Speier v. Argent Mgmt., LLC (In re Palmdale Hills Prop., LLC), Case No.: 08-bk-17206-ES

• Decision Date: 02 August 2017
• Docket Number: Adv No: 1:16-ap-01120-GM,Case No.: 08-bk-17206-ES
• Court: United States Bankruptcy Courts. Ninth Circuit. U.S. Bankruptcy Court — Central District of California
• Parties: In re: Palmdale Hills Property, LLC, and related Debtors Debtor(s). Steven M Speier Plaintiff(s), v. Argent Management, LLC, SunCal Management LLC Defendant(s).

In re: Palmdale Hills Property, LLC, and related Debtors Debtor(s).

Steven M Speier Plaintiff(s),
v.
Argent Management, LLC, SunCal Management LLC Defendant(s).

Case No.: 08-bk-17206-ES
Adv No: 1:16-ap-01120-GM

UNITED STATES BANKRUPTCY COURT CENTRAL DISTRICT OF CALIFORNIA SAN FERNANDO VALLEY DIVISION

August 2, 2017

CHAPTER 11

(re: SunCal Marblehead, LLC)

MEMORANDUM OF DECISION GRANTING IN PART AND DENYING IN PART THE TRUSTEE'S MOTION FOR PARTIAL SUMMARY ADJUDICATION

Date: May 30, 2017
Time: 10:00 a.m.
Courtroom: 303

Plaintiff Stephen M. Speier (the "Trustee"), as chapter 11 trustee for debtor SunCal Marblehead, LLC (the "Debtor"), has brought a motion for partial summary adjudication of his restitution and/or unjust enrichment claim for relief against defendant SunCal Management, LLC ("SCM" and with Argent Management, Inc. ("Argent"), the "Defendants").

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Table of Contents

BACKGROUND AND OVERVIEW ............................................................................. 1

MOTION ........................................................................................................................ 5

OPPOSITION ................................................................................................................ 9

REPLY .......................................................................................................................... 15

LEGAL STANDARDS ................................................................................................. 20

ANALYSIS ................................................................................................................... 22

I. The Trustee has shown as a matter of undisputed fact that SCM received a benefit from the Debtor: the payment of $9 million of Management Fees .................. 22

II. The Trustee has shown as a matter of undisputed fact that SCM's retention of the Management Fees was unjust ............................................................................. 22

A. In the Declaratory Relief Orders, the Court found that SCM had no legal entitlement to receive Management Fees from the Debtor .................................... 22
B. The Court will apply these findings from the Declaratory Relief Orders as law of the case ................................................................................................................. 23
C. SCM's lack of legal entitlement establishes that its retention of the Management Fee payments is unjust .................................................................... 26

III. It nonetheless remains a matter of disputed fact whether SCM's receipt and retention of the Management Fee payments constitute actionable unjust enrichment under California law ................................................................................................... 27

A. Existence of a governing contract, "receipt of the exchange expected," and equitable principles from fraudulent transfer law are not applicable ....................... 27

1. Existence of a contract governing the rights of the parties ........................ 27
3. Fraudulent transfer precedent ................................................................... 31

B. "Voluntary Payment" and "Incidental Benefit" Doctrines may be applicable .... 31

1. Voluntary Payment Doctrine ...................................................................... 31
2. Incidental Benefit to the Debtor ................................................................. 33

IV. Affirmative Defenses ....................................................................................... 37

A. Equitable estoppel and res judicata ................................................................ 37

1. Res Judicata .............................................................................................. 37
2. Equitable Estoppel ..................................................................................... 38

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B. Laches and Statute of Limitations ................................................................... 39

1. Laches ....................................................................................................... 39
2. Statute of Limitations ................................................................................. 41

1. The FAC Dismissal Order ...................................................................... 41
2. Applicable Statute of Limitations ............................................................ 42
3. Applicability of §546(a) ........................................................................... 44

RULING ....................................................................................................................... 46

EVIDENTIARY OBJECTIONS ................................................................................... 46

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BACKGROUND AND OVERVIEW

This motion for partial summary adjudication is made in one of twelve related adversary proceedings now before this Court. The twelve debtors involved in these adversary proceedings are in turn part of a larger related group of twenty-six debtors (the "SunCal Debtors") that were formed to develop residential real estate projects in the Western United States (the "Projects"). (The Debtor's project was located in Orange County and is known as the "Project" or the "Marblehead Project.")

Defendant SCM was formed to provide development management services to the SunCal Debtors. Defendant Argent allegedly also provided management services to the Debtors and is allegedly a successor-in-interest, alter ego, etc. of SCM.

Each of the Projects had received funding from Lehman Brothers Holding, Inc. and related entities (collectively "Lehman"), which had first-priority deeds of trust and equity interests in each Project, and had also agreed to provide continuing funding. Lehman's failure to provide that funding appears to have precipitated the chapter 11 filings (seventeen voluntary and nine involuntary) of the SunCal Debtors in November 2008.

The Trustee had been appointed the chapter 11 trustee for each of the involuntary SunCal Debtors, including the Debtor, and - through two plans of reorganization governing various SunCal Debtors that were each confirmed in January 2012 - was appointed the liquidating trustee of most of the SunCal Debtors, including the Debtor.

In May 2012, the Trustee filed the twelve subject complaints (which were twice subsequently amended) against the Defendants seeking to recover substantial

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payments for management fees and expenses made by the twelve relevant SunCal Debtors to SCM during the four-year period prior to each SunCal Debtor's bankruptcy, by asserting claims for breach of contract, restitution/unjust enrichment, fraudulent transfer, and preferential transfer. (The operative Second Amended Complaint (the "SAC") in this proceeding was filed on May 14, 2014.)

In this adversary proceeding, these management fees and expenses were invoiced by SCM pursuant to a Development Management Agreement dated June 10, 2005 ("DMA") between SCM and SCC JV Ventures, LLC ("SCC JV Ventures"). [Ex. B to Ex. 3 of Request for Judicial Notice in support of the Motion (dkt. 435; "Motion RJN")]

SCC JV Ventures is the operating member and 15% owner of SunCal Master JV, LLC ("Grandparent"), which in turn is the sole owner/member of SunCal Marblehead Mezz Borrower, LLC ("Parent"), which in turn is the sole owner/member of the Debtor. (Lehman was the owner of the remaining 85% of the Grandparent. Lehman and SCC JV Ventures entered into a "Grandparent Operating Agreement," governing the operation of the Grandparent.

In this motion, the Trustee is seeking adjudication of his unjust enrichment/restitution claim against SCM seeking the return of $9,163,489 paid by the Debtor to SCM between June 10, 2005 and the Debtor's November 2008 petition date. Although the parties' legal arguments are varied and complex, the Trustee is essentially arguing that the Debtor has no legal responsibility for these fees: the DMA is the exclusive document governing the fees and the DMA provides for the payment of the fees by SCC JV Ventures, not the Debtor. SCM is essentially arguing that the management fees were for developing the Marblehead Project, which was the Debtor's property, so these fees were the Debtor's responsibility and the parties' course of

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dealing and other contracts support this understanding.

PLAINTIFF'S UNDISPUTED FACTS (omitting facts set forth above and edited for brevity and clarity)

• The DMA vested SCM with the responsibility of performing certain development management services for the Marblehead Project, providing in part:

The [Debtor] is the owner of that certain real property ... commonly known as the "Marblehead Coastal Project" (the "Property"). It is the intent of [Debtor] to improve and develop the Property to create buildable residential lots for sale to merchant builders and, if applicable, commercial lots for sale to other developers. . . .
SCC JV Ventures, as the Operating Member of SunCal Masters JV, is obligated to perform certain development management functions with respect to the Project and desires to engage the services of [SCM] to perform certain of such development management functions, as specified in this Agreement.
[SCM] possesses unique and valuable knowledge of the Property and the Project and has sufficient personnel, accounting systems and other infrastructure in place so as to allow it to perform the required development, marketing, and sale of the Project. For that reason, SCC JV Ventures desires to engage the services of [SCM] to perform the development and management functions set forth below ...
....
Subject to the direction of SCC JV Ventures, [SCM] shall use its best efforts ... to timely and professionally perform, contract for or supervise all Development and Sale Services & Functions that are required to be provided in connection with the development, marketing and sale of the Project, including all services in connection

...