Ivey v. ES2, LLC (In re ES2 Sports & Leisure, LLC)

• Decision Date: 23 December 2015
• Docket Number: Case No. 14–10412,Adv. Pro. No. 14–02035
• Citation: 544 B.R. 833
• Court: U.S. Bankruptcy Court — Middle District of North Carolina
• Parties: In re: ES2 Sports & Leisure, LLC, (d/b/a "Proehlific Club at Forest Oaks"), Debtor. Charles M. Ivey, III, Chapter 7 Trustee for the Estate of ES2 Sports & Leisure, LLC, Plaintiff, v. ES2, LLC (d/b/a "Es2 Services and Solutions"), Matthew J. Birely (a/k/a "Matt Birely"), David J. Hess, and George Hess, Defendants.

544 B.R. 833

In re: ES2 Sports & Leisure, LLC, (d/b/a "Proehlific Club at Forest Oaks"), Debtor.Charles M. Ivey, III, Chapter 7 Trustee for the Estate of ES2 Sports & Leisure, LLC, Plaintiff,

v.ES2, LLC (d/b/a "Es2 Services and Solutions"), Matthew J. Birely (a/k/a "Matt Birely"), David J. Hess, and George Hess, Defendants.

Case No. 14–10412

Adv. Pro. No. 14–02035

United States Bankruptcy Court, M.D. North Carolina, Greensboro Division.

Signed December 23, 2015

Charles (Chuck) Marshall Ivey, IV, Ivey, McClellan, Gatton & Siegmund, LLP, Greensboro, NC, for Plaintiff.

ES2, LLC, pro se.

Matthew J. Birely, pro se.

William Earl Brewer, Jr., The Brewer Law Firm, Raleigh, NC, for Defendants.

MEMORANDUM OPINION GRANTING PARTIAL SUMMARY JUDGMENT

BENJAMIN A. KAHN, UNITED STATES BANKRUPTCY JUDGE

This adversary proceeding is before the Court on the Motion for Summary Judgment as to Defendants Matthew Birely and ES2, LLC (the "Motion for Summary Judgment") [Doc. # 62] filed by Charles M. Ivey, III (the "Plaintiff") on July 9, 2015. Plaintiff asks this Court to enter summary judgment against Matthew Birely and ES2, LLC (collectively, the "Defendants").¹ For the reasons stated herein, the Court will grant summary judgment in part on Counts I and IV and deny summary judgment on Counts II, III and V.

Facts²

On April 15, 2014, ES2 Sports and Leisure, LLC (the "Debtor") filed a voluntary petition for relief under Chapter 7 of the United States Bankruptcy Code. Plaintiff is the duly appointed and acting Trustee in this matter. Defendant ES2, LLC is a North Carolina LLC with its principal place of business in Wake County, North Carolina, and is the parent company of the Debtor. Amended Complaint, ¶¶ 5–6. Defendant Matthew Birely is a citizen and resident of the State of North Carolina and is a member and officer/director of both the Debtor and Defendant ES2. Id. at ¶ 31.

The Debtor's business was the management of business operations of Forest Oaks Country Club in Greensboro, North Carolina. Id. at ¶ 13. The Debtor, through negotiations conducted in part by Matthew Birely, entered into an agreement (the "Lease Agreement") to sublease the restaurant and grill area to Isabella's, Inc. ("Isabella's), owned by Mr. and Mrs. William and Kathy Dudich ("Tenants"). Id. at ¶ 15. Pursuant to the Lease Agreement, Isabella's provided an initial security deposit of $25,000, which was to be held by Defendant ES2 during the first year of operation. Amended Complaint, ¶ 16. In the event of a breach during the first year, the security deposit, plus interest, was to be transferred to the Debtor. Id . On March 28, 2013, the Tenants wrote a check for $25,000.00 made out to Defendant ES2. Id. at ¶ 18. The check was deposited in a BB & T bank account which belonged to Defendant ES2. Id. at ¶ 19. Before the end of the first year, Isabella's breached the Lease Agreement, but, contrary to the terms of the Lease Agreement, the $25,000.00 security deposit (plus interest) was not transferred to the Debtor. Amended Complaint, ¶ 21. At the Section 341 Meeting of Creditors, Defendant Birely testified that the terms of the Lease Agreement were a "drafting error" and that the money was not supposed to be held by Defendant ES2. Id. at ¶ 22. This statement by Defendant Birely was false. Defendant Birely actually had directed the Tenants in writing to make the check out to Defendant ES2, rather than the Debtor. See Amended Complaint, Ex. # 2.

Defendant ES2 became a creditor of the Debtor no later than September 30, 2013, when it loaned approximately $41,750.00 to the Debtor. Amended Complaint, ¶ 26. By December 2013, the outstanding amount owed by Debtor to Defendant ES2 was approximately $103,772.33. Id. at 27. In February 2014, Defendant ES2 made an "equity contribution" to the Debtor in the amount of $155,000.00 which re-classified almost all of the debt owed to ES2 as an ownership interest in the Debtor. Id.

Jurisdiction and Authority

This Court has jurisdiction over the subject matter of this proceeding pursuant to 28 U.S.C. § 1334, and has statutory authority to hear and determine this proceeding under 28 U.S.C. §§ 151, 157, and Local Rule 83.11 entered by the United States District Court for the Middle District of North Carolina. Counts III and IV of the Amended Complaint constitute core proceedings under 28 U.S.C. § 157(b)(2), which this Court may constitutionally hear and determine.

The request to declare that Defendant ES2 is an alter-ego of Defendant Birely, and Counts I, II, and V are matters "related to" the bankruptcy case. Defendants were properly served with the Complaint in this matter, and the Court obtained personal jurisdiction over them. See Fed. R. Bankr. Pro. 7004(b), (d), and (f) ; and 10 Collier on Bankruptcy ¶ 7004.07 (Alan N. Resnick & Henry J. Sommer eds., 16th ed.) (citing Gonzales v. Miller (In re Tex. Reds, Inc.), 2010 WL 1711112, at *4, 2010 Bankr.LEXIS 1417, at *17020 (Bankr.D.N.M. April 26, 2010) (for the proposition that "personal jurisdiction under [Rule] (f) meets constitutional concerns based on the defendant's contacts with the United States, rather than the state where the bankruptcy court is located.")). The clerk of this Court properly issued a summons on each of the Defendants on December 3, 2014 [Doc. # 3]. Plaintiffs properly and timely served a copy of the summons on each Defendant and filed proof of service on the Defendants on December 8 and 9, 2015, respectively [Doc. # 's 4 and 5]. The summons, which was issued on Official Form B 250B (12/09), expressly and conspicuously provides Defendants notice that, if they fail to appear, their failure will be deemed to be consent to entry of judgment by this Court for the relief demanded in the Complaint. Neither Defendant has appeared or otherwise defended in this adversary proceeding. On January 16, 2015, the Clerk of Court entered default against Defendant ES2. [Doc. # 15]. On February 20, 2015, the Clerk of Court entered default against Defendant Birely. [Doc. # 31.

" ‘[A]s a personal right, Article Ill's guarantee of an impartial and independent federal adjudication is subject to waiver, just as are other personal constitutional rights'—such as the right to a jury—‘that dictate the procedures by which civil and criminal matters must be tried.’ " Wellness Intern. Network, Ltd. v . Sharif, ––– U.S. ––––, 135 S.Ct. 1932, 1943, 191 L.Ed.2d 911 (2015) (quoting Commodity Futures Trading Comm'n v. Schor, 478 U.S. 833, 848–49, 106 S.Ct. 3245, 3245, 92 L.Ed.2d 675 (1986) ). It is well-settled that the Seventh Amendment's right to a jury trial does not survive default due to waiver. See e.g., Benz v. Skiba, Skiba & Glomski, 164 F.R.D. 115, 116–117 (D.Maine 1995) ("Caselaw dating back to the eighteenth century, however, makes clear that the constitutional right to jury trial does not survive the entry of default." (and cases cited therein)).

As indicated by the Court in Wellness, the right to adjudication before an Article III court is no less waivable as a fundamental constitutional right than is the right to a jury trial. Wellness, –––U.S. ––––, 135 S.Ct. at 1943. The notice provided on Official Form B 250B (12/09)³ served upon the Defendants in this case is sufficient to put properly served defendants on notice of the need for their consent to entry of judgment by this Court and their right to refuse it. The Defendants' failure to respond constituted a waiver of their right to have these claims heard by an Article III court, and, due to this waiver, the Court therefore has the constitutional authority to enter judgment on the claims over which it has subject matter jurisdiction, statutory authority, and personal jurisdiction. See In re Dierschke, No. 689–60047–12, 1992 WL 333904, at *6–7 (N.D.Tex. Feb. 25, 1992) (where defendant defaults, bankruptcy court could enter judgment because default constituted waiver); aff'd sub nom. Matter of Dierschke, 975 F.2d 181, 185 (5th Cir.1992) (affirming judgment, and stating that, even assuming that the defendant had a constitutional right to a jury trial, "he waived that right when he purposefully chose not to answer the suit").

Standard of Review

Summary judgment is appropriate under Rule 56 of the Federal Rules Civil Procedure, made applicable to this adversary proceeding pursuant to Rule 7056 of the Federal Rules of Bankruptcy Procedure, when the pleadings, depositions, answers to interrogatories, and admissions on file, together with affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law. See Fed. R. Civ. P. 56(a) ; Celotex Corp. v. Catrett, 477 U.S. 317, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). In considering a motion for summary judgment, a court is required to view the facts and draw reasonable inferences in the light most favorable to the nonmoving party. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986) ; Shaw v. Stroud, 13 F.3d 791, 798 (4th Cir.1994), cert. denied, 513 U.S. 813, 115 S.Ct. 67, 130 L.Ed.2d 24 (1994). The moving party has the burden of establishing that there is an absence of any genuine issue of material fact, and all reasonable inferences must be drawn in favor of the nonmoving party. Celotex, 477 U.S. at 323, 106 S.Ct. 2548.

In this case, the Defendants have failed to respond to this Motion for Summary judgment and default has been entered against the Defendants, but this Court "must review the motion, even if unopposed, and determine from what it has before it whether the moving party is entitled to summary judgment as a matter of law." Custer v. Pan Am. Life Ins. Co., 12 F.3d 410, 416 (4th Cir.1993). "Although the failure of a party to respond to a summary judgment motion may leave uncontroverted those facts established by the motion, the moving party must still show that the uncontroverted facts entitle the party to ‘a judgment as a matter of law.’ " Id.

Discussion

In the Motion for Summary Judgment...