Finley Grp. v. Working Media Grp. Atlanta, LLC (In re Redf Mktg., LLC)

536 B.R. 646

In re: Redf Marketing, LLC, Debtor.

The Finley Group, liquidating agent for Redf Marketing, LLC, Plaintiff

v.Working Media Group Atlanta, LLC, Defendant.

The Finley Group, liquidating agent for Redf Marketing, LLC, Plaintiff

v.City of Clare, Michigan Defendant.

The Finley Group, liquidating agent for Redf Marketing, LLC, Plaintiff

v.Fifth Third Bank dba Fifth Third Bank, Inc., Defendant, Third–Party Plaintiff

v.Daniel J. Roselli, 222 South Church Street, LLC, Novare Group Holdings, LLC, Anne L. Bradley, Packard Place Properties, LLC, Anne L. Bradley, C.P.A., P.A. Sara G. Roselli, Third–Party Defendants

The Finley Group, liquidating agent for Redf Marketing, LLC, Plaintiff

v.521 Partners, LLC, Red Ventures, LLC, Defendants.

The Finley Group, liquidating agent for Redf Marketing, LLC, Plaintiff

v.CB Richard Ellis Inc., 222 South Church Street, LLC, Defendants.

The Finley Group, liquidating agent for Redf Marketing, LLC, Plaintiff

v.Mecklenburg County, Defendant.

The Finley Group, liquidating agent for Redf Marketing, LLC, Plaintiff

v.222 South Church Street, LLC, Novare Group Holdings, LLC, Defendants, Third–Party Plaintiffs

v.Anne L. Bradley, CPA, P.A., Anne L. Bradley, Daniel J Roselli, Sara Garces Roselli, Packard Place Properties, LLC, Third–Party Defendants

The Finley Group, liquidating agent for Redf Marketing, LLC, Plaintiff

v.Vision Brokerage Group, LLC, Defendant.

Case No. 12–32462

Adversary Proceeding No. 14–03145

Adversary Proceeding No. 14–03252

Adversary Proceeding No. 14–03254

Adversary Proceeding No. 14–03259

Adversary Proceeding No. 14–03261

Adversary Proceeding No. 14–03262

Adversary Proceeding No. 14–03263

Adversary Proceeding No. 14–03265

United States Bankruptcy Court, W.D. North Carolina, Charlotte Division .

Signed September 3, 2015

Andrew T. Houston, John C. Woodman, Moon Wright & Houston, PLLC, Charlotte, NC, for Plaintiff.

James H. Henderson, James H. Henderson, P.C., Charlotte, NC, for Working Media Group Atlanta, LLC/City of Clare, Michigan/521 Partners, LLC, Red Ventures, LLC, Defendants.

Sandra S. Hamilton, Clark Hill PLC, Grand Rapids, MI, for City of Clare, Michigan, Defendant.

Julie Barker Pape, Constance L. Young, Womble, Carlyle, Sandridge & Rice, PLLC, Winston–Salem, NC, for Fifth Third Bank dba Fifth Third Bank, Inc. Defendant, Third–Party Plaintiff.

Bradley E. Pearce, Pearce Law PLLC, Charlotte, NC, Jonathan Jordan, King Spalding, Atlanta, GA, Peter F. O'Connell, Sharpless & Stavola, PA, Greensboro, NC, Frederick Kingsley Sharpless, Sharpless & Stavola, PA, Greensboro, NC, for Daniel J. Roselli, 222 South Church Street, LLC, Novare Group Holdings, LLC, Anne L. Bradley, Packard Place Properties, LLC, Anne L. Bradley, C.P.A., P.A. Sara G. Roselli, Third–Party Defendants.

Lucian Murley, Saul Ewing LLP, Wilmington, DE, for CB Richard Ellis Inc., 222 South Church Street, LLC, Defendants.

Robert S. Adden, Jr., Ronald L. Gibson, Ruff, Bond, Cobb, Wade & Bethune, L.L.P., Charlotte, NC, for Mecklenburg County Defendant.

David G. Guidry, King Spalding LLP, Charlotte, NC, for 222 South Church Street, LLC, Novare Group Holdings, LLC, Defendants, Third–Party Plaintiffs.

Shelley Koon Abel, Rayburn Cooper & Durham, Charlotte, NC, Lucian Murley, Saul Ewing LLP, Wilmington, DE, for CB Richard Ellis Inc., 222 South Church Street, LLC/Vision Brokerage Group, LLC, Defendants.

ORDER

J. Craig Whitley, United States Bankruptcy Judge

In these eight related adversary proceedings, plaintiff seeks to avoid upward of $1,200,000 in prepetition transfers of the debtor's property under Bankruptcy Code sections 547 and 548, as well as N.C.G.S. § 39–23 and to recover these monies per Code section 550.

The numerous defendants and third-party defendants have responded to those complaints with a barrage of motions seeking to: (1) revoke confirmation of the consummated Chapter 11 plan; (2) determine the limits of this bankruptcy court's power to enter final rulings in these actions; (3) dismiss the action(s) or some parts thereof; (4) alternatively, to abstain from hearing these disputes; and (5) to consolidate five of the eight adversary proceedings for pretrial purposes.

By the hearing date, the parties were in agreement as to some of these matters. As to the motions still in dispute, and having carefully considered the parties' arguments, it is the opinion of this bankruptcy court that the various motions seeking to revoke confirmation of the Chapter 11 plan in this case are without merit to say nothing of being untimely and procedurally defective. They are denied.

Defendants' motions to dismiss plaintiff's primary claims against them under Rule 7012 and seeking summary judgment under Rule 7056 are also ill founded and are denied.¹

As for the third-party defendants' motions seeking dismissal of the third-party claims for lack of subject matter jurisdiction, abstention, or severance into freestanding diversity actions, the undersigned U.S. Bankruptcy Judge believes that bankruptcy subject matter jurisdiction is lacking and the third-party complaints should be dismissed. Being case dispositive, this particular ruling is simply a recommendation to the U.S. District Court.

Facts leading to plan confirmation and consummation

Debtor operated an advertising and marketing agency in Charlotte, North Carolina and was wholly owned by Daniel and Sara Roselli. On May 18, 2010, debtor, the Rosellis, and others were sued by Bridgetree et al. in U.S. District Court for misappropriation of trade secrets and conversion. See Bridgetree, Inc. et al. v. Redf Marketing, LLC, et al., Case No. 10–CV–00228. The litigation was both contentious and protracted. In August 2012, after a jury trial before the Honorable Frank D. Whitney, Chief U.S. District Judge, the jury returned a verdict against debtor and various others on the misappropriation of trade secrets claim for $678,292 as well as a verdict against debtor and another defendant on the conversion claim for $3,500,000. Judgment was entered accordingly.

Bridgetree then attempted to force debtor into bankruptcy by an involuntary petition filed October 12, 2012. Hoping to reorganize its business and continue to litigate with Bridgetree on appeal, debtor acceded. It entered bankruptcy and converted its case to Chapter 11 on October 29, 2012. The reorganization attempt failed, however. Between the injunction imposed against it in District Court and the loss of a primary customer, debtor was no longer viable. After an abortive attempt to dismiss the case, debtor proposed a liquidating Chapter 11 plan.

Bridgetree and Branch Bank & Trust were heavily involved in the Chapter 11 case,² undertaking a level of monitoring and negotiation with debtor similar to what a creditor committee would provide.³ Bank of America, debtor's secured lender, was similarly active in the case.⁴ The Bankruptcy Administrator's Office was engaged in the Chapter 11 case as well. In short, the proceedings were under constant scrutiny by a number of entities with a tremendous amount at stake, not to mention this Court.

Debtor's proposed plan faced intense opposition from these adverse parties. Objections to the Disclosure Statement and Plan were filed by each. After lengthy negotiations between the parties and several continuances, an eleventh-hour compromise was reached. This accord resulted in a consensual plan that received unanimous approval by the voting creditors. One of the features of that consensual plan was a release in favor of debtor's principals, the Rossellis.

The amended plan was confirmed on April 29, 2013 and since consummated. Per that consensual plan, plaintiff was appointed liquidating agent. As contemplated by the plan, plaintiff investigated debtor's property transfers and filed a number of lawsuits, including those referenced herein.

Facts regarding the Packard Place transaction

Most of the claims in these adversary proceedings arise from the purchase and financing of a Charlotte office building known as Packard Place by Red City Properties, LLC (Red City), an affiliate of debtor.⁵ Red City bought Packard Place from 222 South Church Street, LLC less than two years before the initiation of this bankruptcy. Debtor supplied a substantial amount of the money by which Red City bought Packard Place.

Specifically, and as alleged by plaintiff,⁶ the Rosellis owned and controlled Red City. Red City borrowed $6,480,000 from BB & T that was structured as a bond to purchase Packard Place. Debtor guaranteed the loan to Red City. Red City was required to pay in excess of $3,000,000 to Fifth Third Bank at the closing of the BB & T Loan and the acquisition of Packard Place to satisfy the seller's obligations to Fifth Third. Debtor engaged the law firm of K & L Gates (KLG) to represent it, not Red City, in connection with the Packard Place closing.

On October 1, 2010, debtor wired $100,000 from its operating account at Wachovia Bank, N.A. to the trust account of Barrister's Title to serve as an earnest money deposit in the Packard Place transaction. On December 15, 2010, debtor wired $1,093,000 from its operating account to the KLG Trust Account. Debtor then wired an additional $12,954.38 from its operating account to the KLG Trust Account on December 16, 2010. On December 17, 2010, the $100,000 earnest money deposit that had been deposited into the Barrister's Title trust account was wired to the KLG Trust Account.

At the closing of the Packard Place transaction, KLG wired the sum of up to $1,205,954.38 of debtor's funds from the KLG Trust Account to Fifth Third to satisfy the seller's obligations to Fifth Third and to allow Red City and the Rosellis to acquire Packard Place. The debtor neither owned any interest in Red City nor received any interest in Packard Place.

Resulting adversary proceedings and current motions

In September and October 2014, plaintiff filed a series of adversary proceedings against defendants to recover the funds provided by debtor in the Packard Place transaction as fraudulent transfers.⁷ Defendants attempted to...