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VP Louisville, LLC v. NBH Bank, N.A.

United States District Court, W.D. Kentucky, Louisville Division

November 6, 2019

VP LOUISVILLE, LLC, Plaintiff,
v.
NBH BANK, N.A., Defendant.

          MEMORANDUM OPINION AND ORDER GRANTING MOTION TO DISMISS

         This matter is before the Court on the Defendant's Motion to Dismiss for Failure to State a Claim [R. 5]. For the reasons set forth below, the Court will grant the motion.

         I. Background

         This case is the latest volley in a long history of protracted litigation between the parties. Briefly, the relevant facts are as follows. On October 29, 2012, the parties executed a settlement agreement resolving a foreclosure action which NBH Bank, N.A. (“NBH”) had brought against VP Louisville, LLC (“VP Louisville”) in Jefferson Circuit Court (the “state court action”) relating to a $4, 550, 000.00 loan NBH had made to VP Louisville. [R. 5-13 p. 3] At the time of the execution of the settlement agreement, the subject property of the foreclosure action, a hotel, was under a court-appointed receivership administered by Smiling Hospitality, Inc. (“Receiver”) (which was appointed as Receiver by the state court on July 12, 2012). [R. 5-12 p. 2] The settlement agreement included two provisions important to this case: 1) a mutual release of “any claims, demands, obligations, liabilities of [sic] causes of action relating to the Loan, the Loan Documents, the Kentucky Litigation, ” and another lawsuit not relevant here; and 2) a provision stating that upon timely payment by VP Louisville of the “Settlement Sum” (the outstanding obligations owed by VP Louisville to NBH), “all funds held by the Receiver . . . will be turned over to the Borrower [VP Louisville].” [R. 9-1 p. 2] The Settlement Sum was payable on December 14, 2012 (the “Payment Date”). [R. 1 p. 1');">91 p. 1] The Receiver was not a party to the Settlement Agreement.

         Having already filed regular monthly reports for each of the five months of the receivership detailing its actions and expenditures, the Receiver filed its final report with the Jefferson Circuit Court on January 11, 2013 (a month after the Payment Date), with a supplemental report filed on August 13, 2013. [R. 5-13 p. 3; R. 5-3 p. 2] Nevertheless, the parties continued litigating over issues relating to the receivership for years, culminating in a battle over attorney's fees.

         On April 29, 2016, the Jefferson Circuit Court ruled that the attorney's fees sought by the Receiver for certain legal services were partly unreasonable, and essentially disallowed $112, 431.00 in fees and expenses to be paid out of the receivership funds. [R. 5-3; R. 5-13 p. 5] The law firm which performed the legal work and charged these attorney's fees complied with this order by refunding the Receiver through a $45, 195.00 write-off of unpaid fees, and a $67, 236.00 cash refund. [R. 5-13 p. 5] Before this cash refund, the receivership account had a zero balance. Id.

         The Receiver then filed a motion seeking discharge and asking the court how to disburse the $67, 236.00. [R. 5-13 p. 5] VP Louisville promptly filed a motion requesting that the court enter an order consistent with the April 2016 order, and claiming that according to its calculations, the refund amount should be $134, 724.39. [R. 5-13 p. 6] NBH did not object to the refund amount of $112, 431.00, but sought a portion of the $67, 236.00 (the only cash remaining) to repay a $60, 000.00 loan which it had previously made to the Receiver. Id. On July 22, 2016, the court directed the Receiver to pay $60, 000.00 to NBH (but did not make both finality findings under Kentucky Rule of Civil Procedure 54.02). Id.

         On August 3, 2016, VP Louisville filed a “Response to Motion to Discharge Receiver and VP Louisville LLC's Motion for Attorneys' Fees, Pre-Judgment and Post-Judgment Interest” (the “August 2016 VP Louisville Motion”). [R. 5-5] This brief document stated in relevant part that, based on the Court's April 29, 2016 order, VP Louisville requested entry of an Order and Judgment in the amount of $147, 126.86, along with interest. [R. 5-5 pp. 2, 3] Because the Court had directed the Receiver to disburse $60, 000.00 to NBH to re-pay the loan, the Receiver had no funds to defend against VP Louisville's most recent motion, so NBH agreed, pursuant to a previous indemnity agreement, that the Receiver could use the $60, 000.00 to defend VP Louisville's latest motion. The Jefferson Circuit Court denied the August 2016 VP Louisville Motion after VP Louisville failed to appear for the hearing convened to hear this motion, and the Receiver was discharged. [R. 5-6 p. 1]

         VP Louisville filed a response to the order discharging the Receiver, and renewed its August 2016 motion. [5-13 p. 7] The Receiver responded. Id. Then, on October 18, 2016, VP Louisville filed a second motion, a “Memorandum in Support of Renewed Motion of VP Louisville LLC's for Judgment Against Receiver Smiling Hospitality, Inc., ” this time seeking judgment in the amount of $144, 668.03. [R. 5-7] The Jefferson Circuit Court likewise denied this motion on December 7, 2016, ordering that the Receiver “pay its local counsel [in accordance with the previous orders], and return any remaining funds in the Receivership Account to NBH” to pay, in part, the $60, 000.00 loan made by NBH to the Receiver. [R. 5-8 p. 1][1] VP Louisville appealed this order, arguing that the trial court was required to state the evidence upon which it relied in approving the attorney's fees which it did approve. [R. 5-13 p. 8] In the meantime, VP Louisville filed the instant lawsuit, bringing claims for tortious interference with prospective business advantage and economic relationships; breach of contract as to both the letter agreement and the settlement agreement, breach of the covenant of good faith and fair dealing, and punitive damages. [R. 1] NBH filed a Motion to Dismiss [R. 5] pursuant to Fed.R.Civ.P. 12(b)(6), arguing that the claim for breach of contract as to the settlement agreement was issue precluded, and that all the rest of the claims were expressly released. On June 28, 2019, the Kentucky Court of Appeals affirmed the Jefferson Circuit Court. [R. 5-13]

         II. Analysis

         The Court agrees with NBH that the Complaint fails to state a claim upon which relief can be granted. VP Louisville claims in Count III that NBH failed to turn over funds held by the Receiver pursuant to the terms of the Settlement Agreement, that the Receiver spent sums in violation of the Settlement Agreement, and that the Receiver failed to pay certain operational costs and property taxes for the hotel. But this breach of contract claim as to the settlement agreement is premised upon issues that have already been litigated in the state court action and whose re-litigation is therefore barred by issue preclusion. That is, the state court action already litigated the issue of the proper disposition of all funds held by the Receiver, including the refunded attorney's fees. Similarly, the rest of the claims are barred by the release contained in the settlement agreement. The court will address first the claim barred by issue preclusion, then the claims barred by the release.

         A. Issue Preclusion of Count III (Breach of Contract as to the Settlement Agreement)

         The parties agree on substantially the same elements of issue preclusion applicable to the December 7, 2016 state court Order under Kentucky law:

(1) The issue in the second case must be the same as the issue in the first case;
(2) The issue must have been actually litigated (3) The issue must have been ...

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