Arabi Gin Co. v. Plexus Cotton, Ltd. (In re Joseph Walker & Co.)

• Decision Date: 25 September 2014
• Docket Number: Adv. Pro. No. 11–80023–JW,C/A No. 10–01948–JW
• Citation: 522 B.R. 165
• Court: U.S. Bankruptcy Court — District of South Carolina
• Parties: In re, Joseph Walker & Company, Inc., Debtor. Arabi Gin Co., BCT Gin Co., Inc., Coley Gin & Fertilizer Co., Jones County Cotton Gin, Inc., and Henry County Gin, LLC, Plaintiff(s), v. Plexus Cotton, Ltd., Plexus Cotton USA, Inc., Nicholas Peter Francis Earlam, Laurence Kirby, and Joseph Walker & Co., Inc., Defendant(s).

522 B.R. 165

In re, Joseph Walker & Company, Inc., Debtor.

Arabi Gin Co., BCT Gin Co., Inc., Coley Gin & Fertilizer Co., Jones County Cotton Gin, Inc., and Henry County Gin, LLC, Plaintiff(s)

v.Plexus Cotton, Ltd., Plexus Cotton USA, Inc., Nicholas Peter Francis Earlam, Laurence Kirby, and Joseph Walker & Co., Inc., Defendant(s).

C/A No. 10–01948–JW

Adv. Pro. No. 11–80023–JW

United States Bankruptcy Court, D. South Carolina.

Signed September 25, 2014

George Barry Cauthen, Columbia, SC, for Defendants Edward Clarke, Forester Adams, J. Walker Clarke, and Mark English.

Louis A. Curcio, Jonathan D. Forstot, Troutman Sanders LLP, New York, NY, for Defendants Plexus Cotton USA, Inc., Plexus Cotton, Ltd., Nicholas Peter Francis Earlam, Edward Clarke and Forester Adams.

Clarence Davis, Greenberg Traurig, LLP, Atlanta, GA, for Defendants Plexus Cotton USA, Inc., Plexus Cotton, Ltd., Laurence Kirby, Nicholas Peter Francis Earlam, Edward Clarke, Forester Adams, J. Walker Clarke and Mark English.

Randall J. Fishman, Richard S. Townley, C. Barry Ward, Ballin, Ballin, & Fishman, P.C., Memphis, TN, R. Geoffrey Levy, Columbia, SC, for Plaintiffs.

G. William McCarthy, Jr., Columbia, SC, for Debtor.

Joshua Benjamin Portnoy, Greenberg Traurig LLP, Atlanta, GA, for Defendants Joseph Walker & Co., Inc., Plexus Cotton USA, Inc., Plexus Cotton, Ltd., Laurence Kirby, Nicholas Peter Francis Earlam, Edward Clarke, Forester Adams and Mark English.

Chapter 7

JUDGMENT ON PARTIES' CROSS MOTIONS FOR SUMMARY JUDGMENT

JOHN E. WAITES, US Bankruptcy Judge, District of South Carolina

Based on the findings of fact and conclusions of law set forth in the attached Order, the Court hereby DENIES the Motion for Summary Judgment filed by Plaintiffs Arabi Gin Company, BCT Gin Company, Inc., Coley Gin & Fertilizer Company, Jones County Cotton Gin, Inc., and Henry County Gin, LLC, in its entirety. Further, the Court hereby GRANTS in part and DENIES in part the Motion for Summary Judgment filed by Defendants Plexus Cotton, Ltd., Plexus Cotton USA, Inc., Nicholas Peter Francis Earlam, Forester Adams, Edward Clarke, Laurence Kirby, and Mark English. Specifically, Defendants' motion is GRANTED in favor of:

(1) Plexus USA on all claims brought by Plaintiffs;

(2) Plexus Limited on each Plaintiff's claims for alter ego, piercing of Debtor's corporate veil, breach of fiduciary duty to creditors, breach of contract, certain allegations of fraud, and tortious interference of contract as well as on the Alabama and North Carolina Plaintiffs' claims for negligent misrepresentation and the Georgia and North Carolina Plaintiffs' and Assignor–Gins' claims for promissory estoppel;

(3) Earlam on each Plaintiff's claims for alter ego, piercing of Debtor's corporate veil, breach of contract, tortious interference of contract, certain allegations of fraud, and promissory estoppel as well as on the Alabama and North Carolina Plaintiffs' claims for negligent misrepresentation; and

(4) Kirby on each Plaintiffs claims for alter ego, piercing of Debtor's corporate veil, breach of contract, fraud, negligent misrepresentation, tortious interference of contract, and promissory estoppel.

Defendants' motion is DENIED as to:

(1) Plaintiffs' claims for breach of fiduciary duty of creditors against Earlam and Kirby;

(2) all Georgia and North Carolina Plaintiffs' fraud claims against Earlam specifically related to statements that a third-party ensured Debtor's performance of the Ginner Contracts;

(3) all Alabama and North Carolina Plaintiffs' and Georgia Plaintiffs BCT and Coley's fraud claims against Plexus Limited specifically related to statements that a third-party ensured Debtor's performance of the Ginner Contracts;

(4) Georgia Plaintiffs Arabi, BCT, and Coley's claims for negligent misrepresentation against Earlam and Plexus Limited; and

(5) Alabama Plaintiff Henry County's claim for promissory estoppel against Plexus Limited.

If it is determined that this Court does not have authority to enter this Judgment as a final judgment, the Court submits the attached determination as proposed findings of fact and conclusions of law to the United States District Court for review.

ORDER ON PARTIES' CROSS MOTIONS FOR SUMMARY JUDGMENT

This matter is before the Court on cross motions for summary judgment filed by Plaintiffs Arabi Gin Company, BCT Gin Company, Inc., Coley Gin & Fertilizer Company, Jones County Cotton Gin, Inc., and Henry County Gin, LLC (“Plaintiffs”); and Defendants Plexus Cotton, Ltd., Plexus Cotton USA, Inc., Nicholas Peter Francis Earlam, Forester Adams, Edward Clarke, Laurence Kirby, and Mark English. After a hearing and consideration of the record, applicable law, and arguments of counsel, the Court denies Plaintiffs' motion and grants Defendants' motion in part and denies it in part for the reasons set forth below.

JURISDICTION

This Court has jurisdiction over the proceeding pursuant to 28 U.S.C. §§ 1334, 157 (2012). This matter is a non-core proceeding under 28 U.S.C. § 157(b)(2), as it is “otherwise related to” the Chapter 7 bankruptcy case of Joseph Walker & Company, Inc. (“Debtor”). See 28 U.S.C. § 157(c)(1) (2012). The parties have expressly consented to this Court's entry of final orders or judgments and, therefore, the Court is permitted “to hear and determine and to enter appropriate orders and judgments.”¹

28 U.S.C. § 157(c)(2) (2012). If it is determined that this Court does not have authority to enter its Order herein as a final order, the Court submits this determination as proposed findings of fact and conclusions of law to the United States District Court for review.²

FINDINGS OF FACT

Procedural Background

1. On March 23, 2011, Plaintiffs commenced this adversary proceeding by filing a complaint (“Original Complaint”) asserting personal, state-law based claims against Defendants for piercing Debtor's corporate veil, alter ego, breach of fiduciary duty to creditors, breach of contract, fraud, negligent misrepresentation, civil conspiracy, tortious interference, promissory estoppel, and constructive trust.³ Plaintiffs seek compensatory damages of $10,687,356.72 and punitive damages of $100,000,000.00. The claims relate to separate contracts entered into by Debtor in the fall of 2007 and spring of 2008 to purchase cotton to be harvested in the fall of 2008 from seven cotton gins, including the five Plaintiffs (“Ginner Contracts”).

2. On August 1, 2011, Defendants filed their Answer to the Original Complaint.

3. Following the filing of the Original Complaint and after the Court inquired about the Chapter 7 Trustee for Debtor's case, Michelle L. Vieira's (“Trustee”), view of this litigation, counsel for Plaintiffs entered into negotiations with the Trustee about acquiring any interest in the Original Complaint's claims possessed by Debtor's bankruptcy estate. On September 29, 2011, the Trustee filed a Notice and Application for Sale of Property, which sought approval to sell to Plaintiffs the “Estate's interest in the causes of action enumerated in the [Original Complaint].” On November 21, 2011, this Court entered, with the parties' consent, an Order Authorizing Sale of Asset (“Order of Sale”), which held that the Trustee was authorized to sell “the Estate's interest in the nine causes of action asserted in the Adversary Proceeding No. 11–80023–jw [pending at the time].”⁴

4. On November 10, 2011, Plaintiffs filed an Amended Complaint, which removed Dave McCarthy, J. Walker Clarke, Jr., Lawrence Fritz, and Joseph Pearson as Defendants and added Laurence Kirby and Mark English to reflect the composition of Debtor's board of directors at the times relevant to Plaintiffs' claims. Neither Plaintiffs' Original nor Amended Complaint contained an allegation of a derivative claim for breach of the fiduciary duties owed by directors and officers to the corporation and/or shareholders they serve.

5. On November 23, 2011, Defendants filed their Answer to the Amended Complaint.

6. After considerable discovery, a number of amended scheduling orders, and discovery disputes relating to the deposition of Nicholas Peter Francis Earlam and Plexus Cotton, Ltd., Plaintiffs filed a Motion to Intervene on October 8, 2012 to allow Debtor to intervene as a plaintiff and allow Plaintiffs to file a Proposed Intervenor Complaint asserting several new causes of action against Defendants Plexus Cotton Ltd., Nicholas Peter Francis Earlam, and Laurence Kirby.⁵

7. By order entered November 21, 2012, the Court denied the Motion to Intervene, holding that the causes of action set forth in the Proposed Intervenor Complaint did not fall within the scope of the Order of Sale because the claims alleged were not part of the original pleading and therefore Plaintiffs, as opposed to the Trustee, were not the proper parties in interest and lacked standing to assert the proposed claims against Defendants on Debtor's behalf. Plaintiffs did not pursue additional sales or assignments by the Trustee and the Trustee, on behalf of Debtor, has not asserted the new claims as a party to this lawsuit.

8. After additional discovery and a further amended scheduling order, Defendants' Motion for Summary Judgment on all causes of action in the Amended Complaint was filed on August 30, 2013.⁶

9. Plaintiffs filed their Motion for Partial Summary Judgment on their claims of breach of fiduciary duty to creditors and tortious interference on September 27, 2013.

10. After the hearing on the summary judgment motions, the parties entered into a Stipulation of Dismissal of Certain Defendants, filed February 3, 2014, which dismissed with prejudice the following former directors of Debtor: Forester Adams, Edward Clarke, J. Walker Clarke, Sr., and Mark English. The remaining Defendants include only Nicholas Peter Francis Earlam, Laurence Kirby, Plexus Cotton, Ltd., and Plexus Cotton USA, Inc.

The Parties and Other Relevant Entities

11. Plaintiffs are five cotton gins located in Alabama, Georgia, and North Carolina:

a. Plaintiff Henry County Gin, LLC (“Henry County”)

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