In re Webb Mtn, LLC

• Citation: 420 B.R. 418
• Decision Date: 25 November 2009
• Docket Number: Adversary No. 08-3070.,Bankruptcy No. 07-32016.
• Parties: In re WEBB MTN, LLC Debtor. Webb MTN, LLC, Plaintiff v. Executive Realty Partnership, L.P., Gerald Franklin, Trustee, Greenbrier Developers, LLC, M & A Enterprises, Inc., and Kenneth Whaley, Defendants.
• Court: United States Bankruptcy Courts. Sixth Circuit. U.S. Bankruptcy Court — Eastern District of Tennessee

420 B.R. 418

In re WEBB MTN, LLC Debtor Webb MTN, LLC, Plaintiff v. Executive Realty Partnership, L.P., Gerald Franklin, Trustee, Greenbrier Developers, LLC, M & A Enterprises, Inc., and Kenneth Whaley, Defendants.

Bankruptcy No. 07-32016.

Adversary No. 08-3070.

United States Bankruptcy Court, E.D. Tennessee.

November 25, 2009.

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

Gentry, Tipton & Mclemore, P.C., Maurice K. Guinn, Esq., W. Morris Kizer, Esq., Knoxville, TN, for Plaintiff.

Hodges, Doughty & Carson., Thomas H. Dickenson, Esq., Oliver D. Adams, Esq., Knoxville, TN, for Defendants.

MEMORANDUM

RICHARD STAIR, JR., Bankruptcy Judge.

This adversary proceeding is before the court upon the Complaint filed by the Plaintiff on May 27, 2008, as amended by the Amended Complaint filed on July 31, 2008, seeking to nullify and/or set aside four quit claim deeds transferring real property from the Plaintiff to the Defendants. Following entry of an Order on February 11, 2009, dismissing ten (10) of the thirteen (13) counts of the Amended Complaint and the corresponding Memorandum on Motion to Dismiss Adversary Proceeding, Motion of Webb Mtn, LLC for Summary Judgment, Defendants' Cross Motion for Summary Judgment, and Motion to Strike Portions of Affidavit of Kenneth Whaley, the Defendants filed the Answer of Defendants to Amended Complaint on March 3, 2009. Pursuant to the Amendment to Pretrial Order entered on September 22, 2009, the Plaintiff now seeks to avoid only the transfer between the Plaintiff and the Defendant, Gerald Franklin, Trustee. An Order dismissing two of the three remaining counts in their entirety, with prejudice, was entered by agreement after the trial on October 6, 2009, while the third remaining count was dismissed, with prejudice, with respect to all of the transfers except the transfer to the Defendant, Gerald Franklin, Trustee.

The trial was held on September 28, 2009. The record before the court consists of Stipulations of Facts and Documents Related to September 28 Trial (Joint Stipulations) filed on September 18, 2009, twenty-eight exhibits introduced into evidence, the testimony of two certified real estate appraisers, Robert Jeffrey Fletcher and Donald White, and the testimony of four additional witnesses, Jack Collier, William P. Evans, Gerald Franklin, and Kenneth Whaley. During the course of the trial and at the close of the Plaintiff's proof, the Defendants made an oral motion to strike the testimony of the Plaintiff's appraiser, Mr. Fletcher, which, for reasons hereinafter discussed, will be denied.

This is a core proceeding. 28 U.S.C. § 157(b)(2)(A), (H), and (O) (2006).

I

The Plaintiff is a Tennessee limited liability company, whose sole member is Jack Collier. JT. STIPS. at ¶ 2. On October 5, 2005, Mr. Collier entered into a First Agreement for Purchase and Sale with the Defendants for the purchase of approximately 1,865.60 acres comprised of several tracts having different owners, the Defendants, known as Webb Mountain, State Route 416, Pittmann Center Road, Sevierville, Sevier County, Tennessee (Webb Mountain Property). JT. STIPS. at ¶ 1. The October 2005 contract was amended by Amendments to First Agreement for Purchase and Sale, Second Amendment to First Agreement for Purchase and Sale and Third Amendment to First Agreement for Purchase and Sale (collectively, Purchase Contracts) dated December 23, 2005, January 26, 2006, and March 10, 2006, respectively. JT. STIPS. at ¶ 1; COLL. TRIAL. EX. 1. Mr. Collier subsequently assigned the Purchase Contracts to the Plaintiff, and it purchased the Webb Mountain Property from the Defendants on March 24, 2006, for a total consideration of $27,975,000.00 through the execution and recordation of six General Warranty Deeds, with the final General Warranty Deed being a "catch all" based upon the survey of the entire Webb Mountain Property less the acreage conveyed by the Defendant, M & A Enterprises, Inc. JT. STIPS. at ¶ 3; COLL. TRIAL EX. 2.¹

The Plaintiff paid $1,750,000.00 at closing and the remaining $26,225,000.00 was financed through five non-recourse Promissory Notes executed on March 24, 2006. JT. STIPS. at ¶ 4. Each Promissory Note had a maturity date of January 3, 2007, and each was secured by a corresponding Deed of Trust as follows: (1) Promissory Note to Kenneth Whaley, Greenbrier Developers, LLC, M & A Enterprises, Inc., and Gerald Franklin, Trustee, in the amount of $4,790,000.00, secured by the Whaley Tract, consisting of approximately 71 acres; (2) Promissory Note to Executive Realty Partnership, L.P. in the amount of $990,000.00, secured by the Executive Realty Tract consisting of approximately 21 acres; (3) Promissory Note to Greenbrier Developers, LLC in the amount of $10,465,000.00, secured by the Greenbrier Tract consisting of 195.89 acres; (4) Promissory Note to Gerald Franklin, Trustee, in the amount of $8,980,000.00, secured by the Franklin Tract consisting of approximately 1,445 acres;² and (5) Promissory Note to M & A Enterprises, Inc. in the amount of $1,000,000.00, secured by the M & A Tract consisting of approximately 131 acres (collectively, Promissory Notes).³ JT. STIPS. at ¶ 4; TRIAL. EXS. 3-7.

On June 23, 2006, the Plaintiff made the following payments totaling $3,250,000.00 to be applied to the corresponding Promissory Notes: (1) $50,000.00 to Executive Realty Partnership; (2) $1,000,000.00 to M & A Enterprises, Inc.; (3) $1,000,000.00 to Gerald Franklin, Trustee; (4) $200,000.00 to Kenneth Whaley, Greenbrier Developers, LLC, M & A Enterprises, Inc., and Gerald Franklin, Trustee; and (5) $1,000,000.00 to Greenbrier Developers, LLC. JT. STIPS. at ¶ 5. On December 8, 2006, the Plaintiff paid the balance of approximately $12,000.00 owed to M & A Enterprises, Inc. on its Promissory Note, and the Deed of Trust encumbering the 131 acre tract was released. JT. STIPS. at ¶ 5. The amounts due under the remaining Promissory Notes were not paid by January 3, 2007, and the Defendants, through the trustee appointed under the deeds of trust, initiated foreclosure proceedings against the Webb Mountain Property. JT. STIPS. at ¶ 7.

On March 27, 2007, the parties entered into a Conditional Extension of Borrowers' Obligations Under Promissory Note (Conditional Extension Agreement) and an Escrow Agreement, as contemplated by the Conditional Extension Agreement, under the terms of which the scheduled foreclosures were adjourned to a date to occur after June 25, 2007, so long as the Plaintiff executed four quit claim deeds conveying to the respective Defendants the tracts of property securing the outstanding Promissory Notes (collectively, Quit Claim Deeds). JT. STIPS. at ¶ 8; TRIAL EXS. 9-11. The Quit Claim Deeds were delivered to Patrick Harrell, as escrow agent, and held in a safety deposit box at Smart Bank pursuant to the Escrow Agreement. JT. STIPS. at ¶ 8. Additionally, an interest payment of $421,679.23 required by the Conditional Extension Agreement was made on March 28, 2007. JT. STIPS. at ¶ 5.

The Plaintiff filed the Voluntary Petition commencing its case under Chapter 11 of the Bankruptcy Code on June 25, 2007. Following an evidentiary hearing held on September 11, 2007, the court granted the Motion to Dismiss Bankruptcy Case filed on August 10, 2007, by the Defendants, and the case was dismissed on September 17, 2007. JT. STIPS. at ¶ 10. No stay pending appeal was in effect subsequent to the entry of the dismissal Order, and the Escrow Agent, Patrick Harrell, thereafter released the Quit Claim Deeds from escrow, and they were recorded with the Sevier County Register of Deeds on September 18, 2007. JT. STIPS. at ¶ 10; COLL. TRIAL EX. 14. The Plaintiff appealed the court's dismissal Order on October 29, 2007, and that Order was subsequently reversed by the United States District Court on February 8, 2008. JT. STIPS. at ¶ 10. Following reinstatement of the bankruptcy case, the court, on March 6, 2008, entered an Order granting the Defendants' Motion for Entry of Order Determining That Debtor is Subject to the "Single Asset Real Estate" Provisions of 11 U.S.C. § 362(d)(3) filed on August 1, 2007, which was affirmed on appeal by the United States District Court on August 26, 2008. JT. STIPS. at ¶ 11; TRIAL EX. 15.

The Plaintiff filed the five (5) count Complaint initiating this adversary proceeding on May 27, 2008, which it amended on July 31, 2008, with a thirteen (13) count Amended Complaint. On July 8, 2008, the Defendants filed the Motion to Dismiss Webb Mtn, LLC's Adversary Proceeding for Failure to State a Claim Upon Which Relief Can Be Granted and Failure to Plead Fraud With Particularity, which they amended on August 11, 2008. Thereafter, the Plaintiff filed the Motion of Webb Mtn, LLC for Summary Judgment on September 2, 2008, to which the Defendants filed the Response to Webb Mtn, LLC's Motion for Summary Judgment and Defendants' Cross Motion for Summary Judgment on September 22, 2008. The court, by an Order entered on February 11, 2009, supported by a comprehensive Memorandum Opinion, dismissed Counts I through X of the Amended Complaint, leaving only Counts XI, XII, and XIII pending. See Webb Mtn, LLC v. Exec. Realty P'ship, L.P. (In re Webb Mtn, LLC), 414 B.R. 308 (Bankr.E.D.Tenn. 2009). The Defendants filed their Answer on March 3, 2009, along with the Motion by Defendants for Judgment on the Pleadings as to Counts XII and XIII of the Amended Complaint, arguing that 11 U.S.C. § 544 only applies to pre-petition transfers. In a decision rendered from the bench on April 9, 2009, and memorialized in an Order entered that same date, the court denied this motion. See Webb Mtn, LLC v. Exec. Realty P'ship, L.P. (In re Webb Mtn, LLC), 2009 WL 1117469, 2009 Bankr.LEXIS 1128 (Bankr.E.D.Tenn. Apr. 9, 2009).⁴

The court entered a Pretrial Order on May 18, 2009, setting forth the remaining issues before the court; however, as stipulated by the parties in the Amendment to Pretrial Order...