In re American Business Financial Services, Inc.

• Decision Date: 13 February 2007
• Docket Number: Adversary No. A-06-50826 (MFW).,Bankruptcy No. 05-10203 (MFW).
• Citation: 362 B.R. 149
• 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

362 B.R. 149

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.

February 13, 2007.

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Elio Battista, Jr., Elizabeth A. Wilburn, Jason W. Staib, Blank Rome LLP, Kathleen Campbell Davis, Campbell & Levine LLC, William E. Chipman, Jr., Edwards Angell Palmer & Dodge, Wilmington, DE, for Debtors.

John T. Carroll, III, Cozen O'Connor, Wilmington, DE, Shannon D. Leight, Ciardi & Ciardi, P.C., Teresa Janine Tabah, Philadelphia, PA, for Trustee.

David Dormont, Steven M. Coren, Kaufman, Coren & Ress, P.C., Deirdre. Richards, Obermayer, Rebmann, Maxwell Hippel LLP, Philadelphia, PA, for Trustee, Plaintiff.

Bruce Grohsgal, Pachulski, Stang, Ziehl Young & Jones, Curtis S. Miller, Morris Nichols Arsht & Tunnell, Frederick Brian Rosner, Duane Morris LLP, Francis A. Monaco, Jr., Kevin J. Mangan, Monzack and Monaco, P.A., Chad Joseph Toms, Linda Richenderfer, Bifferato Gentilotti & Balick, LLC, Wilmington, DE, Adam J. Safer, Joel M. Miller, Matthew Z. Krusko, Miller & Wrubel PC, New York, NY, for Defendants.

OPINION¹

MARY F. WALRATH, Bankruptcy Judge.

Before the Court is the Motion of Ocwen Loan Servicing, LLC ("Ocwen") for dismissal of the above-captioned complaint against it. For the reasons set forth below, the Court will grant the motion in part.

I. BACKGROUND

American Business Financial Services, Inc. ("the Debtor") and its subsidiaries operated as a financial services organization that originated and serviced mortgage loans primarily to credit-impaired borrowers. The Debtor raised capital by selling pools of these loans to special purpose entities created for securitization (the "Securitization SPEs"). The Securitization SPEs sold the pools of loans to mortgage loan trusts ("Securitization Trusts"). To raise cash for the purchase of the loans, the Securitization Trusts sold notes or trust certificates secured by the trust assets to investors. In exchange for the loans sold to the Securitization SPEs and Trusts, the Debtor received cash and certificates of beneficial interests in the Trusts that entitled it to receive certain cash flows generated by the Trusts (the "I/O Strips"). The Debtor also retained the right to service the pools of securitized loans for a fee.

On January 21, 2005, the Debtor and certain of its direct and indirect subsidiaries filed voluntary petitions for relief under chapter 11 of the Bankruptcy Code. On January 24, 2005, the Debtor filed a Motion seeking debtor-in-possession financing, pursuant to which Greenwich Capital Financial Products, Inc. ("Greenwich")² agreed to provide a senior, secured, super-priority $500 million credit facility (the "DIP Facility") to the Debtor. The DIP Facility was secured by substantially all the Debtor's assets, including the I/O Strips which had a book value of $391 million. On March 10, 2005, the Court entered a Final Order approving the DIP Loan. Under the DIP Loan Agreement, the Debtor was required to sell the fee-producing future servicing rights.

Less than a month later, on April 4, 2005, the Debtor publicly announced that a reorganization was not possible, On the same day, the Court approved the terms and conditions of, a sale of the Debtor's fee-producing future servicing rights to Ocwen for approximately 821 million. To consummate the sale, Ocwen and the Debtor executed a Servicing Rights Transfer Agreement (the "Transfer Agreement") on or about April 13, 2005, and a Servicing Agreement on May 1, 2005.

On May 13, 2005, Greenwich declared a default on the DIP Loan. As a result, the bankruptcy case was converted to chapter 7 and George L. Miller was appointed trustee (the "Trustee").

On July 20, 2005, the Trustee and Greenwich entered into a Conditional Consent and Undertaking (the "Consent Agreement") whereby the Trustee agreed to sell certain whole loan assets of, the Debtor (which were collateral of Greenwich) pursuant to section 363 of the Bankruptcy Code. Under the Consent Agreement, the Trustee would receive $300,000 of the sale proceeds for the benefit of the Debtor's estates. The Trustee, on behalf of the Debtor, agreed to release Greenwich from any and all claims. On August 19, 2005, the Court approved the Consent Agreement and the sale of the whole loan assets to Credit-Based Asset Servicing and Securitization, LLC for $29,626,846.

Thereafter, Greenwich foreclosed on thirteen I/O Strips which it sold by public auction on June 28, 2006, pursuant to Article 9 of the Uniform Commercial Code. The I/O Strips were sold to Ocwen³ for $5.1 million.

On September 13, 2006, the Trustee filed a Complaint against Greenwich, Ocwen, Michael W. Trickey, The Berkshire Group, LP ("Berkshire"), and Wells Fargo Bank, N.A. and Law Debenture Trust Company of New York (collectively, the "Indenture, Trustees"). The Trustee asserts the following twelve claims against Ocwen: (1) turnover; (2) fraudulent transfer avoidance and recovery under the Bankruptcy Code; (3) fraudulent transfer avoidance and recovery under state law; (4) request for an accounting; (5) breach of fiduciary duty; (6) aiding and abetting a breach of fiduciary duty; (7) breach of contract; (8) common law fraud; (9) civil conspiracy; (10) conversion; (11) objections to and subordination of its claims; and (12) declaratory relief.

A Motion to dismiss the Complaint was filed by Ocwen on November 10, 2006. The Trustee opposes Ocwen's Motion. Briefing on Ocwen's Motion is complete, and the matter is now 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

Ocwen 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, Ocwen argues that the Trustee's 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 "beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 2 L.Ed.2d 80 (1957); City of Phila. v. Lead Indus. Ass'n, 994 F.2d 112, 118 (3d Cir.1993). "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). 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 Civic 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. Ocwen's Motion to Dismiss

1. Fraud

Ocwen moves for dismissal of the fraud and aiding and abetting fraud claims against it. Ocwen argues that the Trustee has not set forth a claim for fraud arising from their contractual relationship and there were no factual allegations provided in support of the fraud claim. Orix Credit Alliance, Inc. v. R.E. Hable Co., 256 A.D.2d 114, 682 N.Y.S.2d 160, 161 (N.Y.App.Div.1998) ("[A] viable claim of fraud concerning a contract must allege misrepresentations of present facts (rather than merely of future intent) that were collateral to the contract and which induced the allegedly defrauded party to enter into the contract."); J.E. Morgan Knitting Mills, Inc. v. Reeves Bros., Inc., 243 A.D.2d 422, 663 N.Y.S.2d 211, 211 (N.Y.App.Div.1997) (dismissing a fraud claim because "[t]he fraud alleged [was] based on the same facts ... underl[ying] the contract claim and [was] not collateral to the contract and no damages [were]...