Hoch v. Hoch (In re Hoch)
| Decision Date | 25 January 2018 |
| Docket Number | Case No.: 16-03678-5-JNC,Adversary Proceeding No.: 16-00123-5-JNC |
| Court | U.S. Bankruptcy Court — Eastern District of North Carolina |
| Parties | IN RE: MARILYNN JANE HOCH, Debtor SCOTT M. HOCH, Plaintiff v. ARTHUR E. HOCH, individually, MARILYNN J. HOCH, individually, MARILYNN J. HOCH as TRUSTEE of the MARILYN JANE HOCH REVOCABLE TRUST, the MARILYN JANE HOCH REVOCABLE TRUST, MARILYNN J. HOCH as TRUSTEE of the MARILYNN JANE HOCH REVOCABLE TRUST, the MARILYNN JANE HOCH REVOCABLE TRUST, MARILYNN J. HOCH as TRUSTEE of the JANE HOCH REVOCABLE TRUST, and the JANE HOCH REVOCABLE TRUST, Defendants. |
This Adversary Proceeding represents the culmination of a greater than sixteen year family dispute. It was tried on December 11, 12, and 13 in Greenville, North Carolina. Kimberly M. Marston and Gary S. Parsons represented the plaintiff, Scott M. Hoch ("Scott"). Ryan J. Adams appeared on behalf of defendant Marilynn Jane Hoch ("Jane") individually and the Marilynn Jane Hoch Revocable Trust (the "Jane Trust"). William P. Janvier appeared for Jane in her capacity as debtor-in-possession in the chapter 11 bankruptcy case and on behalf of the bankruptcy estate. Sean G. Delaney appeared on behalf of defendant Arthur E. Hoch ("Buddy").1
This court has jurisdiction over the subject matter of this proceeding pursuant to 28 U.S.C. §§ 151, 157 and 1334, and the General Order of Reference entered August 3, 1984 by the United States District Court for the Eastern District of North Carolina. The matter is a core proceeding within the meaning of 28 U.S.C. § 157(b)(2)(A), which this court has the jurisdiction to hear and determine. To the extent this matter is not a core proceeding, all parties have expressly consented to the court's exercise of jurisdiction pursuant to 28 U.S.C. § 157(c)(2).2
This controversy began with a disagreement between Scott and Buddy concerning the proper distribution of net sale proceeds originating from the 2001 sale of property owned by their partnership (the "WS/CBC Property"). Scott contended that Buddy distributed to himself too great a share of the sale proceeds (the "WS/CBC Proceeds") under the partnership agreement and other contracts. After years of discussions and the execution of multiple tolling agreements, on July 27, 2011, Scott sued Buddy to recover his perceived rightful share of the WS/CBC Proceeds in an action filed in the Wake County, North Carolina, Superior Court (the "State Court"), Case No. 11-CVS-11692 (the "2011 Lawsuit").3 Buddy counterclaimed to assert his alleged ownership rights in other assets. After the grant of partial summary judgment by the State Court for Buddy regarding his rights in two townhouses as discussed below, the 2011 Lawsuit proceeded to trial. The jury ultimately agreed that Buddy had overpaid himself from the WS/CBC Proceeds to Scott's detriment. Accordingly, on February 25, 2014, the State Court issued a judgment in favor of Scott against Buddy in the principal amount of $364,269.00 (the "2011 Judgment"), plus interest at the North Carolina legal rate of eight percent (8%) per annum ($79.96 per diem) from the date of wrongful distribution. As of December 5, 2017, costs and interest of $441,951.23 had accrued for a total judgment of $806,220.23.4
Frustrated in his efforts to collect the 2011 Judgment, Scott sued Buddy, Jane, and the Jane Trust in State Court on July 22, 2014 in an action designated Case No. 14-CVS-9568 (the "2014 Lawsuit"). In it, Scott sought to recover and set aside various allegedly fraudulent transfers made by Buddy to Jane and/or the Jane Trust, and by Jane and/or the Jane Trust to Buddy and others. Scott amended the complaint in the 2014 Lawsuit twice, and the parties proceeded to trial in this forum based on allegations contained in the Second Amended Complaint filed October 1, 2015 (AP5 D.E. 10 at 79-171; the "Complaint").
The Complaint asserts nine (9) causes of action against Buddy, Jane, and/or the Jane Trust. Prior to final adjudication of the 2014 Lawsuit in State Court, Jane filed a voluntary petition for relief under chapter 11 of the Bankruptcy Code on July 15, 2016 (the "Petition Date"). The 2014Lawsuit was removed from State Court by Jane the same day (AP D.E. 1) pursuant to 28 U.S.C. § 1452(a) and became this adversary proceeding. No motion for remand or request for abstention was filed. The parties agreed to proceed with the 2014 Lawsuit in the bankruptcy court.6
Scott and Jane (but not Buddy) filed cross-motions for summary judgment.7 After determination of those motions, five (5) causes of action in the Complaint survived for trial.8 For clarity, the court retains the respective number of each cause of action as appears in the Complaint, summarized as follows:
Based on the testimony at trial, the stipulations of the parties, the exhibits admitted into evidence, and the undisputed facts established in the pleadings and discovery, the court makes the following findings of fact:
Buddy and Scott are brothers.9 Buddy and Jane have been married for more than forty-seven years.10 Cliff Benson, a friend and business acquaintance of Scott and Buddy, owned a retailbuilders supply store and lumberyard in Winston Salem, North Carolina, and was in need of operating cash.11 On December 21, 1990, Buddy, Scott, and David H. Stevens formed a partnership named "WS/CBC Properties"12 to purchase the lumberyard real estate from Mr. Benson and leased it back to his company, Carolina Builders Corporation.13 On January 8, 2001, WS/CBC Properties sold the lumberyard to a third party for $1,750,000.00, which generated $1,640,000.00 in net proceeds.14 Buddy received a check for all of the net proceeds on behalf of WS/CBC Properties, which he deposited into a WS/CBC Properties account over which he maintained control.15 He then divided the net proceeds by drafting three checks from the WS/CBC Properties account: one to himself (the "WS/CBC Proceeds"), one to Scott, and one to Mr. Stevens.16
Because the First, Fourth, Seventh, and Ninth Causes of Action relate, directly or indirectly, to the WS/CBC Proceeds retained by Buddy from the sale of the WS/CBC Property, tracking those funds is relevant. Buddy distributed $656,257.10 of the total sales proceeds to himself by depositing a check made by him from the WS/CBC Properties bank account into a Raymond James & Associates, Inc. investment account held in Jane's name only (the "RJ Account").17 Buddy held signatory authority to draw or pay funds from the RJ Account in the form of checking privileges, but he was never designated as an owner of the RJ Account.18
Scott disagreed with Buddy's division of the proceeds and demanded that Buddy pay further funds to him from the WS/CBC Proceeds, but Buddy refused.19 Scott retained Keith Kapp, an attorney in Raleigh, North Carolina, to represent him in the dispute with Buddy. Mr. Kapp represented Scott from September 2001 through December 2015.20 Between 2001 and the initiation of the 2011 Lawsuit, Scott and Buddy, but not Jane, entered into a series of tolling agreements that served to preserve their respective claims against one another arising from the dispute over the WS/CBC Proceeds and several other smaller transactions not relevant here.21
In an early attempt to resolve the dispute, on September 25, 2001, Mr. Kapp sent a demand letter to Buddy requesting an accounting of the WS/CBC Property sale proceeds.22 In response, a meeting was scheduled and held at Mr. Kapp's law office in Raleigh on September 27, 2001.23 Scott, Buddy, Mr. Kapp, and Richard Speers, a longtime friend and financial advisor to both Buddy and Scott24 who long-managed the RJ Account, attended the meeting. Not long after it began, Mr. Kapp left the meeting to work on other matters because it was apparent that Mr. Speers was spearheading the discussion of the controversy between Scott and Buddy.25 At the end of that meeting, when it was clear that a final resolution would not be reached that day, Mr. Speers drafted a handwritten document reflecting Buddy and Scott's short-term agreement signed by both Scott and Buddy (the "2001 Agreement").26
The first numbered paragraph of the 2001 Agreement reads: "Buddy to give notice to Scott before transferring any money out of Jane's account at Raymond James."27 Mr. Speers presented credible and uncontroverted testimony that the language reflected the parties' understanding at the September 27, 2001 meeting that the WS/CBC Proceeds had been deposited into Jane's RJ Account.28 He further testified that the location of the WS/CBC Proceeds in Jane's RJ Account was discussed orally at the September 27, 2001 meeting.29 Mr. Speers further recalled the deposit of the WS/CBC Proceeds into the RJ Account in 2001, and testified that it was the only deposit into the RJ Account ranging in the "six figures" during the time he managed the account.30
The funds remained in the RJ Account until 2009 when Mr. Speers changed his firm's affiliation from Raymond James to TD Ameritrade. The RJ Account followed him to TD Ameritrade and a new brokerage account (the "TDA Account") was opened in Jane's sole name, again with Buddy holding only signatory rights over it.31 Buddy's signatory authority was not changed until August 14, 2013, when by letter Jane instructed TD Ameritrade to...
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