Richardson v. Monaco (In re Sumit Metals, Inc.)

• Decision Date: 27 August 2012
• Docket Number: Adversary No. 11–51772 (KJC).,Bankruptcy No. 98–02870 (KJC).
• Citation: 56 Bankr.Ct.Dec. 278,477 B.R. 484
• Court: U.S. Bankruptcy Court — District of Delaware
• Parties: In re SUMMIT METALS, INC, Debtor. Ambrose M. Richardson, Plaintiff, v. Francis Monaco, Womble Carlyle Sandridge & Rice, PLLC, WolfBlock, LLP and Richard E. Gray, Defendants.

477 B.R. 484

56 Bankr.Ct.Dec. 278

In re SUMMIT METALS, INC, Debtor.

Ambrose M. Richardson, Plaintiff,

v.Francis Monaco, Womble Carlyle Sandridge & Rice, PLLC, WolfBlock, LLP and Richard E. Gray, Defendants.

Bankruptcy No. 98–02870 (KJC).

Adversary No. 11–51772 (KJC).

United States Bankruptcy Court,

D. Delaware.

Aug. 27, 2012.

Ambrose M. Richardson, A.M. Richardson, P.C., New York, NY, for Plaintiff.

David B. Stratton, John M. Schanne, II, Pepper Hamilton LLP, Kevin J. Mangan, Womble Carlyle Sandridge & Rice PLLC, Todd Charles Schiltz, Esq., Drinker Biddle & Reath LLP, Wilmington, DE, Grant T. Stein, Heather Byrd Asher, Steven M. Collins, Alston & Bird LLP, Atlanta, GA, Judith Anna Amorosa, Alston & Bird LLP, Rachel Sims, Greenberg Traurig, LLP, New York, NY, Susan J. French, WolfBlock, LLP, Philadelphia, PA, for Defendants.

Richard E. Gray, pro se.

OPINION

KEVIN J. CAREY, Bankruptcy Judge.

Before the Court are the Defendants' motions to dismiss the above-captioned adversary proceeding with prejudice, pursuant to Rules 12(b)(1) and 12(b)(6) of the Federal Rules of Civil Procedure, and for imposition of attorneys' fees, costs, and expenses.¹ For the reasons set forth below, the motions to dismiss with prejudice will be granted for lack of subject matter jurisdiction, or, in the alternative, for failure to state a claim upon which relief can be granted. Whether attorneys' fees, costs, and expenses should be imposed will be addressed at a later date, as provided in the accompanying Order.

JURISDICTION

The Court has jurisdiction over this adversary proceeding pursuant to 28 U.S.C. §§ 157(a) and 1334(b). See Chicot Cnty. Drainage Dist. v. Baxter State Bank, 308 U.S. 371, 376–77, 60 S.Ct. 317, 84 L.Ed. 329 (1940) (holding that a federal court has the authority to determine whether it has subject matter jurisdiction over a proceeding). Venue is proper under 28 U.S.C. § 1409. This is a core proceeding pursuant to 28 U.S.C. §§ 157(b)(1) and (b)(2)(A).

BACKGROUND

I. The Parties

Plaintiff Ambrose M. Richardson (“Richardson”) is an attorney and a creditor in the main bankruptcy case, In re Summit Metals, Inc., Case No. 98–02870. He was also the chairman of the Official Committee of Unsecured Creditors (the “Committee”). Richardson is representing himself in this proceeding.

Defendant Francis A. Monaco (“Monaco”) is an attorney with Womble Carlyle Sandridge & Rice, PLLC and has served as the bankruptcy trustee (the “Trustee”) for Summit Metals, Inc. since 2004.

Defendant Womble Carlyle Sandridge & Rice, PLLC (“Womble Carlyle”) has served as counsel to the Trustee since 2007.

Defendant Wolf Block Schorr & Solis–Cohen, LLP (“WolfBlock”) served as counsel to the Committee from 1999 to 2007.

II. Procedural History

On August 9, 2010, Richardson filed a summons with notice in the Supreme Court of the State of New York, County of Queens, naming WolfBlock as defendant. A second summons naming Monaco, Womble Carlyle, and Gray as defendants, in addition to WolfBlock, was served on Monaco, Womble Carlyle, and WolfBlock on December 8, 2010. Defendants removed the proceeding to the District Court for the Eastern District of New York on January 6, 2011, pursuant to 28 U.S.C. §§ 1442 and 1452 (the “Richardson Action”). On January 13, 2011, the Defendants filed motions in the New York District Court to transfer venue (D.I. (EDNY) # 6, 7, 8) and to dismiss the Richardson Action (D.I. (EDNY) # 9, 10, 11).

Meanwhile, on January 6, 2011, defendants Monaco and Womble Carlyle (the “Trustee Defendants”) filed in this Court a Motion to Enforce the Provisions of the Order Confirming Liquidating Plan, to Enforce the Provisions of the Confirmed Plan, to Enforce the Barton Doctrine, and for Other Relief (the “Motion to Enforce”). D.I. # 918.

On January 24, 2011, Richardson filed an objection to the Trustee Defendants' Motion to Enforce. D.I. # 932. On January 31, 2011, WolfBlock joined the Trustee Defendants' Motion to Enforce. D.I. # 933. On February 8, 2011, in response to WolfBlock's joinder, Richardson filed another objection, which was also styled as a cross motion for leave to proceed under the Barton doctrine. D.I. # 938.

On March 25, 2011, the Trustee Defendants moved to impose sanctions against Richardson pursuant to Bankruptcy Rule 9011 and 28 U.S.C. § 1927. D.I. # 970. WolfBlock has also moved for sanctions. D.I. # 993. (jointly, the “Motions for Sanctions”).

Defendants' motion to transfer venue to the Delaware District Court was granted on March 9, 2011, and the Delaware District Court then referred the proceeding to this Court by an order signed by Judge Leonard P. Stark on April 7, 2011. Consideration of the Motion to Enforce and Motions for Sanctions was deferred until disposition of the Defendants' motions to dismiss.² Order Scheduling Oral Argument, D.I. # 1001. Oral arguments on the Motions to Dismiss were held on June 30, 2011.

III. Factual HistoryA. The Summit Bankruptcy and the 2004 Judgment Against Gray³

Summit Metals, Inc. (“Summit”) is a Delaware shell company that is the successor of The Chariot Group, Inc. (“Chariot”), a public company headquartered in New York. Chariot was in the business of managing and acquiring window and door companies. Compl. ¶ 55. In 1995, Gray, Chariot's majority stockholder, “embarked upon a scheme to defraud the creditors and stockholders of Chariot, by transferring Chariot's assets—then valued at $17 million—to himself and leaving Chariot's creditors and stockholders holding worthless pieces of paper.” Compl. ¶ 1.

Energy Saving Products (“ESP”) and B.F. Rich, both window and door manufacturers, were Chariot's only operating subsidiaries. Chariot acquired 92% of ESP's outstanding stock in 1988. B.F. Rich became a subsidiary of ESP in 1990 when ESP acquired 100% interest in B.F. Rich. Compl. ¶¶ 20–21.

Gray shut down Chariot in 1995 by selling Chariot's 92% stake in ESP and merging Chariot into Summit. Compl. ¶ 55. At the time of sale, the ESP stock was worth at least $15 million. Compl. ¶ 23. “In exchange for its ESP stock, Gray arranged for Chariot to receive a $15 million note (‘Not’) from Hallowell ... Gray owns and controls Hallowell and he signed the Hallowell Note as ‘Chairman’ of that company. Hallowell had no assets, income, operations, employees or ability to repay the Note. Gray ... knew that Hallowell could never pay the Note and, in another proceeding, testified that Hallowell ‘ha[d] a negative net worth.’ The Note was the only consideration Chariot received in exchange for ESP and B.F. Rich.” Compl. ¶ 24.

On December 30, 1998, Summit filed a voluntary chapter 11 petition in this Court. At the time of filing, Gray was the sole shareholder and director of Summit, and Summit had only intangible assets in the form of claims against Gray. Compl. ¶ 64.

The U.S. Trustee formed the Committee on March 4, 1999, and elected Richardson as its Chairman. Summit Metals, 379 B.R. 40, 47. Richardson was Gray's former business partner and an officer of Chariot and its subsidiaries.

This Court approved the retention of WolfBlock as counsel for the Committee on August 13, 1999. D.I. # 145. On October 29, 1999, the Committee initiated an adversary proceeding against Gray and the “Gray entities” in this Court. Compl. ¶ 65.

In April 2000, the Delaware District Court withdrew the reference of the Committee's adversary proceeding. Summit v. Gray, 2004 WL 1812700, at *1. Following three years of pre-trial activity, Judge Kent A. Jordan of the Delaware District Court held a bench trial on January 13, 2004. Id. at *2. Judge Jordan issued his post-trial findings of fact and conclusions of law on August 6, 2004, and entered a $40 million judgment against Gray (the “Gray Judgment”). Id. at *1; Compl. ¶ 83. Part of the relief granted by Judge Jordan gave Summit controlling interests in the capital stock of Riverside Millwork Co., Inc. (“Rivco”) and Jenkins Manufacturing, Inc. (“Jenkins”). Compl. ¶ 83.

By Order dated November 18, 2004, Judge Louis Kornreich confirmed the United States Trustee's appointment of Monaco as the Debtor's Chapter 11 Trustee. D.I. # 374.

B. The Sales of Rivco and Jenkins

On October 12, 2005, Judge Randolph Baxter held a hearing on the Trustee's motion to approve the sale of Rivco to RHC Acquisition, Inc. (“RHC”). D.I. # 539.⁴ Richardson objected to the sale, D.I. # 525, and made an oral offer during his testimony for an amount $400,000 greater than the offer under consideration. Judge Baxter approved the Trustee's motion to accept the RHC bid, and overruled all objections. D.I. # 538. In a memorandum opinion, the Court referred to the sale as “a prudent and favorable opportunity.” D.I. # 537, 6 (“Rivco Sale Opinion”). Unlike the RHC offer, which was unconditional and “undisputedly, a firm financial commitment,” Rivco Sale Opinion, 1, Richardson's offer was “unwritten and possessed no firm financial commitment. This was unrefuted.” Rivco Sale Opinion, 2. On November 3, 2005, the day the Rule 6004(g) 10–day stay expired,⁵ Richardson filed an appeal of the Rivco sale order, D.I. # 542, and a motion to stay the sale pending appeal, D.I. # 543. The Trustee, Rivco, and RHC closed the sale transaction the next day, November 4, 2005. Richardson's motion to reverse the sale order and undo the sale transaction was dismissed by the Delaware District Court. D.I. # 368, 487, 511, 517, 558, 977. See Richardson v. Monaco (In re Summit Metals, Inc.), Case No. 05–cv–876–KAJ (D.Del.).

On December 14, 2005, Judge Baxter held a hearing on the Trustee's motion to approve the sale of Jenkins Manufacturing Co., D.I. # 550, and entered an order approving the sale, D.I. # 562. Richardson's objection was overruled. D.I. # 554.

C. The Confirmed Plan

By Order dated August 9, 2007, D.I. # 772 (the “Confirmation Order”), this Court confirmed the Second Amended Liquidating Plan of the Chapter 11 Trustee for Summit Metals, Inc., D.I. 760 (the “Confirmed Plan”). The Confirmed Plan provided for the liquidation of...