Harrison v. Heritage Real Estate Inv., Inc. (In re Heritage Real Estate Inv.)
| Decision Date | 23 October 2020 |
| Docket Number | ADV. PROC. NO. 20-00029-NPO,CASE NO. 14-03603-NPO |
| Parties | IN RE: HERITAGE REAL ESTATE INVESTMENT, INC., DEBTOR. WILLIAM HARRISON, THE ESTATE OF BRUCE L. JOHNSON, AND MICHAEL L. KING PLAINTIFFS v. HERITAGE REAL ESTATE INVESTMENT, INC. AND J. STEPHEN SMITH, CHAPTER 7 TRUSTEE DEFENDANTS |
| Court | U.S. Bankruptcy Court — Southern District of Mississippi |
The Order of the Court is set forth below. The docket reflects the date entered.
This matter came before the Court for hearing on October 20, 2020 (the "Hearing") on the ore tenus request to stay the above-referenced adversary proceeding (the "Ore Tenus Motion to Stay") made jointly by the plaintiffs, William Harrison, the Estate of Bruce L. Johnson, and Michael L. King (the "Plaintiffs"), and the defendant, J. Stephen Smith, the chapter 7 trustee (the "Trustee") of the estate of Heritage Real Estate Investment, Inc. ("Heritage"); J. Stephen Smith, Trustee of the Estate of Heritage Real Estate Investment, Inc.'s Motion to Dismiss Pursuant to Federal Rule of Bankruptcy Procedure 7012(b)(6) (the "Motion to Dismiss") (Adv. Dkt. 8)1 filed by the Trustee; the Response to the Trustee's Motion to Dismiss (the "Response") (Adv. Dkt. 13) filed by the Plaintiffs; and the Reply to Plaintiff's Memorandum Brief in Support of Response to Trustee's Motion to Dismiss (the "Reply") (Adv. Dkt. 16) filed by the Trustee. At the Hearing, Jim F. Spencer, Jr. represented the Trustee, and Jeff D. Rawlings represented the Plaintiffs. After considering the pleadings and arguments of counsel, the Court finds as follows:2
Jurisdiction
The Court has jurisdiction over the parties to and subject matter of pursuant to 28 U.S.C. § 1334. This is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(A), (B), (K), and (O). Notice of the Hearing was proper under the circumstances.
For purposes of the Motion to Dismiss, the Court reviews the facts and inferences to be drawn from them in the light most favorable to the nonmoving party. See Amerisure Ins. Co. v. Navigators Ins. Co., 611 F.3d 299, 304 (5th Cir. 2010).
1. On August 25, 2011, the Plaintiffs obtained a default judgment (the "Alabama Default Judgment") against Heritage Real Estate Investment, Inc. ("Heritage"), Alabama-Mississippi Farm, Inc. ("AL-MS Farm"), Luke Edwards, and Apostolic Advancement Association in the Circuit Court of Greene County, Alabama, in the amount of $6,599,648.00. (Adv. Dkt. 1 at2). The Alabama Default Judgment was recorded in the records of the Probate Office of Sumter County, Alabama on December 26, 2013. (Id.).
2. On June 18, 2014, the Plaintiffs, along with two other parties, filed the Complaint for Fraudulent Transfer of Real Estate and for an Injunction in the Circuit Court of Sumter County, Alabama (the "Alabama Litigation") to set aside conveyances of fourteen (14) parcels of property from Heritage to a related entity, Dynasty Group, Inc. ("Dynasty"). .
3. On November 6, 2014, Heritage filed a petition for relief under chapter 11 of the U.S. Bankruptcy Code (the "Code"). (Bankr. Dkt. 1). On January 21, 2015, the Court converted the Bankruptcy Case to chapter 7 (Bankr. Dkt. 75) and appointed the Trustee to administer Heritage's bankruptcy estate.
4. On May 21, 2015, Bruce L. Johnson ("Johnson") filed a proof of claim on behalf of himself, Michael L. King ("King"), and William Harrison ("Harrison") asserting a secured claim in the amount of $9,094,862.00 ("POC 11") (Bankr. Cl. 11-1). The basis for POC 11 was the Alabama Default Judgment. The claim was purportedly secured by "Default Judgments." (Bankr. Cl. 11-1).
5. That same day, on May 21, 2015, Harrison filed a proof of claim on behalf of "Johnson, et al" asserting a secured claim in the amount of $9,094,862.00 ("POC 13") (Bankr. Cl. 13-1). The basis for POC 13 was also the Alabama Default Judgment. The claim was purportedly secured by the "Judgment." (Bankr. Cl. 13-1). Johnson attached a copy of POC 13 to POC 11. (Bankr. Cl. 11-1).
6. On November 10, 2017, the Trustee filed the Trustee's Objection to Proof of Claim No. 11 Filed by Bruce L. Johnson (the "Trustee's Objection to POC 11") (Bankr. Dkt. 308), asserting that POC 11 was a duplicate of POC 13 and should be disallowed. On November 13, 2017, the Trustee filed the Trustee's Objection to Proof of Claim No. 13 Filed by William Harrison on Behalf of Johnson, et al. ("Trustee's Objection to POC 13") (Bankr. Dkt. 309), asking that POC 13 be allowed as a general unsecured claim in the amount of $8,047,163.52. The Trustee stated that he was unaware of any basis for POC 13 to be allowed as a secured claim and disputed the amount of the claim asserted by Harrison. Further, the Trustee asserted that a claim on behalf of the Plaintiffs also had been filed in the bankruptcy case of AL-MS Farm, thus "[a]ny disbursement of funds from this case to the parties, or from the AL-MS [Farm bankruptcy] case should be applied to the balance owed under the [Default] Judgment, in order to prevent any duplication of recovery on behalf of Johnson, Harrison, and King." (Bankr. Dkt. 309). The Trustee further noted that any disbursement made to the Plaintiffs should "be made in equal shares of one-third (1/3) of the total disbursement." (Id.).
7. On December 11, 2017, Harrison filed the Response of William Harrison to Trustee's Objection to Proof of Claim No. 13 (the "Harrison Response to Trustee's Objection to POC 13") (Bankr. Dkt. 312), asserting that POC 13 "is identical in all respects to claim no. 2 filed in [the AL-MS Farm bankruptcy case] and should be allowed in the same amount." (Bankr. Dkt. 312). Harrison did not object to the Trustee's proposal to treat POC 13 as a general unsecured claim, and he "request[ed] that the claim evidenced by the [Default] Judgment be separated into 3 separate and equal claims" with respect to the Plaintiffs. (Id.)
8. The Court held a hearing on January 10, 2018 on the Trustee's Objection to POC 11, the Trustee's Objection to POC 13, and the Harrison Response to Trustee's Objection to POC 13. Thereafter, on March 29, 2018, the Court entered an order (the "POC Order") (Bankr. Dkt. 342) sustaining the Trustee's objections to POC 11 and POC 13. The Court disallowed POC 11 entirely and allowed POC 13 as an unsecured claim. The Court disallowed POC 11 because Johnson did not disagree with or otherwise rebut the Trustee's assertion that POC 11 duplicated POC 13. The Court sustained the Trustee's Objection to POC 13 because Harrison did not otherwise object to the Trustee's calculation of the claim or the Trustee's proposal to treat POC 13 as a general unsecured claim. The POC Order was not appealed.
9. On September 16, 2015, the Trustee was substituted for Heritage as a plaintiff in the Alabama Litigation, and the Plaintiffs were dismissed without prejudice. (Adv. Dkt. 8, Ex. 1). On April 25, 2019, the Circuit Court of Sumter County, Alabama entered its Final Judgment (the "Alabama Fraudulent Conveyance Judgment") on the jury verdict in favor of the Trustee and Heritage, setting aside the conveyances of fourteen (14) parcels of property to Dynasty, stating: "The titles to the properties described in the fourteen (14) quitclaim deeds, as more particularly described as follows, shall be, and are hereby re-vested in HERITAGE REAL ESTATE INVESTMENT, INC., effective as of the date of the final judgment." (Adv. Dkt. 1, Ex. C). Dynasty appealed the Alabama Fraudulent Conveyance Judgment to the Alabama Supreme Court, which affirmed the trial court on July 10, 2020. (Adv. Dkt. 1, Ex. D). The Alabama Supreme Court certified its ruling on July 28, 2020. (Adv. Dkt. 8, Ex. B).
10. On August 20, 2020, the Plaintiffs initiated the Adversary by filing the Complaint for Declaratory Judgment, to Determine Extent, Validity, and Priority of Liens and For Other Relief (the "Complaint") (Adv. Dkt. 1) seeking to have their claim, POC 13 declared secured by the fourteen (14) parcels of property recovered by the Trustee and Heritage in the Alabama Litigation.
11. On September 1, 2020, the Trustee filed the Motion to Dismiss seeking the dismissal of the Complaint on the ground the Plaintiffs' claims are barred by the doctrine of res judicata. On September 22, 2020, the Plaintiffs filed the Response; and on September 30, 2020, the Trustee filed the Reply.
12. At the Hearing, the Plaintiffs and the Trustee announced a proposed "settlement" of the Adversary. They asked the Court to stay the Adversary to allow them additional time to consider whether they wished to proceed. Because the proposal did not resolve the claims asserted by the Plaintiffs in the Complaint, either in whole or in part, the Court viewed the "settlement" as an ore tenus motion to stay the Hearing. See SETTLE, BLACK'S LAW DICTIONARY (10th ed. 2014). For the reasons discussed below, the Court denied the Ore Tenus Motion to Stay and proceeded to hear the Motion to Dismiss.
On October 5, 2020, the Trustee filed the Motion for Approval of Auction Contract/Proposal, Sale of Property, Free and Clear of Liens and Auctioneer's Fees and Expenses (the "Sale Motion") (Bankr. Dkt. 497) in the Bankruptcy Case. In the Sale Motion, which has been noticed for a hearing on November 3, 2020, the Trustee seeks permission to sell two (2) of the fourteen (14) parcels of property recovered as a result of the Alabama Litigation. At the Hearing, the Plaintiffs and the Trustee jointly asked the Court to...
To continue reading
Request your trial