Miller v. Greenwich Capital Fin. Prods., Inc. (In re Am. Bus. Fin. Servs., Inc.), Bankruptcy No. 05–10203 (MFW).

• Court: U.S. Bankruptcy Court — District of Delaware
• Writing for the Court: MARY F. WALRATH
• Citation: 471 B.R. 354
• Parties: In re AMERICAN BUSINESS FINANCIAL SERVICES, INC., et al., Debtors. George L. Miller, Trustee Plaintiff, v. Greenwich Capital Financial Products, Inc., Ocwen Loan Servicing, LLC, Wells Fargo Bank, N.A., Law Debenture Trust Company of New York, Defendants.
• Docket Number: Bankruptcy No. 05–10203 (MFW).,Adversary No. 06–50826 (MFW).
• Decision Date: 18 May 2012

471 B.R. 354

In re AMERICAN BUSINESS FINANCIAL SERVICES, INC., et al., Debtors.
George L. Miller, Trustee Plaintiff,
v.
Greenwich Capital Financial Products, Inc., Ocwen Loan Servicing, LLC, Wells Fargo Bank, N.A., Law Debenture Trust Company of New York, Defendants.

Bankruptcy No. 05–10203 (MFW).
Adversary No. 06–50826 (MFW).

United States Bankruptcy Court,
D. Delaware.

May 18, 2012.

[471 B.R. 360]

John T. Carroll, III, Cozen O'Connor, Charles A McCauley III, Obermayer Rebmann Maxwell & Hippel LLP, Wilmington, DE, David Dormont, Kaufman, Coren & Ress, P.C., Philadelphia, PA, for Plaintiff.

Adam J. Safer, Joel M. Miller, Matthew Z. Krusko, Miller & Wrubel PC, New York, NY, Curtis S. Miller, Derek C. Abbott, Erin R. Fay, John A. Sensing, Matthew B. Harvey, Thomas F. Driscoll, III, Morris Nichols Arsht & Tunnell, Wilmington, DE, for Defendants.

OPINION¹ MARY F. WALRATH, Bankruptcy Judge.

Before the Court are motions for summary judgment filed by Defendant, Greenwich Capital Financial Products, Inc. (“Greenwich”), on the Trustee's Amended Complaint.² Two of Greenwich's Motions seek judgment based on releases given by the Trustee and the Debtors, which the Trustee alleges are invalid because Greenwich committed a fraud on the court or common law fraud in obtaining them. Greenwich's other motions seek summary judgment on the remaining counts of the Trustee's Amended Complaint. For the reasons set forth below, the Court finds that Greenwich did not commit any fraud and, consequently, will uphold the validity of the releases and grant summary judgment in favor of Greenwich on all counts of the Amended Complaint that relate to actions taken before the releases were given. The Court further finds that summary judgment in favor of Greenwich is warranted on the remaining counts of the Trustee's Amended Complaint.

I. BACKGROUND

American Business Financial Services, Inc., and its subsidiaries (collectively, the “Debtors”) operated as a financial services organization that originated and serviced mortgage loans primarily to credit-impaired borrowers. The Debtors raised capital by selling pools of these loans to special purpose entities created for securitization purposes (the “SPEs”). The SPEs then sold the pools of loans to mortgage loan trusts (the “Trusts”). To raise cash to purchase the loans, the Trusts sold notes or trust certificates secured by the Trusts' assets to investors.

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In exchange for the loans sold to the SPEs, the Debtors received cash and certificates of beneficial interests in the Trusts that entitled them to receive certain cash flows generated by the Trusts after investors were repaid (the “I/O Strips”). The Debtors also retained the right to service the loans for a fee.

On January 21, 2005, the Debtors filed voluntary petitions for relief under chapter 11 of the Bankruptcy Code. The Debtors filed a motion seeking debtor-in-possession financing, pursuant to which Greenwich agreed to provide the Debtors with a senior, secured, super-priority $500 million credit facility (the “DIP Loan”). (App. 4.) ³ The DIP Loan was secured by substantially all of the Debtors' assets, including the I/O Strips which had a reported book value of $391 million. ( Id. at § 4.01.) On March 9, 2005, the Court entered the Final DIP Order. (Ex. W.)

Shortly thereafter, on April 4, 2005, the Court approved the sale of the Debtors' servicing rights to Ocwen Loan Servicing, LLC (“Ocwen”) for net recovery to the estate of approximately $21 million. (D.I. 575.) On that same day, the Debtors publicly announced that a reorganization was not possible and that they intended to file a liquidating plan. (App. 17.) On May 13, 2006, Greenwich declared a default on the DIP Loan. (Ex. T.)

As a result, the bankruptcy case was converted to chapter 7 and George L. Miller was appointed trustee (the “Trustee”). The Trustee and Greenwich subsequently entered into an agreement dated July 20, 2005 (the “Consent Agreement”) whereby the Trustee agreed to conduct a sale pursuant to section 363 of the Bankruptcy Code of certain of Greenwich's collateral (the whole loan assets of the Debtors). (Ex. C–113.) The Court approved the Consent Agreement on August 19, 2005, at the same time it approved the sale of the whole loans to Credit–Based Asset Servicing and Securitization, LLC, for approximately $29 million. (Ex. C–80.) Under the Consent Agreement, the Trustee received $300,000 of the sale proceeds for the benefit of the Debtors' estates and released Greenwich from any and all claims. (Ex. C–113 at ¶¶ 2 & 3; Ex. C–80 at ¶ 4.) Greenwich subsequently foreclosed on other collateral (some of the I/O Strips) which it sold to Ocwen for $5.1 million in June 2006 by public auction pursuant to Article 9 of the Uniform Commercial Code.

On September 13, 2006, the Trustee filed a Complaint against Greenwich, Ocwen, the Indenture Trustees for the collateralized noteholders (the “ITs”), and others.⁴ The Trustee asserted the following claims against Greenwich: (1) turnover, (2) avoidance of fraudulent transfers

[471 B.R. 362]

under the Bankruptcy Code and state law, (3) request for accounting, (4) breach of fiduciary duty, (5) aiding and abetting a breach of fiduciary duty, (6) breach of contract, (7) fraud on the court, (8) common law fraud, (9) civil conspiracy, (10) conversion, (11) objections to and subordination of Greenwich's claims, and (12) declaratory relief.

Greenwich filed a motion to dismiss, which was granted in part by the Court, with leave to amend the Complaint with respect to all counts except the turnover count which was dismissed with prejudice. Miller v. Greenwich Capital Fin. Prods., Inc., et al. (In re Am. Bus. Fin. Servs., Inc.), 361 B.R. 747, 764–65 (Bankr.D.Del.2007). The Trustee filed an Amended Complaint and Greenwich filed a second motion to dismiss certain counts, which was denied. Miller v. Greenwich Capital Fin. Prods., Inc., et al. (In re Am. Bus. Fin. Servs., Inc.), 384 B.R. 80, 94 (Bankr.D.Del.2008).

On October 24, 2008, Greenwich filed two motions for partial summary judgment on the fraud on the court and common law fraud counts. On August 13, 2009, Greenwich filed two motions for summary judgment on the remaining counts of the Amended Complaint. The Trustee opposed the motions. Briefing on the motions is complete, and the matter is ripe for decision.

II. JURISDICTION

The Court has subject matter jurisdiction over this adversary proceeding. 28 U.S.C. §§ 1334(b) & 157(b)(1). Many of the counts are core and the parties have raised no objection to the Court rendering a final judgment in this proceeding on all counts. 28 U.S.C. § 157(b)(2)(A), (B), (E), (H), & (O).

A. Effect of Stern v. Marshall

In Stern v. Marshall, however, the Supreme Court ruled that bankruptcy courts lack the constitutional authority to decide matters relating to state law counterclaims. ––– U.S. ––––, 131 S.Ct. 2594, 2620, 180 L.Ed.2d 475 (2011). The Supreme Court held that the bankruptcy court's power depends on “whether the action at issue stems from the bankruptcy itself.” Id. at 2618. In this case, the claims asserted by the Trustee (although based in part on state law) relate to the conduct of the parties during this bankruptcy case. Therefore, the Court concludes that it has the constitutional authority to enter a final judgment on all claims because they “relate entirely to matters integral to the bankruptcy case.” Am. Bus. Fin. Servs., 457 B.R. at 319.See also In re Salander O'Reilly Galleries, 453 B.R. 106, 117 (Bankr.S.D.N.Y.2011) (“Nowhere in ... Stern does the Supreme Court rule that the bankruptcy court may not rule with respect to state law ... when deciding a matter directly and conclusively related to the bankruptcy.”).

B. Jurisdiction over Greenwich's Counterclaim

In its fifth counterclaim to the Trustee's Amended Complaint, Greenwich seeks a declaratory judgment that the I/O Strips are owned by the Debtor's estate or Trustee “for all purposes, including tax purposes.” (Adv. D.I. 345 at ¶ 70.) The Trustee contends in a motion for partial summary judgment on this counterclaim that the Court lacks jurisdiction to grant that relief. 28 U.S.C. § 2201(a) (allowing federal courts to grant declaratory relief “except with respect to Federal taxes”). Greenwich responds that it is not seeking a declaratory judgment that the Trustee owned the I/O Strips for a determination of who is responsible for federal taxes but

[471 B.R. 363]

only with respect to whether Greenwich was reasonable in how it dealt with the I/O Strips.

The Court finds it unnecessary to decide Greenwich's fifth counterclaim in order to rule on the merits of its defenses to the Trustee's Amended Complaint and, therefore, need not decide at this time whether it has jurisdiction over that counterclaim.

III. DISCUSSIONA. Standard of Review

The Court should grant a motion for summary judgment “if the pleadings, the discovery and disclosure materials on file, and any affidavits show that there is no genuine issue as to any material fact and that the movant is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(c).⁵

In considering a motion for summary judgment under Rule 56, the Court must view the inferences from the record in the light most favorable to the non-moving party. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986); Hollinger v. Wagner Mining Equip. Co., 667 F.2d 402, 405 (3d Cir.1981). If there does not appear to be a genuine issue as to any material fact and on such facts the movant is entitled to judgment as a matter of law, however, the Court must enter judgment in the movant's favor. See, e.g., Celotex Corp. v. Catrett, 477 U.S. 317, 322–24, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986); Carlson v. Arnot–Ogden Mem'l Hosp., 918 F.2d 411, 413 (3d Cir.1990).

The movant bears the burden of establishing that no genuine issue of material fact exists. See Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 585 n. 10, 106...