Goldsmith v. LBM Fin., LLC (In re Loucheschi LLC)
| Decision Date | 13 November 2013 |
| Docket Number | Adversary Proceeding No. 11-4122,Case No. 11-42578-MSH |
| Parties | In re: LOUCHESCHI LLC Debtor JONATHAN GOLDSMITH, TRUSTEE Plaintiff v. LBM FINANCIAL, LLC and MARCELLO MALLEGNI Defendants |
| Court | U.S. Bankruptcy Court — District of Massachusetts |
LBM Financial, LLC and Marcello Mallegni, the defendants in this adversary proceeding, seek summary judgment on all counts of a thirteen count complaint1 initially brought against them by the debtor, Loucheschi LLC, during the chapter 11 phase of the main case and upon conversion of the case to chapter 7, taken up by Jonathan Goldsmith, the chapter 7 trustee.2 For the reasonsdiscussed more fully below, pursuant to 28 U.S.C. § 157(c)(1), Fed. R. Bankr. P. 9033(a) and LR, D. Mass. 206, I hereby submit my proposed findings of fact and conclusions of law recommending that the defendants' motion for summary judgment be granted.
The facts are drawn from the stipulated facts in the parties' joint pretrial statement, from those facts in the defendants' statement of uncontested facts filed pursuant to this court's local rule, MLBR 7056.1, which adopts the U.S. district court's local rule, LR, D. Mass 56.1, to which the trustee has not objected3 and from the uncontested facts in certain pleadings in this adversaryproceeding and the main bankruptcy case.
On or about October 8, 2004, Louis J. Cheschi Jr. and Peter Belli, Trustees of Bell-Ches Realty Trust ("Bell-Ches"), acquired Cape Cod oceanfront property located at 9 Chase Avenue in Dennis, Massachusetts (the "Property") from LJB Realty, LLC.4 They had been introduced to the Property by Mr. Mallegni.5 Bell-Ches' intention was to demolish an existing motel and construct an 8-unit residential condominium (the "Project") at the Property.6 Prior toacquiring the Property, Mr. Cheschi had managed approximately ten residential construction projects for realty trusts in which he held ownership interests.7 Bell-Ches was represented by an attorney who assisted in negotiating the purchase and sale agreement for the Property.8
The status of governmental permitting for the Project plays a central role in the parties' dispute. Mr. Cheschi testified at his deposition that prior to Bell- Ches' acquisition and indeed as an inducement for its acquisition, Mr. Mallegni had led him to believe that all of the permits and licenses necessary to develop the Project were in place, when in fact they were not.9 Mr. Cheschi testified that it was not until after the closing on the Property that he investigated and learned the true status of the permits.10 The record, however, disproves Mr. Cheschi's version of the facts. In the same deposition where he testified that he was unaware until after the closing that the permits were not in place, Mr. Cheschi testified he learned of the status of the permits on October 6, 2008, two days before the closing.11 Sometime subsequent to the execution of a handwritten agreement dated May 20, 2004, between Bell-Ches and LJB outlining the terms for the sale and purchase of the Property, it became necessary for Messers. Cheschi and Belli to bring suit against LJB in state court to compel LJB to consummate the sale. In an affidavit dated July 9, 2004, filed in that suit insupport of a motion for a lis pendens,12 Mr. Cheschi conceded that at the time he and Mr. Belli entered into the agreement with LJB, permitting for the Project had not yet occurred.
12. I and Peter M. Belli relied upon the Agreement of May 20, 2004. In reliance upon that Agreement, we applied for and was [sic] granted a purchase money mortgage. We retained a local attorney to follow through with the local Planning Board and Zoning Board to obtain all necessary permits to raze the building and plan the eight unit development. We further obtained the current plans prepared by the Engineer which were delivered to us and to finalize the construction of the eight unit development.
Mr. Cheschi later testified at his deposition that in July 2004, he retained an attorney, who apparently also represented the seller of the Property, to assist in obtaining the needed permits.13 In addition, the formal purchase and sale agreement between LBJ and Messers. Belli and Cheschi, dated September 27, 2004,14 provides in part:
29. The Seller will assist as necessary to help the Buyer finalize plans and obtain permits for the demolition of the motel and construction for the 8 townhouse units.
Mr. Cheschi's inaccurate testimony may be explained in part, but certainly not excused, by his admission during testimony at the claims estimation hearing as well as at his deposition that it was not his habit to read documents before signing them.15
The acquisition of the Property by Bell-Ches was financed by defendant, LBM, with a loan in the original principal amount of $1,900,000.00 (the "Acquisition Loan"). Bell-Ches paid$137,392.29 in points and prepaid interest in connection with the Acquisition Loan.16 Loucheschi, LLC, the chapter 7 debtor in the main case and Bell-Ches' successor-in-interest on the Project, made a total of $94,763.54 in payments on the Acquisition Loan.17
On or about August 9, 2006, Bell-Ches entered into a loan agreement with LBM, pursuant to which LBM agreed to lend Bell-Ches $4,540,000.00 to refinance the Acquisition Loan and to fund the construction of the Project (the "Construction Loan").18 The loan documents in connection with the Construction Loan included a loan commitment, a promissory note, a mortgage and security agreement encumbering the Property,19 a construction loan agreement and the personal guaranties of Louis J. Cheschi, Jr. and Peter Belli, Loucheschi's principals.20 The Construction Loan was due and payable in full on August 9, 2007.21 Bell-Ches paid another $181,600.00 to LBM in points in connection with the Construction Loan.22
Using proceeds from the Construction Loan, Bell-Ches paid LBM $2,355,469.50 to pay off the Acquisition Loan. This sum consisted of $1,900,000.00 in principal and $455,469.50 in points and interest.23
Between August 9, 2006 and August 8, 2008, which was almost one year after the maturity date of the Construction Loan, LBM made advances from the loan proceeds totaling $3,912,326.73, including the aforementioned payoff of the Acquisition Loan and the payoff of at least one other loan to Mr. Cheschi in the amount of $69,775.61 in connection with another project.24 As of August 25, 2008, LBM claimed that the balance due on the Construction Loan was $5,293,413.48, consisting of the $3,912,326.73 in disbursed funds plus $1,381,086.75 in points, interest and fees.25 The parties agree that in August 2008, LBM ceased advancing funds from the Construction Loan,26 although Mr. Cheschi testified that in August 2007, Mr. Mallegni told him that he intended to shut down the Project because LBM was out of money and needed to raise additional funds from LBM's investors.27
On or about April 13, 2006, Bell-Ches entered into a contract with Lacourse Construction Co., Inc. ("Lacourse") for the construction of the Project. Lacourse served as general contractor on the Project from July, 2006 through March 30, 2007 when Lacourse stopped working.28 On orabout April 27, 2007, Bell-Ches entered into a contract with New American Builders, LLC to continue construction of the Project.
In May or June 2010, LBM made an entry onto the Property for the purpose of foreclosing its mortgage pursuant to MASS. GEN. LAWS ch. 244, §§ 1and 2 and recorded a certificate of entry in the Barnstable County Registry of Deeds. LBM subsequently scheduled a foreclosure sale of the Property for June 15, 2011.
On or about June 15, 2011, Bell-Ches transferred title to the Property to Loucheschi, LLC, a limited liability company owned by Messers. Cheschi and Belli. On the same day, Loucheschi filed a voluntary petition for relief under chapter 11 of the Bankruptcy Code commencing the main case. On September 15, 2011, Loucheschi and Messers. Cheschi and Belli filed the complaint commencing this adversary proceeding against LBM and Messers. Mallegni and Massad. The complaint has been dismissed with respect to the claims of Messers. Cheschi and Belli. Mr. Massad has been dismissed as a defendant.
On October 31, 2011, LBM filed a proof of claim in the main case asserting a secured claim in the amount of $5,640,365.65. Loucheschi objected to the claim, incorporating by reference its claims against LBM asserted in this adversary proceeding. LBM then sought estimation of its claim to enable it to vote to accept or reject a plan of reorganization proposed by Loucheschi. After an evidentiary hearing I ruled that "for the purpose of determining the confirmability of Loucheschi's chapter 11 plan of reorganization, I estimate LBM's claim as a secured claim in the amount of $3,921,126.73." In re Loucheschi, LLC, 471 B.R. 777, 783 (Bankr. D. Mass. 2012).
As Loucheschi was unable to obtain confirmation of its proposed plan of reorganization, on June 18, 2012, the main case was converted to chapter 7. Mr. Goldsmith was appointed the chapter 7 trustee and intervened as successor plaintiff in this adversary proceeding.
All counts of the complaint, save count IX seeking equitable subordination of LBM's claim under Bankruptcy Code § 510(c)(1) and count X seeking disallowance of LBM's claim under Bankruptcy Code § 502, assert claims against LBM that are related to Lucheschi's bankruptcy case but do not arise in or under that case. In their answer to the complaint the defendants concede that counts IX and X are core claims within the meaning of 28 U.S.C. § 157(b) in connection with which a bankruptcy court may issue a final order. They maintain, however, that the remaining counts are non-core within the meaning of 28 U.S.C. §157(c)(1). The defendants have not consented to my issuing final orders on the non-core counts.
Contradicting their answer to the...
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