERSEY
RONALD R. PETERSON, as Chapter 7
Trustee for Lancelot Investors Fund, L.P., et
Docket No.: 13-cv-537
HANS IMHOF, WELLS L. MARVIN,
THE RUSSELL ELDON HATLE AND
LORRAIN LOUIS HATLE
REVOCABLE TRUST, THE L. HATLE
TRUST, DATED DECEMBER 30, 1991,
JEFFREY WOLFER, KEVIN WOLFER,
GREGG WOLFER, and KENNEDY
WILLIAM J. MARTINI, U.S.D.J.:
This matter comes before the court on a motion by Plaintiff Ronald Peterson
(“Plaintiff” or “Trustee”), in his capacity as Chapter 7 Trustee for Lancelot Investors
Fund, L.P. and other entities, including KD8, LLC (“KD8”). Plaintiff’s motion seeks
dismissal of Counterclaims I, II, and III asserted against the Trustee and KD8 by
Defendants Hans Imhof, Wells L. Marvin, The Russell Eldon Hatle and Lorrain
Louis Hatle Revocable Trust, and The L. Hatle Trust, Dated December 30, 1991
(collectively, the “Clearwater Guarantors” or “Guarantor Defendants”). The was no
oral argument. L. Civ. R. 78.1(b). For the reasons set for the below, the motion is
A. Loan to Clearwater Development
Counterclaim Defendant KD8 is one of 18 related entities whose Chapter 7
bankruptcy is being jointly administered under the caption In Re Lancelot Investors
Fund, L.P. in the United States Bankruptcy Court for the Northern District of Illinois.
Amended Complaint at ¶ 15. KD8 was one of several lenders (“the Co-Lenders”)
who entered into a Loan and Security Agreement (“the Loan and Security
Agreement”) with Clearwater Development, Inc. (“Clearwater Development”). Id.
at ¶ 18. Kennedy Funding acted as the agent for the Co-Lenders in executing the
Loan and Security Agreement with Clearwater Development. Id. at ¶ 18.
The Loan and Security Agreement was executed on October 26, 2007, with a
loan amount of $47,142,500 (the “Loan”). Id. at ¶ 18, Ex. 2. The Loan was secured
by certain real estate of Clearwater Development. Amended Complaint, Ex. 1§ 4(a).
Concurrently with the execution of the Loan and Security Agreement, the Guarantor
Defendants executed a guaranty of the Loan (the “Guaranty”), pursuant to which
they collectively guaranteed a total of $23,000,000 of the Loan. Id. at ¶¶ 20-21, Ex.
B. Default and Modification of Guaranty
Clearwater Development failed to pay amounts due on the Loan. Id. at ¶ 33.
At all times since January 2009, the Loan has been in default. Id. at ¶ 33.
On July 17, 2009, the Clearwater Guarantors and Kennedy Funding entered
into a Guaranty Modification. Id. at ¶¶ 29-30, Ex. 6. The Guaranty Modification
purported to release the Guarantor Defendants from $23,000,000 of liability to the
Co-Lenders, including KD8, in exchange for the payment of $500,000 and a promise
to fund upkeep of the real estate (which served as collateral for the loan obligations)
in the amount of not less than $3,000,000. Id. at ¶ 29, Ex. 6. On or about July 24,
2009, the Clearwater Guarantors paid Kennedy Funding $500,000 as a partial
principal repayment of the Loan. Id. at ¶ 31.
On April 18, 2011, Clearwater Development filed a voluntary petition for
bankruptcy protection. Id. ¶ 34. The bankruptcy petition was an event of default
under the terms of the Loan and Security Agreement. Id. at ¶ 34, Ex. 1 § 10. As of
April 28, 2011, Clearwater Development owed the Co-Lenders approximately $62.3
million in principal and interest. Id. at ¶ 35.
Plaintiffs filed this lawsuit on June 13, 2012. ECF No. 1. The Amended
Complaint alleges that the Guaranty Modification is invalid. Specifically, it alleges
that Kennedy Funding and the Clearwater Guarantors executed the Guaranty
Modification in violation of terms spelled out in the Loan and Security Agreement
and without KD8’s authorization.
The Clearwater Guarantors filed an Answer and Counterclaim. ECF No. 82.
In the Counterclaim, the Clearwater Guarantors allege that Kennedy Funding, acting
as an agent of KD8, induced them to modify the Guaranty. They allege that, as a
result of modifying the Guaranty, they have been damaged in the amount of
$4,500,000, consisting of the $500,000 loan repayment and maintenance of the
security real estate. The first three counterclaims allege fraud, negligent
misrepresentation, and breach of contract against the Trustee and KD8.
Federal Rule of Civil Procedure 12(b)(6) provides for the dismissal of a
complaint, in whole or in part, if the plaintiff fails to state a claim upon which relief
can be granted. The moving party bears the burden of showing that no claim has
been stated. Hedges v. United States, 404 F.3d 744, 750 (3d Cir. 2005). In deciding
a motion to dismiss under Rule 12(b)(6), a court must take all allegations in the
complaint as true and view them in the light most favorable to the plaintiff. See
Trump Hotels & Casino Resorts, Inc. v. Mirage Resorts Inc., 140 F.3d 478, 483 (3d
Cir. 1998) (citing Warth v. Seldin, 422 U.S. 490, 501 (1975)).
Although a complaint need not contain detailed factual allegations, “a
plaintiff’s obligation to provide the ‘grounds’ of his ‘entitlement to relief’ requires
more than labels and conclusions, and a formulaic recitation of the elements of a
cause of action will not do.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007).
Thus, the factual allegations must be sufficient to raise a plaintiff’s right to relief
above a speculative level, such that it is “plausible on its face.” See id. at 570; see
also Umland v. PLANCO Fin. Serv., Inc., 542 F.3d 59, 64 (3d Cir. 2008).
“[D]etermining whether a complaint states a plausible claim is context-specific,
requiring the reviewing court to draw on its experience and common sense.”
Ashcroft v. Iqbal, 556 U.S. 662, 663-64 (2009). A claim has “facial plausibility
when the plaintiff pleads factual content that allows the court to draw the reasonable
inference that the defendant is liable for the misconduct alleged.” Iqbal, 556 U.S. at
678 (citing Twombly, 550 U.S. at 556). While “[t]he plausibility standard is not akin
to a ‘probability requirement’ . . . it asks for more than a sheer possibility.” Id. at
Resulting damages are an element of all three causes of action at issue in this
motion. Banco Popular N. Am. V. Gandi, 184 N.J. 161, 172-73 (2005) (listing the
elements of a fraud claim); Green v. Morgan Properties, 215 N.J. 431, 457 (2013)
(negligent misrepresentation); Frederico v. Home Depot, 507 F.3d 188, 203 (3d Cir.
2007) (breach of contract). The Counterclaim fails to state causes of action for fraud,
negligent misrepresentation, or breach of contract because the Counterclaim fails to
allege resulting damages.
There are only two possible outcomes to this case. Either the Guaranty
Modification is valid, or it is invalid. If it is invalid, then the Clearwater Guarantors
are liable to KD8 in amounts much greater than the $500,000 they allege to have
paid pursuant to the Guaranty Modification. If the Guaranty Modification is valid,
as the Clearwater Guarantors believe it is, then the Clearwater Guarantors have
suffered no damages either, since they would have simply abided by the terms of a
contract to which they assented.
To the extent that the Clearwater Guarantors are alleging that they were
damaged by expending money to maintain the security real estate, the allegation is
not plausible. Without further explanation, it is not plausible that an owner of real
estate would allow its property to fall into disrepair.
Clearwater Guarantors argue that if the Guaranty Modification is found to be
valid, then they have suffered damages in defending this litigation. The Clearwater
Guarantors cite no case law to support the proposition that the costs of litigation are
damages. The proposition is contrary to the American Rule that prevailing parties
are not entitled to collect attorneys’ fees unless authorized by statute or contract.
Polonski v. Trump Taj Mahal Associates, 137 F.3d 139, 145 (3d Cir. 1998) (citing
Summit Valley Indus., Inc. v. Local 112, United Bhd. of Carpenters and Joiners, 456
U.S. 717, 721 (1982)). This argument is therefore rejected.
For these reasons, the motion to dismiss the Counterclaims I, II, and III against
the Trustee and KD8 is hereby GRANTED. Counterclaims I, II, and III are
dismissed without prejudice. An appropriate order follows.
/s/ William J. Martini
WILLIAM J. MARTINI, U.S.D.J.
Date: June 30, 2014
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