Hope 7 Monroe St. Ltd. v. Riaso L.L.C.

• Citation: 473 B.R. 1
• Decision Date: 03 May 2012
• Docket Number: Civil Action No. 11–1455 (JEB).
• Parties: HOPE 7 MONROE STREET LIMITED PARTNERSHIP, Appellant, v. RIASO L.L.C., Appellee.
• Court: U.S. District Court — District of Columbia

473 B.R. 1

HOPE 7 MONROE STREET LIMITED PARTNERSHIP, Appellant,

v.RIASO L.L.C., Appellee.

Civil Action No. 11–1455 (JEB).

United States District Court,

District of Columbia.

May 3, 2012.

Donald M. Temple, William Carroll Johnson, Jr., Law Offices of William C. Johnson, Jr., Washington, DC, for Appellant.

Richard Frank Boddie, Slocum & Boddie, P.C., Springfield, VA, for Appellee.

MEMORANDUM OPINION

JAMES E. BOASBERG, District Judge.

Hope 7 Monroe Street Limited Partnership (“Monroe”) owned property in the District of Columbia that it wished to convert from apartment units to condominiums. A man named Musse Leakemariam brokered a $1.6 million “bridge loan” from RIASO L.L.C. to provide Monroe with temporary financing. Although Leakemariam promised to assist Monroe in finding permanent financing before the expiration of the bridge loan's term, he failed to do so, and Monroe, apparently unable to secure additional financing, defaulted on the loan from RIASO. It subsequently filed for bankruptcy in the United States Bankruptcy Court here, and a trustee was appointed to administer the bankruptcy estate.

Meanwhile, Monroe's sole limited partners obtained information that led them to believe that Leakemariam, RIASO, and RIASO's attorney had engaged in fraud and misrepresentation in connection with the bridge loan. They filed suit, individually and on behalf of Monroe, against these three in D.C. Superior Court. As the trustee was responsible for protecting the interests of the bankruptcy estate, he ultimately assumed control of the Superior Court action. He subsequently proposed a settlement in which the estate would sell any and all claims it had against the three defendants to RIASO's attorney. The Bankruptcy Court approved the sale of the claims for $30,000. In addition, it ordered that Monroe's property be sold and the proceeds be paid to RIASO to satisfy its outstanding obligation.

After these orders were issued, Monroe believed it discovered additional evidence of fraud in connection with the bridge loan and thus moved to vacate the aforementioned orders. The Bankruptcy Court denied the Motion, and Monroe now appeals that decision. Because this Court finds that the Bankruptcy Court did not err in refusing to vacate its orders under Federal Rules of Civil Procedure 60(b)(2), (3), and (6), this Court will affirm.

I. BackgroundA. Factual Background

For background purposes, the Court will refer to the Superior Court Complaint, which was part of the record in the underlying bankruptcy case. The Court recognizes that the Bankruptcy Court did not make findings of fact with respect to many of the allegations in the Complaint and, therefore, cites them only for context, not for their truth. With that caveat, the Court begins with the property itself. Hope 7 Monroe Street Limited Partnership owned a building at 1020 Monroe St., N.W. See Bankruptcy Record (B.R.) at 33 (Superior Court Complaint). The property was “slated for development and conversion from an apartment building to condominium units.” Id. Lenan and Pauline Cappel, the limited liability partners of Monroe, were persuaded by Musse Leakemariam that he could obtain refinancing for the partnership's mortgage on the property that would serve as a “bridge loan ... until permanent construction financing became available.” Id. at 33–34. Leakemariam also promised to assist Monroe in securing permanent financing before the bridge loan's term expired. Id. at 37–38. After Monroe accepted his offer to broker the loan, Leakemariam arranged through his attorney for RIASO L.L.C. to lend $1.6 million to Monroe. Id. at 38. The Cappels guaranteed the loan. Id. at 34, 36. ¹

Unbeknownst to Monroe and the Cappels, however, Leakemariam was allegedly both the loan broker and the lender. Id. at 35. He had purportedly organized RIASO himself on November 16, 2006—“less than a week before the settlement on the new mortgage loan.” Id. at 35, 37. Monroe and the Cappels did not learn of Leakemariam's dual role until August 17, 2009. Id. at 41. For reasons that are not entirely clear, Monroe was unable to repay the bridge loan, leading to its default and the litigation that brings the parties here.

B. Procedural History

After RIASO initiated foreclosure proceedings on the mortgage, id. at 40, Monroe filed a voluntary petition for bankruptcy under Chapter 11 of the Bankruptcy Code. See ECF No. 2 (Docket Sheet for Bankruptcy Petition 09–00273, ECF No. 1, April 2, 2009); see also B.R. at 33. The Bankruptcy Court converted the case to a Chapter 7 action on July 17, 2009, appointing Marc Albert as the trustee. See Bankruptcy Docket Sheet, ECF No. 57. On November 6, 2009, the Cappels filed a separate action against RIASO, Leakemariam, and Richard Boddie (RIASO's attorney) in D.C. Superior Court for breach of fiduciary duty, fraud, and misrepresentation, among other things. B.R. Record at 32–54 (Superior Court Complaint).

On January 15, 2010, the trustee filed a motion in the bankruptcy action to sell the debtor's property located at 1020 Monroe St., N.W., see Bankruptcy Docket Sheet, ECF No. 68, which the court granted on February 17. Id., ECF No. 83. Debtor, meanwhile, objected to RIASO's proof of claim, stating that Monroe did not “admit to owing any amount that is the result of the fraudulent inducement to contract and breach of fiduciary duty committed against the debtor.” See B.R. at 365 (Memorandum Decision of July 1, 2011, re Debtor's Rule 60(b) Motion at 3); Bankruptcy Docket Sheet, ECF No. 81. After a hearing on May 25, 2010, the court overruled Monroe's objection to the proof of claim. See Bankruptcy Docket Sheet, ECF Nos. 110, 112.

Then, on June 10, 2010, the trustee moved to sell the estate's claims against RIASO to Boddie for $15,000 “as a compromise of the claims.” Id., ECF No. 114. The proposed sale would consist of all of the estate's claims against RIASO, including those claims that were being asserted by the Cappels in Superior Court. Id.; B.R. at 240 (Trustee's Report of Sale), 365 (Mem. Dec. at 3). At a hearing on the proposed settlement on June 30, 2010, the court authorized the trustee to sell the claims in a bidding war. See Bankruptcy Docket Sheet, ECF No. 122; B.R. at 366 (Mem. Dec. at 4). Boddie's offer of $30,000 prevailed, and the court approved the sale of the claims to him on July 8, 2010. See Bankruptcy Docket Sheet, ECF No. 123; B.R. at 237–38 (Order to Approve Transfer of Interest as Compromise of Controversy at 2–3).

On April 12, 2011, Debtor moved pursuant to Federal Rule of Civil Procedure 60(b) to vacate three of the Bankruptcy Court's orders: the order approving the sale of the estate's claims to Boddie, the order overruling the objection to RIASO's proof of claim, and the order requiring proceeds from the sale of Debtor's real property to be paid toward RIASO's claim. See Bankruptcy Docket Sheet, ECF No. 146; B.R. at 366 (Mem. Dec. at 4). The Bankruptcy Court denied the Motion on July 1 of the same year. See Bankruptcy Docket Sheet, ECF No. 155. This Court now considers Debtor's appeal of the Bankruptcy Court's ruling on the Rule 60(b) motion.

II. Legal Standard

A bankruptcy court's findings of fact are reviewed under a “clearly erroneous” standard. Fed. R. Bankr.P. 8013 (“Findings of fact, whether based on oral or documentary evidence, shall not be set aside unless clearly erroneous, and due regard shall be given to the opportunity of the bankruptcy court to judge the credibility of the witnesses.”). A showing that “another conclusion could have been reached” is not sufficient to meet this exacting standard. Advantage Healthplan, Inc. v. Potter, 391 B.R. 521, 537 (D.D.C.2008). “Where there are two permissible views of the evidence, the factfinder's choice between them cannot be clearly erroneous.” Anderson v. City of Bessemer City, N.C., 470 U.S. 564, 574, 105 S.Ct. 1504, 84 L.Ed.2d 518 (1985) (citations omitted). In fact, even if the reviewing court “is convinced that it would have decided the case differently,” it may not reverse the bankruptcy court on this basis. Id. at 573, 105 S.Ct. 1504. “ ‘To be clearly erroneous, a decision must ... strike [the court] as wrong with the force of a five-week-old, unrefrigerated dead fish.’ ” In re Johnson, 236 B.R. 510, 518 (D.D.C.1999) (quoting Parts & Elec. Motors, Inc. v. Sterling Elec., Inc., 866 F.2d 228, 233 (7th Cir.1988)). By contrast, “a district court reviews questions of law de novo on appeal.” See Advantage Healthplan, 391 B.R. at 537;In re Johnson, 236 B.R. at 518.

When a party appeals a bankruptcy court's approval of a settlement, the reviewing court must apply an “abuse of discretion standard.” See In re Chira, 567 F.3d 1307, 1311 (11th Cir.2009); In re Iridium Operating LLC, 478 F.3d 452, 461 n. 13 (2d Cir.2007); In re Nutraquest, Inc., 434 F.3d 639, 645 (3rd Cir.2006); In re Mailman Steam Carpet Cleaning Corp., 212 F.3d 632, 634 (1st Cir.2000); Advantage Healthplan, 391 B.R. at 553. This standard “encompasses the clearly erroneous standard with respect to [a bankruptcy court's] findings of fact and the de novo standard with respect to [its] legal conclusions.” Advantage Healthplan, 391 B.R. at 553 n. 17. Thus, a bankruptcy court abuses its discretion when it “relies on clearly erroneous findings of fact, fails to consider a relevant factor, or applies the wrong legal standard.” Pigford v. Johanns, 416 F.3d 12, 23 (D.C.Cir.2005).

III. Analysis

Debtor's Motion to vacate the Bankruptcy Court's orders relied on Federal Rules of Civil Procedure 60(b)(2), (3), and (6). Debtor sought relief from all three of the Bankruptcy Court's orders—the orders approving settlement, approving RIASO's proof of claim, and directing proceeds from the sale of property to RIASO—under each of these provisions. The same argument is renewed on appeal. The Court will thus address the Bankruptcy Court's rulings under each of the Rule's subsections in turn.

A. Rule 60(b)(2)

Rule 60(b)(2) permits a court to relieve ...