JUNO Invs., LLC v. Miller
| Decision Date | 25 June 2021 |
| Docket Number | Civil Action No. 20-882-MN-CJB |
| Parties | JUNO INVESTMENTS, LLC, Plaintiff, v. JOHN R. MILLER, ESQUIRE and RAYBURN COOPER & DURHAM, P.A., Defendants. |
| Court | U.S. District Court — District of Delaware |
Presently pending before the Court in this legal malpractice action is a motion to dismiss the claims in Plaintiff JUNO Investments, LLC's ("Plaintiff" or "JUNO") Complaint (the "Motion"); the Motion is filed by Defendants John R. Miller, Esquire ("Mr. Miller") and Rayburn Cooper & Durham, P.A. ("Rayburn Cooper" and collectively with Mr. Miller, "Defendants"), pursuant to Federal Rules of Civil Procedure 12(b)(6) and 12(b)(e). (D.I. 6) For the reasons set forth below, the Court recommends that Defendants' Motion be DENIED.
Plaintiff JUNO is a Delaware limited liability company with offices in New York, New York. (D.I. 1 at ¶ 1) Phil Kampf ("Mr. Kampf") is the Managing Director of JUNO, and Mox Tan ("Mr. Tan") is also affiliated with JUNO. (Id. at ¶¶ 11, 17)
Defendant Mr. Miller is a bankruptcy and workout attorney who is licensed to practice law in North Carolina; he is a partner and/or shareholder in Rayburn Cooper. (Id. at ¶¶ 2-4) Rayburn Cooper is a law firm and professional association of attorneys licensed to practice law in North Carolina, with offices in Charlotte, North Carolina. (Id. at ¶ 3)
On January 3, 2018, Southeastern Metal Products, LLC ("SEMP"), South State Bank ("South State") and JUNO entered into an amended and restated loan agreement (the "amended and restated loan agreement"). (Id. at ¶ 12) Pursuant to that amended and restated loan agreement, South State extended credit facilities of up to $6.7 million dollars (including a line of credit) to SEMP. (Id. at ¶¶ 12-13) JUNO, who was SEMP's majority shareholder, (id. at ¶ 53(b)), served as a guarantor for SEMP's loan in the amended and restated loan agreement, (id. at ¶ 12).
In May 2018, SEMP began to experience liquidity problems. (Id. at ¶ 15) In March and April 2018, JUNO advanced $420,000 to SEMP, and from May to November 2018, JUNO advanced an additional $1.915 million to SEMP. (Id. at ¶ 16)
On September 26, 2018, Mr. Kampf and Mr. Tan sent a draft promissory note and security agreement (the "subordinated note") to Boodell & Domanskis, LLC ("Boodell & Domanskis"), a Chicago law firm that had regularly represented JUNO. (Id. at ¶ 17) The subordinated note provided for SEMP to repay JUNO, and to grant JUNO a security interest in SEMP's assets, which was to be subordinated to South State's existing security interests. (Id.)On October 9, 2018, Mr. Kampf sent South State the draft subordinated note for loans made by JUNO to SEMP in an amount up to $2,500,000. (Id. at ¶ 18)
On October 30, 2018, South State sent Mr. Kampf a proposed intercreditor agreement for review and comment, and requested that SEMP and JUNO sign the agreement. (Id. at ¶ 19) (Pursuant to the intercreditor agreement, South State was to consent to allowing SEMP to incur subordinated debt to JUNO—notwithstanding the presence of certain language in the amended and restated loan agreement that would have precluded SEMP from doing so.). (Id. at ¶ 24) Mr. Kampf and Mr. Tan forwarded the intercreditor agreement to Boodell & Domanskis for review. (Id. at ¶ 20) On November 29, 2018, Mr. Kampf returned the proposed intercreditor agreement to South State with comments, and requested that the subordinated note and intercreditor agreement be finalized as soon as possible. (Id. at ¶ 21) Mr. Kampf told South State that JUNO had loaned $2.335 million dollars to SEMP, and that JUNO would probably want to increase the $2.5 million cap on advances that was set out in the current draft of the subordinated note. (Id.) In or around this time, South State informed SEMP that it wanted to exit the existing credit arrangement it had with SEMP; South State suggested that, in the future, SEMP should seek financing from a different lender. (Id. at ¶ 22)
On December 10, 2018, SEMP and JUNO had an initial teleconference with Mr. Miller at Rayburn Cooper. (Id. at ¶ 23) During the teleconference, SEMP, JUNO and Mr. Miller discussed a proposed forbearance agreement that SEMP and JUNO might enter into with South State. (Id.)
On December 13, 2018, South State advised Mr. Kampf that it had approved the proposed intercreditor agreement and that South State would sign that agreement when a forbearance agreement between South State, SEMP and JUNO was finalized. (Id. at ¶ 24) Onthat same date, December 13, 2018, SEMP sent a draft of the forbearance agreement that was forwarded to Mr. Miller; and JUNO sent the intercreditor agreement to SEMP for signature. (Id. at ¶ 25)
On December 14, 2018, Rayburn Cooper drafted an engagement letter (the "Engagement Letter") by which SEMP would formally engage Rayburn Cooper to provide legal services "in connection with [SEMP's] current lender negotiations and related matters." On December 17, 2018, Mr. Kampf signed the Engagement Letter on behalf of SEMP, "in his capacity as Managing Director of [] JUNO." (D.I. 1 at ¶ 26; D.I. 7, ex. B at 3)
On December 18, 2018, SEMP signed the subordinated note (which was backdated as of March 23, 2018), in favor of JUNO for loan advances in an amount up to $5 million dollars. (D.I. 1 at ¶ 27) The note acknowledged that JUNO had already advanced SEMP $2.335 million dollars between March and early November 2018. (Id.) On the same day, SEMP also signed the intercreditor agreement and sent it to South State pursuant to JUNO's instructions. (Id. at ¶ 28)
On December 31, 2018, JUNO sent the subordinated note and the intercreditor agreement (which was not yet signed by South State) to Mr. Miller. (Id. at ¶ 29) On that same date, Mr. Miller sent a mark-up of South State's forbearance agreement to Mr. Kampf and Mr. Tan at JUNO. (Id. at ¶ 31) Mr. Miller did not send the marked-up forbearance agreement to South State in light of ongoing negotiations between the parties as to that agreement. (Id.)
Also on December 31, 2018, Mr. Miller conducted a conference call with JUNO, in which he discussed his comments regarding the forbearance agreement; on this call, Mr. Miller also advised JUNO about a "Chapter 11 alternative" for SEMP. (Id. at ¶ 32) Following that conference call, JUNO informed Mr. Miller that it would have $900,000 available by mid-January 2019; JUNO asked Mr. Miller whether those funds should be advanced as subordinateddebt, or whether they should be reserved for debtor-in-possession financing. (Id. at ¶ 33) Mr. Miller did not respond at that time. (Id.)
Subsequently, JUNO told Mr. Miller that it was planning to advance funds to SEMP to pay down the line of credit debt that SEMP owed to South State. (Id. at ¶ 34) While Mr. Miller did not advise JUNO to take a different course of action at that time, later in 2019 Mr. Miller advised Mr. Kampf that, in hindsight, JUNO and SEMP should have obtained something in return from South State for paying down the line of credit. (Id. at ¶¶ 34-35)
On January 9, 2019, JUNO advanced SEMP $1.13 million. (Id. at ¶ 36) SEMP used $833,000 of these funds to pay off SEMP's line of credit with South State, which reduced SEMP's debt to South State to approximately $4.4 million. (Id.) JUNO advanced an additional $561,249.50 to SEMP in mid-February 2019. (Id. at ¶ 37) On February 28, 2019, SEMP decided to sign the forbearance agreement, and South State signed the intercreditor agreement. (Id.)
On March 6, 2019, Mr. Miller sent Mr. Kampf and Mr. Tan, as officers in JUNO, a UCC financing statement (the "UCC-1") naming SEMP as the debtor and JUNO as the creditor. (Id. at ¶ 39) Mr. Miller did not ask in which state SEMP was formed, nor indicate the state in which the UCC-1 would be filed. (Id. at ¶ 40) The next day, Mr. Tan and Mr. Miller exchanged e-mails regarding whether a UCC-1 should be filed as to SEMP. (Id. at ¶ 41) Mr. Miller apparently assigned the task of filing the UCC-1 to an associate at Rayburn Cooper, who then re-assigned the task to a paralegal. (Id.) On March 8, 2019, the UCC-1 was filed in the office of the North Carolina Secretary of State. (Id. at ¶¶ 41, 64)
From March 1, 2019 through May 6, 2019, JUNO advanced SEMP an additional $1,034,162, either in direct payments to SEMP or as payments to third parties on SEMP's behalf.(Id. at ¶ 42) On May 1, 2019, South State placed a hold on SEMP's demand deposit account; the following day, South State terminated the forbearance agreement. (Id. at ¶ 43) As a result, on May 6, 2019, SEMP filed for Chapter 11 bankruptcy protection. (Id.)
JUNO alleges that because SEMP is an entity organized under the laws of the State of Delaware, the UCC-1 should have been filed in Delaware instead of North Carolina. (Id. at ¶ 65) Because the UCC-1 was filed in North Carolina, JUNO alleges that the UCC-1 failed to perfect JUNO's security interest in SEMP's assets. (Id.) And because a security interest that has not been perfected is subordinated to many third-party interests and is avoidable in a debtor's bankruptcy, Defendants' failure to file the UCC-1 in North Carolina allegedly damaged JUNO—because JUNO then was rendered an unsecured creditor in SEMP's bankruptcy. (Id. at ¶¶ 63, 67)
Any further relevant facts will be set out as needed in Section III.
JUNO filed the Complaint on June 29, 2020. (D.I. 1) On September 11, 2020, Defendants filed the instant Motion in lieu of an Answer. (D.I. 6) On October 15, 2020, United States District Judge Maryellen Noreika referred this case to the Court to resolve all pre-trial matters up to and including expert discovery matters, pursuant to 28 U.S.C. § 636(b). (D.I. 9) Briefing on the Motion was completed on October 23, 2020. (D.I. 13)2 The Court thereafter granted an unopposed request from JUNO to submit a supplemental answering brief regardingdamages-related information,...
To continue reading
Request your trial