Henderson v. Cmty. Bank of Miss. (In re Evans), Bankruptcy No. 09–03763–NPO.

Decision Date26 April 2013
Docket NumberAdversary No. 10–00005–NPO.,Bankruptcy No. 09–03763–NPO.
Citation492 B.R. 480
PartiesIn re Jon Christopher EVANS, Debtor. Derek A. Henderson, Trustee for Bankruptcy Estate of Jon Christopher Evans and Jointly Administered Related Cases, Plaintiff v. Community Bank of Mississippi, et al., Defendants.
CourtU.S. Bankruptcy Court — Southern District of Mississippi

OPINION TEXT STARTS HERE

Derek A. Henderson, Jackson, MS, pro se.

W. Lawrence Deas, Deas & Deas LLC, Tupelo, MS, Kristina M. Johnson, Jones Walker, William C. Brabec, Adams and Reese LLP, Mason E. Lowe, Mary Clay Morgan, Bradley Arant Boult Cummings LLP, William Liston, III, Gene D. Berry, Jackson, MS, Marshall H. Smith, Jr., Holmes County Bank & Trust Company, Lexington, MS, J. Mark Franklin, III, Thomas R. Hudson, Michael Scott Jones, Adams & Reese LLP, Ridgeland, MS, Barrett Blake Teller, Teller, Chaney, Hassell & Hopson LLP, Vicksburg, MS, Richard T. Phillips, Robert Ryan Revere, Smith Phillips Mitchell Scott & Nowak LL, Batesville, MS, Michael S. MacInnis, Jeff D. Rawlings, Rawlings & MacInnis, PA, Madison, MS, for Defendants.

MEMORANDUM OPINION AND ORDER ON CROSS–CLAIMS OF FIRST ALLIANCE BANK, FIRST STATE BANK, AND PATRIOT BANK AGAINST MISSISSIPPI VALLEY TITLE INSURANCE COMPANY AND OLD REPUBLIC NATIONAL TITLE INSURANCE COMPANY RELATED TO THE WOODGREEN PROPERTY—PHASE TWO: DAMAGES

NEIL P. OLACK, Bankruptcy Judge.

The liability and uncontested damages phase (“Phase One”) 1 of the trial (the “Woodgreen Trial”) of this adversary proceeding (the “Adversary”) took place on February 21–22, 2012. In Phase One of the Woodgreen Trial, the Court found that Mississippi Valley Title Insurance Company and Old Republic National Title Insurance Company (the “Title Companies”) had breached the implied duty of good faith and fair dealing contained in the title insurance policies acquired by First Alliance Bank (“First Alliance”), First State Bank (First State), and Patriot Bank (“Patriot”). Together, First Alliance, First State, and Patriot are referred to as the Woodgreen Banks. See Memorandum Opinion and Order on Cross–Claims of First State Bank, First Alliance Bank, and Patriot Bank Against Mississippi Valley Title Insurance Company and Old RepublicNational Title Insurance Company Related to the Woodgreen Property–Phase One: Liability, First Alliance Bank v. Mississippi Valley Title Insurance Company, Adv. Proc. No. 10–00005–NPO, 2012 WL 2374237 (Bankr.S.D.Miss. June 22, 2012) (the “ Liability Opinion”) (Adv. Dkt. 490).2

The claims of the Woodgreen Banks, and the responses of the Title Companies, are asserted in the following pleadings: Crossclaim of Patriot Bank (Adv. Dkt. 177) filed by Patriot; Crossclaim of First Alliance Bank (Adv. Dkt. 178) filed by First Alliance; Amended Crossclaim of First State Bank (Adv. Dkt. 188) filed by First State; Mississippi Valley Title Insurance Company and Old Republic National Title Insurance Company's Amended Answer and Affirmative Defenses to First Alliance Bank's Cross–Claim (Adv. Dkt. 212) filed by the Title Companies; Mississippi Valley Title Insurance Company and Old Republic National Title Insurance Company's Amended Answer and Affirmative Defenses to First State Bank's Amended Cross–Claim (Adv. Dkt. 213) filed by the Title Companies; and Mississippi Valley Title Insurance Company and Old Republic National Title Insurance Company's Amended Answer and Affirmative Defenses to Patriot Bank's Cross–Claim (Adv. Dkt. 217) filed by the Title Companies. The damages phase (“Phase Two”) of the Woodgreen Trial took place on December 10–11, 2012. In Phase Two, William C. Brabec and Michael Scott Jones represented the Title Companies; William Liston, III and W. Lawrence Deas represented the Woodgreen Banks.

Prior to Phase Two of the Woodgreen Trial, the Woodgreen Banks filed a Motion in Limine to Exclude Opinions and Testimony of J. Walter Allen Filed by First Alliance Bank, First State Bank, and Patriot Bank (the “Motion in Limine ”) (Adv. Dkt. 512) and the Memorandum Brief in Support of Motion in Limine to Exclude Opinions and Testimony of J. Walter Allen Filed by First Alliance Bank, First State Bank, and Patriot Bank (Adv. Dkt. 513). The Title Companies filed the Title Companies' Response in Opposition to Motion in Limine to Exclude Opinions and Testimony of J. Walter Allen (Adv. Dkt. 519). The Court deferred ruling on the Motion in Limine until the Title Companies attempted to qualify J. Walter Allen (“Allen”) as an expert during Phase Two of the Woodgreen Trial. When that time arrived, the Court denied the Motion in Limine from the bench, accepted Allen as an expert in real estate appraisals, and allowed the introduction into evidence of Allen's appraisal report (the “Allen Report”) (MVT Ex. 84). The basis for the Court's denial of the Motion in Limine is discussed later in this Opinion.

On February 1, 2013, the Woodgreen Banks submitted the Memorandum Brief of the Woodgreen Banks on Issues Raised at Trial on Damages (Adv. Dkt. 527), and the Title Companies submitted the Title Companies' Post–Trial Brief Regarding Damages (Adv. Dkt. 528). Having considered the pleadings as well as the testimony, exhibits, and the arguments of counsel presented at Phase One and Phase Two of the Woodgreen Trial, the Court makes the following findings of fact and conclusions of law pursuant to Federal Rule of Bankruptcy Procedure 7052: 3

JURISDICTION

The Court has jurisdiction over the parties to and the subject matter of this case pursuant to 28 U.S.C. § 1334. This is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(K) and (O).4 Notice of Phase Two of the Woodgreen Trial was proper under the circumstances.

FACTS5

Because the facts and history of this Adversary are unwieldy, the Court recounts only those facts and history that are pertinent to the damages issues. This Opinion assumes familiarity with the Court's Liability Opinion.

The Adversary involves 23.38 acres, or 1,018,433 square feet, of undeveloped land along Goodman Road in Southaven, DeSoto County, Mississippi. On August 5, 2004, the Woodgreen Development Corporation LLC, through Jon Christopher Evans (Chris Evans), purchased this property from James C. Henson and Cassandra E. Henson (the “Hensons”) for $3.35 million. Since then, the property has become known as the Woodgreen Property.

Woodgreen Property

The Woodgreen Property is located on the north side of Goodman Road, approximately 1,965 feet east of where Goodman Road intersects Getwell Road. Its square shape is split in the middle by a drainage ditch that runs east to west. The ditch, in turn, runs into Nolehole Creek, which flows north to south along the eastern border of the Woodgreen Property. A separate branch of Nolehole Creek transverses the Woodgreen Property in an eastwardly direction. According to Allen, Nolehole Creek is “very deep, ... very wide, [and] very formidable” and wide enough for a pick-up truck. (2 Trial Tr. at 32). 6 There is an awkward slope, so that the topography of the Woodgreen Property resembles a piece of paper folded in the middle with the highest elevation along Goodman Road and the lowest elevation near Nolehole Creek. A contour map shows the severity of the elevation problem on both the northern and southern borders of the Woodgreen Property. The ditch, creek, and slope present problems for the commercial development of the Woodgreen Property. Allen described the Woodgreen Property as “below average functional utility.” (Allen Rep. at 48).

Deeds of Trust

On the empty promise that he would develop the Woodgreen Property into a commercial subdivision, Chris Evans obtained loans from the Woodgreen Banks on behalf of various entities he controlled.7 As part of his fraudulent scheme, Chris Evans arranged for a surveyor to prepare plats (the “Evans Plats”) dividing the Woodgreen Property into seventeen (17) lots, each lot roughly one acre in size. Copies of the Evans Plats are attached to the Liability Opinion as Appendices 2–A, 2–B, and 2–C. Also attached to the Liability Opinion is Appendix 1, which is a survey of the Woodgreen Property depicting a subdivision of fifteen (15) lots, marked as Tracts 10A through 10O. To secure the loans, Chris Evans granted the Woodgreen Banks deeds of trust on six (6) of the fifteen (15) lots. These six (6) lots are Tracts 10E, 10F, 10G, 10H, 10J, and 10K. In connection with the original loan transactions consummated in 2004 and 2005, the Woodgreen Banks obtained appraisals of the six (6) lots. The values in those appraisals are shown in the following chart:

(MVT Exs. 50–51, 53, 55–56, 84).

The entities on whose behalf Chris Evans acted when he signed the deeds of trust did not actually own the six (6) lots that purportedly secured the loans, and, moreover, different entities (also controlled by Chris Evans) previously had granted other lenders senior liens on the same six (6) lots. In the words of Brian W. Pray (“Pray”), an expert witness for the Woodgreen Banks, the Evans Brothers tried to “flim-flam” the Woodgreen Banks. (1 Trial Tr. at 129).

Chris Evans was assisted in his fraudulent scheme by his brother, Charles H. Evans, Jr. (Charles Evans,” or together with Chris Evans, the “Evans Brothers). Charles Evans was an attorney “approved” by the Title Companies to submit applications for title insurance policies, and his involvement was integral to the success of the Ponzi-like scheme.

When the loans went into default in late 2009, the Woodgreen Banks discovered that the defects in the liens prevented them from foreclosing their interests in the lots. The Woodgreen Banks are now the owners of the six (6) lots, but if they sell them, they will violate local law. The current plight of the Woodgreen Banks requires background information, beginning with the land-use regulations enacted by the City of Southaven.

City of Southaven

Under the Land Subdivision Ordinance (the Subdivision Ordinance”) (Southaven, Miss., Ordinance No. 29, art. III) (WB Ex. 35), no person may subdivide land into...

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