La Palma East Properties v. F&M Bank
Published: May 28, 2003 | Result Date: Mar. 19, 2003 | Filing Date: Jan. 1, 1900 |Case number: 02CC05038 Verdict – $0
Judge
Court
Orange Superior
Attorneys
Plaintiff
Kenneth J. Catanzarite
(Catanzarite Law Corp.)
Defendant
Facts
According to the defendant: In December 1989, the plaintiff, La Palma East Properties (La Palma), borrowed $3.6 million from the defendant, F&M and signed a promissory note agreeing to repay that sum with interest. The note was secured by a deed of trust encumbering real property owned by La Palma and by Valley Business Center (VBC). In December 1991, VBC borrowed $420,000 from F&M and signed a separate promissory note agreeing to repay that sum with interest. That note was secured by a deed of trust encumbering real property owned by VBC. The plaintiffs claimed, about five years after F&M began foreclosure proceedings on the properties, that F&M received more money than that which was owed to it under the two promissory notes, that F&M failed to properly account for the rental income received from the properties and that it failed to properly manage the properties during the foreclosure process, and that, therefore, it owed some undisclosed amount of money to the plaintiffs. In December 1996, involuntary bankruptcy proceedings were filed against La Palma and VBC. Although related factually, the two bankruptcy cases were never consolidated. In the La Palma bankruptcy, on July 31, 1997, the bankruptcy court converted the case from Chapter 7 to Chapter 11, and appointed a Chapter 11 Trustee. The La Palma trustee brought a motion to sell the La Palma Properties, free and clear of liens, including F&M's lien. On Dec. 30, 1997, the bankruptcy court ordered the sale of the La Palma Properties to Trico Rents, free and clear of F&M's lien. Thereafter, La Palma's trustee and F&M entered into an agreement resolving all disputes between them. The bankruptcy court, after notice to all interested parties, including the plaintiffs, approved the stipulation. Similar events occurred in the VBC bankruptcy. The VBC Chapter 7 case was converted to a Chapter 11 case and a Chapter 11 Trustee was appointed. The VBC Properties were also the subject of a motion by the trustee to sell them free and clear of liens, including F&M's lien. F&M filed a Proof of Claim in the VBC bankruptcy for $5,981,435 not including attorney's fees and costs estimated at $130,000. The bankruptcy court entertained overbids on the trustee's application to sell the VBC properties. F&M was the successful bidder, by agreeing to reduce the loan balances owing to it by $4.1 million. The bankruptcy court found that the purchase price paid for the VBC Properties was fair and reasonable, and entered an Order to that effect. The Order also stated that ". . . the successful bidder (F&M) is not an insider of the Debtor, the sale was negotiated and entered into in good faith and that the successful bidder (F&M) is a good faith purchaser. . ." The Order was entered March 13, 1998. This court action was commenced March 29, 2002, more than four years later. On June 10, 1998, the bankruptcy court dismissed the VBC case and ordered, in part: "It is further ordered that jurisdiction is reserved by this court for any dispute or issues regarding any of the matters relating to the above-entitled case or any matters related to the estate, the Trustee, or the Trustee's professionals." VBC (like La Palma) was given notice of all relevant motions and events occurring in the bankruptcy proceedings. VBC, like La palma, had the opportunity to object but failed to do so.
Settlement Discussions
OTHER INFORMATION: ACCORDING TO THE PLAINTIFF: The state court judge refused to accept jurisdiction over the partnership's action against F&M Bank on the ground that the bankruptcy court's order of dismissal of the partnership's ch. 11 cases reserved (non-exclusive) jurisdiction to the bankruptcy court. The dismissal order in the La Palma East Properties bankruptcy states: . . . jurisdiction is reserved by this Court for any disputers or issues regarding any of the matters relating to the above-entitled case or any matters related to the estate, the Trustee, the Trustee's professionals, distributions under this order, or any matter relating to the settlement agreement where the trustee was a party or a third party beneficiary. The dismissal order tin the Valley Business Center bankruptcy is substantially the same. Further, the settlement between the ch. 11 trustee and F&M Bank in the Valley Business Center case contained the following carve-out provision: . . . "The Trustee waives any claim that he has under 11 U.S.C., Section 362 against F&M to enjoin its non-judicial sale of the Retail Center and/or Vacant Land. The Trustee reserves and does not release any other claims against F&M, including, but not limited to, a claim for an accounting. The Trustee's release is limited only to the timing within which F&M may conduct a non-judicial foreclosure sale, and the procedures of 11 U.S.C., Section 362." When the state court indicated in response to F&M's demurrer to the third amended complaint that it would not entertain the action because, in the court's opinion, it lacked jurisdiction to do so, the partnerships brought motions in each bankruptcy to vacate the order of dismissal to permit the debtor in each case to bring an adversary proceeding against F&M on the same issues the partnerships had sought to litigate in the state court. Although the motions to vacate dismissal were denied in each instance, both bankruptcy judges observed that the bankruptcy court has plenary jurisdiction because of the dismissal order's reservation of jurisdiction and, therefore, that vacating the order of dismissal was not a predicate to an adversary proceeding. As authority for that proposition, Judge Ryan, ruling in the La Palma East Properties case, made specific reference to In re Menk, 241 B.R. 896 (9th Cir. BAP 1999). Accordingly, La Palma East Properties and Valley Business have filed an adversary complaint in their respective bankruptcies. Each of them allege claims for and seek compensatory damages for fraud, breach of fiduciary duty (related to F&M's management of the debtor's property), constructive fraud, a common count for money had and received and accounting. The combined damages the partnerships seek in their adversary proceedings is approximately $13.7 million.
Result
According to the defendant: F&M demurred to the complaint, the First Amended Complaint, the Second Amended Complaint and the Third Amended Complaint, on the ground that the doctrine of res judicata barred all of the plaintiffs' claims, on the ground that if any court had jurisdiction, it was the United States Bankruptcy Court, and on the ground that all of the plaintiffs' claims were barred by the statute of limitations. On March 19, 2003, the court sustained F&M's demurrer to the Third Amended Complaint without leave to amend and ordered that the Third Amended Complaint be dismissed with prejudice.
Other Information
ACCORDING TO THE DEFENDANT: After the Orange County Superior Court issued its tentative ruling via the internet indicating that it was going to sustain F&M's demurrer to the Third Amended Complaint without leave to amend, each plaintiff filed a petition in the United states Bankruptcy Court seeking to reopen each bankruptcy case. On April 2, 2003, Bankruptcy Judge James N. Barr denied La Palma's petition. On April 8, 2003, Bankruptcy Judge John E. Ryan denied VBC's petition. F&M intends to prosecute a motion in Orange County Superior Court asking that, as prevailing party, the court order the plaintiffs to pay F&M's attorney fees and costs under the terms of the promissory notes. Those attorney fees and costs are approximately $30,000. ACCORDING TO THE PLAINTIFF: The plaintiff contended that attorney's fees are not recoverable because the state court action was not on a contract as required by Civ. Code section 1717.
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