Opinion
8:23-bk-05564-RCT 8:23-bk-05565-RCT Adv. 8:24-ap-00008-RCT
04-17-2024
In re: Brick by Brick Builds, Inc., Debtor. v. Lincoln Capital Management, LLC, Defendant. In re: CrissCross Center, Co., Debtor. Brick by Brick Builds, Inc. and CrissCross Center, Co., Plaintiffs,
Chapter 11
ORDER GRANTING IN PART AND DENYING IN PART DEFENDANT'S MOTION TO DISMISS
Roberta A. Colton, United States Bankruptcy Judge
This case was considered on March 29, 2024, at a hearing on Defendant's Motion to Dismiss Counts II, III, and V of Plaintiffs' complaint. (Doc. 8). Plaintiffs filed a response in opposition. (Doc. 9). Both parties also filed supplemental authority. (Docs. 11, 12). After hearing arguments and considering the record, the Court grants in part and denies in part Defendant's Motion to Dismiss.
I. Standard of Review
A motion to dismiss pursuant to Federal Rule of Civil Procedure 12(b) evaluates the sufficiency of a complaint to determine whether it sets forth sufficient factual allegations to state a claim for relief. Thus, a court must determine whether the complaint satisfies Rule 8(a)(2), which requires a short and plain statement of the claim showing that the pleader is entitled to relief so that the defendant is given fair notice of what the claim is and the grounds upon which it rests.To survive a Rule 12(b) motion, the complaint must contain enough factual allegations, taken as true, to raise the right to relief above the speculative level.
Rule 12(b)(6) is made applicable to adversary proceedings via Federal Rule of Bankruptcy Procedure 7012(b).
See Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007).
See id.
II. Background
Plaintiff Brick by Brick Builds, Inc. ("BBB") obtained funding from Defendant Lincoln Capital Management, LLC ("Lincoln") to pay for the construction of its Pasco co-working facility via two secured loans, which were guaranteed by Plaintiff CrissCross Center, Co. Lincoln agreed to provide interim funding until permanent funding could be obtained from the Small Business Administration ("SBA") and one of the Take-Out Parties (Harvest Commercial Capital, LLC or Newtek Business Lending, LLC). Newtek had found that BBB pre-qualified for permanent financing and accepted a good faith deposit of $25,000 so that Newtek could continue its review and analysis to determine whether permanent financing could be achieved.
Plaintiffs contend that Lincoln's misconduct caused them damages. Specifically, they allege that by failing to provide information and documentation requested by the Take-Out Parties, Lincoln ruined Plaintiffs' chances of refinancing.
Additionally, the general contractor for the construction of the Pasco facility was Bandes Construction Company, Inc. Plaintiffs contend that by failing to remit final payment to Bandes, Lincoln caused Bandes to lien the Pasco facility, making it unmarketable. Plaintiffs contend that BBB still had $742,000 of available credit at the time that Lincoln refused to pay Bandes.
Plaintiffs also identify five other instances of alleged misconduct by Lincoln: (1) Lincoln grossly miscalculated the balance of the loans, by accruing interest on funds that had not been advanced, by failing to post payments, and by failing to provide requested backup so that the loans could be calculated accurately; (2) Lincoln failed to respond as requested to the Pasco County Florida Community Development Department ("Pasco"), a governmental entity that had been considering Plaintiffs for a grant, when Pasco requested information and documentation necessary to evaluate the eligibility of Plaintiffs for a grant or loan; (3) Lincoln failed to respond as requested to the SBA when the SBA requested information and documentation necessary to evaluate the eligibility of Plaintiffs for the loan; (4) Lincoln failed to respond as requested to the Certified Development Company ("CDC") for the SBA when the CDC requested information and documentation necessary to evaluate the eligibility of Plaintiffs for a grant or loan; and (5) Lincoln refused to accept voluntary relinquishment of title to the Pasco facility as offered by Plaintiffs, even though Lincoln ruined the project by failing to facilitate take-out financing and then failing to pay Bandes.
Plaintiffs contend that Lincoln's alleged misconducted caused them to be unable to fully occupy the Pasco facility, because necessary improvements and amenities could not be funded from Lincoln's loans or from a new loan. This, in turn, impacted Plaintiffs' working capital, and ability to service the loans. Because Lincoln refused to fund, while at the same time ruining Plaintiffs' prospects with Newtek, Bandes and its subcontractors went unpaid, and the occupants' perceptions of the Pasco facility have been tainted.
Plaintiff-Debtors filed for bankruptcy relief under Chapter 11 on December 7, 2023. Thereafter, they filed their adversary complaint against Lincoln, in which they assert seven claims: (1) breach of loan documents, (2) tortious interference with their relationships with Bandes, Newtek, and Harvest, (3) violation of Florida Statute § 713.3471, (4) objection to Lincoln's bankruptcy claim, (5) equitable subordination of Lincoln's claim under 11 U.S.C. § 510(c), (6) a request for the automatic stay to be extended to Debtors' principals, and (7) a request for an injunction protecting Debtors' principals. In response, Lincoln filed the instant motion to dismiss.
III. Motion to Dismiss
In its motion, Lincoln moves to dismiss three claims: (1) tortious interference, (2) violation of Florida Statute § 713.3471, and (3) equitable subordination. As explained below, the Court grants Lincoln's motion to dismiss to the extent that it seeks dismissal of the tortious interference claim and the claim under Florida Statute § 713.3471. However, the Court denies Lincoln's motion to the extent it seeks dismissal of Debtors' equitable subordination claim.
A. Count II: Tortious Interference
Debtors allege that Lincoln had actual knowledge of the existence of their business relationships with Newtek, Harvest, and Bandes, that Lincoln intentionally refused to remit funds available on the loans to Bandes, and that Lincoln completely failed to provide basic cooperation with document requests from Harvest and Newtek.
To state a claim for tortious interference, Debtors must allege: "(1) the existence of a business relationship, not necessarily evidenced by an enforceable contract; (2) knowledge of the relationship on the part of the defendant; (3) an intentional and unjustified interference with the relationship by the defendant; and (4) damage to the plaintiff as a result of the" interference. "As a general rule, an action for tortious interference with a business relationship requires a business relationship evidenced by an actual and identifiable understanding or agreement which in all probability would have been completed if the defendant had not interfered."
Tamiami Trail Tours, Inc. v. Cotton, 463 So.2d 1126, 1127 (Fla. 1985); see also Salit v. Ruden, McClosky, Smith, Schuster & Russell, P.A., 742 So.2d 381, 385-86 (Fla. 4th DCA 1999) (citations omitted).
Ethan Allen, Inc. v. Georgetown Manor, Inc., 647 So.2d 812, 815 (Fla. 1994).
Debtors allege that Lincoln interfered with two business relationships.
First, Debtors contend that Lincoln interfered with BBB's construction contract with Bandes. Lincoln responds that this claim cannot succeed as a matter of law, because Lincoln is not a stranger to the construction contract, and thus, the complaint fails to allege an unjustified interference. Lincoln points to the fact that, as part of the loan documents, BBB assigned its interest in the construction contract with Bandes to Lincoln.
Doc. 8-2. Debtors object to the Court's consideration of the Assignment of Construction Contracts ("Assignment") attached to Lincoln's motion. (Doc. 8-2). However, the Assignment is part of the loan documents between BBB and Lincoln, and the loan documents are the basis of Debtors' breach of contract claim, as well as Debtors' objection to Lincoln's proof of claim. As such, the Court can consider the Assignment without converting Lincoln's motion into a motion for summary judgment, because the loan documents are central to Debtors' claims and the authenticity of the Assignment is not disputed. See Sheppard v. Bank of America, NA, 542 Fed.Appx. 789, 791 (11th Cir. 2013) (citation omitted).
"For the interference to be unjustified, the interfering defendant must be a third party, a stranger to the business relationship." Under Florida law, "'[a] defendant is not a stranger to a business relationship if the defendant has any beneficial or economic interest in, or control over, that relationship.'" Here, Lincoln is not a stranger to the BBB-Bandes construction contract, as BBB assigned its interest in that contract to Lincoln. Indeed, Debtors' claim in Count III of the complaint reflects a direct obligation from Lincoln to Bandes under Florida Statute § 713.3471. In any event, "[u]nder the law of tortious interference, [the defendant] is not a 'stranger' to any contract that it ultimately will fund." As such, Debtors' tortious interference claim with respect to Bandes must be dismissed, since Lincoln certainly was a funding source for Bandes.
Salit, 742 So.2d at 386 (citations omitted).
Carlwood Safety, Inc. v. Wesco Distribution, Inc., 446 F.Supp.3d 970, 979-80 (M.D. Fla. 2020) (quoting Palm Beach County Health Care District v. Professional Medical Education, Inc., 13 So.3d 1090, 1094 (Fla. 4th DCA 2009)); see also Nimbus Technologies, Inc., v. SunnData Products, Inc., 484 F.3d 1305, 1309 (11th Cir. 2007).
Palm Beach County Health Care District, 13 So.3d at 1094.
The second business relationship at issue is Debtors' relationship with the Take-Out Parties-Harvest and Newtek. However, Debtors only specifically describe Lincoln's interference with Newtek's attempts to gather financing information.
Lincoln argues that Debtors have not sufficiently alleged an interference by Lincoln with their relationship with Newtek, because: (1) that relationship was not evidenced by an enforceable contract; (2) failing to act (i.e., failing to respond to requests for information) cannot be deemed an interference; and (3) Lincoln was not a stranger to the relationship between Debtors and Newtek.
The Court is not persuaded by Lincoln's first argument-that a tortious interference claim cannot stand because the relationship between Debtors and Newtek was not evidenced by an enforceable contract. Lincoln argues that when there is not an enforceable contract evidencing the business relationship, there must be an understanding as to a specific transaction that has gone beyond the "mere offer" stage. Here, however, Debtors have alleged a specific potential loan transaction with Newtek that was supported with a $25,000 good faith deposit.
See Rekal Co., Inc. v. PGT Industries, Inc., 2014 WL 29104, at *4 (M.D. Fla. Jan. 2, 2014) (citations omitted).
Lincoln's second argument-that a tortious interference claim cannot stand because failing to act (i.e., failing to respond to requests for information) cannot be deemed an interference-is more persuasive. Without an affirmative act that can be the basis for tortious interference liability, Debtors want to impose such liability based on Lincoln's failure to act. However, without a showing that Lincoln was required to act, it is unclear how Lincoln's failure to act can give rise to liability. Further, if Lincoln was required to act, then its failure to do so could be redressed via a breach of contract claim.
Finally, Lincoln's third argument-that a tortious interference claim cannot stand because Lincoln was not a stranger to the relationship between Debtors and Newtek-also has merit. "Under Florida law, a person with 'any beneficial or economic interest in, or control over,' a contractual relationship is not considered a 'stranger' to the contract and therefore has a 'privilege to interfere' in that relationship." Lincoln has a direct financial interest in Debtors obtaining permanent financing (i.e., the resulting payoff of Lincoln's interim loans), whether it be with Newtek or any other lender. Accordingly, Debtors' tortious interference claim is dismissed.
M & M Realty Partners at Hagen Ranch, LLC v. Mazzoni, 982 F.3d 1333, 1339 (11th Cir. 2020) (citation omitted).
B. Count III: Florida Statute § 713.3471
Next, Lincoln moves for dismissal of Debtors' claim under Florida Statute § 713.3471. Section 713.3471(2) provides the following:
(a) Within 5 business days after a lender makes a final determination, prior to the distribution of all funds available under a construction loan, that the lender will cease further advances pursuant to the loan, the lender shall serve written notice of that
decision on the contractor and on any other lienor who has given the lender notice. The lender shall not be liable to the contractor based upon the decision of the lender to cease further advances if the lender gives the contractor notice of such decision in accordance with this subsection and the decision is otherwise permitted under the loan documents.
(b) The failure to give notice to the contractor under paragraph (a) renders the lender liable to the contractor to the extent of the actual value of the materials and direct labor costs furnished by the contractor plus 15 percent for overhead, profit, and all other costs from the date on which notice of the lender's decision should have been served on the contractor and the date on which notice of the lender's decision is served on the contractor. The lender and the contractor may agree in writing to any other reasonable method for determining the value of the labor, services, and materials furnished by the contractor.
Lincoln argues that Debtors lack standing to bring a claim under § 713.3471(2), as that statute provides a right to relief to contractors, not to the owner of the property. Debtors respond that as debtors-in-possession, they "are the only parties who have a basis to bring a claim of this kind as part of the augmented estates, as with so many claims that broadly fall under the strong-arm powers." Debtors, however, have not cited any authority to support their argument. Given that this statute appears to only provide a right to relief to contractors, and given that Debtors have failed to cite to any authority to support their response, the Court dismisses this claim.
Doc. 8, p. 14.
At the hearing and in their supplemental filing, Debtors cited to In re G & R Builders, Inc., 123 B.R. 654 (Bankr. M.D. Fla. 1990), in support of their argument. However, Debtors' reliance on that case is misplaced, as that case does not analyze the statute at issue in this case-Florida Statute § 713.3471. Further, in G & R Builders, the court found that money owed to the debtor-general contractor, but which was withheld by the owners, was property of the debtor-general contractor's bankruptcy estate. 123 B.R. at 658. In the instant case, Debtors allege that Lincoln withheld money owed to Bandes. This Court concludes that Bandes' claim under § 713.3471 is individual to Bandes and that Debtors have not shown that they can pursue the claim using any strong-arm powers.
C. Count V: Equitable Subordination
Next, Lincoln moves for dismissal of Debtors' claim for equitable subordination of Lincoln's claim under § 510(c). Under § 510(c), this Court may "under principles of equitable subordination, subordinate for purposes of distribution all or part of an allowed claim to all or part of another allowed claim or all or part of an allowed interest to all or part of another allowed interest; or . . . order that any lien securing such a subordinated claim be transferred to the estate." As explained by the Eleventh Circuit:
To determine whether equitable subordination is appropriate, courts assess whether (1) the claimant "engaged in some type of inequitable conduct" and (2) the misconduct "result[ed] in injury to the creditors of the bankruptcy or conferred an unfair advantage on the claimant." Notably, "[t]he standard of misconduct is lower for an insider claimant than a non-insider claimant."
In re Nilhan Developers, LLC, 2022 WL 3275175, at *5 (11th Cir. Aug. 11, 2022) (internal citations omitted).
Here, Debtors allege that Lincoln did not accurately and properly service the loans, which resulted in Bandes (and its subcontractors) not getting paid. Debtors also allege that Lincoln actively interfered with BBB's contract with Bandes by not paying Bandes when there was money available under the loans. Further, Debtors allege that Lincoln interfered with Debtors' attempt to obtain permanent financing from Newtek by not responding to Newtek's document requests, which also contributed to the fact that Bandes was not paid. As such, Debtors ask that the Court subordinate Lincoln's claim and lien to those of Bandes and its subcontractors.
While Lincoln's alleged interference with Debtors' relationships with Bandes and Newtek cannot give rise to a tortious interference claim, the Court can consider the totality of the circumstances when evaluating Lincoln's alleged inequitable conduct underlying Debtors' equitable subordination claim. See In re Chira, 378 B.R. 698, 712 (S.D. Fla. 2007) (citation omitted).
Lincoln argues that Debtors have not sufficiently alleged this claim because they have not alleged that Lincoln engaged in fraud, misrepresentation, estoppel, or breach of contract. Lincoln is correct that the standard of misconduct for an insider claim is lower and only requires conduct that is "unfair." And, Lincoln is not an insider. But the Court nevertheless rejects Lincoln's argument. Debtors have asserted conduct that is more than just "unfair." Debtors assert a breach of contract claim. Moreover, the complaint at paragraph 25(a), which is incorporated into its equitable subordination claim, states: "Lincoln grossly miscalculated the balance of the Loans, by accruing interest on funds that had not been advanced, by failing to post payments, and by failing to provide requested backup so that the Loans could be calculated accurately." As such, the Court denies Lincoln's motion to dismiss Debtors' equitable subordination claim.
See In re N & D Properties, Inc. 799 F.2d 726, 731 (11th Cir. 1986) (citation omitted).
Doc. 1, p. 8-9.
IV. Conclusion
Accordingly, it is ORDERED AND ADJUDGED that Defendant's Motion to Dismiss Counts II, III, and V of Plaintiffs' complaint (Doc. 8) is GRANTED IN PART AND DENIED IN PA R T: The motion is GRANTED to the extent that the Court dismisses Counts II and III; the motion is DENIED as to Count V. Lincoln is directed to file an answer to Debtors' complaint within 14 days after entry of this order.
Attorney Mark Hildreth is directed to serve a copy of this order on interested parties who do not receive service by CM/ECF and file a proof of service within three days of its entry.
ORDERED.