In re Banks Auto Parts, Inc.

• Decision Date: 12 February 2008
• Docket Number: Bankruptcy No. 07-32884-KRH.,Adversary Nos. 07-3155, 07-3156.
• Citation: 385 B.R. 142
• Court: U.S. Bankruptcy Court — Eastern District of Virginia
• Parties: In re BANKS AUTO PARTS, INC. and Fanapa USA, Inc. and Fanapa, LLC, Debtors. Banks Auto Parts, Inc. and Fanapa, LLC, Plaintiffs, v. Banks Investments I, LC, Olander Banks, Gregory Banks and Ronald Banks, Defendants.

385 B.R. 142

In re BANKS AUTO PARTS, INC. and Fanapa USA, Inc. and Fanapa, LLC, Debtors Banks Auto Parts, Inc. and Fanapa, LLC, Plaintiffs, v. Banks Investments I, LC, Olander Banks, Gregory Banks and Ronald Banks, Defendants.

Bankruptcy No. 07-32884-KRH.

Adversary Nos. 07-3155, 07-3156.

United States Bankruptcy Court, E.D. Virginia, Richmond Division.

February 12, 2008.

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Paula S. Beran, Lynn L. Tavenner, Tavenner & Beran, PLC, Richmond, VA, for Plaintiffs.

Donald F. King, Odin, Feldman & Pittleman, Fairfax, VA, for Defendants.

MEMORANDUM OPINION

KEVIN R. HUENNEKENS, Bankruptcy Judge.

Before the Court are Motions to Dismiss filed by the defendants, Banks Investments I., LC ("Banks Investments"), Olander Banks, Gregory Banks and Ronald Banks, pursuant to Rule 7012 of the Federal Rules of Bankruptcy Procedure, incorporating Rule 12(b)(6) of the Federal Rules of Civil Procedure (the "Motions"). Hearing on the Motions was held on January 2, 2008, at which time the Court took the matters under advisement (the "Hearing"). For the reasons set forth below, the Court will deny the Motions in part and grant the Motions in part.

Banks Auto Parts, Inc. and Fanapa, LLC (the "Plaintiffs") filed in this Court along with their affiliate, Fanapa USA, Inc., Voluntary Petitions for Relief under Chapter 11 of the Bankruptcy Code on August 9, 2007 (the "Petition Date").¹ The Debtors remain in possession of their property and continue to operate and manage their businesses as debtors in possession pursuant to §§ 1107(a) and 1108 of the Bankruptcy Code. On November 13, 2007, the Plaintiffs separately filed Complaints against Banks Investments, Olander Banks, Gregory Banks and Ronald Banks (cumulatively, jointly and severally as the context would suggest, the "Defendants"). The two Complaints are identical except that each has a different Adversary Proceeding Number. The Debtors have advised the Court that they filed the two separate Complaints in order to differentiate between potential assets for Fanapa, LLC and Banks Auto Parts, Inc. Counsel for the parties represented at the Hearing that the parties intend to have the two Adversary Proceedings consolidated. Accordingly, the Court has considered the two Complaints (hereinafter the "Complaint") and the various Motions to dismiss the Complaint collectively for purposes of this Memorandum Opinion.

Counts I through V of the Complaint seek relief only against Defendants Banks Investments and Olander Banks. Counts 1, II, III and IV of the Complaint seek to avoid certain transfers and to preserve the avoided transfers for the benefit of the Debtors' respective estates. Count V of the Complaint seeks a declaratory judgment concerning property of the estate. Counts VI and VII of the Complaint seek relief only against Defendants Gregory Banks and Ronald Banks. Count VI of the Complaint seeks turnover of property of the estate and Count VII of the Complaint seeks damages associated with the willful violation of the automatic stay of § 362 of the Bankruptcy Code.

The Court has jurisdiction of this adversary proceeding pursuant to 28 U.S.C. §§ 157 and 1334. Venue is appropriate in this Court pursuant to 28 U.S.C. § 1409. These are core proceedings under 28 U.S.C. § 157(b)(2)(A), (E), (G), (H) and (O).

The standard to be applied in ruling on motions to dismiss is well established. The Court must accept all factual allegations in the complaint as true, construe the complaint in a light most favorable to the plaintiffs, and recognize that dismissal is inappropriate "unless it appears to a certainty that the plaintiff['s] would be entitled to no relief under any state of facts which could be proved in support of [their] claim[s]." Schnelling v. Crawford (In re James River Coal Co.), 360 B.R. 139, 153 (Bankr.E.D.Va.2007) (citing Baird v. Rose, 192 F.3d 462, 467 (4th Cir.1999); Hishon v. King & Spalding, 467 U.S. 69, 73, 104 S.Ct. 2229, 81 L.Ed.2d 59 (1984)); Bass v. E.I. DuPont de Nemours & Co., 324 F.3d 761, 764 (4th Cir.2003).

Olander Banks was the owner and operator of an auto salvage and parts business in Spotsylvania County known as Banks Auto Parts, Inc. ("Banks Auto Parts"). The Plaintiffs allege that on or about June 11, 2002, their affiliate, Fanapa USA, Inc. ("Fanapa USA") entered into a stock purchase agreement with Olander Banks for the acquisition of all of the stock of Banks Auto Parts (the "Stock Purchase Agreement").² The Stock Purchase Agreement contemplated that Olander Banks would sell his auto salvage business and convey possession of the underlying real estate (the "Real Estate") upon which it was necessary for the business to operate. The Stock Purchase Agreement also provided that there would be an option to purchase the Real Estate for $478,500. As part of the Stock Purchase Agreement, Fanapa USA executed a promissory note payable to Olander Banks in the sum of $1,221,500 (the "Note") which represented the deferred purchase price for the stock. The Stock Purchase Agreement and the Note were personally guaranteed by the principals of the Debtors and by Fanapa, LLC. Also, as part of the Stock Purchase Agreement, Banks Investments entered into a six-year lease with Fanapa, LLC for the Real Estate (the "2002 Lease")³. The 2002 Lease contained the option to purchase the Real Estate that was referenced in the Stock Purchase Agreement (the "Land Purchase Option"). The terms of the Land Purchase Option included an allocation for the rent paid by Fanapa, LLC into interest and principal components with the principal to be credited to the purchase price.

Fanapa, LLC attempted to exercise the Land Purchase Option in April of 2005. The Complaint alleges that one or more of the members of Banks Investments decided that the Real Estate had significantly more value than the previously agreed price under the Land Purchase Option and decided that Banks Investments should do anything and everything to prevent the exercise of the Land Purchase Option.⁴ This included interfering with the Debtors' business operations and causing confusion concerning amounts that had been paid pursuant to the 2002 Lease. Counts VI and VII allege that Gregory Banks and Ronald Banks in furtherance of this design intentionally interrupted the Debtors' business by among other things placing trash and debris on the Real Estate and by denying the Debtors access to a crushing machine⁵ that was integral to the operation of the business of Banks Auto Parts.

Banks Investments responded to the exercise of the Land Purchase Option by commencing an unlawful detainer action against Fanapa, LLC on June 8, 2005. Banks Investments alleged that Fanapa, LLC was in arrears for rent in the sum of $27, 825, interest, late fees in the amount of $4,372.50, and damages for "unpaid taxes and insurance," costs and reasonable attorney's fees in the sum of $47,133.54. Plaintiffs allege in the Complaint that none of these amounts were owed. Trial was set in the General District Court for Spotsylvania County (the "State Court") on August 17, 2005 (the "Trial Date"). The parties agreed to settle the litigation for $81,331.54 so long as Fanapa LLC paid Banks Investment "shortly after August 17, 2005" (the "Settlement Agreement"). Banks Investments was allowed to take judgment on the Trial Date in order to protect its interests in the event that Fanapa, LLC failed to perform under the Settlement Agreement. On August 20, 2005, Fanapa, LLC tendered a cashier's check to Olander Banks in the amount of $81,333.54. The cashier's check was accompanied by a letter stating that (i) the check "represented full and final payment of the debt owed to you by Fanapa, USA, Inc. and Fanapa LLC," (ii) the payment "brings us current, and we are authorized to continue our Lease at 8901 Jefferson Davis Highway, Spotsylvania, Virginia, as provided in the [2002] Lease," and (iii) the [2002] "Lease remains in full force and effect, including our ability to exercise the [Land Purchase Option]" (the "Tender of the Settlement Proceeds"). The cashier's check was accepted and negotiated by "Olander Banks and/or Banks Investments" (the "Consummation of the Settlement"). Plaintiffs refer to the Settlement Agreement, the Tender of the Settlement Proceeds and the Consummation of the Settlement as the "Accord and Satisfaction."

Notwithstanding the Accord and Satisfaction, Olander Banks and/or Banks Investments made demand in September or October 2005 for an additional payment of $75,075. Olander Banks and/or Banks Investments caused a writ of possession to be issued against Fanapa, LLC and demanded that unless it received the additional $75,075 and unless Fanapa, LLC signed a new lease, Plaintiffs would be "thrown out" of the premises. Faced with the prospect of eviction, Plaintiffs delivered a second cashier's check to Olander Banks, this one in the amount of $80,000. The check was tendered with a cover letter that said that $75,075 of the check was to be applied to the new amount claimed due and the balance of the check in the amount of $4,925 was to be applied as a deposit on the Land Purchase Option. The cover letter clearly denoted that "[t]his deposit exercises my option to purchase the [Real Estate]." Olander Banks accepted the tender of the $80,000 check, negotiated the check and deposited the proceeds. A third cashier's check in the amount of $15,000 was tendered along with the $80,000 check.

On October 14, 2005, Olander Banks advised the Debtors that if Fanapa, LLC would sign a new lease, the Debtors (i) would be permitted to remain in possession of the Real Estate and (ii) would be permitted to consummate their exercise of the Land Purchase Option. Thereafter, the Debtors were presented with a new lease that was backdated to September 1, 2005 (the "2005 Lease"). Debtors were induced to sign the 2005 Lease based upon the representation that they would have to do so in order for Fanapa, LLC to...