In re Brokers, Inc.

• Decision Date: 17 June 2009
• Docket Number: No. 04-53451.,04-53451.
• Citation: In re Brokers, Inc., 407 B.R. 693 (Bankr. M.D.N.C. 2009)
• Court: U.S. Bankruptcy Court — Middle District of North Carolina
• Parties: In re BROKERS, INC., Debtor.

407 B.R. 693

In re BROKERS, INC., Debtor.

No. 04-53451.

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

June 17, 2009.

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Paul Anthony Daniels, Teague, Rotenstreich, Stanaland, Fox & Holt, Benjamin A. Kahn, Christine L. Myatt, J. David Yarbrough, Jr., Greensboro, NC, for Debtor.

C. Edwin Allman, III, Winston-Salem, NC, for Creditor Committee.

MEMORANDUM OPINION

CATHERINE R. CARRUTHERS, Bankruptcy Judge.

THIS MATTER came on before the Court for trial in Winston-Salem, North Carolina upon the Objection by Brokers, Incorporated to Claim Number 16 of Hossein Ahmadi d/b/a/ H.B. Auto Sales after due and proper notice. Benjamin Kahn and Paul Daniels appeared on behalf of the Debtor, Brokers, Incorporated ("Brokers"), and Andrew Brown appeared on behalf of the Claimant, Hossein Ahmadi d/b/a H.B. Auto Sales ("HB Auto"). This is a core proceeding under 28 U.S.C. § 157(b)(2)(B) over which the Court has jurisdiction pursuant to 28 U.S.C. §§ 1334(b) and 157(a). The Court, having presided over the non-jury trial in this case, hereby makes the following findings of fact and conclusions of law pursuant to Rule 7052 of the Federal Rules of Bankruptcy Procedure after careful consideration of the extensive evidence presented by the parties, the credibility of the witnesses, and the pleadings of record.

Procedural History

On November 22, 2004 (the "Petition Date"), Brokers filed a voluntary petition for relief under Chapter 11 of the United States Bankruptcy Code. HB Auto was not noticed as a creditor in this proceeding and did not receive notice of the deadline for filing claims. On April 13, 2005, HB Auto filed a proof of claim (the "Claim") for a debt incurred in or around May 2002 in an unliquidated amount with a copy of a complaint attached. On April 27, 2005, the Court entered a consent order modifying the automatic stay for the limited purpose of permitting HB Auto to file a complaint in state court in order to prevent the running of the applicable statute of limitations and to serve the complaint on Brokers. The parties agreed that Brokers was not required to file an answer or any other responsive pleading in state court and that the matter would be litigated as a claim in the bankruptcy proceeding. The parties consented to this matter being heard by the bankruptcy court.

Accordingly, HB Auto filed the complaint against Brokers on April 29, 2005 in the North Carolina Superior Court, High Point Division, asserting claims for negligent damage to automobiles, negligent damage to business equipment, trespass to personalty, and punitive damages. In response, Brokers filed an objection to the Claim and this Court entered a scheduling order, which was amended numerous times, setting deadlines for various pleadings and discovery. The complaint was amended on July 16, 2007 (the "Complaint"), and a second scheduling order was entered and subsequently amended. On December 3, 2007, the Court entered an order denying Brokers's motion to dismiss HB Auto's claim for punitive damages. On March 4, 2008, the Court granted Brokers's motion for partial summary judgment dismissing HB Auto's claim for negligent damage to business equipment.

Background Facts

Prior to the death of its principal and sole shareholder, Dolan Bowers ("Bowers"), Brokers operated as a real estate holding, management, and development company. Its assets consisted primarily of real estate located in Davidson, Guilford, Montgomery and Randolph Counties. Bowers died testate on June 6, 2003. After significant litigation regarding the ownership of the Debtor, Bowers's heirs entered into a settlement agreement acknowledging that the estate of Bowers is the sole shareholder of the Debtor. On January 27, 2006, the Court confirmed a plan of liquidation pursuant to which all claims have been or will be paid in full. On the Chapter 11 Consummation Report filed on March 25, 2008, Brokers listed total known assets of the Debtor in the amount of $4,497,115.13 and estimated its total known remaining liabilities at $1,020,266.75 (including a reserve in the amount of $424,000.00 for HB Auto's Claim), leaving a total estimated net value of $3,476,848.38.

HB Auto leased property from Brokers located at 105 South Urban Street in Thomasville, North Carolina (the "Property") from about 1994 until the fall of 2004, upon which Hossein Ahmadi operated a used car dealership along with his younger brother, Hassan Ahmadi.¹ Hassan Ahmadi and Hossein Ahmadi are Iranian immigrants who have been legal residents in the United States for more than 25 years. According to the custom of their country of origin, HB Auto is in the name of Hossein Ahamdi, the older brother; however, the undisputed testimony by both Hossein Ahmadi and Hassan Ahmadi showed that Hassan Ahmadi, the younger brother, is more diligent and more responsible for running the business of HB Auto. The Ahmadis have been in the used car business since 1983, when they started a business in Thomasville, North Carolina on property also leased from Bowers. In 1989, the Ahmadis moved their business to Greensboro but remained in contact with Bowers despite the fact that HB Auto was no longer Bowers's tenant. Then, sometime in 1993 or 1994, the Ahmadis moved their business onto a portion of the Property owned by Brokers.² Brokers's main office was also located on this Property. The parties did not enter into a written lease agreement, and initially, Brokers did not charge HB Auto any rent. After a period of time, HB Auto began to pay Brokers $250 per month in rent. As time went on, HB Auto's business grew to the point that it had hundreds of vehicles. Brokers provided HB Auto with more space on the Property and increased the rent accordingly. By the time HB Auto vacated the Property, it was paying $750 per month in rent.

When the Ahmadis opened HB Auto on the Property in 1994, Hassan Ahmadi had a close relationship with Bowers, both business and personal. Hassan Ahmadi worked on Bowers's vehicles and also served as his limousine driver at times, and Bowers acted as more than merely a customer or employer to Hassan Ahmadi. For example, Bowers assisted Hassan Ahmadi with obtaining financing for the purchase of his first home in the early 1990's. Bowers also encouraged Brokers's employees to purchase vehicles from HB Auto by offering financing for those vehicles; therefore, many of Brokers's employees became customers of HB Auto. Hassan Ahmadi visited Bowers's home on numerous occasions and sought out Bowers's advice on a variety of matters. Hassan Ahmadi described the relationship as one in which he viewed Bowers as a father figure, since his own parents remained in Iran. Hassan Ahmadi's testimony on this subject was very credible, and Bowers's own actions in the 1990's also support this characterization. In contrast, Bowers did not have a close relationship with Hossein Ahmadi. Therefore, Hassan Ahmadi acted as the primary liaison between HB Auto and Brokers.

A Description of the Property

Generally, the Property is in the shape of a triangle, with the bottom side of the triangle running alongside the highway and the two other sides meeting at the point that is the furthest away from the highway. From 1994 to 2004, the Property was utilized by both Brokers and HB Auto. When viewing the Property from the direction of the highway, HB Auto's office was located in a trailer in the left corner of the Property, along the highway. HB Auto's main sales lot (the "HB Auto Sales Lot")³ was located in that same corner of the Property. Brokers's main office building was located in the middle of this front portion of the Property, to the right of the HB Auto Sales Lot. HB Auto also parked a number of vehicles in the area to the right of Brokers's main office building, when facing the Property from the highway (the "Overflow Lot").

Yet another lot, upon which Brokers stored equipment and materials and HB Auto parked cars, was behind the HB Auto Sales Lot (the "Middle Lot"). HB Auto parked junk cars and cars used for parts in an area that was behind both the Overflow Lot and Brokers's office building (the "Junk Lot"). Several other buildings and trailers belonging to Brokers were scattered behind the Middle Lot and the Junk Lot. In this area, the Property begins to slope downhill (the "Slope").

All of the lots utilized by HB Auto were on the front half of the Property, before the Slope. When HB Auto initially moved onto the Property, the back third of the Property was generally wooded. A U-shaped fence surrounded the front portion of the Property. The fencing stopped at the wooded portion in the back of the Property. On at least one occasion, this fence had been cut by vandals to gain access to the Property. At some point prior to March 2002, Brokers cleared most of the land in the back of the Property and created another lot by filling in a portion of the area at the bottom of the hill with dirt (the "Lower Lot"). When the Lower Lot was created, a type of filter pond was formed at the very bottom of the hill as a result of certain drainage issues. Brokers constructed a bridge which provided access to the Lower Lot from the adjacent property. Since the Lower Lot was located behind several of Brokers's buildings and trailers and at the bottom of a hill, the Lower Lot was not visible from the HB Auto Sales Lot or HB Auto's office.

The Business of HB Auto

HB Auto buys vehicles primarily at various automobile auctions in the Greensboro area and repairs and sells vehicles both at auctions and to the public from its place of business. The Ahmadis attend automobile auctions weekly, including the Greensboro Auto Auction, Ray's Southern Auto Auction, and...