Marlin Fin. & Leasing Corp. v. Burch

• Decision Date: 18 November 2013
• Docket Number: No. E2013–00178–COA–R3CV.,E2013–00178–COA–R3CV.
• Citation: 441 S.W.3d 238
• Parties: MARLIN FINANCIAL & LEASING CORP. v. Lucius E. BURCH, III.
• Court: Tennessee Court of Appeals

441 S.W.3d 238

MARLIN FINANCIAL & LEASING CORP.

v.Lucius E. BURCH, III.

No. E2013–00178–COA–R3CV.

Court of Appeals of Tennessee.

Sept. 16, 2013 Session.

Nov. 18, 2013.

Application for Permission to Appeal Denied by Supreme Court May 15, 2014.

F. Scott LeRoy, Chattanooga, Tennessee, for the appellant, Marlin Financial & Leasing Corp.

William N. Helou and R. Mark Donnell, Nashville, Tennessee, for the appellee, Lucius E. Burch, III.

D. MICHAEL SWINEY, J., delivered the opinion of the Court, in which CHARLES D. SUSANO, JR., P.J., and THOMAS R. FRIERSON, II, J., joined.

OPINION

D. MICHAEL SWINEY, Judge.

This appeal arises from a dispute over the enforcement of guaranty agreements in light of a bankruptcy. Marlin Financial & Leasing Corp. (“Marlin”) sued Lucius E. Burch, III (“Burch”) in the Chancery Court for Hamilton County (“the Trial Court”) alleging breach of contract, conversion, and, unjust enrichment. Marlin asserted that Burch owed money under certain guaranty agreements he had signed for leases entered into by Marlin. After a trial, the Trial Court dismissed the case for lack of jurisdiction. Marlin appeals to this Court. We hold that, given the Bankruptcy Court's orders deeming all claims related to the leases at issue satisfied, the Trial Court lacked subject matter jurisdiction. We affirm the judgment of the Trial Court.

Background

As noted by Marlin on appeal, the relevant facts of this case largely are contained in documents entered into the record without objection by the parties.¹ Marlin is a Chattanooga-based commercial equipment leasing company that has been in business for more than thirty years. Marlin serves as a “leasing arm” for upwards of fifty banks, primarily in Tennessee, Kentucky, Georgia, and Alabama.

In September 2006, Santa Fe Cattle Company (“Santa Fe”) entered into a series of commercial leases with Marlin, mainly for restaurant equipment. Between September 2006 and May 2009, Marlin and Santa Fe entered into 23 distinct leasing agreements. In connection with each lease agreement, a separate guaranty agreement was signed by Burch in which he guaranteed Santa Fe's obligations under the leases. Marlin then assigned the leases to various banks. Marlin's role, therefore, was that of a broker and servicer of the leases.² The banks acquired the right to payment. Marlin's “take” was the difference between the interest charged under the leases and that interest which the banks charged Marlin. Marlin received its fee up-front. Marlin also had a residual payment of $1 for each lease under a purchase option.

In 2009, the arrangement ran into financial difficulties. Santa Fe and its related entities filed for bankruptcy in the U.S. Bankruptcy Court for the Middle District of Tennessee. The Santa Fe debtors received approval from the Bankruptcy Court to sell a number of entities and assign the leases to DBMC Investments, LLC. The sale and assignment proceeded. As relevant to the issues on appeal, the DBMC sale order contains the following language:

The Debtors have cured, or have provided adequate assurance of cure of, any defaults existing prior to the Closing Date, which is the effective date of the assumption of the Assumed Leases and Contracts, and have provided compensation or adequate assurance of compensation to any non-Debtor party to such contracts for any of their actual pecuniary losses resulting from any default arising prior to the Closing Date under the Amended Leases and Contracts, within the meaning of section 363(b)(1)(B) of the Bankruptcy Code (collectively, the “Cure Amounts”).

The DBMC sale order goes on to state:

All Objections filed to the Sale Motion that were not withdrawn prior to or at the Sale Hearing are hereby overruled. Moreover, except as set forth below, any creditor, prospective purchaser, counter- party to an Assumed Lease, or other party in interest that did not file and serve, on or before September 25, 2009, a written objection to the Sale Motion or the sale contemplated by the Purchase Agreement shall be, and hereby is, conclusively deemed to have waived any objection it may have to the Sale Motion or the Sale and to have waived and released all Encumbrances in or on or with respect to the Assets. Further, any counter-party to an Assumed Lease or Contract shall also be, and hereby is, conclusively deemed to have waived any objection it may have to the assumption and assignment of its contract to Purchaser, and any objection to the cure amount set out in the First Amended Notice of Proposed Assumed Leases and Contracts and Cure Amounts filed by Debtors and Purchaser. Absent a cure objection which has been timely filed, counter-parties to the Assumed Leases and Contracts shall be bound by the cure amounts, and shall be deemed to have forever released and waived any claims related to breaches or obligations of any kind under the Assumed Leases and Contracts other than the cure amounts (or amounts set out in any agreement regarding between the Purchaser and the non-Debtor party), which shall satisfy such obligations in full.

Marlin had notice of the Santa Fe bankruptcy, the sale of the entities, and the assignment of the leases. Marlin, however, did not file a proof of claim or object to the sale and assignment.

Nevertheless, according to Marlin, the sale did not conclude the matter. Marlin alleged that not all rents provided for in the leases were paid in full. Marlin asserted $1,313,372.08 was owed in the deficiency of rents due under the leases. In March 2010, Marlin sued Burch in the Trial Court seeking, among other things, enforcement of the guaranty agreements. In April 2010, Burch filed a motion to dismiss, arguing that Marlin lacked a protectable interest in the leases, guaranties, or rents. Additionally, Burch argued that the lawsuit represented an improper collateral attack on the Bankruptcy Court sale order and that the Trial Court, therefore, lacked jurisdiction. In May 2010, the Trial Court denied the motion to dismiss. In March 2011, Marlin filed a motion for partial summary judgment, seeking a determination that the guaranty agreements were enforceable. In May 2011, Burch filed a response, contending that Marlin no longer had a protectable interest. In June 2011, the Trial Court denied Marlin's motion for partial summary judgment.

In April 2012, trial was held. Tommy Marlin, President of Marlin, testified, as did Burch. After the trial, the Trial Court entered its final order in September 2012. The Trial Court, in its ruling incorporated into the final order, held that Marlin failed to carry its burden on the conversion and unjust enrichment claims. With respect to breach of contract, the Trial Court held that Marlin had, in fact, carried its burden. The Trial Court stated: “In light of the acknowledgement of the execution of the guaranties, the failure of the complete payment of the amounts due by Santa Fe as the debtor under the lease agreements, Defendant's acknowledged lack of payment under the guaranties after the default by the debtor ... Plaintiff carried its burden.” However, the Trial Court ultimately held that it lacked jurisdiction. The Trial Court stated in this regard:

Having made this determination, the next inquiry is whether the Defendant has carried its burden under any of the affirmative defenses submitted. I have reviewed the language in the guaranties, as well as the loan documents, that purport to continue certain obligations in the face of a bankruptcy filing. I am also aware of the testimony presented by Mr. Marlin concerning the attempts he made on behalf of the Plaintiff to continue to assert the claims of Plaintiff after the filing of the bankruptcy, most of which, however occurring prior to the Section 363 Sale. The e-mail streams noted in Exhibits 13 and 14–5 are also most informative concerning the position taken by Plaintiff relative to the involved equipment and the expectation of Plaintiff before and after the 363 Sale. Of particular importance, however, are the bankruptcy court orders. It is clear that Plaintiff declined to object (or withdrew its objection) to the 363 Sale, regardless of the language in the lease documents asserting that it retained title to the equipment.

Similarly, it is also clear that the proceedings before the bankruptcy court were intended to include not only the rights of the debtor and the listed creditors, but also incorporated “non-Debtors party to any related agreements.” Having reviewed the essentially all-encompassing language contained in the orders, I find, as a conclusion of law, that this court lacks jurisdiction to award judgment in Plaintiff's favor and that this matter represents a collateral attack on the bankruptcy court's judgment. State ex rel. City of Chattanooga v. 2003 Delinquent Taxpayers, No. E2008–00457–COA–R3–CV, 2009 WL 137216 (Tenn.Ct.App. Jan. 21, 2009) is on all fours with this case. Although I appreciate the arguments of Plaintiff that the assignments to the various banks did not convey the entirety of the Plaintiff's interest in the equipment, Plaintiff had the opportunity, if not obligation, to pursue its interests, including the “related agreements” (such as the guaranties), in bankruptcy court. Furthermore, its failure to do so, including the assertion to the Banks and, ultimately, to Burch, that the sale of the assets would be authorized with no amounts due to Marlin Financial Leasing Corp., also supports Defendant's collateral estoppel defense.³

This matter is, therefore, dismissed. Costs are to be taxed to the Plaintiff and surety. Defense counsel is to prepare an order reflecting this ruling.

(Citations omitted). The Trial Court denied Marlin's motion to alter or amend. Marlin filed a timely appeal to this Court.

Discussion

We restate and consolidate Marlin's issues on appeal as one dispositive issue: whether the Trial Court erred in dismissing the case for lack of subject matter jurisdiction.

Our review is de novo upon the record, accompanied by a presumption of correctness...