Wilmington Trust v. Pinnacle Land Grp., LLC (In re Pinnacle Land Grp., LLC), Case No. 17-23339-GLT
| Decision Date | 10 September 2018 |
| Docket Number | Case No. 17-23339-GLT |
| Parties | In re: PINNACLE LAND GROUP, LLC, Debtor. WILMINGTON TRUST, NATIONAL ASSOCIATION, AS TRUSTEE FOR THE REGISTERED HOLDERS OF B2R MORTGAGE TRUST 2015-2 MORTGAGE PASS THROUGH CERTIFICATES, Movant, v. PINNACLE LAND GROUP, LLC, Respondent. |
| Court | U.S. Bankruptcy Court — Western District of Pennsylvania |
Related to Dkt. Nos. 52, 75
Gloria R. Buckley, Esq.
Robert L. Grundlock, Jr., Esq.
Rubin, Ehrlich & Buckley, P.C.
Lawrenceville, NJ
Attorney for the Movant
Donald R. Calaiaro, Esq.
Calaiaro Valencik
Pittsburgh, PA
Attorney for the Respondent
Pinnacle Land Group, LLC ("Pinnacle") obtained a loan from Wilmington's predecessor, pledging its assets as collateral, but Wilmington now believes it was hoodwinked. It claims that Pinnacle was created to obscure the true owners of the real estate assets, Michael Staaf ("Staaf") and his mother, Joann Jenkins ("Jenkins"), by temporarily transferring their interests to an entity controlled by a third-party, Michelle Person ("Person"), in order to obtain financing for a maturing loan. Wilmington now seeks dismissal of Pinnacle's bankruptcy caseor, alternatively, stay relief to reinstate a state court-appointed receiver and continue mortgage foreclosure proceedings.2 Pinnacle opposes such relief by offering a plan of reorganization that would validate the equity held by Staaf and Jenkins while substantially modifying Wilmington's claim. After conducting an evidentiary hearing, the Court concludes that Pinnacle's chapter 11 case does not serve a valid reorganizational purpose. Rather, the case exists solely to sanctify a ruse perpetuated on the lender, if not advance it. Because the apparatus of the bankruptcy system cannot be used for such nefarious purposes, the case will be dismissed with prejudice.
For over 20 years, Staaf managed an eclectic portfolio of over 400 rental units through his management company, 2M Management Group, LLC ("2M").3 He also acted as a mortgage and real estate broker.4 In 2012, Staaf began serving four years in a federal correctional institution after pleading guilty to charges of conspiracy to commit bank fraud and money laundering arising from his mortgage brokerage business.5 Before entering prison, Staaf transferred interests in his existing real estate businesses to his mother (Joann Jenkins), father (Werner Staaf), and his ex-wife (Amy Staaf).6 Jenkins held title to her respective properties either in her own name or through her affiliates, Pro Equity, LLC and EON Properties, LLC.7
Jenkins encountered "a lot of problems" managing her real estate holdings in Staaf's absence.8 Staaf recommended Neil Metzger ("Metzger"), an individual he met in prison, to Jenkins as someone who could assist with the business.9 During the nine months they served together, Staaf found Metzger to be "very organized" and "trustworthy."10 Jenkins was similarly "impressed" with Metzger and agreed to have him run the operations until Staaf was released.11
By 2014, Jenkins was in need of financing. Delinquent real estate tax obligations had accrued on her properties and a balloon payment was about to come due under an existing loan.12 Jenkins was seemingly unable to obtain a loan in her own name,13 so Julian Hickman ("Hickman") and his business partner, Person, were enlisted to procure a loan that would refinance her existing secured debt.14 Hickman is not a mortgage broker, but he has connections to real estate brokers and experience in structuring real estate transactions.15 Person works as an elementary school principal in Cleveland, and together she and Hickman share ownership of several real estate investment companies.16
How exactly Hickman and Person became involved in the transaction is unclear. Jenkins did not know Hickman or Person, and never met them until years later.17 Person testified that Hickman "knew Mike,"18 though Staaf insisted that he did not meet "Julian or Michelle in person, until after [he] had come home, which was several years after the loan had taken place."19 Jenkins testified that Metzger "mentioned" Person to her,20 but that does not establish that Metzger was the introductory connection. Though the Court need not resolve this issue, the testimonial inconsistencies are notable and bear on the credibility of the witnesses.
Hickman ultimately devised a plan to transfer Jenkins' properties to a newly-formed entity that would function as the borrower with Person serving as the borrower's principal and guarantor.21 But Person and Jenkins each deny knowledge of certain critical details of the transaction. Person testified that she neither knew, nor asked, why Jenkins was not signing the loan herself, but agreed to do so as an "accommodation" to Hickman.22 Moreover, she insisted that the transaction was mostly handled by others and that she was only "vaguely" involved to the extent that she signed the documents.23 Person acknowledged, however, that she was the designated principal for the real estate transactions because she has better credit than Hickman.24 This suggests that Person was specifically chosen because she projected to be the most qualified borrower among other available options. For her part, Jenkins was not involvedin the transaction aside from signing some documents Metzger handed her, and never received any of the loan documents or money after the closing.25 Although potentially unaware of each detail of the transaction, Jenkins repeatedly testified that she understood that the properties were being transferred to Person so that money could be borrowed against them, and that once the financing was complete, Person would return control of the properties to her.26
The plan's initial phase began in autumn 2014. Jenkins and her affiliates, Pro Equity and EON Properties, conveyed four properties to ABCD Development & Consulting, LLC, an entity owned by Hickman and Person.27 Despite the consideration stated on each of the deeds, the parties agree that no money actually changed hands during the transfers.28
The second phase involved the creation of the new borrower entity—Pinnacle Land Group. To that end, Person formed "Pinnacle Land Group, LLC," a Delaware limited liability company authorized to conduct business in Pennsylvania, in November 2014 ("DE-Pinnacle").29 At the time of its formation, Person held 100% of the membership interests in DE-Pinnacle and was its sole manager.30
Curiously, there is another similarly named entity whose mere existence has sown confusion in this case. "Pinnacle Land Group LLC," is a Pennsylvania limited liability company formed on or before April 11, 2014 ("PA-Pinnacle"), approximately four months prior to theinitial property transfers to ABCD Development.31 Although Staaf denies any knowledge of or involvement in establishing PA-Pinnacle, the information submitted to the Pennsylvania Department of Revenue identifies him as its owner and his personal information (including social security number, date of birth, and home address) was used to substantiate its registration with the state.32 In addition to having different domiciles and members, PA-Pinnacle and DE-Pinnacle also have different tax identification numbers33 and are distinctly punctuated.34 It does not appear that PA-Pinnacle has ever operated or has any assets.35
With DE-Pinnacle in place, Hickman prepared deeds to transfer the real estate assets.36 On June 15, 2015, DE-Pinnacle obtained title to the four properties previously transferred to ABCD Development, as well as an additional property from Pro Equity.37 Two weeks later, Amy Staaf conveyed two of her properties to DE-Pinnacle.38 A final property was transferred on July 6, 2015 from Melmic, LLC, a company owned by Amy Staaf.39 In all, DE-Pinnacle received title to eight parcels of real property located in Allegheny and BeaverCounties. Notably, all of the properties transferred to DE-Pinnacle were at one time purchased by Staaf or one of his companies.40
During the course of his incarceration, Staaf was aware that Jenkins was pursuing a much needed refinancing with the assistance of Hickman.41 Nevertheless, he testified that he was surprised to learn that the plan required her to transfer the properties out of her name.42 Indeed, when Jenkins informed him, Staaf "told her to stop" and "called the office to yell at Neil Metzger about it."43 The next day, Staaf suggests Metzger attempted to silence him by falsely reporting Staaf's use of a cellphone to the prison, resulting in the revocation of Staaf's phone and email privileges and a delay in his release date.44 It is unclear when this incident purportedly occurred. Staaf was due to come home in four months, yet the transfers occurred over a span of ten months.45 Conspicuously, Jenkins did not mention Staaf's warning or otherwise offer any corroborating testimony.
The final phase of the plan called for third-party financing. On June 30, 2015, B2R Finance L.P. provided a $535,000 loan to DE-Pinnacle that was secured by mortgage liens on all eight properties.46 Person executed the loan documents on behalf of DE-Pinnacle as its "sole member and manager."47 Person also delivered a personal guaranty of all obligations owedunder the loan documents.48 B2R subsequently assigned its interests in the loan to Wilmington in November 2015.49
It is clear that Person played a determinative part in B2R's decision to fund the loan. During its due diligence process, B2R evaluated and assessed Person's background. It performed a credit check,50 analyzed past and pending litigation against her,51 and it scrutinized her financial information. Among other things, B2R tested Person's net worth and liquidity to assess her ability to personally support up to six months of debt service payments on the underlying loan.52 Upon making a determination to fund the loan, it appears that B2R relied heavily upon Person's knowledge and involvement, including her "years of real estate...
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