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concluding that an unsecured creditor lacked standing to challenge the fair market value or commercial reasonableness of an Article 9 sale
Summary of this case from Cleveland-Cliffs Burns Harbor LLC v. Boomerang Tube, LLCOpinion
Civil No. 03-2513 (DWF/SRN)
March 4, 2004
Richard D. Snyder, Esq., and Ryan Timothy Murphy, Esq., Fredrikson Byron, Minneapolis, MN, of counsel for Plaintiffs and Counter-Defendants
Carolyn E. Guy, Esq., Carolyn Guy, LLC, Minneapolis, MN; John Philip Worrell, Esq., Hoene Krause, St. Paul, MN, of counsel for Defendants and Counter-Claimants Electroply, Inc., and John Wright
Joseph J. Deuhs, Jr., Esq., and Justin P. Weinberg, Esq., Leonard O'Brien Spencer Gale Sayre, Minneapolis, MN, of counsel for Defendant and Cross-Defendant The CIT Group/Business Credit, Inc.
MEMORANDUM OPINION AND ORDER
Introduction
The above-entitled matter came on for hearing before the undersigned United States District Judge on February 6, 2004, pursuant to a motion by Cross-Defendant CIT Group/Business Credit Inc. ("CIT") to dismiss Defendants Electroply, Inc., and John Wright's Cross-Claim. For the following reasons, CIT's motion is granted.
Background
A more thorough summary of facts related to this matter is set out in this Court's Order of September 8, 2003. Relevant to this motion, Plaintiffs iFlex, Inc. ("iFlex"), Craig Bergman, Ross Bergman, and Russell Clay Johnston, III, filed this action on March 21, 2003, requesting a declaration, pursuant to 28 U.S.C. § 2201, that they are not liable for the debts of Advanced Flex, Inc. ("AFI"), allegedly owed to Electroply and John Wright. Prior to the filing of the initial Complaint, Electroply had challenged Plaintiff iFlex's assertion that when iFlex purchased the assets of AFI, iFlex did not assume any of AFI's liabilities. CIT, iFlex's primary secured creditor, conducted the foreclosure sale of AFI's assets. In an Order dated September 8, 2003, this Court directed Plaintiffs to join all parties that were necessary for adjudication of the matter, including API and CIT.
On October 16, 2003, Plaintiffs filed an Amended Complaint adding API as a plaintiff and CIT as a defendant in the matter ( see Doc. No. 14). On November 15, 2003, Defendants Electroply and John Wright filed their Answer, Counterclaims and Cross-Claims in the matter ( see Doc. Nos. 16, 17). In their Cross-Claim, Electroply and John Wright assert one count against CIT, alleging that "Defendant Electroply is entitled to a declaratory judgment pursuant to 28 U.S.C. § 2201 determining that the purported sale of assets on September 25, 2002[,] described in the Complaint was a sham, occurred without the notice required under Minnesota law, and was not for fair market value and/or was not commercially reasonable." ( See Answer, Counterclaims and Cross-Claims of Defendants Electroply, Inc., and John Wright at 14. Electroply did not make a claim for damages against CIT.)
CIT has moved to dismiss Electroply and John Wright's Cross-Claim, asserting that Electroply's Cross-Claim for a declaration that the Article 9 foreclosure sale was a sham is not a cognizable request for relief under Minnesota law. In addition, CIT asserts that because Electroply is an unsecured creditor of API, Electroply does not have the right under Article 9 of the UCC to challenge CIT's foreclosure sale.
Discussion
I. Standard of Review
In deciding a motion to dismiss, the Court must assume all facts in the Complaint to be true and construe all reasonable inferences from those facts in the light most favorable to the complainant. Morton v. Becker, 793 F.2d 185, 187 (8th Cir. 1986). The Court grants a motion to dismiss only if it is clear beyond any doubt that no relief could be granted under any set of facts consistent with the allegations in the Complaint. Id. The Court may grant a motion to dismiss on the basis of a dispositive issue of law. Neitzke v. Williams, 490 U.S. 319, 326 (1989). The Court need not resolve all questions of law in a manner which favors the complainant; rather, the Court may dismiss a claim founded upon a legal theory which is "close but ultimately unavailing." Id. at 327.
II. The Challenge to the Foreclosure Sale
First, Electroply's Cross-Claim seeks relief from this Court declaring the Article 9 foreclosure sale of AFI's assets a sham. CIT asserts that Electroply has not made a cognizable claim under Minnesota law. The Court agrees.
Although Electroply conceivably could have brought a claim against CIT alleging a fraudulent transfer of AFI's assets, Electroply has not done so. In fact, at oral argument on the matter, counsel for Electroply stated that Electroply did not have a good faith basis for bringing a claim for a fraudulent transfer against CIT. Aside from an action to set aside a fraudulent transfer, the Court has not been able to uncover any precedent addressing or recognizing a cause of action for a sham foreclosure in Minnesota. Electroply argues that its claim for relief is a means to preserve its possible claims and to avoid a later motion by CIT that Electroply had failed to bring a compulsory claim at the time of the responsive pleading as required by Rule 13. See Defendant's Memorandum of Law in Reply to CIT's Motion to Dismiss Electroply's Cross-Claim at 4-5. Without ruling on whether Electroply's Cross-Claim is compulsory, the Court finds that Electroply's theory is not sufficient to create a claim where no such cause of action exists. To the extent that Electroply's Cross-Claim seeks relief declaring the Article 9 foreclosure sale of AFI's assets a sham, the Cross-Claim is dismissed.
III. Notice
Electroply also requests a declaration from this Court that the sale occurred without the notice required by Minnesota Law. CIT contends that because Electroply is an unsecured creditor, it was not entitled to notice of the sale.
Minnesota Statute § 336.9-611 provides the notification requirements for the disposition of collateral in an Article 9 foreclosure sale. Section 336.9-611(c) sets forth the persons entitled to notice of the sale as follows:
(1) the debtor;
(2) any secondary obligor; and
(3) if the collateral is other than consumer goods:
(A) any other person from which the secured party has received, before the notification date, an authenticated notification of a claim of an interest in the collateral;
(B) any other secured party or lienholder that, ten days before the notification date, held a security interest in or other lien on the collateral perfected by the filing of a financing statement that:
(i) identified the collateral;
(ii) was indexed under the debtor's name as of that date; and
(iii) was filed in the office in which to file a financing statement against the debtor covering the collateral as of that date; and
(C) any other secured party that, ten days before the notification date, held a security interest in the collateral perfected by compliance with a statute, regulation, or treaty described in section 336.9-311(a).
Minn. Stat. § 336.9-611(c). As an unsecured creditor, Electroply is not entitled to notice of the sale under these provisions, and thus, Electroply cannot challenge the lack of notice. Insofar as Electroply requests relief related to its lack of notice of the sale, Electroply's Cross-Claim is dismissed.
IV. Standing to Challenge the Fair Market Value or Commercial Reasonableness of the Sale
Finally, Electroply contends that it is entitled to a declaratory judgment against CIT that the sale of API's assets was not for fair market value or was not commercially reasonable. CIT asserts that Electroply does not have standing to bring such claims. Primarily, CIT asserts that because Electroply is an unsecured creditor of API, Electroply is not within the class of persons entitled to recovery if CIT did not comply with the commercial reasonableness requirement of Minn. Stat. § 336.9-610.
Minnesota Statute § 336.9-625 sets forth the parties that are entitled to recover when a secured party fails to comply with Article 9, as follows:
(1) a person that, at the time of the failure, was a debtor, was an obligor, or held a security interest in or other lien on the collateral may recover damages under subsection (b) for its loss.
Minn. Stat. § 336.9-625(c). It is undisputed that Electroply was not a debtor, an obligor, or a holder of a security interest in the collateral sold by CIT. As such, Electroply does not have standing to challenge the fair market value or commercial reasonableness of the sale. Electroply's Cross-Claim is dismissed in this regard.
For the reasons stated, IT IS HEREBY ORDERED:
1. Cross-Defendant CIT's Motion to Dismiss is GRANTED;
2. Defendant Electroply's Cross-Claim is DISMISSED WITHOUT PREJUDICE.