Holtzclaw v. Morgan (In re Holtzclaw)

Decision Date27 August 2021
Docket NumberC/A No. 20-03558-HB,Adv. Pro. No. 21-80034-HB
Citation634 B.R. 920
Parties IN RE, Weldon Eugene HOLTZCLAW, Jr., Debtor(s). Weldon Eugene Holtzclaw, Jr., Plaintiff(s), v. Marjorie Morgan, Defendant(s).
CourtU.S. Bankruptcy Court — District of South Carolina

Robert H. Cooper, The Cooper Law Firm, Greenville, SC, for Plaintiff(s).

ORDER
Helen E. Burris, Chief US Bankruptcy Judge

THIS MATTER is before the Court on the motion to dismiss and abstain filed by Defendant Marjorie Morgan.1 Morgan requests the Court: (1) dismiss Plaintiff Weldon Eugene Holtzclaw's causes of action for resulting trust, quantum meruit, trespass upon property, conversion of property, and objection to proofs of claims due to a lack of subject matter jurisdiction under Fed. R. Civ. P. 12(b)(1) because they fall within the "domestic relations exception" to federal jurisdiction;2 (2) dismiss the causes of action for constructive trust, resulting trust, quantum meruit, trespass upon property, conversion of property, and objection to proofs of claims pursuant to Fed. R. Civ. P. 12(b)(6) for failure to state a claim upon which relief can be granted; and (3) abstain from hearing this adversary proceeding pursuant to 28 U.S.C. § 1334(c)(2) because it involves state law claims more appropriate for the family court to adjudicate. Holtzclaw filed a Response objecting to the requested relief.3

STANDARD OF REVIEW

"A defendant may challenge subject-matter jurisdiction in one of two ways: facially or factually." Beck v. McDonald , 848 F.3d 262, 270 (4th Cir. 2017) (citation omitted). "In a facial challenge, the defendant contends that a complaint simply fails to allege facts upon which subject matter jurisdiction can be based." Id. (quotation marks and citations omitted). The plaintiff "is afforded the same procedural protection as she would receive under a Rule 12(b)(6) consideration ..." Id. (quotation marks and citations omitted). "In that situation, the facts alleged in the complaint are taken as true, and the motion must be denied if the complaint alleges sufficient facts to invoke subject matter jurisdiction." Kerns v. United States , 585 F.3d 187, 192 (4th Cir. 2009). The "court evaluates the complaint in its entirety, as well as documents attached or incorporated into the complaint." E.I. du Pont de Nemours and Co. v. Kolon Indus., Inc. , 637 F.3d 435, 448 (4th Cir. 2011) (citations omitted). "The court can [also] consider ... concessions in the complainant's response to the motion to dismiss." Arturet-Velez v. R.J. Reynolds Tobacco Co. , 429 F.3d 10, 13 n.2 (1st Cir. 2005) (citations omitted). However, "materials outside the pleadings are not considered." In re Jones , 618 B.R. 757, 762 (Bankr. D.S.C. 2020) (quotation marks and citations omitted). If the Court considers materials "beyond these documents on a Rule 12(b)(6) motion ... it converts the motion into one for summary judgment." Kolon Indus., Inc. , 637 F.3d at 448 (citing Fed. R. Civ. P. 12(b), 12(d), and 56 ). "Such conversion is not appropriate where the parties have not had an opportunity for reasonable discovery." Id. at 448-49 (citations omitted).

Morgan's assertion that this Court lacks subject matter jurisdiction over certain causes of action because they fall within the "domestic relations exception" to federal jurisdiction is a facial attack. She also seeks to dismiss some causes of action pursuant to Fed. R. Civ. P. 12(b)(6) and the parties have not had an opportunity to engage in discovery. As a result, the Court will only consider and accept as true the factual allegations of Holtzclaw's Complaint and the admissions or clarifications gleaned from his Response to the Motion.

ALLEGATIONS OF THE COMPLAINT AND CONCESSIONS IN THE RESPONSE

In his Complaint, Holtzclaw alleges his father loaned him funds to purchase property located at 24 Goose Trail, Taylors, South Carolina ("Goose Trail Property"). He and Morgan then co-signed two promissory notes to fund the construction of a house on that property. He intended from the outset to pay all costs associated with the construction and ownership of the Goose Trail Property, investing over $300,000.00 to construct the home and improve the land.4

The deed to the Goose Trail Property only bears Morgan's name. However, Holtzclaw alleges he never intended to gift any portion of the property to Morgan and the parties never intended for Morgan to possess any ownership interest beyond holding title. Morgan was to hold only bare legal title because she was better able to obtain a construction loan and mortgage and was to later convey the Goose Trail Property to Holtzclaw. The Complaint fails to allege when this transfer was to occur or under what conditions. Holtzclaw alleges he has resided at the Goose Trail Property since the house was constructed, while Morgan has never lived there nor contributed to the improvement of the property.

Morgan asserts that she and Holtzclaw are married. On June 1, 2020, Morgan filed a complaint against Holtzclaw in the Greenville County, South Carolina Family Court, Thirteenth Judicial Circuit ("Family Court"), Marjorie Morgan v. Weldon Eugene Holtzclaw, Jr. , C/A No. 2020-DR-23-1803 (the "Domestic Proceeding"). In the Domestic Proceeding, Morgan seeks, inter alia , dissolution of a purported marriage between her and Holtzclaw, spousal support, and an equitable distribution of property that includes the Goose Trail Property and property located at 12 West Darby Road, Greenville, South Carolina ("West Darby Property"). Holtzclaw asserts he and Morgan are not legal nor common law spouses and, therefore, she is not entitled to spousal support or an equitable division of property.

Despite Holtzclaw's denials, the Family Court entered an order on July 31, 2020 ("Family Court Order"), requiring, inter alia , that:

1. As an incident of support, within ten (10) days of the filing of this Order, [Holtzclaw] shall ... pay the money necessary to bring all mortgage debt, property taxes, and insurance associated with the 12 West Darby Road, Greenville, South Carolina real property current and in good standing.
2. As an incident of support, beginning immediately, [Holtzclaw] shall timely pay all mortgage debt, property taxes, and insurance associated with the 12 West Darby Road, Greenville, South Carolina real property.
3. [Morgan] shall maintain temporary, exclusive use and possession of the former marital home located at 12 West Darby Road, Greenville, South Carolina, together with all furniture and fixtures located in this residence.
. . .
5. Each party shall be restrained from being physically present at the residence of the other party.
. . .
12. [Holtzclaw] shall maintain temporary exclusive possession of the home and real property located at 24 Goose Trail, Taylors, South Carolina, and timely pay and keep current any mortgage payments, taxes or insurance associated with this property.

Before the Domestic Proceeding was concluded, Holtzclaw filed a voluntary petition for Chapter 11 relief on September 15, 2020. Morgan has filed three proofs of claims asserting her interest in the bankruptcy estate.

Holtzclaw resides at the Goose Trail Property and Morgan resides at the West Darby Property. Holtzclaw asserts he also owns the West Darby Property5 and Morgan allows her adult children and minor grandchildren to occupy it without giving valuable consideration in exchange for such use and without the permission of either the Family Court or this Court. Holtzclaw claims this deprives both himself and his creditors of the fair market value of rent for the West Darby Property, constitutes a trespass on his property, and seeks redress in this proceeding. Holtzclaw also alleges Morgan is holding and has refused to allow Holtzclaw to retrieve certain personal property, financial documents, and other miscellaneous property from that location.

Holtzclaw filed this adversary proceeding on June 21, 2021, claiming a one hundred percent (100%) equitable interest in the Goose Trail Property under theories of constructive trust, resulting trust, and/or quantum meruit and asserts it is property of the estate despite the fact it is titled in Morgan's name. He also seeks to restrict Morgan's use of the West Darby Property and objects to her proofs of claims. To accomplish this, Holtzclaw labels the following causes of action: (1) property of the estate; (2) constructive trust; (3) resulting trust; (4) quantum meruit; (5) turnover of property of the estate; (6) trespass; (7) conversion of property; and (8) objection to proofs of claims.6 Morgan disagrees and asserts rights through her claim of a marriage between the parties in the Domestic Proceeding pending before the Family Court, and her proofs of claim filed herein.

DISCUSSION AND CONCLUSIONS
I. SUBJECT MATTER JURISDICTION

Morgan relies on the "domestic relations exception" in support of her argument that this Court does not have jurisdiction to adjudicate Holtzclaw's causes of action for resulting trust, quantum meruit, trespass, conversion of property, and objection to proofs of claims. This jurisdictional exception dates to 1858, when the Supreme Court "disclaim[ed] altogether any jurisdiction in the courts of the United States upon the subject of divorce, or for the allowance of alimony ..." Barber v. Barber , 62 U.S. 21 How. 582, 584, 16 L.Ed. 226 (1858). That holding was later reviewed and limited by Ankenbrandt v. Richards , 504 U.S. 689, 112 S.Ct. 2206, 119 L.Ed.2d 468 (1992), where the issue before the Supreme Court was "whether federal courts have jurisdiction ... when the sole basis for federal jurisdiction is the diversity-of-citizenship provision of 28 U.S.C. § 1332." Id. at 691, 112 S.Ct. 2206. The Supreme Court held that "the domestic relations exception ... divests the federal courts of power to issue divorce, alimony, and child custody decrees." Id. at 703, 112 S.Ct. 2206.

The Fourth Circuit, as well as several other Circuit Courts, has held that the reasoning of Ankenbrandt and the...

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