In re Baseline Sports, Inc.

• Citation: 393 B.R. 105
• Decision Date: 01 August 2008
• Docket Number: Adversary No. 07-07105-SCS.,Bankruptcy No. 06-71505-SCS.
• Court: United States Bankruptcy Courts. Fourth Circuit. U.S. Bankruptcy Court — Eastern District of Virginia
• Parties: In re BASELINE SPORTS, INC., Debtor. Suntrust Bank, Plaintiff, v. Gary L. Roberson, David G. Barnes, Baseline Sports, Inc., Baseline Licensing Group, LLC, Defendants.

393 B.R. 105

In re BASELINE SPORTS, INC., Debtor Suntrust Bank, Plaintiff, v. Gary L. Roberson, David G. Barnes, Baseline Sports, Inc., Baseline Licensing Group, LLC, Defendants.

Bankruptcy No. 06-71505-SCS.

Adversary No. 07-07105-SCS.

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

August 1, 2008.

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Karen M. Crowley, Marcus, Crowley & Liberatore, P.C., Chesapeake, VA, for Debtor. Donald C. Schultz, Crenshaw, Ware & Martin, PLC, Norfolk, VA, for Plaintiff.

Gary L. Roberson, pro se.

David G. Barnes, pro se.

Peter G. Zemanian, Zemanian Law Group, Norfolk, VA, for Defendants.

MEMORANDUM OPINION

STEPHEN C. ST. JOHN, Bankruptcy Judge.

This matter came before the Court upon the Motions to Dismiss SunTrust Bank's ("SunTrust" or the "Bank") Complaint initiating an adversary proceeding against Baseline Sports, Inc. (the "Debtor"), a commercial debtor before this Court; Baseline Licensing Group, LLC, a business entity related to the Debtor; and Gary L. Roberson ("Roberson") and David G. Barnes ("Barnes"), principals of both Baseline Sports and Baseline Licensing.¹ As explained in this Opinion, the Court concludes that it has subject matter jurisdiction to interpret its own order approving the settlement between SunTrust Bank and the Debtor, Baseline Licensing, Fan's Choice, Inc., Roberson, and Barnes to determine whether Federal Rule of Civil Procedure 60, as made applicable to bankruptcy proceedings through Federal Rule of Bankruptcy Procedure 9024, acts to preclude the claims SunTrust asserts in its Complaint. However, the Court concludes that it is without subject matter jurisdiction to adjudicate the substantive merits of the state law causes of action alleged in SunTrust's Complaint. Accordingly, the Court dismisses SunTrust's Complaint under Federal Rule of Civil Procedure 12(b)(1) and Federal Rule of Civil Procedure 12(h)(3), as made applicable to bankruptcy adversary proceedings through Federal Rule of Bankruptcy Procedure 7012(b), due to lack of jurisdiction over the subject matter. See Fed. R. Bankr.P. 7012(b); Fed.R.Civ.P. 12(b)(1); Fed. R.Civ.P. 12(h)(3). Upon consideration of the pleadings and arguments of the parties, the Court makes the following findings of fact and conclusions of law.

I. Background and Factual Findings

a. Procedural History and Lending Relationship Between the Debtor and SunTrust

On October 16, 2006, Baseline Sports, Inc., filed a voluntary petition for relief under Chapter 11 of the United States Bankruptcy Code, for which the Court entered an Order for Relief. The Debtor is now a defunct entity, without assets, which currently awaits confirmation of its Chapter 11 Plan of Liquidation. As described herein, SunTrust Bank entered into a settlement agreement with Baseline Sports, Baseline Licensing Group, Barnes, and Roberson (collectively the "Defendants"), and Fan's Choice, Inc., which is not a party to this action. As part of that agreement, SunTrust was granted relief from the automatic stay to exercise any rights it may have in the Debtor's collateral, among other things, and the Debtor was released from any obligations it might have as a result of its relationship with SunTrust, thus allowing SunTrust to liquidate the assets of Baseline Sports upon which it had a pre-petition lien. Accordingly, SunTrust will not receive any payment under Baseline Sports's Plan of Liquidation and has no right to vote on the Plan's confirmation.

Baseline Sports conducted business as a wholesaler of sporting and gaming related merchandise. Gary L. Roberson and David G. Barnes acted as directors and officers and were shareholders of Baseline Sports.² In order to facilitate its business operations, Baseline Sports engaged in a financing arrangement with SunTrust Bank. In 2002, this financing relationship led to an agreement in which SunTrust renewed a Credit Line Loan which was limited to the lesser of $1,125,000 or the value of Baseline Sports's current eligible accounts receivable. On January 24, 2002, November 5, 2002, and April 15, 2004, SunTrust extended additional loans to Baseline Sports, and Baseline Sports made, executed, and delivered Notes to SunTrust. Baseline Sports granted a security interest in favor of SunTrust under a Security Agreement dated April 23, 2003, providing SunTrust with a first priority security interest in all of Baseline Sports's assets, including its accounts receivable. Additionally, both Roberson and Barnes personally guaranteed payment of these loans by agreements dated May 21, 2000, and January 27, 1999, respectively.

The Credit Line Loan was due upon demand, and upon maturation on February 28, 2005, was not renewed. Baseline Sports became out of compliance with the lending agreement associated with the Credit Line Loan, which SunTrust alleges put Baseline Sports in a position of material default of its agreement. Accordingly, the Bank declared that the loan was in default.

Following the alleged default under the lending agreement, SunTrust filed a Complaint and Petition for Pretrial Seizure against Baseline Sports in the Circuit Court for the City of Norfolk, Virginia, on October 3, 2006. In its state court complaint, the Bank alleged Baseline Sports owed it $1,029,316.43 as of October 2, 2006. Prior to the entry of an order permitting SunTrust to exercise any rights it might have in Baseline Sports's assets under the terms of the Note and Security Agreement, Baseline Sports filed its Chapter 11 petition for relief in this Court on October 16, 2006.

Soon after the Debtor filed its petition for Chapter 11 relief, the Bank filed its first Motion for Relief from the Automatic Stay on October 18, 2006 (the "First Motion for Relief"). The following day, the Court held a preliminary hearing on the Bank's Motion for Relief. At the conclusion of the hearing, the Court ordered that a Final Hearing on SunTrust's Motion for Relief be held and additionally ordered, among other things, that the Debtor would not be allowed to use any cash collateral without further order from the Court. Subsequent to the preliminary hearing, the Court approved an application to appoint counsel to represent the Official Committee of Unsecured Creditors (the "Committee") on October 27, 2006. The Court held a Final Hearing on the Bank's First Motion for Relief on October 31, 2006. Ultimately, SunTrust's First Motion for Relief culminated in an Order by this Court permitting the Bank to exercise its rights in the Debtor's inventory and denying the portions of the Bank's motion which sought relief as to other assets of the Debtor.

On December 19, 2006, SunTrust filed a second Motion for Relief from the Automatic Stay seeking to exercise any rights it had in the Debtor's accounts receivable (the "Second Motion for Relief"). Both the Debtor and the Committee filed responses to SunTrust's Second Motion for Relief admitting certain allegations, denying others, and requesting the Court deny SunTrust's Second Motion for Relief. The Court held a preliminary hearing on the Bank's second motion on January 11, 2007, at which it granted relief to SunTrust as to the Debtor's cash on deposit, which was being held by the Bank, and set a final hearing on the Second Motion for Relief which was held on February 14, 2007. An Order was entered on January 17, 2007, granting SunTrust relief with regard to the cash held on deposit.

Prior to the final hearing on SunTrust's Second Motion for Relief, the Debtor filed a Motion to Approve Settlement between the Debtor; Debtor-affiliated entities Baseline Licensing Group and Fan's Choice; and the principals of the Debtor, Baseline Licensing, and Fan's Choice, Gary Roberson and David Barnes. The Debtor filed a separate motion with the Court seeking the Court's approval of a settlement agreement reached with the Committee. The Court held a final hearing on SunTrust's Second Motion for Relief and hearings on the Motions to Approve the proposed settlements submitted to the Court. The Court approved both settlements and continued the Final Hearing on the Bank's Second Motion for Relief.³ The settlement between SunTrust and Baseline Sports, Baseline Licensing Group, Fan's Choice, Barnes, and Roberson was approved by an order of the Court entered on February 20, 2007 (the "SunTrust Settlement"). The Court also entered a separate order approving the settlement between the Debtor and the Committee on the same day (the "Committee Settlement").⁴ The continued final hearing on SunTrust's Second Motion for Relief was held on April 5, 2007, at which the parties represented that the remaining issues of the Second Motion for Relief were resolved; an order were entered dismissing the remainder of the Second Motion for Relief without prejudice on May 15, 2007.

b. The Current Status of Baseline Sports

Since March 2007, the Debtor has ceased to operate as an ongoing concern. Indeed, all of the Debtor in Possession Reports filed with the Court since March 2007 indicate that the Debtor no longer operates, has miniscule to zero income and expenses, and has virtually no assets, including funds in its Debtor in Possession account. For all intents and purposes, the Debtor is a defunct entity.

c. Events Leading to the Settlement of SunTrust's Second Motion for Relief and SunTrust's Adversary Complaint

As detailed above, SunTrust sought to exercise any rights it may have had in Baseline Sports's collateral, including accounts receivable, by virtue of the Security Agreement which Baseline Sports granted under the parties' lending arrangement. In its Complaint, the Bank asserts that Baseline Sports, Baseline Licensing, and the Debtor's principals made certain representations as to the value of the accounts receivable, and based upon those representations, it entered into the SunTrust Settlement, which ultimately lead the Bank to agree to dismiss its Second Motion for Relief. As part of...