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Musilino v. Alabama Marble Company, Inc.

United States District Court, N.D. Alabama, Eastern Division

July 20, 2015

STEPHEN MUSILINO, et al., Appellants,
v.
ALABAMA MARBLE COMPANY, INC., et al., Appellees

For Stephen Musilino, Sycamore Marble Company, Inc., Mediterranean Exports, Inc., Appellants: Harry P Long, LEAD ATTORNEY, LAW OFFICES OF HARRY P. LONG, LLC, Anniston, AL.

For Alabama Marble Co., Inc., Appellee: Jennifer B Kimble, R Scott Williams, LEAD ATTORNEYS, Rumberger, Kirk & Caldwell, P.C., Birmingham, AL; Clark R Hammond, Wallace Jordan Ratliff & Brandt LLC, Birmingham, AL.

For Blue Devil Investments, Inc., David Luce, Appellees: Clark R Hammond, LEAD ATTORNEY, Wallace Jordan Ratliff & Brandt LLC, Birmingham, AL.

For Credit Strategy Advisors, Inc., Appellee: Charles R Johanson, III, LEAD ATTORNEY, ENGEL HAIRSTON & JOHANSON PC, Birmingham, AL; Clark R Hammond, Wallace Jordan Ratliff & Brandt LLC, Birmingham, AL.

For TBGS Quarry LLC, Appellee: Timothy Michael Lupinacci, LEAD ATTORNEY, BAKER, DONELSON, BEARMAN, CALDWELL & BERKOWITZ PC, Birmingham, AL; Clark R Hammond, Wallace Jordan Ratliff & Brandt LLC, Birmingham, AL; William G Somerville, III, BAKER DONELSON BEARMAN CALDWELL & BERKOWITZ PC, Birmingham, AL.

MEMORANDUM OPINION

R. DAVID PROCTOR, UNITED STATES DISTRICT JUDGE.

This case is before the court on the Motion to Dismiss Appeal as Equitably Moot (Doc. 7), filed on February 10, 2015. The Motion (Doc. 7) was filed by Appellees Alabama Marble Company, Inc. (the " Debtor" ), Blue Devil Investments, Inc. (" Blue Devil" ), David Luce (" Luce," and together with Blue Devil, the " Luce Parties" ), TBGS Quarry, LLC (" TBGS" ) and Credit Strategy Advisors, Inc. (" CSA" ). It has been fully briefed. (Docs. 13, 16).

The Motion (Doc. 7) arises in the context of an appeal filed by Stephen Musilino (" Musilino" ),[1] Mediterranean Exports, Inc., and Sycamore Marble, Inc. (together with Musilino, the " Appellants" ). The appeal was taken from the Order Approving Joint Motion to Approve Compromise and Dismissing Chapter 11 Case (Doc. 3-26),[2] dated November 6, 2014 (the " Rule 9019 Order" ) of the Honorable James J. Robinson, United States Bankruptcy Court for the Northern District of Alabama (the " Bankruptcy Court" ). Judge Robinson approved a comprehensive settlement agreement (the " Settlement Agreement" ) negotiated pursuant to Rule 9019 of the Federal Rules of Bankruptcy Procedure and then dismissed this Chapter 11 case.

This case arises from the Debtor's (a marble quarrier) troubled demise. After suffering years of operating at a loss, Debtor's creditors ran out of patience and TBGS (Debtor's landlord) attempted to terminate Debtor's Lease. Quarry-less and insolvent, Debtor was unable to survive as a going concern. Debtor sought bankruptcy protection under Chapter 11. The complex bankruptcy case was soon tainted by internal power struggles and rank opportunism. As the estate hemorrhaged from protracted litigation, a successful reorganization was unlikely. With an eye toward the quarrying business, TBGS offered a compromise, which would allow TBGS unchallenged possession of the Quarry in exchange for a significant payout.

Finding TBGS's offer to be the only means for creditor's recovery, an apprehensive Bankruptcy Court ultimately approved the Settlement Agreement. In the over eight months since the appeal was filed, the settlement has been fully consummated. In the interim, Appellants never sought a stay of the Bankruptcy Court's order. Appellants, no longer interested in quarrying for Alabama white dimensional marble, do not now wish to completely unwind the consummated settlement. Rather, Appellants prefer the court to remand the settlement agreement for a redistribution of the Luce Parties' payout.

In this appeal, Appellants argue that the Settlement Agreement was premised on the Luce Parties' exaggerated secured claims. Appellees' Motion (Doc. 7) contends that the court can no longer grant effective relief, and, therefore, the appeal is due to be dismissed as equitably moot. After a careful review of the record and arguments in this case, the court concludes that Appellees' Motion (Doc. 7) is due to be granted and the appeal is due to be dismissed.

I. Background

Below is a brief background of the litigation, which is instructive to the court's analysis of the arguments raised in this Motion (Doc. 7).

A. The Parties

1. Debtor

Debtor is a privately held company founded by Musilino in 1997. (Doc. 2-2, at 9). Debtor is equally owned by Musilino and Luce. ( Id. ; see also Doc. 3-4). From 1998 through November 2014, Debtor mined and operated a marble quarry in Talladega County, Alabama, near the town of Sylacauga (the " Quarry" ). (Doc. 3-5, at 2 ¶ 5-6). At the Quarry, Debtor mined Alabama white dimensional marble and operated a marble fabrication shop that cut and polished marble. (Doc. 2-2, at 9). Debtor sold marble to various suppliers and directly to consumers for use in a variety of construction and other projects. ( Id. ). Debtor's employees (other than the Quarry manager) are leased from a third-party (First Star HR/Essential HR, Inc.). ( Id. ). Additionally, much of Debtor's bookkeeping is performed by Appellant Mediterranean Exports, Inc., a company wholly owned by Musilino. ( Id. ).

The Quarry was operated in accordance with a ground lease (the " Lease" ), which Debtor entered into with Purple Mountain Marble Co., Inc. (" PMCC" ), dated November 4, 1998. Debtor and PMMC extended the term of the Lease through December 31, 2019. ( Id. at 14).

2. TBGS

On August 23, 2013, PMMC entered into a contract to sell the Quarry to TBGS. That contract was later amended to give TBGS the right to take actions on behalf of PMMC to terminate the Lease with Debtor. On December 2, 2013, PMMC sent Debtor a notice that it was terminating the Lease. ( Id. ). Following this notice of termination, Debtor and TBGS litigated the validity of the Lease, a dispute which eventually played out in the Bankruptcy Court.[3] ( Id. at 15).

3. CSA

On or around April 8, 2014, CSA acquired all interest, rights, and obligations arising under a series of notes and security instruments held by Debtor's judgment creditors. ( See Doc. 2-2, at 10, 23-24; see also Doc. 8, at 14). The notes and security interests were previously held by Howard and Martha Steinberg (the " Steinbergs" ) and Overlook Investment Company, LLC, (" Overlook" ) (the Steinbergs and Overlook collectively, are referred to as the " Original Holders" ). (Doc. 2-2, at 11). The Original Holders sued to enforce their notes and interests and obtained monetary judgments for the approximate principal amount of $595,000. ( Id. ). This resulted in certain of Debtor's accounts being frozen and Debtor being unable to access cash on hand. ( Id. ). CSA purchased these interests during the Chapter 11 case and became one of Debtor's secured creditors. ( See id. at 13).

4. Luce Parties

In 2009, Luce began investing in Debtor by making both capital contributions and loans. In 2010, Debtor restructured its equity ownership. (Doc. 3-5, at 3 ¶ 9). During this process, Luce made a capital contribution that provided Luce 50% of Debtor's common equity ownership; Musilino retained the other 50% ownership stake. ( See id. ; Doc. 3-2, at 4). Thereafter, Debtor became financial distressed and highly leveraged. ( See Doc. 3-5, at 3-4). Luce agreed to loan more funds if Overlook, the Steinbergs, and Musilino consented to Luce's loans being senior to those of Overlook, the Steinbergs, and Musilino. ( Id. at 4 ¶ 11). According to Luce, from 2010 to the petition date, Luce loaned approximately $1,500,000 to allow Debtor to satisfy its day-to-day obligations, including payroll and operating expenses, and perform on its contracts with customers. ( See Doc. 8, at 15).

Nevertheless, Debtor still required additional funds. On April 13, 2013, Blue Devil and Debtor entered into a senior credit facility (the " Blue Devil Loan" ), pursuant to which Blue Devil provided a loan in the total amount of $600,000, secured by substantially all of Debtor's assets. (Doc. 3-5, at 3 ΒΆ 10). As of the date of the Settlement Agreement, Appellants contend that the amount owed by the Debtor on account of ...


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