In re Aida's Paradise, LLC
In re Aida's Paradise, LLC
Opinion of the Court
MEMORANDUM OPINION DENYING TD BANK’S MOTION TO STRIKE OR DISMISS DEBTOR’S MOTION TO EQUITABLY SUBORDINATE UNSECURED CLAIM
Aida’s Paradise is a multi-member, Florida Limited Liability Company that owns valuable real property located on International Drive in Orlando’s tourist corridor. Until recently, the Debtor leased a large portion of its holdings to a restaurant op
The Debtor now seeks to equitably subordinate TD Bank’s unsecured deficiency claim in an adversary complaint and a corresponding motion to equitably subordinate,
Debtor’s Unproven Allegations Support Its Equitable Subordination Claim
On December 1, 2003, the Debtor’s principals allegedly took out a $5,000,000 loan from Colonial Bank, predecessor in interest to TD Bank, to purchase property on I-Drive.
Salt Island began leasing space for its sizeable, up-scale restaurant from the Debtor in 2004. Salt Island renewed the lease for a further five-year term in 2009.
In February 2009, the Debtor apparently fell behind on its loan payment to TD Bank, but allegedly quickly cured the monetary default in March.
To add to the Debtor’s financial problems, beginning in April 2009, Salt Island started making only partial rent payments directly to TD Bank, which forced the Debtor to pay additional funds of its own to meet its monthly loan obligations.
TD Bank next offered to allow the Debt- or to resume the direct collection of rent from Salt Island if the Debtor first would escrow $1.2 million. Debtor again refused, stating no provision in any loan document authorized TD Bank to demand such an escrow.
By that time, the Debtor had entered into discussions with a new potential tenant — Rothman’s Orlando, LLC, a New York City steakhouse looking to enter the Orlando market. While the foreclosure was pending, the Debtor entered into a 15-year lease agreement with Rothman’s for the Salt Island restaurant space, contingent upon TD Bank executing a non-disturbance agreement agreeing not to evict Rothman’s upon a foreclosure of the Debtor’s interest in the Property.
TD Bank allegedly declined to sign the non-disturbance agreement, instead adding Rothman’s as a defendant to its foreclosure complaint.
On July 29, 2010, after fifteen months of making only partial rent payments and failing to secure a new tenant, Salt Island closed its doors and ceased operations.
Debtor’s Schedule D lists a secured debt owed to TD Bank in the amount of $9 million. Both parties agree the real property securing the debt is worth vastly less than $9 million and that TD Bank has a very large unsecured, deficiency claim.
The Debtor argues it is entitled to the relief requested in both cases for the same reasons; because TD Bank actively frustrated the Debtor’s efforts to evict Salt Island and secure a new tenant and because TD Bank’s actions resulted in significant damage to the restaurant.
TD Bank’s Motion to Strike or Dismiss is Denied
TD Bank filed a Motion to Strike, or alternatively a Motion to Dismiss, the Debtor’s motion to equitably subordinate TD Bank’s unsecured claim. Correspondingly, TD Bank requests the permission of the Court to use Bankruptcy Rule 7012, (which allows the use of Federal Rule of Civil Procedure 12(f)) to strike or dismiss the Debtor’s adversary proceeding and similar motion to equitably subordinate.
The Debtor contests the motion to strike or dismiss first on procedural grounds,
Understandably, TD Bank hotly contests the Debtor’s efforts to equitably subordinate its claim. Of all the tools in a bankruptcy toolbox, equitable subordination has one of the most significant effects on the parties’ rights because it permits a debtor to classify a large unsecured deficiency claim, such as TD Bank’s, separately from the class of general unsecured claims.
TD Bank requests that the Court strike the Debtor’s equitable subordination attack because the Debtor’s “allegations have no possible relation to the controver
For the same reason, TD Bank’s motion to dismiss TD Bank’s motion to equitably subordinate must be denied. A motion to dismiss under Rule 12(b)(6) may not be used to strike another routine motion. The rule is appropriately used to dismiss a pleading where a party has failed to properly state a claim for relief. The Debtor’s motion to equitably subordinate is not a pleading subject to a motion to dismiss.
However, TD Bank’s motion to dismiss is applicable to the Debtor’s consolidated adversary complaint, which the Court may address on its merits. Dismissal is appropriate if the plaintiff “can prove no set of facts that would support the claims in the complaint.”
To state a claim for equitable subordination in the Eleventh Circuit, the Debtor must make a plausible showing that (1) the creditor has engaged in some kind of inequitable conduct; (2) the conduct has injured other creditors or given the creditor an unfair advantage, and (3) subordination of the creditor’s claim is not otherwise inconsistent with the Bankrupt
The Bankruptcy Code defines an insider as an officer, director, or person in control of the Debtor corporation.
The motion before the Court today is TD Bank’s motion to dismiss the Debtor’s motion and complaint seeking equitable subordination of TD Bank’s unsecured deficiency. The Court does not need to opine on whether TD Bank is a fiduciary or whether its claim should be subordinated. We leave those factual issues for another day based on evidence of the parties. The standard articulated in this Memorandum Opinion simply is instructive to the parties in their further discussions and negotiations. The Court here merely must determine whether the Debtor has met its pleading burden under Federal Rule 12(b)(6). The Court-finds it has.
The Debtor’s claim for equitable subordination goes beyond the minimum inferential requirement necessary to defeat TD Bank’s motion to dismiss. The Debtor has outlined in detail allegations giving rise to numerous ways in which TD Bank presumably interfered with its operations and asserted unwarranted and un-welcomed control over its relationship with Salt Island. The Debtor has stated with sufficient particularity why it claims TD Bank’s actions were unfair and how they allegedly caused the Debtor harm.
Independently, each of TD Bank’s decisions may be justifiable under the loan
The question is the level of degree, and whether TD Bank went too far in protecting its interest at the expense of the Debtor’s ability to operate successfully. At the very least, the Court must look at the totality of the circumstances on a case-by-case basis
In this case, the aggregate degree of TD Bank’s control over the Debtor in declining to execute a non-disturbance agreement with a viable new tenant, in requiring additional warranties, representations, and a substantial escrow of $1.2 million, and in continuing to redirect rents and forestall Salt Island’s eviction, is a question of fact not appropriate for resolution at this motion to dismiss stage.
At a minimum, the Debtor’s allegations provide sufficient information to suggest TD Bank may have become a fiduciary, and the Debtor has stated a plausible claim for relief. TD Bank’s motion to use Bankruptcy Rule 7012 and its motion to strike or dismiss the Debtor’s pleading in the consolidated adversary are denied. And, as stated, TD Bank’s motion to use Bankruptcy Rule 7012 and its motion to strike or dismiss the Debtor’s motion to equitably subordinate TD Bank’s claims also are denied because they are not procedurally proper. A separate order consistent with this Memorandum Opinion shall be entered.
DONE AND ORDERED.
. Doc. No. 69 (Motion to Equitably Subordinate); Adversary Proceeding No. 6:12-ap-00026-KSJ (complaint seeking equitable subordination of TD Bank's unsecured claim).
. Doc. No. 85. TD Bank also filed a motion permitting the use of Bankruptcy Rule 7012 (Doc. No. 122), which allows a party to use Federal Rule of Civil Procedure 12(f) to ask a court to strike from a pleading an insufficient defense or any redundant, immaterial, impertinent, or scandalous matter.
. Doc. No. 69 at 3.
. Id. at 3.
. Id. at 4.
. Id. at 3.
. Doc. No. 144 at 3 and Exhibit C.
. Doc. No. 69 at 5.
. TD Bank claims the Debtor did not cure all defaults and, specifically, that the Debtor owed its 2008 real property taxes and failed to produce financial statements as required under the loan documents.
. Id. at 5.
. Id. ató.
. Doc. No. 69 at 6.
. Id.
. Id. at 6-7.
. Id. at 7.
. Id. at 8. Mercantile Bank v. Adil R. Elias, et al., Case No. 2010-CA-016620-0, Circuit Court for the Ninth Judicial Circuit in Orange County, Florida.
. Id. at 9.
. Doc. No. 69 at 7.
. Id.
. Id.
. Doc. No. 25, Schedule D. The value of the real property and, as a result, TD Bank’s secured and unsecured claims, will be determined at an oral ruling on the Debtor's Motion to Value the TD Bank's claims (Doc. No. 68) scheduled for January 7, 2013.
. Doc. No. 69 Motion to Equitably Subordinate Unsecured Claim of TD Bank. All references to the Bankruptcy Code shall be to 11 U.S.C. § 101 etseq.
. Adversary Proceeding No. 6:12-ap-00026-KSJ.
. Doc. No. 21 in Adversary Proceeding No. 6:12-ap-00026-KSJ (granting the Debtor's Motion to Consolidate Doc. No. 72).
. Doc. No. 72 at 2.
. Doc. No. 85 (TD Bank’s Motion to Strike or Dismiss); Doc. No. 122 (TD Bank's Motion for Permission to use Bankruptcy Rule 7012 making Federal Rule of Civil Procedure 12(f) applicable.)
. Doc. No. 85.
. Doc. No. 85 at 2-4.
. Id. at 1-2; Doc. No. 144 at 2. TD Bank also argues all defaults were not cured because the Debtor was delinquent in paying 2008 real estate taxes and failed to provide quarterly financial statements to the bank, two non-monetary defaults under the loan documents.
. Doc. No. 85 at 2, 11-12.
. Id. at 9-10; Doc. No. 144 at 4 (pointing to Fla. Stat. § 83.202 which states "acceptance of the full amount of rent, with knowledge of a tenant’s breach of the lease by non-payment shall be considered a waiver.”).
. Doc. No. 85 at 2; Doc. No. 144 at 4.
. Doc. No. 120 at 2, in which the Debtor argues a motion to strike from a pleading, under Federal Rule of Civil Procedure 12(f), does not apply to motions.
. Doc. No. 120 at 5.
. 11 U.S.C. § 1122 (stating "Except as provided in (b) of this section, a plan may place a claim or an interest in a particular class only if such claim or interest is substantially similar to the other claims or interests in such class.”).
. 11 U.S.C. § 1126(c).
. 11 U.S.C. § 1129(a)(10).
. Regions Bank v. Commonwealth Land Title Ins. Co., 2012 WL 5410609 (S.D.Fla. Nov. 6, 2012) (citing Seibel v. Society Lease, Inc., 969 F.Supp. 713, 714 (M.D.Fla. 1997)); Fine’s Gallery, LLC v. From Eur. To You, Inc., 2011 U.S. Dist. LEXIS 133357, *2 (M.D.Fla. 2011).
. See Herrerra v. Michigan Dept. of Corr., 2011 WL 3862426 (E.D.Mich. July 22, 2011) (noting "Importantly, the rule provides that, except for a court-ordered reply to an answer, 'no other pleading shall be allowed.' (citing Fed.R.Civ.P. 7(a))). “Thus, motions, briefs, and affidavits do not constitute ‘pleadings’ subject to Rule 12(f).” Id. (citing Trujillo v. Board of Educ. of the Albuquerque Pub. Schs., 230 F.R.D. 657, 660 (D.N.M. 2005)); Thomas v. Bet Sound-Stage Restaurant/BrettCo, Inc., 61 F.Supp.2d 448, 458 (D.Md. 1999); United States v. Crisp, 190 F.R.D. 546, 550 (E.D.Cal. 1999); and, VanDanacker v. Main Motor Sales Co., 109 F.Supp.2d 1045, 1047 (D.Minn. 2000); Jallali v. Am. Osteopathic Ass’n, 2011 WL 2039532 (S.D.Fla. May 25, 2011); Morroni v. Gunderson, 169 F.R.D. 168, 170 (M.D.Fla. 1996) (citing Weiss v. PPG Industries, Inc., 148 F.R.D. 289, 292 (M.D.Fla. 1993)); See also 5C Charles Alan Wright & Arthur R. Miller, Federal Practice and Procedure § 1380 (3d ed. 2004) (citations omitted).
. Davila v. Delta Air Lines, Inc., 326 F.3d 1183, 1185 (11th Cir. 2003).
. Ashcroft v. Iqbal, 556 U.S. 662, 663, 129 S.Ct. 1937, 1949, 173 L.Ed.2d 868 (2009) (citing Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 556-57 & 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007)).
. Id.
. In re N & D Properties, Inc., 799 F.2d 726, 731 (11th Cir. 1986).
. Id. (citing In re Multiponics, 622 F.2d 709, 714 (5th Cir. 1980)).
. Id.
. In re N & D Properties, Inc., 799 F.2d at 731-32 (citing In re Ludwig Honold Mfg. Co., 46 B.R. 125 (Bankr.E.D.Pa. 1985) and In re W.T. Grant, 699 F.2d 599 (2d Cir. 1983)).
. 11 U.S.C. § 101(28)(B).
. Matter of Teltronics Services, Inc., 29 B.R. 139, 169-70 (Bankr.E.D.N.Y. 1983) (stating "Apart from the provisions of bankruptcy law, such as the automatic stay on collection activity, a creditor normally has an unqualified right to call a loan when due, to refuse to extend a loan for any cause or no cause at all, and to lawfully enforce collection.”).
.Id. at 170 (citing In re Prima Co., 98 F.2d 952, 965 (7th Cir. 1938)) (noting "Where the creditor controls the corporate debtor by voting control of its stock, dominate influence in its management or ability, or otherwise to control its business affairs, the creditor may have a fiduciary duty to its corporate debt- or.”).
. In re Cottonwood Corners Phase V, LLC, 2012 WL 566426 (Bankr.D.N.M. Feb. 17, 2012) (declining to hold lender liable for failing to execute an SNDA to a prospective tenant while the debtor's loan was accelerated and the lender presented evidence that more favorable opportunities existed).
. In re Am. Lumber Co., 5 B.R. 470, 473 (D.Minn. 1980) (finding equitable subordination appropriate where the lender, even with the technical authority to do so, exerted such control over the debtor as to perpetuate a fraud upon the general unsecured creditors).
. Matter of Teltronics Services, Inc., 29 B.R. at 170 (citing Bartlett & Lapatin, The Status of a Creditor as a Controlling Person, 28 Mercer L. Rev. 639, 655-57 (1977)).
. In re Aluminum Mills Corp., 132 B.R. 869, 893 (Bankr.N.D.Ill. 1991).
. Matter of Teltronics Services, Inc., 29 B.R. at 168.
. See Luria v. United States Department of Agriculture (In re Taylor Bean & Whittaker Mortgage Corporation), 470 B.R. 219 (Bankr.M.D.Fla. 2012) (citing HLI Creditor Trust v. Export Corp. (In re Hayes Lemmerz Int'l, Inc., 313 B.R. 189 (Bankr.D.Del. 2004))).
Reference
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- In re AIDA'S PARADISE, LLC, Debtor
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