Mtglq Investors, L.P. v. Guire

• Decision Date: 07 October 2003
• Docket Number: No. CIV.A. CCB-03-1894.,CIV.A. CCB-03-1894.
• Citation: 286 F.Supp.2d 561
• Parties: MTGLQ INVESTORS, L.P. v. Jerry GUIRE, et al.
• Court: U.S. District Court — District of Maryland

286 F.Supp.2d 561

MTGLQ INVESTORS, L.P. v. Jerry GUIRE, et al.

No. CIV.A. CCB-03-1894.

United States District Court, D. Maryland.

October 7, 2003.

Jonathan Todd Blank, McGuire Woods LLP, Baltimore, MD, for plaintiff.

Robert W. Hesselbacherm Jr., Wright Constable and Skeen, LLP, Baltimore, MD, for defendant.

MEMORANDUM

BLAKE, District Judge.

Now before the court is a motion by the defendants, Jerry Guire, Restaurant Associates, LLC, Bridgeport Restaurant, LLC Lavale Restaurant, LLC, Leesburg Restaurant, LLC, and Morgantown Sabraton Restaurant, LLC, to dismiss or transfer venue. The parties have fully briefed the issues and no oral argument is necessary. Local Rule 105.6. For the reasons stated below, the motion will be granted and this case will be transferred to the Northern District of West Virginia.

BACKGROUND

On May 31, 2000, five of the defendants, namely, Restaurant Associates, LLC, Bridgeport Restaurant, LLC, Lavale Restaurant, LLC, Leesburg Restaurant, LLC, and Morgantown Sabraton Restaurant, LLC (collectively, the "LLC defendants"), entered an agreement to borrow approximately $4,320,000 from Bay View Franchise Mortgage Acceptance Company ("Bay View"). (Compl.¶¶ 8-10, Ex. A.) The purpose of the loan was to finance the acquisition of three Ponderosa steakhouse restaurants, one in LaVale, Maryland, one in Bridgeport, West Virginia, and a third in Morgantown, West Virginia. (Compl. ¶ 12; Def.'s Mot. to Dismiss or Transfer Venue at 2.) In exchange for the loan, the five LLC defendants executed three promissory notes in favor of Bay View, each of which was secured by a deed of trust to one of the three restaurant properties.¹ (Compl.¶ 12, Ex. B, C, D, F, G, H.) The sixth defendant, Jerry Guire, executed the notes in his capacity as a member of each of the five LLCs. (Compl.Ex. B, C, D.) He also personally guaranteed the notes. (Compl.Ex. E.)

Mr. Guire is a West Virginia resident (Compl.¶ 7), and the five LLC defendants are all West Virginia entities (Comp.¶¶ 2-6). Two of them are registered to do business in Maryland. (Compl.¶¶ 2-3.) Bay View is a California entity (Compl. ¶ 8), but the agreement provided that all notices and communications were to be sent to its place of business in Connecticut (Compl. Ex. A at 25). The agreement was to be governed by Connecticut law (Compl. Ex. A at 26-27), and both the agreement and the promissory notes included statements of the borrowers' consent to jurisdiction in that state (Compl. Ex. A. at 27, Ex. B at 11-12, Ex. C at 11-12, Ex. D at 11).

On January 16, 2003, Bay View Bank, N.A. ("Bay View Bank"), a successor entity to Bay View, sent Mr. Guire and his accountant, Barry Parks, a notice indicating that the LLC defendants had been in default on their loan obligations as of January 1, 2003. (Compl.Ex. L.) On March 31, 2003, Bay View Bank assigned its interest in the promissory notes to MTGLQ Investors, L.P. ("MTGLQ"), a Delaware limited partnership with a business address in New York. (Compl. at 1; Compl. Ex. I, J, K.) On June 4, 2003, MTGLQ sent a notice of default and acceleration to the LLC defendants and to Mr. Guire demanding repayment of the debt. (Compl.Ex. M.)

On June 27, 2003, MTGLQ filed a complaint in the District of Maryland, alleging breach of contract by the defendants. Four of the five LLC defendants have since filed bankruptcy petitions in the United States Bankruptcy Court for the Northern District of West Virginia and suggestions of bankruptcy in this court. (See Docket Nos. 3, 4, 7, 8.) On July 31, 2003, the defendants filed a "Motion to Dismiss or Transfer." (Docket No. 5.) They assert that 28 U.S.C. § 1391(a) affords no basis for venue in the District of Maryland, and they argue in the alternative that a change of venue to the Northern District of West Virginia is appropriate under 28 U.S.C. § 1404(a).

ANALYSIS

Though neither party has raised it, a preliminary issue regarding the defendants' motion is the effect on this litigation of the bankruptcy petitions filed by four of the five LLC defendants. Under § 362 of the Bankruptcy Code, a bankruptcy petition "operates as a stay" of, among other things, "the commencement or continuation, including the issuance or employment of process, of a judicial, administrative, or other action or proceeding against the debtor that was or could have been commenced before the commencement of the [bankruptcy proceeding]." 11 U.S.C. § 362(a)(1). MTGLQ filed its complaint before the four defendants filed their bankruptcy petitions. Hence, this case involves an "action or proceeding against the debtor that was ... commenced before" the debtor filed for bankruptcy, and the litigation is subject to § 362's automatic stay.

The stay, however, does not apply to the motion at issue here. As the Fourth Circuit has observed, "[t]he purpose of the automatic stay, in addition to protecting the relative position of creditors, is to shield the debtor from financial pressure during the pendency of the bankruptcy proceeding." Winters v. George Mason Bank, 94 F.3d 130, 133 (4th Cir. 1996); see also Dean v. Trans World Airlines, Inc., 72 F.3d 754, 755-56 (9th Cir. 1995); In re Siciliano, 13 F.3d 748, 750-51 (3d Cir.1994); GATX Aircraft Corp. v. M/V Courtney Leigh, 768 F.2d 711, 716 (5th Cir.1985); Holtkamp v. Littlefield, 669 F.2d 505, 508 (7th Cir.1982). Neither of those purposes would be served by delay in this case; granting the motion would merely change the forum, not shift the priority of creditors or disrupt the defendants' statutory "breathing spell." Indeed, it would be rather perverse if the bankruptcy stay—which, according to the Senate Judiciary Committee, is meant to "relieve[] [the debtor] of the financial pressures that drove him into bankruptcy," S.Rep. No. 95-989, at 55, reprinted in 1978 U.S.C.C.A.N. 5787, 5841, quoted in Williford v. Armstrong World Indus., Inc., 715 F.2d 124, 127 (4th Cir.1983)—required the court to keep the action in place with respect to the bankrupt defendants, while dismissing or transferring it for the nonbankrupts.² It would also be odd to apply "one of the fundamental debtor protections provided by the bankruptcy laws," S.Rep. No. 95-989, at 54, to prevent the debtor defendants from litigating a motion they themselves have filed and briefed. Cf. Mitchell v. Fukuoka Daiei Hawks Baseball Club, 206 B.R. 204, 212 (C.D.Cal.1997) ("The Section 362 stay does not apply where, as here, the debtor is the plaintiff in a lawsuit."). I will therefore join other courts that have considered the issue in concluding that dismissing or transferring the case on jurisdictional grounds does not constitute a prohibited "continuation" of the action under § 362. See In the Matter of Federal Press Co., 117 B.R. 942, 950 (N.D.Ind.1989) (ordering a transfer of venue notwithstanding the bankruptcy stay); Teel v. Am. Steel Foundries, 529 F.Supp. 337, 346 (E.D.Mo.1981) (dismissing action notwithstanding the stay where co-defendants had moved successfully for dismissal on grounds that clearly applied to the bankrupt defendant as well); Royal Dynasty, Inc. v. Chin, 37 Mass.App.Ct. 171, 638 N.E.2d 921, 922 (1994) (dismissing appeal for lack of jurisdiction notwithstanding bankruptcy stay).³

Turning now to the merits of the motion, I agree with the defendants that the District of Maryland is not a proper venue for this suit. Since federal jurisdiction is based on diversity and none of the parties are residents of Maryland, the only possible basis for venue is 28 U.S.C. § 1391(a)(2),⁴ which provides that venue is proper in "a judicial district in which a substantial part of the events or omissions giving rise to the claim occurred, or a substantial part of the property that is the subject of the action is situated." The events giving rise to MTGLQ's claim were (1) the negotiation, formation, and execution of the secured promissory notes, and (2) the defendants' default on their obligations under the notes. There is no evidence that any of these events occurred in Maryland. While the promissory notes do not indicate where they were negotiated and executed, Mr. Guire appears to have executed the deeds of trust before a notary in West Virginia on May 25, 2000 (Compl. Ex. F at 23, G at 23, H at 23), and Bay View executed at least one of the deeds of trust before a notary in Connecticut (Compl. Ex. F at 24). At any rate, MTGLQ does not contest the defendants' statement that the negotiation and execution of the loan documents occurred outside the forum. (See Pl.'s Mem. in Opp. to Def.'s Mot. To Dismiss for Improper Venue or To Transfer Venue at 3; Def.'s Mem. in Supp. of Mot. to Dismiss or Transfer at 3.) As for the default, it could only have occurred in West Virginia, where all the defendants reside, or in New York or Connecticut, where payments to MTGLQ and Bay View, respectively, were to be sent. Finally, contrary to MTGLQ's suggestion, the "property that is the subject of the action" is the loan itself, not the property securing it, and the promissory notes embodying the loan are not to be found in Maryland. Thus, neither the events nor the property at issue in this action provide a basis for venue under § 1391(a)(2).

The only connection between MTGLQ's claim and this district is the presence in Maryland of one of the three restaurants securing the notes. MTGLQ argues that acquiring this property, securing the loan with it, filing the agreement in Maryland "poorly running and managing the business," and failing to generate adequate income from the business to cover the loan payments were all "events" that establish a basis for venue. (Pl.'s Mem. in Opp. to Def.'s Mot. To Dismiss for Improper Venue or To Transfer Venue at 3.) While these occurrences are part of this litigation's factual background, they did not "give rise" to MTGLQ's claim in the sense required by the statute, because MTGLQ may establish all the critical elements of the action —namely, that the defendants formed an agreement and that they...