Merv Props., L. L.C. v. Forcht Bancorp, Inc. (In re Merv Props., L. L.C.)

• Decision Date: 06 October 2015
• Docket Number: No. 14–8013,14–8013
• Citation: 539 B.R. 516
• Parties: In re: Merv Properties, L.L.C., Debtor. Merv Properties, L.L.C., Plaintiff–Appellant, v. Forcht Bancorp, Inc., Defendant–Appellee.
• Court: U.S. Bankruptcy Appellate Panel, Sixth Circuit

539 B.R. 516

In re: Merv Properties, L.L.C., Debtor.Merv Properties, L.L.C., Plaintiff–Appellant

v.Forcht Bancorp, Inc., Defendant–Appellee.

No. 14–8013

United States Bankruptcy Appellate Panel of the Sixth Circuit.

Decided and Filed: October 6, 2015

ON BRIEF: John E. Davis, DAVIS LAW OFFICE, Lexington, Kentucky, for Appellant. Douglas T. Logsdon, MCBRAYER, MCGINNIS, LESLIE & KIRKLAND, PLLC, Lexington, Kentucky, for Appellee.

Before: HUMPHREY, OPPERMAN, and PRESTON, Bankruptcy Appellate Panel Judges.

OPINION

C. KATHRYN PRESTON, Chief Bankruptcy Appellate Panel Judge.

OVERVIEW

MERV Properties, L.L.C. (“MERV”), is a limited liability company formed by four persons for the purpose of purchasing and operating an antique mall. MERV encountered difficulties paying its mortgage loan with Forcht Bancorp (the “Bank”) and entered into a forbearance agreement with the Bank. Sometime after the forbearance agreement was executed, MERV defaulted, and eventually filed a petition for relief under chapter 11 of the Bankruptcy Code. Although a plan of reorganization was confirmed, MERV again defaulted on the loan and ultimately the Bank foreclosed its mortgage on the property. Prior to the bankruptcy case being closed, MERV retained special counsel and filed an adversary proceeding against some of its founders and the Bank. The claims against the Bank sound in breach of contract, “facilitation of fraud and theft”, and equitable subordination of the Bank's claim. MERV also seeks punitive damages. The Bank filed a motion to dismiss the claims lodged against it, asserting that MERV had executed a release of all of these claims as part of the forbearance agreement. The bankruptcy court treated the motion to dismiss as a motion for summary judgment, and granted the motion, finding the release valid and enforceable. MERV timely appealed.

STATEMENT OF ISSUES

MERV asserts that the bankruptcy court erred in granting the Bank summary judgment because there were several genuine issues of material fact concerning the validity and enforceability of the forbearance agreement relied upon by the Bank, including (1) whether improper conduct of MERV's agent and others that executed the document should, based on the “adverse interest exception,” invalidate the forbearance agreement; (2) whether improper conduct by the Bank in its dealings with MERV should preclude the enforceability of the forbearance agreement; (3) whether an improper relationship and collusion between officers or agents of the Bank and certain members of MERV also should invalidate the forbearance agreement; and (4) whether the forbearance agreement was legally unconscionable. MERV also argues that these issues of material fact could have been more fully demonstrated in its opposition to the Bank's motion had MERV been allowed to pursue discovery.

JURISDICTION

Under 28 U.S.C. § 158(a)(1), this Panel has jurisdiction to hear appeals “from final judgments, orders, and decrees” issued by the bankruptcy court. For purposes of appeal, an order is final if it “ends the litigation on the merits and leaves nothing for the court to do but execute the judgment.” Midland Asphalt Corp. v. United States, 489 U.S. 794, 798, 109 S.Ct. 1494, 1497, 103 L.Ed.2d 879 (1989) (citation and quotation marks omitted). “ ‘The concept of “finality” in the bankruptcy context,’ however, ‘should be viewed functionally,’ with appellate courts enforcing this threshold requirement ‘in a more pragmatic and less technical way in bankruptcy cases than in other situations.’ ” Simon v. Lis (In re Graves ), 483 B.R. 113, 115 (E.D.Mich.2012) (quoting Cottrell v. Schilling (In re Cottrell ), 876 F.2d 540, 541–42 (6th Cir.1989) (internal quotation marks and citations omitted)). See also Bullard v. Blue Hills Bank, ––– U.S. ––––, 135 S.Ct. 1686, 1692, 191 L.Ed.2d 621 (2015) (“Congress has long provided that orders in bankruptcy cases may be immediately appealed if they finally dispose of discrete disputes within the larger case.”) (citation omitted); Lindsey v. O'Brien, Tanski, Tanzer & Young Health Care Providers (In re Dow Corning Corp. ), 86 F.3d 482, 488 (6th Cir.1996) (same principle as Bullard ).

“An order granting summary judgment for the defendant is a final order.” Buckeye Retirement Co. v. Swegan (In re Swegan ), 383 B.R. 646, 649 (6th Cir. BAP 2008). “A grant of partial summary judgment that does not dispose of all parties and all claims is generally not immediately appealable[.]” Bonner v. Perry, 564 F.3d 424, 427 (6th Cir.2009). This is such a case, but Federal Rule of Civil Procedure 54(b), made applicable in adversary proceedings by Bankruptcy Rule 7054, permits a bankruptcy court to direct entry of a final judgment as to one or more, but fewer than all, claims or parties upon an express determination that there is no just reason to delay appellate review. GenCorp, Inc. v. Olin Corp. , 390 F.3d 433, 442 (6th Cir.2004). In the case before the Panel, the bankruptcy court entered a proper Rule 54(b) certification,¹ setting forth the reasons for certification, finding no just cause for delay, and holding that the order granting summary judgment to be final for the purposes of appeal. Accordingly, the Panel has jurisdiction over this appeal.

STANDARD OF REVIEW

A grant of summary judgment is a conclusion of law and is reviewed de novo. Med. Mut. of Ohio v. K. Amalia Enters., Inc. , 548 F.3d 383, 389 (6th Cir.2008) ; Anderson v. Fisher (In re Anderson ), 520 B.R. 89, 91 (6th Cir. BAP 2014). “Summary judgment is proper if the evidence, taken in the light most favorable to the nonmoving party, shows that there are no genuine issues of material fact and that the moving party is entitled to a judgment as a matter of law.” Id. (internal quotation marks and citations omitted). “Under a de novo standard of review, the reviewing court decides the issue independently of, and without deference to, the trial court's determination.” Menninger v. Accredited Home Lenders (In re Morgeson ), 371 B.R. 798, 800 (6th Cir. BAP 2007) (citing Treinish v. Norwest Bank Minn., N.A. (In re Periandri ), 266 B.R. 651, 653 (6th Cir. BAP 2001) ); Anderson, 520 B.R. at 91. “[T]he judge's function is not himself to weigh the evidence and determine the truth of the matter but to determine whether there is a genuine issue for trial.” Hirsch v. CSX Transp., Inc., 656 F.3d 359, 362 (6th Cir.2011) (quoting Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249, 106 S.Ct. 2505, 2511, 91 L.Ed.2d 202 (1986) ). “To survive summary judgment, ‘the mere existence of a scintilla of evidence in support of a party's position will not suffice.’ ” Hirsch, 656 F.3d at 362 (quoting Anderson, 477 U.S. at 252, 106 S.Ct. 2505 ). On the other hand, “[w]here the record taken as a whole could not lead a rational trier of fact to find for the non-moving party, there is no genuine issue for trial.” Matsus hita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S.Ct. 1348, 1356, 89 L.Ed.2d 538 (1986) (internal citation and quotation marks omitted).

The separate allegation that the bankruptcy court granted summary judgment prematurely, without allowing adequate time for discovery, is reviewed under an abuse of discretion standard. Plott v. Gen. Motors Corp., 71 F.3d 1190, 1196–97 (6th Cir.1995).

FACTS & BACKGROUND

MERV is a Kentucky limited liability company. Its founding members were Roberta Gonzalez (50%), Mark Properties (sole shareholder: Howard Markowitz) (25%), and Eric Friedlander (“Friedlander”) (25%). Notwithstanding the membership interests, Friedlander had a 26% voting interest and Gonzalez had a 49% voting interest. Vivian Collins later became a member and received half of Gonzalez's ownership and voting interests. The founding members formed MERV for the purpose of purchasing and renovating an antique mall. MERV obtained a loan from the Bank for this purpose, and granted the Bank a mortgage on the property to secure the loan. Payment of the loan was guaranteed by Gonzalez, Friedlander and his wife Lisa Friedlander, and Mark Properties.

MERV completed the purchase of the antique mall. During the course of renovation, MERV defaulted on its loan with the Bank, whereupon the Bank filed a foreclosure action. To resolve the foreclosure litigation, the parties entered into a forbearance agreement in December 2010. The forbearance agreement contained a broad release by MERV and the guarantors (the “Release”) and is of great significance to this appeal. The Release states:

That in further consideration of the Bank's agreement not to enforce the default terms of the Note for times prior to this Agreement and in further consideration of the Bank's forbearance not to pursue the Lawsuit at this time, Borrower and Guarantors (a) waive and relinquish all defenses to payment and collection of the amounts due Bank and (b) release and forever acquit the Bank ... from any claims of any nature whatsoever that may have been asserted, whether such defenses or claims arise by virtue of state, federal, bankruptcy, or non-bankruptcy law, by counterclaims, set-offs, deductions and recoupments of Borrower and Guarantors, whether known or unknown, in contract, tort, equity, or otherwise, which Borrower and Guarantors ever had, now have or may hereafter acquire, arising out of, or relating to (i) any transaction or dealings between Bank and Borrower and Guarantors, or (ii) any action or omission to act by Bank occurring prior to the execution of this Agreement.

Forbearance Agreement at ¶ 11, Dec. 14, 2010, Adv. Case No. 13–5034 ECF No. 6–1 Ex. A.² Howard Markowitz signed the forbearance agreement on behalf of MERV as borrower and on behalf of Mark Properties as guarantor. Friedlander, Lisa Friedlander and Roberta Gonzalez also signed as guarantors. Of the signatories, only Lisa Friedlander was not a member of MERV.

MERV filed a chapter 11 bankruptcy petition on October 10, 2011. The bankruptcy court confirmed MERV's chapter 11 plan of reorganization on July 13, 2012. By September 19,...