Conte v. Woomer (In re Woomer)
| Decision Date | 07 October 2013 |
| Docket Number | Adversary No. 12-4017,Case No. 11-43457 |
| Parties | IN RE: GARRY JAMES WOOMER a/k/a Garry James Woomer, Jr. xxx-xx-6063 and SHERIE ANN WOOMER xxx-xx-7150 Debtors ROBERT CONTE, HIGHLAND OAKS HOLDINGS, LLC and D. WILLIAM RYAN, in his capacity as the Trustee of the Ryan Family Trust dated June 29, 1989 Plaintiffs v. GARRY JAMES WOOMER Defendant |
| Court | United States Bankruptcy Courts. Fifth Circuit. U.S. Bankruptcy Court — Eastern District of Texas |
Upon trial of the complaint filed by the Plaintiffs, Robert Conte, Highland Oaks Holdings, LLC and D. William Ryan, in his capacity as the Trustee of the Ryan Family Trust dated June 29, 1989 (collectively the "Plaintiffs") seeking a determination of the dischargeability of a debt allegedly owed to each of them by the Defendant-Debtor, Garry James Woomer ("Defendant" or "Woomer"), the Court issues the following findings offact and conclusions of law. The Plaintiffs contend that the debt owed to each of them is nondischargeable under the alternative grounds set forth in 11 U.S.C. §523(a)(2)(A), (a)(4) and (a)(6). After the trial, the Court took the matter under advisement. This decision disposes of all issues pending before the Court.
1. On November 16, 2011, the Defendant and his spouse, Sherie Ann Woomer, filed a voluntary petition for relief under Chapter 7 of the Bankruptcy Code in this Court.
2. Among the debts sought to be discharged by the Defendant is a debt evidenced by a default judgment entered against the Defendant and other parties by the 193rd Judicial District Court of Dallas County, Texas in cause no. DC-10-06451-L and styled Robert Conte, individually, Highland Oaks Holdings, LLC, and D. William Ryan, Trustee of the Ryan Family Trust Dated June 29, 1989 v. AEDC, LLC, Garry James Woomer, Jr., individually, and Richard C. Cope, individually, in which the Plaintiffs were awarded damages in the amount of $410,412.47, plus attorney's fees (the "State Court Judgment").2
3. The indebtedness reflected in the State Court Judgment arises from the acquisition and subsequent operation of an apartment complex known as the Highland Oaks Apartments located in Fredericksburg, Texas ("Highland Oaks" or the "Property").
4. On January 26, 2012, the Plaintiffs filed their original complaint in this adversary proceeding, seeking a determination that the debt established by the State Court Judgment should be declared nondischargeable under 11 U.S.C. §523(a)(2)(A), (a)(4), or (a)(6).3
5. Since no factual findings were issued in conjunction with the State Court Judgment to which the principles of issue preclusion could apply, the parties presented evidence to this Court at trial regarding the circumstances under which the various components of the indebtedness occurred.
6. Plaintiff Robert Conte ("Conte") appeared at trial on behalf of himself and Highland Oaks Holdings, LLC ("HOH"). Plaintiff D. William Ryan, in his capacity as the trustee of the Ryan Family Trust Dated June 29, 1989 ("Ryan") failed to appear at the trial.
7. The Defendant, Garry James Woomer, was at all relevant times the president of American Equities Development and Construction, Inc. ("Equities",)4 a corporation controlled by Woomer and his father-in-law, Richard Cope ("Cope").
8. In 2003, Equities entered into an agreement to purchase the Property from Greater Fredericksburg Apartments, LLC ("GFA").
9. The Property was encumbered by a lien held by GMAC Commercial Mortgage ("GMAC") which secured a promissory note executed by GFA in favor of GMAC.
10. Equities, however, did not possess sufficient funds to complete the purchase, so the Defendant, along with Cope, began to look for investors to assist them in the purchase of the Property from GFA.
11. It was through the effort to locate investors for the acquisition of the Property that the Defendant first became acquainted with the Plaintiffs.
12. Conte was a sophisticated investor who had considerable experience in the acquisition and operation of apartment complexes since 1976 and engaged in those operations through various forms of business entities including partnerships, joint ventures and co-tenancies.
13. On September 18, 2003, an "Agreement of Sale and Purchase" was signed by Equities, as Seller, and Conte, as Purchaser, whereby Conte would acquire an undivided 35% of the Highland Oaks Property.5
14. Article I of the Agreement of Sale and Purchase identified all of the Property that was designated to be acquired by Conte. Included was the following provisionwhich designated the personal property to be acquired by Conte in the transaction:
(c) All equipment, appliances, furniture, furnishings, and other personal property owned by Seller on the Land and used in connection with the Improvements (all of the foregoing are hereinafter collectively referred to as the "Personal Property").6
15. Under Article II of the Agreement of Sale and Purchase, Conte agreed to pay to Equities the sum of $2,496,200.00 for the 35% interest, payable through $700,000.00 cash, plus a note for the unpaid balance.7
16. Under ¶ 4.4 of the Agreement of Sale and Purchase, Conte, as the purchaser, was entitled to access to the Property as well as to the books and records pertaining to the Property prior to closing.8
17. The Agreement of Sale and Purchase contained a comprehensive disclaimer regarding any representations, warranties and agreements.9
18. The Agreement of Sale and Purchase contained a merger provision under which the parties agreed that the Agreement constituted the complete agreement between the parties.10
19. Article V of the Agreement of Sale and Purchase designates Conte as the "1031 Exchange Agent" for Ryan in his trustee capacity.11
20. The Agreement of Sale and Purchase does not designate the Defendant, nor Cope, nor Equities as a "qualified intermediary" or an "exchange accommodator" for the purposes of a §1031 exchange.12
21. Subsequent to the execution of the Agreement of Sale and Purchase between Equities and Conte, the means to satisfy the purchase price under the agreement was modified to require a payment of $700,000 cash, together with the assumption of the underlying GMAC indebtedness.
22. A similar Agreement of Sale and Purchase between Equities and Ryan for a similar 35% interest in the Property was subsequently executed in which Ryan agreed to pay $721,000 cash, together with the assumption of the underlying GMAC indebtedness.13
23. In order to approve the assumption of its note, GMAC required that, in lieu of the individual purchasers, new Delaware limited liability companies must be formed to stand as the ultimate purchasers of the Property.
24. Thus, three such LLCs were formed to act as the ultimate purchasers of the Property: (1) Conte formed HOH; (2) Ryan formed D. William Ryan, Trustee of the Ryan Family Trust Dated June 29, 1989, LLC ("Ryan LLC"); and (3) the Defendant formed AEDC, LLC ("AEDC").
25. The parties agreed to a two-step "simultaneous closing"under which Equities would acquire the Property from GFA, and then Equities would separately convey the Property to the three limited liability companies.
26. The purchase of the Property was presumably structured as a two-step transaction to establish the existence of a like-kind exchange that could qualify as a tax deferred transaction under Internal Revenue Code § 1031.14
27. This simultaneous closing occurred on November 14, 2003.
28. In the first closing, Equities acquired the Highland Oaks Property from GFA.15 The transaction was funded by the cash infusions by Conte in the amount of $700,000 and Ryan in the amount of $721,000, as well as the transfer and assumption of the GMAC note by Conte, Ryan, Woomer and Cope.16
29. Through the closing of the sales transaction between GFA and Equities, Equities realized cash proceeds in the amount of $309,278.07.17
30. However, Equities, under the control of the Defendant, only deposited the sum of $53,559.80,18 an amount primarily representing security deposits and prepaid rents, into the HOA operating account, and Equities retained and utilized the remaining funds of $256,087.27.
31. Pursuant to the two-tier conveyance mechanism, the sale of the Property from Equities to the co-tenants was also closed on November 14, 2003, with HOH, LLC and Ryan, LLC each receiving a 35% undivided interest and AEDC receiving a 30% undivided interest in the Property.19
32. With regard to the acquisition of the Highland Oaks Apartments, Conte and Ryan have each failed to demonstrate by a preponderance of the evidence that the two-step "simultaneous closing" process was utilized by the Defendant to perpetrate a fraud.
33. Notwithstanding the language of the Agreement of Sale and Purchase between them, Conte erroneously assumed that all cash sums acquired by Equities through the GFA sale would subsequently be deposited in the Highland Oaks Apartments operating account and utilized for the management and development of the Property. However, the Agreement of Sale and Purchase between Equities and Conte does not provide for the transfer of those funds.
34. Despite his sophistication in these types of transactions, Conte admitted on cross-examination that he did not actually read the Agreement of Sale and Purchase before he signed it.
35. Conte and Ryan have each failed to demonstrate by a preponderance of the evidence that any debt owed to them respectively by the Defendant arising from the acquisition of the Highland Oaks Apartments was procured under circumstances constituting actual fraud.
36. Conte and Ryan have each failed to demonstrate by a preponderance of the evidence that the Defendant made representations to either of them pertaining to the acquisition of the Highland Oaks Apartments that the Defendant knew were false at the time that such representations were made.
37. Conte and Ryan have each failed to demonstrate by a preponderance of the evidence that the Defendant made false representations to either of...
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