CHS, Inc. v. Plaquemines Holdings, LLC., Civil Action No. 11–2391.

• Decision Date: 05 December 2012
• Docket Number: Civil Action No. 11–2391.
• Citation: 484 B.R. 302
• Parties: CHS, INC. v. PLAQUEMINES HOLDINGS, LLC.
• Court: U.S. District Court — Eastern District of Louisiana

484 B.R. 302

CHS, INC.

v.PLAQUEMINES HOLDINGS, LLC.

Civil Action No. 11–2391.

United States District Court, E.D. Louisiana.

Dec. 5, 2012.

Andrew Russell Lee, Tyler J. Rench, Mark A. Mintz, Jones Walker, New Orleans, LA, for CHS Inc.

Stephen O. Scandurro, Scandurro & Layrisson, L.L.C., Benjamin Melvin Castoriano, Joseph Nicholas Mole, Miles Paul Clements, Frilot, L.L.C., New Orleans, LA, for Plaquemines Holdings, LLC.

ORDER AND REASONS

ELDON E. FALLON, District Judge.

Before the Court is Defendant Plaquemines Holdings, LLC's (“Plaquemines Holdings” or “Plaquemines”) Motion to Dismiss for Failure to State a Claim. (R. Doc. 15). The Court, after hearing oral arguments by counsel and after reviewing the submitted memoranda and applicable law, now issues this Order and Reasons.

I. BACKGROUND

The present matter arises out of the alleged sale of a litigious right and represents an attempt to redeem this right. Plaintiff CHS, Inc. (“CHS”) is a corporation organized and existing under the laws of the state of Minnesota with its principal place of business in Minnesota. CHS has filed with the Louisiana Secretary of State to do business in Louisiana as “CHS Inc. of Minnesota.” Non-party CHS–SLE Land, LLC (the “Land LLC”) is a Louisiana limited liability company, whose two members are CHS and non-party South Louisiana Ethanol, LLC (“SLE”).

Defendant Plaquemines Holdings, LLC is a limited liability company organized and existing under the laws of the state of Louisiana. The sole member of Plaquemines is J.A.H. Enterprises, Inc., a corporation organized and existing under the laws of the state of Louisiana and with its principal place of business in Louisiana.

On August 29, 2009, SLE filed a voluntary petition for relief under chapter 11 of title 11 of the United States Code in a proceeding captioned In re South Louisiana Ethanol, Case No. 09–12676, pending in the United States Bankruptcy Court for the Eastern District of Louisiana. On April 19, 2011, the Bankruptcy Court confirmed SLE's Amended Plan of Reorganization by Liquidation Including Immaterial Modifications Under Chapter 11 of the Bankruptcy Code of South Louisiana Ethanol, LLC (the “Plan”). As of April 20, 2011, SLE was operating as a reorganized donor. Pursuant to the terms of the Plan:

All of the assets of the Debtor, less and except its fifty (50%) percent interest in CHS–SLE Land, LLC shall be sold.... With regard to the Debtor's fifty (50%) percent membership interest of 4.5 acres (batture land), if no consensual agreement can be confected with CHS, Inc., relative to the transfer of Debtor's membership interest, Debtor shall institute legal proceedings to dissolve the limited liability company and partition the real property asset of CHS–SLE Land, LLC to be divided in kind. This litigation may or may not be successful. If successful, the rights, interest, and entitlements awarded to the Debtor will be transferred to the Purchaser of the Property and option, upon the timely exercise of the option. If the litigation is not successful, it is Debtor's intention to either assign its economic attributes and retain its membership in CHS–SLE Land, LLC or SLE will remain in existence until it is able to liquidate this asset, subject to the consent and approval of security interest holder, Whitney National Bank.

On May 31, 2011, pursuant to the terms of the Plan, SLE filed a lawsuit in the 25th Judicial District Court for the Parish of Plaquemines.¹ In this litigation, SLE sued to dissolve the Land LLC and to distribute all of its property to its members, CHS and SLE, on the grounds that the business purpose of the Land LLC has been frustrated and that there is a deadlock between the members.

Meanwhile, on June 7, 2011, the Bankruptcy Court issued an order authorizing SLE to sell, by public auction, certain assets (the “Sale Order”). Pursuant to the terms of the Sale Order, the Bankruptcy Court authorized SLE to sell, by public auction, the following: (1) immovable property located in Plaquemines Parish and commonly known as Tract A–1C1; (2) all movable property located on Tract A–1C1; and (3) “an option to purchase all rights, title and interest distributed to Seller, SLE, resulting from the dissolution of limited liability company [CHS–SLE Land, LLC](collectively “Sale Items”). On or about June 9, 2011, J.A.H. submitted a bid of $6,802,000 for the Sale Items, which SLE accepted. On July 31, 2011, pursuant to the terms of the Sale Order, the Bankruptcy Court issued an order approving the sale (the “Approval Order”) of all of the Sale Items to J.A.H. in the amount of $6,802,000. Pursuant to the terms of the Approval Order, J.A.H. agreed to pay $202,000.00 for the “option to purchase all rights, title and interest distributed to Seller, SLE, resulting from a dissolution of [the Land LLC].” The Approval Order provided that J.A.H. and SLE would close on the sale of the Sale Items at a later date. J.A.H. eventually assigned its rights under the Sale Order and the Approval Order to Plaquemines Holdings. The sole member of Plaquemines Holdings is J.A.H. On or about August 23, 2011, Plaquemines Holdings and SLE closed on the sale (the “Sale”), and Plaquemines Holdings became the owner of the Sale Items.

On the date of the Sale, and as part of the transactions contemplated by the Sale Order and Approval Order, SLE and Plaquemines Holdings also executed an Option Agreement (the “Option Agreement”). The Option Agreement provides, in Paragraph 1(a), that in consideration of $202,000, SLE grants to Plaquemines Holdings an exclusive option to acquire from SLE all of its “right, title and interest in and to all distributions (the ‘Property’) made to [SLE] in the liquidation of [the Land LLC] resulting from the Judgment.” The Option Agreement further provides that “the acquisition price for the Property shall be One Dollar cash, plus the option price paid to [SLE] pursuant to the terms of Paragraph 1(a).”

On September 9, 2011, Whitney National Bank filed a motion in the Bankruptcy Court seeking an order to distribute certain proceeds of the Sale. CHS learned that the Sale had closed when it received Whitney's Motion. CHS also learned from the Motion that Plaquemines Holdings was the entity that purchased the Sale Items.

On September 22, 2011, CHS filed a Complaint for Redemption in this Court against Plaquemines Holdings. (R. Doc. 1). CHS cites, as a basis for the litigation, Article 2652 of the Louisiana Civil Code, Sale of a Litigation Right, which provides that “[w]hen a litigious right is assigned, the debtor may extinguish his obligation by paying to the assignee the price the assignee paid for the assignment, with interest from the time of the assignment.” Article 2652 further provides that a “right is litigious, for that purpose, when it is contested in a suit already filed.” CHS alleges that the litigation commenced on May 31, 2011, and CHS answered, denying the allegations in the litigation, on June 21, 2011, and Plaquemines Holdings, in effect, purchased the claims that are the subject of the litigation on August 23, 2011. Although the Bankruptcy Court's Approval Order specifically stated that the Sale was not the sale of a litigious right pursuant to Article 2652, according to CHS, this transaction constituted the purchase of a litigious right by Plaquemines Holdings from SLE. CHS, thus, made a redemption demand on Plaquemines Holdings for $202,000, together with interest at the judicial rate, commencing on the date of the Sale. CHS prays that this Court: (1) declare that Plaquemines Holdings purchased the claims that are the subject of the litigation pursuant to Louisiana Civil Code Article 2652 when it entered into the Option Agreement; (2) declare that CHS is entitled to redeem the property purchased by Plaquemines Holdings in the Option Agreement; (3) order that Plaquemines Holdings sell the property it purchased in the Option Agreement to CHS for $202,000; and (4) grant CHS further relief as the Court deems just, proper and equitable. On June 27, 2012, the Court denied Defendant Plaquemines Holdings' Motion to Dismiss for lack of timely service.

II. PENDING MOTIONA. Plaquemines Holdings' Motion

On September 17, 2012, Defendant Plaquemines Holdings filed the instant Motion to Dismiss for Failure to State a Claim. (Rec.Doc. No. 15). Plaquemines Holdings makes three arguments in support of its Motion. First, Plaquemines Holdings argues that the option it purchased is not equivalent to a litigious right because the rights at issue in SLE's lawsuit seeking to wind up the affairs of the Land LLC are distinct from the rights Plaquemines Holdings purchased in the Option Agreement. Plaquemines Holdings emphasizes that it owns the option to purchase whatever interests in immovable property SLE ultimately owns upon the dissolution of the Land LLC, but does not own an interest in the Land LLC—in fact, Plaquemines Holdings asserts that it does not “have any interest in the winding up of [the Land LLC].” (Rec. Doc. No. 15–1, at 9).

Plaquemines Holdings' second argument is that the Bankruptcy Court's orders approving the sale procedure and the option agreement have preclusive effect and bar CHS's claim in this Court. Plaquemines Holdings emphasizes that CHS participated in the Bankruptcy Court's proceedings, including objecting to the sale procedure as initially proposed and then bidding in the auction. Plaquemines Holdings thus characterizes CHS's claim for redemption as a collateral attack on the procedures approved by the Bankruptcy Court.

Finally, Plaquemines Holdings argues that Article 2652 of the Louisiana Civil Code does not apply to a judicial sale, meaning either a judicially ordered or a judicially approved sale, of a litigious right. Because the option in this case was sold pursuant to the Bankruptcy Court's orders and with its approval, Plaquemines Holdings argues that the sale was a judicially approved sale and that the right to redemption does...