Kennedy Funding, Inc. v. Oracle Bus. Devs., LLC

• Decision Date: 29 July 2020
• Docket Number: Civil Action No. 2012-0009
• Parties: KENNEDY FUNDING, INC., AS AGENT FOR CERTAIN CO-LENDERS, Plaintiff, v. ORACLE BUSINESS DEVELOPMENTS, LLC, A VIRGIN ISLANDS LIMITED LIABILITY COMPANY; JOSEPH JAGRUP; MEINRAD JAGRUP; MARY JAGRUP; THE INTERNAL REVENUE SERVICE OF THE UNITED STATES OF AMERICA; ERIC A. CANTON and ELAINE S. CANTON, Defendants
• Court: U.S. District Court — Virgin Islands

KENNEDY FUNDING, INC., AS AGENT FOR CERTAIN CO-LENDERS, Plaintiff, v. ORACLE BUSINESS DEVELOPMENTS, LLC, A VIRGIN ISLANDS LIMITED LIABILITY COMPANY;JOSEPH JAGRUP; MEINRAD JAGRUP; MARY JAGRUP;THE INTERNAL REVENUE SERVICE OF THE UNITED STATES OF AMERICA; ERIC A. CANTON andELAINE S. CANTON, Defendants

Civil Action No. 2012-0009

DISTRICT COURT OF THE VIRGIN ISLANDS DIVISION OF ST. CROIX

July 29, 2020

Attorneys:

Matthew J. Duensing, Esq.,

St. Thomas, U.S.V.I.

For Plaintiff

Nizar A. Dewood, Esq.,

Houston, TX

For Defendants Meinrad Jagrup and Mary Jagrup

Angela Tyson-Floyd, Esq.,

St. Croix, U.S.V.I.

For Defendant Internal Revenue Service

Edward H. Jacobs, Esq.,

St. Croix, U.S.V.I.

For Defendant/Cross-Claimant/Third-Party

Plaintiffs Elaine S. Canton and Eric A. Canton

MEMORANDUM OPINION

Lewis, Chief Judge

THIS MATTER comes before the Court on the "Motion to Vacate Sale & Order Confirming Sale of 73 Estate Castle Coakley" (Dkt. No. 126) filed by Defendants Meinrad Jagrup and Mary Jagrup ("Jagrups"). The Motion seeks to void both the Marshal's Sale held on December 18, 2017 and this Court's Order dated February 15, 2018 confirming the sale of real estate owned by Oracle Business Developments, LLC. ("Oracle") (Dkt. Nos. 124-7; 125). The property was sold to pay a judgment obtained against Oracle by Kennedy Funding, Inc., as Agent for Certain Co-Lenders ("Kennedy"). (Dkt. No. 101).

The Jagrups—individual members of Oracle and guarantors of Oracle's debts—filed bankruptcy under Chapter 13 of the Bankruptcy Code on October 3, 2017.¹ In their Motion to Vacate, the Jagrups claim that the sale of the real estate owned by Oracle violated the automatic bankruptcy stay that protects co-debtors pursuant to 11 U.S.C. § 1301(a). (Dkt. No. 127). For the reasons that follow, the Court will deny the Motion in its entirety.

I. BACKGROUND

In January 2012, Plaintiff Kennedy Funding, Inc., as Agent for Certain Co-Lenders, filed a debt and foreclosure action against Oracle, a Virgin Islands Limited Liability Company. Joseph Jagrup, Meinrad Jagrup, and Mary Jagrup also were named as Defendants because they were alleged to be members of Oracle as well as guarantors of Oracle's debt to Kennedy. (Dkt. No. 1 at ¶¶ 4-8). Kennedy alleged in its Complaint that in September 2008, Oracle executed a Promissory Note ("Note") to repay Kennedy $820,000, together with interest. Id. at ¶ 12. The Note was secured by a Mortgage and Security Agreement over commercial real estate owned by Oracle described as:

Plot No. 73, Estate Castle Coakley, Queen Quarter, St. Croix, U.S. Virgin Islands consisting of 1.00 U.S. acre, more or less, as more fully shown and described on OLG Drawing No. 3260, dated March 12, 1976, and revised May 17, 1982

("Castle Coakley Property"). Id. at ¶ 14. Under the Security Agreement with Oracle, Kennedy also obtained a security interest in all accounts and property owned or thereafter acquired by Oracle whether or not affixed to the Castle Coakley Property. Id. at ¶ 18. Oracle's repayment obligation to Kennedy was further secured by a Mortgage and Security Agreement signed by the Jagrups against real property owned by them, described as:

Plot No. 34, Estate Hope, Prince Quarter, St. Croix, U.S. Virgin Islands consisting of 1.29 acres, more or less, as more fully shown on OLG Drawing No. 5024 dated March 15, 1996

("Estate Hope Property"). Id. at ¶ 15. The Mortgages against the Castle Coakley Property and the Estate Hope Property both were recorded with the Recorder of Deeds for St. Croix on September 19, 2008. Id. at ¶¶ 14-15. In addition, Kennedy's interest in Oracle's accounts and personal property covered by the Security Agreement was perfected by the filing of a UCC-1 Financing Statement. Id. at ¶ 19.

Oracle defaulted on the loan and despite demand for payment, the default was not cured. Id. at ¶¶ 24, 25-27. Kennedy then filed the instant action against Oracle, its members and guarantors, as well as other Defendants who had or might have a claim against the mortgaged properties. Id.

After Defendants were served with process, Oracle file a Chapter 7 Bankruptcy proceeding in the Bankruptcy Court of the Virgin Islands, Case No. 1:12-bk-10012. Oracle's Bankruptcy Petition indicated that its debts were primarily "business debts" and that its primary asset was the Castle Coakley Property. (Case No. 1:12-bk-10012, Dkt. No. 1). Approximately six months later, the Bankruptcy Court entered an Order of Abandonment based on the Trustee's Notices of Abandonment of both the real property—i.e., the Castle Coakley property—and personal propertyof Oracle's bankruptcy estate. (Case No. 1:12-bk-10012, Dkt. Nos. 10, 13, 17). Oracle's bankruptcy case was closed on October 29, 2013. (Case No. 1:12-bk-10012, Dkt. No. 19).

In May 2017, this Court granted, in large part,² Kennedy's "Motion for Default and Summary Judgment" (Dkt. No. 100). The Court entered Default Judgment in favor of Kennedy against Oracle and the Jagrups, and summary judgment against other debtors and lienholders. (Dkt. No. 101 at 1-2). The Court further found that Kennedy held a first priority lien on the Castle Coakley and the Estate Hope properties. Id. at 2-3. Kennedy was awarded a judgment against Oracle and the Jagrups for an amount in excess of $1.9 million. Id. at 3. The Court foreclosed all liens against the Castle Coakley and the Estate Hope properties and ordered that both properties be sold by the United States Marshal at a public sale. Id. at 4-5. The Court issued a Writ of Execution and the two properties were seized by the Marshal on August 9, 2017. (Dkt. Nos. 121-123).

On October 3, 2017, the Jagrups jointly filed a Chapter 13 Bankruptcy Petition which was docketed in the Bankruptcy Court as Case No. 1:17-bk-10002. (Case No. 1:17-bk-10002, Dkt. No. 1). In their Bankruptcy Petition, the Jagrups identified the Estate Hope property as their residence and identified Jagrup Electric as their only sole proprietorship business. Id. at 2, 4. The Jagrups also stated in their Petition that their debts were not primarily "consumer debts"—defined as debts "'incurred by an individual primarily for a personal, family or household purpose.'" Id. at 8. Instead, the Jagrups reported that their primary debts were as a result of being guarantors. Id. at 8, 21. The Jagrups' property list included the Estate Hope property, undeveloped land in Kingshill and Frederiksted, as well as a multi-unit building in Estate Whim. Id. at 11-12. They also verifiedthat they did not have any other property "of any kind" not listed in their Petition. Id. at 12. In Schedule H of the Petition, the Jagrups identified Joseph Jagrup and Oracle as co-debtors "who are also liable for any debts [the Jagrups] may have." Id. at 26.

In November and December 2017, the U.S. Marshal advertised the sale of the Castle Coakley property in newspapers of general circulation of the Virgin Islands. (Dkt. No. 124 at 1-2; 124-1). On December 18, 2017, the Marshal oversaw the public sale of the Castle Coakley property and filed a verified report that Kennedy, which bid $400,000 for the property, was the highest bidder at the sale. (Dkt. No. 124-7). In February 2018, Kennedy filed a "Motion for Order Confirming Sale" of the Castle Coakley Property. (Dkt. No. 124). On February 15, 2018, the Court issued an Order Confirming Sale and allowed Oracle and the Jagrups six months to redeem the property. (Dkt. No. 125).

The record in the instant case does not reflect that the Jagrups ever filed a Notice formally advising the Court that they had filed for bankruptcy. They did not file a motion to stay the Marshal's sale of the Castle Coakley property and did not object to the Marshal's Verified Return of Writ of Execution for Judicial Sale (Dkt. No. 124-7). Nor did the Jagrups file any opposition to Kennedy's Motion to Confirm Sale filed on February 9, 2018. (Dkt. No. 124).

Twelve days after the sale was confirmed, the Jagrups filed the instant "Motion to Vacate Sale & Order Confirming Sale of 73 Estate Castle Coakley" pursuant to Fed. R. Civ. P. 60(b)³ and 11 U.S.C. § 1301(a). (Dkt. No. 126). In their Memorandum in Support, the Jagrups argue that the sale of the Castle Coakley property and the Order Confirming Sale were void because they violatedthe automatic stay embodied in 11 U.S.C. § 1301(a) in that Oracle—as a co-debtor of the Jagrups—was shielded from the consequences of the Court's Judgment—namely the sale of its property and the Order Confirming Sale. (Dkt. No. 127 at 3-5). The Jagrups also appear to take issue with the timing and the circumstances of the sale: (1) that the sale occurred less than three months after Hurricanes Irma and Maria damaged the property; (2) that it appeared that no other bidders were present at the sale;⁴ and (3) that the price obtained for the property was unreasonably low and permitted Kennedy a windfall. Id. at 5.

Kennedy responded to the Jagrups' Motion to Vacate by arguing that it respected the Jagrups' bankruptcy by removing the Estate Hope property—the Jagrups' personal residence listed in their bankruptcy schedule—from the Marshal's Sale. (Dkt. No. 128 at 2). In countering the Jagrups' assertions that their bankruptcy stay extended to Oracle's commercial Castle Coakley property, Kennedy asserted: (1) that the Jagrups did not list the Castle Coakley property as an asset in its bankruptcy schedules; (2) that the Jagrups' attorney—who represented them in both the instant case and the bankruptcy case—received notice through the ECF system of the Writ of Execution and Motion to Confirm Marshal sale, but raised no objection at any stage of the process; and (3) that the automatic stay did not extend to Oracle or its property because the debts at issue were commercial debts, not "consumer debts" under 11 U.S.C. § 1301 and Oracle was not an "individual" subject to the co-debtor stay. Id. at 2-4. The Jagrups' Reply disputed Kennedy's claims and argued that Kennedy's collection of debts against Oracle had an immediate...