In re Brokers, Inc.

• Decision Date: 17 October 2008
• Docket Number: Adversary No. 04-06074.,Bankruptcy No. 04-53451.
• Citation: 396 B.R. 146
• Court: U.S. Bankruptcy Court — Middle District of North Carolina
• Parties: In re BROKERS, INCORPORATED. Debtor. Carlton Eugene Anderson, et al, Plaintiffs, v. Brokers, Incorporated et al, Defendants.

396 B.R. 146

In re BROKERS, INCORPORATED. Debtor.

Carlton Eugene Anderson, et al, Plaintiffs, v. Brokers, Incorporated et al, Defendants.

Bankruptcy No. 04-53451.

Adversary No. 04-06074.

United States Bankruptcy Court, M.D. North Carolina, Winston-Salem Division.

October 17, 2008.

Benjamin A. Kahn, Christine L. Myatt, J. David Yarbrough, Jr., Paul Anthony Daniels, Teague, Rotenstreich, Stanaland, Fox & Holt, Stuart C. Gauffreau, Hagan, Davis, Mangum, et al, PLLC, Greensboro, NC, for Debtor/Defendants.

Joseph R. Beatty, Hill, Evans, Duncan, Jorda, & Beatty, Martha R. Sacrinty, R. Thompson Wright, Greensboro, NC William Edward West, Jr., Winston-Salem, NC, for Plaintiffs.

Scott C. Gayle, Greensboro, NC, pro se.

MEMORANDUM OPINION

CATHARINE R. CARRUTHERS, Bankruptcy Judge.

THIS MATTER came on before the court for trial on July 22, 2008 and July 24, 2008 in Winston-Salem, North Carolina after due and proper notice. Alexander Barrett and Stuart Gauffreau appeared on behalf of Brokers, Incorporated ("Brokers" or "Debtor"), and Joseph R. Beatty and R. Thompson Wright appeared on behalf of Carlton Eugene Anderson, Terri W. Anderson and T.W. Anderson, LLC (collectively referred to as the "Anderson Parties"). Having reviewed the evidence, considered the arguments of counsel and the testimony of witnesses, the court makes the following findings of fact and conclusions of law pursuant to Rule 7052 of the Federal Rules of Bankruptcy Procedure:

PROCEDURAL HISTORY

On March 9, 2004, Carlton Eugene Anderson ("Mr.Anderson") filed a Complaint against Brokers in Guilford County Superior Court asserting claims for breach of partnership agreement, breach of contract to convey real property, breach of employment contract, breach of obligations under a note and foreclosure on deed of trust, and for a partnership accounting and winding down. Contemporaneously with the filing of the Complaint, Mr. Anderson filed a lis pendens.

Brokers filed an Answer asserting defenses including the statute of limitations, statute of frauds, and unclean hands and asserting Counterclaims against Mr. Anderson for constructive fraud, breach of fiduciary duty, rescission of deed, constructive trust and accounting, damages and unfair and deceptive acts under N.C. Gen.Stat. § 75-1.1. Brokers also asserted claims for a constructive trust and accounting, unfair and deceptive acts under N.C. Gen.Stat. § 75-1.1, and damages against Terri W. Anderson ("Mrs. Anderson") and T.W. Anderson, LLC (the "LLC").

On November 22, 2004, Brokers filed a voluntary petition for relief under Chapter 11 of the United States Bankruptcy Code, and subsequently, the Complaint and Counterclaims were removed to this court for adjudication and resolution. On March 8, 2007 the court entered a Memorandum Opinion and Order Denying in Part and Granting in Part Motions for Summary Judgment (the "Summary Judgment Order"). In that order, the court dismissed Mr. Anderson's claims for breach of partnership agreement, breach of employment contract, breach of contract to convey real property, breach of obligations under the note and foreclosure on a deed of trust, as well as a partnership accounting and winding down. The court granted Brokers' motion for summary judgment on its counterclaims against Mr. Anderson for constructive fraud and breach of fiduciary duty, rescission of deed, and constructive trust and accounting. The court denied summary judgment on Brokers' counterclaim against Mr. Anderson for unfair and deceptive acts under N.C. Gen.Stat. § 75-1.1. The court did not include a judgment for a specific monetary amount in the Summary Judgment Order.

Subsequent to the entry of the Summary Judgment Order, the court entered a judgment rescinding and cancelling deeds, as well as a Consent Order Granting Brokers' Motion for Entry of an Order Enforcing the Terms of the Summary Judgment Order with respect to the Constructive Trust Claim (the "Constructive Trust Order") providing, among other things, that the Anderson Parties immediately return to Brokers any and all property of Brokers that is in their custody or control.

As a result of the foregoing, the parties agree that the only issues remaining for trial are:

(1) Whether Mr. Anderson, Mrs. Anderson, and/or the LLC are liable to Brokers under N.C. Gen.Stat. § 75-1.1;

(2) Whether Mrs. Anderson and the LLC are jointly and severally liable to Brokers along with Mr. Anderson, whose liability has already been determined, with respect to the constructive trust claim;

(3) The amount of Brokers' actual damages;

(4) Whether Mr. Anderson is liable to Brokers for punitive damages, and if so, in what amount; and

(5) Whether the Anderson Parties are liable to Brokers for attorneys' fees and costs.

FACT SYNOPSIS FROM SUMMARY JUDGMENT ORDER

The court reaffirms and incorporates the Summary Judgment Order as if fully set forth herein, however for ease of reference, a summary of those findings and conclusions is set forth below:

1. Brokers, the defendant in this proceeding, is a corporation organized and existing under the laws of North Carolina with its principal place of business in Davidson County, North Carolina. Prior to the death of its principal and sole shareholder Dolen Bowers ("Bowers"), Brokers operated as a real estate holding, management, and development company with assets primarily consisting of real property located in Davidson, Guilford, Montgomery, and Randolph Counties. Bowers died testate on June 6, 2003.

2. Mr. Anderson first began working with Brokers in the construction business in 1991 or 1992. On December 10, 1993, Mr. Anderson agreed to work with Brokers to develop property located at 3001 Meridian Avenue (the "Meridian Property"). This agreement was allegedly memorialized in a written contract (the "Joint Venture Agreement"), however, on summary judgment the parties disputed whether this document was ever actually executed.

3. The development of the Meridian Property was never commenced due to zoning issues, but Mr. Anderson continued to work for Brokers. Mr. Anderson asserted that in 1994, the Joint Venture Agreement was orally modified to include construction projects on other properties owned by Brokers. Nevertheless, the court found that no legal partnership existed between Mr. Anderson and Brokers.

4. The books and records of Brokers treated Mr. Anderson as an independent contractor. Accordingly, from 1993 through 2003, Mr. Anderson received weekly wages from Brokers in exchange for his labor. Eventually, Mr. Anderson was appointed Vice President of Brokers.

5. Plaintiff Nelson Kirby Hodge ("Hodge") began working as an employee of Brokers in 1998 and served as an officer of Brokers from 1999-2003. His responsibilities included supervising Brokers' rental properties, collecting rent, marketing rental properties, and supervising Brokers' operating budgets.

6. Upon the death of Bowers on June 6, 2003, Mark Preston ("Preston") and Calvin Bryant ("Bryant") were appointed co-executors of Bowers' estate. The ownership of Brokers became a matter in dispute.

7. On July 6, 2003, Mr. Anderson and Hodge, the only directors of Brokers at that time, held a board meeting at which Mr. Anderson was elected President and Hodge was elected Secretary and Treasurer. Scott Gayle ("Gayle") was retained as corporate counsel.

8. On August 7, 2003, Mr. Anderson caused Brokers to transfer to himself the sum of $25,000.00. On August 18, 2003, Mr. Anderson and Hodge held a special meeting of the board of directors at which they voted in favor of a resolution providing for the sale of a promissory note executed by the Koury Corporation in favor of Brokers in the principal sum of $380,000.00 to Sherrill and Peggy Morris for the discounted sum of $372,400.00.

9. On August 26, 2003, Bowers' son, Tony Bowers, was appointed as a director of Brokers. Immediately after being named as a director, Tony Bowers participated in a special meeting during which he ratified the actions that had been taken by Mr. Anderson and Hodge as directors since his father's death. Around this same time, Mr. Anderson represented to both Hodge and Tony Bowers that he was party to a binding partnership agreement with Brokers. Mr. Anderson then presented Brokers with a request for payment in the amount of $3,070,258.30, which Mr. Anderson claimed was the amount of profit to which he was entitled pursuant to the Joint Venture Agreement.

10. On August 27, 2003, Mr. Anderson, Hodge, and Tony Bowers caused Brokers to execute a promissory note (the "Note") in favor of Mr. Anderson in the original principal sum of $2,517,611.90 which was due in full in six months. The Note was executed by Mr. Anderson as President of Brokers. To secure the obligations under the Note, Mr. Anderson also executed a deed of trust on behalf of Brokers (the "Deed of Trust") encumbering certain real property owned by Brokers, including 18 different tracts of land, some of which consisted of multiple lots, with a value of over $3.9 million. Hodge signed both the Note and the Deed of Trust as Secretary of Brokers. At the same time, Hodge executed a check from Brokers' account in favor of Mr. Anderson in the amount of $370,000.00.¹

11. On August 28, 2003, Brokers paid Mr. Anderson an additional $182,646.00 from Brokers' account at Bank of North Carolina. The following week, on September 2, 2003, the directors approved the sale of the Meridian Property to Mr. Anderson for $205,000.00. Mr. Anderson paid Brokers only $41,000.00 for the Meridian Property and set off the remaining amount against amounts allegedly owed to him by Brokers. During the six month period that Mr. Anderson acted as President of Brokers, he also used Brokers' credit card to incur charges for various personal expenses and, rather than reimburse Brokers for these personal charges, Mr. Anderson set off the amounts against the Note.

12. The transfer of the Meridian Property, the Note, the Deed of Trust, as well as over...