In re Rood
| Decision Date | 17 March 2010 |
| Docket Number | Civil Action No. DKC 09-2816,DKC 09-1663. |
| Citation | 426 B.R. 538 |
| Parties | In re Robert F. ROOD, IV, et al. Kore Holdings, Inc., et al., Appellants v. Gary A. Rosen, Trustee, et al., Appellees Gary A. Rosen, Trustee, et al., Appellants v. Kore Holdings, Inc., et al., Appellees. |
| Court | U.S. District Court — District of Maryland |
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Richard Glenn Solomon, Law Office of Richard G. Solomon, Ijamsville, MD, for Appellants.
Charles Timothy Jewell, Annapolis, MD, pro se.
Nelson C. Cohen, Zuckerman Spaeder LLP, Washington, DC, Paul Sweeney, Logan, Yumkas, Vidmar & Sweeney, LLC, Annapolis, MD, for Appellees.
Presently pending are two separate appeals arising from an adversary proceeding in the consolidated bankruptcy cases of Robert F. Rood, IV ("Debtor"), and related business entities. Because the appeals share a common nucleus of fact, they will be consolidated for purposes of this opinion.
In case number 09-2816 ("the Kore Appeal"), Kore Holdings, Inc. ("Kore"), six wholly-owned Kore subsidiaries,1 and Charles Timothy Jewell appeal from an order of the bankruptcy court granting a preliminary injunction in favor of Gary A. Rosen, the Chapter 7 Trustee, and Southern Management Corporation Retirement Trust ("SMCRT"), a creditor.2 Also pending in the Kore Appeal is a motion to dismiss filed by Mr. Rosen and SMCRT. (Kore Paper 7). In case number 09-1663 ("the Rood Appeal"), Mr. Rosen and SMCRT appeal from the bankruptcy court's partial grant of a motion to dismiss filed by Debtor's parents, Robert F. Rood, III, and Grace Ann Rood (together, "the Roods"). Because the facts and legal arguments are adequately presented in the briefs and record, oral argument is deemed unnecessary. See Fed.R.Bankr.P. 8012; Local Rule 105.6. For the reasons that follow, the motion to dismiss the Kore Appeal will be granted, and the bankruptcy court's order in the Rood Appeal will be affirmed.
The following facts, common to both appeals, are uncontroverted unless otherwise indicated. On May 29, 2008, Debtor filed a voluntary petition under Chapter 7 of the United States Bankruptcy Code. At that time, Debtor owned and held one hundred percent interests in the following business entities: Blue Horseshoe Capital, LLC, Blue Horseshoe Portfolio Services, LLC, Level One Capital Partners, LLC (a Nevada LLC), Level One Capital Partners, LLC (a Maryland LLC), Matterhorn Financial, LLC, and The Source, LLC (collectively, "the Debtor Entities"). Mr. Rosen was appointed as Chapter 7 Trustee in Debtor's bankruptcy case and subsequently filed voluntary Chapter 7 petitions on behalf of the Debtor Entities. On December 29, 2008, the bankruptcy court administratively consolidated the Debtor Entities' cases with Debtor's bankruptcy case.
Four separate adversary proceedings were commenced within the bankruptcy case. On April 1, 2009, Mr. Rosen and SMCRT initiated the proceeding underlying the instant appeals by filing a complaint for injunctive relief, declaratory relief, and damages against Debtor, Kore, seven wholly-owned Kore subsidiaries, Mr. Jewell, the Roods, Nik Hepler, Warren A. Hughes, Jr., and First Washington Equities, LLC (collectively, "Defendants"). (Kore Paper 3, Att. 1).3
The complaint alleges that in late 2005, Debtor approached SMCRT, a Virginia trust created for the pension funds of employees and officers of Southern Management Corporation, regarding certain business opportunities. Thereafter, Debtor and SMCRT entered into a business relationship whereby Debtor would originate, process, underwrite, and present loan packages to SMCRT for approval, and SMCRT, in turn, would purchase and fund private loans from Debtor. Upon approval of the loan packages, SMCRT would wire the proceeds to a settlement agent designated by Debtor, who would close the loans and disburse the proceeds in accordance with the terms of the loans. Each of the loans, which primarily funded construction and renovation projects, was purportedly secured by at least one parcel of unimproved real property.
Between April 2006 and September 2007, SMCRT purchased thirty-two loans from Debtor, either individually or through one of the Debtor Entities, totaling in excess of $16 million. Only eight of these loans, totaling approximately $3 million, were repaid.4 The unpaid loan amounts, totaling approximately $12,759,600, were allegedly misappropriated by Debtor, who diverted the money through an elaborate network of business entities under his control while repeatedly assuring SMCRT of his bona fides and resisting its efforts to obtain an accounting.
The complaint provides a detailed summary of five allegedly fraudulent transactions in which Debtor engaged with the cooperation, aid, and assistance of the other defendants (id. ¶¶ 36-70); purports to demonstrate how SMCRT funds were commingled and misused by the defendants (id. ¶¶ 71-82); and describes the post-petition efforts of the defendants to thwart discovery of incriminating records and conceal assets (id. ¶¶ 88-114). As to all Defendants, the complaint alleges fraud, conversion, civil conspiracy, unauthorized post-petition transfer of assets, and fraudulent conveyance; as to Debtor, Mr. Hepler, and Mr. Hughes, it alleges concealment and/or failure to disclose; and as to Debtor and Mr. Jewell, it asserts a claim for breach of fiduciary duty of loyalty. In addition to damages, the complaint seeks an order directing an accounting of all estate property in possession of the defendants, turnover of estate assets, recovery of amounts fraudulently conveyed, injunctive relief, and a declaration that Defendants are the alter ego of Debtor.
On the same date they filed their complaint, Mr. Rosen and SMCRT also filed an emergency motion for temporary restraining order, preliminary injunction, and request for emergency hearing. (Kore Paper 3, Att. 2). In support of that motion, they attached the affidavit of Suzanne D. Hillman, a Certified Public Accountant and principal in the accounting firm Hillman and Glorioso, PLLC. (Kore Paper 3, Att. 4). The affidavit attests that Ms. Hillman's firm was retained by a court-appointed Receiver in a criminal proceeding involving Debtor and related business entities in the Circuit Court for Montgomery County, Maryland, "to examine and/or review business records that were to be produced by the receivership entities... to ascertain the disposition of certain funds," including SMCRT loan proceeds. (Id. at ¶ 3).5 Ms. Hillman avers that, as a result of her investigation, she learned the following:
(Id. at ¶¶ 13, 14).
On April 2, 2009, the bankruptcy court held a hearing on the emergency motion for temporary restraining order. At the outset of that hearing, counsel for Mr. Rosen advised the court that an agreement had been reached with respect to five of the defendants for purposes of the temporary restraining order. As relevant to the instant appeals, counsel advised the court as follows regarding the Roods:
Your Honor, with respect to Grace and Robert Rood, III, they will agree pending further order of this Court to not transfer or encumber any of their property. They will agree to make no transfers, direct or indirect, to their son, the debtor, Robert Rood, IV, or Kore Holdings, Inc. or any affiliates of Kore Holdings, Inc., and they will agree not to transfer a Dodge Viper which is an asset that the trustee believes is an asset of the debtor's estate. Mr. Rood, III, has asserted that he owns that vehicle.
(Kore Paper 3, Att. 7 at 6-7).6 At the conclusion of that hearing, the bankruptcy court issued an order temporarily restraining the remaining defendants, with the exception of Mr. Jewell, from "transferring, encumbering, or impairing any property (real or personal) in their possession, custody or control," and from "engaging in any business operations, directly or indirectly, that in any way involves the sale, transfer, impairment or encumbering of any asset of their businesses." (Kore Paper 3, Att. 6 at 5). The order also set a date of April 13, 2009, for a hearing on the motion for preliminary injunction.
On April 8, 2009, the Roods filed a motion to dismiss all counts of the adversary complaint relating to them pursuant to Fed.R.Civ.P. 9(b) and 12(b)(6), as incorporated by Fed.R.Bankr.P. 7009(b) and 7012(b)(6). (Rood Paper 5, Att. 2). Mr. Rosen and SMCRT jointly filed opposition papers on April 27, 2009 (Rood paper 6, att. 15), and a hearing was held on May 28, 2009, during which the bankruptcy court orally granted in part and denied in...
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Prologo v. Flagstar Bank, FSB (In re Prologo)
...proceeding, remains pending as of this writing. As Chief Judge Deborah K. Chasanow concluded in analogous circumstances in In re Rood, 426 B.R. 538, 547 (D.Md.2010) (citation omitted): “The fact that the adversary proceeding continued after the [order on appeal] was granted—indeed, it is st......
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Rosen v. Kore Holdings, Inc. (In re Rood)
...March 12, 2010 Order granting summary judgment on the conversion claim, but reversed as to the fraudulent conveyance claim. In re Rood, 426 B.R. 538 (D.Md.2010) and 448 B.R. 149 (D.Md.2011). The case was remanded to this court for further proceedings. Inasmuch as the trial proceeded without......
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Prologo v. Flagstar Bank, FSB, Civil Action No. ELH-12-54
...proceeding, remains pending as of this writing. As Chief Judge Deborah K. Chasanow concluded in analogous circumstances in In re Rood, 426 B.R. 538, 547 (D. Md. 2010) (citation omitted): "The fact that the adversary proceeding continued after the [order on appeal] was granted—indeed, it is ......
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Prologo v. Flagstar Bank, FSB (In re Prologo)
...proceeding, remains pending as of this writing. As Chief Judge Deborah K. Chasanow concluded in analogous circumstances in In re Rood, 426 B.R. 538, 547 (D. Md. 2010) (citation omitted): "The fact that the adversary proceeding continued after the [order on appeal] was granted—indeed, it is ......