S-Tek 1, LLC v. Surv-Tek, Inc. (In re S-Tek 1, LLC)

In re: S-Tek 1, LLC, Debtor.

S-Tek 1, LLC Plaintiff and Counter-Defendant, v. Surv-Tek, Inc. et al., Defendants and Counter-Plaintiffs

No. 20-12241-j11

Adv. Proc. No. 20-01074-j

United States Bankruptcy Court, D. New Mexico

December 10, 2021

Nephi Hardman Attorney for Debtor Nephi D. Hardman Attorney at Law LLC

Chris M. Gatton Attorney for Surv-Tek, Inc. Giddens & Gatton Law, P.C.

Patrick Malloy, III Subchapter V Trustee Patrick J. Malloy III, Trustee

Jaime A. Pena Office of the U.S. Trustee

MEMORANDUM OPINION REGARDING SURV-TEK PARTIES' MOTION FOR SUMMARY JUDGMENT AND PARTIAL SUMMARY JUDGMENT

ROBERT H. JACOBVITZ UNITED STATES BANKRUPTCY JUDGE

THIS MATTER is before the Court on a motion for summary judgment and partial summary judgment (the "Summary Judgment Motion"), AP Doc. 72, ^[1] filed by defendants and counter-plaintiffs Surv-Tek, Inc. ("Surv-Tek") STIF, LLC ("STIF"), Russ Hugg, and Robbie Hugg (collectively, the "Surv-Tek Parties"). Debtor plaintiff and counter-defendant S-Tek 1, LLC ("Debtor") filed a response in opposition (the "Response"), AP Doc. 82. Third-party defendants Christopher Castillo, Kymberlee Castillo, and Randy P. Asselin (collectively, the "Individuals") filed joinders to Debtor's Response (AP Docs. 80 & 81). The Surv-Tek Parties filed a reply to the Response (AP Doc. 84). After consideration of the Summary Judgment Motion, Response, joinders to the Response, and Reply, and the evidence presented by the parties, the Court will grant in part and deny in part the Summary Judgment Motion for the reasons set forth below.

The Surv-Tek Parties seek partial summary judgment: (i) holding that Debtor is liable for breaches of a promissory note, security agreement, and commercial lease and that the Individuals are liable for breaches of guarantees thereof and (ii) determining the amounts owed, pending resolution of defenses and offsetting claims at trial. The Court will deny partial summary judgment on all of these counts (the "Surv-Tek Counts") because there can be no determination that parties are liable when there are defenses to liability that have not been determined.

The Surv-Tek Parties also seek full summary judgment on six of Debtor's claims (the "Debtor Counts"), denying the requested relief. The Court will grant or deny summary judgment on the Debtor Counts, as follows:

(1) Debtor's claim for intentional violation of the automatic stay. The Court will grant summary judgment in the Surv-Tek Parties' favor on this claim, because even in the light most favorable to Debtor, the facts do not demonstrate a stay violation.

(2) Debtor's claims for tortious interference with business relationships and prima facie tort. The Court will deny summary judgment on these claims because there are genuine issues of material fact.

(3) Debtor's claims for violations of the Unfair Trade Practices Act and conversion of personal property. The Court will grant in part and deny in part summary judgment on these claims.

(4) Debtor's claim for subordination of Surv-Tek's claim pursuant to 11 U.S.C. § 510(b). The request for summary judgment on this claim is moot because Debtor has withdrawn the claim.

I. SUMMARY JUDGMENT STANDARDS

Summary judgment will be granted when the movant demonstrates that there is no genuine issue of material fact and that the movant is entitled to judgment as a matter of law. See Fed. R. Civ. P. 56(a), made applicable to adversary proceedings by Fed.R.Bankr.P. 7056. "[A] party seeking summary judgment always bears the initial responsibility of informing the . . . court of the basis for its motion, and . . . [must] demonstrate the absence of a genuine issue of material fact." Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986); see also Bacchus Indus., Inc. v. Arvin Indus., Inc., 939 F.2d 887, 891 (10th Cir. 1991) ("The moving party has the initial burden to show that there is an absence of evidence to support the nonmoving party's case.") (internal quotation marks omitted). Only if the properly supported material facts entitle the requesting party to judgment as a matter of law is it appropriate for the court to grant summary judgment. Celotex, 477 U.S. at 323. The court evaluates a request for summary judgment by drawing "all reasonable factual inferences in favor of the non-moving party." Genberg v. Porter, 882 F.3d 1249, 1253 (10th Cir. 2018). Thus, summary judgment is appropriate "if the evidence points only one way and no reasonable inferences could support the non-moving party's position." Id.

In opposing a motion for summary judgment, a party may establish the existence of a genuinely disputed material fact by: 1) citing to "depositions, documents, electronically stored information, affidavits or declarations, stipulations . . . admissions, interrogatory answers or other materials" in the record; or 2) showing that "the materials cited [by the moving party] do not establish the absence . . . of a genuine dispute," or that the moving party "cannot produce admissible evidence to support the fact." Fed.R.Civ.P. 56(c)(1)(A) and (B). A dispute is "genuine" where "the evidence is such that a reasonable jury could return a verdict for the nonmoving party." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). A fact is "material" if it "might affect the outcome of the suit under the governing law[.]" Id. Where a rational trier of fact, considering the record as a whole, could not find for the non-moving party, there is no genuine issue for trial. See Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986).

In considering a motion for summary judgment, the court must resolve all reasonable inferences and doubts in favor of the non-moving party and construe all evidence in the light most favorable to the non-moving party. See Hunt v. Cromartie, 526 U.S. 541, 552 (1999). Further, the court's role is not to weigh the evidence, but to assess the threshold issue whether a genuine issue exists as to material facts requiring a trial. See Anderson, 477 U.S. at 249.

II. FACTUAL BACKGROUND^[2]

After review of the documentary evidence presented by the parties and affidavit testimony, the Court finds that certain facts are not in genuine dispute. Lists of the undisputed facts are attached to this Opinion as Exhibit A and Exhibit C, and a list of contested facts, with the Court's ruling on each fact as to whether it is in genuine dispute, is attached as Exhibit B.^[3] Taking the facts in the light most favorable to Debtor and the Individuals, the non-moving parties, the Court summarizes the relevant facts as follows:

In January 2019, Debtor purchased Surv-Tek's surveying business. Pursuant to the closing agreement (the "Closing Agreement"), Debtor purchased substantially all of the assets and properties of Surv-Tek, including its name and the majority of its tangible and intangible assets. [Ex. A ¶ 4]. The purchase price was $1.8 million, with $250, 000 paid at closing and the remaining $1.55 million to be paid pursuant to a promissory note (the "Promissory Note") issued by Debtor in favor of Surv-Tek. [Ex. A ¶ 11]. The Closing Agreement, the Promissory Note, and all other documents signed as part of the closing are collectively the "Loan Documents."

The Promissory Note provides that Debtor would make payments commencing on April 1, 2019, and continuing on the first day of each month thereafter, in the amount of $16, 440.15 per month. [Ex. A ¶ 12]. The unpaid principal balance of the Promissory Note accrued interest at the rate of 5.00% per annum, with a default interest rate of 12.00%. [Ex. A ¶ 13]. Pursuant to the Closing Agreement, the parties entered into an escrow agreement, which required all payments on the Promissory Note to be made to the escrow agent, Weststar Escrow, Inc. ("Weststar") [Ex. A ¶ 17].

In connection with the closing, Debtor also granted Surv-Tek a security interest in collateral pursuant to a security agreement (the "Security Agreement"), in order to secure Debtor's obligations to Surv-Tek under the Promissory Note. [Ex. A ¶ 23]. Surv-Tek's security interest was perfected on January 2, 2019, by the filing of a UCC-1 financing statement. [Ex. A ¶ 24]. Debtor further signed a lease agreement with STIF (the "Lease"), under which Debtor was to lease commercial space from STIF (the "Leased Premises"), commencing on January 1, 2019. [Ex. B ¶ 31].

Also in connection with the closing, guarantees of the Promissory Note and the Lease were executed. The three Individuals all executed the guarantee of the Promissory Note (the "Commercial Guarantee"). [Ex. B ¶ 42]. Mr. Asselin and Mr. Castillo executed the guarantee of the Lease (the "Lease Guarantee"). [Ex. B ¶ 42].

After January 2020, Debtor made no further payments on the Promissory Note [Ex. B ¶ 16] or the Lease. [Ex. A ¶ 33]. In a letter dated March 16, 2020, demand was made on Debtor for payment of all amounts owed under the Promissory Note and Lease. [Ex. A ¶ 45].

On April 4, 2020, Surv-Tek and STIF regained possession of the Leased Premises and took steps to secure and protect the collateral. [Ex. B ¶ 48].

Debtor filed its voluntary petition for relief under chapter 11 of the Bankruptcy Code on December 2, 2020. [Ex. A ¶ 1].

III. PROCEDURAL BACKGROUND

The Surv-Tek Parties filed their Summary Judgment Motion in order to seek (1) partial summary in their favor on four counts against Debtor and the Individuals and (2) full summary judgment in their favor on six counts that Debtor brought against them. Regarding partial summary judgment, the Surv-Tek Parties have requested the Court to find partial summary judgment on Surv-Tek Counts I, II, and III ^[4] with findings of liability and damages but pending resolution of any defenses or offsetting claims at trial. The Surv-Tek Parties...