Gordon v. Etheridge (In re Etheridge)
| Decision Date | 10 December 2019 |
| Docket Number | Adversary No. 19-02008,Case No. 18-11303 |
| Court | U.S. Bankruptcy Court — Middle District of North Carolina |
| Parties | In re: Rodney Wayne Etheridge, Sandra Lynn Etheridge, Debtors. Harry G. Gordon, Plaintiff, v. Rodney Wayne Etheridge, Sandra Lynn Etheridge, Defendants. |
This adversary proceeding is before the Court on the Motion to Amend/Supplement the Complaint Objecting to Discharge of Debtors and Dischargeability of Debts (Sections 523 and 727) (the "Motion to Amend"), ECF No. 13, filed by Harry G. Gordon ("Plaintiff"), and the Motion to Dismiss Case (the "Motion for Judgment on the Pleadings"),1 ECF No. 17, filed by Rodney Wayne Etheridge and Sandra Lynn Etheridge ("Defendants"). For the reasons set forth herein, the Motion to Amend will be granted in part and denied in part and the Motion for Judgment on the Pleadings will be granted in part and denied in part.
The Court has jurisdiction over the subject matter of this proceeding pursuant to 28 U.S.C. § 1334. Under 28 U.S.C. § 157(a), the United States District Court for the Middle District of North Carolina has referred this case and this proceeding to this Court by its Local Rule 83.11. This is a statutorily core proceeding that this Court is authorized to hear and determine. See 28 U.S.C. §§ 157(b)(2)(I) and (J). The Court has constitutional authority to enter final judgments in this proceeding.2
Defendants filed a voluntary petition under chapter 7 of title 11 on December 5, 2018.3 Bk. Dkt. No. 1. Gerald S. Schafer (the "Trustee") is the chapter 7 trustee in Defendants' bankruptcy case. The deadline for creditors to commence an action objecting to the Defendants' discharge under § 727 or an action to determine the dischargeability of any debt under § 523(c) was February 25, 2019. Bk. Dkt. No. 5. See 11 U.S.C. § 523(c); Fed. R. Bankr. P. 4007(c); Fed. R. Bankr. P. 4004(a). On that day, Plaintiff moved for an extension of time to file a complaint objecting to the Defendants' discharge or a complaint to determine the dischargeability of a debt, Bk. Dkt. No. 25, which the Court granted, extending the deadline for Plaintiff to file a complaint objecting to the Defendants' discharge or a complaint to determine the dischargeability of a debt until March 27, 2019. Bk. Dkt. No. 29.
Plaintiff timely filed a Complaint on the extended deadline requesting that the Court either deny the Defendants' discharge, or alternatively determine that the debt allegedly owed by the Defendants to Plaintiff should be excepted from Defendants' discharge. ECF No. 1. Defendants timely filed an Answer. ECF No. 7.
After Defendants filed their Answer and the deadline had passed to file a complaint objecting to discharge or to determine the dischargeability of a debt, Plaintiff filed the Motion to Amend, ECF No. 13, and the Proposed Amendment/Supplement to Complaint Objecting to Discharge of Debtors and Dischargeability of Debts (Sections 523 and 727). ECF No. 13-1. Plaintiff contemporaneously filed a Motion to Disqualify Counsel for Defendants (the "Motion to Disqualify"). ECF No. 14. Defendants filed a Response in Opposition to the Motion to Amend, ECF No. 15, a Response in Opposition to the Motion to Disqualify, ECF No. 16, and a Motion for Judgment on the Pleadings. ECF No. 17. Plaintiff subsequently filed a Memorandum in Support of the Motion to Amend and in Opposition to the Motion for Judgment on the Pleadings, ECF No. 21, and a Memorandum in Support of the Motion to Disqualify. ECF No. 22.
The Court scheduled a hearing on the Motion to Amend, the Motion to Disqualify, and the Motion for Judgment on the Pleadings for July 30, 2019. ECF No. 24. The Motion to Amend set forth various, scattershot allegations. Therefore, prior to the July 30 hearing, the Court directed Plaintiff to file a consolidated proposed amended complaint on or before August 2, 2019, and continued the hearing on the Motion to Amend and the Motion for Judgment on the Pleadings to August 19, 2019. ECF No. 27. At the hearing on July 30, 2019, the Court denied the Motion toDisqualify, and thereafter entered its order effectuating that ruling. ECF No. 33.
Plaintiff timely filed the Proposed Consolidated Amended Complaint Objecting to Discharge of Debtors and Dischargeability of Debts (Sections 523 and 727) (the "Proposed Amended Complaint"). ECF No. 32. The Defendants then filed the Supplemental Response to the Motion to Amend. ECF No. 35. Following the arguments of counsel at the continued hearing, the Court took the Motion to Amend and the Motion for Judgment on the Pleadings under advisement.
Plaintiff is Defendants' former lawyer. The debt allegedly owed by Defendants to Plaintiff arose from Plaintiff's pre-petition representation of Defendants in state court litigation relating to a Steri-Clean Inc. ("Steri-Clean") franchise of which Defendants were franchisees. ECF No. 1 ¶ 8. At the time of filing, the consolidated lawsuit was pending in state court, Bk. Dkt. No. 1 at 51,4 and Plaintiff was counsel of record for Defendants. Bk. Dkt. No. 11 ¶ 3.
The Complaint is a rambling, repetitive, sometimes incoherent, combination of allegations and briefing of putative claims. Plaintiff generally alleges that Defendants made misrepresentations to "[P]laintiff and other creditors to induce [P]laintiff and others to provide valuable services, goods, or money on credit." ECF No. 1 ¶ 10. According to Plaintiff, Defendants "grossly undervalued" assets on their bankruptcy petition, "to avoid debts in bankruptcy and protect [their] properties." Id. ¶ 11. Conversely, Plaintiff contends that Defendants overvalued their assets and understated their liabilities on their Steri-Clean franchise application. Id. ¶ 20-22.
The factual allegations supporting these general statements focus primarily on Defendants' real property.5 Specifically, Plaintiff takes issue with Defendants' scheduled valuation of their home located in Snow Camp, North Carolina (the "Snow Camp Property"). Id. ¶¶ 20-24. In their schedules, Defendants valuedthe Snow Camp Property at $130,000, based on "Appraisal Value." Bk. Dkt. No. 1, Schedule A/B § 1.1. Defendants listed American General Finance as holding a lien in the property in the amount of $75,000, and stated that the amount of this lien is "Based on estimate-the mortgage has not been paid for several years." Id., Schedule D § 2.3. Defendants did, in fact, have an appraisal (the "Appraisal Report") of the Snow Camp Property, in which the licensed appraiser opined that the value of the Snow Camp Property is $130,000.6 Plaintiff alleges that the scheduled value of the Snow Camp Property is far below both the value listed in Defendants' Steri-Clean franchise application, ECF No. 1 ¶ 12, and the tax value. Id. ¶ 24.7
Plaintiff also alleges that Defendants "made misrepresentations of fact to induce [P]laintiff to take their case and to continue working on their case." Id. ¶ 27. According to Plaintiff, Defendants originally requested that Plaintiff taketheir case on a contingency basis whereby Plaintiff would receive a percentage of any recovery he obtained on behalf of Defendants. Id. ¶ 27.g.ii. After Plaintiff refused to accept the case on a contingency basis, Defendants agreed that Plaintiff would bill Defendants on an hourly basis. Id. ¶ 27.g. Thereafter, Defendants "offered and agreed to do some handyman services as [the male Defendant] operated a business of handyman/Mr. Fix-it and [P]laintiff had rental properties." Id. ¶ 27.g.iv. Plaintiff asserts that Defendants "did repair work for only the first three (3) months, with one exception, and never found time for many months to do any work or had other excuses for the remaining months of the 18-month period." Id. ¶ 27.g.v. Based on Defendants' sporadic performance on these handyman services, Plaintiff alleges that Defendants "never intended to pay the per-hour rates and never intended to provide services to cover any per hour rates." Id. ¶ 27.g.iv.
By August 9, 2018, Plaintiff contends that Defendants owed his firm over $80,000 for legal fees incurred in connection with the state court litigation against Steri-Clean. Id. ¶ 27.b. Plaintiff sent Defendants an email on August 22, 2018, in which he, among other things, reiterated Plaintiff's belief that Defendants were "candidates for bankruptcy" and suggested that Defendants execute a promissory note in favor of Plaintiff that would be secured by a deed of trust on unspecified property ofDefendants. Id. ¶ 27.c. The email explained that Plaintiff was requesting a promissory note and deed of trust so that "the debt to [Plaintiff's] firm would be secured debt and get ahead of credit card companies and other unsecured debt." Id. The male Defendant responded to this request by orally stating that the bank owned Defendants' home, which Plaintiff construed as a representation that "either there was no equity in their home or the bank had indeed foreclosed on the home." Id. ¶ 27.d. In addition, Plaintiff alleges that the male Defendant, acting on behalf of Defendants, sent Plaintiff an email on August 24, 2018, stating, "So here we are, as far as signing some deed to our home, that is no longer ours." Id. Plaintiff contends that he "reasonably relied upon [Defendants'] untrue statements in moving forward without security and providing substantial additional legal services for [Defendants]." Id. ¶ 27.e. Plaintiff also alleges that Defendants "assured Plaintiff they would never file bankruptcy" and "Plaintiff continued to provide substantial legal services based on those assurances." Id. ¶ 27.h.ii.
Finally, the Complaint alleges that Defendants'...
To continue reading
Request your trial