Lawrence v. Kentucky (In re Shelbyville Road Shoppes, LLC)

486 B.R. 848, 2013 WL 646470, 2013 Bankr. LEXIS 648, 57 Bankr. Ct. Dec. (CRR) 176
CourtUnited States Bankruptcy Court, W.D. Kentucky
DecidedFebruary 20, 2013
DocketBankruptcy No. 11-30124; Adversary No. 12-3049
StatusPublished
Cited by1 cases

This text of 486 B.R. 848 (Lawrence v. Kentucky (In re Shelbyville Road Shoppes, LLC)) is published on Counsel Stack Legal Research, covering United States Bankruptcy 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
Lawrence v. Kentucky (In re Shelbyville Road Shoppes, LLC), 486 B.R. 848, 2013 WL 646470, 2013 Bankr. LEXIS 648, 57 Bankr. Ct. Dec. (CRR) 176 (Ky. 2013).

Opinion

MEMORANDUM

ALAN C. STOUT, Bankruptcy Judge.

This matter comes before the Court on the Defendant Kentucky Transportation Cabinet’s (“Cabinet”) Motion for Partial Judgment on the Pleadings (Docket # 31). The Plaintiff, William Lawrence, the Chapter 7 Trustee for the Estate of Shelbyville Road Shoppes, LLC (“Trustee”) has responded (Docket # 38) and the Cabinet has replied to the response (Docket # 43). This matter is now ripe for adjudication. For the following reasons, the Cabinet’s Motion for Partial Judgment on the Pleadings is GRANTED in part and DENIED in part.

BACKGROUND

On July 18, 2007, a Purchase Agreement — Public Sale (the “Purchase Agreement”) was entered into between Eagle Development, LLC (“Eagle”), assignor of the Debtor, Shelbyville Road Shoppes, LLC (the “Debtor”), and the Cabinet whereby Eagle agreed to pay the sum of $4,812,874.65 to purchase certain property owned by the Cabinet. Pursuant to the Purchase Agreement, Eagle paid a nonrefundable down-payment deposit to the Cabinet in the sum of $962,574.93 (the “Deposit”). The Purchase Agreement was assigned to the Debtor on August 7, 2007.

The Debtor filed a voluntary petition for relief under Chapter 7 of Title 11, United States Code, on January 11, 2011, and the Trustee was appointed as Chapter 7 Trustee for the Bankruptcy Estate. The Trustee has made demand that the Cabinet return the Deposit to the Bankruptcy Estate. To date, the Cabinet has not refunded the Deposit.

On May 23, 2012, the Trustee initiated this Adversary Proceeding alleging causes of action against the Cabinet on four separate theories: Count I — Turnover of Property to the Estate pursuant to 11 U.S.C. §§ 541 and 542; Count II — Fraud in the Inducement; Count III — -Breach of Contract; and Count IV — Unenforceable Penalty. In the Prayer for Relief, the Trustee seeks a return of the Deposit and that the [850]*850Cabinet’s claim be determined as zero. The Trustee also seeks attorney’s fees, interest on the Deposit, and an award of punitive damages.

On June 20, 2012, the Cabinet filed its answer to the complaint. The answer asserts numerous defenses, including that the causes of action are barred by the doctrine of sovereign immunity and that the Trustee’s causes of action are barred by the Eleventh Amendment to the United States Constitution.

The Cabinet has now moved for Partial Judgment on the Pleadings arguing that it is immune from suit on the Trustee’s Count II (Fraud in the Inducement), Count III (Breach of Contract), and Count IV (Unenforceable Penalty).1 The Cabinet contends it is entitled to a Partial Judgment on the Pleading with respect to these specific Counts and seeks dismissal of these specific Counts. The Cabinet also contends that the Trustee is not entitled to a recovery of interest on the Deposit and that the Trustee is barred, as a matter of law, from being awarded punitive damages against the Cabinet.

STANDARD

Motions for judgment on the pleadings are brought pursuant to Rule 12(c) of the Federal Rules of Civil Procedure, which is made applicable to Bankruptcy Proceedings via Fed. R. Bankr.P. 7012. These motions are adjudicated using the same standard that applies to a review of a motion to dismiss under Rule 12(b)(6). JPMorgan Chase Bank, N.A. v. Winget, 510 F.3d 577, 581 (6th Cir.2007). Thus, “all well-pleaded material allegations of the pleadings of the opposing party must be taken as true, and the motion may be granted only if the moving party is nevertheless clearly entitled to a judgment.” S. Ohio Bank v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 479 F.2d 478, 480 (6th Cir.1973); see Grindstaff v. Green, 133 F.3d 416, 421 (6th Cir.1998).

DISCUSSION

In his complaint, the Trustee alleged state-law claims against the Cabinet for fraudulent inducement, breach of contract, and unenforceable penalty (Counts II-PV). In particular, the Trustee alleged that Cabinet fraudulently induced the Debtor to enter into the Purchase Agreement or, in the alternative, recklessly did so by entering into a contract to sell the Debtor property in which the Cabinet allegedly concealed its decades-long use of the property as a dump site. The Trustee further contends the Cabinet took actions effectively preventing the Debtor from closing on its financing to purchase the property. Specifically, the Trustee contends the Cabinet chose not to complete road improvements, even though such improvements were a prerequisite to the Debtor obtaining financing with its lender.

As stated above, the Cabinet has now moved for a Partial Judgment on the Pleadings. Specifically, the Cabinet contends the Trustee’s state law causes of action are barred by the doctrine of sovereign immunity. This Court agrees. The Eleventh Amendment prohibits federal courts from adjudicating state law claims filed against a state in federal court. Ernst v. Rising, 427 F.3d 351, 368 (6th Cir.2005); see Pennhurst State School & Hosp. v. Halderman, 465 U.S. 89, 106, 117, 104 S.Ct. 900, 79 L.Ed.2d 67 (1984). There can be no question that the Kentucky Transportation Cabinet is an instrumentality of the State of Kentucky [851]*851(“State”) and is entitled to the protection of the Eleventh Amendment.

Therefore, absent a clear waiver of immunity by the State to suit in federal court, the Trustee’s state law claims against the Cabinet must be dismissed. See Sossamon v. Texas, — U.S.-, 131 S.Ct. 1651, 1657-1658, 179 L.Ed.2d 700 (2011) (state’s waiver of immunity from federal-court jurisdiction will not be implied, but instead requires an unequivocal expression by the state). Moreover, any waiver must be “unequivocally expressed,” Dep’t of the Army v. Blue Fox, Inc., 525 U.S. 255, 261, 119 S.Ct. 687, 142 L.Ed.2d 718 (1999) (citing Lane v. Pena, 518 U.S. 187, 192-93, 116 S.Ct. 2092, 135 L.Ed.2d 486 (1996)), and “must be strictly construed in favor of the sovereign,” Orff v. United States, 545 U.S. 596, 601-02, 125 S.Ct. 2606, 2610, 162 L.Ed.2d 544 (2005), with ambiguities construed against waiver. United States v. Williams, 514 U.S. 527, 531, 115 S.Ct. 1611, 131 L.Ed.2d 608 (1995).

The Trustee contends that the State has specifically waived the defense of sovereign immunity when an agency of the State has entered into a contract with a person.

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486 B.R. 848, 2013 WL 646470, 2013 Bankr. LEXIS 648, 57 Bankr. Ct. Dec. (CRR) 176, Counsel Stack Legal Research, https://law.counselstack.com/opinion/lawrence-v-kentucky-in-re-shelbyville-road-shoppes-llc-kywb-2013.