In re American Business Financial Services, Inc.

• Decision Date: 20 March 2008
• Docket Number: Adversary No. A-06-50826 (MFW).,Bankruptcy No. 05-10203 (MFW).
• Citation: 384 B.R. 80
• Parties: In re AMERICAN BUSINESS FINANCIAL SERVICES, INC., et al., Debtors. George L. Miller, Trustee, Plaintiff, v. Greenwich Capital Financial Products, Inc., Ocwen Loan Servicing, LLC, Wells Fargo Bank, N.A., Law Debenture Trust Company of New York, The Berkshire Group LP, Michael W. Trickey, Defendants.
• Court: U.S. Bankruptcy Court — District of Delaware

384 B.R. 80

In re AMERICAN BUSINESS FINANCIAL SERVICES, INC., et al., Debtors.

George L. Miller, Trustee, Plaintiff, v. Greenwich Capital Financial Products, Inc., Ocwen Loan Servicing, LLC, Wells Fargo Bank, N.A., Law Debenture Trust Company of New York, The Berkshire Group LP, Michael W. Trickey, Defendants.

Bankruptcy No. 05-10203 (MFW).

Adversary No. A-06-50826 (MFW).

United States Bankruptcy Court, D. Delaware.

March 20, 2008.

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Laura Davis Jones, Pachulski, Stang, Ziehl, Young, Jones & Weintraub, Wilmington, DE, Bennett L. Spiegel, R. Alexander Pilmer, Kirkland & Ellis LLP, Los Angeles, CA, for Greenwich Capital Financial Products, Inc.

David Dormont, John W. Morris, Steven M. Coren, Kaufman, Coren & Ress, P.C., Philadelphia, PA, Deirdre Richards, Joseph J. McGovern, Lawrence J. Tabas, Obermayer, Rebmann, Maxwell Hippel LLP, Wilmington, DE, for trustee.

Francis A. Monaco Jr., Monzack and Monaco, PA, Wilmington, DE, James S. O'Brien, Jr., Pryor, Cashman, Sherman & Flynn LLP, for Law Debenture Trust Company of New York, as Indenture Trustee.

Derek C. Abbott, Curtis S. Miller, Morris, Nichols, Arsht & Tunnell LLP, Wilmington, DE, Joel L. Miller, Adam J. Safer, Matthew Z. Krusko, Miller & Wrubel, New York, NY, for Ocwen Loan Servicing LLC.

Linda Richenderfer, Chad J. Toms, Bifferato, Gentilotti & Balick, LLC, Wilmington, DE, Michael LiPuma, Law Office of Michael LiPuma, Philadelphia, PA, for The Berkshire Group LP and Michael W. Trickey.

Thomas B. Kinzler, Eric B. Post, Kelley Drye & Warren LLP, New York City, Frederick B. Rosner, Duane Morris LLP, Wilmington, DE, for Wells Fargo Bank, N.A., as Indenture Trustee.

MEMORANDUM OPINION¹

MARY F. WALRATH, Bankruptcy Judge.

Before the Court is the Motion of Greenwich Capital Financial Products, Inc. ("Greenwich") for dismissal of the Amended Complaint filed by George L. Miller (the "Trustee"). For the reasons set forth below, the Court will deny the motion.

I. BACKGROUND

The background to this case and adversary proceeding are set forth in the Court's Opinion dated February 13, 2007 (the "First Greenwich Opinion"), which granted in part Greenwich's motion to dismiss the Original Complaint filed against it by the Trustee. Miller v. Greenwich Capital Fin. Prods., Inc. (In re Am. Bus. Fin. Servs., Inc.), 361 B.R. 747, 761 (Bankr. D.Del.2007).

In granting Greenwich's first motion to dismiss, the Court permitted the Trustee to amend his complaint. The Trustee filed the Amended Complaint on March 13, 2007. Greenwich filed its Motion to Dismiss the Amended Complaint on April 12, 2007. Briefing was completed by June 18, 2007, and the matter is ripe for decision.

II. JURISDICTION

The Court has subject matter jurisdiction over this adversary proceeding pursuant to 28 U.S.C. §§ 1334(b) & 157(b)(1). Many of the counts are core matters pursuant to 28 U.S.C. § 157(b)(2)(A), (B), (E), (H), (K), & (O).

III. DISCUSSION

Greenwich moves for dismissal of the claims against it under Rule 12(b)(6) and Rule 9(b) of the Federal Rules of Civil Procedure, which are made applicable to adversary proceedings by Rules 7012(b) and 7009 of the Federal Rules of Bankruptcy Procedure, respectively. Specifically, Greenwich argues that the Trustee's Amended Complaint fails to state a claim for which relief can be granted and fails to plead fraud with particularity.

A. Standard of Review

1. Rule 12(b)(6) Dismissal

A Rule 12(b)(6) motion serves to test the sufficiency of the factual allegations in the plaintiff's complaint. Kost v. Kozakiewicz, 1 F.3d 176, 183 (3d Cir.1993). To succeed on a Rule 12(b)(6) motion to dismiss, the movant must establish "to a certainty that no relief could be granted under any set of facts which could be proved." Morse v. Lower Merion School Dist., 132 F.3d 902, 906 (3d Cir.1997) (quoting D.P. Enter., Inc. v. Bucks County Cmty. Coll., 725 F.2d 943, 944 (3d Cir.1984)). "In deciding a motion to dismiss, we must accept all well-pleaded allegations in the complaint as true, and view them in the light most favorable to the plaintiff." Carino v. Stefan, 376 F.3d 156, 159 (3d Cir.2004). All reasonable inferences are drawn in favor of the plaintiff. Kost, 1 F.3d at 183. "The issue is not whether a plaintiff will ultimately prevail but whether the claimant is entitled to offer evidence to support the claims." Scheuer v. Rhodes, 416 U.S. 232, 236, 94 S.Ct. 1683, 40 L.Ed.2d 90 (1974) abrogated on other grounds by Harlow v. Fitzgerald, 457 U.S. 800, 814-15, 102 S.Ct. 2727, 73 L.Ed.2d 396 (1982). See also Maio v. Aetna, Inc., 221 F.3d 472, 482 (3d Cir. 2000); In re OODC, LLC, 321 B.R. 128, 134 (Bankr.D.Del.2005) ("Granting a motion to dismiss is a `disfavored' practice . . . .").

2. Rule 8(a)

Rule 8(a) of the Federal Rules of Civil Procedure requires only that a Complaint contain "a short and plain' statement of the claim showing that the pleader is entitled to relief." Fed.R.Civ.P. 8(a). The statement must provide the defendant with fair notice of the claim filed against it. See, e.g., Williams v. Potter, 384 F.Supp.2d 730, 733 (D.Del.2005) ("Vague and conclusory factual allegations do not provide fair notice to a defendant.") (citing United States v. City of Phila., 644 F.2d 187, 204 (3d Cir.1980)).

3. Rule 9(b) Dismissal

Where a complaint asserts a claim for fraud, however, the standard for pleading is higher. The complaint must set forth facts with sufficient particularity to apprise the defendant of the charges against him so that he may prepare an adequate answer. In re Global Link Telecom Corp., 327 B.R. 711, 718 (Bankr.D.Del. 2005). To provide fair notice, the complainant must go beyond merely parroting statutory language. Id. See also In re Circle Y of Yoakum, Texas, 354 B.R. 349, 356 (Bankr.D.Del.2006). A bankruptcy trustee, as a third party outsider to the debtor's transactions, is generally afforded greater liberality in pleading fraud. Global Link, 327 B.R. at 717.

B. Greenwich's Motion to Dismiss

1. Final DIP Order

Greenwich first argues that the language of the Final DIP Order bars the Trustee's claim that Greenwich committed a fraud on the Court by failing to advise the Court that the value of the I/O Strips was substantially less than the Debtor represented. Specifically, the Final DIP Order provides that:

The Agent [Greenwich] . . . ha[s] made no representations, offered no opinions, and ha[s] taken no positions . . . regarding the value of any portion of the Collateralized Sub-debt shared Collateral [defined as the I/O Strips], the Debtors have not relied upon any representation, opinion or position of the Agent or the Secured Parties in regard thereto.

(Final DIP Order at 17 (emphasis added).) In the First Greenwich Opinion, the Court agreed, concluding that this did bar the Trustee's claim of common law fraud or fraud on the court. Am. Bus. Fin. Servs., 361 B.R. at 756.

The Trustee argues, however, that the basis of his fraud on the court claim is not that Greenwich made representations upon which the Debtor relied but that Greenwich made representations to the Court (in its response to the Creditors' Committee's efforts to obtain a replacement DIP lender) and in its failure to advise the Court that because of the true value of the I/O Strips the Debtor would be in default of the DIP loan as soon as it was approved. The Trustee has clarified this in the Amended Complaint. (Amended Complaint ¶¶ 31-58.)

To prove fraud upon the court, the Trustee must establish: "(1) an intentional fraud; (2) by an officer of the court; (3) which is directed at the court itself; and (4) that in fact deceives the court." Herring v. United States, 424 F.3d 384, 390 (3d Cir.2005). In this case the Trustee alleges that Greenwich intentionally made misrepresentations to the Court which deceived the Court into approving the DIP financing. Greenwich, of course, disputes this. Whether the allegations are true, however, is not relevant. The Court must accept the Trustee's allegations as true for purposes of this motion to dismiss. See, e.g., Carino, 376 F.3d at 159; Kost, 1 F.3d at 183. Therefore, the Court concludes that the Trustee's allegations are sufficient to state a claim of fraud on the court.

2. Estoppel and in Pari Delicto

Greenwich argues that the Trustee's efforts to vacate the Final DIP Order are barred by the doctrines of estoppel and in pari delicto. Greenwich contends that the Trustee is bound by the Debtor's actions and is precluded from seeking to vacate an order entered at his predecessor's request. See, e.g., In re Teligent, Inc., 326 B.R. 219, 222 (S.D.N.Y.2005). Greenwich argues that "[c]reditors must be able to deal freely with debtors-in-possession, within the confines of the bankruptcy laws, without fear of retribution or reversal at the hands of a later appointed trustee." Armstrong v. Norwest Bank, Minneapolis, N.A., 964 F.2d 797, 801 (8th Cir.1992).

In addition, Greenwich asserts that the doctrine of in pari delicto bars the Trustee's recovery. It argues that the Trustee alleges that the Debtor intentionally misled the Court about the value of the I/O Strips. That alleged fraud by the Debtor is imputed to the Trustee, the successor to the Debtor, thereby precluding the Trustee's claim. See, e.g., Official Comm. of Unsecured Creditors v. R.F. Lafferty & Co., Inc., 267 F.3d 340, 354 (3d Cir.2001) (stating that "[t]he doctrine of in pari delicto provides that a plaintiff may not assert a claim against a defendant if the plaintiff bears fault for the claim" and concluding that "the in pari delicto doctrine bars the Committee, standing in the shoes of the Debtors, from bringing its claims. . . .").

Although this is an affirmative defense, Greenwich contends that it can be heard at the "motion to dismiss stage because it appears from the face of the complaint. See, e.g., In re Oakwood Homes Corp., 340 B.R. 510, 536 (Bankr.D.Del.2006) (citing Leveto v. Lapina, 258 F.3d 156, 161 (3d...