In re McGinty, Bankruptcy No. 97-25269.
| Decision Date | 21 December 2000 |
| Docket Number | Adversary No. 97-2296.,Bankruptcy No. 97-25269. |
| Citation | 276 B.R. 489 |
| Parties | In re Judith Carol McGINTY, Debtor. Joseph DeWane and Celeste LaChapelle, Plaintiffs, v. Judith Carol McGinty, Defendant. |
| Court | U.S. Bankruptcy Court — Northern District of Mississippi |
James T. Allison, Memphis, TN, James W. Amos, Hernando, MS, for debtor.
Michael Coury, David M. Dunlap, Memphis, TN, William Dye, Oxford, MS, William M. Monroe, Memphis, TN, Jeff D. Rawlings, Madison, MS, Nina S. Tollison, Oxford, MS, for creditors.
On consideration before the court is a complaint filed by the plaintiffs, Joseph DeWane and Celeste LaChapelle, against the defendant/debtor, Judith Carol McGinty; answer and affirmative defenses having been filed by said defendant; all issues having been appropriately joined; and, after a trial on the merits, the court hereby finds as follows, to-wit:
I.
The court has jurisdiction of the parties to and the subject matter of this proceeding pursuant to 28 U.S.C. § 1334 and 28 U.S.C. § 157. This is a core proceeding as defined in 28 U.S.C. § 157(b)(2)(A), (I), (J), and (O).
II.
In the pretrial order, the plaintiffs described their causes of action as follows:
A. McGinty and Hearn have engaged in activity prohibited by 18 U.S.C. § 1962(c). While employed by or associated with the enterprise of Dean's Farms Antiques, they conducted or participated in the conduct of the enterprise's affairs through a pattern of racketeering activity within the meaning of 18 U.S.C. § 1961(c).
B. McGinty, Hearn, Dean Farms Antiques, and Dean Farms knowingly submitted invoices to LaChapelle and DeWane which were false and misleading, and made intentionally misleading and material misrepresentations of fact to LaChapelle and DeWane with the intent to deprive LaChapelle and DeWane of large sums of money. LaChapelle and DeWane relied to their detriment upon the representations.
C. The transactions between McGinty, d/b/a Dean Farms Antiques, Dean Farms, Hearn, and the Plaintiffs constituted an investment contract which is a "security" within the meanings of Section 2 and 5 of the Securities Act of 1933, 15 U.S.C. § 77 and 15 U.S.C. § 77e respectively. McGinty and Hearn, as control persons for Dean Farms Antiques, acted with the intent to deceive, manipulate and defraud Plaintiffs by making untrue statements of material fact regarding the investment contracts and the value of the goods and by omitting material facts which were necessary to make the statements made, in light of the circumstances in which they were made, not misleading.
D. Hearn and McGinty, with intent to hinder, delay, or defraud their creditors, have transferred, removed, destroyed, mutilated, or concealed property of their respective estates within one year before the date of the filing of the petition. Hearn and McGinty have concealed, destroyed, mutilated, falsified, or failed to keep or preserve any recorded information, including books, documents, records and papers from which their financial condition or business transactions might be ascertained, without justification.
The plaintiffs further set forth a summary of the ultimate facts supporting their claims as follows:
The Plaintiffs shall prove that the Defendants perpetrated a fraud upon them in a securities investment scheme whereby the Defendants took huge sums of money from the Plaintiffs as an "investment" with a promise that the "principal" would be returned to the Plaintiffs in a short period of time along with "interest" on the "principal" investment. This scheme also breached the RICO laws of the United States, as well as, the fiduciary duty of the Defendants to the Plaintiffs. These investments were represented to be without risk to the Plaintiffs. Defendants also fraudulently represented that certain goods which were sold to the Plaintiffs were of a given value and quality when, in fact, the goods were not of the stated value or quality. Defendants have failed to keep accurate records as a part of the scheme in order to frustrate inquiries by the "investors." The scheme has caused substantial damages to the Plaintiffs.
In her defense, McGinty set forth her summary of the ultimate facts as follows:
The Defendant, Judith McGinty, admits that in 1989 she and Plaintiff, LaChapelle, invested together in the purchase and resale of art and antiques and shared the profits on a pro-rata basis. That in the early 1990's LaChapelle introduced McGinty to DeWane. DeWane asked McGinty to decorate his office and his home. Many of the purchases made for the office and home were sold to DeWane at a price that included a commission for both McGinty and LaChapelle. Because the investments made by McGinty and LaChapelle were profitable, DeWane asked McGinty to include him on similar investments, which she did. There were basically two investments involving DeWane, although various amounts of money were given to McGinty in each investment as opposed to a single amount. The first investment was successfully completed, but the resale purchaser in the second investment became involved in a lengthy divorce and could not purchase the art work that McGinty had acquired with DeWane's money. McGinty offered to return the art work to him at DeWane's request.
McGinty admits that she owes DeWane $120,000.00, plus reasonable interest, but claims a credit for the value of the art work returned to him. McGinty denies that she owes anything to LaChapelle.
Thereafter, the parties stipulated to the following facts:
A. McGinty has pled guilty to a felony bad check charge in connection with antique business dealings with Curtis Spangler.
B. Joseph DeWane is a physician practicing medicine in Memphis, Tennessee.
C. Celeste LaChapelle is a registered nurse working in Memphis, Tennessee.
D. Judith McGinty is an expert in the buying and selling of antiques, art, and other collectible objects.
E. There was never any formal contractual agreement between McGinty and LaChapelle regarding their business ventures. The same is true for DeWane.
F. The checks attached to the Complaint that were written by McGinty to either LaChapelle or DeWane were dishonored by McGinty's bank for the reasons stated thereon.
G. The real property known as Dean Farms, located in DeSoto County, Mississippi, was purchased by McGinty and her mother Alice Hearn in December, 1986, with title having been taken in both of their names. On May 14, 1996, McGinty transferred her interest in Dean Farms to Alice Hearn. In August and October, 1997, Hearn and McGinty filed Chapter 11 bankruptcy cases, and in October, 1998, Dean Farms was sold by auction for a high bid that netted a total of $500,000.00.
H. Judith McGinty and Alice Hearn obtained 40 acres of land and improvements by deed from Mary A. Puckett Sewell and Joseph Sewell by Warranty Deed recorded in Deed Book 192, Page 456.
I. Alice Hearn obtained Judith McGinty's interest in the real property by deed recorded in Deed Book 300, Page 638.
J. Alice M. Hearn is the mother of Judith McGinty.
III.
The above captioned adversary proceeding was consolidated for trial with a proceeding styled Joseph DeWane and Celeste LaChapelle, Plaintiffs, versus Alice M. Hearn, Defendant, Adv.Proc. No. 97-2295. At the conclusion of the plaintiffs' proof, the court sustained a motion by the defendant, Hearn, to dismiss the complaint against her. A final order was entered on October 6, 1999, which was not appealed and now has become final.
IV.
As a part of this proceeding, as noted earlier, the plaintiffs sought to set aside as a fraudulent conveyance a transfer of real property, known as Dean Farms, from McGinty to Hearn pursuant to § 15-3-3, Miss.Code Ann. However, in a separate adversary proceeding filed by James M. Patton and Judy W. Patton against both McGinty and Hearn, the court set aside the transfer of McGinty's interest in the said real property. The property was thereafter vested equally in the estates of McGinty and Hearn. Pursuant to separate court orders, the property was sold at auction and the proceeds were distributed to Hearn, who claimed a homestead exemption in the property, and then to judgment creditors according to the priority of their respective liens. Insofar as the current adversary proceeding is concerned, this issue is now moot.
V.
In an effort to show a pattern of deceptive conduct on the part of McGinty, the plaintiffs introduced evidence of the following:
A. That McGinty pled guilty to a felony bad check charge in connection with antique business dealings with Curtis Spangler.
B. That James M. Patton and Judy W. Patton obtained a default judgment against McGinty on November 20, 1996, based on a complaint for fraud and deceit in the Chancery Court of Shelby County, Tennessee. This judgment, in the sum of $285,650.00, was subsequently enrolled in DeSoto County, Mississippi.
C. That William P. Chandler obtained a judgment against McGinty, as well as, Hearn, on February 21, 1997, in the Chancery Court & Shelby County, Tennessee, in the sum of $120,000.00, plus costs and attorney's fees. This judgment was based on the issuance of an insufficient funds check.
As noted earlier, the court dismissed the complaint filed against Hearn. There was also no proof offered to establish that Dean Farms and/or Dean Farms Antiques were anything more than trade names utilized by McGinty. These factors substantially dilute the plaintiffs' claims filed pursuant to 18 U.S.C. § 1962(c), the federal Racketeer Influenced and Corrupt Organizations Act (RICO). A brief discussion of the legal ramifications of these claims will be set forth hereinbelow.
VI.
Joseph DeWane is a licensed physician who practices medicine in Memphis, Tennessee. His claims against McGinty can be categorized as follows:
A. Participation in an "investment scheme" orchestrated by McGinty.
B. The acquisition of Leroy Neiman art works McGinty at exaggerated prices.
C. The acquisition...
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