United States District Court, S.D. New York
IMAGEPOINT, INC., and IMAGEPOINT, INC., by JAMES R. MARTIN, Secured Creditor, Plaintiff,
JPMORGAN CHASE BANK, NATIONAL ASSOCIATION, Defendant
[Copyrighted Material Omitted]
For Imagepoint, Inc., Plaintiff: Shujah Ahmad Awan, LEAD ATTORNEY, Joe R. Whatley, JR., Whatley Kallas LLP(NYC), New York, NY.
For Image Point Inc., by James R. Martin, Secured Creditor, Plaintiff: Shujah Ahmad Awan, LEAD ATTORNEY, Whatley, Drake & Kallas, LLC (NYC), New York, NY.
For JPMorgan Chase Bank, National Association, Defendant: William M. Hawkins, III, LEAD ATTORNEY, Loeb & Loeb LLP, New York, NY.
REPORT AND RECOMMENDATION
GABRIEL W. GORENSTEIN, United States Magistrate Judge.
Plaintiffs, identified as " ImagePoint, Inc., and ImagePoint, Inc., by James R. Martin, Secured Creditor," have brought this action against JPMorgan Chase Bank, National Association (" JPM" ) for various claims arising out of a contract Imagepoint had entered into with JPM for the provision of certain services and materials. JPM now moves to dismiss the second amended complaint pursuant to Rules 12(b)(1) and 12(b)(6) of the Federal Rules of Civil Procedure. For the foregoing reasons, this motion should be granted in part and denied in part.
A. Facts Alleged in the Complaint
On October 3, 2003, ImagePoint and Wachovia Bank, National Association
(" Wachovia" ) entered into a Loan and Security Agreement in which Wachovia agreed to make certain loans to ImagePoint. See Second Amended Complaint, filed July 29, 2013 (Docket # 43) (" 2d Am. Compl." ), ¶ 8; Loan and Security Agreement, dated Oct. 3, 2003 (annexed as Ex. 3 to 2d Am. Compl) (" Loan & Security" ). In exchange for these loans, ImagePoint granted to Wachovia a security interest in ImagePoint's present and future accounts, contracts, and contract rights, which it referred to as " Collateral."  2d Am. Compl. ¶ 8; Loan & Security § 7.1(a) (" To secure the payment . . . [ImagePoint] hereby mortgages, pledges, and assigns all of the Collateral of [ImagePoint] to [Wachovia] . . . and grants to [Wachovia] . . . a continuing first priority security interests in, and a continuing Lien upon, the Collateral." ). Since that time, Wachovia has been purchased by Wells Fargo. 2d Am. Compl. ¶ 8.
In July 2005, ImagePoint and JPM entered into a Master Procurement Agreement (the " Procurement Agreement" ), in which JPM agreed to pay ImagePoint for performing various services and supplying certain materials. 2d Am. Compl. ¶ 3; Master Procurement Agreement, dated July 2005 (annexed as Ex. 1 to 2d Am. Compl.) (" Procurement Agreement" ). Pursuant to this agreement, ImagePoint provided JPM with services and materials totaling $802,082.74, but JPM has yet to pay ImagePoint except for a deposit of $39,794.82. 2d Am. Compl. ¶ ¶ 4-5. Thus, according to plaintiffs, JPM currently owes ImagePoint $762,287.92 plus interest and attorney's fees. Id. ¶ ¶ 6-7. On March 3, 2009, ImagePoint filed an Involuntary Petition under Chapter 7 of the United States Bankruptcy Code with the United States Bankruptcy Court for the Eastern District of Tennessee, and pursuant to 11 U.S.C. § 362(a), an automatic stay of litigation against ImagePoint went into effect. Id. ¶ 9. David H. Jones was named as the trustee in the Chapter 7 proceedings. Id. ¶ 12.
During the pendency of the ImagePoint bankruptcy proceeding, on September 3, 2010, Wachovia entered into an Assignment, Amendment, and Settlement Agreement (the " AASA" ), in which it assigned its rights and interests under the Loan and Security Agreement, including any rights to ImagePoint's collateral, to James A. Haslam III. See id. ¶ 10; Assignment, Amendment and Settlement Agreement, dated Sept. 3, 2010 (annexed as Ex. 4 to 2d Am. Compl.) (" AASA" ), § 3(a) (" Existing Lender [Wachovia] hereby sells, transfers and assigns to Haslam, and Haslam hereby purchases, assumes . . . all right, title and interest of Existing Lender in and to, and all obligations of Existing Lender under, the Loan Agreement." ). Thus, Haslam purportedly received Wachovia's security interest in ImagePoint's accounts receivable for the goods and services ImagePoint provided to JPM under the Procurement Agreement. See 2d Am. Compl. ¶ 10. On April 8, 2011, Haslam assigned these same rights in the accounts receivable to Martin. See id. ¶ 11; Assignment, dated Apr. 8, 2011 (annexed as Ex. 5 to 2d Am. Compl.).
On January 28, 2012, Martin entered into a settlement agreement with Jones (the trustee for ImagePoint) and Jones' attorneys in which Martin was granted the right to obtain from the bankruptcy court an order for " stay relief" with respect to " all collateral securing his claim, which Martin as officer of the Debtor and as Agent under the Loan Agreement identifies in the Schedule A attached hereto as a complete list of all [the] collateral of which Martin is presently aware . . . ." See 2d Am. Compl. ¶ 12; Settlement Agreement, dated Jan. 28, 2012 (annexed as Ex. 6 to 2d Am. Compl.) (" January 28 Settlement Agreement" ), at 3. Schedule A of the Settlement Agreement listed various kinds of property, including several bankruptcy court adversary proceedings, one of which is the adversary proceeding against JPM. See 2d Am. Compl. ¶ 12; January 28 Settlement Agreement at 17.
On January 31, 2012, Martin and Jones filed a joint motion for approval of the settlement agreement with the bankruptcy court, 2d Am. Compl. ¶ 13, and on February 14, 2012, the bankruptcy court issued an order approving the settlement agreement, id. ¶ 14; Order Granting Joint Motion for Approval of Settlement Agreement, filed Feb. 14, 2012 (annexed as Ex. 7 to 2d Am. Compl.) (" Settlement Order" ). Counsel for JPM " approved" the entry of this order. See Settlement Order at 4. The bankruptcy court's order acknowledged, " [n]otwithstanding any term of the Settlement Agreement or this Order which may appear to the contrary, no rights nor remedies of JPMorgan shall be impaired or prejudiced by the Settlement Agreement or this Order, except as provided in paragraph (B) hereinbelow." Id. at 1-2. Paragraph (B) provided that " in the event Martin decides to drop his claim against a Defendant . . . the Defendant's claims (or counterclaims) against the estate must be liquidated in the bankruptcy court through the claims process." Id. at 2.
On March 2, 2012, the bankruptcy court entered a second order in which it modified the automatic stay under 11 U.S.C. § 362(a) " to permit James R. Martin to enforce his rights as a secured creditor under the Loan and Security Agreement, dated October 3, 2003, between ImagePoint, Inc. and Wachovia." See 2d Am. Compl. ¶ 15; Agreed Order Granting Second Motion of James R. Martin for Relief from Stay, filed Mar. 2, 2012 (annexed as Ex. 8 to 2d Am. Compl.), at 2. Counsel for JPM approved the entry of this order. See id. at 4. Once again, the order stated that " [n]otwithstanding any other provision of the present Order which may appear to the contrary, the rights and remedies of JPMorgan Chase Bank, National Association, as protected in the [prior settlement order], shall not be prejudiced in any way by the present Order or its entry." Id. at 2.
On July 20, 2012, a hearing was held in bankruptcy court regarding JPM's motion to dismiss a collection action that had Martin brought against JPM. See 2d Am. Compl. ¶ 16. At this hearing, the bankruptcy court acknowledged that the trustee had consented in the settlement agreement to allow Martin to pursue this action in ImagePoint's name. See id. The bankruptcy court summarized JPM's argument that the action must be dismissed for lack of subject matter jurisdiction because of " the fact that Mr. Martin has been granted stay relief and the unlikelihood that the action will produce any benefit for unsecured creditors." Id.; Transcript of Bankruptcy Court Hearing, dated July 20, 2012 (annexed as Ex. 9 to 2d Am. Compl.) (" 7/20/12 Tr." ), at 16. The bankruptcy court then noted that " neither the parties, nor the Court have been able to locate a decision where the secured creditor after
obtaining relief from the automatic stay was permitted to step into the shoes of the trustee and pursue a Section 542(b) turnover action" and therefore concluded that " [t]here is either a lack of standing by the secured creditor, or a lack of jurisdiction. In either event, dismissal is required." 7/20/12 Tr. at 19. On August 2, 2012, the bankruptcy court entered an order granting JPM's motion to dismiss. 2d Am Compl. ¶ 17. The bankruptcy court reasoned that either Martin lacked standing because " the Trustee has independent standing to pursue a Section 542 turnover action," or alternatively, if the proceeding " merely [was] an accounts receivable collection effort by a secured creditor," there was no subject matter jurisdiction over the action.
B. Procedural History
Shortly thereafter, on September 24, 2012, ImagePoint filed the original complaint in this action, alleging that defendant JPM was liable for breach of the Procurement Agreement and for unjust enrichment. See Complaint, filed Sept. 24, 2012 (Docket # 1). On October 19, 2012, JPM answered, asserting that ImagePoint lacked standing to bring this suit. See Answer, filed Oct. 19, 2012 (Docket # 4), ¶ ¶ 24-25. On November 30, 2012, ImagePoint, now joined by Martin, filed the first amended complaint. See First Amended Complaint, filed Nov. 30, 2012 (Docket # 13). On December 19, 2012, JPM filed a motion to dismiss the first amended complaint, alleging inter alia that Martin did not have standing to bring suit against JPM because any assignment to Martin was null and void. See Notice of Motion, filed Dec. 19, 2012 (Docket # 21); Defendant's Memorandum of Law in Support of Motion to Dismiss First Amended Complaint, filed Dec. 19, 2012 (Docket # 22), at 7. Following oral argument on July 9, 2013, see Transcript, filed Sept. 26, 2013 (Docket # 50), this Court issued an order granting plaintiffs leave to amend their complaint for a second time, see Order, filed July 10, 2013 (Docket # 42).
On July 29, 2013, plaintiffs ImagePoint, Inc., and " ImagePoint, Inc., by James R. Martin, Secured Creditor" filed the second amended complaint against defendant JPM. See 2d Am. Compl. In addition to asserting breach of contract and unjust enrichment claims against JPM, see id. ¶ ¶ 25-28, plaintiffs allege in the second amended complaint that Martin has the right pursuant to New York Uniform Commercial Code (" N.Y. U.C.C." ) § 9-607(a)(1) to foreclose on the security interest in the accounts receivable owed to ImagePoint under the Procurement Agreement, see id. ¶ ¶ 18-24. Plaintiffs further claim that Martin has proceeded in a " commercially reasonable manner," as required by N.Y. U.C.C. § 9-607(c), because Martin has made demands on JPM for the amounts due, JPM has ignored those demands, and Martin first attempted to collect on the amounts due in bankruptcy court. Id. ¶ 24.
On September 10, 2013, JPM filed the instant motion to dismiss the second amended complaint under Fed. R. Civ. Pro. Rule 12(b)(1) for lack of subject matter jurisdiction and under Rule 12(b)(6) for failure to state a claim.
JPM asserts that plaintiffs' claims should be dismissed for lack of subject matter jurisdiction because Martin does not have standing to pursue his claims. See Def. Mem. at 7.
" A case is properly dismissed for lack of subject matter jurisdiction under Rule 12(b)(1) when the district court lacks the statutory or constitutional power to adjudicate it." Makarova v. United States, 201 F.3d 110, 113 (2d Cir. 2000). A party asserting that a court has subject matter jurisdiction bears the burden of proving by a preponderance of the evidence that it exists. Id. at 113; accord Morrison v. Nat'l Austl. Bank Ltd., 547 F.3d 167, 170 (2d Cir. 2008), aff'd, 561 U.S. 247, 130 S.Ct. 2869, 177 L.Ed.2d 535 (2010);
see also Whitmore v. Arkansas, 495 U.S. 149, 154, 110 S.Ct. 1717, 109 L.Ed.2d 135 (1990) (" It is well established . . . that before a federal court can consider the merits of a legal claim, the person seeking to invoke the jurisdiction of the court must establish the requisite standing to sue." ). In considering such a motion, a court " may refer to evidence outside the pleading."
Makarova, 201 F.3d at 113; accord Kamen v. Am. Tel. & Tel. Co., 791 F.2d 1006, 1011 (2d Cir. 1986) (" [W]hen . . . subject matter jurisdiction is challenged under Rule 12(b)(1), evidentiary matter may be presented by affidavit or otherwise." ); TradeComet.com LLC v. Google, Inc., 693 F.Supp.2d 370, 375 n.3 (S.D.N.Y. 2010).
Under Article III of the United States Constitution, federal courts may hear only " [c]ases" and " [c]ontroversies." U.S. Const. art. III, § 2, cl. 1. Thus, " [i]f plaintiffs lack Article III standing, a court has no subject matter jurisdiction to hear their claim." Cent. States Se. & Sw. Areas Health & Welfare Fund v. Merck-Medco Managed Care, L.L.C., 433 F.3d 181, 198 (2d Cir. 2005);
accord Altman v. Bedford Cent. Sch. Dist., 245 F.3d 49, 69 (2d Cir. 2001). " A case is properly dismissed for lack of subject matter jurisdiction under Rule 12(b)(1) when the district court lacks the statutory or constitutional power to adjudicate it."
Makarova, 201 F.3d at 113 (citing Fed.R.Civ.P. 12(b)(1)).
To meet the Article III standing requirement, a plaintiff must show:
 that he " suffered an injury-in-fact -- an invasion of a legally protected interest which is (a) concrete and particularized . . . and (b) actual or imminent, not conjectural or hypothetical" ;  that there was a " causal connection between the injury and the conduct complained of" ; and  that it is " likely, as opposed to merely speculative, that the injury will be redressed by a favorable decision." Lujan v. Defenders of Wildlife, 504 U.S. 555, [560-61, 112 S.Ct. 2130, 119 L.Ed.2d 351] (1992) (citations and internal quotation marks omitted). " [E]ach element [of standing] must be supported in the same way as any ...