Frisia Hartley, LLC v. Wells Fargo Bank, N.A. (In re Talsma)

• Citation: 509 B.R. 535
• Decision Date: 15 April 2014
• Docket Number: Adversary No. 14–04004.,Bankruptcy No. 10–43790–DML–11.
• Parties: In re Klaas TALSMA d/b/a Klaas Talsma Dairy D/b/a Frisia Farms; Frisia Farms, Inc.; Frisia Hartley, LLC; and Frisia West, LLC, Debtors. Frisia Hartley, LLC; Klaas Talsma; Frisia Farms, Inc.; and Frisia West, LLC, Plaintiffs, v. Wells Fargo Bank, N.A., Defendant.
• Court: United States Bankruptcy Courts. Fifth Circuit. U.S. Bankruptcy Court — Northern District of Texas

509 B.R. 535

In re Klaas TALSMA d/b/a Klaas Talsma Dairy D/b/a Frisia Farms; Frisia Farms, Inc.; Frisia Hartley, LLC; and Frisia West, LLC, Debtors.

Frisia Hartley, LLC; Klaas Talsma; Frisia Farms, Inc.; and Frisia West, LLC, Plaintiffs,

v.Wells Fargo Bank, N.A., Defendant.

Bankruptcy No. 10–43790–DML–11.

Adversary No. 14–04004.

United States Bankruptcy Court,

N.D. Texas,

Fort Worth Division.

Signed April 15, 2014.

David G. Gamble, Law Offices of David G. Gamble, Frank W. Hill, Hill Gilstrap, Arlington, TX, St. Clair Newbern, III, Law Offices of St. Clair Newbern III, P.C., Fort Worth, TX, for Plaintiffs.

Lawrence Chek, Palmer & Manuel, LLP, Dallas, TX, for Defendant.

MEMORANDUM OPINION

D. MICHAEL LYNN, Bankruptcy Judge.

Before the court are the Brief in Support of Court's Jurisdiction over Controversy (Case docket no. 748,¹ “Talsma Brief”), by which Klaas Talsma (“Talsma” or “Plaintiff”) argues this court has jurisdiction over various claims asserted by Talsma, Frisia Farms, Inc., and Frisia West, LLC (collectively, “Debtors”) ² in [Debtors'] Verified Original Complaint (Adv. docket no. 1, the “Complaint”) against Debtors' secured lender Wells Fargo Bank, N.A. (“Wells Fargo”), and Wells Fargo's Reply Brief Regarding Bankruptcy Court Jurisdiction (Case docket no. 751, “Wells Fargo Brief”), by which Wells Fargo argues jurisdiction is improper (together, the “Parties' Briefs”).

The court has treated this proceeding as a motion to dismiss for want of subject-matter jurisdiction pursuant to Federal Rule of Civil Procedure 12(b)(1) and Federal Rule of Bankruptcy Procedure 7012(b). Accordingly, Debtors bear the burden to show this court has statutory and constitutional authority to hear the Adversary. See Boudreau v. United States, 53 F.3d 81, 82 (5th Cir.1995). In determining whether jurisdiction and authority are proper, the court is not confined to the pleadings but may consider other evidence in the record. Montez v. Dep't of Navy, 392 F.3d 147, 149 (5th Cir.2004). As will be discussed below, the court concludes that the Adversary invokes its post-confirmation jurisdiction to implement and execute [Debtors'] Third Amended Joint Plan of Reorganization (Case docket no. 537, the “Plan”). As such, jurisdiction is proper, and the Adversary may proceed.

This proceeding is subject to the court's subject-matter jurisdiction pursuant to 28 U.S.C. §§ 1334(a) and 157(b)(2)(A) and (O).³ This memorandum opinion constitutes the court's findings of fact and conclusions of law. Fed. R. Bankr.P. 7052.

I. BACKGROUND

A. The Bankruptcy Case

Debtors are four related entities engaged in dairy farming. “Frisia Farms owns the cows that are milked. Frisia Hartley raises the heifers in Hartley County, Texas. Talsma cares for and milks the grown cows in Hico, Texas.” In re Talsma, 436 B.R. 908, 910 (Bankr.N.D.Tex.2010). On June 1, 2010, Talsma, Frisia Hartley, and Frisia Farms filed voluntary petitions under chapter 11 of the Bankruptcy Code.⁴ On February 16, 2011, a related entity, Frisia West LLC, filed a voluntary petition under chapter 11 of the Code. All four cases are jointly administered.

On June 8, 2011, the court confirmed the Plan, as modified by the First, Second, and Third Modifications. Order Confirming [the Plan], As Modified, Filed by [Debtors], Case docket no. 576. About one month after the court confirmed the Plan, Debtors and Wells Fargo entered into a post-confirmation term note (Exhibit ⁵ 25, the “Note”) in the amount of $13,562,397.67 and a related security agreement (Exhibit 5, the “Security Agreement”). The Note and the Security Agreement were executed pursuant to the term sheet included as Exhibit 1 to the Plan (the “Plan Term Sheet”).

The Note, the Security Agreement, and the Plan Term Sheet (collectively, the “Plan Documents”), as well as the Plan itself, each include provisions that cross-reference the other documents, particularly within the respective default provisions. For instance, paragraph 4.2 of the Plan states:

The allowed claim of the Class II creditor (Wells Fargo Bank), shall be paid and secured by the collateral as set forth in the Plan Term Sheet which is attached hereto and identified as the Exhibit “1”. Such treatment includes the covenants which are attached to the Plan Term Sheet as the Exhibit A—Wells Fargo Covenants.

Plan, Case docket no. 537, ¶ 4.2. Paragraph 6 of the Plan Term Sheet reflects this language in more specific terms, saying

Following the Effective Date, if requested by Wells Fargo, the Debtors shall promptly execute and deliver to Wells Fargo, in form satisfactory to Wells Fargo, a security agreement that contains covenants substantially as set forth on [the Plan Term Sheet], in addition to other terms and provisions ordinarily contained in Wells Fargo's security agreements or which were contained in Debtors' prepetition security agreements with Wells Fargo not inconsistent with [the Plan Term Sheet]. The Debtors shall keep and observe covenants contained in [the Plan Term Sheet]; provided, that in the event of a conflict between [the Plan Term Sheet] and the new security agreement, the latter shall control.

Plan Term Sheet, Case docket no. 537–1, ¶ 6. Paragraph 10 of the Plan Term Sheet includes Debtors' promise to amend the Plan consistent with the Plan Term Sheet, in exchange for which Wells Fargo would support the Plan. Id. ¶ 10. Moreover, the “Defaults and Remedies” section of Plan Term Sheet expressly connects a default under the Plan and the eventual terms of the Security Agreement. Id. at 6–7.

Under the Note, “Events of Default” include:

[If Debtors] fail[ ] to make any of the payments to [Wells Fargo] that are specified or required herein within 15 days of the due date thereof, or if there shall occur any defined event of default under the Security Agreement, the Plan of Reorganization, or any other Related Document....

Exhibit 25 ¶ 6 (emphasis added). Likewise, the “Events of Default” under the Security Agreement are even more expansive and inclusive of obligations under the Plan, stating:

The occurrence of any of the following shall constitute an “Event of Default” under this Agreement: (a) Borrower fails to make any of the payments to Bank that are specified or required under the Plan of Reorganization or hereinwithin 15 days of the due date thereof; (b) Borrower fails to make any of the payments to creditors other than Bank that are specified or required under the Plan of Reorganization within 30 days of the due date thereof (or within the cure period applicable to such creditor, if late); ... (f) Borrower shall fail to observe or perform any other obligation, covenant or agreement contained herein, the Plan of Reorganization or other agreement with Bank and fails to cure such default within 30 days that Bank sends notice of same to Borrower....

Exhibit 5 ¶ 9 (emphasis added).

B. The Dispute

After confirmation of the Plan and execution of the Note and the Security Agreement, a series of disputes arose between the parties about Debtors' payment obligations on Wells Fargo's claim under the Plan. The deterioration of relations stemmed from an increasing loan-to-value (“LTV”) ratio of the Note to the value of Debtors' collateral and disagreements over several other restrictive covenants. Exhibit 6 ¶¶ E–K. These events led to the execution of a Forbearance Agreement (Exhibit 6, the “Forbearance Agreement”), by which Wells Fargo withheld foreclosure as consideration for certain alterations to Debtors' obligations under the Note, and a Deposit Account Control Agreement (Exhibit 29, the “Control Agreement”), by which Wells Fargo perfected a security interest in Talsma's deposit account at TexasBank. Exhibit 6 ¶¶ 1–7; Exhibit 29 ¶ 2.

Talsma avers that “[t]hrough a variety of harassing behavior including but not limited to fabricated defaults and pressure tactics ... [Wells Fargo] coerced [Talsma] into entering a [Control Agreement] and a Forbearance Agreement.” Talsma Brief, Case docket no. 748, ¶ 6. Further, Talsma contends that Wells Fargo “has falsely alleged and continues to falsely allege that [Talsma is] in default on certain loan covenants ... [and that Wells Fargo] has alleged the manufactured defaults for the purpose of forcing [Talsma] into paying a higher interest rate than called for under the Plan.” Id. ¶ 7. Likewise, Talsma argues these alleged manufactured defaults were intended to “add[ ] to [Wells Fargo's] claim attorney's fees and other charges allegedly incurred by [Wells Fargo] that are neither reasonable nor necessary.” Id.

In response, Wells Fargo argues that “Talsma obscures, avoids, or altogether omits decisive facts establishing that Wells Fargo's actions were well within its existing authority under the original Security Agreement and/or were appropriate remedies under the circumstances.” Wells Fargo Brief, Case docket no. 751, ¶ 5. Specifically, Wells Fargo counters Talsma's assertions by noting problems with Debtors' LTV ratios and Talsma's compensation disbursements; contesting Talsma's characterization of accelerated payments in late 2012 and early 2013; disputing Talsma's contentions that “Wells Fargo has been trying to ‘get rid’ of [Talsma] and his Affiliated Borrowers and to ‘force [them] out of business[;]” and restating requirements under the Security Agreement about establishing control accounts, limiting capital expenditures, and paying proceeds from the sale of the New Isis Theater.⁶Id.

C. Reopening the Case and Filing the Adversary

On November 15, 2013, Debtors filed a Motion to Temporarily Reopen [the Case] (Case docket no. 736, the “Motion to Reopen”). By the Motion to Reopen, Debtors sought to have the Case reopened so as to file the Adversary against Wells Fargo for various alleged causes of action, including breach of contract, breach of fiduciary duty, and fraud. Talsma Brief, Case docket no. 748–1, at 16–23. Wells Fargo objected to reopening the case and to jurisdiction. Wells Fargo's Objection to [the Motion to Reopen...