Richardson Foods Inc.
MEMORANDUM OPINION AND ORDER DENYING MOTION FOR RECONSIDERATION
A P P E A R A N C E S:
WHITE AND WILLIAMS LLP
Counsel for Doge Capital, LLC, and Randall Talcott
7 Times Square, Suite 2900
New York, NY 10036
By: Christopher Graham, Esq.
DUNNINGTON BARTHOLOW & MILLER LLP
Counsel for Prairie Street Capital, Inc.
230 Park Avenue, 21st Floor
New York, NY 10169
By: Luke A. McGrath, Esq.
TARTER KRINSKY & DROGIN LLP
Counsel for Deborah J. Piazza, Chapter 7 Trustee
1350 Broadway, 11th Floor
New York, NY 10018
By: Alex Spizz, Esq.
JOHN P. MASTANDO III
UNITED STATES BANKRUPTCY JUDGE
I. INTRODUCTION
Pending before the Court is the Motion for Reconsideration (the “Motion“) of Doge Capital, LLC (“Doge“), Randall Talcott (“Talcott“) and Prairie Street Capital, Inc. (“Prairie,” collectively, with Doge and Talcott, the “Movants“) of this Court‘s April 19,
The Motion is supported by the Memorandum of Law in Support of Motion for Reconsideration (the “Memo in Support“) (RFI Docket No. 140-1) and the Certification of Luke McGrath in Support of Motion for Reconsideration (the “McGrath Certification“). (RFI Docket No. 140-2).
In response to the Motion, Deborah J. Piazza in her capacity as Chapter 7 Trustee (the “Trustee“) filed the Memorandum of Law in Opposition of Motion for Reconsideration (the “Opposition“) (RFI Docket No. 145).
On June 28, 2024, the Movants filed the Reply Memorandum in Further Support of Motion for Reconsideration (the “Reply“) (RFI Docket No. 147). In the Reply, the Movants seek reconsideration, in part, based upon the United States Supreme Court‘s recent decision in Truck Ins. Exch. v. Kaiser Gypsum Co., Inc. (”Kaiser Gypsum“), which had not been rendered at the time of the Memorandum Opinion or the Motion. Kaiser Gypsum, 602 U.S. 268 (2024); (Reply at 2-3). The Trustee sought relief to file a brief Sur-Reply solely to address Kaiser Gypsum. (RFI Docket No. 149). The Court granted the request on July 2, 2024 (RFI Docket No. 150), and the Trustee filed a Sur-Reply letter on July 1, 2024 (the “Sur-Reply“) (RFI Docket No. 151).3
The Court has reviewed and considered the Motion, the Opposition, the Reply, the Sur-Reply, all supporting documentation, and the record as a whole.
II. JURISDICTION
The Court has jurisdiction over this matter pursuant to
III. BACKGROUND
A. THE DEBTOR‘S ORGANIZATIONAL AND DEBT STRUCTURE
The facts germane to this Motion are set forth in this Court‘s April 19, 2024, Memorandum Opinion, familiarity with which is assumed.4 (See Memorandum Opinion). Briefly restated, RBC was a Florida corporation based in Canajoharie, New York. (Id. at 3). RBC manufactured a full line of candy products, and a seasoning product called Gravy Master. (Id.) Richardson Foods, Inc. (“RFI“) was a Delaware corporation that owned the single share of RBC stock (the “RBC Share“), representing 100% of the equity in RBC. (Id.) RFI was a holding company with no operations or employees. (Id.)
On February 5, 2018, RFI entered into a Secured Promissory Note with Doge (the “Doge Loan“) in the amount of $900,000. (Id. at 5). On that same date, RFI entered into a Secured Promissory Note with Talcott (the “Talcott Loan,” and together with the Doge Loan, the “Doge and Talcott Loans“) in the amount of $100,000. (Id. at 5-6). As part of the Doge and Talcott Loans, Doge and Talcott were granted liens against all of RFI‘s assets,
The following year, on August 23, 2019, Webster, Founders Equity I LP (“Founders“), RFI, RBC, and Prairie entered into the Amended and Restated Cash Collateral Deposit Agreement (the “First Amended Subrogation Agreement“). (RFI Docket No. 126-10). The purpose of the First Amended Subrogation Agreement was to reflect the fact that Prairie had “deposit[ed] and pledge[d] . . . $280,000 into Account No. 717800902_ maintained at Webster [] . . . to be held by [Webster] as collateral security for the [Webster Loan] . . . .” (the “Prairie Pledge“). (Id. at 2–3).
On October 24, 2019, Webster, Founders, RFI, RBC, Prairie, Haber, and Teeger entered into the Second Amended and Restated Cash Collateral Deposit Agreement (the “Second Amended Subrogation Agreement,” and collectively with the First Amended Subrogation Agreement, the “Subrogation Agreements“). (Id. at 11–18). The purpose of the Second Amended Subrogation Agreement was to reflect the fact that Founders, Haber and Teeger (together, with Founders and Prairie, the “Pledgors“) had deposited and pledged additional funds (the “Pledged Collateral“) into bank accounts maintained at Webster, to be held by Webster as additional collateral security for the Webster Loan. (Id. at 12). The Second Amended Subrogation Agreement “amend[ed] and restate[d]” the Original Cash Collateral Agreement and the First Amended Subrogation Agreement in their entirety and was “made in substitution for and not in satisfaction thereof.”6 (Id. at 15 (§ 17 of the Second Amended Subrogation Agreement)); (see also Memorandum Opinion and Order, pp. 6-7).
The Second Amended Subrogation Agreement also provided that the Pledgors assigned, transferred, and pledged to Webster for its benefit a security interest in the Pledged Collateral.
(Id. at 12–13 (§ 4 of the Second Amended Subrogation Agreement)). The Second Amended Subrogation Agreement further specified that the Pledged Collateral is security for the Webster Loan. (Id. at 13 (§ 5 of the Second Amended Subrogation Agreement)).
On March 9, 2020, Webster, RFI, and RBC signed the Acknowledgement of Events of Default (the “Default Letter“). (Id. at 9). Due to the default, RFI and RBC surrendered all their collateral under the Webster Loan to Webster, consented to a private sale to Roses Holdings Limited (“Roses Holdings“), and acknowledged that they had no remaining right to redeem the collateral. (Id.). The Default Letter
On that same date, Webster, as seller, and Roses Confections L.P. (“Roses Confections“), an affiliate of Roses Holdings, as buyer, entered into the Secured Party General Conveyance and Bill of Sale (the “Roses UCC Sale“). (Id.). The Roses UCC Sale provided for a sale that was substantially the same as that contemplated by the Default Letter. (Id.).
B. THE BANKRUPTCY PROCEEDINGS
On May 15, 2020, Doge, Three Oaks Advisors, LLC, and Talcott filed an involuntary chapter 7 bankruptcy petition against RFI. (Opposition, ¶ 11). The Court entered an order for
relief on July 1, 2020, and Deborah J. Piazza was duly appointed as Chapter 7 Trustee of RFI later that month. (Id.)
On December 28, 2020, the Trustee filed the Motion to Approve Trustee in Bankruptcy Financing Pursuant to
Thereafter, the Trustee conducted discovery in the RFI case and determined that RBC may have claims for actual and constructive fraudulent conveyances stemming from what the Trustee characterizes as “a flawed sale process of RBC‘s assets designed only to benefit Webster, the Debtors’ insiders, and the Movants.” (Opposition, ¶ 16). Accordingly, the Trustee filed a voluntary Chapter 7 petition on behalf of RBC on March 8, 2021, to preserve these potential claims (the “RBC Case“). (Id.). Attached to the RBC petition was a resolution (the “Resolution“), dated March 8, 2021, which stated:
I[,] Deborah Piazza, the Chapter 7 trustee (“Trustee“) of Richardson Foods, Inc., the 100% shareholder of Richardson Brands Company (“RBC“) have in the exercise of my business judgement and in accordance with my fiduciary duties determined it is in the best interest of RBC, its creditors and other parties in interest that it seek relief under the provisions of Chapter 7 of Title 11 of the United States Code (the “Bankruptcy Code“) and accordingly I have authorized my attorneys Tarter Krinsky & Drogin LLP to file a Chapter 7 bankruptcy petition and any other documents required by the Bankruptcy Code, Federal Rules of Bankruptcy Procedure and the local rules of the United States Bankruptcy Court for the Southern District of New York on behalf of RBC.
(RBC Docket No. 1-1).
On March 15, 2021, the Trustee filed the Notice of Possible Payment of Dividends and of Last Date to File Claims (the “Bar Date Notice“) setting a claims bar date in the RBC case of
June 17, 2021. (RBC Docket No. 14). The Trustee filed RBC‘s
On June 7, 2022, the Trustee commenced an adversary proceeding8 (the “Adversary Proceeding“) against the Movants, Webster, Roses Holdings, Roses Limited, Roses RE Holdings, LLC (“Roses RE” and together, with Roses Holdings and Roses Confections, “Roses“), Founders, Teeger, Haber, and Afek seeking recoveries for fraudulent conveyances. (Opposition, ¶ 17). On January 10, 2023, this Court approved a partial settlement with all the defendants except the Movants whereby the settling defendants agreed to pay $400,000.00 in full settlement of the Trustee‘s claims. (Id.) The Trustee seeks the following amounts from the Movants in the Adversary Proceeding: $696,517 from Doge, $228,717 from Prairie, and $77,390 from Talcott. (Id.)
Subsequently, the Movants filed a Motion for an Order Dismissing the Chapter 7 Case of Richardson Brands Company (the “Motion to Dismiss“). (RFI Docket No. 113-19). In response to the Motion, the Trustee filed the Memorandum of Law in Opposition to Motion for an Order Dismissing the Chapter 7 Case of Richardson Brands Company (the “Opposition to the Motion
to Dismiss“).10 (RFI Docket No. 122). Following the Trustee‘s Opposition to the Motion to Dismiss, the Movants filed a Reply. (RFI Docket No. 126).
This Court issued its Memorandum Opinion and Order on April 19, 2024, denying the Motion to Dismiss because the Movants did not have standing and failed to establish “cause” pursuant to
ratified the actions of the Trustee. (Id. at pp. 22-26). This Court then found that the Trustee had the ability to vote the RBC Share held by RFI to authorize the RBC Petition because the Pledge Agreement terminated upon the Sale to Roses. (Id. at p. 27). Lastly, this Court held that dismissal was not in the “best interests of creditors” under
C. THE MOTION TO RECONSIDER
Following the Memorandum Opinion and Order, the Movants filed the Motion to Reconsider asking the Court to reconsider its Order denying the Motion to Dismiss. (Motion, p. 1). The Movants revisit their original points by arguing that the RBC case should be dismissed because: 1) the Movants now have standing due to tardy proofs of claims filed by Doge, Talcott, and Prairie (RBC POC Nos. 27-1, 28-1, 29-1) (the “Movant‘s Claims“); 2) the RFI board of directors did not, and could not, ratify the Trustee‘s filing of the RBC petition; 3) the Pledge Agreement was not terminated as it was already amended; and 4) the Pledge Agreement was amended by the Subrogation Agreement.11 (Id.)
In response, the Trustee argues in the Opposition that the Movants still lack standing, as the Movants: 1) lacked standing at the time of filing the Motion to Dismiss; 2) failed to present new facts or law in the Motion; and 3) do not hold a contingent claim against the RBC debtor. (RFI Docket No. 145). The Trustee also responds on the issue of authorization, asserting that: 1) the Movants still lack authorization to challenge the bankruptcy petition; 2) the board of directors had the authority to implicitly ratify the Trustee‘s action of filing the RBC petition; 3) the Pledge
Agreement and Subrogation Agreement cannot be read in tandem, as they are each separate agreements; 4) Prairie did not satisfy the requirements for equitable subrogation; and 5) the Movants failed to present evidence that dismissal is in the best interests of creditors. (Id.).
The Court granted the Movants leave to file a Reply. (RFI Docket No. 147). In their Reply, the Movants assert: 1) that they have standing as creditors based on the Supreme Court‘s decision in Kaiser Gypsum, which broadens the definition of “parties in interest” under
Based on the above, the Trustee sought, and was granted, relief to file the Sur-Reply solely to address the Supreme Court decision in Kaiser Gypsum. (Sur-Reply, ¶¶ 1-8).
The Court will address these issues in turn.
IV. LEGAL STANDARDS AND DISCUSSION
A. STANDARDS UNDER FRCP RULES 59 AND 60
The
”
forth concisely the matters or controlling decisions which counsel believes the Court has not considered.” Id. In addition,
A motion for reargument under
The
following entry of the Court‘s Memorandum Opinion and Order denying the Movant‘s Motion to Dismiss. (RFI Docket Nos. 139, 140-1). While the Court believes the Motion is most appropriately construed under
While
In addition,
- mistake, inadvertence, surprise, or excusable neglect;
- newly discovered evidence that, with reasonable diligence, could not have been discovered in time to move for a new trial under
Rule 59(b) ; - fraud (whether previously called intrinsic or extrinsic), misrepresentation, or misconduct by an opposing party;
- the judgment is void;
- the judgment has been satisfied, released, or discharged; it is based on an earlier judgment that has been reversed or vacated; or applying it prospectively is no longer equitable; or
- any other reason that justifies relief.
The movants bear “a heavy burden because
In general, any motion for reconsideration “is not a vehicle for relitigating old issues, presenting the case under new theories, securing a rehearing on the merits, or otherwise taking a ‘second bite at the apple.‘” See Seoul Viosys Co., Ltd. v. P3 Int‘l Corp., 2017 U.S. Dist. LEXIS 196203, at *3 (S.D.N.Y. November 29, 2017). As noted by the Second Circuit Court of Appeals, “[t]he standard for granting a [motion for reconsideration] is strict, and reconsideration will generally be denied unless the moving party can point to controlling decisions or data that the court overlooked – matters, in other words, that might reasonably be expected to alter the conclusion reached by the court.” See Shrader v. CSX Transp., Inc., 70 F.3d 255, 257 (2d Cir. 1995) (holding that a motion for reconsideration should only be granted if the moving party can introduce a change in the law or facts the court had not considered).
Under these standards, the Court will address the Movants’ arguments pursuant to
In support of the Motion, the Movants first rely on the filing of their tardy claims, presumably under
previously advanced“). The arguments also appear to implicate
The Movants also appear to rely on the Supreme Court decision in Kaiser Gypsum as evidence of “an intervening change of controlling law” to urge the Court to reconsider its Motion to Dismiss.
1. Movants’ Tardy Claims Are Neither New Information Nor Sufficient to Establish Movants as Creditors.
a. The Proofs of Claims Filed By The Movants In the RBC Case Do Not Constitute “New Information” Supporting Reconsideration.
The Movants argue that the “Court should reconsider its standing analysis because the parties have, contemporaneously with this filing, filed proof of claims against RBC and, thus, have standing.” (Motion, ¶ 14). Doge filed an unsecured proof of claim in the amount of $2,562,124.42. (RBC POC No. 27-1). Prairie filed an unsecured proof of claim in the amount of $6,002,915.32. (RBC POC No. 28-1). Talcott filed an unsecured proof of claim in the amount of $119,312.36. (RBC POC No. 29-1). All claims were filed on May 3, 2024. (RBC Case, Claims Register). The Movants assert that the late-filed claims address this Court‘s Memorandum Opinion and Order, which they argue “acknowledged that Doge (and thus, Talcott and Prairie) can file ‘a tardy proof of claim that would entitle it to distribution in the RBC case.‘” (Motion, ¶ 14) (internal citations omitted). The Movants now assert that these proofs of claim have cured their lack of standing. (Id. at ¶¶ 14-15).
In the Trustee‘s Opposition, the Trustee asserts that the Movants did not have standing at the time they filed their Motion to Dismiss. (Opposition, p. 7). The Trustee argues that the
Movants are attempting to present new evidence as to standing that they did not present in their Motion to Dismiss. (Id. at p. 9). The Trustee emphasizes that the Movants’ prior filing did not reference
In their Reply, the Movants reaffirm that they have standing because the Movants have claims against RBC. (Reply, ¶ 7). The Movants emphasize that even though they filed a tardy proof of claim,
The Court finds that the filed proofs of claim are not “new evidence” in support of the Movants’ standing because the information supporting the alleged claims was available to Movants prior to filing the Motion to Dismiss. The RBC case was filed on March 8, 2021. (RBC Petition). The Motion to Dismiss was filed on November 2, 2023. (RBC POC Nos. 27-
29). The Memorandum Opinion and Order denying the Motion to Dismiss was entered on April 19, 2024. (RFI Docket No. 139). The Movants subsequently filed the claims on May 3, 2024. (RBC Case, Claims Register). In the proofs of claim, the Movants rely on evidence used in the Motion for Substantive Consolidation, filed on April 26, 2023, which was filed prior to the Motion to Dismiss, to support the proofs of claim. (RBC Case, Claims Register). For example, in support of the Doge claim, Doge cites to exhibits included in the Motion for Substantive Consolidation (RFI Docket No. 97), which was filed over a year prior to the filing of the claims. (RBC POC No. 27-1). There is no evidentiary support for the Talcott and Prairie claims. (RBC POC Nos. 28-1, 29-1).
Moreover, the Movants assert (as evidence that their claims are not “contingent“) that the alleged claims “arose in 2018 and 2019, long before the RBC petition was filed.” (Reply, ¶ 15). Yet the parties did not file proofs of claim nor raise this as evidence in support of standing in their original Motion to Dismiss. (RFI Docket No. 113). The claims were only filed after the parties misunderstood the Court‘s ruling in the Opinion as tacit approval to cure standing by filing claims.15 (Memorandum Opinion and Order, p. 17).
Based on this, the evidence in support of the alleged claims was clearly available to Movants prior to filing the Motion to Dismiss. While the Movants cite to the correct standard that “newly discovered evidence . . . that could not have been discovered in time”16 can support
the newly-filed claims was available prior to the filing of the Motion to Dismiss. (Reply, ¶ 11); see also Seoul Viosys Co., 2017 U.S. Dist. LEXIS 196203 at * 3 (motion for reargument is not “an opportunity to raise new arguments not previously presented to the Court in the original Motion to Dismiss“). As Courts have held, a motion for reconsideration should not be used as a vehicle for “presenting the case under new theories, securing a rehearing on the merits, or otherwise taking a ‘second bite at the apple.‘” Sequa Corp. v. GBJ Corp., 156 F.3d 136, 144 (2d Cir. 1998). A party is not permitted to raise new arguments not previously presented to the Court in the original pleading. See Seoul Viosys Co., 2017 U.S. Dist. LEXIS 196203 at * 3. The Court in Seoul Viosys disposed of the Movant‘s arguments that the Court overlooked certain legal precedent because the issues raised in the motion to reconsider had already been discussed or were “new arguments not previously presented to the Court.” Id., at * 3; see also Shrader, 70 F.3d at 257 (“a motion to reconsider should not be granted where the moving party seeks solely to relitigate an issue already decided.“).
Furthermore, the Movants cannot retroactively create standing by filing claims well into the case. The submission of new evidence is limited to evidence that was not previously available. Davidson v. Scully, 172 F. Supp. 2d 458, 463 (S.D.N.Y. 2001) (denying motion for reconsideration because the movant was attempting to reargue its earlier motion and “vent his frustration” with the court‘s prior ruling, which is not the purpose of a motion for reconsideration). Indeed, a motion for reconsideration should not be used “to put forward additional arguments which the movant could have made but neglected to make before judgment.” See Goldstein v. State of New York, 2001 U.S. Dist. LEXIS 11318, at *1 (S.D.N.Y. Aug. 7, 2001).
Ultimately, the Movants’ standing derives from their manufactured status as creditors, which was created from evidence available to the Movants prior to the Motion to Dismiss.
b. Even If The Claims Were “New Information,” The Claims Do Not Establish the Movants as Creditors of RBC.
As discussed above, the Movants argue that the Court should reconsider its standing analysis because the Movants have each filed a proof of claim against the RBC debtor. (Motion, ¶ 4); (see also RBC POC Nos. 27-29).
In the Opposition, the Trustee states that the Movants “attempt to make the argument that RBC is an alter ego of RFI, thus, they have the right to file a claim against RBC. This argument is based on the contingency that this Court rules in favor of the Movants on the Joint Motion to Substantively Consolidate the Estates of Richardson Foods, Inc. and Richardson Brands Company.” (Opposition, p. 10).
In the Reply, the Movants state that the Trustee “incorrectly characterizes the Movants’ claims as contingent – they are not . . . .” (Reply, ¶ 13). Movants continue to argue that they “have standing because, they are creditors of RBC, [and] they have a claim against RBC.” (Id. at ¶ 15).
i. There Is No Privity Between Movants And RBC.
The Court will address this issue as a threshold matter.17 Movants argue that they have standing as creditors because they filed claims in the RBC case. (Motion, ¶ 14); (see also Reply, ¶ 15). In support of the $900,000 claim, Doge attached a statement signed by Managing Member, Michael Barry (the “Barry Statement“) stating that “per the 2018 Agreement, Doge Capital advanced Richardson $900,000.” (RBC POC No. 27-1, ¶ 3). In further support of the claim, Doge asserts that “proof of a $900,000 initial loan payment made directly to RBC, as confirmed by a payment confirmation from Northern Trust to RBC.” (Id. at ¶16a). Further, Tracy Burton, the controller for RFI and RBC, stated in her deposition that “loans for Doge & Talcott were deposited into RBC, booked as RBC obligations, and never reclassified as external liabilities.” (Id. at ¶ 16b). Doge further points to the “[t]ax return filed by the Trustee and prepared by [BDO USA, P.C.], confirming that Doge and Talcott Loans were treated as obligations of RBC as of December 31, 2019.” (Id. at ¶ 16c). Also, Doge claims that “[a]n [accounts payable] listing shows a Doge payable of $2,500.” (Id. at ¶ 16d). Lastly, Doge states in support of its claim that an “excerpt from the general ledger shows Doge and Talcott Loans were received and booked on RBC‘s books on February 5, 2018, with no reclassification entries made to move [them] out of RBC through March 9, 2020.” (Id. at ¶ 16e).
The only evidence in support of Talcott‘s $119,312.36 claim is a statement signed by Randall Talcott stating that, “as per the 2018 Agreement, Doge Capital18 advanced Richardson
$100,000” (the ”Talcott Statement“). (RBC POC No. 29-1). Talcott asserts that “as the documentation supporting this Claim is voluminous, Creditor will file a claim supplement in advance of any hearing as to the allowance of this Claim.” (Id. at ¶ 17). In support of its $6,002,915.32 claim, Prairie submitted a statement signed by Michael Barry (the ”Prairie Statement“). (RBC POC No. 28-1). The Prairie Statement states that, “as the documentation supporting this Claim is voluminous, Creditor will file a [c]laim [s]upplement in advance of any hearing as to the allowance of this Claim.” (Id. at ¶ 6).
Privity is a legal relationship between parties to an agreement that arises from rights and obligations. Northwell Health, Inc. v. Grp. Hospitalization & Med. Servs., Inc., 2024 U.S. Dist. LEXIS 232625, at *6. A nonsignatory to a loan agreement cannot be bound by the terms of that agreement unless that party assumes the loan. See EEOC v. Waffle House, Inc., 534 U.S. 279, 294 (2002) (“It goes without saying that a contract cannot bind a nonparty.“). In construction of contracts, courts have held that privity exists where parties are signatories to the contract. See Harte v. Ocwen Fin. Corp., 2014 U.S. Dist. LEXIS 132611, at *15 (E.D.N.Y. September 19, 2014) (finding no breach of contract where there was no privity of contract between parties and one party was a nonsignatory to the contract).
In support of the Trustee‘s argument that the Movants do not hold contingent claims, the Trustee asserts that “the Movants did not have any contact or relationship with RBC” and that “there was no contractual privity between the Movants and RBC where both parties knew liability could arise.” (Opposition, p. 12) (emphasis added).
The Court agrees with the Trustee‘s assertions for somewhat similar reasons. Here, the claims do not evidence a relationship between Movants and RBC. In support of the Doge Claim, the Movants reference exhibits to the Substantive Consolidation Motion to establish RBC‘s obligation to Doge. (See RBC POC No. 27-1); (see also RFI Docket No. 97). The Movants offer a bank statement showing a wire transfer from Doge to RBC in support of their relationship. (RBC POC No. 27-1, ¶ 16a). The Movants also have submitted a general ledger that shows the Doge and Talcott Loans were on RBC‘s books. (Id. at ¶ 16e).19 The contract for the $900,000, however, is between Doge and RFI only. (RFI Docket No. 113-10). The $100,000 loan supporting Talcott‘s Claim was only executed between RFI and Talcott. (Id. at 12-20). In fact, in the Motion to Dismiss, it is asserted that the 2018 Agreement creating the Doge Loan and the Talcott Loan for $900,000 and $100,000, respectively, was executed with “RFI.” (RFI Docket No. 113-10, at ¶ 11).20 Moreover, this Court has already determined that the “Doge Loan [and Talcott Loan] merely establish[] that Doge [and Talcott are] a creditor or party in interest as to RFI, not RBC.” (Opinion, p. 17).21 Therefore, the Movants’ claims only establish, at best, that RBC may have benefitted from the
(finding that a nonparty cannot use a contract for standing unless explicit terms allow the non-party to enforce the contract).
Moreover, while the Movants affirm, in support of the Doge Claim, that the Doge and Talcott Loans were deposited into RBC accounts, this does not make RBC liable on the loans. (See RBC POC No. 27-1, at ¶ 16b); see also Harte v. Ocwen Fin. Corp., 2014 U.S. Dist. LEXIS 132611, at *16 (contractual privity is between signatories and parties to the contract).
As to Prairie‘s standing, the Movants assert that Prairie‘s subrogation rights under Amendment No. 9 to the Webster Loan (the ”Webster Loan Amendment“) provides evidence in support of Prairie‘s standing as a creditor in the RBC Case. (Reply, ¶ 15). However, the Webster Loan Amendment was executed to add Prairie as having the “right of first refusal.” (Motion, Exhibit 4). This does not mean that RBC is in privity with Prairie. To the extent Prairie‘s subrogation is relevant, this Court has already addressed how Prairie‘s subrogation rights under The First Amended Subrogation Agreement as of August 23, 2019 do not establish its standing in the RBC bankruptcy case. (See Memorandum Opinion and Order, pp. 18-19).22
ii. The Movants Do Not Hold a Contingent Claim.
The Trustee asserts that each of the tardy claims filed by the Movants (RBC POC Nos. 27-1, 28-1, 29-1) are to be evaluated as a “contingent claim.” (Opposition, p. 10). The Trustee posits that a “contingent claim under the Code refers to obligations that will become due upon
the happening of a future event that was within the actual or presumed contemplation of the parties at the time [] the original relationship between the parties [was] created.” (Id.) (emphasis added). The Trustee argues that “the Movants attempt to make the argument that RBC is an alter ego of RFI, thus, they have the right to file a claim against RBC” based on their “contingency” that this Court grants the Motion for Substantive Consolidation. (Id.). The Trustee further argues that the tardy claims should therefore be evaluated under the “relationship test” standard in order to determine whether the claims are “contingent.” (Id.). The Second Circuit applies the
In the Reply, the Movants argue that the Movants’ claims are not contingent, but if they were, they would pass the “relationship test.”23 (Reply, ¶ 7). Movants assert that their “relationship” is evidenced by the Doge and Talcott Loans that were deposited into RBC‘s accounts and Prairie‘s subrogation rights in the Webster Loan Amendment. (Id. at ¶ 15).
First, the Court agrees with the Trustee that the Movants have not established that there was any prepetition conduct. While the Movants assert that they have a prepetition “relationship” with RBC, that relationship does not bind RBC under, for instance, the terms of a loan as RFI is bound. (Reply, ¶ 7). Unlike in the In re Motors case, the Movants and RFI do not have a sufficient prepetition relationship. See In re Motors, 598 B.R. at 756 (finding that the relationship between the parties was “firmly rooted” in the parties’ contractual relationship). A “claim cannot be extended to include . . . claimants . . . whose rights depended entirely on the fortuity of future occurrences.” See In re Motors Liquidation Co., 829 F.3d at 135 (internal citations omitted).
As set forth supra, section (IV)(A)(3)(a), the evidence in support of Movants’ claims only demonstrates the proceeds of the loan were deposited in an account maintained by RBC, but the evidence does not establish that RBC was in privity with the Movants.
Second, the Court agrees with the Trustee that the Movants have also failed to establish some “minimum contact or relationship.” To satisfy this element, there must exist some relationship between the parties. Indeed, contingent claims are triggered by the occurrence of a specific event contractually tying a debtor to a creditor. See In re Motors Liquidation Co., 598 B.R. at 754 (a contingent claim must result from prepetition conduct that gives rise to that
claim). However, this presumes there exists some relationship
As detailed above, the Movants’ claims simply repackage existing evidence and information as “new evidence” to support their standing as creditors in the RBC Case. (See RBC Case, Claims Register). The “new evidence,” however, falls short of establishing a creditor-debtor relationship between the RBC and Movants.
Since this Court previously determined that the Movants do not have standing as creditors in the case and Movants have failed to establish that reconsideration pursuant to
2. Kaiser Gypsum and Section 1109 Are Not Sufficient for Reconsideration.
a. Section 1109 Only Applies to Chapter 11 Cases.
In the Motion, the Movants cite to
In the Opposition, the Trustee states that “[the Movants now] seek to make the new argument that under
The
b. The Supreme Court Case, Kaiser Gypsum, Is Not Determinative in Chapter 7 Cases And Accordingly Does Not Alter This Court‘s Original Decision.
The Court gave Movants’ leave to file the Reply to address the Supreme Court decision in Kaiser Gypsum.25 In their Reply, the Movants assert that “[a]s the Supreme Court recently held, standing in bankruptcy cases is broad, and even contingent claims have standing.” (Reply, ¶ 3). The Movants further argue that “[p]ursuant to
The Trustee in its Sur-Reply addressed the Movants’ reliance on Kaiser Gypsum. (Sur-Reply, ¶ 4). The Trustee asserts that Kaiser Gypsum does not apply in this case, as “[t]he Court made clear throughout the opinion that
The arguments will be considered under
Owners Ass‘n v. Davis, 302 F. Supp. 2d 1139, 1141 (E.D. Cal. 2002) (parties can argue a change in the controlling law pursuant to
In Kaiser Gypsum, the Petitioner, Truck Insurance Exchange, was the primary insurer for two Chapter 11 debtors – Kaiser Gypsum Co. and Hanson Permanente Cement. Kaiser Gypsum, 602 U.S. at 274. Truck Insurance Exchange sought to oppose the Chapter 11 plan under
This Court agrees with the Trustee that the broadened definition of “party in interest” narrowly applies to Chapter 11 – not Chapter 7 – cases. (See Sur-Reply, ¶¶ 5, 6). The Supreme Court acknowledged that the expansive definition of “party in interest” under Chapter 11 is meant to enable minority creditors to intervene in Chapter 11 cases to prevent “dominant interests” from “controlling the restructuring process.” See Kaiser Gypsum, 602 U.S. at 281. This concern is not as prevalent in Chapter 7.26 The same interests relevant to protecting
creditors in a Chapter 11 reorganization do not exist in Chapter 7 where a trustee is appointed to oversee the case. See In re Wolfson, 586 B.R. 790, 794 (Bankr. D. Colo. 2018) (“In a chapter 7 case, a chapter 7 trustee is appointed to protect the interests of creditors and the estate, and to balance those interests against those of the debtor.“). The Court concurs with the Trustee the demands of “active participation” by all parties in a Chapter 11 case do not exist in a Chapter 7 case
The Court finds that even if Kaiser Gypsum applied to the RBC Case, the Movants are not “parties in interest.” Movants do not hold “a direct financial stake in the outcome of the case,” as distinguished from the insurer in Kaiser Gypsum who held direct financial responsibility for claims. Kaiser Gypsum, 602 U.S. at 284; (see also RBC POC Nos. 27-1, 29-1) (claims do not establish that Doge, Talcott or Prairie have a direct financial stake in the RBC case). The insurer in Kaiser Gypsum had a financial interest in the Chapter 11 case because the insurer was primarily responsible for indemnifying claims. Kaiser Gypsum, 602 U.S. at 284.
Order, p. 10). The Movants are not being negatively impacted in the RBC Case. In fact, Doge, Talcott and Prairie were the only parties who did not settle in the Adversary Proceeding. (Id. at p. 11).
Here, in addition to the fact that this is a Chapter 7 case, the Movants are not financially liable for or impacted by the RBC Case.27
The Kaiser Gypsum case does not warrant reconsideration of the Court‘s ruling on the Motion to Dismiss. Reconsideration is only appropriate when “the court has overlooked controlling decisions that, had they been considered, might have reasonably altered the result.” See Kuritz v. New York, 2013 U.S. Dist. LEXIS 95204, at *9 (N.D.N.Y. July 16, 2013) (citing Cobalt Multifamily Investors I, LLC v. Shapiro, 2009 WL 4408207, at *2 (S.D.N.Y. 2009)); see also In re Biovail Corp. Sec. Litig., 247 F.R.D. 71, 72 (S.D.N.Y. 2007) (denying motion to reconsider because movants did not persuade the court that it had overlooked controlling legal authority that would alter the outcome of the case). This Court has determined that Kaiser Gypsum would not have reasonably altered the Court‘s Memorandum Opinion and Order because: 1)
C. RECONSIDERATION OF THE FACTS AND EVIDENCE IN SUPPORT OF THE MOTION TO DISMISS DOES NOT JUSTIFY RELIEF
1. The Motion for Reconsideration Is Not a Vehicle to Relitigate Issues And Facts Previously Raised.
It appears that the catch-all provision of
because the RBC Petition was an authorized filing by the Trustee.28 (See Memorandum Opinion and Order, pp. 20-29); see also In re Enron Corp., 352 B.R. at 369. As set forth above,
Under
Here, the Movants have not met the standard under
justification to reconsider the Court‘s decision. (Motion, pp. 7-13). The Movants assert that the Court “should reconsider its Order” denying dismissal. (Id.). While the catch-all provision of
2. The Trustee Had Authority To File The RBC Case Because The Board Could Implicitly Ratify
The Movants urge the Court to reconsider “its Order because the RFI Board could not (and did not) ratify the unauthorized RBC bankruptcy filing through inaction.” (Motion, ¶ 16). The Movants argue that the bankruptcy filing “was not a ‘company action’ but instead an ill-conceived act of a third party that had no authority to act.” (Id. at ¶ 19). They argue that the Board had resigned and, in any event, “without an affirmative vote or action, the Board could not ratify the bankruptcy filing under Florida law – mere inaction is not enough.” (Id. at ¶ 20).
The Trustee first asserts that the Movants do not have the right to challenge the bankruptcy filing as unauthorized. (Opposition, p. 12). The Trustee then argues that the Movants have not presented any new “facts or case law the Court may have overlooked” in determining that the Board of Directors had authority to implicitly ratify the filing. (Id. at p. 13). The Trustee also argues that the Board of Directors could implicitly ratify because when the RBC Petition was filed, the Board was still compromised of Teeger, Haber and Afek. (Id.). The Trustee argues that their actions implicitly ratified the filing of the Petition by the Trustee. (Id.).
In the Reply, the Movants respond to the Trustee‘s arguments that the Movants do not have standing to challenge ratification.30 (Reply, ¶ 16). The Movants assert that they have standing as secured creditors in the case. (Id. at ¶ 17). The Movants then assert that the “Board of Directors did not implicitly ratify anything.” (Id. at ¶ 18) (emphasis added). The Movants cite to Price v. Gurney, 324 U.S. 100, 106 (1945), in support of their argument for dismissal. (Id.). They assert that the “Board of Directors could not have accidentally ratified the petition.” (Id.). The Movants further stress that “the Trustee‘s argument that inaction somehow implicitly
ratifies a bankruptcy petition, makes a mockery out of the Florida Corporate Law.” (Id. at ¶ 19). The Movants conclude by stating that the Board did not ratify nor approve the RBC Petition and therefore the RBC case should be dismissed. (Id.).
Preliminarily, as set forth supra, section (IV)(B)(1)-(5), the Movants do not have standing as creditors and therefore cannot
Furthermore, this Court agrees with the Trustee that the Court has already determined that the Board could implicitly ratify the actions of the Trustee retroactively. (Reply, p. 13); (see also Memorandum Opinion and Order, pp. 24-25). Florida law permits subsequent ratification, even if originally unauthorized, “and such ratification relates back and supplies original authority.” See In re Mojo Brands Media LLC, 2016 Bankr. LEXIS 829, at * 6 (Bankr. M.D. Fla. March 16, 2016) (citing Banyan Corp. v. Schucklat Realty, Inc., 611 So. 2d 1281, 1282 (Fla. Dist. Ct. App. 1992)).
The Movants argue that if there was not an “affirmative vote or action,” the Trustee did not have authorization to file the RBC Petition. (Motion ¶ 20); (see also Reply, ¶ 18). However, what the Movants deem as “inaction” by the Board is implicit authorization. (Reply, ¶ 19). For authorization by ratification, “either action or inaction may be evidence of ratification.” See In re Reliable Air, Inc., 2007 Bankr. LEXIS 3060, at *11 (Bankr. N.D. Ga. March 9, 2007).
The Board, who, by the Movant‘s own admissions, had not resigned, implicitly ratified the Trustee‘s filing of the RBC case through their actions.31 (RFI Docket No. 123-1). Afek,
specifically, was designated as the authorized representative of RBC and had signed RBC‘s schedules. (RFI Docket No. 63); (see also RBC Docket No. 19). The Board had undertaken a plethora of actions involving the RBC case that, when taken together, demonstrate the Trustee had implicit authorization to file the RBC case. (Memorandum Opinion and Order, p. 25); see also In re Reliable Air, Inc., 2007 Bankr. LEXIS 3060, at *12 (shareholder‘s active participation, over the 11 months between the filing and the motion to dismiss, in the bankruptcy case reflects the shareholder‘s implicit ratification of the bankruptcy filing).
In addition, the Court found that the Board did not “accidentally” ratify the RBC Petition – it was an after-the-fact ratification that was implied by the actions of the Board of Directors – a distinction
Furthermore, the Movants erroneously rely on Price to support their argument that unauthorized petitions filed under the Bankruptcy Code must be dismissed. (Motion, ¶ 17); (Reply, ¶ 18). This Court has already found that Price “did not address whether the required authorization under local law could be found in ratification/relation back doctrine.”32
(Memorandum Opinion and Order, p. 23); see also Hager v. Gibson, 108 F.3d 35, 39 (4th Cir. 1997) (Price does not “foreclose that possibility“). As determined by the Court, “Teeger, Haber, and Afek were the parties who had the ability to ratify the Trustee‘s act of filing the petition at the time of filing” and in fact did ratify the filing, pursuant to Florida law, through their actions in the RBC case. (Memorandum Opinion and Order, p. 25). The Movants have not provided any new information as to their reliance on Price to support their proposition that the RBC Case must be dismissed because it was not filed by a party with authority to do so. (See Memorandum Opinion and Order, p. 23); (see also Motion, ¶ 17).
Therefore, the Movants have failed to present any grounds under
3. The Trustee Could Vote Her Share As Previously Determined By This Court.
a) The Pledge Agreement Terminated.
The Movants argue that the “Court should reconsider the requirements of termination in the Pledge Agreement and determine that the Pledge [A]greement did not terminate.” (Motion, ¶ 24). The Movants assert that the Pledge Agreement did not terminate because: 1) there is no evidence that the “parties to the [Webster Loan] ever terminated that agreement“; 2) the RBC stock still vests with Webster; and 3) obligations that should have been paid to trigger the termination clause of the Pledge Agreement were not paid. (Id. at ¶¶ 27-29). Movants then argue that the Pledge Agreement was amended by the subsequent amendments, including the
unauthorized act.” In re Mojo Brands Media, LLC, No. 6:15-BK-03871-CCJ, 2016 WL 1072508, at *2 (Bankr. M.D. Fla. Mar. 16, 2016) (quoting McDonald v. Hamilton Elec., Inc. of Florida, 666 F.2d 509, 514 (11th Cir. 1982)). Likewise, a “principal may subsequently ratify its agent‘s act, even if originally unauthorized, and such ratification relates back and supplies original authority.” Id. (quoting Banyan Corp. v. Schucklat Realty, Inc., 611 So. 2d 1281, 1282 (Fla. Dist. Ct. App. 1992)) . . . .
(Memorandum Opinion and Order, p. 24). Webster Loan Amendment and Subrogation Agreements. (Id. at ¶ 32). The Movants state that “agreements and subsequent amendments must be read together” as integrated documents. (Id. at ¶ 33). Specifically, they claim that the documents demonstrate that “RFI and RBC both acknowledged the rights of Prairie as a subrogated party under all agreements – necessarily
The Trustee opposes the Movants’ argument and states that “since the Pledge Agreement and Subrogation Agreements were based on separate consideration . . . they should not be read or incorporated together.” (Opposition, p. 14). Applying Second Circuit caselaw, the Trustee posits that for two agreements to be read together, they must have been executed at the same time, by the same parties, for the same purpose and during the same transaction. (Id.). The Trustee further asserts that: 1) the Subrogation Agreements and Pledge Agreement were executed five years apart with separate consideration for each agreement; 2) there was a different set of parties who each executed the Pledge Agreement and Subrogation Agreement; and 3) the purpose of the Pledge Agreement and Subrogation Agreements was distinct in that the Subrogation Agreements were executed for Prairie and the Board to pledge additional security for the Webster Loan and the Pledge Agreement was used to assign RBC‘s Share as security for the Webster Loan. (Id. at pp. 14-15). The Trustee also argues that the Pledge Agreement “terminated according to its own terms when Webster was paid in full and that RBC shares were not sold to Roses as party of the [Roses UCC Sale] . . . .” (Id. at p. 16).
In its Reply, the Movants respond that the “Pledge Agreement can be read in conjunction with the Subrogation Agreement” as an integrated agreement. (Reply, ¶ 20). This is because the Subrogation Agreements reference collateral and the Pledge Agreement references the Webster
Loan. (Id.). The Movants again assert that the Subrogation Agreements gave Prairie rights in the collateral. (Id.). The Movants also assert that the “Pledge Agreement was not terminated” because the obligations have not been paid in full. (Id. at ¶ 26).
First, the Court has already decided that the RBC stock, while physically with Webster, can still be in the possession of the Trustee.33 (Memorandum Opinion and Order, p. 28).
Second, the Court in the Memorandum Opinion and Order determined that the Pledge Agreement was terminated when Webster was paid. (Memorandum Opinion and Order, p. 27). The Movants have not offered any new information or evidence to support their argument here – they only claim that this Court overlooked evidence in support of termination.34 (Motion, ¶¶ 27-31). The Court reaffirms that the Pledge Agreement terminated, permitting the Trustee to vote the RBC Share.
Promptly following the payment in full of the [obligations under the Webster Loan] and the irrevocable termination of the [Webster Loan], [Webster] shall deliver to [RFI] the [RBC Share] pledged by [RFI] at the time subject to this [Pledge] Agreement and all instruments of assignment executed in connection therewith, free and clear of the liens hereof and, except as otherwise provided herein, all of [RFI]‘s obligations hereunder shall at such time terminate.
(Pledge Agreement § 14).
Pursuant to the terms of the Default Letter, Webster would be paid $2,510,871.66 in satisfaction of the Webster Loan. (RFI Docket No. 113-12). Additionally, upon the Roses UCC Sale35, Webster and other parties’ claims, totaling $3,402,871.86, would be paid in full and the RBC Share would not be sold to Roses. (RFI Docket No. 113-13). As such, since the Webster Loan was paid in full pursuant to the Roses UCC Sale, the “express terms of the Pledge Agreement” state that the RBC Share would have reverted to RFI. (Memorandum Opinion and Order, p. 28); (see also Pledge Agreement § 14). And, therefore, the Pledge Agreement “terminated on its own terms.” (Opposition, p. 16).
The Movants attempt to reargue a point from the Motion to Dismiss (Memorandum Opinion and Order, p. 27) that since “Prairie and other subrogated parties were not paid in full” – the Pledge Agreement could not be terminated. (Motion, ¶ 29). However, the Pledge Agreement explicitly states that “payment in full of the [obligations under the Webster Loan]” terminates the Webster Loan, reverting the RBC Share to RFI. (Pledge Agreement § 14). Therefore, “Prairie and other subrogated parties” cannot have an interest in the RBC Share as Webster‘s interest terminated upon satisfaction of the Pledge Agreement.36 See In re Jones, 534 B.R. 588, 599 (Bankr. D. Vt. 2015) (subrogees cannot have rights “greater than” the rights of the subrogor). As such, Prairie and other subrogated parties cannot hold a security interest in the RBC Share greater than Webster‘s interest, which terminated upon satisfaction of the Webster Loan. Id.
b) The Pledge Agreement Was Not Amended By Subsequent Agreements Or Amendments And Therefore Such Documents Cannot Be Read Together.
As stated above, the Movants unsuccessfully argue that reading the Pledge Agreement, Webster Loan Amendment, and Subrogation Agreements together “demonstrates that RFI and RBC both acknowledged the rights of Prairie as a subrogated party under all Agreements.” (Motion, ¶ 34) (emphasis added). The
A document may be incorporated by reference into a contract if the original contract describes the document, but the original contract must clearly express “the parties’ intent to be bound by [those] terms.” See Int‘l Star Registry of Ill. v. Omnipoint Mktg., LLC, 2006 U.S. Dist. LEXIS 68420, at *9 (N.D. Ill. September 6, 2006) (subsequent clauses were incorporated into the original contracts because the original contracts included reference that parties were bound by the terms of the clauses).
The Court agrees with the Trustee that the Pledge Agreement, Subrogation Agreements and other loan documents are distinct agreements not meant to be read together. (Opposition, pp. 14-15). The Movants are therefore incorrect that the Pledge Agreement was amended by subsequent documents or the Subrogation Agreements.37 (Opposition, pp. 14-16); (see also
Opposition, pp. 14-15). The Pledge Agreement was executed on December 24, 2014. (RFI Docket No. 113-8). It was executed by RFI, RBC, and Webster for the purpose of pledging the RBC Share to Webster, which would return to RFI upon Webster‘s loan being satisfied in full. (Id.). The Movants are not referenced in the Pledge Agreement. The Subrogation Agreements, executed after August 2019, and amendments do not reference the Pledge Agreement or any change to the terms of the Pledge Agreement. (RFI Doc Nos. 126-10, 126-11). Also, as stated by the Trustee, there was separate consideration given for each agreement. (See Opposition, p. 14); see also Carvel Corp. v. Diversified Mgmt. Grp., Inc., 930 F.2d 228, 233 (2d Cir. 1991) (“Under New York law, instruments executed at the same time, by the same parties, for the same purpose and in the course of the same transaction will be read and interpreted together.“). Moreover, the purpose of the Subrogation Agreements was to reflect that Prairie, Founders Equity I LP, Haber and Teeger deposited and pledged additional funds as collateral security for the Webster Loan. (RFI Docket No. 126-10). While parties to these agreements are bound to each agreement, that does not indicate that the parties are agreeing to a change in terms of any document not explicitly referenced in subsequent contracts.38 When there are multiple agreements, the documents must be part of the same transaction to be read together. See Sony Corp. v. Fujifilm Holdings Corp., 2017 U.S. Dist. LEXIS 164127, at *20 (S.D.N.Y. September 28, 2017) (“[I]nstruments executed at the same time, by the same parties, for the same purpose, and in the
As stated earlier, the Movants also argue that the Pledge Agreement can be read in conjunction with the Subrogation Agreements as they are an “integrated agreement” and therefore must be read together. (Reply, ¶ 20). However, for agreements to be integrated documents, they need to reference the parties and terms of the contract meant to be integrated among the documents and/or amendments. See VEP Biotech LTD v. Quadrant Biosciences, Inc., 2024 U.S. Dist. LEXIS 169641 (N.D.N.Y. September 19, 2024) (two distinct documents that are intended to be integrated should reference each other and mention terms that merge the two agreements into one agreement). Here, the Pledge Agreement does not reference the Subrogation Agreement. (RFI Docket No. 113-8). The Subrogation Agreements and other amendments do not explicitly mention or reference the Pledge Agreement. (RFI Docket No. 126-10). As the Court determined above, the Pledge Agreement was executed for a different purpose and contemplates different parties than the Subrogation Agreement. (RFI Docket Nos. 126-10 and 126-11).
The Movants further argue that the Webster Loan Amendment amended the Pledge Agreement by reference. (Motion, ¶ 32). However, the Webster Loan Amendment references “Loan Documents” generally and does not explicitly mention the terms of the Pledge Agreement with respect to termination. (See id. at ¶ 35); (see also RFI Docket No. 126-14). The Court agrees with the Trustee that “for contracts to be construed together, they must be based upon the same consideration.” (See Opposition, p. 14); see also In re 717 Grand Street Corp., 259 B.R. 1, 5 (Bankr. E.D.N.Y. 2000). The purpose of the Webster Loan Amendment is to amend only Section 16.3(f) of the Webster Loan and to make Prairie the grantee of the right of first refusal. (RFI Docket No. 126-14). The Webster Loan Amendment did not amend the terms of the Pledge Agreement‘s termination clause. The Movants also argue that the Pledge Agreement is contemplated when the Amendment discusses “Loan Documents.” (Reply, ¶ 20). However, even if this claim were true, this reference is not sufficient to amend the Pledge Agreement‘s termination clause. Moreover, to the extent the Pledge Agreement is referenced in the Webster Loan Amendment, the Court has already established the Pledge Agreement, and all rights thereunder, terminated. (Memorandum Opinion and Order, p. 27).
Therefore, based on the foregoing, the Court finds that the Movants have not offered any information to justify reconsideration of this Court‘s original decision that the Pledge Agreement had been terminated and subsequent amendments or Subrogation Agreements do not alter the impact of the Agreement. (Memorandum Opinion and Order, p. 27). Accordingly, the Trustee could vote the RBC Share.
c) Equitable Subrogation Does Not Prevent the Pledge Agreement From Terminating By Its Terms.
The Movants assert that the Court should reconsider the portion of its Opinion relying on the absence of an amendment to the Pledge Agreement referencing Prairie or the other parties. (Motion, ¶ 38). The Movants argue that “no other document need be amended to name the surrogate parties who step into the shoes of the Lender.” (Id. ¶ 39). The Movants argue that “there was no need to amend the Pledge Agreement because Prairie steps into the shoes of [Webster].” (Id.). They state that, “RFI and Webster
- the claimant must have made payment to protect his own interests;
- the claimant must not have been a volunteer;
- the payment must satisfy a debt for which the claimant was not primarily liable;
- the entire debt must have been paid; and
- subrogation must not cause injustice to rights of others.
Carol Ruth, Inc. v. Provident Life and Acc. Ins. Co., 1995 WL 130530, at *6 (S.D.N.Y. 1995) (internal citations omitted).
The Trustee argues that Prairie does not meet the standard for equitable subrogation because: 1) Prairie did not make a pledge to Webster to “protect its own interest“; 2) any pledge Prairie made would be voluntary; 3) Prairie was “neither primarily nor secondarily liable for the Webster obligation“; 4) by the Movants’ own admission, the Webster loan was not paid in full; and 5) subrogating Prairie to Webster causes injustice to other parties. (Id. at ¶ 17-18).
The Court agrees with the Trustee, although for slightly different reasons, that Prairie does not satisfy the elements of equitable subrogation related to the Webster Loan.39
Subrogation refers to substituting one party for another. JPMorgan Chase Bank v. Cook, 318 F. Supp. 2d 159, 165 (S.D.N.Y. 2004) (“Subrogation simply means substitution of one person for another; that is, one person is allowed to stand in the shoes of another and assert that person‘s rights against the defendant.“) (internal quotation marks and citation omitted). Equitable subrogation is commonly applied in this district “where one party‘s property is used in discharging an obligation owed by another or a lien upon the property of another, under such circumstances that the other would be unjustly enriched by the retention of the benefit thus conferred.” See United States v. Meiri, 2024 U.S. Dist. LEXIS 189764, at *53 (S.D.N.Y. October 17, 2024) (finding that the parties are not entitled to equitable subrogation because the original loan was paid off on its own terms from funds not extended by the alleged subrogee).
RFI and RBC did not use funds from the Prairie Loan to satisfy the obligation to Webster. See Commer. Lender, LLC v. DeVivo, 2023 U.S. Dist. LEXIS 224946 (E.D.N.Y. December 18, 2023) (plaintiff failed to establish that its property was used to discharge an obligation owed by the borrower and therefore the borrower was not unjustly enriched). The Prairie Subrogation Agreements were used to provide additional security and collateral for the Webster Loan. (RFI Docket No. 126-10). The Webster Loan was paid from the Roses UCC Sale. (RFI Docket No. 113-13). Further, the Prairie Loan was not extinguished, and Prairie was in fact paid from the sale.40
Some courts in other districts commonly have applied the five-part standard for equitable subrogation stated by the Trustee
If this Court applies this five-part test, the Movants still would not be entitled to equitable subrogation. As to the third element of the test, Prairie‘s pledged collateral in the Subrogation Agreements did not satisfy the Webster Loan. (RFI Docket No. 126-10). The Court agrees with the Trustee that the Prairie “was neither primarily nor secondarily liable for the Webster [Loan].” (Opposition, p. 18). The Webster Loan was satisfied by the Roses UCC Sale. (RFI Docket No. 113-13). The purpose of the Subrogation Agreements was to reflect that Prairie and other parties pledged additional funds to be held by Webster as additional collateral security for the Webster Loan. (RFI Docket No. 12-10 at 2-3); (see also Opposition, p. 18). Ultimately, the Webster Loan and Prairie‘s loan were settled by the Roses UCC Sale. (RFI Docket No. 113-12). Therefore, the third element of the five-part test for equitable subrogation is not met, and
equitable subrogation is not available to Prairie.41 See Carol Ruth, Inc. v. Provident Life, 1995 U.S. Dist. LEXIS 3734, at *21 (S.D.N.Y. March 24, 1995) (equitable subrogation was not available to the party that did not pay the debt of another party).
As such, the Pledge Agreement terminated on its own terms when the Webster Loan was paid, and therefore the Trustee could vote her share.
D. BEST INTERESTS OF CREDITORS
The Movants do not proffer any new arguments or information that justify reconsideration of whether dismissal is in the best interests of creditors. (Motion, p. 13).
The Trustee asserts that “the Movants have failed to demonstrate matters of controlling decisions which the Court has overlooked in determining dismissal would not be in the best interest of creditors.” (Opposition, p. 18). The Trustee then references this Court‘s prior decision noting that dismissal of the RBC case “could potentially deprive the Trustee of pursuing the Adversary Proceeding . . . .” (Id., at p. 19).
The Movants have not asked this Court to reconsider its decision that dismissal of the RBC Case is not in the best interests of creditors and parties. Even if they had, this Court reaffirms its determination denying the Motion to Dismiss because “dismissal is not in the best interest of all parties in interest . . . [as this] could potentially deprive the Trustee of standing to pursue the Adversary Proceeding from which the RBC estate may significantly benefit.” (Memorandum Opinion and Order, p. 29).
V. CONCLUSION
For the foregoing reasons, the Movants have not established that the Court should reconsider the Memorandum Opinion and Order Denying the Motion to Dismiss. Movants’ Motion to Reconsider (Docket No. 140-1) is DENIED. Any arguments not addressed above are deemed OVERRULED.
IT IS SO ORDERED.
Dated: New York, New York
February 6, 2025
/S/ John P. Mastando III
HONORABLE JOHN P. MASTANDO III
UNITED STATES BANKRUPTCY JUDGE
Notes
As set forth above, the First Amended Subrogation Agreement describes the Prairie Loan as a $280,000 deposit into a bank account maintained at Webster to be held by Webster as collateral security for the Webster Loan. (RFI Docket No. 126-10 at 2–3). Critically, no provision of the First Amended Subrogation Agreement (or for that matter, the Second Amended Subrogation Agreement) explains why Prairie made the Prairie Loan, on behalf of whom Prairie made the Prairie Loan, which Webster bank account the Prairie Loan was deposited in, or the terms governing the Prairie Loan. Rather, the Second Amended Subrogation Agreement states that Prairie, as Pledgor, pledged, assigned, and transferred, for the benefit of Webster, a security interest in the cash comprising the Prairie Loan. (Id. at 12). It also states that the Prairie Loan is security for the prompt payment of the Webster Loan. (Id. at 13). The Court therefore finds that the Subrogation Agreements do not establish a creditor relationship between Prairie and RBC.
(Memorandum Opinion and Order, pp. 18-19).[I]n the Teeger in the Teeger affidavit, Teeger states that “[i]mmediately following the sale to Roses which was approved by the [RBC] Board, RBC ceased all operations and as a result, the board ceased to function, and the board members effectively resigned.” (RFI Docket No. 123-1 at ¶ 4). However, RBC‘s bylaws state that “[a] director may resign at any time by delivering written notice to the board of directors or its chairman or to the corporation. A resignation is effective when the notice is delivered unless the notice specifies a later effective date.” (RFI Docket No. 113-7 at Art. 3 § 11). No party produced any written notice indicating that the RBC Board properly resigned pursuant to the RBC Bylaws. Indeed, at the
The Court determined, in part, that:
Here, RBC is a Florida corporation, and resolution of this issue is therefore governed by Florida law. (Docket No. 113-7, Art. 12 (stating that the bylaws are to be construed under Florida law)). Under Florida law, “[a] principal can ratify the unauthorized act of an agent purportedly done on behalf of the principal either expressly or by implication through conduct that is inconsistent with an intention to repudiate the
[T]he fact that the Trustee is not in physical possession of the RBC Share is no bar to her voting it, and the Trustee has not abandoned the RBC Share. (Opposition at ¶ 44–55).