G.D. Deal Holdings, Inc. v. Baker Energy, Inc.

• Citation: 501 F.Supp.2d 914
• Decision Date: 11 May 2007
• Docket Number: No. 1:05-CV-3-R.,1:05-CV-3-R.
• Parties: G.D. DEAL HOLDINGS, INC., et. al., Plaintiffs v. BAKER ENERGY, INC, et. al., Defendants.
• Court: U.S. District Court — Western District of Kentucky

501 F.Supp.2d 914

G.D. DEAL HOLDINGS, INC., et. al., Plaintiffs v. BAKER ENERGY, INC, et. al., Defendants.

No. 1:05-CV-3-R.

United States District Court, W.D. Kentucky, Bowling Green Division.

May 11, 2007.

Opinion Denying Motion to Amend June 12, 2007.

COPYRIGHT MATERIAL OMITTED

Scott A. Bachert, William F.Codell, Harned, Bachert & Denton, LLP, Timothy L. Edelen, Bell, Orr, Ayers & Moore, PSC, Bowling Green, KY, Janaki Nair, Robert M. Riffle, Elias, Meginnes, Riffle & Seghetti, PC, Peoria, IL, for Plaintiffs.

Matthew James Baker, Bowling Green, KY, for Defendants.

Baker Energy, Inc., Jackson, TN, pro se.

Ramesh Kapur, Hartford, WI, pro se.

Bhupinder Saini, Hartford, WI, pro se.

MEMORANDUM OPINION

RUSSELL, District Judge.

This matter comes before the Court on the Plaintiff G.D. Deal Holdings, LLC's ("GD Deal") Motion for Summary Judgment (Docket # 77). Defendants Rohit Sharma ("Sharma") and Surinder Multani ("Multani") have responded (Docket # 83)¹, and the Plaintiff has replied to their response (Docket # 85). This matter is now ripe for adjudication. For the following reasons, the Plaintiff's Motion for Summary Judgment is GRANTED.

PROCEDURAL HISTORY

The Plaintiff initially filed this action against the Defendants in Warren County Circuit Court. It was removed to this Court on January 10, 2005. On March 11, 2005, the Court ordered that this matter be stayed through the duration of the bankruptcy concerning the Defendants, though the Court retained jurisdiction. On March 6, 2006, the bankruptcy petition of Defendant Baker Energy, Inc. was dismissed. On September 28, 2006, the Court removed the stay and restored this matter to the active docket. The Plaintiff filed the instant motion in January 2007.

FACTUAL BACKGROUND

This case arises from a dispute concerning real property and personal property leases connected to thirty-eight (38) gasoline stations and convenience stores located throughout western Kentucky and north-central Tennessee. In April 2001, the Plaintiff leased thirty-eight (38) gasoline stations and convenience stores ("properties") to Clark Retail Enterprises, Inc. ("CRE"). There were two (2) leases between GD Deal and CRE that dealt with real property, personal property and equipment at the thirty-eight (38) locations ("real property lease" and "personal property lease"). GD Deal was the owner of the real property on which the gasoline stations and convenience stores were located. GE Capital Franchise Finance Corporation ("GE Capital") was the mortgage lender of the properties. FFCA Acquisition Corporation ("FFCA") had a security interest on all of the equipment located at the properties. However, following a merger between GE Capital and FFCA, GE Capital held both the mortgage and security interests.

On October 15, 2002, CRE filed a voluntary petition in the United States Bankruptcy Court for the Northern District of Illinois requesting reorganization under Chapter 11. The Court in that matter granted CRE the authority to assign its leases on the properties to Baker Energy, Inc. ("Baker"), which was run by Sharma and Multani. Both Sharma, the President and an equity owner of Baker, and Multani, a director and shareholder of Baker, personally guaranteed payment of all liabilities under the leases on behalf of Baker to GD Deal. Pursuant to the Assumption Order and Assumption Agreement by the Bankruptcy Court on August 26, 2003, Baker became the holder of CRE's leasehold interests in the properties. This included the payment of rent to GD Deal under the terms of the leases.

After assuming the liabilities under the leases, the Plaintiff contends that Baker defaulted on several of its obligations. On January 5, 2005, GD Deal sent Baker a "notice of default and notice of termination upon failure to cure default" letter. On January 20, 2005, GD Deal sent Baker another letter, this time informing Baker that it was terminating its lease with Baker regarding the properties. Four (4) days later on January 24, 2005, this Court issued an agreed preliminary injunction so that Crown Oil and Petroleum Supplies, Inc. ("Crown Oil"), who had been assigned some of Baker's interests as a tenant under the leases, could collect rent from the subtenants of the properties. However, on February 4, 2005, Crown Oil filed a voluntary petition of bankruptcy with the United States Bankruptcy Court for the Eastern District of Wisconsin seeking relief under Chapter 11. Eleven (11) days later, on February 15, 2005, Baker followed suit, filing a voluntary petition of bankruptcy with the United States Bankruptcy Court for the Western District of Tennessee seeking relief under Chapter 11. Both petitions were eventually dismissed. From February 2005 through August 2005, GD Deal was not able to act on and/or collect rent from the properties due to the bankruptcy proceedings.

In April 2005, GE Capital, as the holder of the `mortgage and security interests, accelerated the amount of debt due and began the process of foreclosure of the properties. In August 2005, the Bankruptcy Court for the Western District of Tennessee held that Baker had rejected the leases between it and GD Deal. At that point, the Plaintiff attempted to collect rent from the subtenants of Baker who were operating the properties. However, in September 2005, GE Capital sent a stay collection letter to GD Deal, demanding that GD Deal cease its collection efforts from the properties. GE Capital then filed a claim in this Court, requesting foreclosure on the, Kentucky properties. The Court held that the foreclosure actions asserted by GE Capital were not related to Baker's bankruptcy case to confer jurisdiction, and therefore, dismissed GE Capital's claim.

As a result, GE Capital pursued its foreclosure claims by filing actions in more than twenty (20) separate circuit courts throughout the Commonwealth. The Kentucky courts appointed NRC Realty Advisors, LLC ("NRC Realty") to possess the property pending sale and act as the receiver over the properties. This precluded GD Deal from exercising any ownership over the properties. The majority of the properties have been foreclosed upon and sold. In this case, GD Deal seeks to recover all available remedies against Baker, Sharma and Multani, arguing that the Defendants breached the terms of the leases that covered the properties.

STANDARD

Summary judgment is available under Fed.R.Civ.P. 56(c) if the moving party can establish that the "pleadings, depositions, answer to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue of material fact and that the moving party is entitled to judgment as a matter of law." In determining whether summary judgment is appropriate, a court must resolve all ambiguities and draw all reasonable inferences against the moving party. See Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986).

"[N]ot every issue of fact or conflicting inference presents a genuine issue of material fact." Street v. J.C. Bradford & Co., 886 F.2d 1472, 1477 (6th Cir.1989). The test is "whether the party bearing the burden of proof has presented a jury question as to each element in the case." Hartsel v. Keys, 87 F.3d 795, 799 (6th Cir.1996). The plaintiff must present more than a mere scintilla of evidence. To support this position, he must present evidence on which the trier of fact could find for the plaintiff. See id. (citing Anderson v. Liberty Lobby, 477 U.S. 242, 251-52, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986)). Mere speculation will not suffice to defeat a motion for summary judgment: "[t]he mere existence of a colorable factual dispute will not defeat a properly supported motion for summary judgment. A genuine dispute between the parties on an issue of material fact must exist to render summary judgment inappropriate." Monette v. Electronic Data Systems Corp., 90 F.3d 1173, 1177 (6th Cir.1996).

Finally, while Kentucky state law is applicable to this case pursuant to Erie Railroad v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188 (1938), a federal court in a diversity action applies the standards of Fed.R.Civ.P. 56, not "Kentucky's summary judgment standard as expressed in Steelvest, Inc. v. Scansteel Sera. Ctr., Inc., 807 S.W.2d 476 (1991)." Gafford v. General Electric Co., 997 F.2d 150, 165 (6th Cir.1993).

DISCUSSION

GD Deal claims damages against the Defendants for breaching both leases. Under the real property lease, GD Deal claims that it is owed damages for the Defendants' failure to pay rent for the time period prior to the date Baker rejected the lease and that GD Deal is owed damages connected to the sums that were to become due after Baker rejected the lease agreement, as stipulated by the lease.

Under the personal property lease, GD Deal claims that it is owed damages for the Defendants' failure to pay rent for the time period prior to the date Baker rejected the lease and that GD Deal is owed damages connected to the sums that were to become due after Baker rejected the lease agreement, as stipulated by the lease.

In addition, GD Deal contends that under the terms of the leases it is entitled to recover all court costs, attorney fees, associated legal expenses and miscellaneous costs under the terms of the real property lease. In total, GD Deal claims $10,048,295.12 in damages for Baker's alleged breach of the leases.

In their response, the Defendants argue GD Deal, overcharged Baker in excess of $752,253.82. In addition, the Defendants assert that the January 24, 2005 agreed preliminary injunction is a novation, which discharges any obligations the Defendants may have had to the Plaintiff in relation to the leases. In its reply, the Plaintiff contends that Baker did not overpay its rent and that the agreed preliminary injunction did not constitute a novation.

The Court shall first address the defense raised by the Defendants in their response in...