Residential Funding Co. v. Interlinc Mortg. Servs., LLC (In re RFC & Rescap Liquidating Trust Litig.)
| Decision Date | 25 April 2017 |
| Docket Number | Case No. 13-cv-3451 (SRN/HB) |
| Parties | In Re: RFC and ResCap Liquidating Trust Litigation, This document relates to: Residential Funding Company, LLC, and ResCAP Liquidating Trust v. InterLinc Mortgage Services, LLC, in its own capacity, and as successor to Hometown Mortgage Services, Inc., Douglas Rohm, and Edward Danielczyk, Case No. 16-cv-3024 (SRN/HB) |
| Court | U.S. District Court — District of Minnesota |
Peter E. Calamari, Isaac Nesser, David Elsberg, Quinn Emanuel Urquhart & Sullivan, LLP, 51 Madison Avenue, 22nd Floor, New York, New York 10010, Anthony P. Alden, Johanna Ong, Matthew Scheck, Quinn Emanuel Urquhart & Sullivan, LLP, 865 South Figueroa Street, 10th Floor, Los Angeles, California 90017, Jeffrey A. Lipps, Jennifer A.L. Battle, Carpenter Lipps & Leland LLP, 280 North High Street, Suite 1300, Columbus, Ohio 43215, Donald G. Heeman, and Jessica J. Nelson, Felhaber, Larson, Fenlon & Vogt P.A., 220 South Sixth Street, Suite 2200, Minneapolis, Minnesota 55402, for Plaintiffs.
Mark G. Schroeder, Jason R. Asmus, Daniel J. Supalla, Michael M. Sawers, Briggs & Morgan, P.A., 80 South Eighth Street, Suite 2200, Minneapolis, Minnesota 55402, Steven M. Pincus, Brooke D. Anthony, and Steven C. Kerbaugh, Anthony Ostlund Baer & Louwagie, P.A., 90 South Seventh Street, Suite 3600, Minneapolis, Minnesota 55402, for Defendants.
This matter comes before the Court on Defendants' separate motions to dismiss the Complaint. Defendant InterLinc Mortgage Services, LLC ("InterLinc"), a Texas company, moves to dismiss for lack of personal jurisdiction, improper venue, and failure to state a claim upon which relief can be granted. (See generally InterLinc Mot. to Dismiss [Doc. No. 1853].) See Fed. R. Civ. P. 12(b)(2), (3), and (6). Defendants Douglas Rohm and Edward Danielczyk (the "Individual Defendants"), both of Birmingham, Alabama, move to dismiss for lack of personal jurisdiction and failure to state a claim upon which relief can be granted. In the alternative, they urge the Court to transfer this action to the Northern District of Alabama, pursuant to 28 U.S.C. §§ 1404 or 1406. (See generally Individual Defs.' Mot. to Dismiss [Doc. No. 1846].)
For the reasons set forth below, the Court finds that it has jurisdiction over all defendants, that venue is proper in this district, and that transfer is unwarranted. Accordingly, Defendants' motions are denied as to those issues. However, the Court agrees that as the Complaint is currently pleaded, Plaintiffs Residential Funding Company, LLC and ResCap Liquidating Trust (collectively, "RFC") have failed to properly state claims for breach of contract and indemnification against InterLinc, and constructive fraudulent transfer against all defendants. In keeping with that determination, Defendants' Rule 12(b)(6) motions are granted in part, and denied in part, although RFC will be given the opportunity to replead if it so chooses.
The general facts pertaining to this consolidated matter are set forth in previous rulings from this court, and are incorporated herein by reference. See, e.g., Residential Funding Co. v. Impac Funding Corp., No. 13-cv-3506 (SRN/HB), 2016 WL 6953484, at *1-2 (D. Minn. Apr. 27, 2016); Residential Funding Co. v. Academy Mortg. Corp., 59 F. Supp. 3d 935, 938-41 (D. Minn. 2014); Residential Funding Co. v. Terrace Mortg. Co.,850 F. Supp. 2d 961, 962-64 (D. Minn. 2012). Stated briefly, prior to its bankruptcy in May 2012, RFC was in the business of acquiring and securitizing residential mortgage loans. (See Compl. ¶ 15 [Case No. 13-cv-3024, Doc. No. 1].) Its business model was built on acquiring loans from "correspondent lenders," and distributing those loans by either pooling them together with other similar mortgage loans to sell into residential mortgage-backed securitization ("RMBS") trusts, or selling them to whole loan purchasers. (Id. ¶ 16.) To ensure loan-quality, RFC required its correspondent lenders to abide by certain representation and warranties regarding the loans. (Id. ¶ 18.) Among other things, RFC contends that lenders were responsible for collecting information from the borrowers, verifying the accuracy of that information, and properly underwriting the loans. (Id. ¶ 30.)
One of the correspondent lenders with whom RFC did business was Hometown Mortgage Services, Inc. ("Hometown"), an Alabama corporation. (Id. ¶¶ 9, 18.) At all times relevant to this suit, Individual Defendants were Hometown's sole shareholders, officers, and directors. (Id. ¶¶ 1, 88.) According to RFC, Hometown sold over 2,000 mortgages to it over the course of the parties' relationship, many of which it now alleges were defective and violated Hometown's representations and warranties. (Id. ¶ 5.) RFC alleges that these defects—compounded with those of other lenders—contributed materially to its Chapter 11 bankruptcy in May 2012. (Id. ¶ 20.) Due to Hometown's allegedly faulty origination, underwriting, and quality control practices, RFC commenced suit against it in this Court in December 2013, asserting claims for indemnification and breach of contract. See Residential Funding Co. v. Hometown Mortg. Servs., Inc., No.13-cv-3509 (SRN/HB) (D. Minn. 2013) (the "Hometown Action"). All told, RFC claims to have suffered $44 million in damages as a result of Hometown's malfeasance.
A few months after RFC filed its complaint in the Hometown Action, Hometown entered into an Asset Purchase Agreement (the "APA") with InterLinc. (Id. ¶¶ 90-92.) Ostensibly, InterLinc agreed to purchase only Hometown's office furniture and other equipment, paying the "Net Book Value" of those assets, which was $124,806.70. (See Compl., Ex. G.) It also agreed to the assignment of certain leases applicable to Hometown's offices. (See id.) These were the only liabilities InterLinc expressly assumed, and the APA expressly disclaimed all other liabilities. (See id. at §§ 1.01, 1.04.) Of note, however, the APA was subject to a condition precedent mandating that certain key employees of Hometown, including Individual Defendants, "must have accepted an offer of employment with [InterLinc] prior to the Closing of the employee's branch Transaction." (Id. at §5.04.)
RFC alleges that the purpose of the InterLinc-Hometown transaction was clear—after the APA was executed on March 3, 2014, InterLinc continued to operate Hometown's business from the former Hometown office, with former Hometown employees, just under the InterLinc name. ( ) To support its assertion that InterLinc essentially subsumed Hometown, RFC alleges that the new InterLinc Alabama division holds itself out to the public as "formerly" or "previously known" as Hometown. (See Compl. ¶ 91.) RFC also highlights various press releases issued by InterLinc and Hometown trumpeting the seeming merger of the two companies. In RFC's view, InterLinc essentially acquired a fully-functioning mortgage company—including its equipment, office, employees, good will and ongoing business—for only $124,806.70. (See Compl. ¶¶ 89-95.) In turn, RFC contends that the Individual Defendants secured employment with InterLinc and continued to manage the new Alabama office, essentially as if nothing had happened.
On September 1, 2015—approximately eighteen months after the APA was executed—Hometown filed for Chapter 7 bankruptcy. The bankruptcy petition showed Hometown to be insolvent, with total listed assets of $140,930.93, and total liabilities of $285,999.39. (See id. at 5.) Hometown's only assets were a checking account containing $135, two defaulted residential mortgage loans, various files held in storage, and one computer server valued at $200. (See id. at 8-10.) In an attempt to hide from Hometown's creditor the fact that "hometown's business was continuing under the InterLinc name," RFC alleges that the Individual Defendants (Compl. ¶ 95.)
RFC filed a proof of claim in Hometown's Chapter 7 case on December 23, 2015, based on the Hometown Action and asserted damages arising out of Hometown's sale to RFC of defective mortgages. (Id. ¶ 99.) In lieu of the de minimis distribution to which it would otherwise have been entitled, RFC negotiated an agreement with the trusteeallowing RFC's full claim against Hometown in the amount of $44 million, and assigning any causes of action available to the bankruptcy estate to RFC. (Id. ¶ 100.) The bankruptcy court approved the agreement between RFC and the trustee, and the Hometown estate was closed on October 18, 2016—a little more than a month after the present Complaint was filed. (Id. ¶ 101; Pls.' Mem. at 10.)
The Complaint in this suit raises four causes of action—two against InterLinc solely, and two against all defendants generally. In Count I, RFC alleges that InterLinc is liable for Hometown's breach of contract regarding the defective mortgages because InterLinc is a "mere continuation of, or de facto merged with," Hometown. Accordingly RFC contends that InterLinc is subject to successor liability under applicable statutory or common law. Count II states a claim for indemnification against InterLinc, again on a theory of successor liability. Finally, Counts III and IV state claims for constructive fraudulent transfer and actual fraudulent transfer against InterLinc and the Individual Defendants, pursuant to both state and federal law.
Defendants have now moved to dismiss on several grounds. First, both the Individual Defendants and InterLinc contend that they have no contacts with Minnesota, and...
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