Arrowhead Capital Fin., Ltd v. Royal Alice Props., LLC (In re Royal Alice Props., LLC), CASE NO: 19-12337
| Decision Date | 28 August 2020 |
| Docket Number | ADV. NO. 20-1022,CASE NO: 19-12337 |
| Citation | 619 B.R. 839 |
| Parties | IN RE: ROYAL ALICE PROPERTIES, LLC, Debtor. Arrowhead Capital Finance, Ltd, Plaintiff, v. Royal Alice Properties, LLC, Defendant. |
| Court | U.S. Bankruptcy Court — Eastern District of Louisiana |
Leo D. Congeni, Congeni Law Firm, LLC, Amanda Burnette George, Office of the U.S. Trustee, New Orleans, LA, for Debtor.
Before the Court is (1) Debtor Royal Alice Properties LLC's Motion and Incorporated Memorandum To Dismiss Complaint of Arrowhead Finance Capital Ltd . (the "Motion To Dismiss"), [ECF Doc. 11], the Opposition filed thereto by Arrowhead Finance Capital Ltd. ("Arrowhead"), [ECF Doc. 15], the Reply Brief filed by Royal Alice Properties, LLC (the "Debtor" or "Defendant") in support of the Motion To Dismiss, [ECF Doc. 22], and Objections of Plaintiff Arrowhead Capital Finance, Ltd. to Unsupported and False Purported "Fact" Statements in Debtor Royal Alice Properties, LLC's Reply Memorandum , (the "Sur-Reply"), [ECF Doc. 25 & 50]; (2) Debtor Royal Alice Properties LLC Request for Judicial Notice (the "Debtor's Request for Judicial Notice"), [ECF Doc. 12], and the Opposition filed thereto by Arrowhead, [ECF Doc. 19], as well as Plaintiff Arrowhead Capital Finance, Ltd.’s Request for Judicial Notice ("Arrowhead's Request for Judicial Notice"), [ECF Doc. 17], and Debtor Royal Alice Properties LLC's (A) Supplemental Request for Judicial Notice; (B) Response to Objection of Arrowhead Capital Finance to Debtor's Request for Judicial Notice and (C) Response to Arrowhead's Request for Judicial Notice , [ECF Doc. 21]; and (3) Debtor Royal Alice Properties LLC's Motion To Strike Improper Sur-Reply Filed by Arrowhead Capital Finance Ltd . (the "Motion To Strike") [ECF Doc. 28], and the Opposition filed thereto by Arrowhead, [ECF Doc. 33 & 37].
This Court heard oral argument on the above-listed motions on July 8, 2020. Having considered the pleadings, the arguments of the parties, and applicable law, the Court GRANTS IN PART and DENIES IN PART the Debtor's Request for Judicial Notice and GRANTS IN PART and DENIES IN PART Arrowhead's Request for Judicial Notice; GRANTS IN PART and DENIES IN PART the Motion To Dismiss, and GRANTS the Debtor's Motion To Strike.
This Court has jurisdiction to grant the relief provided for herein pursuant to 28 U.S.C. § 1334(b). The matters presently before the Court constitute core proceedings commenced pursuant to Rule 7001 of the Federal Rules of Bankruptcy Procedure that this Court may hear and determine on a final basis under 28 U.S.C. §§ 157(b)(2)(A), (H), (K) & (O). The venues of Royal Alice Property, LLC's chapter 11 case and the related adversary proceeding are proper under 28 U.S.C. §§ 1408 and 1409(a).
The Debtor filed a voluntary petition for bankruptcy relief under chapter 11 of the Bankruptcy Code on August 29, 2019. [Case No. 19-12337, ECF Doc. 1]. The Debtor's only assets consist of three real estate properties in the French Quarter neighborhood in New Orleans, Louisiana: (a) 900–902 Royal Street; (b) 906 Royal Street, Unit E; and (c) 910–912 Royal Street, Unit C. [Case No. 19-12337, ECF Doc. 2]. Only two creditors have filed proofs of claim against the Debtor's estate. One of those creditors, Arrowhead, filed a proof of claim for $1 million and also initiated the above-captioned adversary proceeding, alleging in both that the Debtor is liable under alter-ego and/or single-business-enterprise theories, among others, for the unsatisfied obligations of several non-debtor affiliates of the Debtor against which Arrowhead has obtained money judgments.1
The Debtor filed the Motion To Dismiss on April 22, 2020, pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure and filed Debtor's Request for Judicial Notice, asking this Court to take judicial notice of seven exhibits attached to its Motion To Dismiss. Arrowhead opposed the Debtor's Motion To Dismiss, as well as the Debtor's Request for Judicial Notice, and filed its own Request for Judicial Notice, asking this Court to take judicial notice of two exhibits attached to its opposition to the Motion To Dismiss. The Debtor filed a reply brief in support of its own Request for Judicial Notice and responding to the Arrowhead Request for Judicial Notice. After the Debtor filed a Reply Brief in support of its Motion To Dismiss, [ECF Doc. 22], Arrowhead filed the Sur-Reply. The Debtor filed its Motion To Strike the Sur-Reply filed by Arrowhead, which Arrowhead opposed.
On April 13, 2020, Arrowhead filed a 61–page Verified Complaint, attaching 39 exhibits. [ECF Doc. 3]. The Complaint seeks to hold the Debtor liable for debts owed to Arrowhead by certain non-debtor affiliates of the Debtor (collectively, the "Seven Arts Companies"). Specifically, Arrowhead obtained two money judgments: (i) one awarded by the Supreme Court of the State of New York, New York County against Seven Arts Filmed Entertainment Limited, Seven Arts Pictures Inc., Deal Investments LLC, Deal Productions LLC, Rectifier Productions LLC, and Pool Hall Productions LLC in the amount of $2,496,159.50, plus 9% interest per annum from October 10, 2012, until paid (the "NY State Court Judgment"); and (ii) the second by the U.S District Court for the Southern District of New York ("SDNY") against Seven Arts Entertainment Inc. and Seven Arts Filmed Entertainment Louisiana LLC in the amount of $1,933,809, plus 9% interest per annum from January 3, 2020, until paid (the "NY Federal Court Judgment") (together with the NY State Court Judgment, the "Judgments"). Arrowhead recorded the NY State Court Judgment in Louisiana on May 2, 2014, and the NY Federal Court Judgment in Louisiana on January 31, 2020. See Compl. ¶¶ 27 & 43 & Exs. 1 and 2A.
The Judgments stemmed from the business relationship between Arrowhead's predecessor, Arrowhead Consulting Group, Inc. ("ACG") and certain of the Seven Arts Companies, all of which are affiliates of and are controlled by Peter Hoffman, who is married to Susan Hoffman, the sole member of the Debtor, and who, Arrowhead alleges, actually controls the Debtor. See Compl. ¶¶ 11–12, 15–18, 32. Memorialized in a promissory note and a Master Agreement, ACG agreed to finance movie productions of the Seven Arts Companies and, in exchange, each of the Seven Arts Companies granted a continuing first priority perfected security interest in certain collateral, including, but not limited to: distribution fees payable in connection with certain films; the Seven Arts Companies’ rights, title, and interest in and to certain screenplays, scripts, and domestic and foreign copyrights; 8.1 million shares of one of the Seven Arts Companies; and a junior security interest in an affiliate's film library (collectively, the "Collateral"). See Compl. ¶¶ 18, 22–23 & Exs. 2B & 3 (the "Master Agreement"). Pursuant to the Master Agreement, all proceeds of the Collateral ("Collateral Proceeds") were to be deposited by the Seven Arts Companies in an account at Chase Manhattan Bank, New York, in trust for the sole benefit ACG, and, later, Arrowhead (the "Trust Account"). See Compl. ¶¶ 19, 24 & Ex. 3, § 5.3. The Master Agreement contained a choice-of-law provision, indicating that it "shall be governed by and construed in accordance with the laws of the State of New York," and a venue provision that stated that the parties to the agreement "irrevocably submit to the jurisdiction of the state and federal courts located in the Borough of Manhattan, The City of New York, in the State of New York, for the resolution of any and all disputes arising hereunder." Master Agreement, § 9.5.5.
In time, the relationship soured and on May 5, 2010, Arrowhead filed suit in New York state court, alleging breach of and default under the promissory note, the Master Agreement, and related documents for failing to pay monies due and payable to Arrowhead (the "NY State Court Action"). See Compl. § 26. Throughout the NY State Court Action and afterward, the Seven Arts Companies refused to provide Arrowhead an accounting or other information regarding the Collateral Proceeds that they were required to hold in trust and remit to Arrowhead. See Compl. § 28. Ultimately, Arrowhead obtained the NY State Court Judgment; however, while the NY State Court Action progressed, Peter Hoffman transferred or arranged the transfer of the assets of certain of the Seven Arts Companies to a newly created affiliate, Seven Arts Entertainment, Inc., leaving the parties to the Master Agreement judgment proof. See Compl. ¶ 29.
In July 2014, Arrowhead filed suit in the SDNY (the "SDNY Action") against Seven Arts Entertainment, Inc., and, thereafter, Seven Arts Entertainment, Inc. transferred its assets to its affiliate, Seven Arts Filmed Entertainment Louisiana, LLC, of which Peter Hoffman was the sole managing member. See Compl. ¶¶ 30–33 & Ex. 8. Arrowhead then joined Seven Arts Filmed Entertainment Louisiana, LLC in the suit against Seven Arts Entertainment, Inc., and eventually obtained the NY Federal Court Judgment, in which the SDNY found that Arrowhead had proven "de facto merger[s]" between Seven Arts Entertainment, Inc., see Compl. ¶ 31, and at least one of the Seven Arts Companies as well as between Seven Arts Entertainment, Inc. and Seven Arts Filmed Entertainment Louisiana, LLC, see Compl. ¶¶ 43–44 & Ex. 2B. The SDNY held those defendants jointly and severally liable with certain of the Seven Arts Companies that were parties to the Master Agreement and judgment debtors under the NY State Court Judgment. See Compl. ¶¶ 43–44 & Ex. 2B.
As with the NY State Court Action, the defendants to the SDNY Action, all entities controlled by Peter Hoffman, refused to provide bank statements or other records that would account for the...
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