Peterson v. Hans Imhof et al

Filing 79

OPINION. Signed by Judge Dennis M. Cavanaugh on 10/7/13. (jd, )

NOT FOR PUBLICATION
UNITED STATES D1STRICT COURT
DISTRICT OF NEW JERSEY

RONALD R. PETERSON, as Chapter 7
Trustee for Lancelot Investors Fund, L.P.,

Hon. Dennis M. Cavanaugh
OPINION

Ct aT.

Plaintiff,
Civil Action No, 2:13-cv-00537 (DMC)(JBC)
V.

HANS IMHOF. WELLS L. MARVIN,
THE RUSSELL ELDON HATLE AND
LORRAIN LOUIS HATLE
REVOCABLE TRU ST. THE L.HATLE
TRUST. DATED DECEMBER 30,
1991. JEFFREY WOLFER, KEVIN
WOLFER, GREGG WOLFER, and
KENNEDY FUNDING, INC.
Defendants.

I)ENNIS M. CAVANAUGH. U.S.D.J.:
This matter comes before the Court upon the Motion of Defendants Hans Imhof. Wells L.
Marvin. The Russell Eldon Hatle and Lorraine Louise Hatle Revocable Trust. and The L. Hatle
Trust, Dated December 30, 1991 (“Defendants” or the “Clearwater Guarantors”) to Dismiss
Counts 1, II, III, and IV of the Amended Complaint of Ronald R. Peterson (Plaintiff’). pursuant
to FED. R. Civ. P. 12(b)(6). Pursuant to FED. R. Civ. P 78, no oral argument was heard. Based on
the following and for the reasons expressed herein, Defendants’ Motion is denied.

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BACKGROUND
On October 26, 2007, Kennedy Funding, Inc. (Kennedy”) entered into a Loan and

Security Agreement (the “Loan Agreement”) with Clearwater Development. Inc. (“Clearwater
Development”). Clearwater Development also executed a $47,142,500 promissory note (the
‘Note”) in favor of Kennedy at this time. Further, the Clearwater Guarantors each executed a
guaranty of the underlying loan (the ‘Guaranty”). The Loan and Security Agreement. the Note.
ard the Guaranty will be collectively referred to as the “Loan Documents.”
On November 8, 2007, KD8, LLC (“KD8”) was formed as a Delaware limited liability
company. On November 16, 2007. KD8 and Kennedy entered into a co-lenders agreement (the
“Co-Lenders Agreement”), pursuant to which KD8 acquired 43.52% of the Loan. The Co
Lenders Agreement expressly states that Kennedy Funding is to obtain the consent of all of the
Co-Lenders in order to release any Defendant Guarantor from its guaranty obligation.
Specifically, section 6(a) of the Co-Lenders agreement, which is attached to PlaintifPs
Complaint, provides the following: ‘There shall be required the written consent of the Required
Lenders to

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[c]onsent to or permit any substitution, withdrawal or release of any collateral.

an Guarantor or any other security securing the payment of the Loan except in accordance with
the terms of the Notes and Loan Documents and other related documents’ (Compi Ex, 4 at 3),
On October 20. 2008. KD8 filed for bankruptcy in the United States Bankruptcy Court
for the Northern District of Illinois. Thereafter, Plaintiff was appointed as Chapter 7 Trustee of
KD8. Plaintiff alleges that on July 17, 2009, the Clearwater Guarantors and Kennedy, without
the knowledge or required consent from Plaintiff, in clear violation of the Co-Lenders
Agreement, and without obtaining relief from the automatic stay imposed by section 362(a)(’3) of

The facts from this section are taken from the parties’ pleadings.

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the Bankruptcy Code, entered into a Modification of Guaranty (the ‘Guaranty Modification”).
Plaintiff claims that this Guaranty Modification purported to release the Clearwater Guarantors
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 the upkeep of the real estate that served as a collateral for the
loan obligations (the “Subject Property”) from May 1, 2009 to April 30. 2011, in the amount of
$3000,000. Plaintiff claims that it first discovered the existence of the Guaranty Modification no
earlier than May 2010. Plaintiff asserts that Clearwater Development has failed to pay amounts it
owes under the Loan Documents and has been in default since January 2009. On April 18, 2011,
Clearwater Development tiled a voluntary petition for bankruptcy. Plainti IT alleges that as of that
date, Clearwater Development owed the Co-Lenders approximately $62.3 million in principal
and interest, of which approximately $27. 11 million was owed to Plaintiff. Plaintiff claims that
no payments have been made after that date, and that interest continues to accrue.
Plaintiff originally filed a complaint against Defendants in the United States Bankruptcy
Court for the Northern District of Illinois on April 27, 2012. Upon request of Defendants, the
United States District Court for the Northern District of Illinois withdrew the reference for
Plaintiffs action, effectively transferring the case to that court. The Northern District of Illinois
then dismissed the action based on improper venue. Subsequently, the Northern District of
Illinois granted Plaintiffs motion to amend the dismissal order and ordered the transfer of this
case to the District of New Jersey.
On March 7, 2013, this Court granted Plaintiffs Motion for Leave to File an Amended
Complaint (ECF No, 60). Plaintiff filed an Amended Complaint on March 8, 2013, alleging
eleven counts, four of which are asserted against the instant Defendants: i) violation of the
automatic stay imposed by 11 U.S.C.

§

362(a)(2); ii) breach of contract; iii) declaratory relief

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pursuant to 28 U.S.C.

2201: and iv) avoidance of posipetition transfer pursuant to 11 U.S.C.

549(a) (“Compl.,” ECF No. 62). Defendants filed a Motion to Dismiss Counts 1, II, III, and IV
on March 22, 2013 (Def.’s Mot.,” ECF No. 66). Plaintiff Filed a Brief in Opposition on April
22, 2013 (“Ph’s Opp’n,” ECF No. 70). Defendants filed a Reply Brief on

April

29, 2013 (ECF

No. 71).
II.

STANDARD OF REVIEW
In deciding a motion under FED. R. Civ. P. 12(b)(6). the District Court is required to accept

as true all factual allegations in the complaint and draw all inferences in the facts alleged in the
light most favorable to the [plaintiff].” Phillips v. Cnty, of Allegheny, 515 F.3d 224, 228 (3d Cir.
2008). “[A] complaint attacked by a Rule I 2(b)(6) motion to dismiss does not need detailed factual
allegations.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007). However, the plaintiffs
“obligation to provide the grounds’ of his entitle[mentj to relief requires more than labels and
conclusions and a formulaic recitation of the elements of a cause of action will not do,” Id. On a
motion to dismiss. courts are “not bound to accept as true a legal conclusion couched as a factual
allegation.” Papasan v. Allain, 478 U.S. 265, 286 (1986). Plaintiff’s complaint is subject to the
heightened pleading standard set forth in Ashcroft v. Igbal:
To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted
as true, to “state a claim to relief that is plausible on its face.” 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
Determining whether
a complaint states a plausible claim for relief will
be a context-specific task that requires
the reviewing court to draw on its judicial experience and common sense. But where the
well pleaded facts do not permit the court to infer more than the mere possibility of’
misconduct, the complaint has alleged but it has not “show[nj” “that the pleader is
entitled to relief”
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556 U.S. 662, 678-679 (2009) (quoting Twombly. 550 U.S. at 557. 750).
HI.

DISCUSSION

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A. Count I Arguments
Count I of the Complaint alleges that Defendants violated the automatic stay provision
imposed by the Bankruptcy Code by executing the Guaranty Modification, The Bankruptcy
Code provides that a petition filed under title 11 of the United States Code operates as a stay.
applicable to all entities, of.

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any act to obtain possession of property of the estate or of

property from the estate or to exercise control over property of the estate.” 11 U.S.C.

§

362(a)(3).

1) Statute of Limitations
Defendants concede that the Bankruptcy Code does not expressly provide a statute of
limitations for violations of the automatic stay (Def.’s Mot. at 8). However. Defendants argue
that “in circumstances similar to the ones here, courts have applied the limitations period
articulated in Section 549”

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which is two years (j at 8-9). Defendants cite to In re E-Tron

Corp. 141 B.R. 49 (D.N.J. 1992) for this proposition.
In E-Tron, the court stated that transfers of property or interests in property in violation of
the automatic stay are subject to the statute of limitations set forth in 11 U.S.C.

§

549(d)( 1). Id. at

55. Plaintiff asserts that E-tron is an isolated case that “far from announce[d] a general principal”
(P1’s

Opp’n at 16). However, while courts in this circuit have not yet commented on the holding

in F-non, courts in other circuits have recognized it as broad. See In re Rothenberg. 173 B.R. 4.
13 (Bankr. D.D.C. 1994) (stating that E-Tron held that the statute of limitations in section 549(d)
“applies to [a] trustee’s action to avoid [a] transfer as void in violation of the stay”); In re Wills,
226 B.R. 369, 377 (Bankr. ED. Va. 1998) (stating that E-Tron held that “transfers in violation of
[the] automatic stay [are] still subject to

§

549(d)’s statute of limitation”).

In the present case. Count I asserts that Defendants violated the automatic stay b
executing thc postpetition Cuaianty Modification because Plaintiff has propcitv ughts undci ihc

Loan Documents. Essentially, Count I is premised on a claim that Defendants transferred a
property interest in violation of the automatic stay. Therefore, under E-Tron, the two year statute
of limitations in section 549(d)(l) applies. Plaintiffs argument that the majority of courts have

held that no statute of limitations applies for violations of the automatic stay is unavailing
because the Court in E-Tron expressly declined to follow decisions from other courts that came
to this conclusion. See E-Tron, 141 B.R. at 55. Therefore, because the Guaranty Modification
was signed on July 17, 2009 and Plaintiffs original Complaint was filed on April 27, 2012.
Plaintiff s claim is not timely under section 549(d)(1), However, as discussed infra, Plaintiff has
a viable argument that equitable toiling should apply to the section 549 claim that is the subject
of Count IV. Because this Court finds that section 549’s statute of limitations is applicable to
Count 1. Plaintiffs equitable tolling claim is also applicable to Count 1. Therefore, Defendants
Motion to Dismiss is denied.
2) Lathes
Defendants’ second argument with respect to Count I is that the claim is barred by the
doctrine of laches. A defendants asserting laches must made two showings: 1) inexcusable delay
by the plaintitt in brmging suit, and 2) prejudice to the defendant from the delay Gruca

U S

Steel Corp.. 495 F.2d 1252, 1258 (3d Cir. 1974). When a laches defense depends on disputed
facts, “it is inappropriate to make a determination on a motion to dismiss” Kaufliold v, Caiafa,
872 F. Supp. 2d 374. 380 (D.N.J. 2012).
Count I of the Amended Complaint was not in Plaintiffs original Complaint. Defendants
argue that laches applies because Plaintiff first learned about the Guaranty Modification in May
2010, yet did not assert a claim for violation of the automatic stay until nearly three years later
(Def s Mot. at 11). Further, Defendants claim that they have been prejudiced because under the

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Guaranty Modification, they were required to maintain the Subject Property from May 1. 2009
through April 30, 2011 and spend at least $3,000,000 in connection with those maintenance
efforts (Id. at 1 1-12). Thus, Defendants assert the following:
If. in May 2010, the Trustee had asserted that the [Guaranty Modificationj was void, the
Clearwater Guarantors might not have maintained the Subject Property in the manner they
did from May 2010 to April 30, 2011, and could have made alternative decisions regarding
how to utilize the millions of dollars they put into the Subject Property
(Id. at 12). Plaintiff, however, argues that the Amended Complaint asserts that he learned about
the Guaranty Modification “no earlier” than May 201 0 (PUs Opp’n at 1 9 n.5). Plaintiff asserts
that he “expects that the evidence will demonstrate that

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Plaintiff’ actually learned of the

Guaranty Modification in May or June of 2011, which is after the Defendants obligation to
maintain the property ceased” (Id.). Thus, the defense of laches turns on disputed facts and
cannot properly be decided in a motion to dismiss.
3) Failure to Describe a Legally Adequate Claim
Defendants’ third argument with respect to Count I is that Plaintiffs Complaint does not
describe a legally adequate claim for violation of the automatic stay. Section 362 of the
Bankruptcy Code provides that a petition filed under title 11 of the United States Code “operates
as a stay, applicable to all entities of.

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any act to obtain possession of property of the estate or

against property of the estate, or to exercise control over property of the estate.” 11 U.S.C.

§

362(a)(3). Section 541 defines “property of the estate” as “all legal or equitable interests of the
debtor in property as of the commencement of the case.” 11 U.S.C.

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541(a)(l). The Third

Circuit has stated that “the expansive nature of § 541’s property definition encompasses rights
and interests arising from ordinary’ contractual relationships.” Westmoreland Human
Opportunities. Inc. v. Walsh, 246 F.3d 233. 242 (3d Cir. 2001).
In the present case, the automatic stay went into effect when KD8 filed for bankruptcy.
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Plaintiff asserts that KD8 has a property interest in the Loan Documents due to the Co-Lenders
Agreement. pursuant to which KD8 acquired 43.52% of the Loan. Further. Plaintiff alleges
that
Defendants did not seek permission to execute the Guaranty Modification, and therefore
impaired KD8’s property rights. As Plaintiffs factual allegations must be accepted as true,
Plaintiff has stated a claim under 11 U.S.C.

§

362(a)(3).

4) Disguised Claim for Violation of Section 549
Defendants’ final argument regarding Count I is that ‘Count I is just a disguised claim for
violation of Section 549” (Defs Mot. at 16). The cases Defendants cite to for this proposition are
inapplicable. For example, Defendants cite to In re Shah, No. 99-34723. 2001 WL 423024
(Bankr, ED. Pa. Apr. 10, 2001) for the proposition that a claim such as Plaintitis is governed by
section 549 rather than section 362. However, in Shah, the court found that section 549 was
applicable due to the good faith purchaser exception set forth in section 549(c). which is
available as a defense to claims made under section 362. Id. at *67 Defendants cite E-Tron for
the same proposition as Shah. (Defs Mot. at 17). However, the court in E-tron decided that
section 549’s statute of limitations applied to section 362 claims

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it did not decide that claims

alleging a postpetition transfer in violation of the automatic stay cannot be brought under section
362. See 141 B.R. at 54-55. As discussed above, Plaintiff has pied sufficient facts to survive a
motion to dismiss the 11 U.S.C

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362 claim. Accordingly. Dcfendants Motion is denied.

B. Counts II-IV Standing Argument
Defendants assert that Counts II, III, and IV should be dismissed because KD8 does not
have standing to enforce the Loan Documents against Defendants, Under New Jersey law, if a
plaintiff is not an express party to a contract, the plaintiff must be an intended beneficiary in
order to have contractual standing. Broadway Maint. Corp. v. Rutgers. State Univ., 447 A.2d

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906, 909 (N.J. 1982). Plaintiff concedes that New Jersey law applies (See P1’s Opp’n at 24-27).
In the present case, Defendants argue that Plaintiff does not have standing because KD8
was not an express party named in any of the Loan Documents and could not have been an
intended beneficiary because KD8 was not in existence at the time the Loan Documents were
executed (Defs Mot. at 20. 22). However, the facts as pleaded by PIaintiff which must he
accepted as true at this time, show that KD8 was a partially disclosed principal to the Loan
Agreement. A partially disclosed principal is defined as follows: “If the other party has not/cc
that the agent is or may be acting for a principal but has no notice of the principal’s identity, the
principal for whom the agent is acting is a partially disclosed principal.” African Bio-Botanica.
Inc. v, Leiner, 624 A.2d 1003, 1006 (N.J. Super. App. Div. 1993) (quoting Restatement (Second)
of Agency §4(2) (1958)). Here, Plaintiff has alleged that Kennedy entered into the Loan
Agreement “as an agent for

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lenders” (Compl. ¶ 18). The Loan

Agreement

does in thet state

that Kennedy is acting as an agent for the lenders listed in Schedule D of the Loan Agreement
(Id. Ex. 1 at 1). Although Schedule D is blank, Plaintiff asserts that Defendants “were on notice
that Kennedy.

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was acting for principals even if they did not know the identity of the

principals” (P1.’s Opp’n at 25). Further, although KD8 was not in existence at the time the Loan
Agreement was executed, Plaintiff claims that the identities of the lenders were not finalized
until November 16, 2007, when the Co-Lenders agreement was executed (Id. at 24). Therefore,
Defendants’ argument that Counts IT-TV should be dismissed due to lack of standing must fail.
C. Count IV Statute of Limitations Argument
Defendants’ final argument is that Count 1V should be dismissed because it is barred by
the two-year statute of limitations set forth in 11 U.S.C.

§

549(d)(1). As discussed above.

because the Guaranty Modification was signed on July 17, 2009 and Plaintiffs original

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Complaint was tiled on April 27, 2012, Plaintiffs claim is

not

timely under section 549(d)( I).

However. Plaintiff argues that the statute of limitations should be equitably tolled.
The two year statute of limitations in section 549(d)(1) “can be equitably tolled where the
postpetition transfers the trustee seeks to avoid have been concealed.” E-tron, 141 B.R. at 55.
When the statute is tolled, it “will not begin to run until [the postpetition transfers] have been
discovered, or, through reasonable diligence, should have been discovered.” In re Bookout
Hoisteins. Inc., 100 B.R. 427. 430 (Bankr. N.D. md. 1989). Here. Plaintiff asserts that
Defendants concealed the Guaranty Modification and that there was no reason that Plaintiff
should have known about it until May 2010 at the earliest (P1’s Opp’n at 30). If the statute of
limitations started to run in May 2010, Plaintiffs April 27, 2012 Complaint would be timely.
Because Plaintiffs factual allegations must be accepted as true, Defendants’

otion to Dismiss

is denied. See In re G-I Holdings. Inc., 313 B.R. 612, 648 (Bankr. D.N.J. 2004) (“The question
of whether a statute of limitations should be equitably tolled is necessarily a factual one and is
usually not ripe for consideration on a motion to dismiss,”).
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CONCLUSION
For the foregoing reasons, Defendants’ Motion to Dismiss is denied. An appropriate

order follows this Opinion.

Den i
Date:
Original:
cc:

October
Clerk’s ffice
1-Ion. James B. Clark U.S.M.J.
All Counsel of Record
File

1. Cavanaugh

.D.J.