Providence County Superior Court
For Plaintiff: Christopher M. Mulhearn, Esq.
For Defendant: Matthew R. Shechtman, Esq.; Thomas E. Carlotto, Esq.
Before the Court for decision is Defendant Webster Bank, N.A.'s (Webster) Motion for Summary Judgment against Plaintiff Jacob Licht, Inc., d/b/a Licht Properties (Licht). Licht's Complaint alleges that Webster is liable to it for all debts and obligations of Capco Steel, LLC, f/k/a Capco Steel Corporation (Capco) owed to Licht by virtue of Webster's status as a successor entity. Licht opposes Webster's motion.
During a hearing on the motion, the Court requested both parties submit supplemental memoranda on two fundamental issues, one being what case law should control Licht's "successor-in-interest" claim against Webster. Indeed, as clarified by Licht in its Supplemental Memorandum in Support of its Objection to Webster's Motion for Summary Judgment, Licht's claims against Webster-albeit styled as "corporate successor liability"-essentially are not governed by the traditional approach established in our state's case law on the subject. Instead, Licht's claims rest on its allegations that "on some level and to some degree, [Webster] step[ped] into the legal shoes of Capco, and exert[ed] a level of dominion, control and/or influence with regard to Capco's day-to-day business operations . . . ." Id. at 4. Thus, the Court must now deal with an issue not frequently addressed by Rhode Island courts; that is, whether a debtor's lender, through the lender's control and direction of the debtor's business affairs, may become liable to the debtor's separate creditors in actions for breach of contract and breach of fiduciary duty.
Facts and Travel
Leasing Agreements Between Licht and Capco
Licht is a Rhode Island limited liability company that owns several properties and surface parking lots throughout the City of Providence. (Compl. ¶¶ 1, 5). Beginning on September 29, 1998, Licht entered into multiple commercial real estate lease agreements with Capco for the use and occupancy of seven different properties. (Gary N. Licht Aff. ¶¶ 2-8, May 27, 2014 (hereinafter Licht Aff.)). During the span of approximately fourteen years, Capco fully performed pursuant to the rental payment obligations of the lease agreements. (Compl. ¶¶ 13, 16; Licht Aff ¶¶ 9, 11). However, due to Capco's financial difficulties and its default on certain loans from Webster, Capco failed to make any further payments for the rental properties under the lease agreements after April 30, 2012. (Compl. ¶¶ 14, 17; Licht Aff. ¶¶ 10, 12; Webster Aff. ¶¶ 12-13, Feb. 28, 2014). As of May 31, 2012, Capco owed Licht approximately $19, 906.36 in rental payments. (Compl. ¶ 20; Licht Aff. ¶ 21). Thereafter, as of the December 31, 2012 expiration date, Capco's liability to Licht increased to approximately $121, 983.47. (Compl. ¶¶ 21-22; Licht Aff. ¶¶ 22-23).
According to the Licht Affidavit, it received email correspondence from Brian D. Maloney (Maloney) of Altman & Company, LLC (Altman) regarding a potential payment of $22, 000 from Capco that was "approved by the bank" to be made to Licht the week of July 20, 2012. See Licht Aff. ¶¶ 16-17. However, Glenn P. Marx (Marx), a Relationship Manager in the Restructure and Recovery Department of Webster, stated during his deposition that Webster was not approving budgets for Capco and any representation by Maloney to that effect would have been mistaken. See Marx Dep. 29:18-30:12, May 20, 2014. In any event, Licht did not receive such payment from Capco nor did Licht receive any other rental payments after May 1, 2012. See Licht Aff. ¶¶ 12, 17.
Webster's Relationship with Capco
Beginning on March 26, 2010, Capco-jointly with Capco Endurance, LLC-entered into a lending relationship whereby Webster provided Capco with an original $20, 000, 000 revolving line of credit. Webster Aff. ¶¶ 2-3, Feb. 28, 2014. Thereafter, Webster extended a series of other credit facilities to Capco, including a $3, 000, 000 overline that was restructured on September 20, 2011 into a $20, 000, 000 revolving credit facility and an $8, 000, 000 term loan. See id. ¶¶ 5-9. As of November 2011, Capco had five credit facilities with Webster: three direct lending facilities and two mortgage loans. (Marx Dep. 9:14-10:10). Around that time, Capco was struggling to meet its payment obligations with respect to the loans from Webster which prompted Marx's involvement in the lending relationship. See id. at 7:20-8:8. In order to ensure Capco's liquidity, Capco sold off its excess equipment (which served as collateral for Webster's loans) at auction. See id. at 8:3-23, 22:3-12. Marx was tasked with overseeing and managing the auction process as Webster's representative. See id. at 7:24-8:15. The initial appraisals of the equipment were set by the auctioneer, although Webster was involved in establishing bid conditions and values. See id. at 13:9-15:20. The net proceeds from the auction were paid to Webster despite there being no default on the facilities at that time. Id. at 23:8-18.
Furthermore, Webster was involved in "the loans, the repayment of the loans, the compliance with covenants, the monitoring the various requirements of the legal documents and reporting." Id. at 18:8-14. Marx also attended multiple meetings in which new business development, account receivable and pending change orders were discussed; Marx attended such meetings because of Webster's concern about Capco's ability to meet its loan payments. See id. at 24:8-25:25. According to Marx, however, "[Webster's] role was not to tell [Capco] how to spend their money, or what priorities to meet. [Webster] expressed concern that they would have enough money to continue to operate to complete the jobs that were in their book of business that were active at the time." Id. at 26:18-23.
On February 24, 2012, Webster extended a $1, 500, 000 short term revolving loan. (Webster Aff. ¶ 10). On March 30, 2012, Capco defaulted on the short term revolving loan and on March 31, 2012, Capco defaulted on the $6, 188, 564.55 outstanding balance on the term loan. Id. ¶¶ 12-13. Around that time, Capco determined that it could not continue business operations and a wind down was appropriate. Id. ¶ 14. In order to assist with the wind down, Webster extended two $1, 800, 000 revolving loans to Capco. Id. ¶¶ 15-16, 25-26. According to Webster, Capco retained Altman to assist with Capco's wind down and the "day-to-day management, budgeting and project work was being completed by [Capco] with the assistance of Altman." Id. ¶¶ 18, 20. Furthermore and relevant to the issues here, Webster asserts it "did not play any role in the operation and/or management of [Capco's] business operations at any time. At all times, Webster's relationship with Borrowers was that of a secured creditor . . . ." Id. ¶¶ 21-22.
At some point during the spring of 2012, Webster engaged Hollis Meddings Group, Inc. (Hollis Meddings) for purposes of monitoring Capco's completion of various construction projects and the company's winding down of its business. (Hollis Meddings Aff. ¶ 3, Mar. 4, 2014; Marx Dep. 30:13-22). Hollis Meddings was directly responsible to Webster but allegedly "did not play any role in the operation or management of the business operations of [Capco], " "make any decisions regarding [Capco's] business operations, " or "direct or influence the decisions of [Capco] with respect to the disbursement of payables . . . ." (Hollis Meddings Aff. ¶¶ 6-7; Marx Dep. 30:23-31:14). With regard to whether Webster had to approve any payments of Capco, such as the payment to Licht, Marx did not recall if any requests for rental payments were specifically denied. See Marx Dep. 32:25-33:9. However, Webster did monitor Capco's budgets and, on occasion, would fund budgets prepared ...