Stonehill Institutional Partners, L.P. v. Frac Diamond Aggregates LLC

• Decision Date: 24 November 2014
• Docket Number: Index No. 654300/2013
• Citation: 2014 NY Slip Op 33037 (U)
• Court: New York Supreme Court
• Parties: STONEHILL INSTITUTIONAL PARTNERS, L.P. and ELLE INVESTMENTS, LLC, Plaintiffs, v. FRAC DIAMOND AGGREGATES LLC, RYAN L. HESS, ALLIANCE CONSTRUCTION GROUP LLC, E-COSYSTEMS, LLC, H&H AGGREGATES, LLC, H&H TRUCKING L.L.C., PROTEMP, LLC, SUN COAST CONTRACTING SERVICES, LLC, TEAM PRO-TREE, LLC, and TITAN RENTALS, LLC, Defendants.

2014 NY Slip Op 33037(U)

STONEHILL INSTITUTIONAL PARTNERS, L.P. and ELLE INVESTMENTS, LLC, Plaintiffs,
v.
FRAC DIAMOND AGGREGATES LLC, RYAN L. HESS, ALLIANCE CONSTRUCTION GROUP LLC,
E-COSYSTEMS, LLC, H&H AGGREGATES, LLC, H&H TRUCKING L.L.C., PROTEMP, LLC,
SUN COAST CONTRACTING SERVICES, LLC, TEAM PRO-TREE, LLC, and TITAN RENTALS, LLC, Defendants.

Index No. 654300/2013

SUPREME COURT OF THE STATE OF NEW YORK COUNTY OF NEW YORK : PART 45

November 24, 2014

DECISION AND ORDER

Motion Sequence No. 002

MELVIN L. SCHWEITZER, J.:

Stonehill Institutional Partners, L.P. and Elle Investments, LLC (collectively, Plaintiffs) have brought an enforcement action to obtain an order of reference, to confirm sale, and to determine the amount of a deficiency judgment against defendants Frac Diamond Aggregates LLC, Ryan L. Hess (Mr. Hess), Alliance Construction Group LLC, E-cosystems, LLC, H&H Aggregates, LLC, H&H Trucking L.L.C., Protemp, LLC, Sun Coast Contracting Services, LLC, Team Pro-Tree, LLC, and Titan Rentals, LLC (collectively, Defendants). Defendants have moved to dismiss THE COMPLAINT on three grounds. First, they claim that one of the Defendants, Alliance Construction Group LLC (ACG) is in bankruptcy proceedings in Mississippi, is subject to bankruptcy's automatic stay, and is an indispensible party to this litigation (CPLR 3211 (a) (10)). Second, they claim that the Plaintiffs fail to state ripe claims (CPLR 3211 (a) (7)). Third, they claim, with respect to Mr. Hess, individually, that, Plaintiffs

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filed an action against him through their administrative agent, Spectrum Origination LLC (Spectrum), and that action (Enforcement Action) involved identical claims and equivalent parties (CPLR 3211 (a) (4)). Alternatively, Defendants ask the court to stay this action pursuant to CPLR 2201 pending the litigation of identical issues in Mississippi Bankruptcy Court or construe the automatic stay (11 USC § 362) to apply here because any determination is likely to affect ACG.

Background

Frac Diamond Aggregates (FDA) and ACG borrowed $30,800,000 from Defendants or their predecessors pursuant to a Credit Agreement dated as of May 18, 2012 (the Credit Agreement). FDA granted a security interest in the form of a Deed of Trust on a mine located in Hancock County, Mississippi (the Mine). ACG granted a security interest in its leasehold interest for its drying facility located in Pearl County, Mississippi, together with certain equipment and personal property (Drying Facility Assets). The other Defendants (the Guarantor Defendants) guaranteed the obligations of FDA and ACG.

By letter dated May 13, 2013, Spectrum, the Plaintiffs' Administrative Agent, notified the borrowers that their failure to pay interest on May 10, 2013, or within the applicable grace period, constituted an event of default under the Credit Agreement (the Event of Default). By letter dated July 16, 2013, Spectrum again advised borrowers of one or more Events of Default. By letter dated July 30, 2013, Spectrum yet again notified borrowers of the continuing Events of Default, that Spectrum elected to accelerate the maturity date of the loan, and demanded immediate repayment of all principal and interest. Notwithstanding this notice and demand, the borrowers failed to repay any principal or interest. By letters dated July 30, 2013, Spectrum demanded that the Guarantor Defendants repay the principal and interest due on the loan.

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At a non-judicial foreclosure held on October 1, 2013 in Hancock County, Mississippi, the Mine was sold at auction. Spectrum, on behalf of the Plaintiffs, submitted a $4,000,000 credit bid, and acquired the Mine through Mine Assets Holding, LLC. Although Spectrum sought to foreclose on the Drying Facility Assets, on October 3, 2013 creditors of ACG filed an involuntary bankruptcy proceeding under Chapter 11 of the United States Bankruptcy Code, thereby staying the foreclosure.

Prior to the Mine foreclosure, but after default, Spectrum commenced the Enforcement Action against Mr. Hess, pursuant to CPLR 3212, seeking amounts due under his guaranty. Spectrum foreclosed on the Mine during the pendency of the Enforcement Action and Mr. Hess asserted that the public auction sale price did not reflect the fair market value of the Mine. This court rejected Mr. Hess's arguments and granted Spectrum's motion for summary judgment in lieu of complaint (the April 18 Decision and Order), crediting...