Blosser v. Boggus (In re Boggus), Bankruptcy No. G10–23510–REB.

• Decision Date: 21 May 2012
• Docket Number: Adversary No. 10–2178.,Bankruptcy No. G10–23510–REB.
• Parties: In re James D. BOGGUS, Jr. and Jennifer Sullivan Boggus, Debtors. Gregory Blosser, Plaintiff, v. James D. Boggus, Jr., Defendant.
• Court: U.S. Bankruptcy Court — Northern District of Georgia

479 B.R. 147

In re James D. BOGGUS, Jr. and Jennifer Sullivan Boggus, Debtors.

Gregory Blosser, Plaintiff,

v.James D. Boggus, Jr., Defendant.

Bankruptcy No. G10–23510–REB.

Adversary No. 10–2178.

United States Bankruptcy Court,

N.D. Georgia,

Gainesville Division.

May 21, 2012.

Brent James, Harriss & Hartman Law Firm, PC, Rossville, GA, David L. McGee, Jodi Daniel Cooke, Beggs & Lane, RLLP, Pensacola, FL, for Plaintiff.

G. Marshall Kent, Jr., Tracy A. Marion, Smith Moore Leatherwood LLP, Atlanta, GA, for Defendant.

ORDER DENYING DEFENDANT–DEBTOR'S MOTION TO DISMISS AND DENYING IN PART AND GRANTING IN PART DEFENDANT–DEBTOR'S MOTION FOR SUMMARY JUDGMENT

ROBERT E. BRIZENDINE, Bankruptcy Judge.

Before the Court is the motion of Defendant–Debtor James D. Boggus, Jr. filed on September 28, 2011 to dismiss the above-styled adversary proceeding and/or for entry of summary judgment. Plaintiff Gregory Blosser commenced this proceeding by filing a complaint to determine dischargeability of debt against Debtor on November 12, 2010, and subsequently filed an amended complaint, on which Debtor's motion is based, on September 9, 2011. In his motion, Debtor contends that he is entitled either to a dismissal of Plaintiff's complaint or entry of summary judgment on the issue of nondischargeability pertaining to those claims asserted by Plaintiff. These claims arise in relation to actions previously alleged to have been taken by Debtor in contravention of a certain Construction Loan Agreement between South Place, LLC, an entity formed for developing real property in the state of Florida and in which Plaintiff formerly held an interest, and BanCorpSouth, Inc., and more specifically in connection with a subsequent Settlement Agreement and Mutual Release in January of 2008.¹ Based upon a review of the record, the Court concludes that Debtor's motion to dismiss should be denied, and that Debtor's motion for summary judgment should be granted on count II of the amended complaint, but should be denied on count I, which remaining matter will be set for trial.

I. Plaintiff's Allegations

Plaintiff alleges that Debtor and/or Barbara Stokes, who each held a 50% ownership interest in South Place, with Debtor holding his interest through DJT Investments as noted below, approached Plaintiff in 2006 about investing in South Place so that it could obtain needed construction financing. Plaintiff and his company, Paragon Development, thereafter entered into a Joint Venture Agreement with DJT Investments and Stokes, executing a promissory note payable to Debtor and Stokes in the sum of $719,763.34 with a due date of December 31, 2007. The note was secured by their membership interests in South Place and could be funded from proceeds generated by the sale of town homes through the project. As part of this transaction, Stokes and DJT assigned 25% of their interest in South Place to Plaintiff and Paragon, respectively. Then, in accordance with the Joint Venture Agreement, Plaintiff and Paragon, along with Debtor and Stokes, each executed personal unconditional and continuing guaranties to BanCorpSouth in connection with a construction loan agreement entered into between South Place and BanCorpSouth in the amount of $6,592,800.00.

Plaintiff alleges that Stokes immediately made a certain draw on the loan made to South Place, which Debtor deposited into the account of Carrabelle Landings, LLC, and that Debtor or Stokes wrote two checks on these funds for their personal use without his knowledge. Additionally, in 2007 Stokes allegedly made “demand” for early payment on Plaintiff's note payable to Debtor and Stokes because the construction project could not be completed without additional funds.² Plaintiff discovered the alleged improper draw and demanded his investment in South Place be cancelled, and on January 25, 2008, the parties entered into the above-referenced Settlement Agreement and Mutual Release. Plaintiff refused his consent for a proposed refinancing of the bank loan as same would require his continuing guaranty.

Plaintiff's note was cancelled and he and Paragon reassigned their interests in South Place to DJT Investments and Stokes, but Plaintiff claims that Debtor and Stokes caused South Place to grant a second mortgage against the subject real property in violation of the settlement. Afterwards, Debtor and Stokes failed to secure refinancing and they did not secure Plaintiff's release on the guaranties with the bank as they had agreed. South Place eventually defaulted on the BanCorpSouth loan, whereupon the bank commenced a foreclosure action against South Place, Plaintiff, Paragon, Debtor, and Stokes, seeking, among other things, a judgment against Plaintiff for the total amount due under the construction loan pursuant to the guaranties of Plaintiff and Paragon.³ Plaintiff further alleges that Debtor failed to honor his promise to indemnify Plaintiff as set forth in the Settlement Agreement and Mutual Release and is now attempting to discharge this obligation through the filing of his Chapter 7 bankruptcy case on August 6, 2010.

Regarding the specific allegations of his amended complaint, Plaintiff contends in count I that his claim for indemnification of any liability incurred under the guaranties should be excepted from discharge herein under 11 U.S.C. § 523(a)(2)(A). Plaintiff alleges that Debtor made implied misrepresentations, false representations, committed actual fraud, and made false pretenses to induce Plaintiff to rely to his detriment in entering into the Settlement and Release, regarding Debtor's ability and willingness to secure Plaintiff's release from his guaranty, to indemnify Plaintiff, and to refrain from having additional liens placed on the South Place property. In exchange for these promises, Plaintiff states he agreed to forbear from taking legal action against Debtor for the allegedly improper draw under the Joint Venture Agreement on the construction loan, and reassigned his ownership interest along with Paragon in South Place to Debtor and Stokes.

In count II, Plaintiff alleges that his claim for indemnification should be excepted from discharge under Section 523(a)(6) as same arises in connection with Debtor's wrongful actions under the South Place Joint Venture Agreement. These actions, Plaintiff states, “caused a chain reaction” leading to a shortage of funds, the failure of the Project, a loss of value in Plaintiff's ownership interests and ultimately, a default on the bank loan and Plaintiff's resulting liability under the guaranties. In essence, Plaintiff contends that he substituted his claims against Debtor based on Debtor's alleged wrongful actions under the Joint Venture Agreement with Debtor's promise to indemnify Plaintiff for any damages caused thereby, including the foreclosure on the South Place project due to its default on the construction loan to BanCorpSouth.

II. Debtor's Response

In response, Debtor first argues that Plaintiff has failed to plead his allegations of fraud with sufficient particularity as required under Fed.R.Bankr.P. 7009, which adopts Fed.R.Civ.P. 9. Next, he contends, among other things, that even if the amended complaint withstands the motion to dismiss, Plaintiff has not presented adequate evidence to support a claim for relief regarding the nondischargeability of his claim by reason of the failed indemnification or Debtor's failed promise to obtain a release on Plaintiff's guaranty from BanCorpSouth. Indeed, Debtor further states, Plaintiff cannot do so because the operation of the merger clause set forth in paragraph 7 of the Settlement Agreement restricts interpretation of the parties' agreement to the written terms of said Agreement. As such, it bars consideration of unstated, prior discussions or understandings. According to Debtor, at most, the terms of the Agreement reflect a promise to seek to obtain the release. Although this promise to hold harmless as contained in paragraphs 3.3 and 3.4 have admittedly been breached, there is no evidence to suggest it was made on a fraudulent basis that would support a cause for relief under Section 523(a)(2)(A).

Debtor affirms that Plaintiff's note was cancelled in exchange for the return of Plaintiff's interest, for which nothing was ever paid, and states Debtor “had no choice” but to enter into the Settlement Agreement to gain cooperation in averting a foreclosure. Debtor also contends that the second mortgage incurred by South Place was nonetheless procured in good faith to avoid foreclosure, and that it has since been satisfied and no damages were incurred by Plaintiff. In addition, Debtor maintains he tried but was unsuccessful in refinancing the BanCorpSouth loan, and told Plaintiff he could not force the bank to release Plaintiff from his guaranty, thus precluding any justifiable reliance by Plaintiff on such promise.

The nondischargeability of the indemnification claim under Section 523(a)(6) arises in relation to certain alleged fraudulent actions under the Joint Venture Agreement as referenced above. Debtor argues that any debt created in connection with the disputed draw and payments by check does not share a proximate causal relationship with the subsequent indemnity claim on the construction loan in the Settlement Agreement as this claim occurred after the draw was taken and deposited, and the checks thereon issued. Further, Debtor contests the allegation that he caused the underlying alleged fraudulent actions. He asserts South Place had authority to make the draw, which it used to reimburse Carrabelle for expenses incurred on its behalf, and Stokes had authority to issue same as manager of South Place. Debtor also states that Plaintiff has offered no evidence to support a finding that these or subsequent acts were malicious. Finally, Debtor maintains that Plaintiff waived all such claims based on their merger into the Settlement Agreement.

III. Debtor's Motion to Dismiss

Regarding the motion to...