In re Interbank Funding Corp.

• Decision Date: 21 May 2004
• Docket Number: No. 02-41590 (BRL).,No. 02-41591(BRL).,No. 02-15477(BRL).,No. 02-41592(BRL).,02-41590 (BRL).,02-41591(BRL).,02-41592(BRL).,02-15477(BRL).
• Citation: 310 B.R. 238
• Parties: In re INTERBANK FUNDING CORP., IBF VI-Secured Lending Corporation, IBF Collateralized Finance Corporation and IBF Premier Hotel Group, Inc., Debtors.
• Court: U.S. Bankruptcy Court — Southern District of New York

Page 238

310 B.R. 238

In re INTERBANK FUNDING CORP., IBF VI-Secured Lending Corporation, IBF Collateralized Finance Corporation and IBF Premier Hotel Group, Inc., Debtors.

No. 02-41590 (BRL).

No. 02-41591(BRL).

No. 02-41592(BRL).

No. 02-15477(BRL).

United States Bankruptcy Court, S.D. New York.

May 21, 2004.

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COPYRIGHT MATERIAL OMITTED

Kaye Scholer LLP, by Arthur J. Steinberg, Brian E. Kriger, Heath D. Rosenblat, New York City, for Arthur Steinberg, Esq., ICA Trustee, in his capacity as Liquidating Agent & Manager of IBF Liquidating LCC and IBF Fund Liquidating LLC.

Michael R. McCray, Pine Bluff, AR, for Dillard-Winecoff, LLC.

Sullivan & Worcester LLP, by Matthew B. Giger, New York City, for Atlantic Bank of New York.

Schulte Roth & Zabel LLP, by Brian F. Moore, New York City, for the Liquidating LLC Committee.

MEMORANDUM DECISION EXPUNGING CLAIMS 1709 AND 1712

BURTON R. LIFLAND, Bankruptcy Judge.

By convoluted and somewhat bizarre means, the claimant Dillard-Winecoff LLC ("Dillard"), seeks to undo the effects of a 1999 mortgage foreclosure proceeding previously settled in the Georgia courts.

IBF Liquidating LLC ("IBF LLC") and IBF Fund Liquidating LLC ("Fund LLC" and, together with IBF LLC, the "Liquidating LLCs"), by and through their manager and liquidating agent, Arthur J. Steinberg, Investment Company Act trustee ("ICA Trustee") of IBF Collateralized Finance Corporation ("CFC") and IBF VI-Secured Lending Corporation ("SLC" and, together with CFC, the "Funds") move for entry of an order and judgment (the "Dismissal Motion") dismissing proofs of claims Nos. 1709 and 1712 (the "Claims") filed by Dillard.¹ The Liquidating LLCs argue that the Claims should be dismissed based upon Dillard's failure to comply with discovery rules and procedures pursuant to, inter alia, rules 7029, 7033, 7034, 7041 and 9016 of the Federal Rules of Bankruptcy Procedure (the "Bankruptcy Rules") incorporating rules 29, 33, 34 and 45 of the Federal Rules of Civil Procedure ("FRCP") and rule 9020-1 of the Local Bankruptcy Rules for the United States Bankruptcy Court for the Southern District of New York ("Local Bankruptcy Rules"). The Liquidating LLCs also seek summary judgment under Bankruptcy Rule 7056, disallowing and expunging the Claims because they cannot be sustained on their face.

In its April 16, 2004 response, Dillard argues that the Liquidating LLCs' Dismissal Motion, at the current stage of discovery, is premature.² Dillard asserts that discovery should proceed because a more developed record would demonstrate that genuine issues of material fact exist with respect to its Claims and therefore, the Dismissal Motion should be denied. However, having already been deluged with 20-30 pounds of papers submitted by Dillard and having sifted through the pertinent submissions of both parties, I cannot agree with Dillard that genuine issues of material fact exist with respect to the Claims; that the Dismissal Motion is premature and that Dillard's failure to comply with a host of Federal Rules is excusable.

As a preliminary matter, this Court notes that Dillard's submissions and general conduct before this Court and other courts have been replete with errors, typographical and grammatical blunders, appearances of inappropriate gamesmanship, failure to follow procedure, poor communication with its own counsel and with its adversaries, as well as issues of credibility. Dillard has suggested that the Court should treat Dillard as a "lay person" because "this is an unusual and complex financial transaction which involves nearly a $200 million bankruptcy estate and is Mr. McCray's first case as a licensed attorney."³ Therefore, Dillard proposes that its filings be deemed "made in good faith." This Court is unaware of any such doctrine available to Dillard and/or its counsel. Moreover, contrary to Dillard's assertion that this Court in anyway countenanced such a notion at a hearing on August 28, 2003, the Court merely waived the requirement that corporations be represented by counsel for that hearing only. The Court was clear in its direction at that hearing that Dillard obtain legal representation before continuing the contested matter. Numerous courts have instructed Dillard on several occasions that it was improper for Dillard to be represented pro se.⁴ Thus, I find that Dillard's novel argument that it should be treated as a "lay person" is utterly without merit.

Background

On June 7, 2002, while under investigation by the United States Securities and Exchange Commission (the "SEC"), the Funds and their parent, InterBank Funding Corporation ("IBF"), filed voluntary petitions for relief under title 11, United States Code (the "Bankruptcy Code"). On November 4, 2002, an affiliate, IBF Premier Hotel Group, Inc. ("IBF Hotel" and, with IBF and the Funds, the "Debtors"), filed its voluntary petition for relief under chapter 11. On July 23, 2002, the SEC filed a complaint against IBF, the Funds, and Simon A. Hershon (former chief executive officer), commencing an enforcement action in the District Court for the Southern District of New York (the "District Court"). Securities and Exchange Commission v. IBF Collateralized Finance Corporation, et al., No. 02-CV-5713 (JSM) ("SEC Litigation"). On December 5, 2002, on motion of the SEC, the District Court entered an order (the December 5 Order) appointing Arthur J. Steinberg to act as the ICA Trustee for the Funds and their subsidiaries pursuant to the Investment Company Act of 1940, title 15, United States Code.

On May 28, 2003, in the chapter 11 case, the ICA Trustee filed his proposed joint liquidating plan with respect to the Debtors (as amended, the "Plan") and related disclosure statement. On August 14, 2003, this Court entered an order ("the Confirmation Order"), confirming the Plan. The Plan provides for the transfer of the assets of the Debtors' estates to the Liquidating LLCs, which will be operated in a limited capacity over the course of the next five years and liquidated over time for the benefit of the Debtors' creditors — principally, thousands of individual investors who bought notes or other debt securities issued by the Funds. Under the Plan, approximately 30% is to be distributed to unsecured creditors of the Funds and less than 5% is to be distributed to unsecured creditors of IBF. The ICA Trustee is the designated Liquidating Agent under the Plan and is responsible for managing the wind-down of the Liquidating LLCs.

The Winecoff Hotel and the Georgia Action

Dillard was formed for the purpose of acquiring and developing the Winecoff Hotel (the "Property") in Atlanta, Georgia.⁵ In the early summer of 1998, Mr. Courtney Dillard, as Dillard's principal, contacted Brendan Sullivan of InterBank Brenner Brokerage Service, Inc. ("IBBS"), and Richard Armstrong of InterBank Mortgage Corporation ("IMC"), to discuss possible means to obtain acquisition financing for the Property.⁶

On June 26, 1998, several funds that have since merged into CFC (hereinafter also referred to, collectively, as "CFC"),⁷ loaned approximately $1,800,000 (the "Loan") to finance the purchase of the Property. In connection with the Loan, IMC and Dillard entered into an Exclusive Advisory Agreement (the "Advisory Agreement"), whereby IMC became Dillard's exclusive agent for the purpose of identifying sources of financing for the proposed development of the Property. Jamion America Corporation ("Jamion"), the seller of the Property, carried an additional note of $750,000 (the "Note").

By the fall of 1998, Dillard defaulted on both the Loan and the Note. Sometime thereafter, Jamion, the junior lien holder on the Property, began foreclosure proceedings. On the morning of February 2, 1999, the day of the scheduled foreclosure sale of the Property, Dillard filed the first of its three dismissed chapter 11 cases in the Northern District of Georgia.⁸ On May 19, 1999, the Georgia Bankruptcy Court lifted the automatic stay with respect to both Jamion and CFC, citing Dillard's failure to timely file a plan of reorganization and the lack of any prospect of confirming a plan. Accordingly, Jamion and CFC were able to continue the foreclosure. CFC bid in its secured claim and took title to the Property on July 6, 1999. Shortly thereafter, on August 4, 1999, Dillard's chapter 11 case was dismissed.

CFC transferred title of the Property to IMC by quitclaim deed on September 1, 1999. On September 2, 1999, IMC sold the Property to RBJF Atlanta, LLC ("RBJF"), now known as Kelco/FB Winecoff, LLC ("Kelco/FB"), by limited warranty deed. Neither Kelco/FB nor its predecessor RBJF is affiliated with the Debtors.

Subsequent thereto, Dillard filed an action in the Superior Court for Fulton County, Georgia, against PIF, SPC, IMC and IBBS (collectively, the "Georgia Defendants") on September 10, 1999, Case No. 1999-CV-13562 (Ga.Sup.Ct.) (the "Georgia Action"). In the Georgia Action, Dillard alleged that the Loan was made with the intention of causing Dillard to default on the loan and permit the Georgia Defendants to take title by foreclosure. As the victim of the alleged "loan to own" scheme, Dillard entreated that Court for equitable relief or, in the alternative, for damages under theories of intentional interference with contract, fraudulent lending scheme, wrongful disclosure, breach of fiduciary duty and breach of contract. Shortly thereafter, Dillard also filed a notice of lis pendens on the Property (the "Lis Pendens") on October 6, 1999.

On January 19, 2000, in the Georgia Action, CFC moved for summary judgment on Dillard's claims. CFC argued that the doctrines of judicial estoppel, res judicata and collateral estoppel precluded Dillard's claims as a matter of law because Dillard failed to schedule the claims, as set forth in the Georgia Action, as an asset of its chapter 11 estate in a previous bankruptcy case. Therefore, CFC argued, Dillard was precluded from asserting an...