Indus. Dev. Auth. of Town of Front Royal & Cnty. of Warren v. Poe (In re Poe)
| Decision Date | 18 July 2022 |
| Docket Number | CIVIL 1:21-CV-867,Bankruptcy 21-10048-KHK |
| Parties | In re JESSE FORREST POE, Debtor. v. JESSE FORREST POE, Appellee. INDUSTRIAL DEVELOPMENT AUTHORITY OF THE TOWN OF FRONT ROYAL AND THE COUNTY OF WARREN, VIRGINIA A/K/A ECONOMIC DEVELOPMENT AUTHORITY OF THE TOWN OF FRONT ROYAL AND THE COUNTY OF WARREN, VIRGINIA, Appellant, Adversary No. 21-01032-KHK |
| Court | U.S. District Court — Eastern District of Virginia |
At issue in this bankruptcy appeal is whether the Bankruptcy Court correctly granted the Debtor's motion to dismiss thus discharging a disputed debt between the parties. The plaintiff appellant, the Economic Development Authority of the Town of Front Royal and the County of Warren, Virginia (hereinafter referred to as the “Warren EDA”) sued Debtor-appellee Jesse Forrest Poe (hereinafter “Poe”) in Virginia state court, raising claims against Poe of fraud, unjust enrichment, conversion, and conspiracy. In the Virginia state court proceedings, Poe filed a plea in bar to dismiss the complaint, arguing that the Warren EDA's claims were barred by Virginia's statute of limitations, an argument the state court rejected. After the state court denied Poe's plea in bar, Poe subsequently filed for Chapter 7 bankruptcy in the United States Bankruptcy Court for the Eastern District of Virginia. In the course of the bankruptcy proceedings, Poe sought to discharge any potential liability relating to Warren EDA's still-pending state court suit. The Warren EDA filed an adversary complaint against Poe in the bankruptcy proceeding, arguing that any debt Poe owed to the Warren EDA was not dischargeable in bankruptcy because the debt was the result of Poe's larceny and/or willful or malicious injury to the Warren EDA. Poe moved to dismiss the Warren EDA's bankruptcy complaint, repeating the statute of limitations arguments rejected by the Virginia state court. The Bankruptcy Judge agreed with Poe, concluding that the debt was time-barred, and thus dismissed the Warren EDA's complaint. This effectively discharged the debt. The Warren EDA timely filed this appeal, which the parties have fully briefed. The parties waived oral argument, and thus this appeal is ripe for disposition.
Analysis of this bankruptcy appeal properly begins with a discussion of the Warren EDA's Virginia state court suit filed against Poe and various co-defendants, as the disputed debt arises from the Warren EDA's claims against Poe in that state court proceeding.
Appellant the Warren EDA is an economic and business development organization supporting the town of Front Royal, Virginia and the County of Warren, Virginia. Jennifer McDonald served as the Executive Director of the Warren EDA from at least 2014 until 2018. See First Amended Complaint (“Amended State Court Complaint”) (Dkt. 2-1 at 165). The Warren EDA officials came to believe that McDonald had engaged in various schemes to embezzle and misappropriate funds from the Warren EDA for McDonald's personal benefit. On March 26, 2019, after investigating McDonald's conduct, the Warren EDA filed a suit in Warren County, Virginia against McDonald, alleging that during her tenure as Executive Director, McDonald conspired with various codefendants to embezzle funds and defraud the Warren EDA for McDonald's personal benefit.[1] The initial state court complaint, which did not include any allegations against Poe, alleged counts of fraud, conversion, conspiracy, unjust enrichment, breach of fiduciary duty, and ultra vires transactions against McDonald and numerous codefendants.
On October 14, 2019, after further investigation revealed Poe's role in McDonald's scheme, the Warren EDA amended its state court complaint to add Poe as a co-defendant and to detail Poe's involvement in McDonald's scheme. See Amended State Court Complaint at 167. The Amended State Court Complaint alleges that McDonald wrote a cashier's check from the Warren EDA's account to Poe for $285,000 and that on July 31, 2015, Poe used that check to purchase a property in Stephens City, Virginia. See id. at 204-05. The Amended State Court Complaint further alleges that Poe delivered the ill-gotten cashier's check to Service Title of Front Royal to buy the Stephens City property. Upon the closing of the sale of the Stephens City property, Service Title of Front Royal in turn gave Poe a check of $2,475.60, representing the balance of value of the cashier's check less the property purchase price. Id.
Four months later, in November 2015, Poe allegedly listed the Stephens City property for sale, with McDonald, who is also a licensed realtor, serving as the real estate agent. In January 2016, Poe sold the property for $269,000 and allegedly retained the sale proceeds. The Amended State Court Complaint does not allege any direct contact between the Warren EDA and Poe, but rather alleges that Poe received embezzled funds from McDonald and used those funds to purchase the Stephens City property. The Amended State Court Complaint alleged claims of fraud, conversion, unjust enrichment, and conspiracy against Poe. See Dkt. 2-1 at 207-10.
After the Warren EDA filed its Amended State Court Complaint against Poe, Poe filed a plea in bar in the state court proceedings, see Dkt. 2-1 at 233-42, arguing that the Warren EDA's claims against him were barred by the statute of limitations. In that plea in bar, Poe argued that in Belcher v. Kirkwood, 383 S.E.2d 729 (Va. 1989), the Supreme Court of Virginia held that claims of unjust enrichment are subject to a three-year statute of limitations.[2] See Dkt. 2-1 at 234-36. Poe argued that the Warren EDA's Amended State Court Complaint was thus barred by the statute of limitations because the amended complaint was filed in October 2019, while the alleged unjust enrichment occurred in 2015, more than three years prior. The plea in bar was fully briefed and argued in state court, and on August 28, 2020 the state court judge issued a one-page order denying the plea in bar. See Dkt. 2-1 at 252. The state court suit remains pending.
On January 13, 2021, several months after the state court denied Poe's statute of limitations plea in bar, Poe filed a Chapter 7 bankruptcy petition in the United States Bankruptcy Court for the Eastern District of Virginia. In his bankruptcy petition, Poe claimed a disputed debt with the Warren EDA of $21,000,000; this debt stems from the Warren EDA's claims against Poe in the state court suit.[3] On June 3, 2021, the Warren EDA filed an adversary complaint and thus initiated an adversary proceeding in Poe's bankruptcy litigation. In that complaint, the Warren EDA alleged that the debt Poe owed to Warren EDA was not dischargeable in bankruptcy proceedings. In this respect, the Warren EDA argued that Poe's knowing use of misappropriated funds was a non-dischargeable debt pursuant to 11 U.S.C. § 523(a). In relevant part, § 523(a) prohibits bankruptcy courts from discharging any debt “for fraud ... embezzlement, or larceny” and “for willful and malicious injury by the debtor to another entity or to the property of another entity.” 11 U.S.C. § 523(a)(4),(a)(6).
On June 4, 2021, the Bankruptcy Court entered an order discharging Poe's debts, but that order excepted from discharge any debts which are not dischargeable under § 523. Thereafter, on June 22, 2021, Poe filed in the Bankruptcy Court a motion to dismiss the Warren EDA's complaint under Rule 12(b)(6), Fed.R.Civ.P. Poe's motion to dismiss renewed Poe's argument, previously made in Virginia state court and rejected in state court, that the Warren EDA's claims against Poe were time-barred by Virginia's three-year statute of limitations for oral contracts. The motion was fully briefed, and the Bankruptcy Court held a hearing on the motion on July 6, 2021. The Warren EDA argued before the Bankruptcy Court (i) that the state court had already adjudicated the statute of limitations argument and Poe should thus be collaterally estopped from relitigating the issue and, (ii) in any event, the state court had reached the correct result and the claims were not time-barred.
In the course of the hearing on the motion to dismiss, the Bankruptcy Court reasoned that a denial of a demurrer was not entitled to collateral estoppel under Virginia law. Reaching the merits of the statute of limitations argument, the Bankruptcy Court reasoned that the Supreme Court of Virginia's decision in Belcher v. Kirkwood applied to the Warren EDA's claim for unjust enrichment. The Bankruptcy Court thus held that Virginia Code § 8.01-246(4)(ii), which applies to actions relating to breach of an oral contract and imposes a three-year statute of limitations, applied to all of the Warren EDA's claims against Poe. The Bankruptcy Court further explained during the hearing:
July 6, 2021 Bankruptcy Court Transcript (Dkt. 3 at 22). The Bankruptcy Court issued a one-page order granting Poe's motion to dismiss the Warren EDA's adversary complaint. The Warren EDA timely appealed that order, and jurisdiction to hear this appeal here is provided by 28 U.S.C. § 158(a)(1).
This case involves review of the Bankruptcy Court's grant of Poe's motion to dismiss the complaint. The district court reviews “the bankruptcy court's legal conclusions de novo and its factual findings for clear error.” In re Harford Sands Inc., 372 F.3d 637, 639 (4th Cir. 2004). To the extent the...
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