Fulmer v. Fifth Third Equip. Fin. Co. (In re Veg Liquidation, Inc.), 5:13–bk–73597 Jointly Administered
| Decision Date | 02 May 2017 |
| Docket Number | 5:16–ap–7017,No. 5:13–bk–73597 Jointly Administered,5:13–bk–73597 Jointly Administered |
| Parties | IN RE: VEG LIQUIDATION, INC. f/k/a Allens, Inc. and All Veg, LLC, Debtors R. Ray Fulmer II, Chapter 7 trustee, Plaintiff v. Fifth Third Equipment Finance Co. et al., Defendants |
| Court | United States Bankruptcy Courts. Eighth Circuit. U.S. Bankruptcy Court — Western District of Arkansas |
Whitney Aaron Davis, Whitney A. Davis, Attorney at Law, Fort Worth, TX, R. Ray Fulmer, II, Ledbetter, Cogbill, Arnold & Harrison, L., Fort Smith, AR, James E. Smith, Jr., Williams & Anderson, PLC, Hannah E. Wood, Hilburn Calhoon Harper Pruniski & Calhou, Little Rock, AR, for Plaintiff.
Conrad K. Chiu, Richard Levy, Jr., Pryor Cashman LLP, Gerald C. Bender, Lowenstein Sandler, LLP, Michael T. Mervis, Scott K. Rutsky, Jared D. Zajac, Proskauer Rose, LLP, Barbra Parlin, Holland & Knight LLP, New York, NY, John T. Carroll, III, Cozen O'Connor, Wilmington, DE, Geoffrey B. Treece, Quattlebaum, Grooms & Tull PLLC, Joseph F. Kolb, j. kolb, James F. Dowden, James F. Dowden, P.A., Michael G. Smith, Dover Dixon Horne PLLC, Little Rock, AR, David Allan Van Grouw, Lowenstein Sandler, Roseland, NJ, Sean C. Kulka, Richard A. Mitchell, Scott E. Taylor, Arnall Golden Gregory LLP, Atlanta, GA, Marcella Louise Lape, Felicia Gerber Perlman, Skadden, Arps, Slate, Meagher & Flom, LLP, Matthew A. Clemente, Michael Thomas Gustafson, Sidley Austin LLP, Chicago, IL, Andrew R. Turner, Conner & Winters, LLP, Tulsa, OK, Scott Jay Freedman, Martin J. Weis, Dilworth Paxson LLP, Cherry Hill, NJ, David H. Conaway, Shumaker, Loop & Kendrick, LLP, Charlotte, NC, Jay B. Williams, Attorney at Law, Gentry, AR, James Martin Graves, Bassett Law Firm LLP, Jason N. Bramlett, Friday, Eldredge & Clark, LLP, Fayetteville, AR, Gordon Dwyer Todd, Sidley Austin LLP, Washington, DC, for Defendants.
Does 1–100, pro se.
412, Inc., pro se.
Sankaty Credit Opportunities (Offshore Master) IV, pro se.
Sankaty Middle Market Opportunities Fund (Offshore Master), L.P., pro se.
Before the Court is the chapter 7 trustee's complaint filed on February 26, 2016, that alleges that a § 363 sale that was authorized by the Court on February 12, 2014, could have resulted in a higher benefit to the estate had certain disclosures been made to the Court and creditors prior to the sale. As detailed below, on July 1, 2016, in accord with the Court's staging order, the defendants filed their first motion to dismiss the trustee's complaint. On September 29, 2016, the Court granted the motion in part finding there was no fraud on the court or collusion among potential bidders related to the sale and dismissed those causes of action. [doc. 119] The Court was not asked to reconsider its order, nor did the trustee request interlocutory relief. Succeeding that order, on March 20, 2017, the Court ruled on the trustee's motion for sanctions for violation of Federal Rule of Bankruptcy Procedure 2019 that was filed in the debtors' main case. [doc 1535 in 5:13–bk–73597] The Court found that the trustee did not have standing to move for sanctions under Rule 2019. The trustee appealed that order to the Bankruptcy Appellate Panel, but later withdrew the appeal. Now, the Court is ready to opine on the defendant's second motion to dismiss and incorporated request for leave to amend, which was filed on November 2, 2016, in accord with the Court's staging order.
The Court has jurisdiction over this matter under 28 U.S.C. § 1334 and 28 U.S.C. § 157, and it is a core proceeding under 28 U.S.C. § 157(b)(2)(A). The following opinion constitutes findings of fact and conclusions of law in accordance with Federal Rule of Bankruptcy Procedure 7052. For the reasons stated below, the Court grants the defendants' motion to dismiss the remainder of the trustee's complaint for two primary reasons: the doctrine of res judicata and the requirement for finality of a § 363 sale. For those same reasons, the Court denies the trustee's incorporated request for leave to file a second amended complaint.
Before beginning with a recitation of the law in this area, a review of this case's time line is helpful. The debtors filed their voluntary chapter 11 petition on October 28, 2013. After resolution of a number of PACA issues, on February 12, 2014, the Court entered its order authorizing the sale of the majority of the debtors' assets pursuant to 11 U.S.C. § 363. On June 6, 2014, on motion of the debtor, the Court converted the chapter 11 case to a case under chapter 7 and the chapter 7 trustee was appointed. At that time, the trustee still had eight months within which he could have moved for relief from the sale order under Federal Rule of Bankruptcy Procedure 9024, incorporating Federal Rule of Civil Procedure 60(b)(3). During that eight month period, on October 31, 2014, some of the PACA creditors in the case filed a motion for relief from the sale order under Rule 60(b)(3), to which the trustee filed a response in opposition. In his response, the trustee argued for the Court to abstain from hearing the motion, stating that it was his belief "that a judicial action with respect to the sale previously approved by this Court could very well lead to a situation where creditors remain unpaid and the resulting instability delays rather that expedites payments to creditors." On February 3, 2015, the Court denied the trustee's request to hold the creditors' motion in abeyance. The creditors withdrew their motion on February 27, 2015. No other party filed a timely motion for relief from the authorized § 363sale order. On February 26, 2016—more than 2 years from the date of the sale—the trustee filed his initial complaint. On April 27, 2016, he filed an amended complaint, the complaint now before the Court.
On April 26, 2016, the defendants filed a motion for an order staging procedures in the adversary proceeding. The Court granted the motion on June 2, 2016, and allowed the defendants until July 1, 2016, to file any motions to dismiss the trustee's claims for relief under Federal Rule of Civil Procedure 60, Federal Rule of Bankruptcy Procedure 9024, and 11 U.S.C. § 363(n). The parties were allowed to either include or reserve any defenses that could have been asserted pursuant to Federal Rule of Civil Procedure 12(b) or Federal Rule of Bankruptcy Procedure 7012 pending resolution of the first round motions to dismiss. The defendants timely filed their first motion to dismiss. On September 29, 2016, the Court granted in part and denied in part the defendants' motion. Specifically, for the reasons stated in the order, the Court dismissed the trustee's allegations of (1) fraud on the court under Federal Rule of Civil Procedure 60(d)(3), made applicable by Federal Rule of Bankruptcy Procedure 9024, and (2) collusion under 11 U.S.C. § 363(n). Additionally, the Court stated in its order that it found as a matter of law that § 363(m) was not applicable in this proceeding. The Court will elaborate on its § 363(m) finding below.
The Court denied the motion for lack of standing. It found that the trustee alleged only speculative events that represented potential pecuniary harm and did not suffer an "injury in fact" as required to satisfy Article III standing. The Court also stated in dicta that even if a technical violation of Rule 2019 had occurred, the Court did not believe that sanctions under Rule 2019 would have been appropriate in this instance.
On November 2, 2016, the defendants filed their second motion to dismiss the trustee's complaint based on the Court's staging order. The trustee filed a response in opposition on December 14, 2016, and included in his response a request for leave to file a second amended complaint, which will be addressed below. On January 9, 2017, the defendants filed their reply. Finally, on January 31, 2017, the trustee filed his motion for leave to file a sur-reply to the defendants' reply. The Court denied the trustee's motion to file a sur-reply on March 31, 2017, because the sur-reply either simply restated argument already pending before the Court or made additional arguments that were not responsive to the defendants' reply.
Dismissal, generally
Federal Rule of Bankruptcy Procedure 7008 incorporates Federal Rule of Civil Procedure 8. Fed. R. Bankr. P. 7008. Under Rule 8, a complaint must contain "a short and plain statement of the claim showing that the pleader is entitled to relief." Fed. R. Civ. P. 8(a)(2). To meet this standard and survive a motion to dismiss under Rule 12(b), "a complaint must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.’ " Ashcroft v. Iqbal , 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) (quoting Bell Atl. Corp. v. Twombly , 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007) ). The plausibility standard referenced by the Supreme Court "requires a plaintiff to show at the pleading stage that success on the merits is more than a ‘sheer possibility.’ " Braden v. Wal–Mart Stores, Inc. , 588 F.3d 585, 594 (8th Cir. 2009). To survive a motion to...
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