In re Llc

• Decision Date: 25 May 2011
• Docket Number: Bankruptcy No. 09–10571 (BLS).,Adversary No. 09–50514.
• Citation: 452 B.R. 138,74 UCC Rep.Serv.2d 599,54 Bankr.Ct.Dec. 214
• Parties: In re WL HOMES, LLC, et al., Debtors.
• Court: U.S. Bankruptcy Court — District of Delaware

452 B.R. 138

54 Bankr.Ct.Dec. 214

74 UCC Rep.Serv.2d 599

In re WL HOMES, LLC, et al., Debtors.

Bankruptcy No. 09–10571 (BLS).

Adversary No. 09–50514.

United States Bankruptcy Court, D. Delaware.

May 25, 2011.

Thomas M. Horan, Francis A. Monaco, Jr., Womble Carlyle Sandridge & Rice PLLC, Wilmington, DE, Gregory A. Bray, Linda Dakin–Grimm, Milbank, Tweed, Hadley & McCloy LLP, New York, NY, James D. Whooley, Milbank, Tweed, Hadley & McCloy LLP, Los Angeles, CA, for Plaintiff Wachovia Bank.Carl D. Neff, Daniel K. Astin, John D. McLaughlin, Jr., Joseph J. McMahon, Jr., Ciardi Ciardi & Astin, Wilmington, DE, Albert A. Ciardi, III, Carl E. Singley, William Baldini, Ciardi Ciardi & Astin, Philadelphia, PA, Mark H. Ralston, Ciardi Ciardi & Astin, Rick Steinberg, Ciardi Ciardi & Astin, New York, NY, for Defendants George L. Miller, Trustee for the Debtors' Estates and JLH Corporation.

OPINION ¹

BRENDAN LINEHAN SHANNON, Bankruptcy Judge.

Before the Court are cross-motions for summary judgment filed by Wachovia Bank, National Association (“Wachovia”), and George L. Miller, Chapter 7 Trustee for the Estate of WL Homes, LLC (the “Trustee”), respectfully. For the following reasons, the Court will grant the motion for summary judgment filed by Wachovia, and deny the motion for summary judgment filed by the Trustee.

I. INTRODUCTION

This adversary proceeding is about the ability of a parent company to grant a security interest in an asset of its subsidiary and the extent to which a third party may enforce such a security interest. The resolution of this issue turns on the legal significance that should be accorded to the actions of an agent of both the parent and the subsidiary, wearing multiple hats and presumptively acting on behalf of both entities. The Court concludes that the fact that an agent may represent more than one principal does not alter the well-established doctrine that an agent with authority is capable of binding its principal. Accordingly, the Court finds that a security interest in the subsidiary's asset granted by the parent's agent to a third party is enforceable if it otherwise satisfies the requirements set forth in Article 9 of the Uniform Commercial Code (“U.C.C.”).

II. BACKGROUND

On February 19, 2009 (the “Petition Date”), WL Homes, LLC (“WL Homes”) and various of its affiliates (collectively with WL Homes, the “Debtors”) filed voluntary petitions for relief under chapter 11 of title 11 of the United States Code (the “Bankruptcy Code”). Shortly thereafter, the Debtors' chapter 11 bankruptcy cases were converted to cases under chapter 7 and George L. Miller was appointed the chapter 7 trustee for the purpose of administering the Debtors' estates.

Prior to the Petition Date, WL Homes had formed JLH Insurance Corporation (“JLH”) under the Arizona Department of Insurance as a captive and wholly owned insurance company for the express purpose of paying claims against WL Homes arising out of its business activities. WL Homes capitalized JLH by depositing $10 million into a bank account (the “JLH Account”). JLH remains a non-debtor affiliate, but as a wholly owned subsidiary of WL Homes, it is under the control of the Trustee.

In 2007, WL Homes entered into a line of credit loan agreement (the “Loan Agreement”) with Wachovia Bank. To induce the Loan Agreement and to secure WL Homes' repayment obligation, the Loan Agreement includes a provision (the “Security Interest Provision”) pursuant to which WL Homes granted a security interest to Wachovia in the JLH Account and two other deposit accounts held at Wachovia (the “Laing Luxury Accounts”). The Security Interest Provision states, in relevant part:

[WL Homes] shall maintain its ... JLH Account ... with [Wachovia]. The funds on deposit in the JLH Account shall at no time be less than $10,000,000.00. [WL Homes] shall also maintain its Laing Luxury Accounts ... with [Wachovia]. The JLH Account and the Laing Luxury Accounts are collectively referred to as the Deposit Accounts. [WL Homes] grants to [Wachovia] a security interest in the Deposit Accounts.

Loan Agreement ¶ 6.5.

In 2008, WL Homes reaffirmed all of its obligations under the Loan Agreement to Wachovia pursuant to two loan agreement letters (collectively, the “Loan Letters”), dated June 23, 2008 and July 31, 2008, respectively. The Loan Letters were executed by Wayne Stelmar, who at all relevant times was the CFO of WL Homes and the president of JLH.

On March 20, 2009, Wachovia commenced this adversary proceeding, seeking, inter alia, a declaration that it holds a perfected security interest in the JLH Account and may enforce its security interest to satisfy WL Homes' debt obligation to Wachovia under the Loan Agreement. As of September 21, 2010, Wachovia contends that it is owed the principal amount of $10 million plus accrued interest in the amount of $1,105,486.

The parties have engaged in discovery. Wachovia now moves for summary judgment, seeking an order of the Court that it has an enforceable security interest in the JLH Account.² In response, the Trustee opposes summary judgment in favor of Wachovia, and cross-moves for summary judgment, seeking a declaration that the JLH Account could not have been legally pledged, and that JLH has neither authorized nor ratified the pledge by WL Homes of the JLH Account.

This matter has been fully briefed and argued, and it is now ripe for decision.

III. JURISDICTION

The Court has jurisdiction over this matter pursuant to 28 U.S.C. §§ 1334 and 157(a) and (b)(1). Venue is proper in this Court pursuant to 28 U.S.C. §§ 1408 and 1409. Consideration of this matter constitutes a “core proceeding” under 28 U.S.C. § 157(b)(2)(A) and (K).

IV. DISCUSSION

A. Legal Standard for Summary Judgment

Federal Rule of Civil Procedure 56(a), made applicable to adversary proceedings by Federal Rule of Bankruptcy Procedure 7056, provides that “[t]he court shall grant summary judgment if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(a).³ The Supreme Court has explained that an issue of material fact is genuine only “if the evidence is such that a reasonable jury could return a verdict for the nonmoving party.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). The Supreme Court further explained that materiality is determined by the substantive law, and “[o]nly disputes over facts that might affect the outcome of the suit under the governing law will properly preclude the entry of summary judgment.” Id.

The purpose of summary judgment is “to isolate and dispose of factually unsupported claims or defenses.” Celotex Corp. v. Catrett, 477 U.S. 317, 323–24, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). Summary judgment may be properly granted “as a means of avoiding full-dress trials in unwinnable cases, thereby freeing courts to utilize scarce judicial resources in more beneficial ways.” Mesnick v. Gen. Elec. Co., 950 F.2d 816, 822 (5th Cir.1991), cert. denied, 504 U.S. 985, 112 S.Ct. 2965, 119 L.Ed.2d 586 (1992).

The movant bears the burden of establishing the absence of a genuine dispute as to a material fact. Celotex, 477 U.S. at 322–23, 106 S.Ct. 2548 (“[A] party seeking summary judgment always bears the initial responsibility of informing the district court of the basis for its motion, and identifying those portions of ‘the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any,’ which it believes demonstrate the absence of a genuine issue of material fact.”) (citing Fed.R.Civ.P. 56).

After the movant has made the requisite showing, the burden shifts to the non- movant to establish that summary judgment is not warranted. Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 586–87, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986). Federal Rule of Civil Procedure 56(c) requires that a party “asserting that a fact cannot be or is genuinely disputed” has to support such an allegation by “citing to particular parts of materials in the record, including depositions, documents, electronically stored information, affidavits or declarations, stipulations (including those made for purposes of the motion only), admissions, interrogatory answers, or other materials,” or by “showing that the materials cited do not establish the absence or presence of a genuine dispute, or that an adverse party cannot produce admissible evidence to support the fact.” Fed.R.Civ.P. 56(c). Thus, a party opposing a motion for summary judgment “must do more than simply show that there is some metaphysical doubt as to the material facts,” Matsushita, 475 U.S. at 586, 106 S.Ct. 1348, and instead must produce specific facts that establish the existence of a genuine dispute. Id. at 587, 106 S.Ct. 1348. Without factual corroboration, “the mere existence of some alleged factual dispute between the parties will not defeat an otherwise properly supported motion for summary judgment.” Anderson, 477 U.S. at 247–48, 106 S.Ct. 2505.

In deciding a motion for summary judgment, the court must view all facts in the light most favorable to the non-movant to determine whether the movant is nonetheless entitled to judgment as a matter of law. Anderson, 477 U.S. at 261 n. 2, 106 S.Ct. 2505; Morton Int'l, Inc. v. A.E. Staley Mfg. Co., 343 F.3d 669, 680 (2003) (citation omitted). Moreover, the court must draw all inferences in favor of the non-movant and “where the non-moving party's evidence contradicts the movant's ... the non-movant's must be taken as true.” Pastore v. Bell Tel. Co. of Pa., 24 F.3d 508, 512 (3d Cir.1994) (internal quotation marks omitted) (citation omitted). See also Goodman v. Mead Johnson & Co., 534 F.2d 566, 573 (3d Cir.1976) (“Inferences to be drawn from the underlying facts contained in the evidential sources submitted to the trial court must be viewed in the light most favorable to the party...