Grant, Konvalinka & Harrison, P.C. v. Banks (In re McKenzie)

Decision Date30 March 2012
Docket NumberAdversary No. 11–1121.,Bankruptcy No. 08–16378.
Citation472 B.R. 455
CourtU.S. Bankruptcy Court — Eastern District of Tennessee
PartiesIn re Steve A. McKENZIE a/k/a Toby McKenzie, Debtor. Grant, Konvalinka & Harrison, P.C., Plaintiff, v. Richard L. Banks, Richard Banks & Associates, P.C., C. Kenneth Still, and Steve A. McKenzie, Defendants.


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

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


SHELLEY D. RUCKER, Bankruptcy Judge.

Defendant C. Kenneth Still, trustee (“Mr. Still” or Trustee) moves this court to dismiss the complaint of Plaintiff Grant, Konvalinka & Harrison, P.C. (GKH) in this adversary proceeding. [Doc. No. 5].1 GKH opposes the motion of the Trustee. [Doc. No. 8].

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. Based on those findings and conclusions, the court will GRANT the motion to dismiss with respect to the Trustee, but will DENY the motion with respect to the other defendants, Richard L. Banks (Banks), Richard Banks & Associates, P.C. (Banks P.C.), and Steve A. McKenzie (Debtor).

I. Background Facts

The court has summarized 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, 1354, 1387; Adv. Proc. 11–1110, Doc. No. 25]. However, for ease of reference, the court will review the procedural and factual background here.

A. Procedural Background

GKH filed this lawsuit (“HC Malpractice M/P Lawsuit”) on August 5, 2011 in the Circuit Court of Hamilton County, Tennessee. [Doc. No. 1–2]. The HC Malpractice M/P Lawsuit Complaint asserts that: (a) GKH is a law firm located in Chattanooga, Tennessee; (b) defendant Richard L. Banks is an attorney who represented both the Trustee and the Debtor in a lawsuit brought against GKH in the Chancery Court of Bradley County, Tennessee, alleging conflicts of interest and breach of fiduciary duty (“Malpractice Lawsuit”); (c) the law firm of Banks P.C. employs Mr. Banks; and (d) the Trustee is the trustee in the Debtor's main bankruptcy case. See HC Malpractice M/P Lawsuit Complaint, ¶¶ 1–3. GKH contends that the pursuit of the Malpractice Lawsuit was malicious prosecution and abuse of process.

On the same day GKH filed an almost identical lawsuit in this court. See [Adv. Proc. No. 11–1118, Doc. No. 1] (“Bankruptcy Malpractice M/P Lawsuit”). The Trustee subsequently removed the HC Malpractice M/P Lawsuit to this court. [Adv. Proc. No. 11–1121, Doc. No. 1]. GKH moved to remand and/or abstain and/or consolidate this adversary proceeding with Adversary Proceeding Number 11–1118. [Adv. Proc. No. 11–1121, Doc. No. 3 (Motion for Remand) ]. The court is simultaneously issuing its ruling on the Motion for Remand with this memorandum. For the reasons stated in the memorandum pertaining to the Motion for Remand, it is denying the request to remand the claims against the Trustee to state court. It is also denying GKH's request to abstain from ruling on the claims against the Trustee. The court will also issue a ruling on the Trustee's Motion to Dismiss pending in the Bankruptcy Malpractice M/P Lawsuit. The remaining claims in both adversary proceedings against Banks, Banks P.C. and the Debtor will be consolidated and will be remanded to the state court. The consolidated adversary proceeding will be Adv. Pro. No. 11–1121.

B. Case Background

On November 20, 2008, a group of petitioning creditors filed an involuntary petition in bankruptcy in this court against the Debtor. See [Bankruptcy Case No. 08–16378, Doc. No. 1]. On December 20, 2008, the Debtor filed a Chapter 11 voluntary petition in 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 court held a hearing on the U.S. Trustee's motion to appoint a trustee on February 19, 2009. [Bankr. Case No. 08–16378, Doc. Nos. 135, 101]. The U.S. Trustee filed a notice appointing Mr. Still Chapter 11 trustee for the Debtor on February 19, 2009; the court issued an order granting the U.S. Trustee's motion to appoint a Chapter 11 Trustee on February 20, 2009. [Bankruptcy Case No. 08–16378, Doc. Nos. 130, 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].2

C. Malpractice Lawsuit

On August 6, 2010, the Trustee and the Debtor filed the Malpractice Lawsuit in Bradley County Chancery Court, Docket No. 2010–CV–251, against Nelson Bowers, II; Exit 20 Auto Mall, LLC; John Anderson; and GKH. See [Doc. No. 1–1]. The Trustee and the Debtor asserted causes of action against GKH for breach of fiduciary duty, conflict of interest and civil conspiracy. Id. It is the prosecution of the Malpractice Lawsuit that is the basis of GKH's malicious prosecution and abuse of process claims in this proceeding.

The HC Malpractice M/P Complaint provides a detailed account of the litigation proceedings that occurred following the Trustee's filing of the Malpractice Lawsuit. This court reviewed substantially similar allegations by GKH in the briefs filed in support of GKH's motion for leave to file such a malicious prosecution and abuse of process action against the Trustee and his counsel in Bradley County, Tennessee (“Bradley Leave Motion”) that was filed in the main bankruptcy case. See [Bankr. Case No. 08–16378, Doc. Nos. 1200, 1248, 1248–1 through 1248–6, 1307, 1307–1 through 1307–7, 1387]. The court denied leave to file the action in Bradley County on August 5, 2011. [Doc. Nos. 1387, 1388]. In response, GKH filed the Bankruptcy Malpractice M/P Lawsuit asserting those claims of malicious prosecution and abuse of process against the Trustee and other defendants arising out of the Malpractice Lawsuit in addition to this adversary proceeding.

Attached to the HC Malpractice M/P Complaint are numerous exhibits that all relate to the parties' disputes arising in the Malpractice Lawsuit. The court has had a prior opportunity to examine many of these exhibits in detail as most of the exhibits were provided to the court in support of the Bradley Leave Motion. See [Bankr. Case No. 08–16378, Doc. Nos. 1248–1 through 1248–6; 1307–1 through 1307–7]. The exhibits include a copy of the complaint filed in the Malpractice Lawsuit with all of its attachments; the complaint filed by the Trustee and the Debtor in this court as Adversary Proceeding No. 10–1407 with all of its attachments; transcripts of hearings held in the Malpractice Lawsuit; motions to dismiss filed by the defendants in the Malpractice Lawsuit; a transcript of Judge Cook's opinion in Adversary Proceeding No. 10–1407; briefs filed by the plaintiffs in the Malpractice Lawsuit with GKH's and John Anderson's response; GKH's and John Anderson's motion to compel filed in the Malpractice Lawsuit; motion for joinder and responses; the Bradley County Chancery Court's order of dismissal of the plaintiff's breach of fiduciary duty and conflict of interest claims on statute of limitations grounds; transcript of a hearing in the Malpractice Lawsuit held on February 22, 2011; and an agreed order entered by the chancery court. See [Doc. Nos. 1–1 through 1–17]. Many of the issues discussed in the court's memorandum issued in conjunction with its denial of the Bradley Leave Motion are relevant to this memorandum. See [Bankr. Case No. 08–16378, Doc. No. 1387].

Additionally, the court has already reviewed the underlying circumstances pertaining to the Malpractice Lawsuit and an accompanying avoidance action lawsuit brought by the Trustee in this court, Still v. Bowers, II, et al., Adv. Pro. No. 10–1407 (“50 Acre Lawsuit”). In its memorandum denying the Bradley Leave Motion, the court previously found the following related to the two suits brought against GKH and others by the Trustee:

On August 5, 2010, the Trustee brought an action against Nelson E. Bowers II, Exit 20 Auto Mall, LLC, John Anderson, Grant, Konvalinka and Harrison, PC, and CapitalMark Bank & Trust. [Adv. No. 10–1407, (“Trustee's Complaint”) ]. The Trustee's Complaint was signed by Mr. Banks and Mr. LeRoy as counsel for Mr. Still. See [Adv. No. 10–1407, Doc. No. 1].

The enumerated causes of action in the Trustee's Complaint were violation of the automatic stay, avoidance of post petition transfers, avoidance of preferences, avoidance of fraudulent transfers, an action to determine the validity of a lien, equitable subordination, and preference claims against insiders. The Trustee's Complaint sought to avoid a post petition transfer of approximately sixty acres of real estate located in Bradley County, Tennessee. Based on filings with the Tennessee Secretary of State and the Register's Office of Bradley County which were attached to the Trustee's Complaint and on which Judge John C. Cook relied in his dismissal, [Adv. No. 10–1407, Doc. No. 1]; [Transcript, Adv. No. 10–1407 at pp. 8–9], the transferor was Cleveland Auto Mall, LLC whose members were the debtor and Mr. Nelson E. Bowers, II. The transferee company was Exit 20 Auto Mall, LLC, formed December 10, 2008, organized by Wayne Grant, who also served as registered agent with an address at 633 Chestnut Street, Chattanooga, TN. The deed was dated December 10, 2008, approximately twenty days after the involuntary filing. The deed reflects that it was “Prepared by and [to be returned] to Grant, Konvalinka & Harrison, P.C., Ninth Floor–Republic Centre, 633 Chestnut Street, Chattanooga, TN 37450–0900.” See [Adv. No. 10–1407, Doc. No 1, p. 47]. The Affidavit of Value on the deed was signed by Nelson E....

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3 cases
  • Grant v. Banks (In re McKenzie)
    • United States
    • U.S. Court of Appeals — Sixth Circuit
    • May 24, 2013
    ...leave to do so. See In re McKenzie, 471 B.R. 884 (Bankr.E.D.Tenn. Mar. 30, 2012) (abstention and remand); In re McKenzie, 472 B.R. 455 (Bankr.E.D.Tenn. Mar. 30, 2012) (dismissing claims against Trustee); In re McKenzie, No. 08–16378, 2012 WL 1115981 (Bankr.E.D.Tenn. Mar. 30, 2012) (contempt......
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