Purlin 4, LLC v. Real Prop. Mortg I (In re D'Angelo)
| Docket Number | 21-21903-JAD,Adversary 23-02076-JAD |
| Decision Date | 31 October 2023 |
| Parties | IN RE: STEPHEN F. D'ANGELO, Debtor. v. REAL PROPERTY MORTGAGEE I, LLC, PETER FUSCALDO, JONATHAN SEIGEL, MATT McDONALD, VISTA DEVELOPMENT, LTD., PRONET CAPITAL, LLC, TCI TOSCANA, LP, Defendants. PURLIN 4, LLC and PURLIN 5, LLC, Plaintiffs, |
| Court | United States Bankruptcy Courts. Third Circuit. U.S. Bankruptcy Court — Western District of Pennsylvania |
In this removed action, Purlin 4, LLC ("Purlin 4") and Purlin 5, LLC ("Purlin 5," and collectively with Purlin 4, the "Purlin Entities") have filed an Amended Verified Complaint against the above captioned defendants (collectively, the "Defendants") including Real Property Mortgagee I, LLC ("RPMI") and its sole owner Peter Fuscaldo, Esquire.
The question before the Court is whether this Court should remand this adversary proceeding to the Court of Common Pleas of Allegheny County, Pennsylvania due to, inter alia jurisdictional defects and/or equitable reasons.
For the reasons set forth below, the Court finds that remand is proper because the Court lacks the requisite subject-matter jurisdiction to hear and decide this adversary proceeding. Remand is also proper because the equities support the remand of this lawsuit to the Court of Common Pleas of Allegheny County, Pennsylvania.
The Amended Verified Complaint contains 5 state law based causes of action, is 33 pages long, has 36 exhibits attached to it, and has 149 paragraphs of allegations.[1]
The Amended Verified Complaint filed by the Purlin Entities contends that Purlin 5 is the lawful owner of 100% of the membership interests in a Delaware limited liability company known as Turks Investment, LLC ("TIL"). According to the lawsuit, Purlin 5 allegedly acquired the TIL membership interests on or around June 26, 2023 by way of an assignment from its affiliate dck Worldwide Group, LLC (formerly known as Purlin 2, LLC) ("Purlin 2").
Purlin 2 had previously acquired the membership interests in TIL on or about December 6, 2022 by way of a joint assignment from both Mr. Stephen D'Angelo (who is a reorganized debtor before this Court)[2] and his non-debtor wife (Mrs. Sharon D'Angelo).
In exchange for the assignment of the membership interests in TIL, Purlin 2 and its affiliates Arena SPV Limited, LLC and Arena Investors, L.P. (collectively "Arena") agreed to (1) support confirmation of Mr. D'Angelo's Amended Plan of Reorganization dated May 4, 2022 and (2) withdraw or dismiss non-bankruptcy litigation filed in the Court of Common Pleas of Allegheny County, Pennsylvania styled as Arena Investors, L.P. et al. v. Leech Tishman Fuscaldo & Lampl, LLC, et al., Civil Action G.D. No 22-007973 (the "State Court Action").
The State Court Action had previously been commenced against each of Mrs. Sharon D'Angelo, certain of the dck Entities, and several of Mr. D'Angelo's business associates (including RPMI and Mr. Fuscaldo). The withdrawal of the State Court Action was to be with prejudice as to claims against Mrs. D'Angelo only, and without prejudice as to claims against the remaining defendants.
The colloquy at the December 6, 2022 plan confirmation hearing before this Court plainly and unequivocally provides that the assignment of the membership interests in TIL to Purlin 2 was "subject to any existing claims or rights of third parties that may currently exist." See December 6, 2022 Transcript at p. 7. RPMI, through legal counsel, was present at the December 6, 2022 confirmation hearing and did not oppose the contemplated transfer of the TIL interests "subject to" the claims or rights of third-parties that may exist.
Suffice it to say, there was no reference in the hearing record of December 6, 2022 that the transfer of the equity interests in TIL to Purlin 2 would be free and clear of any and all liens, claims or encumbrances of any third-party, whether by operation of agreement or pursuant to 11 U.S.C. §§ 363(f), 1123(a)(5)(D) and 1141(c). In fact, the opposite is what was agreed to by the parties. That is, the transfer of the TIL interests as part of plan confirmation was "subject to" the claims or rights of third-parties.
At the conclusion of the December 6, 2022 hearing, the Court instructed counsel to Mr. D'Angelo to submit a proposed confirmation order by "the end of the week" after "rounding the bases" with certain other parties-in-interest whose rights may also been affected by the transfer of the interests in TIL to Purlin 2. See December 6, 2022 Transcript at p. 21. Counsel to the Debtor did so, and submitted a proposed confirmation order under certification of counsel on December 12, 2022. See ECF No. 585.
Immediately after the proposed confirmation order was filed, RPMI filed with the Court a document titled as a Reservation of Rights to Consented Order Confirming Debtor's First Amended Chapter 11 Plan of Reorganization Dated May 4, 2022, ECF No. 586 (the "Reservation of Rights"). The Reservation of Rights contains garden variety language to the effect that "all of [RPMI's] current and future rights, defenses and claims and counterclaims are unaffected and unimpaired" by entry of the confirmation order. Id.
Given the record described above, and given the fact that the Reservation of Rights filed by RPMI was consistent with the colloquy held at the December 6, 2022 hearing on confirmation of the Amended Plan, the Court entered its Order Confirming Debtor's First Amended Chapter 11 Plan of Reorganization Dated May 4, 2022, ECF No. 587 (the "Confirmation Order") on December 13, 3022. The Confirmation Order states, in pertinent part, as follows:
An agreement was set forth on the record at the confirmation hearing held on December 6, 2022 by and between certain parties and the Debtor (the "Agreement") and the Agreement is binding and enforceable on all creditors and parties in interest. The Agreement shall survive any subsequent conversion or dismissal of this Case. The parties shall act accordingly to implement the terms of the Agreement in the most expeditious and commercially reasonable manner possible.
After the entry of the Confirmation Order, Mr. & Mrs. D'Angelo formally executed an assignment agreement on February 23, 2023 whereby they assigned 100% of the equity in TIL to dck Worldwide Group, LLC (formerly known as Purlin 2, LLC), and the assignment agreement stated it was "effective as of December 6, 2022."[3]
The Purlin Entities contend that after Purlin 2 acquired the equity interests in TIL, Purlin 2 engaged in certain "corporate hygiene" to essentially re-constitute TIL. That is, the TIL operating agreement was amended and restated; and the existing membership interests in TIL were cancelled and replaced with new member interests in favor of Purlin 2 (which were later allegedly assigned by Purlin 2 to Purlin 5).
The Purlin Entities further contend that as part of "corporate hygiene" Purlin 2 replaced Mr. D'Angelo as managing director of TIL with a person selected by Purlin 2 and that Purlin 4 infused $5.5 million of funding into TIL so that TIL could have the resources to invest into a real estate development project known as the "Turks & Caicos Project."[4]
With respect to the $5.5 million of funding into TIL, Purlin 4 is the current holder of a $5.5 million Promissory Note and Security Agreement dated June 23, 2023 with TIL as the maker or borrower. The obligations due Purlin 4 from TIL under Promissory Note and Security Agreement are secured against all of the assets of TIL. This security interest in favor of Purlin 4 was duly perfected by way of a financing statement filed on June 27, 2023, pursuant to Article 9 of the Uniform Commercial Code (the "UCC").
As collateral support for the $5.5 million loan from Purlin 4 to TIL, Purlin 5 also pledged its membership interests in TIL to Purlin 4. In connection with the same, Purlin 4 took possession of Purlin 5's membership interests in the re-constituted TIL on or about July 1, 2023. Purlin 4 also filed an Article 9 UCC financing statement on September 8, 2023, thereby putting the world on constructive notice of Purlin 4's perfected lien on all equity interests in TIL.
Pre-dating all of Purlin 2's and the Purlin Entities' transactions summarized above, Mr. D'Angelo filed for bankruptcy protection under chapter 11 on August 27, 2021 (the "Petition Date"). Among the creditors whom Mr. D'Angelo owed money as of the Petition Date was RPMI.
RPMI is wholly owned by Mr. Fuscaldo, and RPMI filed a secured proof of claim in this bankruptcy case asserting that Mr. D'Angelo (along with his wife) owed it $1,408,235.68. See Claim No. 24-1.
A copy of an Amended and Restated Pledge Agreement is attached to RPMI's proof of claim. Pursuant to this agreement, and on or about March 8, 2019, the D'Angelo's allegedly pledged their membership interests in TIL to RPMI as collateral for the D'Angelo's debt due to RPMI. In this regard, RPMI took possession of the certificates evidencing the D'Angelo's membership interests in TIL.
RPMI however, never filed a UCC financing statement pursuant to Article 9 of the UCC.[5] Accordingly, there appears to be no genuine dispute that RPMI's lien and security interest in the TIL membership interests was not perfected[6] from an Article 9 perspective because: (1) the TIL certificates are not a "security" governed by Article 8 of the UCC because such equity interests are not "dealt or traded on securities exchanges or in securities markets[,]" see 13 Pa.C.S.A. § 8103(c); (2) the TIL certificates are not "investment property" subject to the permissive perfection by possession provisions of Article 9 because such collateral must be a "security" to even...
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