In re 8699 Biscayne, LLC, Case No. 08-22814-BKC-AJC (Bankr. S.D.Fla. 4/2/2010)
| Decision Date | 02 April 2010 |
| Docket Number | Adversary No. 08-01749-AJC.,Case No. 08-22814-BKC-AJC. |
| Parties | In re: 8699 BISCAYNE, LLC, Chapter 11, Debtor. 8699 BISCAYNE, LLC, Debtor-in-Possession, Plaintiff, v. INDIGO REAL ESTATE, LLC, as assignee of WESTLB AG & WESTLB AG, a Foreign Corporation; BUILDER FINANCIAL CORP., a Florida corporation; BUILDER FUNDING, LLC, a Delaware limited liability Company; BFSPE, LLC, a Delaware limited liability Company; and BFWEST, LLC, a Delaware limited liability company, Defendants. |
| Court | U.S. Bankruptcy Court — Southern District of Florida |
THIS MATTER came before the Court on November 5, 2009 at 10:30 a.m. for a hearing on Defendants BFWest, LLC, BFSPE, LLC, Builder Funding, LLC, and Builder Financial, Corp.'s Motion to Dismiss Debtor's Second Amended Complaint [D.E. #149] (the "Motion to Dismiss"). Pursuant to Federal Rule of Bankruptcy Procedure 7012 and Federal Rules of Civil Procedure 12(b)(6), Defendants BFWest, LLC, BFSPE, LLC, Builder Funding, LLC, and BuilderFinancial, Corp. (collectively, the "Builder Defendants") raised various grounds for dismissal of Debtor 8699 Biscayne, LLC's Second Amended Complaint to Determine the Extent, Validity and Priority of Lien; Equitable Subordination; Fraudulent Transfer and Related Relief [D.E. #132, Ex. 3] (the "Second Amended Complaint").
"To survive a motion to dismiss, 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, 129 S.Ct. 1937, 1949, 173 L.Ed.2d 868 (2009) (citing Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007)). "A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Id. (citing Twombly, 550 U.S. at 556, 127 S.Ct. 1955, 167 L.Ed.2d 929). "The plausibility standard is not akin to a `probability requirement,' but it asks for more than a sheer possibility that a defendant has acted unlawfully." Id. (citing Twombly, 550 U.S. at 556, 127 S.Ct. 1955, 167 L.Ed.2d 929). "When there are well-pleaded factual allegations, a court should assume their veracity and then determine whether they plausibly give rise to an entitlement for relief." Id. at 1950. In evaluating the sufficiency of a plaintiffs pleadings, the
court should "make reasonable inferences in plaintiffs favor," though it is "not required to draw plaintiffs inference." Sinaltrainal v. Coca-Cola Co., 578 F.3d 1252, 1260 (11th Cir. 2009) (citing Aldana v. Del Monte Fresh Produce, N.A., Inc., 416 F.3d 1242, 1248 (11th Cir. 2005)) (quotation omitted). And "[i]t is sufficient if the complaint succeeds in identifying facts that are suggestive enough to render the element plausible." Rivell v. Private Healthcare Sys., 520 F.3d 1308, 1309 (11th Cir. 2008).
In the case at hand, the Debtor's Second Amended Complaint alleges three Counts against the Builder Defendants: Count I. Fraudulent Transfer; Count II. Equitable Subordination; and Count III. Usury. [D.E. # 132, Ex. 3], The Builder Defendants seek to dismiss only the Equitable Subordination and Usury Counts and have conceded the sufficiency of the allegations in the Fraudulent Transfer Count. Accordingly, upon the Builder Defendants' Motion to Dismiss, this Court finds that Debtor has properly stated a cause of action for Equitable Subordination and Usury and denies the Motion to Dismiss.
Defendant BFSPE argues that Debtor's Second Amended Complaint should be dismissed on all counts as to BFSPE because it was not a party to the Loan Documents attached to the Second Amended Complaint. The Court finds this argument disingenuous.
Exhibit "1" to the Second Amended Complaint is the Commitment Letter in which BFSPE is identified, along with Defendant Builder Funding, LLC, as a subsidiary of Defendant BuilderFinancial, Corp. This Letter states, in the first sentence, that "BuilderFinancial, Corp., a Florida corporation and its subsidiaries (hereinafter collectively referred to as the "Mezzanine Lender") have approved [Debtor's] request for the referenced loan facility . . . ." Then, the Letter provides: "[Debtor] shall pay to the Mezzanine Lender a pre-payment fee equal to the amount of
the undrawn Interest Reserve" (¶3); "Mezzanine Lender shall withhold an interest reserve in the amount of $630,000 to help cover the amount of interest that may due [sic] over the term of the Loan" (¶6); "The Mezzanine Lender shall take a FIRST MORTGAGE on each property being financed under the Loan" (¶7); "Mezzanine Lender agrees to subordinate its Loan to a construction/development loan . . ." (¶8); and so on. Moreover, the Loan Agreement and the Mortgage, Exhibits "2" and "3" to the Second Amended Complaint, incorporate the Commitment Letter by reference and include the Letter in the definition of Loan Documents. Thus, it is simply untrue, as BFSPE argues, that "[Debtor's] exhibits contradict any allegation that BFSPE, LLC was involved with this financial transaction." The Motion to Dismiss is denied on this point.
Count II. Equitable Subordination
Under 11 U.S.C. § 510(c), "[p]roper exercise of the equitable subordination power can take place only where three elements are established: (1) The claimant must have engaged in some type of inequitable conduct, (2) The misconduct must have resulted in injury to the creditors or conferred an unfair advantage on the claimant, (3) Subordination of the claim must not be inconsistent with the provisions of the Bankruptcy Act." In re Lemco Gypsum, Inc., 911 F.2d 1553, 1556 (11th Cir. 1990).
"In determining whether the first element is satisfied, the requisite inequitable conduct need not be related to the acquisition of the disputed claim as long as it is directed to the debtor or its creditors." In re Beverages Int'l Ltd., 50 B.R. 273, 281 (Bankr. D. Mass. 1985). Although where the claimant is not an insider or fiduciary of the debtor, egregious conduct must be proven with particularity," the power of equitable subordination may be used to subordinate even the claim of a secured creditor." Chira v. Salkin (In re Chird), 378 B.R. 698, 712 (Bankr. S.D. Fla. 2007) (citing In re Tri-O-Clean, Inc., 230 B.R. 192, 199 (Bankr. S.D. Fla. 1998) (secured claim
of affiliate of management company for debtor reduced to unsecured status)).
As to the second element that the alleged misconduct must have resulted in injury to the creditors or conferred an unfair advantage on the claimant, courts have found that In re Beverages Int'l Ltd., 50 B.R. 273, 283 (Bankr. D. Mass. 1985) (citation omitted). Further, "[t]he identity of creditors harmed by the alleged misconduct and damages sustained by each is not necessary for application of equitable subordination." Id. Thus, "[i]n examining the effect of the conduct on creditors, the court should consider the effect of the then-known creditors, as well as future creditors." Id.
In the case at hand, Plaintiff has alleged, in pertinent part:
At the time of the Commitment Letter and as of the funding of the loan, and at all times in between, the Builder Defendants knew that: (a) A construction loan was needed to complete the project; (b) No construction loan would ever be sufficient to, both, fund the construction and pay off a Four Million Two Hundred Forty Seven Thousand One hundred Fifty and 00/100 Dollar ($4,247,150.00) loan made to acquire the property when the property was being purchased for Two Million Five Hundred Thousand and 00/100 Dollars ($2,500,000.00) or roughly half the debt which encumbered it; (c) That the loan being made by the Builder Defendants had to be either subordinated or satisfied for the project to proceed.
At the time of the Commitment Letter and at the time of funding the loan, the Builder Defendants had a present intent not to subordinate or otherwise cooperate in any reasonable way to permit the project to proceed.
It was the intention of the Plaintiff and BuilderFinancial, BFSPE and Builder Funding when the loan was made that the loan would be subordinated to a construction loan obtained by the parties. The construction loan was to be used to construct the project that was expected to produce the profits that would be used to satisfy the loan.
In reliance upon the representations that Builder Funding would subordinate its loan to a construction loan, Plaintiff entered into the transaction and funded a deposit for the purchase of the real property in the amount of Two
Hundred Fifty Thousand and 00/100 Dollars ($250,000.00).
BuilderFinancial, BFSPE and Builder Funding never intended to subordinate the loan to a construction loan. The representations that they made were false and known by them to be false when they were made.
The representations were made with the intent to defraud the Plaintiff from its investment of Two Hundred Fifty...
To continue reading
Request your trial