Lentz v. Clark (In re JESCO Constr. Corp.)
| Decision Date | 14 April 2021 |
| Docket Number | ADV. PROC. 20-06007-NPO,CASE NO. 18-52152-NPO |
| Parties | IN RE: JESCO CONSTRUCTION CORPORATION, A DELAWARE CORPORATION, DEBTOR. KIMBERLY R. LENTZ, CHAPTER 7 TRUSTEE PLAINTIFF v. HENRY N. CLARK, EARL A. PAYSON, DANIEL D. BERNSTEIN, AND INTERNAL REVENUE SERVICE DEFENDANTS THEODORE CONNOR, III D/B/A WAR-CON CONSTRUCTION COMPANY INTERVENOR |
| Court | U.S. Bankruptcy Court — Southern District of Mississippi |
The Order of the Court is set forth below. The docket reflects the date entered.
This matter came before the Court on the Internal Revenue Service's Motion for Summary Judgment (the "Motion for Summary Judgment") (Adv. Dkt. 51)1 filed by the Internal RevenueService (the "IRS"); the Memorandum in Support of the Internal Revenue Service's Motion for Summary Judgment (the "IRS Brief") (Adv. Dkt. 52) filed by the IRS; the Plaintiff's Response to, and Joinder in Motion for Summary Judgment Filed by IRS (the "Joinder") (Adv. Dkt. 56) filed by Kimberly R. Lentz, the chapter 7 trustee (the "Trustee") of the bankruptcy estate of the debtor, JESCO Construction Corporation, A Delaware Corporation2 (the "Debtor"); the Memorandum in Support of Plaintiff's Response to, and Partial Joinder in Motion for Summary Judgment Filed by IRS (the "Trustee Brief") (Adv. Dkt. 57) filed by the Trustee; the Response in Opposition to [51] Motion for Summary Judgment (the "Connor Response") (Adv. Dkt. 58) filed by Theodore Connor, III, d/b/a War-Con Construction Company ("Connor"); Plaintiff's Reply to Response to Motion for Summary Judgment (DKT 58) (the "Trustee Reply") (Adv. Dkt. 59) filed by the Trustee; and the Reply Brief in Support of IRS's Motion for Summary Judgment (Adv. Dkt. 61) filed by the IRS in the Adversary Proceeding. Henry N. Clark ("Clark") did not file a response to the Motion for Summary Judgment.
Earl A. Payson and Daniel D. Bernstein, attorneys who represented Clark in other litigation (together, the "Clark Attorneys"), were dismissed from the Adversary Proceeding on December 3, 2020. (Adv. Dkt. 49). Accordingly, the alignment of the parties for purposes of the Motion and Joinder is the IRS and the Trustee against Connor and Clark.
Only the Trustee submitted exhibits. The Trustee attached the Affidavit in Support of Response to and Joinder in Motion for Summary Judgment Filed by IRS (Adv. Dkt. 56-1) to theJoinder and eleven (11) exhibits to the Trustee Brief, marked as Exhibits "A" through "K"3 (Adv. Dkt. 57-1 to 57-3).
The Court finds that it has jurisdiction over the parties to and the subject matter of this proceeding pursuant to 28 U.S.C. § 1334. This is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(A), (K) and (O). Notice of the Motion for Summary Judgment and Joinder was proper under the circumstances.
In the Adversary Proceeding, the parties dispute the priority of competing claims to the same property. The IRS includes a statement of undisputed facts in the IRS Brief (Adv. Dkt. 52), which the Trustee adopts and supplements in the Trustee Brief (Adv. Dkt. 57). Connor, who opposes the relief sought by the IRS and the Trustee, does not contest any of the facts set forth in the IRS's statement of undisputed facts and disputes only two (2) of the Trustee's supplemental facts. (Adv. Dkt. 58); MISS. BANKR. L.R. 7056-1. The facts are deemed undisputed with respect to Clark because of his failure to file a response. The following facts are undisputed unless otherwise noted.
The Debtor is engaged in the business of disaster cleanup and environmental remediation services. John E. Shavers ("Shavers") organized the Debtor under the law of Delaware in 2006. The Debtor's principal place of business is located in Stone County, Mississippi. (Bankr. Dkt. 1).Shavers owns other companies engaged in the same business as the Debtor but formed under the laws of different states.
On July 21, 2010, Clark filed a complaint against the Debtor, Shavers, JESCO, JESCO Construction Company, and JESCO Disaster Services a/k/a JESCO JDS in the U.S. District Court for the Central District of Illinois, Rock Island Division (the "Illinois District Court"), No. 4:10-cv-04053, for breach of an oral contract for payment of commissions (the "Clark Litigation"). (Bankr. Cl. 5-1). The action arose out of disaster services provided by the Debtor and other related entities to the Village of Gulfport, Illinois and Henderson, Illinois in connection with a flood in 2008. The Clark Attorneys represented Clark in the Clark Litigation. (Bankr. Cl. 5-1). The settlement of the Clark Litigation in 2016 is discussed later in this Opinion.
On December 2, 2010, the Debtor filed a complaint in the District Court of Harris County, Texas, No. 2010-78844, against BP America Production Company ("BP") alleging claims for breach of contract, fraud, and negligent misrepresentation related to marine disaster services the Debtor purportedly provided following the Deepwater Horizon oil spill5 (the "BP Litigation"). (Adv. Dkt. 52). The BP Litigation was removed to the U.S. District Court for the Southern District of Texas, No. 4:10-cv-04964, where it was transferred to the U.S. District Court for the Eastern District of Louisiana (the "Louisiana District Court"), No. 2:11-cv-00911-CJB-JCW. The Louisiana District Court consolidated the BP Litigation into multidistrict litigation, No. 10-md-2179, and later severed and returned the cause of action to No. 2:11-cv-00911-CJB-JCW. (Adv. Dkt. 57-3 at 27). The settlement of the BP Litigation in 2020 is discussed later in this Opinion.
On November 4, 2011, Connor filed a complaint against the Debtor; Shavers, individually and d/b/a JESCO Disaster Services and JDS Disaster Services; JESCO Construction Corp. (A Mississippi Corporation); JESCO Construction Corporation (A Louisiana Corporation); J5 Global, LLC; and J.D.S. LLC in the U.S. District Court for the Southern District of Mississippi, Southern Division (the "Mississippi District Court"). Connor sought to hold the Debtor and other related defendants liable for a default judgment entered by the General Court of Justice Superior Court Division, Craven County, North Carolina against JESCO Construction Corporation, A Louisiana Corporation on October 9, 2002 in the amount of $1,108,781.80 (the "Connor Litigation"). (Adv. Dkt. 57-1 at 18-21; Adv. Dkt. 57-2 at 2-4). Connor alleged that the corporate defendants are alter egos formed by Shavers under the laws of different states to escape the debts of their predecessors.
On September 15, 2014, the parties reached a settlement which they memorialized in an agreed judgment (the "Connor Judgment") (Adv. Dkt. 26-1; Adv. Dkt. 57-1 at 18-21) entered by the Mississippi District Court on September 23, 2014. The Connor Judgment awarded Connor $2,376,888.44, plus interest, but provided that it was not to be "enrolled except in the event of a default." (Adv. Dkt. 26-1). A "default" is defined in the Connor Judgment as a failure to pay the settlement amount within thirty (30) days of receiving payment either "from the Henderson County, Illinois claims or from any BP claims." (Adv. Dkt. 26-1). The Connor Judgment granted Connor judicial liens for the settlement amount "against the Henderson County and BP matters which are to be the source of the settlement funding." (Adv. Dkt. 26-1; Adv. Dkt. 57-1 at 18-21). The Connor Judgment also provides that the settlement funds "shall be paid . . . with the highestpresent legal priority available, being subordinate only to claims of parties with previously filed valid UCCs[.]" (Adv. Dkt. 26-1). The Connor Judgment was not enrolled in Stone County, Mississippi, the location of the Debtor's principal place of business.6
Approximately a month later, the Mississippi District Court entered an order under seal (the "Connor Lien Order") (Adv. Dkt. 26-2; Adv. Dkt. 57-2; Bankr. Cl. 2-2), granting Connor a "judicial and equitable lien" in the amount of $800,000.00 effective as of September 15, 2014 in "any proceeds[,] awards or other funds which may be issued in favor of JESCO Construction Company" in then-pending litigation, including the BP Litigation. (Adv. Dkt. 57-2 at 23). The Connor Lien Order contains a confidentiality provision.7 The amount of the settlement "shall not be subject to public disclosure . . . except to the parties and their legal representatives who are charged with making the settlement payment pursuant to the judicial lien created by this Order." (Adv. Dkt. 57-2). The Connor Lien Order, however, "authorized and directed [the parties] to file a redacted version of this Order for the public record pursuant to Fed. R. Civ. Pro 5.2(d) pursuantto the confidentiality terms of the settlement agreement." (Adv. Dkt. 57-2; Bankr. Cl. 2-2). There is a factual dispute as to whether this provision authorized Connor to take such action unilaterally.
No version of the Connor Lien Order was enrolled in Stone County, Mississippi. No notice was given to BP, and no financing statement was filed in accordance with Article 9 of the Uniform Commercial Code ("UCC") with the appropriate state office.
On February 8, 2016, the IRS assessed corporate income taxes owed by the Debtor for the tax periods ending December 31, 2010, December 31, 2011, and December 31, 2012 (the "2016 Tax Assessment") (Adv. Dkt. 57-3 at 15-22; Bankr. Cl. 3-1). According to the 2016 Tax Assessment, the Debtor owed the following amounts of corporate income taxes for the associated tax periods:
Tax Period Tax Due 12/31/2010
$463,195.00 12/31/2011
$602,357.00 12/31/2012
$415,798.00 Total: $1,481,350.00
(Adv. Dkt. 57-3 at 20; Bankr. Cl. 3-1).
The Debtor obtained the...
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