Capital Source Finance, LLC v. Delco Oil, Inc., Civil Action No. DKC 2006-2706.

• Decision Date: 17 September 2007
• Docket Number: Civil Action No. DKC 2006-2706.
• Citation: 625 F.Supp.2d 304
• Parties: CAPITAL SOURCE FINANCE, LLC v. DELCO OIL, INC., et al.
• Court: U.S. District Court — District of Maryland

625 F.Supp.2d 304

CAPITAL SOURCE FINANCE, LLC v. DELCO OIL, INC., et al.

Civil Action No. DKC 2006-2706.

United States District Court, D. Maryland.

September 17, 2007.

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Brian H. Corcoran, Justin Leonard Krieger, Katten Muchin Rosenman LLP, Washington, DC, Kenneth Joseph Ottaviano, William J. Dorsey, Katten Muchin Rosenman LLP, Chicago, IL, for Capital Source Finance LLC.

Brent W. Procida, Gregory A. Cross, Venable LLP, Eric Matthew Rigatuso, Thomas Jay Althauser, Eccleston and Wolf PC, Baltimore, MD, for Stephen B. DeLuca, Stutsman Thames & Markey, P.A., DeLuca Properties, Inc., Gas Properties, Inc., Ail-Star Sports Camp, and Richard R. Thames.

MEMORANDUM OPINION

DEBORAH K. CHASANOW, District Judge.

Presently pending and ready for resolution in this case arising from the breach of a loan agreement are motions filed by Defendants DeLuca Properties, Inc.; Gas Properties, Inc.; All-Star Sports Camp (collectively "the DeLuca entities"); Stephen B. DeLuca; Denise DeLuca; Steven J. Markus, Jr.; Richard R. Thames; and Stutsman Thames & Markey, P.A. (the "Stutsman firm") seeking to dismiss or to transfer this action to the United States District Court for the Middle District of Florida, where all of the Defendants reside or have their principal places of business. (Papers 39, 48, 49, 50, 52, 55). Defendants move to dismiss based on lack of subject matter jurisdiction, lack of personal jurisdiction, improper venue, and failure to state a claim.¹ The motions to transfer are based on improper venue, the doctrine of forum non conveniens, and 28 U.S.C. §§ 1404(a) & 1406(a). The issues related to the motions to dismiss or transfer have been briefed fully and the court now rules, no hearing being deemed necessary. Local Rule 105.6. For the following reasons, Plaintiff's claims in counts VI, VII, VIII, IX, X, XII, and XIII of the amended complaint will be dismissed, and Plaintiff's claim in count V of the amended complaint will be dismissed in part. The pending motions to dismiss or to transfer will otherwise be denied.

I. Background

Defendant Delco Oil, Inc. ("Delco"), a distributor of petroleum products, entered into a financing arrangement with Plaintiff Capital Source Finance LLC pursuant to a lengthy written agreement (the "Loan Agreement") that was ultimately executed by Delco's President, Stephen DeLuca, on April 26, 2006. Stephen DeLuca also executed a personal guarantee (the "Guarantee Agreement") of Delco's obligation to repay the revolving line of credit balance on the same day. Under the Loan Agreement, Plaintiff provided Delco with a revolving line of credit, and Delco pledged all of its current and after-acquired personal property as security for the line of credit. In particular, Delco pledged its accounts receivable and inventory. Payments made on Delco's accounts receivable are referred to under the Loan Agreement as Plaintiff's "Cash Collateral," and Plaintiff acquired a first priority lien over these payments. Delco was required, under the Loan Agreement to deposit these collections immediately into an account, referred to as the "Blocked Account," from which only Plaintiff could make withdrawals. These payments would be credited against Delco's outstanding balance under the line of credit, thus allowing Delco to make further withdrawals to continue operating its business. The Loan Agreement also provided that the revolving line of credit extended to Delco would be capped at the lower of $18 million, or the result of a formula based on the value of certain of Delco's accounts receivable and a portion of its inventory. Before making withdrawals from the revolving line of credit, Stephen DeLuca was required to submit and personally certify the accuracy of periodic statements of Delco's accounts receivable and inventory, referred to in the Loan Agreement as "Borrowing Base Certificates." Based on the initial documentation submitted by Delco, its line of credit was capped at $14,322,760.89 as of the date the Loan Agreement and Guarantee Agreement were executed, and Delco began withdrawing funds from the line of credit.

Plaintiff contends that Delco, through Stephen DeLuca, had submitted and continued to submit fraudulent documentation in association with its application for credit and with the Borrowing Base Certificates. Stephen DeLuca allegedly created false invoices reflecting transactions that did not occur, and which were allegedly flagged with the letters "bb," in order artificially to inflate the cap on Delco's revolving line of credit.² Plaintiff also alleges that at Stephen DeLuca's direction, Delco inflated its inventory reports with the same purpose of artificially inflating the cap on Delco's line of credit. Plaintiff explains that it did not learn of either aspect of the alleged fraud until October 2006.

As of September 2006, Plaintiff contends that Delco was in default under the Loan Agreement. Plaintiff sent Delco a written notice of default on September 26, 2006, indicating that Delco had defaulted on the Loan Agreement by failing to deposit its cash collections into the Blocked Account, failing to deliver required Borrowing Base Certificates and other required certifications, and failing to notify Plaintiff of the other defaults pursuant to the terms of the Loan Agreement. Delco requested a post-default advance from Plaintiff, in the amount of $633,213.65 on approximately October 5, 2006, and Plaintiff granted this advance, after requiring Delco, through Stephen DeLuca, to acknowledge the occurrence of the default events noted in the September 26, 2006 notice, requiring the provision of additional collateral, and requiring Delco to sign a waiver for any defenses, causes of action, or other claims against Plaintiff. Plaintiff funded a second post-default advance on October 6, 2006.

Plaintiff also asserts that after the Loan Agreement was executed, DeLuca, acting in concert with other Defendants, diverted cash collections and either held them in cash, or in some instances, deposited them in bank accounts in Delco's name that Plaintiff was not aware of at the time. Plaintiff contends that these funds were used to the benefit of the DeLuca entities.

Plaintiff filed the present action, along with a motion for a Temporary Restraining Order ("TRO") on October 13, 2006. Plaintiff's initial complaint alleged only two breach of contract actions, against Delco for breach of the Loan Agreement and against DeLuca for breach of the Guarantee Agreement. The court granted Plaintiff's TRO motion and entered a TRO on October 16, 2006. Delco filed a bankruptcy petition in the United States Bankruptcy Court for the Middle District of Florida the next day, October 17, 2006.³ The bankruptcy petition was prepared by Mr. Thames and the Stutsman firm. Delco continued to operate under DeLuca's direction as a debtor-in-possession until a trustee was appointed by the bankruptcy court. On January 19, 2007, Plaintiff filed a motion for leave to amend the complaint, which was granted on January 22, 2007. The amended complaint adds seven additional defendants and twelve additional counts to the initial complaint. Counts I and II of the amended complaint assert breach of contract claims against Delco for breach of the Loan Agreement and against Stephen DeLuca for breach of the Guarantee Agreement, respectively. Counts III and IV of the amended complaint allege fraud against Stephen DeLuca with respect to the inaccurate financial documents and certifications provided with respect to Delco's line of credit. Count V alleges that Stephen DeLuca converted Plaintiff's Cash Collateral by diverting Delco's cash collections rather than having them deposited directly into the Blocked Account. Count VI claims that Mr. Markus and Stephen DeLuca conspired to convert the Cash Collateral. Counts VII and VIII allege that Mr. Thames and the Stutsman firm, directly and through a conspiracy with Stephen DeLuca, converted Plaintiff's cash collateral and other collateral pledged to Plaintiff by accepting payments from Delco for their services that they knew were derived from the diverted cash collections and by assisting DeLuca to continue operating Delco and diverting cash collections from the Blocked Account after Delco's bankruptcy filing. Count IX and X allege that Denise DeLuca, Stephen DeLuca's wife, conspired with Stephen DeLuca to be, and was, unjustly enriched. The basis for this claim are factual allegations that she was paid a salary she did not earn and the couple's home was improved, both through the knowing use of funds derived from the diverted cash collections. Count XI asserts that the DeLuca entities are the alter egos of Stephen DeLuca, their sole shareholder and officer, and that DeLuca commingled his own funds with the entities and failed to observe corporate formalities. This claim is an attempt to pierce the corporate veil to impose liability for the claims alleged against Stephen DeLuca against the DeLuca entities. Counts XII and XIII allege that the DeLuca entities conspired with Stephen DeLuca to be, and in fact, were unjustly enriched because their expenses were paid and their property was acquired through knowing use of funds derived from the diverted cash collections. Count XIV seeks specific performance of an alleged promise by Stephen DeLuca, made in conjunction with the post-default advances, to execute a mortgage over his personal residence in Plaintiff's favor, as additional security for these loans to Delco.

II. Subject Matter Jurisdiction

A. Standard of Review

Motions to dismiss for lack of subject matter jurisdiction are governed by Fed R.Civ.P. 12(b)(1). The plaintiff bears the burden of proving that subject matter jurisdiction properly exists in the federal court. See Evans v. B.F. Perkins Co., a Div. of Standex Int'l Corp., 166 F.3d 642, 647 (4th Cir.1999). In a 12(b)(1) motion, the court "may consider evidence outside the pleadings"...