In re Devonshire PGA Holdings LLC

548 B.R. 689, 75 Collier Bankr. Cas. 2d 717, 2016 Bankr. LEXIS 1730, 62 Bankr. Ct. Dec. (CRR) 131, 2016 WL 1559284
CourtUnited States Bankruptcy Court, D. Delaware
DecidedApril 15, 2016
DocketCase No. 13-12460 (CSS)
StatusPublished
Cited by1 cases

This text of 548 B.R. 689 (In re Devonshire PGA Holdings LLC) is published on Counsel Stack Legal Research, covering United States Bankruptcy Court, D. Delaware primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
In re Devonshire PGA Holdings LLC, 548 B.R. 689, 75 Collier Bankr. Cas. 2d 717, 2016 Bankr. LEXIS 1730, 62 Bankr. Ct. Dec. (CRR) 131, 2016 WL 1559284 (Del. 2016).

Opinion

[692]*692 Opinion 1

Sontchi, J.

Introduction

ELP West Palm, LLC (“ELF”), is successor to the Reorganized Debtors. Potter Anderson & Corroon, LLP (“PotteF’) jointly represented three of the Debtors and a non-Debtor, CA Capital, LLC, in two Delaware Chancery proceedings in 2013. Potter timely submitted claims for payment against the Debtors it represented. ELP does not dispute that Potter actually represented the Debtors, but nonetheless requests that this Court enter summaiy judgment disallowing Potter’s claims under 11 U.S.C. § 502(b)(1).

Section 502(b)(1) instructs the Court to disallow claims “to the extent that such claim is unenforceable against the debtor and property of the debtor, under any agreement or applicable law for a reason other than because such claim is contingent or unmatured.’’ ELP therefore carries two burdens. First, ELP must point to specific law(s) that would render Potter’s claim unenforceable. Second, ELP must demonstrate that the facts of this case make that law applicable. Because ELP is the movant for summary judgment, ELP must further show that Potter may not genuinely dispute that: (1) the law ELP cites is applicable; (2) the cited law renders Potter’s claim unenforceable; and (3) Potter has no defense that would prevent application of the cited law.

ELP argues that four sources of applicable law or agreement render Potter’s claim unenforceable. First, ELP argues that Potter was not validly engaged to represent the Debtors under state contract law. Second, ELP appears to make an argument on equitable principles that Potter may not enforce its claims against the Debtors because the Debtors did not benefit from Potter’s representation. Third, ELP argues that Potter was “conflicted” under the Delaware Lawyers’ Rules of Professional Conduct in representing the Debtors and because the record contains no written waiver of this conflict, Potter’s claim against the Debtors is unenforceable. Finally, ELP argues that the 2013 Settlement Agreement approved by this Court bars Potter’s claims.

The Court will deny ELP’s motion for summary judgment. First, ELP has failed to supply this Court with proof that any applicable principle of contract law or equity would render Potter’s claim unenforceable. Potter’s claims are prima facie valid; for the Court to disallow those claims, ELP must specifically point to an applicable state or federal law which ivould render those claims unenforceable. Not only has ELP has failed to carry its burden upon summaiy judgment, it has simply failed to point to any specific applicable law. Broad generalizations ¡about what is “right,” “fair,” or “logical” are not a basis for disallowance under § 502(b)(1).

Second, ELFs argument that Potter was conflicted in representing the Debtors presents a legal basis for disallowance. However, Potter has pointed to evidence in the record sufficient to create a genuine dispute of material fact on whether Potter was conflicted. Because the record does not allow the Court to conclude that Potter was conflicted, summary judgment may not be granted to ELP on this theory. Finally, ELP has failed to demonstrate [693]*693that any applicable law would make the 2013 Settlement Agreement binding upon Potter. The record clearly shows that neither Potter nor any of its agents were a party to that agreement. As a result, summary judgment may not be granted to ELP on this theory.

Jurisdiction

The United States Bankruptcy Court for the District of Delaware (the “Court”) has subject matter jurisdiction over this contested matter pursuant to 28 U.S.C. § 1334(b). This contested matter is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(B). Venue is proper in the Bankruptcy Court pursuant to 28 U.S.C. § 1409(a). This action is a contested matter pursuant to Federal Rule of Bankruptcy Procedure 9014.

Undisputed Facts

The Debtors2 aré four Delaware LLCs; together, they compromise a retirement community located within the grounds of PGA National in Palm Beach Gardens, Florida.3 Prior to the bankruptcy filing, the Debtors were ultimately owned by SHP Senior Living Investments, LLC ( “SHP”), whose ultimate sole owner was an individual, Craig Anderson (“Anderson”)4 On February 20, 2007, Anderson created CA Capital, a limited liability company in which he held a 100% ownership interest.5

The Debtors’ LLC Agreements specify that the sole member of each company holds the exclusive power to appoint a Manager for that company.6 The LLC Agreements further specify that the Manager is an agent of the company, whose actions are binding upon the company if taken in accordance with the LLC Agreement.7 The LLC Agreements also state that the Manager “shall have full, exclusive and complete discretion to manage the business affairs of the company____"8 On February 20, 2007, Anderson, through his control of each individual company, appointed CA Capital as Manager of each of the Debtors.9

On May 1, 2007, the Operating Debtors entered into a credit and security agreement in exchange for a term loan of $155,220,000 and a $6,400,000 revolving line of credit (the “Senior Credit Agreement”).10 The Senior Credit agreement was extended by Merrill Lynch Capital (“Merrill” and together with its successors, the “Senior Agent”), as agent for a consortium of lenders (the “Senior Lenders”). That same day, Holdings and Devonshire pledged their equity interests in the Operating Debtors as collateral to the Senior Lenders under an Ownership Pledge, Assignment and Security Agreement (together, the “Pledge Agreements").11 In connection with this ex[694]*694change, Holdings . also obtained a $19,625,000 mezzanine term loan from Merrill (the “Mezzanine Credit Agreement’). As further security for this agreement, SHP entered into an Ownership Pledge, Assignment and Security Agreement with Merrill (the “SHP Pledge Agreement”), pursuant to which Merrill received a security interest in SHP’s 100% equity in Holdings.12

GE Business Financial Services Inc. (“GE”) later succeeded Merrill as Senior Agent. On May 24, 2011, GE filed a lawsuit in the Delaware Court of Chancery (the “GE Action”) against multiple defendants, including the Debtors.13 Anderson, acting through CA Capital, retained Potter to represent all the defendants in this action under a written engagement letter executed on June 9, 2011.14 On October 12, 2011, all parties to the GE Action filed a joint motion to dismiss without prejudice, which was granted on October 14, 2011.15

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548 B.R. 689, 75 Collier Bankr. Cas. 2d 717, 2016 Bankr. LEXIS 1730, 62 Bankr. Ct. Dec. (CRR) 131, 2016 WL 1559284, Counsel Stack Legal Research, https://law.counselstack.com/opinion/in-re-devonshire-pga-holdings-llc-deb-2016.