Ebert v. Devries Family Farm, LLC (In re Devries)
| Decision Date | 27 August 2014 |
| Docket Number | CASE NO. 11-43165-DML-7,ADVERSARY NO. 12-04015-DML |
| Parties | IN RE: GEORGE TED DEVRIES, DEBTOR. CAREY EBERT, AS CHAPTER 7 TRUSTEE, PLAINTIFF, v. DEVRIES FAMILY FARM, LLC, DEFENDANT. |
| Court | U.S. Bankruptcy Court — Northern District of Texas |
Before the court is Defendant's Motion for Partial Summary Judgment (Adv. Docket No. 34, the "Defendant's MSJ"); Plaintiff's Motion for Partial Summary Judgment (Adv. Docket No.34, the "Trustee's MSJ," together with the Defendant's MSJ, the "Cross Motions for Summary Judgment"); Defendant's Objection to Certain of the Trustee's Purported Summary Judgment Evidence (the "Defendant's First Evidentiary Objection"); and Defendant's Amended Second Objection to Certain of the Trustee's Purported Summary Judgment Evidence ("Defendant's Second Evidentiary Objection," together with the Defendant's First Evidentiary Objection, the "Defendant's Evidentiary Objections").1
The Cross Motions for Summary Judgment and the Defendant's Evidentiary Objections came before the court on March 12, 2014, by reference from the U.S. District Court for the Northern District of Texas (the "District Court").2 On June 5, 2014, this court heard argument on the Cross Motions for Summary Judgment and Defendant's Evidentiary Objection (the "Hearing"). Having reviewed the record, including all underlying pleadings and exhibits relating to the Cross Motions for Summary Judgment and Defendant's Evidentiary Objections, the court hereby makes the following proposed findings of fact and conclusions of law. All proposed findings of fact, where appropriate, may be also construed as proposed conclusions of law, and vice versa.
Rule 56(a) of the Federal Rules of Civil Procedure provides that the court shall grant summary judgment on a claim or defense if there is no genuine dispute as to any material factand the movant is entitled to judgment as a matter of law. FED. R. CIV. P. 56(a). Summary judgment should be granted if, after taking all reasonable inferences in the nonmoving party's favor, the court finds that no reasonable jury could find for the nonmoving party. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255 (1986).
Jurisdiction in the District Court is proper pursuant to 28 U.S.C. § 1334(b). The court has constitutional authority to issue proposed findings of fact and conclusions of law in this "related to" proceeding. Exec. Benefits Ins. Agency v. Arkison, 573 U.S. ___, 134 S. Ct. 2165, 2173 (2014). Moreover, the court has constitutional authority to enter proposed findings of fact and conclusions of law with respect to any "core" proceedings. Id.; In re Lyondell Chem. Co., 467 B.R. 712, 724 (S.D.N.Y. 2012).
1. On September 1, 2000, George DeVries ("Debtor"), along with his father, Pete DeVries, and two brothers, Tom and Dale DeVries (Debtor, together with Pete, Tom, and Dale DeVries, the "Members") formed DeVries Family Farm, LLC (the "Company" or "Defendant").3
2. The Company is a Limited Liability Company formed under the Washington Limited Liability Company Act.
3. The Company owns and operates a commercial dairy farm in Yakima County, Washington. The Company currently generates over $20 million in annual gross revenue.
4. On September 1, 2000, the Members entered into an operating agreement (the "Operating Agreement") to address the corporate governance as well as operation and management of the Company.
5. Specifically, the Operating Agreement provides that each Member's ownership interest in the Company is reflected by a corresponding amount of membership units (the "Membership Units").4
6. The Operating Agreement also provides that Debtor's brother, Tom DeVries, would manage and control the day to day operations of the Company.5 The remaining members are required to devote as much time as may be necessary to help run the Company.6 Additionally, section 3.1 of the Operating Agreement provides that:
Each of the members shall make contributions to the capital of the Company, in the form of cash, property or services, as shall be determined by majority vote of the members.
Section 5.11 of the Operating Agreement provides that:
In the event that the Company requires financing for expenses or operating capital, either through a loan or line of credit, each of the members agree [sic]that they will execute any personal guarantees or other documents which may be required by any lender.
7. On September 1, 2000, the Members also entered into a cross purchase agreement (the "Cross Purchase Agreement") to govern the transfer or sale of Membership Units.7
8. In April 2011, Debtor, Tom, and Pete entered into an amendment to the Operating Agreement. The amendment provided, among other things, that a member shall cease to be a member of the Company and attain the status of an assignee upon the occurrence of one or more of the following events:
ii. Files a voluntary petition in bankruptcy;
iii. Becomes the subject of an order for relief in bankruptcy proceedings;
iv. Files a petition or answer seeking for himself or herself any reorganization arrangement composition, readjustment, liquidation, dissolution, or similar relief under any statute, law, or regulation; or
v. Seeks, consents to, or acquiesces in the appointment of a trustee, receiver, or liquidator of the member or of all or any substantial part of the member's properties.
b. A member's failure to make any additional capital contributions to the Company as required by section 3.1 of the Operating Agreement when such contributions are not made by other members on his or her behalf; or
c. A member's failure to execute personal guarantees or other documents required by section 5.11 of the Operating Agreement.8
9. In April 2011, the Debtor, Tom, and Pete also entered into an amendment to the Cross Purchase Agreement. The amendment provided, among other things, that:
10. The Trustee has not challenged the adoption of the amendments.
11. Prior to filing bankruptcy, Debtor owned and operated a commercial dairy farm in Dublin, Erath County, Texas (the "Dublin Farm").
12. In 2009, Debtor defaulted on a commercial loan from Bank of America.
13. In 2009, Debtor borrowed $800,000 from the Company (the "Loan"), which Debtor received in two installments. The first installment, in the amount of $500,000, was provided to Debtor in late 2009. The second installment, in the amount of $300,000, was provided to Debtor in early 2010.
14. Debtor used the proceeds of the Loan to operate the Dublin Farm during a period of financial difficulty.
15. On December 6, 2010, counsel for A. Dwain Mayfield and Lynda K. Mayfield (the "Mayfields"), sent a letter to Debtor (1) alleging that Debtor was in violation of multiple provisions of the Clean Water Act, and; (2) notifying Debtor of the Mayfields' intent to sue Debtor for such alleged violations (the "Mayfields' Letter") 16. Debtor, unable to satisfy his obligation under the Loan, entered into the Unit Redemption Agreement ("Redemption Agreement") with the Company on January 4, 2011. Pursuant to the Redemption Agreement, the Company satisfied $800,000 of Debtor's Loan in exchange for 66.84 of Debtor's existing Membership Units (the "Redeemed Units").
17. On January 6, 2011, the Bosque River Coalition ("BRC") sent a letter to Debtor (1) alleging that Debtor was in violation of multiple provisions of the Clean Water Act and (2) notifying Debtor of BRC's intent to sue Debtor for such alleged violations (the "BRC Letter").
18. On January 28, 2011, the Texas Commission on Environmental Quality ("TCEQ") sent a letter (the "TCEQ Letter") notifying Debtor of its preliminary decision to deny Debtor's application to renew his Texas Pollutant Discharge Elimination System permit ("TPDES Permit").10
19. On February 14, 2011, the Mayfields filed a lawsuit against Debtor in the U.S. District Court for the Northern District of Texas.11
20. In February 2011, Debtor paid $95,000 to the Company, which represented a rough estimate of the amount Debtor understood to be accrued interest on the Loan (the "Interest Payment").12
21. On June 3, 2011 (the "Petition Date"), Debtor filed a voluntary petition for relief under chapter 7 of the Bankruptcy Code13 (the "Bankruptcy Case").14
22. As of the Petition Date, Debtor owned 304.66 of the remaining 855.15 Membership Units, which represents a 35.62% ownership stake in the Company.15
23. On November 18, 2011, both the Mayfields and the Trustee filed adversary proceedings against Debtor objecting to Debtor's discharge.16
24. On March 29, 2012, the court entered an order denying Debtor a discharge pursuant to Code section 727.17
25. On February 17, 2012, Debtor's chapter 7 bankruptcy trustee, Carey Ebert ("Trustee" or "Plaintiff"), filed the above-captioned adversary proceeding (the "Adversary") against the Company.18 On April 10, 2012, Defendant filed its answer and a motion seeking withdrawal of the reference. On August 8, 2012, the Adversary was removed to the District Court.
26. On August 8, 2013, Defendant filed a motion for summary judgment in the District Court seeking summary judgment as to the following grounds:
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