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Bad Paper, LLC v. Mountain Home Developers of Sunapee

April 30, 2013

BAD PAPER, LLC
v.
MOUNTAIN HOME DEVELOPERS OF SUNAPEE, LLC; DANA MICHAEL STEVENS; CHARLES TERRY FINCH; ROBERT FLANDERS; GARY WILLIAMS; GINA WILLIAMS; AND BARDON FLANDERS



The opinion of the court was delivered by: Landya McCafferty United States Magistrate Judge

Opinion No. 2013 DNH 067

ORDER

Bad Paper, LLC, as successor in interest to People's United Bank ("PU Bank"), seeks to recover the difference between the amount PU Bank realized from a foreclosure sale and the amount defendants still owe on several promissory notes they gave to PU Bank's predecessor in interest, Butler Bank ("Butler"). Two defendants, Mountain Home Developers of Sunapee, LLC ("Mountain Home") and Dana Stevens, have defaulted. Before the court are:

(1) a motion for summary judgment filed by Bad Paper;*fn1 (2) a Rule 56(d) discovery motion filed by Charles Finch, Robert Flanders, and Bardon Flanders ("the F/F defendants"); and (3) a Rule 15(d) motion for leave to file a supplemental answer, also filed by the F/F defendants. Bad Paper's summary-judgment motion is opposed by the F/F defendants but not by Gary and Gina Williams ("the Williams defendants"). The F/F defendants' two motions are opposed by Bad Paper. For the reasons that follow, Bad Paper's motion for summary judgment is granted, the F/F defendants' two motions are denied, and the Williams defendants are ordered to show cause why the court should not grant Bad Paper summary judgment against them.

Background

The following facts are drawn from Bad Paper's memorandum of law in support of its motion for summary judgment and are supported by appropriate record citations. See LR 7.2(b)(1). The F/F defendants do not contest any of those facts in their objection to summary judgment. Accordingly, the facts presented in Bad Paper's memorandum are deemed admitted. See LR 7.2(b)(2).

In exchange for two loans and a forbearance agreement, Mountain Home and its principals, individually, executed and delivered three promissory notes (hereinafter the "Mountain Home notes") to Butler. Butler went into receivership, and the receiver transferred the loans and the forbearance agreement to PU Bank. Mountain Home defaulted. PU Bank foreclosed on the mortgage securing two of the notes. After holding a foreclosure sale, PU Bank asserted a deficiency of $687,997 in unpaid principal, $85,001 in accrued interest, $4,737 in late fees, and $87,594 in collection costs, as of August 2011.

To collect that deficiency, PU Bank sued Mountain Home, Stevens, the F/F defendants, and the Williams defendants. While its claims were pending, PU Bank entered into a non-recourse loan purchase agreement with Bad Paper under which Bad Paper paid PU Bank $989,081.13 for all of its right, title, and interest in the Mountain Home notes and the forbearance agreement. See Pl.'s Mot. Summ. J., Ex. E (doc. no. 48-6), at 2-3. The agreement between PU Bank and Bad Paper was executed, for Bad Paper, by Christopher Blake Williams, under the title "Managing Member." See id. at 5.

The F/F defendants allege, on information and belief, that Christopher Williams is the son of the Williams defendants, and they have produced evidence that Bad Paper has the same street address as IDC Construction, LLC, of which Gary Williams is a managing member, see Defs.' Obj. to Summ. J., Exs. A & B (doc. nos. 57-1 & 57-2). In an order dated June 13, 2012, the court granted PU Bank's motion to substitute Bad Paper for itself as the plaintiff in this case. The Williams defendants assented to PU Bank's motion, and none of the other defendants objected.

All seven defendants were once represented by Attorneys Paul Kfoury and Conrad Cascadden. Several days after PU Bank moved to have Bad Paper take its place as plaintiff, defendants moved, successfully, for the withdrawal of Attorneys Kfoury and Cascadden as counsel for the Williams defendants. Approximately two months later, Attorneys Kfoury and Cascadden moved to withdraw as counsel for the remaining five defendants, citing "[a] conflict [that had] arisen given the substitution of the party plaintiff." Mot. for Leave to Withdraw (doc. no. 36) ¶ 1.

Discussion

Bad Paper filed its motion for summary judgment on October 2, 2012. Thereafter, it assented to approximately five motions to extend the F/F defendants' deadline for responding. Ultimately, the F/F defendants responded to Bad Paper's summary-judgment motion by simultaneously filing: (1) an objection to summary judgment; (2) a motion for leave to file a supplemental answer that includes additional affirmative defenses and two new cross/counterclaims;*fn2 and (3) a Rule 56(d) motion asking for time to conduct further discovery.

The F/F defendants begin the argument section of their objection to summary judgment with this:

The Flanders and Finch defendants intend to supplement their Answer to raise the following affirmative defenses, counter and cross claims that will either raise genuine issues of material fact in dispute or invoke issues of law such that summary judgment must be denied.*fn3

Defs.' Obj. to Summ. J. (doc. no. 57) ¶ 35. They conclude by asking the court to:

Deny Bad Paper's Motion for Summary Judgment; [or]

In the alternative, defer ruling while the Flanders and Finch Defendants are permitted to conduct limited discovery under [Rule] 56(d) with which to supplement this objection.

Id. at 9-10. Just as the F/F defendants' objection to summary judgment cross references their motion to supplement and their Rule 56(d) motion, so too does their Rule 56(d) motion incorporate, by reference, the facts and arguments in their objection to summary judgment and their motion to supplement. See Defs.' Mot. to Allow Discovery (doc. no. 59) ¶ 2.

At the very least, the unconventional procedural posture created by the F/F defendants' simultaneous filings makes it somewhat difficult to discern the proper path through the three motions now before the court. While acknowledging that there may be more than one reasonable plan of attack, the court begins with the motion to supplement. That motion invokes the F/F defendants' theory that Bad Paper is an alter ego of the Williams defendants. Not only do the F/F defendants base their motion to supplement on their alter-ego theory, they seek information to support that theory in their Rule 56(d) motion, and they rely on that theory as the basis for their objection to summary judgment. Thus, as it rules on the motion to supplement, the court will also be taking a step toward resolving the other two pending motions.

A. Motion to Supplement

Under Rule 15(d) of the Federal Rules of Civil Procedure ("Federal Rules"), the F/F defendants move to supplement their answer to add several affirmative defenses as well as two cross/counterclaims. In its objection, Bad Paper argues that the F/F defendants' motion should be evaluated and denied under the "good cause" standard of Rule 16(b), but would also fail under the more liberal standard of Rule 15(a)(2). The Williams defendants have not weighed in on the F/F defendants' motion. The court agrees with Bad Paper that the motion to supplement should be denied.

With regard to supplemental pleadings, the Federal Rules provide, in pertinent part, that [o]n motion and reasonable notice, the court may, on just terms, permit a party to serve a supplemental pleading setting out any transaction, occurrence, or event ...


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