Bowers v. Banks (In re McKenzie)

• Decision Date: 15 May 2012
• Docket Number: Adversary No. 11–1169.,Bankruptcy No. 08–16378.
• Citation: 473 B.R. 274
• Court: U.S. Bankruptcy Court — Eastern District of Tennessee
• Parties: In re Steven McKENZIE a/k/a Toby McKenzie Debtor. Nelson E. Bowers, II, Plaintiff, v. Richard L. Banks, Andrew B. Morgan, Richard Banks & Assoc., P.C., F. Scott Leroy d/b/a Leroy & Bickerstaff, F. Scott Leroy, Leroy & Bickerstaff, PLLC, Leroy, Hurst & Bickerstaff, PLLC and C. Kenneth Still, and Steve A. “Toby” McKenzie, Defendants.

473 B.R. 274

In re Steven McKENZIE a/k/a Toby McKenzie Debtor.Nelson E. Bowers, II, Plaintiff,

v.Richard L. Banks, Andrew B. Morgan, Richard Banks & Assoc., P.C., F. Scott Leroy d/b/a Leroy & Bickerstaff, F. Scott Leroy, Leroy & Bickerstaff, PLLC, Leroy, Hurst & Bickerstaff, PLLC and C. Kenneth Still, and Steve A. “Toby” McKenzie, Defendants.

Bankruptcy No. 08–16378.

Adversary No. 11–1169.

United States Bankruptcy Court,

E.D. Tennessee,

Southern Division.

May 15, 2012.

John P. Konvalinka, Chattanooga, TN, for Plaintiff.

M. Andrew Pippenger, Leitner, Williams, Dookey & Napolitan, Chattanooga, TN, for Defendant.

Steve Allen McKenzie, Cleveland, TN, pro se.

MEMORANDUM

SHELLEY D. RUCKER, Bankruptcy Judge.

Defendants F. Scott Leroy d/b/a LeRoy & Bickerstaff, F. Scott LeRoy; LeRoy & Bickerstaff, PLLC; LeRoy, Hurst & Bickerstaff, PLLC (collectively “LeRoy Defendants”); and C. Kenneth Still, trustee (“Trustee”) move this court to dismiss the complaint of Plaintiff Nelson E. Bowers, II (“Bowers” or “Plaintiff”) in this adversary proceeding. [Doc. Nos. 32, 50].¹ Richard L. Banks, Andrew B. Morgan, and Richard Banks and Assoc. P.C. (collectively the “Banks Defendants” and Steve A. McKenzie (“Debtor”) have not joined in the motion to dismiss. Plaintiff opposes the motions of the Trustee and the LeRoy Defendants.) [Doc. Nos. 39, 59].

The court has reviewed the briefing filed by the parties, the pleadings at issue, and the applicable law and makes the following findings of fact and conclusions of law pursuant to Fed. R. Bankr.P. 7052. Due to Bowers' claims being identical to claims brought by his attorneys, Grant Konvalinka & Harrison, P.C. (“GKH”), against these same defendants in other adversary proceedings that this court has previously dismissed and for the reasons previously stated as discussed below, the court will DISMISS Plaintiff's claims against the LeRoy Defendants and the Trustee on the basis of immunity. See [Adv. Proc. No. 11–1016, Doc. Nos. 68, 69; Adv. Proc. No. 11–1121, Doc. Nos. 14, 15].

I. Background FactsA. Summary of Related Litigation

The court has traveled this road several times before. It has summarized substantially similar facts involving these same parties in several other memoranda filed in both the main bankruptcy case and in separate adversary proceedings involving similar allegations. See e.g. [Adv. Proc. 11–1016, Doc. No. 68; Bankr. Case No. 08–16378, Doc. Nos. 1199, 1387; Adv. Proc. 11–1121, Doc. Nos. 14, 16]. Therefore, in the interest of conservation of judicial resources, the court will incorporate much of its findings of fact and legal analysis from these other rulings by reference as noted below.

The record reveals that Bowers filed his complaint (“Complaint”) on December 15, 2011. [Doc. No. 1]. The Complaint asserts that Bowers is a resident of Chattanooga, Tennessee. He was a business associate in a number of transactions with the Debtor prepetition and was a 50% owner with the Debtor in a limited liability company, Cleveland Auto Mall, LLC (“CAM”), which owned acreage at Exit 20 on Interstate 75 in Cleveland, Tennessee.

Defendants Banks and Morgan are attorneys who are affiliated with defendant Richard Banks & Associates, P.C. Mr. Banks represented the Debtor, Steven McKenzie, in the Debtor's main bankruptcy case. Defendant F. Scott LeRoy is also an attorney. He was formerly a general partner with the law firm of LeRoy & Bickerstaff. The Complaint asserts that Mr. LeRoy became a member of a professional limited liability company known as LeRoy & Bickerstaff, PLLC around July 28, 2010, and that the company is now called LeRoy, Hurst & Bickerstaff, PLLC. Defendant C. Kenneth Still is the trustee in the Debtor's main bankruptcy case. See Complaint, ¶¶ 1–4.

On November 20, 2008 a group of petitioning creditors filed an involuntary petition in bankruptcy against the Debtor in this court. See [Bankruptcy Case No. 08–16378, Doc. No. 1]. On December 10, 2008 the Debtor in his capacity as one of the two members of CAM executed a deed on behalf of CAM which conveyed 50 acres of real property to another limited liability company, Exit 20 Auto Mall, LLC. The Debtor had no ownership in Exit 20 Auto Mall, LLC; however, Bowers had an interest in Exit 20 Auto Mall, LLC. On December 20, 2008 the Debtor filed a Chapter 11 voluntary petition for bankruptcy, Bankruptcy Case No. 08–16987. On January 16, 2009 this court consolidated the two bankruptcy cases. [Bankruptcy Case No. 08–16378, Doc. No. 33]. The Debtor operated as a debtor-in-possession until a trustee was appointed.

The court appointed Mr. Still Chapter 11 trustee for the Debtor on February 20, 2009. [Bankruptcy Case No. 08–16378, Doc. No. 140]. The court converted the case to a Chapter 7 case on June 14, 2010, and Mr. Still continued as the Chapter 7 trustee. [Bankruptcy Case No. 08–16378, Doc. No. 789].

On April 3, 2009 the court granted the Trustee's application to employ the law firm of Evans LeRoy & Hackett, PLLC as his local counsel. [Bankruptcy Case No. 08–16378, Doc. No. 238]. On July 1, 2010 this court granted the Trustee's application to employ Mr. Banks as special litigationcounsel to pursue action against Bowers among others. [Bankruptcy Case No. 08–16378, Doc. No. 806].

The Trustee brought two lawsuits against Bowers arising from the transactions between CAM and Exit 20 Auto Mall, LLC. In this adversary proceeding Bowers asserts that both lawsuits were maliciously prosecuted and abused process. The first lawsuit on which Bowers relies was filed against Bowers and others on August 5, 2010 by the Trustee. Adversary Proceeding 10–1407 (“50 Acre Lawsuit”). See [Adv. Proc. No. 10–1407, Doc. No. 1 (“50 Acre Complaint”) ]. Mr. LeRoy signed the 50 Acre Complaint on behalf of the Trustee.

The 50 Acre Complaint alleged five categories of claims against Bowers: 1) violation of the automatic stay; 2) avoidance of preferences; 3) avoidance of fraudulent transfers; 4) equitable subordination; and 5) claims against insiders. The 50 Acre Complaint alleged that Bowers assisted another defendant, GKH, to create an entity to receive property of the Debtor's bankruptcy estate after the filing of the involuntary petition in bankruptcy in violation of the automatic stay pursuant to 11 U.S.C. § 362.

The factual allegations all relate to events surrounding the December 10, 2008 member interest transfer of fifty acres of real estate in Bradley County from CAM to Exit 20 Auto Mall, LLC. The Trustee brought all five claims against GKH, John Anderson, a partner at GKH, and Bowers.

The court has reviewed the alleged facts underlying the 50 Acre Complaint in several other opinions, and the court hereby incorporates its prior recitation of such facts by reference. See [Bankr. Case No. 08–16378, Doc. Nos. 1199, 1387]; [Adv. Proc. No. 11–1016, Doc. No. 68, pp. 3–6]; [Adv. Proc. No. 11–1121, Doc. No. 14, pp. 2–12; Doc. No. 16, pp. 5–14]. The court hereby incorporates its factual findings relating to the 50 Acre Lawsuit as described in its memorandum pertaining to Adversary Proceeding Number 11–1016 (“50 Acre M/P Lawsuit”). See [Adv. Proc. No. 11–1016, Doc. No. 68].

The second lawsuit on which Bowers relies was one brought in Bradley County Chancery Court, on August 6, 2010, by the Trustee and the Debtor, Docket No. 2010–CV–251, against Bowers; Exit 20 Auto Mall, LLC; John Anderson; and GKH (“Malpractice Lawsuit”). See [Adv. Proc. No. 11–1121, Doc. No. 1–3, Ex. 1 (“Malpractice Complaint”) ].² The Trustee and the Debtor asserted causes of action against Bowers and other defendants, including GKH, for breach of fiduciary duty, conflict of interest and civil conspiracy. Id. In addition, the Trustee brought a claim of assisting a fiduciary on committing a breach of duty against Bowers alone. This claim raised allegations of breach of fiduciary duty owed to the Debtor as a business partner, as well as undue influence, fraud, and deceit. [Adv. Proc. No. 11–1121, Doc. No. 1–3, Malpractice Complaint, ¶¶ 36–42].

The Malpractice Complaint was resolved by an order of the Chancery Court finding that the Statute of Limitations had run on the claims for breach of fiduciary duty and conflicts of interest arising from the execution of the deed in December 2008. [Doc. No. 1–18, Order of Chancellor Bryant Entered January 26, 2011]. The remaining claims against Bowers and others were voluntarily dismissed by the Debtor and the Trustee. See [Doc. No. 1–21, Agreed Order Clarifying Court's Order Entered January 26, 2011 and Resolving Two Pending Motions and Hearing Transcript from February 22, 2011]. GKH was the first defendant to bring a malicious prosecution case against the Trustee, the Debtor and their joint counsel, the Banks Defendants, based on the prosecution of the Malpractice Lawsuit, Adversary Proceeding No. 11–1121 (“GKH Malpractice M/P Lawsuit”). The court dismissed that action as to the Trustee on the basis that the Trustee had immunity in bringing the Malpractice Complaint. [Adv. Proc. No. 11–1121, Doc. Nos. 14, 15]. Bowers now brings this adversary proceeding making the same allegations against the Trustee and his counsel.

This court has described the facts underpinning the Malpractice Complaint in several other memoranda. See [Bankr. Case No. 08–16378, Doc. No. 1199, pp. 1–5; Doc. No. 1387, pp. 2–8]; [Adv. Proc. No. 11–1121, Doc. No. 14, pp. 2–12; Doc. No. 16, pp. 5–14]. Bowers' claims of malicious prosecution and abuse of process relating to the Malpractice Lawsuit are identical to the claims brought by GKH in Adversary Proceeding No. 11–1118 and the claims removed from state court by the Trustee in the GKH Malpractice M/P Lawsuit. Bowers alleges no additional basis for his tort claims arising from the Trustee's prosecution of a claim for assisting a fiduciary in breaching a fiduciary duty. In addition, Bowers' two tort claims are based on the same facts as the facts alleged by GKH against the Trustee in Adversary Proceeding No. 11–1118 and the GKH...