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In re RFC and ResCap Liquidating Trust Litigation

United States District Court, D. Minnesota

June 3, 2019

In Re RFC and ResCap Liquidating Trust Litigation
v.
InterLinc Mortgage Services, LLC, in its own Capacity, and as successor to Hometown Mortgage Services, Inc. Douglas Rohm, and Edward Danielczyk, No. 16-cv-3024SRN/HB This document relates to Residential Funding Company, LLC and ResCap Liquidating Trust

          MEMORANDUM OPINION AND ORDER

          SUSAN RICHARD NELSON, UNITED STATES DISTRICT JUDGE

         I. INTRODUCTION

         Before the Court is the Motion to Bifurcate [Doc. No. 5070] filed by Defendant InterLinc Mortgage Services, LLC (“InterLinc”). For the reasons set forth below, Defendant's motion is denied.

         II. BACKGROUND

         A. Litigation

         In December 2013, Plaintiffs Residential Funding Company, LLC (“RFC”) and Rescap Liquidating Trust (“ResCap”) sued Defendant Hometown Mortgage Services, Inc. (“Hometown”). See Compl., Residential Funding Co., LLC. v. Hometown Mortg. Servs., Inc. (“RFC v. Hometown”), No. 13-cv-3509 (SRN/HB) [Doc. No. 1]. Hometown was a mortgage originator owned and managed by Defendants Douglas Rohm and Edward Danielczyk (the “Individual Defendants”). It sold over 2, 000 residential mortgage loans to RFC with a principal balance in excess of $200 million. (Am. Compl. [Doc. No. 2611] ¶5.) The parties' contractual relationship required Hometown to make numerous representations and warranties (R&Ws) to RFC about the characteristics and quality of the loans. (Id.)

         In the lawsuit, Plaintiffs asserted claims for breach of contract and indemnification, alleging that Hometown breached its R&Ws by selling defective loans to RFC, for which it was required to indemnify Plaintiffs for losses that RFC incurred in bankruptcy settlements that it ultimately entered into in the Southern District of New York. (See Id. ¶¶ 24-25.)

         Within a few months of the filing of the lawsuit, however, Plaintiffs contend that InterLinc and the Individual Defendants, who were co-owners of Hometown, formulated a plan to transfer Hometown's operations and assets to InterLinc. (Am. Compl. ¶ 90.) The purpose of this plan, Plaintiffs allege, was to leave Hometown with insufficient assets to satisfy any liability to Plaintiffs or to Hometown's other creditors. (Id.) Plaintiffs assert that InterLinc and the Individual Defendants were to be the primary beneficiaries of this plan, under which the Individual Defendants were to receive “lucrative employment with InterLinc.” (Id.)

         The transfer occurred in March 2014, with InterLinc purchasing certain assets and assuming certain liabilities and contracts from Hometown, pursuant to an Asset Purchase Agreement (“APA”). (Id., Ex. G [Doc. No. 2611-35] (APA)). Among the assets that InterLinc purchased-for a grand total of $124, 806.70-were furniture and fixtures, property and equipment, software, and leasehold improvements. (APA §§ 101, 102; Sch. 101B, 102B.) Plaintiffs allege that some of Hometown's former employees, utilizing the acquired assets, continued Hometown's business operations as a division of InterLinc known as “InterLinc Alabama.” (Am. Compl. ¶¶ 91-92.)

         As to liabilities, the APA provided:

1.03 Assumed Liabilities. Buyer is not assuming any of Seller's liabilities, except for the “Assumed Liabilities” which consist solely of the following: Seller's interest in, and to, the leases and other agreements listed on Schedule 1.01, assuming such leases and other agreements are in effect on the closing date[.]

(APA § 1.03.) Schedule 1.01 listed two leases. (Id., Sch. 1.01D.)

         In January 2015, Plaintiffs' case against Hometown was consolidated, along with numerous others, into the consolidated case number 13-cv-3451. (Admin. Order [Doc. No. 97].)

         In September 2015, Hometown filed for chapter 7 bankruptcy in the Northern District of Alabama. (Hometown Notice of Bankr. [Doc. No. 850].) In Hometown's bankruptcy petition, it listed total assets of $140, 930.93 and total liabilities of $286, 999.30. (Am. Compl. ¶ 98.) Plaintiffs allege that Hometown failed to disclose that its business was continuing under the InterLinc name and using Hometown's offices, management, and employees. (Id. ¶ 100.) In the bankruptcy action, RFC and ResCap filed an unsecured proof of claim for $44 million. See In ...


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