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Branch Banking and Trust Co. v. R & S St. Rose Lenders LLC

United States District Court, D. Nevada

October 1, 2014

BRANCH BANKING AND TRUST COMPANY, Plaintiff(s),
v.
R & S ST. ROSE LENDERS LLC, Defendant(s)

ORDER

JAMES C. MAHAN, District Judge.

Presently before the court is the bankruptcy appeal of Branch Banking and Trust Co. v. R&S St. Rose Lenders, LLC, case number 2:14-cv-00939-JCM. Appellant Branch Banking and Trust Company ("appellant") filed an opening brief. (Doc. #8). Appellee R&S St. Rose Lenders, LLC ("appellee") filed an answering brief in opposition, (doc. #9), and appellant filed a reply brief, (doc. #12).

I. Background

R&S St. Rose, LLC ("R&S") and R&S St. Rose Lenders ("R&S Lenders") were both formed in 2005 by Forouzan, Inc. and RPN LLC, which are owned by Saiid Forouzan Rad and R. Phillip Nourafchan. (Doc. #8-33). R&S Lenders was established to help R&S finance the purchase of certain real property ("the property"). (Doc. #8-33).

Branch Banking and Trust Company ("BB&T") is the successor-in-interest to Colonial Bank and Commonwealth Land Title Insurance Company ("Commonwealth"). (Doc. #8-33). R&S obtained a $29 million dollar loan from Colonial Bank to finance the purchase of the property, and the FDIC later assigned this loan to BB&T. The loan was secured by a first deed of trust on the property, which was recorded on August 26, 2005.

R&S later signed a promissory note to borrow $12 million[1] from R&S Lenders for additional funding to purchase the property. R&S Lenders recorded a second deed of trust on the property on September 16, 2005.

In July 2009, Colonial Bank sued R&S and R&S Lenders in state court asserting priority of its first deed of trust. BB&T was later substituted into the action after the FDIC closed Colonial Bank and transferred its loan to BB&T. (Doc. #8). BB&T asserted claims for contractual subrogation, equitable subrogation, replacement, equitable and promissory estoppel, unjust enrichment, misrepresentation, and civil conspiracy. (Doc. #8).

After a ten-day bench trial, the state court ruled against BB&T and dismissed its claims, holding that BB&T produced inadequate proof that it was Colonial Bank's successor-in-interest. (Docs. #8, 9). In doing so, the state court adjudicated BB&T's priority claims with regard to R&S Lenders' promissory note. (Doc. #8).

By 2009, R&S was in default on its loan from Colonial Bank. (Doc. #8-33). On April 4, 2011, R&S and R&S Lenders both voluntarily filed for chapter 11 bankruptcy. On August 2, 2011, R&S Lenders filed proof of claim number 12 ("the POC") in R&S's bankruptcy case, asserting a secured claim for $12 million based on its promissory note. (Doc. #8-4).

On September 24, 2013, BB&T filed an objection to the POC, arguing for disallowance of the claim on two grounds. BB&T argued first, that the amount of the claim was inflated, and second, that there was a lack of consideration for the debt. (Doc. #8-19). In its response, R&S Lenders argued that BB&T's objection should fail because (1) the state court had already litigated the amount of the claim, invoking collateral estoppel principles, and (2) BB&T failed to rebut the prima facie validity of the POC. (Doc. #8-26).

Meanwhile, BB&T sought to appeal the state court decision on its claims against R&S and R&S Lenders. (Doc. #8). The bankruptcy court modified the automatic stay in R&S's bankruptcy to allow BB&T to appeal the decision. On February 14, 2014, the Nevada Supreme Court affirmed the trial court's ruling. (Doc. #8-26).

On June 3, 2014, the bankruptcy court overruled BB&T's objection to the POC, holding that "BB&T may not relitigate that Lenders loaned $12, 300, 000 to the Debtor in September 2005, " because "[t]hat factual and legal issue was determined by the State Court and affirmed by the Nevada Supreme Court." (Doc. #8-34). The court further held that BB&T did not produce sufficient evidence to rebut the prima facie validity of the POC. (Doc. #8-34). BB&T appealed the bankruptcy court order to this court. (Doc. #1).

The instant appeal raises two issues: (1) whether the bankruptcy court erred by applying issue preclusion to bar BB&T from disputing the amount of R&S Lenders' proof of claim; and

(2) whether the bankruptcy court erred by finding that BB&T did not overcome the prima facie validity of ...


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