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rejecting arguments made in a motion to dismiss an amended complaint that could and should have been raised in the initial motion to dismiss.
Summary of this case from Pah Litig. Tr. v. Water St. Healthcare Partners, L.P. (In re Physiotherapy Holdings, Inc.)Opinion
Bankruptcy No. 05-10203 (MFW), Adversary No. A-06-50826 (MFW).
March 20, 2008
Laura Davis Jones, Pachulski, Stang, Ziehl, Young, Jones Weintraub, Wilmington, DE, Bennett L. Spiegel, R. Alexander Pilmer, Kirkland Ellis LLP, Los Angeles, CA, for Greenwich Capital Financial Products, Inc.
David Dormont, John W. Morris, Steven M. Coren, Kaufman, Coren Ress, P.C., Philadelphia, PA, Deirdre Richards, Joseph J. McGovern, Lawrence J. Tabas, Obermayer, Rebmann, Maxwell Hippel LLP, Wilmington, DE, for trustee.
Francis A. Monaco Jr., Monzack and Monaco, PA, Wilmington, DE, James S. O'Brien, Jr., Pryor, Cashman, Sherman Flynn LLP, for Law Debenture Trust Company of New York, as Indenture Trustee.
Derek C. Abbott, Curtis S. Miller, Morris, Nichols, Arsht Tunnell LLP, Wilmington, DE, Joel L. Miller, Adam J. Safer, Matthew Z. Krusko, Miller Wrubel, New York, NY, for Ocwen Loan Servicing LLC.
Linda Richenderfer, Chad J. Toms, Bifferato, Gentilotti Balick, LLC, Wilmington, DE, Michael LiPuma, Law Office of Michael LiPuma, Philadelphia, PA, for The Berkshire Group LP and Michael W. Trickey.
Thomas B. Kinzler, Eric B. Post, Kelley Drye Warren LLP, New York City, Frederick B. Rosner, Duane Morris LLP, Wilmington, DE, for Wells Fargo Bank, N.A., as Indenture Trustee.
MEMORANDUM OPINION
"The court is not required to state findings or conclusions when ruling on a motion under Rule 12. . . ." Fed.R.Bankr.P. 7052(a)(3). Accordingly, the Court herein makes no findings of fact and conclusions of law pursuant to Rule 7052 of the Federal Rules of Bankruptcy Procedure.
Before the Court is the Motion of Greenwich Capital Financial Products, Inc. ("Greenwich") for dismissal of the Amended Complaint filed by George L. Miller (the "Trustee"). For the reasons set forth below, the Court will deny the motion.
I. BACKGROUND
The background to this case and adversary proceeding are set forth in the Court's Opinion dated February 13, 2007 (the "First Greenwich Opinion"), which granted in part Greenwich's motion to dismiss the Original Complaint filed against it by the Trustee. Miller v. Greenwich Capital Fin. Prods., Inc. (In re Am. Bus. Fin. Servs., Inc.), 361 B.R. 747, 761 (Bankr. D.Del. 2007).
In granting Greenwich's first motion to dismiss, the Court permitted the Trustee to amend his complaint. The Trustee filed the Amended Complaint on March 13, 2007. Greenwich filed its Motion to Dismiss the Amended Complaint on April 12, 2007. Briefing was completed by June 18, 2007, and the matter is ripe for decision.
II. JURISDICTION
The Court has subject matter jurisdiction over this adversary proceeding pursuant to 28 U.S.C. §§ 1334(b) 157(b)(1). Many of the counts are core matters pursuant to 28 U.S.C. § 157(b)(2)(A), (B), (E), (H), (K), (O).
III. DISCUSSION
Greenwich moves for dismissal of the claims against it under Rule 12(b)(6) and Rule 9(b) of the Federal Rules of Civil Procedure, which are made applicable to adversary proceedings by Rules 7012(b) and 7009 of the Federal Rules of Bankruptcy Procedure, respectively. Specifically, Greenwich argues that the Trustee's Amended Complaint fails to state a claim for which relief can be granted and fails to plead fraud with particularity.
A. Standard of Review
1. Rule 12(b)(6) Dismissal
A Rule 12(b)(6) motion serves to test the sufficiency of the factual allegations in the plaintiff's complaint. Kost v. Kozakiewicz, 1 F.3d 176, 183 (3d Cir. 1993). To succeed on a Rule 12(b)(6) motion to dismiss, the movant must establish "to a certainty that no relief could be granted under any set of facts which could be proved." Morse v. Lower Merion School Dist., 132 F.3d 902, 906 (3d Cir. 1997) (quoting D.P. Enter., Inc. v. Bucks County Cmty. Coll., 725 F.2d 943, 944 (3d Cir. 1984)). "In deciding a motion to dismiss, we must accept all wellpleaded allegations in the complaint as true, and view them in the light most favorable to the plaintiff." Carino v. Stefan, 376 F.3d 156, 159 (3d Cir. 2004). All reasonable inferences are drawn in favor of the plaintiff. Kost, 1 F.3d at 183. "The issue is not whether a plaintiff will ultimately prevail but whether the claimant is entitled to offer evidence to support the claims." Scheuer v. Rhodes, 416 U.S. 232, 236, 94 S.Ct. 1683, 40 L.Ed.2d 90 (1974), abrogated on other grounds by Harlow v. Fitzgerald, 457 U.S. 800, 814-15, 102 S.Ct. 2727, 73 L.Ed.2d 396 (1982). See also Maio v. Aetna, Inc., 221 F.3d 472, 482 (3d Cir. 2000); In re OODC, LLC, 321 B.R. 128, 134 (Bankr.D.Del. 2005) ("Granting a motion to dismiss is a 'disfavored' practice. . . .").
2. Rule 8(a)
Rule 8(a) of the Federal Rules of Civil Procedure requires only that a Complaint contain "a short and plain statement of the claim showing that the pleader is entitled to relief." Fed.R.Civ.P. 8(a). The statement must provide the defendant with fair notice of the claim filed against it. See, e.g., Williams v. Potter, 384 F.Supp.2d 730, 733 (D.Del. 2005) ("Vague and conclusory factual allegations do not provide fair notice to a defendant.") (citing United States v. City of Phila., 644 F.2d 187, 204 (3d Cir. 1980)).
3. Rule 9(b) Dismissal
Where a complaint asserts a claim for fraud, however, the standard for pleading is higher. The complaint must set forth facts with sufficient particularity to apprise the defendant of the charges against him so that he may prepare an adequate answer. In re Global Link Telecom Corp., 327 B.R. 711, 718 (Bankr.D.Del. 2005). To provide fair notice, the complainant must go beyond merely parroting statutory language. Id. See also In re Circle Y of Yoakum, Texas, 354 B.R. 349, 356 (Bankr.D.Del. 2006). A bankruptcy trustee, as a third party outsider to the debtor's transactions, is generally afforded greater liberality in pleading fraud. Global Link, 327 B.R. at 717.
B. Greenwich's Motion to Dismiss
1. Final DIP Order
Greenwich first argues that the language of the Final DIP Order bars the Trustee's claim that Greenwich committed a fraud on the Court by failing to advise the Court that the value of the I/O Strips was substantially less than the Debtor represented. Specifically, the Final DIP Order provides that:
The Agent [Greenwich] . . . ha[s] made no representations, offered no opinions, and ha[s] taken no positions . . . regarding the value of any portion of the Collateralized Sub-debt shared Collateral [defined as the I/O Strips], the Debtors have not relied upon any representation, opinion or position of the Agent or the Secured Parties in regard thereto.
(Final DIP Order at 17 (emphasis added).) In the First Greenwich Opinion, the Court agreed, concluding that this did bar the Trustee's claim of common law fraud or fraud on the court. Am. Bus. Fin. Servs., 361 B.R. at 756.
The Trustee argues, however, that the basis of his fraud on the court claim is not that Greenwich made representations upon which the Debtor relied but that Greenwich made representations to the Court (in its response to the Creditors' Committee's efforts to obtain a replacement DIP lender) and in its failure to advise the Court that because of the true value of the I/O Strips the Debtor would be in default of the DIP loan as soon as it was approved. The Trustee has clarified this in the Amended Complaint. (Amended Complaint ¶¶ 31-58.)
To prove fraud upon the court, the Trustee must establish: "(1) an intentional fraud; (2) by an officer of the court; (3) which is directed at the court itself; and (4) that in fact deceives the court." Herring v. United States, 424 F.3d 384, 390 (3d Cir. 2005). In this case the Trustee alleges that Greenwich intentionally made misrepresentations to the Court which deceived the Court into approving the DIP financing. Greenwich, of course, disputes this. Whether the allegations are true, however, is not relevant. The Court must accept the Trustee's allegations as true for purposes of this motion to dismiss. See, e.g., Carino, 376 F.3d at 159; Kost, 1 F.3d at 183. Therefore, the Court concludes that the Trustee's allegations are sufficient to state a claim of fraud on the court.
2. Estoppel and in Pari Delicto
Greenwich argues that the Trustee's efforts to vacate the Final DIP Order are barred by the doctrines of estoppel and in pari delicto. Greenwich contends that the Trustee is bound by the Debtor's actions and is precluded from seeking to vacate an order entered at his predecessor's request. See, e.g., In re Teligent, Inc., 326 B.R. 219, 222 (S.D.N.Y. 2005). Greenwich argues that "[c]reditors must be able to deal freely with debtors-in-possession, within the confines of the bankruptcy laws, without fear of retribution or reversal at the hands of a later appointed trustee." Armstrong v. Norwest Bank, Minneapolis, N.A., 964 F.2d 797, 801 (8th Cir. 1992).
In addition, Greenwich asserts that the doctrine of in pari delicto bars the Trustee's recovery. It argues that the Trustee alleges that the Debtor intentionally misled the Court about the value of the I/O Strips. That alleged fraud by the Debtor is imputed to the Trustee, the successor to the Debtor, thereby precluding the Trustee's claim. See, e.g., Official Comm. of Unsecured Creditors v. R.F. Lafferty Co., Inc., 267 F.3d 340, 354 (3d Cir. 2001) (stating that "[t]he doctrine of in pari delicto provides that a plaintiff may not assert a claim against a defendant if the plaintiff bears fault for the claim" and concluding that "the in pari delicto doctrine bars the Committee, standing in the shoes of the Debtors, from bringing its claims. . . .").
Although this is an affirmative defense, Greenwich contends that it can be heard at the motion to dismiss stage because it appears from the face of the complaint. See, e.g., In re Oakwood Homes Corp., 340 B.R. 510, 536 (Bankr.D.Del. 2006) (citing Leveto v. Lapina, 258 F.3d 156, 161 (3d Cir. 2001)).
The Trustee responds initially that Greenwich is precluded from making this argument because it could have raised it, but did not, in the first motion to dismiss. Fed.R.Civ.P. 12(g). The Trustee also argues that the Teligent case cited by Greenwich did not involve the allegations of fraud that the Trustee raises here. He argues that policy considerations of the finality of orders should not be used to protect parties who procured an order through a fraud on the court. The Trustee further seeks to distinguish Lafferty by asserting that the instant case deals with post-petition misconduct, rather than prepetition actions. Lafferty, 267 F.3d at 356. Finally, the Trustee contends that he fits within the exception to the doctrine of in pari delicto. Id. at 359 (acknowledging the "adverse interest" exception to the doctrine of in pari delicto where "fraudulent conduct will not be imputed [to a successor of the corporation] if the officer's interests were adverse to the corporation and 'not for the benefit of the corporation.'").
Even if Greenwich is correct and affirmative defenses could be raised at this stage, the Court concludes that they should have been raised in the initial motion to dismiss and may not be raised now. Fed.R.Civ.P. 12(g) ("If a party makes a motion [to dismiss] under this rule but omits therefrom any defense or objection then available to the party which this rule permits to be raised by motion, the party shall not thereafter make a motion based on the defense or objection so omitted. . . ."). The purpose of this rule is to promote judicial economy by avoiding the piecemeal presentation of pre-answer defenses. See, e.g., Wartsila NSD N.A., Inc. v. Hill Int'l, Inc., Civ. A. No. 99-4565, 2004 U.S. Dist. LEXIS 28921, at *13-14 (D.N.J. June 22, 2004). As a result, the Court will deny the motion to dismiss on these points. Greenwich can raise them as affirmative defenses in its answer.
3. Judicial Estoppel
Greenwich also contends that the Trustee is judicially estopped from seeking to vacate the Final DIP Order by the Trustee's own actions in seeking approval of the use of cash collateral in an emergency motion dated May 26, 2005. See, e.g., Montrose Med. Group Participating Sav. Plan v. Bulger, 243 F.3d 773, 779 (3d Cir. 2001) (stating that "judicial estoppel bars a litigant from asserting a position that is inconsistent with one he or she previously took before a court or agency."). Greenwich argues that in the Trustee's motion to use cash collateral, the Trustee represented that Greenwich's liens would retain the priority they had under the Final DIP Order; Greenwich relied on that representation and Greenwich will now be prejudiced if its liens are challenged. See, e.g., In re Integrated Health Servs., Inc., 304 B.R. 101, 109 (Bankr. D.Del. 2004) (to establish judicial estoppel party must show that other party's position is clearly inconsistent with a prior position that was accepted by the court such that allowing the newly inconsistent position would create an unfair advantage).
Again, the Trustee contends that this argument is an affirmative defense that could have, and should have, been raised in the first motion to dismiss. The Trustee also argues that judicial estoppel is within the discretion of the court and is an extreme measure that should not be applied to every inconsistency in pleading. He specifically argues that there must be a finding that the Trustee changed his position in bad faith for the doctrine to apply. See, e.g., Montrose Med. Group, 243 F.3d at 779 (concluding that "judicial estoppel is unwarranted unless the party changed his or her position 'in bad faith — i.e., with intent to play fast and loose with the court.'"); Integrated Health, 304 B.R. at 109 (holding that "bad faith is a prerequisite of judicial estoppel."). Finally, the Trustee contends that he did not change his position. In the cash collateral motions, the Trustee did not represent to the Court that Greenwich had a valid security interest, he simply did not ask the Court to modify whatever rights Greenwich had.
The Court agrees with the Trustee's first argument. Greenwich should have raised this point in the initial motion to dismiss and, therefore, may not raise it now. Fed.R.Civ.P. 12(g).
4. The Release
Greenwich argues that the release provision in the Consent Agreement bars the Trustee's fraud on the court, common law fraud, breach of contract and aiding and abetting breach of fiduciary duty claims against it. In the First Greenwich Opinion, the Court concluded that the parties could not have intended to release all future claims (however they may arise) but only existing claims and those based on the same set of operative facts as existing claims which had accrued at the time of the Release. Am. Bus. Fin. Servs., 361 B.R. at 754 (citing Medtronic AVE, Inc. v. Advanced Cardiovascular Sys., Inc., 247 F.3d 44, 58 (3d Cir. 2001) ("[A] release usually will not be construed to bar a claim which had not accrued at the date of its execution or a claim which was not known to the party giving the release."); UniSuper Ltd. v. News Corp., 898 A.2d 344, 347 (Del.Ch. 2006) (holding that "a release is overly broad if it releases claims based on a set of operative facts that will occur in the future. If the facts have not yet occurred, then they cannot possibly be the basis for the underlying action."); Fox v. Rodel, Inc., No. 98-531-SLR, 1999 WL 588293, at *6 (D.Del. July 14, 1999) ("The primary consideration in interpreting a release is to give effect to the intent of the parties at the time they contracted. . . .")). Greenwich, therefore, contends that the fraud on the court, common law fraud, breach of contract and aiding and abetting claims are barred as they all arose before the Consent Agreement was executed.
The Trustee responds that the Release does not bar his claims because the Consent Agreement itself was procured through fraud. See, e.g., Bowersox Truck Sales and Serv. v. Harco Nat'l Ins. Co., 209 F.3d 273, 279 (3d Cir. 2000) (holding that provisions which are "executed and procured by fraud, duress, accident or mutual mistake" are not enforceable) ( quoting Three Rivers Motors Co. v. Ford Motor Co., 522 F.2d 885, 892 (3d Cir. 1975)); In re Northwestern Corp., 313 R. 595, 603 (Bankr.D.Del. 2004) (concluding that "[a] release may be set aside if it was obtained fraudulently.").
In the Amended Complaint, the Trustee alleges that Greenwich repeatedly represented to the Trustee that the I/O Strips were worth more than the debt owed to Greenwich and the Indenture Trustees, while stonewalling the Trustee's efforts to learn their true value (including instructing Trickey not to reveal to the Trustee information regarding the I/O Strips). (Amended Complaint ¶¶ 105-17.) The Trustee further alleges that in reliance on the misrepresentations, the Trustee entered into the Consent Agreement with its Release. (Amended Complaint ¶¶ 105, 107-17, 164-66.)
To plead common law fraud under Delaware law, a party must plead facts supporting an inference that: (1) the defendant falsely represented or omitted facts that the defendant had a duty to disclose; (2) the defendant knew or believed that the representation was false or made the representation with a reckless indifference to the truth; (3) the defendant intended to induce the plaintiff to act or refrain from acting; (4) the plaintiff acted in justifiable reliance on the representation; and (5) the plaintiff was injured by its reliance.
Although the DIP Loan Agreement is governed by New York law, the tort actions are governed by Delaware law because the alleged fraudulent activity primarily occurred in proceedings before this Court. See, e.g., Travelers Indem. Co. v. Lake, 594 A.2d 38, 47-48 (Del. 1991) (applying the law of the jurisdiction with the most "significant relationship" to the occurrence and the parties).
Abry Partners V, L.P. v. F W Acquisition, LLC, 891 A.2d 1032, 1050 (Del.Ch. 2006). The Court concludes that the Trustee has adequately stated a claim for fraud in the inducement with respect to the Consent Agreement. Therefore, the Court cannot at this stage conclude that the Trustee's claims are barred by the Release contained in the Consent Agreement.
5. Fraud on the Court
Greenwich asserts that the Trustee does not allege sufficiently egregious misconduct to support his claim for fraud on the court. It argues that the Third Circuit applies a very demanding legal standard to establish fraud on the court and "only the most egregious misconduct, such as bribery of a judge or members of a jury, or the fabrication of evidence by a party in which an attorney is implicated, will constitute a fraud on the court." Herring, 424 F.3d at 387 n. 1 (citing Rozier v. Ford Motor Co., 573 F.2d 1332, 1338 (5th Cir. 1978)).
The Trustee's fraud claims against Greenwich are based on allegations that Greenwich failed to disclose its own internal lower valuation of the I/O Strips, conspired with Ocwen to convert the Debtor's property, and misrepresented Trickey's relationship to Ocwen.
In the First Greenwich Opinion, the Court dismissed this count because the Trustee failed to allege any facts from which the Court could conclude that Greenwich had a "duty to disclose" its valuation of the I/O Strips or Trickey's relationship to Ocwen or that the Debtor justifiably relied on any representations made by Greenwich concerning the value of the I/O Strips. In fact, the Final DIP Order and DIP Loan Agreement expressly stated that the Debtor was not relying on any representation of Greenwich as to the value of the I/O Strips. (Final DIP Order at 17; DIP Loan Agreement § 10.03.) Therefore, the Court concluded that there could be no claim that the Debtor reasonably relied on any representations or omissions by Greenwich.
The Trustee contends nonetheless that in the Amended Complaint he has stated such a claim based on his allegations that Greenwich made misrepresentations to the Court, not to the Debtor, at numerous hearings. (Amended Complaint ¶¶ 43-50.) The Trustee further alleges that Greenwich paid the Indenture Trustees to induce them to remain silent as well. (Amended Complaint ¶ 74.) The Trustee argues that he has pled sufficiently egregious conduct to support a claim of fraud on the court.
Greenwich argues that the misrepresentations, if any, were made by the Debtor and that Greenwich had no duty to speak. The Trustee argues, however, that there is a duty to disclose "facts basic to the transaction, if [one] knows that the other is about to enter into [a transaction] under a mistake as to them, and that the other, because of the relationship between them, the customs of the trade or other objective circumstances, would reasonably expect a disclosure of those facts." Restatement (Second) of Torts § 551(2)(e) (1977). See also In re Student Fin. Corp., Civ. A. No. 03-507 JJF, 2004 WL 609329, at *5, 2004 U.S. Dist. LEXIS 4952, at *16-18 (D.Del. Mar. 23, 2004). The Trustee argues that Greenwich had a duty to speak when it knew the Court was being misled.
The Court is not prepared to dismiss the Trustee's fraud on the court count. The allegations of the Amended Complaint, if correct, might sustain such a claim. Greenwich's arguments that it relied on the Debtor or the Debtor's auditor's opinion in accepting the Debtor's representation or that the Interim DIP Order was entered before any alleged misrepresentations were made by it are all factual issues that go to the weight of the evidence and not to the legal sufficiency of the Trustee's allegations. The motion to dismiss on this point will be denied.
6. Common Law Fraud and Reasonable Reliance
Greenwich contends that the Trustee's common law fraud count must be dismissed because (as noted in Part 1 above) the Trustee cannot allege that the Debtor reasonably relied on any misrepresentation by Greenwich in light of the express language in the Final DIP Order that the Debtor could not so rely. (Final DIP Order at 17; DIP Loan Agreement § 10.03.)
The Trustee responds that he has adequately detailed his claim for common law fraud, including specifying the numerous misrepresentations made by Greenwich: that it intended to abide by the Loan Agreement; that the Debtor was not in default of the Loan Agreement from day one; that Greenwich would protect the value of the I/O Strips; that the I/O Strips were worth more than the secured debt; that Trickey would protect the estate's interests. (Amended Complaint ¶ 279.) The Trustee argues that the provisions in the Final DIP Order and Loan Agreement on which Greenwich relies relate only to representations regarding the value of the collateral and do not bar claims for Greenwich's other alleged misrepresentations. Further, as noted above, the Trustee contends that the Final DIP Order itself was obtained through fraud and, therefore, cannot bar his claims. The Court agrees with the Trustee that he has provided sufficiently detailed allegations to support his fraud claim.
Greenwich asserts nonetheless that the fraud claim of the Trustee is simply a repeat of his breach of contract claim and "[m]ost courts . . . have held that a contract claim cannot be converted into a fraud claim by the addition of an allegation that the promisor intended not to perform when he made the promise." Papa's — June Music, Inc. v. McLean, 921 F.Supp. 1154, 1160 (S.D.N.Y. 1996). The Trustee responds that there is nothing to preclude a fraud claim, if properly stated, simply because it shares some facts with a breach of contract claim. The Court agrees with the Trustee. In this case the Trustee does not simply allege that Greenwich intended not to perform the Loan Agreement. The Trustee has listed numerous alleged misrepresentations by Greenwich which, if true, might support a fraud claim. That is sufficient to withstand a motion to dismiss.
Further, Greenwich contends that any reliance by the Debtor on representations by Greenwich cannot be justified. See, e.g., Royal Am. Managers, Inc. v. IRC Holding Corp., 885 F.2d 1011, 1016 (2d Cir. 1989) ("Where the representation relates to matters that are not peculiarly within the other party's knowledge and both parties have available the means of ascertaining the truth, New York courts have held that the complaining party should have discovered the facts and that any reliance under such circumstances therefore would be unjustifiable."). The Trustee responds that justifiable reliance cannot be resolved on a motion to dismiss as it is an issue of fact to be proven at trial. See, e.g., Event Mktg. Concepts, Inc. v. East Coast Logo, Inc., Civ. A. No. 976812, 1998 WL 314657, at *3 n. 4, 1998 U.S. Dist. LEXIS 8707, at *9 n. 4 (E.D.Pa. June 16, 1998).
The Court agrees with the Trustee that the determination of justifiable reliance is not a matter for a motion to dismiss but is more properly addressed at trial. Event Mktg. Concepts, 1998 WL 314657, at *3 n. 4, 1998 U.S. Dist. LEXIS 8707, at *9 n. 4. The cases on which Greenwich relies were all determined at a later stage after consideration of the evidence. Cf. Royal Am. Managers, 885 F.2d at 1016 (determined at close of evidence presented at trial); Grumman Allied Indus., Inc. v. Rohr Indus., Inc., 748 F.2d 729, 737 (2d Cir. 1984) (determined on summary judgment motion). Accordingly, the Motion to Dismiss will be denied on this point.
7. Aiding and Abetting Breach of Fiduciary Duty
Greenwich contends that any claim that it aided and abetted a breach of fiduciary duty by the Debtor's officers and directors pre-petition is time-barred because it was not brought before the deadline for filing such a suit established in the Final DIP Order. (Final DIP Order ¶ 38.)
The Trustee responds that Greenwich may not raise such a defense because it failed to do so in its initial motion to dismiss. Fed.R.Civ.P. 12(g). The Trustee further alleges that, because the Final DIP Order was procured by fraud, it cannot be the basis to bar any claim of the Trustee.
The Court agrees with the Trustee that Greenwich may not raise this defense in its second motion to dismiss, having failed to raise it in its first motion to dismiss. Fed.R.Civ.P. 12(g) ("If a party makes a motion [to dismiss] under this rule but omits therefrom any defense or objection then available to the party which this rule permits to be raised by motion, the party shall not thereafter make a motion based on the defense or objection so omitted. . . .").
Greenwich also seeks dismissal of this claim because it asserts that the Trustee has failed to allege adequately that Greenwich knowingly participated in any breach of fiduciary duty by any of the other Defendants. See, e.g., Malpiede v. Townson, 780 A.2d 1075, 1097 (Del. 2001) (concluding that to establish liability on aiding and abetting a breach of fiduciary duty, party must establish that "the third party act[ed] with the knowledge that the conduct advocated or assisted constitute[d] such a breach."); Saito v. McCall, No. Civ. A. 17132-NC, 2004 WL 3029876, at *9, n. 84 (Del.Ch. Dec. 20, 2004) (stating that "the standard for knowing participation is stringent.").
The Trustee responds that to survive a motion to dismiss it is sufficient to plead knowing participation in a breach of fiduciary duty, which may also be inferred from the facts. Malpiede, 780 A.2d at 1096-97; In re Lukens Inc. Shareholders Lit., 757 A.2d 720, 734 (Del.Ch. 1999). He contends that his numerous factual allegations on this point are sufficient. (Amended Complaint ¶¶ 227-31.)
The Court agrees with the Trustee. The facts alleged by the Trustee are sufficient to detail a breach of fiduciary by others, knowledge by Greenwich of those activities, and participation by Greenwich in those activities for its own benefit. (Amended Complaint ¶¶ 24-58, 113-17, 170, 174-75, 227-31.) This is sufficient to survive Greenwich's motion to dismiss.
8. Breach of Contract Claim
Greenwich contends that the breach of contract claim must be dismissed because the "implied" obligations on which the Trustee relies are inconsistent with the actual provisions of the DIP Loan Agreement. See, e.g., Geren v. Quantum Chem. Corp., 832 F.Supp. 728, 732 (S.D.N.Y. 1993) (stating that "an implied covenant . . . can only impose an obligation 'consistent with other mutually agreed upon terms in the contract.'"). For example, Greenwich notes that the Trustee asserts that Greenwich breached the "implied covenant of good faith and fair dealing" by "intentionally delay[ing] declaring a default." (Amended Complaint ¶¶ 236-45.) Greenwich argues, however, that the DIP Loan Agreement specifically states that any failure to exercise or delay in exercising its rights was not a waiver of those rights. (DIP Loan Agreement § 11.02.) Thus, Greenwich asks the Court to dismiss the breach of contract claim.
The Trustee responds that his claim is for breach of the contract as well as breach of the implied duty of good faith and fair dealing.
In the Original Complaint, the Trustee merely alleged:
135. The Conduct of Greenwich, Ocwen and the Indenture Trustees constitutes a breach by each such Defendant of their contractual obligations to the Debtor and the Trustee under the applicable contracts, including but not limited to the DIP Financing, Loan Agreement, and other agreements incident to the DIP Financing, the Servicing Rights Transfer Agreement, the Servicing Agreements, and the trust indentures and agreements with the Indenture Trustees.
136. As a result of the Defendants' breach of contract, the Debtor suffered the damages previously alleged.
(Original Complaint ¶¶ 135-36.) In the First Greenwich Opinion, the Court concluded that this was insufficient. In the Amended Complaint, the Trustee now identifies specific provisions of the Loan Agreements that he asserts Greenwich breached. (Amended Complaint ¶ 239.) The Trustee also identifies Greenwich's specific actions (and intentions) that the Trustee contends constitute those breaches. (Amended Complaint ¶¶ 240-45.) The Court concludes that this is sufficient to put Greenwich on notice of the Trustee's claim against it and will deny the Motion to Dismiss this count.
9. Civil Conspiracy Claim
Greenwich contends that the Trustee's civil conspiracy count fails to the extent that the Court determines that the Trustee has not adequately pled an underlying tort. Because the Court has found that the Trustee has adequately pled underlying torts, this argument must be rejected.
Greenwich further asserts, however, that the civil conspiracy claim must be dismissed because all the underlying claims on which it is based are claims that the Trustee has also pled directly against Greenwich. It argues that civil conspiracy is not a direct liability but is vicarious liability. See, e.g., Albert v. Alex. Brown Mgmt. Servs., No. Civ. A. 762-N, 2005 WL 2130607, at *11 (Del.Ch. Aug. 26, 2005); Parfi Holding AB v. Mirror Image Internet, Inc., 794 A.2d 1211, 1238 (Del.Ch. 2001) (dismissing civil conspiracy claims because "there already exist direct claims for breach of fiduciary duty"), rev'd on other grounds, 817 A.2d 149 (Del. 2002).
The Trustee responds that Greenwich misses the point of a conspiracy claim. If a conspiracy is found, Greenwich would be liable for the tortious acts of its co-conspirators. See, e.g., Levin v. Upper Makefield Township, Civ, A. No. 99-5313, 2003 WL 21652301, at *11, 2003 U.S. Dist. LEXIS 3213, at *40 (E.D.Pa. Feb. 27, 2003) ("Civil conspiracy only acts as a mechanism for casting a wide net of liability on co-conspirators, who themselves may not have committed a tortious act.").
The Court agrees with the Trustee that the civil conspiracy claim should not be dismissed. Although the Trustee has pled that Greenwich affirmatively committed various torts, it is of course possible that the Court will find to the contrary at trial. The Trustee would be entitled to relief, however, if he could establish that although Greenwich did not commit a tortious act, it did conspire with another Defendant who did. Therefore, at this stage in the proceedings, the Court cannot conclude that there is no set of facts that the Trustee could establish which would make Greenwich liable under a civil conspiracy claim. Consequently, the Court concludes that dismissal of the civil conspiracy claim is not warranted.
10. Conversion Claim
Greenwich notes that in the First Greenwich Opinion the Court dismissed the Trustee's claim that Greenwich had converted the I/O Strips because Greenwich acted in accordance with the parties' contractual agreements in disposing of the I/O Strips. Am. Bus. Fin. Servs., 361 B.R. at 761-62. Greenwich asserts that the Court permitted the Trustee to amend his complaint only to identify specific other property that Greenwich allegedly converted. Id. at 762. Greenwich argues that the Trustee has ignored the Court's direction and still fails to identify in his Amended Complaint any property converted by Greenwich.
The Trustee responds that the Court permitted him to amend his complaint not simply to identify specific other property that Greenwich converted, but also to allege "what wrongful act of dominion over the Debtor's property [including the I/O Strips] Greenwich committed." Id. The Trustee contends that he has done so in the Amended Complaint. (Amended Complaint ¶¶ 291-301.) The Trustee further asserts that he has identified the other property that is the subject of his conversion count: namely, the prepayment penalties. (Amended Complaint ¶ 300.)
The Court agrees with the Trustee. In the First Greenwich Opinion the Court's permission to amend the Complaint included any additional allegations regarding the exercise of dominion over the Debtor's property, including the I/O Strips, as well as more particularly identifying the property allegedly converted. Am. Bus. Fin. Servs., 361 B.R. at 762. The Court finds that the allegations in the Amended Complaint are sufficient to state a claim that Greenwich wrongfully exercised dominion and control over property of the estate, including the I/O Strips. (Amended Complaint ¶¶ 43-66, 93-95, 101-04, 110-17, 163-70, 176, 179-88, 291-301.)
11. Accounting
Greenwich argues that in the First Greenwich Opinion the Court dismissed the Trustee's accounting claim to the extent that it did not relate to the duty to account pursuant to the Uniform Commercial Code. Am. Bus. Fin. Servs., 361 B.R. at 763-64. Notwithstanding that ruling, Greenwich notes that the Trustee did not amend his request for an accounting. (Amended Complaint ¶ 225.)
The Trustee responds that he could not amend that count because the Court did not allow him to do so. The Trustee notes that the Court's decision is sufficiently clear to put Greenwich on notice of the part of the Trustee's accounting claim that is still viable.
The Court agrees. The First Greenwich Opinion is sufficiently clear; the Court need not grant Greenwich's motion to dismiss again.
12. Equitable Subordination and Objection to Claim
Greenwich argues that the equitable subordination and declaratory relief claims of the Trustee seek the "return to the Trustee [of] all sums received from or on behalf of the Debtors and the Trustee." (Amended Complaint ¶¶ 304(iv) 309( l).) It contends that this is simply a repeat of the turnover count which the Court determined was premature in its First Greenwich Opinion. Am. Bus. Fin. Servs., 361 B.R. at 761 (citing In re Student Fin. Corp., 335 B.R. 539, 554 (D.Del. 2005) (concluding that a statement of a turnover claim under section 542 requires an allegation that the property has already been avoided or is the undisputed property of the debtor); In re Hechinger Inv. Co. of Del, Inc., 282 B.R. 149, 161 (Bankr.D.Del. 2002.)).
The Trustee responds that his claim is for equitable subordination, not for turnover. The Trustee contends that an equitable subordination claim does not seek any return of specific property but simply asks that Greenwich's claim be paid after all other creditors' claims. To the extent that the equitable subordination claim is allowed, the Trustee argues that he would be entitled to declaratory relief as well.
The Court agrees with the Trustee and will not dismiss his claim for equitable subordination or declaratory relief. The Court previously denied Greenwich's motion to dismiss the equitable subordination count in the First Greenwich Opinion. Am. Bus. Fin. Servs., 361 B.R. at 763.
13. Declaratory Relief
Greenwich also argues that to the extent the Court dismisses any count, the Trustee's request for declaratory relief with respect to that count should also be dismissed. Because the Court is not dismissing any of the Trustee's other counts, it will allow the Trustee to seek declaratory relief to the extent that adequate relief is not otherwise available.
IV. CONCLUSION
For the foregoing reasons, the Court concludes that Greenwich's Motion to Dismiss will be denied.
An appropriate Order is attached.
ORDER
AND NOW, this 20th day of MARCH, 2007, after consideration of the Motion of Greenwich Capital Financial Products, Inc., for dismissal of the Trustee's Amended Complaint and the Trustee's opposition thereto, and for the reasons set forth in the accompanying Memorandum Opinion, it is hereby
ORDERED that the Motion to Dismiss filed by Greenwich Capital Financial Products, Inc., is DENIED.