Specialty Finance Group LLC v. Milwaukee
| Decision Date | 22 December 2010 |
| Docket Number | Case No. 10-C-315 |
| Court | U.S. District Court — Eastern District of Wisconsin |
| Parties | SPECIALTY FINANCE GROUP LLC, Plaintiff, v. DOC MILWAUKEE, LP; SETH E. DIZARD, as Receiver of DOC Milwaukee, LP; UIHLEIN ELECTRIC COMPANY, INC.; BLACK DIAMOND GROUP INCORPORATED; OTIS ELEVATOR COMPANY; SPANCRETE INDUSTRIES, INC.; SUPERIOR MASONRY BUILDERS, INC.; COMMERCIAL WALL & CEILING, a division of BEEN ACOUSTICS CORPORATION; RANKIN, INC.; VJS CONSTRUCTION SERVICES, INC; C.W. PURPERO, INC; LIPPERT TILE CO, INC.; FREEDOM FIRE PROTECTION, LLC; LANGER ROOFING & SHEETMETAL, INC.; KLEIN DICKERT MILWAUKEE, INC.; THOMAS A. MASON COMPANY, INC.; ALPINE PLUMBING, INC.; SID'S SEALANTS, LLC; ELECTRICAL RESOURCE MANAGEMENT, INC.; A-AMERICAN CONTRACTORS & SUPPLIERS, INC.; MORTL SEALANTS & RESTORATION, LLC; MIDWEST STAIRS AND IRON, INC.; BUTTERS-FETTING CO., INC; ECONOMOU PARTNERS CONSTRUCTION, INC.; STJ, P.C. d/b/a ECONOMOU PARTNERS; VEOLIA ES SOLID WASTE MIDWEST, LLC; ROARING FORK, LLC; and FIRST FRANCHISE CAPITAL CORP. f/k/a IRWIN FRANCHISE CAPITAL CORP.; Defendants. |
This is a federal foreclosure action filed by the Plaintiff, Specialty Finance Group, LLC ("SFG") pursuant to 28 U.S.C. §§ 2001 and 2002. SFG seeks to foreclose upon the mortgage encumbering property located at 1150 North Water Street, Milwaukee, Wisconsin (the "Property"). The Defendants are DOC Milwaukee LP ("DOC LP"); Seth E. Dizard ("Dizard"), the court-appointed receiver of DOC LP; and 26 entities that SFG alleges may claim an interest or lien in the Property. (Compl. ¶ 1.) Jurisdiction is predicated upon 28 U.S.C. § 1332, based on the allegation that the parties are diverse1 and the amount in controversy exceeds $75,000, exclusive of interest and costs.
Dizard filed a motion asserting that the Complaint should be dismissed pursuant to Fed. R. Civ. P. 12(b)(1). In the alternative, Dizard maintains that all required parties must be joined in this action, pursuant to Fed. R. Civ. P. 12(b)(7). SFG filed two non-dispositive motions: a motion to substitute 2010-1 SFG Venture LLC ("Venture") as the Plaintiff in this action pursuant to Fed. R. Civ. P. 25(c); and a motion to file a reply brief in support of its motion to substitute. Also pending is a motion for withdrawal and discharge of counsel for Defendants Economou Partners Construction, Inc. ("Economou") and STJ, P.C., d/b/a Economou Partners ("STJ, P.C.").
This dispute arises out of the insolvency and work stoppage of a partially constructed mixed use development located at the Property. (Dizard Aff. ¶ 2, Ex. 1 () 2-3.) The Project's owner is DOC LP.2 (Dizard Aff. ¶ 2, Ex. 1 4-5.) EP Milwaukee, LLC ("EP") and SJ Properties Suites, BuyCo, ehf ("BuyCo") are two partners in DOC LP. (Dizard Aff. ¶¶ 2, Ex. 1 ¶¶ 5.) BuyCo and two other companies, SJ-Fasteignir, ehf ("Fasteignir") and Askar Capital, hf ("Askar") provided over $17 million in loans and equity for the construction of the Project. (Dizard Aff. ¶¶ 2, 5, Ex. 1 ¶ 52; Ex. 4
SFG, a subsidiary of Silverton, provided funding for the Project through a construction loan (the "SFG Loan"). (Compl. 1, 36.) On January 11, 2008, when five stories of the Project had been completed, SFG recorded a mortgage against the Project. (Compl., Ex. C, 2; Dizard Aff. ¶ 3 Ex. 2 The SFG Loan was personally guaranteed by Phillip E. Hugh, John W. Economou, and Steve J. Economou (collectively the "Guarantors"). (Dizard Aff. ¶ 4, Ex. 3 (Compl. filed by SFG in Case No. 10-CV-1020 (N.D. Ga.)), ¶ 28) and Ex. C thereto (Guaranty Agreement).)
Work stopped at the Project in January of 2009. DOC LP became insolvent shortly afterwards. On May 27, 2009, BuyCo, Fasteignir, and Askar filed a lawsuit in this federal district court, Case Number 09-CV-533 (the "533 action") against the Proj ect's general contractor, its principals, and the former general partner of DOC LP and its principals for various claims including theft by contractor. On June 8, 2009, BuyCo also filed a lawsuit in this federal district court, Case Number 09-CV-569, (the "569 action") against the other partners of DOC LP to attempt to resolve the issues of its interest in DOC LP. On September 14, 2009, this Court allowed the Receiver to intervene in the 533 action. (Court's Decision and Order, 533 action, filed on Sept. 15, 2009, 10.) On November 10, 2009, the Court granted BuyCo, Fasteignir, and Askar's motion to consolidate the two actions and granted Dizard's motion to intervene in the 569 action. (Court's Decision and Order, 533 action filed on Nov. 12, 2009, 10-11.) The consolidated action is the 533 action.
On June 22, 2009, BuyCo filed the Receivership action, pursuant to Chapter 128 and Section 179.733 of the Wisconsin Statutes. (Dizard Aff. ¶ 5, Ex. 4 (Pet. Appointment Receiver).) The Receivership action was filed to address insolvency issues, and because DOC LP's partners were engaged in a dispute that prevented DOC LP from doing business. (Dizard Aff. ¶¶ 3-21, 34; Court's Decision and Order, 533 action, filed on Sept. 15, 2009, 4.) The Receivership action is currently pending in the state circuit court.
On July 8, 2009, after a hearing on the petition for a receiver, Judge Mel Flanagan ("Flanagan") signed an order appointing Dizard. (Dizard Aff. ¶ 6, Ex. 5 (Order Appointing Receiver)). The order appointing receiver generally allows the receiver to take control of and administer, the assets of DOC LP — primarily the Project. The order also allows the receiver to perform the following actions, among others:
b. To sell the property of [DOC LP] outside the ordinary course of business, free and clear of all liens, claims and encumbrances with any and all liens, claims and encumbrances attaching to the sale proceeds in the priority which existed prior to such sale, through public or private proceedings, in any commercially reasonable manner, subject to the prior approval of this Court;
c. To lease space in the property of [DOC LP] under terms and conditions consistent with the applicable real estate market and as commercially prudent and reasonable;
d. To bring and prosecute all proper actions for the: (a) collection of revenues derived from the property of [DOC LP], (b) removal from the property of [DOC LP] of persons not entitled to entry thereon, (iii) [sic] protection of the property of [DOC LP], and (c) any damage caused to the property of [DOC LP]
e. To employ any person or firm to collect, manage, lease, maintain and operate the property of [DOC LP] if the Receiver deems it necessary or appropriate in its discretion and judgment to do so;
f. To hire, employ and retain attorneys, certified public accountants, investigators, security guards, consultants, property management companies, brokers and any other personnel or employees (in addition to those listed in paragraph 8) which the Receiver deems necessary to assist him in the discharge of his duties;h. To confirm that the property of [DOC LP] is adequately insured, to promptly report any evidence of findings to the contrary to the parties and to the Court and, if necessary, to disburse funds for the maintenance of fire, hazard and liability insurance for the property of [DOC LP], as applicable;
l. To make any repairs to the property of [DOC LP] that the Receiver, in his discretion, deems necessary or appropriate;
u. To actively pursue and enter into bona fide financing proposals on the building project in order to satisfy creditor claims, protect equity, and complete the construction and fully open the project, if doing so is in the best interests of creditors.
SFG declined to participate in the Receivership action asserting that as a secured creditor it may not be compelled to participate in that action. (Dizard Aff. j 7, Ex. 6 ().) SFG has not provided any funding to protect the Project, to collect rents, to provide insurance, or to secure the Project. (Dizard Aff. ¶ 16.) BuyCo and other lenders for the Project, Fasteignir and Askar, have been providing the funds. (Id.)
On July 24, 2009, Dizard brought an action for declaratory relief in Milwaukee County Circuit Court, Case Number 09-CV-11574 (the "Declaratory action"), partly in response to SFG's refusal to participate in the receivership. (Dizard Aff. ¶ 8, Ex. 7 (Receiver's Compl. for Declaratory J.).) Dizard brought the Declaratory action on behalf of all of the creditors to resolve the issue of whether SFG's mortgage had priority over the subcontractor liens, or the funds advanced by BuyCo, Fasteignir, and Askar. (Id.) Dizard is obligated toaddress and resolve priority issues under the order appointing receiver, (Dizard Aff. ¶ 6, Ex. 5, ¶¶ 1, 9), and under Wis. Stat. §§ 128.17 and 179.73.
On August 17, 2009, BuyCo, Fasteignir, and Askar sought to intervene in the Declaratory action, as specifically interested entities challenging SFG's alleged priority position. (Dizard Aff. j 9, Ex. 8 ().) Uihlein Electric Company, Inc. ("Uihlein"), a primary electrical subcontractor for the Project, also sought to intervene to challenge SFG's claims to priority under Wisconsin's visible commencement of work rule in Wis. Stat. § 779.01(4). (Dizard Aff. ¶ 10, Ex. 9 (Uihlein Mot. Intervene Declaratory action dated Dec. 3, 2009).) SFG filed a motion challenging BuyCo, Fasteignir, and Askar's intervention, and for dismissal of the Declaratory Action. (Dizard Aff.¶ 11, Ex. 10 (SFG's Mot....
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