Burtch v. Opus, L.L.C. (In re Opus E., L.L.C.)
| Citation | 480 B.R. 561 |
| Decision Date | 12 October 2012 |
| Docket Number | Adversary No. 11–52423 (MFW).,Bankruptcy No. 09–12261 (MFW). |
| Parties | In re OPUS EAST, L.L.C., et al, Debtors. Jeoffrey L. Burtch, Chapter 7 Trustee for the Estate of Opus East, L.L.C., Plaintiff, v. Opus, L.L.C.; Opus Corporation; Opus Foundation; Gerald Rauenhorst 1982 Irrevocable Trust f/b/o Grandchildren; The Gerald Rauenhorst 1982 Irrevocable Trust f/b/o Children; Keith P. Bednarowski And Luz Campa as Trustees thereof and Individually; Opus Real Estate VII, L.P.; Opus Real Estate VIII, L.P.; Mark Rauenhorst, individually; Adler Management, LLC; Marshall M. Burton, individually; Opus Property Services, LLC; Opus 2, L.L.C.; Opus Architects & Engineers, P.C.; Opus Architects & Engineers, Inc.; Opus Core, L.L.C.; Opus Northwest, L.L.C.; Opus Design Build, L.L.C.; Opus Development Corporation; Opus Holding, L.L.C.; Opus Holding, Inc.; Opus AE Group, Inc., Defendants. |
| Court | U.S. Bankruptcy Court — District of Delaware |
OPINION TEXT STARTS HERE
Sandra G.M. Selzer, Scott D. Cousins, Greenberg Traurig, LLP, Wilmington, DE, for Debtors.
Dale R. Dube, John D. McLaughlin, Jr., Justin H. Rucki, M. Claire McCudden, R. Grant Dick IV, Wilmington, DE, for Plaintiff.
Before the Court is the Defendants' Partial Motion to Dismiss the Amended Complaint filed by Jeoffrey L. Burtch (the “Trustee”) of the estate of Opus East, L.L.C. (the “Debtor”). For the reasons set forth below, the Court will grant the Motion in part and deny the Motion in part.
The Debtor filed a chapter 7 bankruptcy petition on June 1, 2009. On June 30, 2011, the Trustee filed a Complaint against Opus Corp., Opus, L.L.C. and more than a dozen other individuals and entities (together the “Defendants”) that included 47 counts. The Defendants filed a Partial Motion to Dismiss on August 18, 2011. The Trustee then filed a motion for leave to amend his Complaint, which was not opposed. The Court granted the Trustee's motion to amend on April 4, 2012. The Amended Complaint added 13 additional counts. The Defendants filed a Partial Motion to Dismiss the Amended Complaint on April 27, 2012. The Motion seeks to dismiss Counts 1–17, 41–42, and 50–59. Counts 1 and 42, though present in the Original Complaint, were not included in the Defendants' first motion to dismiss. This matter has been fully briefed and is ripe for decision.
The Debtor is a Delaware limited liability company that is part of a family of companies related to Opus Corp.—a Minnesota corporation involved in real estate development founded in 1953 by Gerald Rauenhorst. In 1982, Gerald Rauenhorst created two trusts, one for his children and one for his grandchildren (together the “Trusts”). These Trusts hold all the interest in Opus Corp. and in Opus, L.L.C., a Minnesota limited liability company that is the sole member of the Debtor.
The Debtor and other entities like Opus West, Opus North, and Opus Northwest were created to act as regionally-based subsidiaries for Opus Corp. or Opus, L.L.C. The Debtor alone at one point owned 17.3 million square feet of real estate in the Northeast United States consisting of twenty-five different projects.
From its inception, the Debtor was run by a board of directors and officers that included people already associated with other Opus entities or the Rauenhorst family. These included Luz Campa (“Campa”) and Keith Bednarowski (“Bednarowski”) who serve as trustees for the Trusts, Marshall Burton (“Burton”) who was a long-time employee of the Debtor and supporter of the Rauenhorst family, and Mark Rauenhorst (“Rauenhorst”) who is a beneficiary of the children's trust and CEO of Opus Corp. and Opus, L.L.C.
According to the Trustee, the Debtor was never able to thrive on its own. It merely served as a means to distribute capital to its parent Opus, L.L.C. Until late 2005, the Debtor was required to distribute 75% of its pre-tax income to its parent. (Am. Compl.¶ 68.) Because the Debtor experienced financial problems in late 2005, Opus, L.L.C. relaxed the distribution policy and required a distribution of only 35% of pre-tax income plus any projected taxes. ( Id.)
As a result of the distribution policy, the Debtor was continuously undercapitalized from the time of its founding in 1995. ( Id. at ¶ 71.) Nonetheless, Opus, L.L.C. expected the Debtor to continue to develop real estate. ( Id.) Consequently, the Debtor was often out of compliance with its loan covenants because its debt-to-equity ratio was too high. ( Id. at ¶ 70.) For example, a line of credit that was extended to the Debtor by LaSalle Bank in October 2003 had to be amended nine times in three and a half years to avoid default. ( Id. at ¶ 75.)
The Debtor was also required to make “shared services” payments to Opus Corp. that totaled more than $12 million between July 2005 and June 2009. ( Id. at ¶ 78.) The shared services payments included insurance premiums, business and franchise taxes, and fees for professional services. ( Id.) However, when the Debtor's CFO requested more information about the shared services payments, Opus Corp. refused his request. ( Id. at ¶ 79.)
The Trustee also alleges that the Debtor transferred profitable assets to other Opus or Rauenhorst entities while the Debtor was left straddled with the loans. One example is the NOAA project for the General Services Administration (“GSA”). A special purpose entity (“SPE”) was created as a wholly-owned subsidiary of the Debtor for this project. ( Id. at ¶ 95.) What was thought to be a lucrative project in 2005 became economically unfeasible for both the Debtor and GSA because of numerous delays. ( Id. at ¶ 96.) The president of the Debtor at this time recommended to Rauenhorst that the project be abandoned. ( Id.) Rauenhorst disregarded the recommendation and construction proceeded.
The high costs of construction led to a dispute between the SPE and GSA which included a claim by the SPE for $50 million. ( Id. at ¶ 97.) Immediately before the Debtor filed its bankruptcy petition, Rauenhorst and Burton caused the SPE to be assigned to GAMD, L.L.C. for $100,000.3 (Am. Compl. at ¶ 98.) The assignment gave GAMD the right to the $50 million in claims asserted against GSA.
Assets were also assigned through what are known as “Presidents' Deals.” This allowed the presidents of companies like Opus Corp. and Opus, L.L.C. to take from subsidiaries, like the Debtor, projects of their choosing without compensation. ( Id. at ¶ 103.) Rauenhorst, Campa and Bednarowski often took what were thought to be the best projects. ( Id. at ¶ 104.) The Debtor also sold several of its properties to Opus Real Estate VII, L.P. (“ORE VII”) and Opus Real Estate VIII (“ORE VIII”), which were real estate investment funds created to hold assets for the Trusts and Gerald Rauenhorst. ( Id. at ¶¶ 54, 109.) These transactions were often overseen solely by Rauenhorst or Campa. ( Id. at ¶ 109.) In summer 2009, Rauenhorst also ordered the funds in the Debtor's accounts to be transferred to other Opus entities. ( Id. at ¶ 114.) Finally, immediately before the bankruptcy filing, Rauenhorst,as a director of the Debtor, negotiated with the Debtor's creditors in a manner that benefitted his own self interest and that of Opus, L.L.C. and Opus Corp., but not the Debtor.
The Court has jurisdiction over this proceeding. 28 U.S.C. §§ 1334 & 157(b)(2)(A), (E), (F), (H) & (O).
The Defendants move to dismiss certain counts of the Amended Complaint pursuant to Rule 12(b)(6) for failure to state a claim upon which relief can be granted. Fed.R.Civ.P. 12(b)(6); Fed. R. Bankr.P. 7012. There are six causes of actions involved in the counts at issue: (1) piercing the corporate veil (Count 1), (2) breach of fiduciary duty and aiding and abetting breach of fiduciary duty (Counts 2–17, 50–51), (3) fraud (Counts 58–59), (4) unjust enrichment (Counts 42, 52–55), (5) tortious interference (Count 41), and (6) conversion (Counts 56–57).
The Defendants' contentions are that (1) the Trustee does not plead all the elements of a piercing the corporate veil count; (2) the Opus East, L.L.C. Agreement (the “LLC Agreement”) limits the fiduciary duties of its members, directors and officers to acting in good faith and the Trustee does not plead lack of good faith; (3) the Trustee fails to plead fraud with particularity as required by Rule 9(b); (4) the unjust enrichment claims are not proper because the alleged wrongdoing is based on a contract; (5) the Trustee lacks standing to bring an action for tortious interference and conversion as a direct claim and has failed to plead it as a derivative claim with particularity as required by Rule 23.1(b). The Trustee opposes the Motion and alternatively requests leave to amend any count which the Court dismisses.
For the Trustee to survive a Rule 12(b)(6) motion, his claims must meet the standards of pleading. The Supreme Court's decisions in Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007) and Ashcroft v. Iqbal, 556 U.S. 662, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) have shifted federal pleading standards from notice pleading to a heightened standard of pleading. Fowler v. UPMC Shadyside, 578 F.3d 203, 210 (3d Cir.2009). This heightened pleading requirement applies to all civil suits in federal courts. Id.
To survive a motion to dismiss under the new pleading standard, a complaint must contain “sufficient factual matter, accepted as true, to state a claim to relief that is plausible on its face.” Iqbal, 556 U.S. at 678, 129 S.Ct. 1937. A claim is facially plausible “when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.” Id. “[A] pleading offering only labels and conclusions or a formulaic recitation of the elements of a cause of action will...
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