LTF Real Estate Co. v. Expert South Tulsa, LLC

10th Cir. BAP No. KS-14-009
The BAP first held that the bankruptcy court did not abuse its discretion in granting summary judgment prior to the commencement of discovery, and EST failed to comply with the requirements of Fed. R. Civ. P. 56(d) in opposing the motion. EST had merely stated in its affidavit opposing the motion that it had not conducted any discovery but intended to do so. The BAP held that the affidavit should have explained what facts needed to be developed, why they were not available, and how additional time would enable EST to rebut LTF's allegations. Second, the BAP held that the bankruptcy court correctly concluded that the escrowed funds were not property of the bankruptcy estate and the escrow agreement was enforceable. Under Oklahoma law, an entity's interest in escrowed funds is limited where, as here, the entity placed the funds in escrow for a specific purpose and that purpose had not yet been achieved. Similarly, under bankruptcy law, most courts hold that funds placed in escrow, in the possession and control of an escrow agent on the petition date, under the terms of an escrow agreement for the benefit of a third party, which may only be released to the debtor upon the fulfillment of certain conditions, are not property of the estate. The BAP likewise rejected EST's assertion, which lacked any authority, that the escrow agreement was unenforceable. Third, the BAP held that EST failed to preserve its argument - mentioned only once before the bankruptcy court and otherwise for the first time on appeal - that the automatic stay precluded the bankruptcy court's summary judgment order allowing LTF to exercise of its "self help" remedy, because EST failed to adequately raise and argue it before the bankruptcy court. Fourth, the BAP held that the bankruptcy court did not abuse its discretion in declining to alter its 2011 summary judgment order in favor of LTF because EST raised nothing other than its previous arguments in opposition to the summary judgment motion. Under Rule 59(e), courts may reconsider previous rulings due to (1) an intervening change in the law, (2) new evidence previously unavailable, and (3) the need to correct clear error or prevent manifest injustice. However, Rule 59(e) does not allow a losing party to simply repeat losing arguments or raise new legal theories that should have been raised earlier. No permissible grounds to reconsider existed in this case. Fifth, the BAP held that EST adequately pled its fraudulent transfer counterclaims under 11 U.S.C. s. 544 and s. 548, and thus the bankruptcy court's dismissal, sua sponte, of those claims under Rule 12(b)(6) was erroneous. EST's allegations regarding reasonably equivalent value - in particular, EST's factual assertion in its pleading that it "submits" the property was worth in excess of $1,000,000 more than the purchase price at the time of the transfer - was sufficient for pleading purposes. EST's allegations that it was insolvent at the time of the transfer, while conclusory and unsupported by other factual allegations in its pleading, was sufficient under the circumstances because the record in the case already contained "ample information regarding EST's prepetition financial condition," and the bankruptcy court was permitted to take judicial notice of its docket and the papers on file. To be sure, the BAP expressed reluctance in requiring a bankruptcy court to "scour the record for items that amplify a party's allegations," but given the history of this case and the fact that the dismissal was sua sponte (which is disfavored in the 10th Circuit), the BAP concluded that the bankruptcy court erred by dismissing the claims without granting leave to amend. Finally, the BAP held that the bankruptcy court's reinstatement of EST's avoidance counterclaims mooted its prior ruling that leave to amend was required, and no further leave to amend was necessary after such reinstatement. Such reinstatement also reinstated EST's summary judgment motion, which was remanded to the bankruptcy court for consideration on the merits.
Procedural context:
Appeal to the United States Bankruptcy Appellate Panel of the Tenth Circuit of summary judgment order in favor of Defendant-Appellee LTF, order dismissing Plaintiff-Appellant EST's counterclaims, and related orders of the United States Bankruptcy Court for the District of Kansas.
In October 2007 LTF entered an agreement to purchase real property from EST. EST was required to make certain improvements to the property, and deposited 120% of the estimated cost of the improvements under an escrow agreement with a title company. Generally, the escrow agreement provided for the disbursement of the funds under specified conditions relating to the completion of the improvements, either by EST, or by LFT under certain "self help" provisions of the agreement. At the time of EST's bankruptcy in March 2010, EST has started but not finished the improvements, and LFT had not exercised its "self help" remedy. Under the terms of the escrow agreement, neither party was entitled to disbursement of the escrow funds. LTF filed an adversary proceeding in the bankruptcy case alleging that it was entitled to the funds and they were not property of EST's bankruptcy estate. EST filed a counterclaim alleging that the funds were property of the estate and that the escrow agreement was unenforceable. In April 2011, LTF filed a motion for summary judgment, which was granted in part in August 2011 on the grounds that the funds were not property of the estate, neither party was presently entitled to them, and LFT was entitled to exercise its self help remedy under the escrow agreement. EST filed a motion to alter or amend the judgment, which was denied. Shortly after its motion to reconsider was filed, EST filed an amended answer and counterclaims under 11 U.S.C. s. 544 and s. 548 seeking to avoid its sale of the property to LTF. LTF did not respond, and EST sought summary judgment, which was denied because the counterclaims were filed without first obtaining LTF's written consent or leave of court pursuant to Fed. R. Bankr. P. 7013 and 7015. EST filed a motion to alter or amend this order, arguing that the scheduling order in the adversary proceeding gave it permission to file its counterclaims, which was also denied. Following an appeal by EST, which was dismissed as premature by the BAP, the bankruptcy court reinstated EST's avoidance counterclaims. LTF then filed a motion to dismiss the EST counterclaims under the law of the case doctrine. The bankruptcy court granted the motion to dismiss, dismissing the original counterclaims based on its previous holding that the escrow funds were not property of the estate, and dismissing the avoidance counterclaims pursuant to Fed. R. Civ. P. 12(b)(6) for failure to alleged sufficient facts supporting plausible claims for relief as required by the U.S. Supreme Court's Iqbal and Twombly decisions. EST appealed the bankruptcy court's orders.
Thurman, Chief Judge; Romero and Jacobvitz, Bankruptcy Judges. Opinion by Jacobvitz.

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