Armbruster v. Partners, LLC

ROBERT ARMBRUSTER v. AVALON RE: PARTNERS, LLC & STEVEN ANDERSON

CIVIL ACTION NO. 16-16327 SECTION: M (2)

UNITED STATES DISTRICT COURT EASTERN DISTRICT OF LOUISIANA

November 20, 2018

ORDER & REASONS

Before the Court is the motion of defendants Avalon RE: Partners, LLC ("Avalon") and Steven Anderson ("Anderson") (collectively the "Anderson Parties") to dismiss the claims of plaintiff Robert Armbruster ("Armbruster") on grounds of res judicata pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure.¹ Armbruster filed an opposition to the motion,² to which the Anderson Parties replied in support of the motion.³ The Court heard oral argument on the motion on October 31, 2018. Thereafter, the Anderson Parties filed a supplemental memorandum in support of the motion⁴ and submitted a letter advising of a recent court action.⁵ Having considered the parties' memoranda and the applicable law, the Court issues this Order & Reasons.

I. BACKGROUND

This action arises out of complicated business dealings, including numerous real estate and construction ventures, between Anderson and Armbruster, individually and through entities they respectively control. As the Louisiana court of appeal for the fourth circuit has recently observed, "[t]he ventures jointly entered into by Mr. Anderson and Mr. Armbruster have spawned much litigation." Armbruster v. Anderson, 250 So. 3d 310, 312 (La. App. 2018). That court recounted the pertinent factual and procedural background in the following fashion:

The joint venture that gave rise to the instant litigation ["Armbruster v. Anderson"] involved a project to rehabilitate property at 621 Celeste Street in New Orleans, Louisiana (the "Property").

Briefly summarized, the factual background of the venture is as follows. On March 21, 2006, pursuant to an act of cash sale, Religious and Celeste, LLC ("R & C"), an entity co-owned by the Armbrusters,¹ acquired the Property for $1,480,000.² R & C ultimately intended to develop the Property, in multiple phases, into mixed use commercial, retail, and residential space. The first phase of R & C's development plans was to rehabilitate the building located on the Property, which at the time of acquisition was a three-story shell in poor condition. R & C used [F.I.N.S. Construction, LLC ("FINS")] - Mr. Armbruster's construction company - to perform the work.³ R & C also began the process of applying for historic tax credits ("HTC") for the rehabilitation project.

R & C financed the rehabilitation project by obtaining from Omni Bank ("Omni") two loans, totaling $2,872,000, which the Armbrusters personally guaranteed. R & C defaulted on the Omni loans, and Omni commenced a foreclosure action on June 10, 2009. To avoid foreclosure, Mr. Armbruster, acting as R & C's representative, entered into a deal with Mr. Anderson and two of his companies, Avalon and [Cambrie Celeste, LLC ("Celeste")]. The deal, as ultimately closed, encompassed two steps. Collectively, these two steps are referred to as the "Transaction."

The first step of the Transaction was an act of cash sale, executed on December 29, 2009, by which R & C transferred title to the Property to Celeste subject to the Omni mortgage. The second step of the Transaction occurred on March 22, 2010, when Celeste assumed R & C's Omni debt. As part of the Transaction, Mr. Armbruster and Mr. Anderson, through their respective companies, also entered into various other agreements, including a lease (the "Lease").

The Lease was an integral part of the second step of the Transaction. According to the Defendants [which included Anderson, Celeste, Cambrie Partners I, LLC ("Partners"), and Cambrie Celeste Commercial Tenant, LLC ("Tenant")], the parties entered into a New Markets Tax Credit ("NMTC") transaction to obtain a low market loan to refinance the existing debt on the Property. In order for the NMTC transaction to close, the Property had to be leased. On March 22, 2010, Celeste leased to Tenant the commercial component of the Property. On that same date, Celeste, Tenant, and Starboard Management, LLC ("Starboard"), a company owned by the Armbrusters, entered into the Lease. Under the Lease, Starboard rented the residential component of the Property from Celeste and the commercial component from Tenant. Contemporaneously, the Armbrusters, FINS, and [Cambrie Celeste Developer, LLC ("Developer")] (collectively the "Guarantors") executed an agreement to guarantee Starboard's obligations under the Lease (the "Guaranty").

About three months after the second step of the Transaction, on June 2, 2010, R & C filed a petition for relief under Chapter 11 of the Bankruptcy Code.⁴ [Ahead of R & C's bankruptcy filing, Starboard and the Guarantors (including Armbruster) had failed to pay rent for the Property under the Lease.] On March 1, 2012, Celeste and Tenant (the lessors) filed in Louisiana state court a cumulated action for eviction and breach of contract against Starboard and the Guarantors.⁵

In response, on March 29, 2012, R & C filed an adversary proceeding in the Bankruptcy Case against Mr. Anderson, Celeste, Partners, and Avalon (the "Adversary Proceeding").⁶ The gist of R & C's claims in the Adversary Proceeding was that the documents executed in connection with the Transaction did not accurately memorialize the deal it had made with Mr. Anderson and that instead Mr. Anderson defrauded R & C with respect to the Transaction.⁷ The relief R & C requested was to have the Bankruptcy Court void the Transaction.

In March and April 2013, a seven-day trial was held in the Adversary Proceeding. On April 11, 2014, the Bankruptcy Court's Judgment was issued, dismissing R & C's claims. On August 11, 2014, the United States District Court for the Eastern District of Louisiana affirmed the Bankruptcy Court's Judgment, stating: "[i]nsofar as the core proceedings are concerned, the Court finds that the ruling of the Bankruptcy Court is not clearly erroneous; as to all other claims, the Court finds no error of fact or law on this record, and accepts the Bankruptcy Court's proposed findings of fact and conclusions of law, overruling objections to the same."

After the conclusion of the trial in the Adversary Proceeding, the stay of the Eviction Case was lifted in July of 2013. During the following three years of litigation of the Eviction Case, Starboard was summarily evicted and held in contempt.⁸ On July 27, 2016, the trial court granted a motion for summary judgment filed by Celeste and Tenant and rendered judgment against Starboard and the Guarantors in the amount of $1,614,941.69, representing past due rent and damages. Starboard and the Guarantors appealed. On November 6, 2017, this court affirmed the trial court's judgment granting summary judgment as to Starboard only; however, as to the Guarantors, this court reversed the trial court's judgment granting summary judgment and remanded for further proceedings. Cambrie Celeste LLC v. Starboard Mgmt., LLC, 16-1318 (La. App. 4 Cir. 11/6/17), 231 So.3d 79, writ denied, 17-2041 (La. 2/2/18), 235 So.3d 1110 (hereinafter "Starboard").

Meanwhile, on October 27, 2016, while the appeal in the Eviction Case was still pending, the Plaintiffs [which included the Armbrusters, FINS, and Developer] filed in Louisiana state court the instant suit [Armbruster v. Anderson], styled a petition for declaratory judgment. In their petition, the Plaintiffs set forth in detail the facts of the Transaction and alleged that Mr. Anderson and the other defendants - companies owned and controlled by Mr. Anderson - drafted and fraudulently induced Mr. Armbruster, on behalf of the other plaintiffs, to execute six specific agreements (the "Anderson Documents") in a complex scheme to enable the Defendants to obtain lucrative tax credits.⁹ Through the petition, the Plaintiffs sought to rescind the Anderson Documents. In the alternative to rescinding the Anderson Documents, the Plaintiffs sought damages for bad faith breach of contract and unfair trade practices. In response, the Defendants filed an exception of res judicata. On June 7, 2017, the trial court rendered judgment granting the Defendants' exception of res judicata and dismissing with prejudice the Plaintiffs' claims.¹⁰ This appeal followed.¹¹

¹ In March 2006, R & C was formed as a Louisiana limited liability company. When it was formed, R & C had two members - ABNA, LLC and CNRT, LLC. In late 2007 or early 2008, CNRT ceased to be a member, leaving ABNA as the only remaining member. ABNA was owned by the Armbrusters, who each were 50% members.

² Although originally a single lot known only as "Lot Q," the Property is subdivided into Lot Q, on which the building bearing the municipal address 621 Celeste Street is situated; and Lot Q-2, which is an adjacent, vacant lot.

³ After R & C's work, the building contained a mix of ten residential units and two commercial units.

⁴In re: Religious and Celeste, LLC, Docket No. 2010-11958, United States Bankruptcy Court for the Eastern District of Louisiana (the "Bankruptcy Case").

⁵Cambrie Celeste LLC v. Starboard Mgmt., LLC, Docket No. 2012-1997 in the Civil District Court for the Parish of Orleans, (the "Eviction Case").

⁶ As a result of a consent agreement between the parties in the Adversary Proceeding, the Eviction Case was stayed.

⁷ In its complaint, R & C asserted the following seven causes of action: (1) fraudulent transfers under § 548 of the Bankruptcy Code; (2) recovery of the transfers or the value of the transfers under § 550 of the Bankruptcy Code; (3) avoidance of the transfers under the Louisiana revocatory action and other fraudulent transfer laws under § 544(b) of the Bankruptcy Code; (4) unjust enrichment under state law; (5) fraud under state law; (6) piercing the corporate veil or single business enterprise under state law; and (7) recovery of unlawful distributions under state law.

⁸ As noted elsewhere in this opinion, the Eviction Case was stayed for about one year as a result of the Bankruptcy Case.

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