698 Fed.Appx. 711 (3rd Cir. 2017), 16-2202, In re Opus East LLC

Docket Nº:16-2202
Citation:698 Fed.Appx. 711
Opinion Judge:CHAGARES, Circuit Judge.
Party Name:IN RE: OPUS EAST LLC, et al., Debtors v. Opus LLC, a Minnesota Limited Liability Company; Opus Corp, a Minnesota Corporation; Opus Foundation; Gerald Rauenhorst 1982 Irrevocable Trust, f/b/o Grandchildren and the Gerald Rauenhorst 1982 Irrevocable Trust f/b/o Children; Keith P. Bednarowski, Trustee; Luz Campa, as Trustees thereof; Opus Real ...
Attorney:Steven D. Sanfelippo (Argued), Cunningham Swaim, Counsel for Appellant Dennis M. Ryan (Argued), W.T. Roberts, III, Jane E. Maschka, Faegre Baker Daniels, Counsel for Appellee
Judge Panel:Before: CHAGARES, RESTREPO, and ROTH, Circuit Judges.
Case Date:September 28, 2017
Court:United States Courts of Appeals, Court of Appeals for the Third Circuit
 
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Page 711

698 Fed.Appx. 711 (3rd Cir. 2017)

IN RE: OPUS EAST LLC, et al., Debtors

Jeoffrey L. Burtch, Chapter 7 Trustee for the Estate of Opus East LLC, Appellant

v.

Opus LLC, a Minnesota Limited Liability Company; Opus Corp, a Minnesota Corporation; Opus Foundation; Gerald Rauenhorst 1982 Irrevocable Trust, f/b/o Grandchildren and the Gerald Rauenhorst 1982 Irrevocable Trust f/b/o Children; Keith P. Bednarowski, Trustee; Luz Campa, as Trustees thereof; Opus Real Estate VII, LP; Opus Real Estate VIII, LP; Mark Rauenhorst, individually; Keith P. Bednarowski, individually; Luz Campa, individually; Adler Management LLC; Marshall M. Burton, individually; Opus Property Services LLC; Opus 2 LLC; Opus Architects & Engineers PC; Opus Architects & Engineers Inc; Opus Core LLC; Opus Northwest LLC; Opus Design Build LLC; Opus Development Corp; Opus Holding LLC; Opus Holding Inc.; Opus AE Group Inc.

No. 16-2202

United States Court of Appeals, Third Circuit

September 28, 2017

Argued: January 26, 2017

NOT PRECEDENTIAL

Editorial Note:

This opinion is not regarded as Precedents which bind the court under Third Circuit Internal Operating Procedure Rule 5.7. (See Federal Rule of Appellate Procedure Rule 32.1)

Page 712

On Appeal from the United States District Court for the District of Delaware, (D.C. No. 1-15-cv-00346), District Judge: Honorable Richard G. Andrews

Steven D. Sanfelippo (Argued), Cunningham Swaim, Counsel for Appellant

Dennis M. Ryan (Argued), W.T. Roberts, III, Jane E. Maschka, Faegre Baker Daniels, Counsel for Appellee

Before: CHAGARES, RESTREPO, and ROTH, Circuit Judges.

Page 713

OPINION[*]

CHAGARES, Circuit Judge.

Appellant Jeoffrey L. Burtch, Trustee (the " Trustee" ) for Opus East LLC (" Opus East" )— the debtor in the underlying bankruptcy action— appeals from the District Court’s decision affirming the judgment of the Bankruptcy Court, In re Opus East, LLC v. Opus, LLC, 528 B.R. 30 (Bankr. D. Del. 2015). He challenges the Bankruptcy Court’s findings pertaining to Opus East’s insolvency and his breach of fiduciary duty claim against Opus East’s chairman. For the reasons that follow, we will affirm.

I.1

A.

Opus East is a Delaware limited liability company formed on September 14, 1994, to develop and sell commercial real estate projects in the Northeastern and Mid-Atlantic United States. It belonged to a network of real estate companies, referred to as Opus Group, which were owned by two trusts (" Trusts" ) created for the benefit of founder Gerald Rauenhorst’s children and grandchildren. Opus East was a subsidiary of Opus LLC, one of the Trusts’ two holding companies.

Opus East owned a series of entities (" special purpose entities" or " SPEs" ) formed for each real estate project Opus East developed. The holding companies and their subsidiaries were each independent legal entities with their own management, financing, and accounting department. During most of the relevant time, appellee Mark Rauenhorst (" Rauenhorst" ), Gerald Rauenhorst’s son, was chairman of Opus LLC and Opus East.

Opus East was required to make annual distributions from its profits to Opus LLC, which, in turn, made distributions to the Trusts. Opus East received financing through loans from OUS TFC, LLC and Opus Financial, LLC, two other subsidiaries of the Trusts; its own credit line with Bank of America; and various project-specific financing from outside banks. According to the Bankruptcy Court, between 1994 and 2008 Opus East’s equity grew from $12 million to $75 million. Opus East began to struggle during the market collapse of 2008 when it became difficult to find buyers for its developments or obtain financing to complete new projects.

B.

The Bankruptcy Court concluded that Opus East became insolvent on February 1, 2009. That is when the company realized that it would be unable to close on a $93 million real estate project— the " 100 M Street Project" 2 — which Opus East had anticipated would salvage the company’s faltering profitability. In support of its conclusion that insolvency did not occur earlier, the Bankruptcy Court found that Opus East was able to pay off creditors as late as August 2008 without liquidating any of its assets, sell projects at more-than-liquidation value through the third quarter of 2008, and obtain loans from related entities as of November 2008.

Page 714

C.

In 2004, Opus East created Maryland Enterprises, LLC (" ME" ), an SPE, to bid on a project for the United States General Services Administration (" GSA" ). The GSA sought the construction of an office for the National Oceanic and Atmospheric Administration (" NOAA Project" ). ME submitted a proposal and was awarded the contract in March 2005. The project became an albatross; ballooning construction costs, change orders from the GSA, and disagreements with the GSA led ME to cease construction on the NOAA Project in December 2008.

The GSA proposed a settlement on the contract in March 2009 which ME rejected as insufficient. By April, Opus East defaulted on a bank loan financing the construction and decided to abandon the project. In May 2009, ME sued the GSA over alleged breaches of the NOAA Project contract.

Opus East contends that it unsuccessfully attempted to sell the NOAA Project. In anticipation of bankruptcy, the Trusts created and invested $100,000 into GAMD LLC (" GAMD" ), an entity which then acquired ME from Opus East in exchange for $100,000 and an interest in the first $400,000 of any proceeds realized from the GSA lawsuit. As a beneficiary of the Trusts and director of Opus East, Rauenhorst stood on both sides of this transaction.

A third-party company signed a letter of agreement with Opus East, prior to bankruptcy, indicating its interest in the possible acquisition of ME, although it ultimately decided against pursuing the deal. GAMD spent over half a million dollars pursuing ME’s lawsuit against the GSA but did not recover any damages.

D.

Opus East filed for Chapter 7 bankruptcy on July 1, 2009. In 2011, the Trustee commenced the current adversary action against Opus Group. On March 23, 2015, following a two-week trial, the Bankruptcy Court ruled in favor of Opus Group with respect to sixty of the sixty-seven counts alleged by the Trustee. The Trustee appealed to the District Court, which affirmed the Bankruptcy Court’s ruling on March 31, 2016. The Trustee timely appealed to this Court.

II.3

On appeal, the Trustee challenges: 1) the Bankruptcy Court’s determination that Opus East was solvent through February 1, 2009; and 2) its conclusion that Mark Rauenhorst did not breach his fiduciary duty with respect to the transfer of Opus East’s assets to GAMD.

A.

Our review of the District Courts order is plenary, and we...

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