Drake v. Sea Island Bank (In re Collins)

• Decision Date: 16 May 2012
• Docket Number: Adversary No. 11–4082.,Bankruptcy No. 10–40868.
• Citation: 489 B.R. 917
• Parties: In the Matter of Stephen R. COLLINS, Debtor. James L. Drake, Jr., Chapter 7 Trustee, Plaintiff v. Sea Island Bank, Defendant.
• Court: U.S. Bankruptcy Court — Southern District of Georgia

489 B.R. 917

In the Matter of Stephen R. COLLINS, Debtor.James L. Drake, Jr., Chapter 7 Trustee, Plaintiff

v.Sea Island Bank, Defendant.

Bankruptcy No. 10–40868.

Adversary No. 11–4082.

United States Bankruptcy Court,

S.D. Georgia,

Savannah Division.

May 16, 2012.

Shawna Y. Staton, James L. Drake, Jr., PC, Savannah, GA, for Plaintiff.

Laura H. Wheaton, Statesboro, GA, for Defendant.

MEMORANDUM AND ORDER ON MOTION TO DISMISS

LAMAR W. DAVIS, JR., Bankruptcy Judge.

This case comes before the Court on Defendant, Sea Island Bank's, Motion to Dismiss the Chapter 7 Trustee's 11 U.S.C. § 547 preference action.

FINDINGS OF FACT

Debtor, Stephen Collins, filed Chapter 11 bankruptcy April 22, 2010. He is the sole owner of Del–A–Rae, Inc., which had already filed Chapter 11 bankruptcy October 5, 2009. Collins's case was converted to Chapter 7, June 3, 2011, and James L. Drake was appointed the Chapter 7 Trustee. Dckt. No. 134. ¹ The Trustee filed this adversary proceeding against Sea Island Bank to avoid and recover a preferential transfer. Sea Island Bank filed a Motion to Dismiss asserting the doctrine of res judicata because Collins previously sued to avoid the possibly preferential transfer under 11 U.S.C. § 547, while he was the debtor-in-possession.

In March 2006, Debtor, Stephen Collins, as President of Del–A–Rae, executed a Promissory Note between Del–A–Rae and Sea Island Bank in the amount of $2,506,260.00, maturing March 10, 2009. Case No. 09–42267, Dckt. No. 80, Ex. A. Collins was not listed as a Borrower on the Note. Id. This Note was secured by a Deed to Secure Debt from “GRANTOR: Stephen R. Collins and Del–A–Rae, Inc.” Case No. 09–42267, Dckt. No. 80, Ex. C. Collins signed the Deed to Secure Debt as both an individual “Borrower” and as President of Del–A–Rae, but the property conveyed, 232 Acres Highway 17, Guyton, Georgia, belonged only to Collins the individual. Id.; Case No. 09–42267, Dckt. No. 80, Ex. D.

July 2009, Sea Island Bank filed an action in Effingham County Court for a money judgment against Del–A–Rae and Collins, as an individual. Del–A–Rae filed Chapter 11 bankruptcy, October 5, 2009, during the pendency of the state court action; it appears the action was then stayed as to Del–A–Rae. The Superior Court of Effingham County entered an “Order Granting Plaintiff's Motion for Summary Judgment Against Defendant Stephen Collins Only” (Order Granting Summary Judgment), December 16, 2010. A.P. No. 11–4088, Dckt. No. 6, Ex. A. The Judgment was for $3,029,994.28 as guarantor of Del–A–Rae and $430,962.28 for his individual debt, both with interest accruing daily.

In February 2010, Sea Island Bank executed on the Judgment by obtaining a Writ of Fieri Facias against Collins, issued by the Effingham County Clerk of Superior Court, and recorded it in both Effingham and Screven Counties, listing the amount of the debt as $3,461,091.56. Id. at Exs. B & C.

On his bankruptcy filings, Collins scheduled Sea Island Bank as a secured creditor with a disputed claim in the amount of $3,029,994.28 secured by 232 Acres Highway 17, Guyton, Georgia and by Judgment in the Superior Court of Effingham County. Schedule D, Dckt. No. 16, 10. Collins listed the 232 Acres Highway 17, Guyton, Georgia as a Real Property asset worth $3,700,000.00 and encumbered by a secured claim of $3,029,994.28. Schedule A. Dckt. No. 16, 3. Collins also scheduled two additional pieces of real property: (1) 11.6 Acres Bryans Bridge Road, Screven County, valued at $48,000.00 and unencumbered, (2) 1.69 Acres Corner Lot Little McCall & 119, Effingham County, valued at $150,000.00 and encumbered by a secured claim for $78,950,00. Id. These two tracts would be encumbered by the judgment lien under Georgia law.

Collins commenced an adversary proceeding against Sea Island Bank to determine the validity, priority, and extent of the claim created by the Judgment and Writ of Fieri Facias, January 27, 2011. Dckt. No. 115. Specifically, Collins requested the Court to “avoid the Judgment Lien of Sea Island Bank pursuant to 11 U.S.C. §§ 506 and 547.” Id. The Court granted Sea Island Bank's Motion for a More Definite Statement with the stipulation that the adversary proceeding would be dismissed pursuant to Bankruptcy Rule 7012(b)(6) if Collins failed to file his amended complaint within fifteen days. Consent Order, A.P. No. 11–4006, Dckt. No. 12. Collins failed to file an amended complaint; instead releasing his attorney two days before the amended complaint was due, after thorough questioning and explanation by the Court that he would not receive additional time as a result of his choosing to dismiss his attorney. Still the Court exercised leniency with Collins and did not file the Order Dismissing the Adversary until May 11, 2011, thirty-five days after the entry of the Order requiring an amended complaint. A.P. No. 11–4006, Dckt. No. 17.

After the case was converted, the Trustee filed this adversary proceeding against Creditor, Sea Island Bank, again seeking to avoid the Judgment and the Writ of Fieri Facias as a preferential transfer under 11 U.S.C. § 547, to recover the transfer for the benefit of the estate pursuant to 11 U.S.C. § 550, and to preserve the avoided transfer for the estate under 11 U.S.C. § 551. A.P. Dckt. No. 1. In response, Sea Island Bank filed the Motion to Dismiss on the basis of res judicata because Collins already unsuccessfully sued to avoid the Judgment and Writ of Fieri Facias as a preferential transfer under 11 U.S.C. § 547, while he was the debtor-in-possession.

CONCLUSIONS OF LAW

A. Motion to Dismiss Reviewed Under Summary Judgment Standard.

Sea Island Bank filed the Motion to Dismiss Pursuant to Federal Rule of Bankruptcy Procedure 7012(b), which makes Federal Rule of Civil Procedure 12(b) applicable in adversary proceedings, but the Court will review the facts and circumstances under the summary judgment standard, pursuant to subsection 12(d),² which provides that a motion under either 12(b)(6) or 12(c) must be treated as a motion for summary judgment under Rule 56 when matters outside the pleadings are presented and not excluded by the court. “The court shall grant summary judgment if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56 (incorporated into adversary proceedings by Federal Rule of Bankruptcy Procedure 7056).

The Chapter 7 Trustee does not dispute the material facts. A.P. Dckt. No. 15, 3 (Feb. 21, 2012). Therefore, the only remaining question is whether Sea Island Bank is entitled to judgment as a matter of law.

Sea Island Bank argues it is entitled to judgment based on res judicata. According to the Eleventh Circuit, res judicata only applies when the movant has established all four elements are present: “(1) the prior decision must have been rendered by a court of competent jurisdiction; (2) there must have been a final judgment on the merits; (3) both cases must involve the same parties or their privies; and (4) both cases must involve the same cause of action.” Clark v. Palm Harbor Homes. Inc. (In re Clark), 411 B.R. 507, n. 2 (Bankr.S.D.Ga.2009) (Davis, J.) ( quoting In re Piper Aircraft Corp., 244 F.3d 1289, 1296 (11th Cir.2001)); Evergreen Foods Inc. v. Thomas J. Lipton Co. (In re Greene), Case No. 89–1096, 15, 1992 WL 12676631 (Bankr.S.D.Ga. July 31, 1992) (Davis, J.); see Jackman v. Mortg. Elec. Registration Sys., 2011 WL 4954252 ( citing Ragsdale v. Rubbermaid, Inc., 193 F.3d 1235, 1238 (11th Cir.1999)).

B. Application of Res Judicata.

1. Prior decision made by a court of competent jurisdiction. This Court entered the Order dismissing Debtor's adversary proceeding, which Sea Island Bank relies upon in asserting res judicata.

2. Final Judgment on the Merits. The Order dismissing Debtor's adversary proceeding is a final judgment on the merits.

Generally, dismissal of a pleading for failure to state a claim upon which relief can be granted, Rule 12(b)(6), is a final judgment as defined by Federal Rule of Civil Procedure 54, incorporated into adversary proceedings by Federal Rule of Bankruptcy Procedure 7054, because it is an “order from which an appeal lies.” Fed.R.Civ.P. 54; see, e.g., Branch v. Franklin, 285 Fed.Appx. 573, 573 (11th Cir.2008) (stating that Plaintiff appeals from district court's final judgment, which dismissed his claim pursuant to 12(b)(6)); S. Entm't Television, Inc. v. Comcast Corp., 270 Fed.Appx. 747, 747 (11th Cir.2008) (stating that Plaintiff appeals from district court's final judgment, an order dismissing its claim according to 12(b)(6)). More specifically, “where an order dismisses a complaint with leave to amend within a specified period, the order becomes final (and therefore appealable) when the time period allowed for amendment expires.” Briehler v. City of Miami, 926 F.2d 1001, 1001 (11th Cir.1991) ( citing Schuurman v. Motor Vessel “Betty K V”, 798 F.2d 442, 445 (11th Cir.1986)).

Dismissal of Debtor's adversary proceeding was a judgment on the merits because it was a dismissal pursuant to Rule 12(b)(6). A.P. No. 11–4006, Dckt. Nos. 12 & 17. Contrary to the Chapter 7 Trustee's argument “[r]eliance on a rule of ‘procedure’ does not foreclose the possibility that a court is ruling ‘on the merits.’ ” Borden v. Allen, 646 F.3d 785, 812 (11th Cir.2011). In fact, a dismissal for failure to state a claim upon which relief can be granted pursuant to Rule 12(b)(6) is, unequivocally, a judgment on the merits. Federated Dept. Stores, Inc. v. Moitie, 452 U.S. 394, n. 3, 101 S.Ct. 2424, 69 L.Ed.2d 103 (1981) (“dismissal for failure to state a claim under Federal Rule of Civil Procedure 12(b)(6) is a ‘judgment on the merits.’ ”) ( citing Angel v. Bullington, 330 U.S. 183, 190, 67 S.Ct. 657, 91 L.Ed. 832 (1947): Bell v. Hood, 327 U.S. 678, 66 S.Ct. 773, 90 L.Ed. 939 (1946)). The Chapter 7 Trustee admits that dismissal of Debtor's adversary proceeding was according to Federal...