Cobalt Ventures, LLC v. Bank of America (In re Brooks Sand & Gravel, LLC)

361 B.R. 477, 2007 Bankr. LEXIS 353
CourtDistrict Court, W.D. Kentucky
DecidedFebruary 13, 2007
DocketBankruptcy No. 06-30259; Adversary No. 06-3158
StatusPublished
Cited by2 cases

This text of 361 B.R. 477 (Cobalt Ventures, LLC v. Bank of America (In re Brooks Sand & Gravel, LLC)) is published on Counsel Stack Legal Research, covering District Court, W.D. Kentucky primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Cobalt Ventures, LLC v. Bank of America (In re Brooks Sand & Gravel, LLC), 361 B.R. 477, 2007 Bankr. LEXIS 353 (W.D. Ky. 2007).

Opinion

MEMORANDUM-OPINION

JOAN A. LLOYD, Bankruptcy Judge.

This matter is before the Court on the Motion to Dismiss of Defendant Bank of America, N.A. (“Bank”) and the Response to the Motion to Dismiss of Plaintiffs Cobalt Ventures, LLC and Cobalt Mining, LLC (“Cobalt”). The Court considered the written submissions of the parties and the comments of counsel at the hearing held January 30, 2007. For the following reasons, the Court GRANTS the Motion to Dismiss. An Order dismissing this adversary proceeding accompanies this Memorandum-Opinion.

PROCEDURAL BACKGROUND

On or about February 9, 2006, Smith Mining and Materials, LLC (“Smith”) and Brooks Sand and Gravel, LLC (“Brooks”) filed Voluntary Petitions seeking relief under Chapter 11 of the United States Bankruptcy Code.

On or about April 21, 2006, J. Bruce Miller was appointed to serve as Trustee in the Smith case and Kenneth C. Henry was appointed as Trustee in the Brooks case. The cases were administratively consolidated in February 2006.

On or about October 4, 2006, this Court entered the Final Order (A) Authorizing Trustee for Smith Mining & Materials, LLC to Obtain Secured Post-Petition Financing With Priority Over All Other Indebtedness, (B) Approving Agreements Relating to the Foregoing; and (C) Granting Related Relief (“the Final Financing Order”). Under this Order, Bank of America and the Trustee in the Smith case established a post-petition financing [478]*478scheme under which the Bank made advances to the Trustee to fund post-petition cure payments under certain leases, to secure the premises owned by Smith and to pay for fees and expenses of the Trustee’s counsel and financial advisor.

The Final Financing Order was a heavily negotiated document and was properly noticed for objection prior to its entry by the Court. Cobalt filed an objection to the Final Financing Order. A hearing was held on Cobalt’s objection and the Court overruled Cobalt’s objection. No appeal of the Final Financing Order was filed.

The Final Financing Order contains specific language pertaining to the Smith Trustee’s rights to object or challenge the validity, extent or priority of the pre-petition liens of the Bank, as well as to the validity and allowability or status of the pre-petition indebtedness. See, paragraph 29 of the Order, Docket No. 400.

The Final Financing Order specifically states,

Unless such an objection or challenge is made within such period, all such objections and challenges by any entity shall be forever waived and (i) the Pre-Petition Liens of the Lender in the Pre-Petition Collateral shall be deemed and determined to be valid, perfected and enforceable first liens and security interests, and (ii) the Pre-Petition Indebtedness shall be deemed and determined to be legal, valid and binding obligations of each of Debtor Smith and Debtor Brooks, enforceable in accordance with its terms (other than in respect to the stay of enforcement arising from Bankruptcy Code § 362), with no offsets, defenses or claims or counterclaims, and no portion of the Pre-Petition Indebtedness shall be subject to avoidance or subordination pursuant to the Bankruptcy Code or applicable non-bankruptcy law.

After investigation, the Smith Trustee chose not to pursue any claims against the Bank.

On or about October 4, 2006, the Court entered an Order Granting Joint Motion to Approve Settlement Between Trustee for the Estate of Brooks Sand and Gravel, LLC and Bank of America, N.A. (“Settlement Order”). Under the Settlement Order, the Brooks’ Trustee obtained a $250,000 carve out for the benefit of the estate from the proceeds of the sale of the assets of Brooks which served as the Bank’s collateral. The unsecured deficiency claim of the Bank against Brooks was also subordinated.

The Settlement Order was also a heavily negotiated document and was properly noticed for objections prior to its entry by the Court. Cobalt filed an objection to the Settlement Order and a hearing was held on Cobalt’s objection. The Court overruled Cobalt’s objection and no appeal of the Settlement Order was filed.

The Settlement Order contains similar provisions to paragraph 29 of the Final Financing Order. See, paragraph 9 of the Settlement Order, Docket No. 399, Brooks’ bankruptcy Case No. 06-30259. It contains the same language regarding waiver of any objections or challenges by any entity unless the Trustee did so within the time frame set forth and that no portion of the pre-petition indebtedness shall be subject to avoidance or subordination. The Bank and the Brooks’ Trustee also stipulated that the Bank’s pre-petition liens were valid, perfected and unavoidable. The Settlement Order further provided that if the Brooks’ Trustee did not make a timely challenge to the pre-petition hens and indebtedness of the Bank, then the Bank was released from any such claims. The Brooks’ Trustee did not pursue any claims against the Bank.

[479]*479On or about December 8, 2006, the Court entered an Order granting the Smith Trustee’s Motion to Modify the Post-Petition Loan Facility. The Order modified the Final Financing Order to borrow additional funds. It also modified paragraph 29 to allow the Trustee to retain the right to challenge the effectiveness of the amended and restated mortgage to the earliest of three dates: (a) February 9, 2008, (b) the effective date of any plan of reorganization or liquidation of Debtor Smith, or (c) the closing or conversion of Debtor Smith’s bankruptcy case. See, Docket No. 480. In all other respects, the terms of the Final Financing Order remained the same.

On or about November 11, 2006, Cobalt initiated this adversary proceeding against the Bank. The Complaint asserted claims against the Bank and on behalf of the estate and seeks avoidance of certain offsets by the Bank, avoidance of the Bank’s liens on the Smith property and equitable subordination, avoidance or disallowance of the Bank’s liens.

On or about November 11, 2006, Cobalt also filed a Motion for Court Approval for Creditors to Pursue Action on Behalf of the Estate, Nunc Pro Tunc. After an evi-dentiary hearing, the Court denied this Motion. Cobalt has subsequently dismissed all claims in this adversary proceeding brought on behalf of the estate.

LEGAL ANALYSIS

The Bank seeks dismissal of Cobalt’s Complaint on the basis that Cobalt lacks standing to bring the claims raised in the Complaint and because the language of the Final Financing Order and the Settlement Order as referenced above bars any such claims. The Court already determined that Cobalt did not have standing to bring any claims pursuant to 11 U.S.C. § 544. The Court will not relitigate that issue.

The Court finds merit in the Bank’s contentions that the claims raised are barred by the terms of the Final Financing Order and the Settlement Order. The Orders specifically bar challenges to the claims against the Bank concerning the validity of the Bank’s pre-petition liens. This language was negotiated by the parties and was part of the entire financing package. These protections were clearly bargained for in connection with the post-petition financing facility. The Final Financing Order was properly noticed for objection and the Court held a lengthy hearing on Cobalt’s objections. No appeal was filed.

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361 B.R. 477, 2007 Bankr. LEXIS 353, Counsel Stack Legal Research, https://law.counselstack.com/opinion/cobalt-ventures-llc-v-bank-of-america-in-re-brooks-sand-gravel-llc-kywd-2007.