Ivester v. Miller, Civil Action No. 1:07cv00217.
| Citation | 398 B.R. 408 |
| Decision Date | 04 December 2008 |
| Docket Number | Civil Action No. 1:07cv00217. |
| Parties | Douglas R. IVESTER, Jr., and Barbara C. Ivester, Appellants, v. William P. MILLER, Trustee, Appellee. |
| Court | U.S. District Court — Middle District of North Carolina |
Gerald S. Schafer, Greensboro, NC, for Debtor.
James J. Hefferan, Jr., Kilpatrick Stockton, L.L.P., Winston-Salem, NC, for Appellant.
William P. Miller, High Point, NC, pro se.
This is an appeal from a decision of the bankruptcy court denying appellants Douglas R. Ivester, Jr., and Barbara C. Ivester (collectively, "the Ivesters") relief from the automatic stay in order to prosecute a pre-petition state court action against debtor Timothy L. Bradshaw ("Bradshaw"). For the reasons stated herein, the bankruptcy court's decision is affirmed.
Bradshaw served as a financial advisor to the Ivesters from 2003-04. (Doc. 9 at 6.) During this time, the Ivesters placed almost one million dollars, representing virtually all of their retirement savings, under his management. (Id. at 6, 7.) Bradshaw invested this money in a scheme, known as the Capital Appreciation Program ("CAP"), involving the sale and leaseback of mobile billboards, a form of advertisements mounted on trucks that roamed streets and highways. (Id. at 5-6.) Bradshaw allegedly falsely represented that the investments were fully secured and would be returned upon demand. (Id. at 6.) Only a fraction of the purchased billboards were actually produced. (Id.) The Ivesters charge that Bradshaw's CAP constituted an illegal Ponzi scheme, selling illegal securities that netted them a total return of only $55,219.57 from their nowexhausted principal investment. (Id. at 6, 7.) Unknown to the Ivesters at the time, halfway through the investment period the North Carolina Secretary of State issued a cease and desist order against Bradshaw and his related entities. (Id. at 7.) Bradshaw stunningly chose not to disclose the order for five months, enabling him to swindle the Ivesters out of hundreds of thousands of dollars more (Id. at 7 n. 4), sadly proving yet again Aesop's ancient aphorism that "greed oft o'erreaches itself."
Bradshaw also served as the president, sole member, and manager of Alternative Financial Concepts, L.L.C. ("AFC"), a North Carolina limited liability company. (Id. at 5); In re Bradshaw, No. 06-11111, 2007 WL 542161, at *1, 2007 Bankr.LEXIS 618, at *3 (Bankr.M.D.N.C. Feb. 16, 2007). The Ivesters allege that, beginning in September 2003, Bradshaw transferred substantial sums of money from AFC's bank accounts to other bank accounts that he, or his wife, Fredia Bradshaw, controlled. (Doc. 9 at 8.) These transfers included more than $90,000 to the bank account of the Lyndsey Foundation, a special purpose trust organized and controlled by Bradshaw and his wife; $100,000 to a brokerage account in Bradshaw's name and subsequently to an account at American Partners Federal Credit Union in Fredia Bradshaw's name; $134,500 to Publish-Town, L.L.C., a North Carolina limited liability company controlled by Bradshaw; and $425,000 to a joint bank account in the name of Bradshaw and his wife. (Id.); In re Bradshaw, No. 06-11111, 2007 WL 542161, at *2, 2007 Bankr.LEXIS 618, at *4. The Bradshaws also allegedly used $124,910.44 from AFC's bank account to make a down payment on a home located on Woods End Lane in Greensboro, North Carolina.2 (Doc. 9 at 8 n. 5.)
On February 10, 2005, the Ivesters sued Bradshaw, his wife, and AFC in the Superior Court of Davie County, North Carolina, alleging violations of North Carolina law governing securities, fraud and breach of fiduciary duty, and fraudulent transfers (the "state court action").3 (Id. at 8-9.) On February 11, 2005, an order of attachment was issued in the state court action and levied upon a joint bank account held by Bradshaw and his wife at Branch Banking and Trust ("BB & T") in the amount of $4,612.07 and a bank account held by AFC at BB & T in the amount of $616.57, pending judgment. (Id. at 9, 9 n. 7.) The Guilford County Sheriff also levied upon the Woods End Lane property, and a certificate of levy was entered on the lis pendens docket on October 21, 2005. (Id. at 9 n. 7.) In March 2005, additional attachment orders were issued in the state court action and levied upon an account in the name of Fredia Bradshaw at American Partners Federal Credit Union in the amount of $55,971.29, an account held by PublishTown at BB & T in the amount of $13,894.63, and an account held by the Lyndsey Foundation at Wachovia Bank in the amount of $7,199.23. (Id. at 9.)
On December 1, 2005, the Davie County Superior Court granted partial summary judgment in favor of the Ivesters, holding Bradshaw and AFC jointly and severally liable for $915,280.43, plus interest, costs and attorneys' fees on the claim of offering and selling unregistered securities in violation of North Carolina law.4 (Id. at 10.) Trial on the remaining claims was scheduled for October 2, 2006, but Bradshaw filed a bankruptcy petition under Chapter 7 of the United States Bankruptcy Code on September 21, 2006, which stayed further activity. (Id.) The Ivesters filed a motion for relief from automatic stay on December 14, 2006. (Id. at 10-11.) Shortly thereafter, the Trustee removed the state court action to the United States District Court for the Middle District of North Carolina (which referred the case to the bankruptcy court), pursuant to Rule 9027 of the Federal Rules of Bankruptcy Procedure,5 and filed an objection to the motion for relief from stay.6 In re Bradshaw, No. 06-11111, 2007 WL 542161, at *2, 2007 Bankr.LEXIS 618, at *5-6.
On January 10, 2007, the Trustee instituted an adversary proceeding, pursuant to section 548 of the Bankruptcy Code, seeking a determination that Fredia Bradshaw, AFC, the Lyndsey Foundation, and PublishTown were alter egos of Bradshaw and to set aside certain transfers of property to them. (Doc. 5 Ex. 11 at 12-13, 15-16, 16-17.) The Ivesters never sought to intervene in the adversary proceeding.
Following a hearing, the bankruptcy court denied the Ivesters' motion for relief from the automatic stay on February 16, 2007. In re Bradshaw, No. 06-11111, 2007 WL 542161, at *1, 8, 2007 Bankr.LEXIS 618, at *3, 25. In material part, the court concluded that the Ivesters' interests in the attached property were not perfected because no final judgment was entered, thus subordinating their interests to the Trustee's strong arm powers. Id. at *4, 6, 2007 Bankr.LEXIS 618, at *12, 19. To grant relief from stay so the Ivesters could obtain a final judgment, the court held, would prejudice the estate and other unsecured creditors. Id. at *3, 2007 Bankr.LEXIS 618, at *8. Thus, no relief from stay was warranted under the Bankruptcy Code, the bankruptcy court concluded, either on a mandatory or discretionary basis. Id. at *3, 8, 2007 Bankr.LEXIS 618, at *8, 25.
The Ivesters filed the instant appeal on February 26, 2007. (Doc. 9 at 5.) During the pendency of this appeal, the bankruptcy court entered default against Bradshaw in the fraudulent transfer adversary proceeding , and granted summary judgment to the Trustee. Miller v. Alternative Fin. L.L.C. (In re Bradshaw), No. 07-2003, Order Granting Summary Judgment 2 (Bankr.M.D.N.C. Aug. 3 2007). The parties reported at oral argument that the bankruptcy court has also denied the Ivesters' motion to remand the state court action, which has remained stayed.
This court has jurisdiction pursuant to 28 U.S.C. § 158(a)(1) and Fed. R. Bankr.P. 8001(a). On appeal, a district court reviews a bankruptcy court's findings of fact for clear error and its conclusions of law de novo. Fed. R. Bankr.P. 8013; Devan v. Phoenix Am. Life Ins. Co. (In re Merry-Go-Round Enters., Inc.), 400 F.3d 219, 224 (4th Cir.2005). A court "may affirm, modify, or reverse a bankruptcy judge's judgment, order, or decree or remand with instructions for further proceedings." Fed. R. Bankr.P. 8013.
The Ivesters claim that their prejudgment attachment liens levied upon the real and personal property in the state court action give them priority over the Trustee as to those assets and contend that the bankruptcy court erred in refusing on the brink of trial to grant relief from stay to allow them to proceed to judgment. Specifically, the Ivesters challenge the bankruptcy court's conclusions that (1) their attachment liens failed to grant them priority over the Trustee on behalf of other unsecured creditors; (2) they did not qualify for mandatory relief from the automatic stay, pursuant to 11 U.S.C. §§ 362(b)(3) and 546(b)(1)(A); (3) they failed to demonstrate sufficient "cause" to warrant discretionary relief from the automatic stay, pursuant to 11 U.S.C. § 362(d)(1); and (4) they lacked standing to prosecute their fraudulent transfer claims. (Doc. 9 at 2-3.)
The Trustee argues that the Ivesters' attachment liens were not "valid and perfected" under state law because the liens required a final judgment, thereby subordinating the Ivesters' interest in the property to that of the Trustee. (Doc. 11 at 12.) He further argues that the bankruptcy court did not err in denying relief from stay on a mandatory basis because the attachment liens do not fall within the exception of sections 362(b)(3) and 546(b)(1)(A). (Id. at 21-22.) The Trustee finally argues that the Ivesters lack standing to pursue their claims because the claims are so similar in object and purpose to those in the Trustee's fraudulent conveyance action as to be reserved solely to the Trustee and, now that the bankruptcy court has granted summary judgment in that action, the state court action is barred under the doctrine of res judicata, mooting further consideration. (Id. at 8, 22-23.)
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