Andrews v. RBL, L.L.C. (In re Vista Bella, Inc.)
| Decision Date | 04 June 2013 |
| Docket Number | Adv. Proc. No.: 12-00060-MAM,Case No.: 11-00149-MAM-7 |
| Parties | In re: VISTA BELLA, INC., Debtor. LYNN HARWELL ANDREWS, Trustee, v. RBL, L.L.C., ROBERT W. SHALLOW, SUSAN SHALLOW, and RONALD H. CARR, Defendants. |
| Court | United States Bankruptcy Courts. Eleventh Circuit. U.S. Bankruptcy Court — Southern District of Alabama |
ORDER GRANTING IN PART AND DENYING IN PART DEFENDANTS' MOTIONS
FOR PARTIAL SUMMARY JUDGMENT AND GRANTING IN PART AND DENYING
IN PART THE TRUSTEE'S MOTION FOR PARTIAL SUMMARY JUDGMENT
William M. Lyon, Jr., Attorney for the Trustee, Mobile, Alabama
Lynn Harwell Andrews, Chapter 7 Trustee, Mobile, Alabama
Mark H. Taupeka and Max Cassady, Attorneys for Defendants
This case is before the court on the Defendants' motions for partial summary judgment and the Trustee's motion for partial summary judgment. The court has jurisdiction to hear these matters pursuant to 28 U.S.C. §§ 157 and 1334 and the Order of Reference of the District Court. The court has the authority to enter final orders pursuant to 28 U.S.C. § 157(b)(2). For the reasons indicated below, the Defendants' motions for partial summary judgment and the Trustee's motion for partial summary judgment are GRANTED IN PART and DENIED IN PART.
The debtor in this matter is Vista Bella, Inc. ("Debtor" or "Vista Bella"). In 2005, the Debtor established a fifty-unit high-rise residential condominium development in Orange Beach, Alabama. At its inception, Curtis Wilson Jr. was the sole officer, director, and shareholder of the Debtor. On October 27, 2005, Vista Bella purchased the unimproved property that would become the condominium development by vendor's lien deed from Island Investments II, LLC ("Island Investments"), another entity owned by Curtis Wilson. Island Investments agreed in the vendor's lien deed to subordinate its vendor's lien to a subsequently obtained construction loan. Prior to that transaction, Island Investments purchased the Vista Bella development property from C. Thurmon Bell ("Mr. Bell"). On October 27, 2005, in connection with the Vista Bella property purchase, Island Investments executed a collateral assignment of its vendor's lien in the Vista Bella property to Mr. Bell.
Around the same time, Curtis Wilson, through Island Investments, owned another condominium development on the Gulf Coast called Emerald Tower. Regions Bank held a mortgage on that property and Curtis Wilson personally guaranteed the debt. Mr. Wilson testified that he was unable to continue making payments on the mortgage and Regions foreclosed on Emerald Tower in February of 2008, resulting in a deficiency. After the foreclosure, Regions sued Curtis Wilson for the deficiency and obtained a judgment. Mr. Wilson testified that the judgment was entered three to four months following the foreclosure.
On October 27, 2005, the Debtor borrowed $36,400,000 from AmSouth Bank to purchase and develop the Vista Bella property and in exchange the Debtor executed a note and mortgage with AmSouth (the "Debtor's mortgage"). The Debtor's mortgage secured all of the Debtor's assets. Curtis Wilson and his wife signed personal guarantees for the debt as well. Pursuant to thevendor's lien deed, Mr. Bell's lien fell behind the Debtor's mortgage in priority. On May 15, 2007, Mr. Wilson executed a Declaration of Condominium for the Vista Bella development. Among other things, the Declaration identified 8 garages and 28 boat slips as limited common elements ("LCEs") and described the LCEs as appurtenant to Vista Bella Unit PH-1 ("Unit PH-1"), a penthouse condominium unit at the Vista Bella development. The Declaration was recorded in Baldwin County, Alabama on May 21, 2007. The Declaration was specifically made subject to the provisions of the Alabama Uniform Condominium Act, Ala. Code § 35-8A-101, et. seq.
The Defendants in this action are RBL, LLC ("RBL"), Robert Shallow, Susan Shallow, and Ronald Carr ("Ronnie Carr"). RBL is a limited liability company and Robert Shallow is its sole manager. Ronnie Carr is the majority owner of RBL. Robert Shallow testified that Mr. Carr owns around 95% of the company. He also owns Vista Bella Unit 1001, which he purchased at an unknown time. Robert Shallow is, and has been, the attorney in fact for Ronnie Carr for years, including with regard to certain transfers of Vista Bella property.
Robert Shallow is also a broker at Ocean Shores, Inc. d/b/a RE/MAX Paradise ("RE/MAX Paradise"), a licensed real estate company in Orange Beach, Alabama. He and his wife, Susan Shallow (collectively, the "Shallows"), own 100% of the shares of RE/MAX Paradise. In 2009, RE/MAX Paradise was taxed as a Subchapter S corporation. Mr. Shallow is an experienced real estate broker and has enjoyed success as a broker in the Gulf Shores/Orange Beach area for years. He has acted as the real estate agent for Vista Bella since its inception. In that capacity, he has procured contracts for the purchase, sale, and transfer of various condominium units originally owned by the Debtor and comprising the Vista Bella development.
On July 18, 2007, Unit PH-1 was conveyed to Robert and Susan Shallow by vendor's lien deed. Curtis Wilson executed the vendor's lien deed on behalf of Vista Bella. The description of the property transferred in the vendor's lien stated: "Unit PHW-1 of Vista Bella Condominium . . . according to that certain Declaration of Condominium of Vista Bella . . . Together with appropriate undivided interest in the common area and facilities declared in said declaration to be appurtenant to the above described unit." The vendor's lien recited consideration of $1,350,000 on its face. The vendor's lien deed was recorded and specifically subjected the conveyance to the Debtor's mortgage lien with AmSouth Bank. In late 2006, AmSouth and Regions Bank merged and Regions Bank acquired the Debtor's mortgage and promissory note pursuant to the merger. The Debtor owed $14,485,111.73 to Regions Bank on July 18, 2007.
As consideration for the purchase of Unit PH-1, Robert Shallow testified that he gave Curtis Wilson a $1,000,000 check and signed a $350,000 promissory note which was secured by the vendor's lien. The $1,000,000 check was dated June 2, 2006 and was made payable to Curtis Wilson, not Vista Bella. Robert Shallow testified that Curtis Wilson insisted that the check be made to him personally, rather than to the Debtor. Curtis Wilson testified in his deposition that the $1,000,000 was a loan from the Shallows to him personally and that the money was never deposited into the Debtor's corporate account. The Debtor credited the $1,000,000 payment against the $1,350,000 purchase price of Unit PH-1.
Robert Shallow testified that his intention on July 18, 2007 was to purchase Unit PH-1 with two garages and one boat slip. All of the LCEs that had not been previously reallocated to other units were appurtenant to Unit PH-1 at the time of the conveyance. The Trustee's Second Amended Complaint at paragraph 18 alleges that the additional LCEs were "held by agreementwith the Debtor in constructive trust by the Shallows, to be reallocated at the sole and exclusive direction of and for the benefit of the Debtor." Robert Shallow testified on several instances that the LCEs were assets of the Debtor. However, he also testified that, in accordance with the Declaration of Condominium, the legal/record title to the LCEs was in him and his wife, as owners of Unit PH-1, and that the equitable title was in the mortgagee, AmSouth.
Tony Lewis, a licensed real estate appraiser for the Trustee, opined that Unit PH-1 was worth $2,850,000 on July 18, 2007. Mr. Lewis included the value of the LCEs appurtenant to Unit PH-1 in his valuation. Claud Clark III, a licensed real estate appraiser for the Defendants, testified that $1,350,000 was fair consideration on July 18, 2007 "considering the state of the Alabama Gulf Coast condominium market at the time." Mr. Clark elaborated that Hurricane Katrina in 2005 and the economic recession that began in 2007 depressed the condominium market. He did not include the LCEs in his opinion of Unit PH-1's value. In addition to the condominium itself, Mr. Clark only included the two garages and one boat slip that the Shallow's intended to purchase in his consideration of value.
The loan documents associated with the Debtor's mortgage required the Debtor to pay a release price to the lender if it sold any of the Vista Bella units. The release price was to be "equal to the greater of (i) ninety-three and one-half (93.5%) of the gross sales proceeds from the sale of a unit or (ii) the minimum sales price applicable to the unit to be sold." Moreover, the release price paid was to be "applied to reduction of the principal balance of the" promissory note that the Debtor originally executed in favor of AmSouth. According to the loan documents, the minimum release price for Unit PH-1 was $1,820,000. The evidence does not indicate that a payment was made to the lender on account of the sale of Unit PH-1 or that any debt reductionfor the sale of Unit PH-1 ever took place. Under the loan documents, the sale of Unit PH-1 without payment of the release price constituted an event of default.
The Lemoine Company of Alabama, LLC ("The Lemoine Company") was a contractor on the Vista Bella development. It filed a verified claim of lien in October of 2007 against the Vista Bella property for unpaid labor and materials and, in December of 2007, it obtained a default judgment against the Debtor in Baldwin County Circuit Court.
Between July of 2008 and March of 2009, some of the LCEs were reallocated from Unit PH-1 to other Vista Bella units as part of sales of those units to third parties.1 Robert Shallow testified that when a particular unit was sold, he and his wife Susan would sign an amendment to the Declaration of Condominium to acknowledge the reallocation of any LCEs to that unit. He testified that, other than the two garages and boat slips he purchased in 2007, the remaining LCEs were still the...
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