The opinion of the court was delivered by: Paul Barbadoro United States District Judge
This bankruptcy appeal involves the competing claims of two creditors to the real property of Moultonborough Hotel Group, LLC ("Debtor"). 2010-1 SFG Venture, LLC ("SFG") holds a secured claim against the Debtor in the amount of $10,622,997 as the assignee of a construction mortgage on the Debtor's hotel. ROK Builders, LLC ("ROK"), the contractor who built the hotel, also has a claim against the Debtor in the amount of $2,487,412 for unpaid work that is secured by a mechanic's lien attachment. After the Debtor filed a petition for reorganization under chapter 11 of the Bankruptcy Code, SFG commenced this adversary proceeding against ROK, seeking a declaration that its mortgage is senior to ROK's mechanic's lien to the extent of $6,434,074.40, the amount disbursed to ROK for materials and labor via the mortgage loan. ROK asserted eleven counterclaims against SFG. The bankruptcy court dismissed most of ROK's counterclaims for failure to state a claim and subsequently entered summary judgment in SFG's favor on the priority claim. ROK appeals both decisions. For the reasons provided below, I affirm.
On September 21, 2007, ROK entered into an agreement with the Debtor for the construction of a Hampton Inn & Suites hotel in Tilton, New Hampshire. The construction had begun previously but had stalled due to lack of funds.
Three weeks later, the Debtor entered into a loan agreement with Specialty Finance Group ("Specialty"), in which Specialty agreed to lend $8,700,000 to finance construction of the hotel. As security, the Debtor executed and delivered to Specialty a mortgage on the property, which was recorded the next day.
Shortly after the loan closing, ROK resumed construction of the hotel and completed the project in June 2008. ROK received $6,434,074.40 from loan disbursements as payment for preparing the building site, constructing the hotel, installing permanent fixtures, and providing architectural and engineering services.
Specialty, however, refused to disburse the balance of the loan to pay ROK's invoices for the last two months of construction work. Specialty made the decision to stop payments because the Debtor had breached the loan agreement by failing to secure additional funding to ensure completion of the project. Without notifying ROK of its decision to stop payments, Specialty continued to accept ROK's invoices for proposed work during the last two months of construction. As a result, ROK incurred total unpaid costs in the amount of $2,487,412.
In May 2010, Specialty assigned the mortgage on the Debtor's hotel to the Federal Deposit Insurance Corporation ("FDIC"), as receiver for Silverton Bank, N.A., Specialty's parent company. The FDIC then assigned the mortgage to SFG. The assignments are identical in form and contain the following clause:
The mortgage is conveyed 'as is' and 'with all faults,' without any representation or warranty whatsoever, including as to collectability, enforceability, value of collateral, ability of any obligor to repay .
Doc. No. 3-6; Doc. No. 3-8.
At some point, the Debtor defaulted on the loan. In response, SFG scheduled a foreclosure sale of the property to be held on October 1, 2010.
B. The Debtor's Bankruptcy
The Debtor filed a voluntary petition for Chapter 11
bankruptcy on September 30, 2010. As debtor-in-possession, it then began an adversary proceeding against SFG, seeking to avoid SFG's mortgage based on alleged irregularities in the execution of the mortgage deed. On cross-motions for summary judgment, the bankruptcy court determined that the mortgage is valid and enforceable.
The Debtor and SFG subsequently negotiated a settlement. The settlement is incorporated into the Debtor's proposed Plan of Liquidation. The Plan provides that "Debtor, on behalf of itself, its estate, its successors and assigns, shall release any and all claims, causes of action, rights and/or remedies asserted in the [Debtor] Adversary Proceeding and/or the [Debtor] Complaint and any other avoidance or other claims [against SFG], including without limitation any claims or causes of action based on theories of equitable subordination." Doc. No. 16-6.
The bankruptcy court has not yet approved the Plan. ROK has objected to the Plan on a number of bases, including that it improperly releases ROK's equitable subordination claim against SFG.
C. Adversary Proceeding between ROK and SFG
In March 2011, SFG commenced this adversary proceeding
against ROK, seeking a declaration that its mortgage is senior to ROK's mechanic's lien to the extent of $6,434,074.40, the amount of the mortgage loan disbursed to ROK for materials and labor.
In response, ROK asserted eleven counterclaims against SFG. Nine counterclaims (labeled Counterclaim I through VIII*fn1 ) involve claims that Specialty breached contractual duties it owed to ROK and engaged in tortious conduct. Counterclaim IX seeks to equitably subordinate SFG's claim to ROK's claim, and Counterclaim X seeks to avoid the mortgage on the basis of the same alleged irregularities raised by the Debtor in its unsuccessful challenge against SFG. Lastly, in Counterclaim XI, ROK seeks a declaration that its mechanic's lien is senior to SFG's mortgage.
Following a hearing on SFG's motion to dismiss all counterclaims, the bankruptcy court issued an oral ruling dismissing counterclaims I through VIII, including the redundant fifth counterclaim, because ROK failed to allege any basis on which SFG, as assignee of the mortgage, could be held liable for the alleged misconduct of Specialty, the assignor. The court also ...