Lawrence v. UMLIC-Five Corp.
| Decision Date | 14 September 2007 |
| Docket Number | 06 CVS 20643 |
| Citation | 2007 NCBC 30 |
| Court | Superior Court of North Carolina |
| Parties | KIRK ALLEN LAWRENCE and SANDRA LAWRENCE, Plaintiffs, v. UMLIC-FIVE CORP.; UNITED MORTGAGE & LOAN INVESTMENT, LLC; ARTHUR E. KECHIJIAN; LARRY E. AUSTIN; UMLIC-SEVEN CORP.; UMLIC CONSOLIDATED, INC.; UNITED MORTGAGE C.B., LLC; UMLIC VP, LLC; UNITED MORTGAGE HOLDINGS, LLC; UMLIC HOLDINGS, LLC; KECHIJIAN INVESTMENTS, L.P.; AUSTIN INVESTMENTS, L.P.; AEK LLC; LEA LLC; and SUMMATYME LLC, Defendants. |
Poyner & Spruill, LLP by Joshua B. Durham and Michelle C. Hunt for Plaintiffs Kirk Allen Lawrence and Sandra Lawrence.
Katten Muchin Rosenman, LLP by Richard L. Farley and Jeffrey C. Grady for Defendants United Mortgage & Loan Investment, LLC, Arthur E. Kechijian, and Larry E. Austin.
{1} On 2 May 2006, Plaintiffs obtained a $3.8 million judgment against Defendant UMLIC-Five Corp. ("UMLIC-Five") in the District Court for Travis County, Texas (hereinafter the "Texas Judgment"). ( The claims in that case1[] arose from UMLIC-Five's wrongful attempt to foreclose upon Plaintiffs' home. (Am. Compl. ¶ 19.)
{2} UMLIC-Five contested Plaintiffs' claims in Texas for eleven years. While the Texas Litigation was pending, UMLIC-Five filed Articles of Dissolution with the North Carolina Secretary of State. According to Plaintiffs, UMLIC-Five never informed them of its dissolution, even as it continued to defend against the claims in the Texas Litigation for the next four years. (Am. Compl. ¶¶ 24–25.)
{3} On or about 10 March 2006, UMLIC-Five abandoned its defense of the Texas Litigation. Two months later, Plaintiffs obtained the Texas Judgment. (Am. Compl. ¶¶ 28–30.)
{4} Plaintiffs allege in this Court that Defendants have wrongfully impeded their efforts to collect on the Texas Judgment. They assert claims for (1) breach of fiduciary duty, (2) fraudulent transfers of UMLIC-Five's assets, and (3) violations of the requirements of Chapter 55 of the North Carolina General Statutes by failing to give Plaintiffs timely notice of UMLIC-Five's dissolution. Plaintiffs also seek to pierce the corporate veil to reach Defendants' personal assets to satisfy the Texas Judgment.
{5} Before the Court are (1) the Motion of Defendants United Mortgage & Loan Investment, LLC, Arthur E. Kechijian, and Larry E. Austin (collectively "the Moving Defendants") to Compel Discovery, and (2) Plaintiffs' Motion for a Protective Order.
{6} The Moving Defendants have served Plaintiffs with two sets of interrogatories and requests for production of documents (the "Discovery Requests"). The Moving Defendants have also noticed Plaintiffs' depositions, where they intend to ask questions related to the Discovery Requests.
{7} Stated broadly, the Discovery Requests seek information as to what the Moving Defendants allege is a substantial disparity between the evidence supporting Plaintiffs' actual damages in the Texas Litigation and the amount of the Texas Judgment.
{8} Plaintiffs object to the Discovery Requests on several grounds. First, Plaintiffs argue the requested information is either privileged or protected from disclosure by the work-product doctrine. Second, Plaintiffs contend the requests are neither relevant nor likely to lead to admissible evidence as to their substantive claims in this action. As part of this argument, Plaintiffs contend the Moving Defendants are not entitled to take discovery on the merits of the Texas Judgment because that question has already been settled in a Texas court, and Defendants are barred from attempting to revisit it here.
{9} The Moving Defendants respond that they were not parties to the Texas Litigation, and thus should not be barred from taking discovery as to that litigation in this case.
{10} More to the point, the Moving Defendants smell a rat. They believe that Plaintiffs inflated their damage claim in the Texas Litigation once UMLIC-Five abandoned its defense. Because Plaintiffs seek to invoke this Court's equitable power to pierce the corporate veil against all of the Defendants, the Moving Defendants say it is only proper that they be allowed to discover the facts (if any) supporting the $3.8 million Texas Judgment.
{11} The issue is whether the Discovery Requests are proper under Rule 26 of the North Carolina Rules of Civil Procedure.
{12} Much of what Defendants seek in the Discovery Requests appears to be immune from discovery, either because it is privileged or is opinion work product. In any event, the Discovery Requests are not relevant to the claims before the Court, nor are they likely to lead to the discovery of admissible evidence. Accordingly, the Court DENIES the Moving Defendants' Motion to Compel and GRANTS Plaintiffs' Motion for a Protective Order.
{13} Plaintiffs Kirk Allen Lawrence and Sandra Lawrence filed their Complaint on 20 October 2006.
{14} The matter was transferred to the North Carolina Business Court as a mandatory complex business case on 29 November 2006, and subsequently assigned to me.
{15} On 7 March 2007, the Moving Defendants served their first set of discovery. They served a second set of discovery on 21 March 2007.
{16} On 22 June 2007, Plaintiffs filed a Motion for a Protective Order.
{17} Plaintiffs filed their First Amended Complaint on 27 June 2007 which, among other things, joined additional Defendants.
{18} The Moving Defendants filed their Motion to Compel on 16 July 2007.
{19} On 1 August 2007, the Court heard oral argument by telephone on the discovery motions.
{20} Plaintiffs allege the following facts in their Amended Complaint:
A. THE PARTIES
{21} Plaintiffs reside in Travis County, Texas. (Am. Compl. ¶ 1.)
{22} UMLIC-Five is or was a North Carolina corporation with its principal place of business in Mecklenburg County, North Carolina. (Am. Compl. ¶ 2.)
{23} Moving Defendant United Mortgage & Loan Investment, LLC ("UMLI") is a North Carolina limited liability company with its principal place of business in Mecklenburg County, North Carolina. UMLI is the parent entity of UMLIC-Five. (Am. Compl. ¶ 3.)
{24} Moving Defendant Arthur E. Kechijian ("Kechijian") resides in Mecklenburg County, North Carolina, and was at all relevant times a director of UMLIC-Five. (Am. Compl. ¶ 4.)
{25} Moving Defendant Larry E. Austin ("Austin") resides in Mecklenburg County, North Carolina, and was at all relevant times a director of UMLIC-Five. (Am. Compl. ¶ 5.)
{26} Defendant UMLIC-Seven Corp. ("UMLIC-Seven") is a North Carolina corporation with its principal place of business in Mecklenburg County, North Carolina. UMLIC-Seven is a successor-in-interest to UMLI. (Am. Compl. ¶ 6.)
{27} Defendant UMLIC Consolidated, Inc. ("UMLIC Consolidated") is a South Carolina corporation formerly known as UMLIC SC, Inc. UMLIC Consolidated is the parent entity of UMLIC-Seven. (Am. Compl. ¶ 7.)
{28} Defendant United Mortgage C.B., LLC ("United Mortgage C.B.") is a North Carolina limited liability company with its principal place of business in Mecklenburg County, North Carolina. United Mortgage C.B. is a transferee of certain assets from, or a successor to, UMLIC-Five. (Am. Compl. ¶ 8.)
{29} Defendant UMLIC VP, LLC ("UMLIC VP") is a North Carolina limited liability company with its principal place of business in Mecklenburg County, North Carolina. UMLIC VP's sole member is United Mortgage C.B. (Am. Compl. ¶ 9.)
{30} Defendant United Mortgage Holdings, LLC is a North Carolina limited liability company. (Am. Compl. ¶ 10.)
{31} Defendant UMLIC Holdings, LLC is a Delaware limited liability company authorized to transact business in North Carolina. (Am. Compl. ¶ 11.)
{32} Defendant Kechijian Investments, L.P. is a Georgia limited partnership that transacts business in North Carolina. (Am. Compl. ¶ 12.)
{33} Defendant Austin Investments, L.P. is a Georgia limited partnership that transacts business in North Carolina. (Am. Compl. ¶ 13.)
{34} Defendant AEK, LLC is a North Carolina limited liability company. (Am. Compl. ¶ 14.)
{35} Defendant LEA, LLC is a North Carolina limited liability company. (Am. Compl. ¶ 15.)
{36} Defendant Summatyme, LLC is a North Carolina limited liability company. (Am. Compl. ¶ 16.)
B. THE CLAIMS
{37} In 1995, Plaintiffs filed suit against UMLIC-Five in the District Court for Travis County, Texas, alleging, among other things, that UMLIC-Five wrongfully foreclosed upon their home and unlawfully attempted to evict them. (Am. Compl. ¶ 19.)
{38} Plaintiffs allege in this case that Defendants (and in particular Moving Defendants Kechijian and Austin) directly controlled the activities of UMLIC-Five at all relevant times, including throughout the course of the Texas Litigation. (Am. Compl. ¶¶ 32–50.)
{39} According to Plaintiffs, the Texas Litigation spanned eleven years, with UMLIC-Five vigorously defending the claims against it and giving Plaintiffs and their counsel the impression that it was an active, functioning entity. (Am. Compl. ¶ 23.)
{40} Without notifying Plaintiffs, however, UMLIC-Five filed Articles of Dissolution with the North Carolina Secretary of State on 23 October 2001. Thereafter, UMLIC-Five continued to defend the Texas Litigation. Plaintiffs allege that at no time during the ensuing four-and-a-half years did Defendants disclose to Plaintiffs that UMLIC-Five had been dissolved. (Am. Compl. ¶¶ 24–25.)
{41} Plaintiffs further allege that Defendants willfully failed to provide the appropriate statutory notices of dissolution to UMLIC-Five's creditors pursuant to North Carolina law. (Am. Compl. ¶ 27.)
{42} Plaintiffs also allege that Kechijian and Austin were directors of UMLIC-Five and, as such, owed Plaintiffs a fiduciary duty to establish a reserve for payment of the Texas Judgment. (Am. Compl. ¶¶ 51–55.)
{43} According to Plaintiffs, Kechijian and Austin...
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