Gleason v. Firstrust Bank

538 F.Supp.3d 444

Christopher GLEASON

v.FIRSTRUST BANK et al.

CIVIL ACTION NO. 20-4135

United States District Court, E.D. Pennsylvania.

Filed May 10, 2021

Matthew J. Norris, Norris Law Group PC, Philadelphia, PA, for Christopher Gleason.

John E. Lucian, Blank Rome LLD, Philadelphia, PA, for Firstrust Bank.

Lawrence G. McMichael, Timothy J. Ford, Dilworth Paxson LLP, Philadelphia, PA, Franklin J. Contreras, Jr., Leonard M. Shulman, Shulman Bastian Friedman & Bui, Irvine, CA, for Robert Marlin.

MEMORANDUM

McHUGH,, United States District Judge

This case involves a business dispute between a resident of California and a resident of Florida, over control of an investment fund organized under Florida law. In December 2018, Christopher Gleason, one of the principal investors in a Florida LLC charged with managing that fund, sued Robert Marlin, another principal investor, in Gleason's home state of California. Marlin responded with counterclaims. On two occasions, Gleason moved the California court for injunctive relief, and twice he was denied, as the court found that he had not shown a probability of success on the merits. Trial was scheduled for October, 2020, but was postponed because of the COVID pandemic. After failing to prevail in the California court, Gleason filed virtually identical claims in this Court some 20 months later, and then voluntarily dismissed his California claims. The sole basis for jurisdiction here is a loan agreement with a Pennsylvania bank, Firstrust, that provides liquidity for the investment activities of the fund.

Defendant Marlin has moved to dismiss for failure to state a claim, or alternatively to stay this matter in deference to the pending state court action, where a jury trial is scheduled for December, 2021, under Colorado River Water Conservation District et al. v. United States , 424 U.S. 800, 96 S.Ct. 1236, 47 L.Ed.2d 483 (1976). ECF 15. Given the advanced stage of the California case, it is not appropriate for this Court to insert itself into a dispute that has no substantive connection to Pennsylvania, particularly where the Plaintiff's maneuvers can only be viewed as forum-shopping. Having met with no success in California, Gleason seeks to use the Bank's position as the Fund's lender as a foothold to start over in a different court. For the reasons set forth below, I will stay these proceedings pending the outcome of the California litigation, as I have concluded that abstention is warranted under Colorado River .

I. RELEVANT FACTS AND PROCEDURAL BACKGROUND

By way of summary, in the background of this case is an investment fund that buys and sells tax delinquencies throughout the United States, MMGJV Fund 1 LLC ("the Fund").¹ First. Am. Compl. ¶ 8, ECF 8. The Fund is a Florida LLC with a principal place of business in North Carolina. Oral Arg. Tr. 14:16-25, 15:1-10, April 14, 2021, ECF 40. At issue is whether Gleason or Marlin has the legal right to control the activities of the Fund. In this Court, Gleason initially sued Marlin, seeking a determination of the right to control the Fund and also sued Firstrust Bank as its lender. Compl., ECF 1. In response to Marlin's motion to dismiss, ECF 7, Gleason then filed an amended complaint, again naming only Marlin and Firstrust. First. Am. Compl., ECF 8. When Marlin further moved to dismiss the amended complaint, Gleason then sought leave to file a second amended complaint, seeking to add the investment fund at the core of the dispute.² Mot. Leave to File Sec. Am. Compl., ECF 18.

For practical purposes, the activities of the Fund are controlled by a separate entity Gleason has not sought to join, MMG12,³ a second Florida-based LLC, with a principal place of business in California. First Am. Compl. ¶ 6. Gleason contends that under MMG12's Operating Agreement, he is the sole manager, the Chief Executive Officer and sole Board of Director. Id. ¶¶ 12-13. He further alleges that "as the sole manager of MMG12, Gleason has the sole and exclusive right to use, operate and control MMG12's assets in accordance with the terms of the Operating Agreement." Id. ¶ 12. Marlin, effectively a 60% member of MMG12, id. ¶ 16, claims that he , not Gleason, "has overseen [its] investment, direction, and strategy decisions," while Gleason has simply handled the day-to-day affairs. Gleason v. Marlin et al. , No. 56201800522303CUCOVT, Marlin's cross-complaint, Dkt. #95 at ¶ 1 (Cal. Super. filed Oct. 24, 2019); see Def.’s Mot. Abstain or Dismiss, Ex. 2, ECF 15-4.

In 2018, a dispute broke out over control of the companies, and Marlin accused Gleason of questionable dealings, including the transfer of assets to a competing entity. Id. ¶¶ 9-10, 22. As part of that dispute, Marlin contended that the agreement Gleason cited for his authority to act on behalf of MMG12 and the Fund had a phony signature page. Id. ¶ 9. According to Gleason, there was nothing more ominous than a business dispute over management of the Fund, leading Marlin "to threaten – without authorization or any proper basis – to interfere with the Fund's management if his desires were not met." First Am. Compl. ¶ 18. In the parallel California action, Gleason has maintained that Marlin's contentions about his lack of authority to control the Fund are nothing more than misrepresentations. See Gleason v. Marlin et al. , Gleason's Compl., Dkt. #1 (Cal. Super. filed Dec. 31, 2018); see also Def.’s Mot. Abstain or Dismiss, Ex. 1, at ¶ 19, ECF 15-3.

The Fund has a revolving, secured line of credit with Firstrust Bank,⁴ which is secured by the tax liens purchased by the Fund. First Am. Compl. ¶¶ 8-9. Gleason and Marlin are both individual guarantors of the loan, and MMG12 is a corporate guarantor. Id. ¶ 10. At some point, Marlin advised the Bank of his dispute with Gleason, which led the Bank to declare a default on the Fund's loan in November 2018. Id. ¶ 23. A Forbearance Agreement suspended action on the default, as Gleason and Marlin addressed their differences, but it expired in June 2019. Id. ¶¶ 26, 28. Before it will clear the loan and release the collateral, the Bank seeks either an agreement between Gleason and Marlin, or a court order clarifying who has authority to act on behalf of the Fund by way of its operating company, MMG12. Oral Arg. Tr., April 14, 2021 at 12: 5-18. As stated at oral argument, the Bank's position is that "this is a dispute between Gleason and Marlin." Oral Arg. Tr. 29: 15-16.

A. Procedural history in state and federal courts

As stated at the outset, in December 2018, Plaintiff Gleason filed a lawsuit in California state court against Defendant Marlin (and his now-deceased wife). See Gleason v. Marlin et al. , Gleason's Compl., Dkt. #1; see also Def.’s Mot. Abstain or Dismiss, Ex. 1. That litigation is at an advanced stage. Gleason's California complaint described what was at the time the emergent situation with the Bank and the Fund—the Forbearance Agreement had been signed the previous month—and sought declaratory and injunctive relief against Marlin with regard to control of MMG12. See id. His claims against Marlin substantially reflect the claims for declaratory relief he has filed in this Court.⁵ See id. ; First Am. Compl. ¶ 53; id. at 22.

Days before the Forbearance Agreement was set to expire in June 2019, Gleason moved the California court for a preliminary injunction and appointment of a receiver in order to "prevent Marlin ... from interfering with the management of MMG12 and the Fund, which is required to be managed and operated solely by MMG12." Pl's. Mot. for Appt. of Receiver and Prelim. Injunction, Gleason v. Marlin et al. , 2019 WL 9467550 (Cal. Super. June 27, 2019). That request was denied, with the court finding, in relevant part, that Gleason had "failed to prove a probability of success on the merits" and that "[a]t best, the evidence at this juncture is disputed as to the conflict between the parties - equity members of a Florida LLC with principal place of business in Ventura County - concerning management and control of the LLC." Gleason v. Marlin et al. , No. 56201800522303CUCOVT, 2019 WL 9467974, at *1 (Cal. Super. July 24, 2019).

The litigation in California continued to mature in the final quarter of 2019. For example, in October 2019, a few months after the expiration of the Forbearance Agreement, Defendant Marlin filed claims⁶ seeking declaratory relief that MMG12's Operating Agreement is invalid, or in the alternative, "for a declaration that Robert Marlin has the sole and exclusive authority to act on behalf of MMG[12] and that Mr. Marlin has the sole and exclusive right to use, operate and control MMG[12]’s assets." Gleason v. Marlin et al. , Marlin's cross-complaint, Dkt. #95 at 9; see Def.’s Mot. Abstain or Dismiss, Ex. 2 at 9. In November 2019, Gleason filed additional claims, requesting legal relief substantially similar to the relief he seeks in the instant case,⁷ and requesting injunctive relief ordering Marlin to sign a payoff letter to terminate the Fund's loan with the Bank. Gleason v. Marlin et al. , Dkt. # 99 at 7; see Def.’s Mot. Abstain or Dismiss, Ex. 3 at 7, ECF 15-5.

In January 2020, the California court scheduled a three-day jury trial for October 2020. Id. , Dkt. # 115. As late as February 2020, a number of other investors in the Fund joined the case, and, along with Gleason, filed claims against Marlin, which, once more, substantially reflected the legal relief sought in the instant Complaint. Id. , Dkt. # 127-134; see Def.’s Mot. Dismiss, Ex. 4, ECF 15-6.⁸ Once again, the California court denied Gleason's request for injunctive relief on the basis that he "failed to meet his burden of demonstrating a probability that he will succeed on the merits." See Order of February 14, 2020, Gleason v. Marlin et al. , Dkt. # 126.⁹ It also found that Gleason had "failed to meet his burden of demonstrating imminent, irreparable harm in the form of waste to the business entities occasioned by Marlin's alleged refusal to sign necessary...