Consol. Res., Inc. v. DRO Barite, LLC (In re Don Rose Oil, Inc.)
| Decision Date | 13 April 2020 |
| Docket Number | Adv. No. 19-1137-A,Case No. 17-12389-A-7 |
| Parties | IN RE: DON ROSE OIL, INC., Debtor. Consolidated Resources, Inc., Plaintiff, v. DRO Barite, LLC, et al., Defendants. |
| Court | United States Bankruptcy Courts. Ninth Circuit. U.S. Bankruptcy Court — Eastern District of California |
Brian A. Paino, McGlinchey Stafford for Consolidated Resources, Inc.; Lori E. Eropkin, Levinson Arshonsky & Kurtz, LLP for Sallyport Commercial Finance, LLC;
Jamie P. Dreher and Brian E. Hamilton, Downey Brand LLP for Idemitsu Apollo Corporation;
Steven S. Newburgh, McLaughlin & Stern, PLLC, for Happy Rock Merchant Solutions, LLC;
Hagop T. Bedoyan, McCormick, Barstow, Sheppard, Wayte & Carruth LLP for Happy Rock Merchant Solutions, LLC
AMENDED MEMORANDUM
The claim splitting rule precludes an aggrieved party from pursuing two lawsuits arising from a single set of facts against the same defendants. Here, the plaintiff filed an action against the debtor and others, asserting its interest in barite mineral rights. This court granted the defendants' motion to dismiss the action, but gave the plaintiff leave to amend. Rather than doing so, the plaintiff re-filed the action in state court. May it do so?
This is a dispute over the ownership of 200 acres of barite minerals located in San Bernardino County, California. Barite is a commercially valuable mineral with medical and industrial applications.1 Consolidated Resources, Inc. ("Consolidated Resources"), now wholly owned by Kodiak Mining & Minerals II, LLC ("Kodiak Mining & Minerals"), contends it owns those rights free and clear of encumbrances. Sallyport Commercial Finance, LLC ("Sallyport"), Indemitsu Apollo Corporation ("Indemitsu"), and Happy Rock Merchant Solutions, LLC ("Happy Rock") claim a perfected security interests in those rights.
The underlying facts are murky.
The barite mineral rights were originally owned by Consolidated Resources, which was wholly owned by Don Rose.
Don Rose was the founder, and also the then the sole owner, of Don Rose Oil Co., Inc. ("Don Rose Oil").
In 2012, Consolidated Resources borrowed $2 million from Kodiak Mining & Minerals. Don Rose pledged 100% of the shares of Consolidated Resources as security for that loan. When Consolidated Resources failed to pay off the loan, Kodiak Mining & Minerals exercised its rights under the pledge agreement and acquired all of Consolidated Resources stock by re-issuing it in its own name, leaving Don Rose without ownership of Consolidated Resources.
In 2014, Don Rose became entangled with John Castellucci ("Castellucci"). Apparently under the auspices of saving Don Rose Oil from what Don Rose believed to be impending financial danger, Castellucci convinced Don Rose to allow him to take control of that company. Castellucci acquired 51% of the stock of Don Rose Oil, took control of the board of directors and installed his wife and son, Linda Castellucci and Jason Castellucci, respectively, as officers and/or employees.
Thereafter, Don Rose--acting on Castellucci's instructions--made efforts to wrest the barite mineral rights from Consolidated Resources. He did so by twice attempting to encumber the barite mineral rights owned by Consolidated Resources. Consolidated Resources, Inc., and its parent company, Kodiak Mining & Minerals, contend both are "bogus" and "a complete fabrication." Second Amended Complaint at ¶¶ 13 n. 1, 17, Kodiak Mining & Minerals II, LLC v. Don Rose Oil Co., Inc. , No. 17-1086 (Bankr. E.D. Cal. 2017), ECF No. 131; Complaint ¶ 26, Consolidated Resources, Inc. v. DRO Barite, LLC , No. 19-1137 (Bankr. E.D. Cal. 2019), ECF No. 1.
Don Rose first attempted to do so by way of a transaction between Don Rose, Don Rose Oil and Consolidated Resources. Under the terms of that agreement, Don Rose Oil loaned Consolidated Resources and Don Rose, individually, $3.9 million and Consolidated Resources gave Don Rose Oil a security interest in the barite mineral rights.2
Don Rose's second attempt was also a transaction between Don Rose, Don Rose Oil and Consolidated Resources. Under the terms of that agreement, Don Rose Oil loaned Consolidated Resources and Don Rose, individually, $7 million and Consolidated Resources gave Don Rose Oil a security interest in the barite mineral rights. Complaint at ¶ 25, Consolidated Resources, Inc. , No. 19-1137, ECF No. 1.
Castellucci, acting on behalf of Don Rose Oil, then obtained a $7.25 million revolving line of credit from Siena Lending Group, LLC using the $7 million secured loan from Consolidated Resources as collateral. According to Consolidated Resources, Siena "had actual or constructive knowledge" that the $7 million secured loan from Consolidated Resources, Inc., to Don Rose Oil, was fabricated. Second Amended Complaint at ¶ 21, Kodiak Mining & Minerals II, LLC , No. 17-108617, ECF NO. 131. Siena later assigned the loan to Sallyport.
Don Rose and Castellucci then informed Consolidated Resources that it was in default of the (non-existent) $7 million loan. Thereafter, Don Rose, individually and acting in his capacity as president of Consolidated Resources, and Castellucci, acting on behalf of Don Rose Oil, entered into an agreement whereby Consolidated Resources gave, and Don Rose Oil accepted, a deed in lieu of foreclosure of the barite minerals. Consolidated Resources quitclaimed the barite mineral rights to Don Rose Oil.
Then, Don Rose Oil formed a wholly owned subsidiary, DRO Barite, LLC ("DRO Barite"), and transferred the barite mineral rights to it. Kodiak Mining & Minerals contends that the transfer was at the insistence of Siena Lending Group, LLC, and/or Sallyport and that the transfer was made for the express purpose of placing the barite minerals beyond the reach of Kodiak Mining & Minerals, Consolidated Resources and Don Rose Oil's creditors.
After those rights were transferred to DRO Barite, Indemitsu recorded a deed of trust against the mineral rights to secure a $710,000 indebtedness by Don Rose Oil and Happy Rock recorded a deed of trust against the mineral rights to secure a $1.3 million indebtedness by DRO Barite.
After these events, Don Rose Oil filed an action against Don Rose, his spouse Janice Rose, Panagiotis Kechagias, Consolidated Resources, and Hellenic Petroleum, LLC ("the Don Rose Oil action").3 Don Rose Oil Co., Inc. v. Hellenic Petroleum, LLC , No. VCU267863 (Tulare County Superior Court December 13, 2016). Don Rose, Janice Rose and Hellenic Petroleum, LLC filed a counterclaim and third-party claim. The precise contours of that litigation are unclear, but the dispute appears to be a control fight over Don Rose Oil between Don Rose, his spouse Janice Rose, Panagiotis Kechagias, Consolidated Resources, and Hellenic Petroleum, LLC, on one hand and Don Rose Oil Co. Inc., Castle Energy Inc.(a Castellucci company), Jason Castellucci, Robert Moore (an officer of Don Rose Oil), and John Castellucci on the other hand.
Shortly thereafter the parties entered into a global written settlement agreement. Complaint at Exh. H, Kodiak Mining & Minerals II, LLC v. Don Rose Oil Co., Inc. , No. 17-12389 (Bankr. E.D. Cal. November 17, 2017), ECF No. 6. In the pertinent part, the settlement called for Don Rose and his spouse to transfer all remaining shares of Don Rose Oil, and certain real property, 361 Terry Avenue, Farmersville, California, to Castellucci and/or his entities. In exchange, the Castellucci parties agreed to pay the Roses and affiliated entities $720,000 and release them from specified corporate liabilities. That settlement contemplated a separate agreement between Hellenic Petroleum, LLC, and Sallyport with respect to the barite mineral rights. Signatories to the Settlement Agreement were Don Rose, Janice Rose, Panagiotis Kechagias, Hellenic Petroleum, LLC, Consolidated Resources, Don Rose Oil, Castle Energy, Inc., Robert Moore, Jason Castellucci and Castellucci.
At almost the same time, Sallyport and Hellenic Petroleum, LLC, executed a written "Intercreditor, Subordination and Waterfall Payment Agreement." Id. at Exh. I. Also intricate, that agreement provided for subordination of Hellenic Petroleum, LLC's interest to Sallyport's interest, sale of the barite minerals and payment of the first $3 million of that sale to Sallyport, the second $3 million to Hellenic Petroleum and the remainder to Don Rose Oil. Signators to this agreement were Sallyport and Hellenic Petroleum, LLC. Don Rose Oil was not a signatory to this agreement but did sign an "Acknowledgement" of the agreement and agreed to "recognize all rights granted thereby to the parties thereto" and not to "do any act or perform any obligation which is not in accordance with the agreements" therein.
In 2017, Don Rose, Robert K. Moore and Kodiak Mining & Minerals, creditors, filed an involuntary Chapter 7 bankruptcy against Don Rose Oil. In re Don Rose Oil Co. , Inc., No. 17-12359 (Bankr. E.D. Cal. 2017).
Don Rose Oil answered the involuntary petition and filed its own Chapter 11 petition. In re Don Rose Oil Co., Inc. , No. 17-12389 (Bankr. E.D. Cal. 2017).
In light of the voluntary Chapter 11 petition, the petitioning creditors moved to dismiss their involuntary petition. With the acquiescence of Don Rose Oil the court granted the motion, but reserved the debtor's rights to seek damages arising from the involuntary petition. Order, In re Don Rose Oil Co., Inc. , NO. 17-12359, ECF No. 84.
Notwithstanding the appointment of a trustee in the voluntary Chapter 11, the case quickly converted to Chapter 7. Randell Parker was appointed the trustee.4
Consolidated Resources, Kodiak Mining & Minerals, and Hellenic Petroleum, LLC, brought an adversary proceeding against Don Rose Oil and its secured lenders (Sallyport, Idemitsu and Happy Rock). Kodiak Mining & Minerals II, LLC , No. 17-1086, ECF No. 1 ("the Kodiak Action")....
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