Parker v. McClain (In re Parker)
| Decision Date | 10 August 2015 |
| Docket Number | CASE NO. 12-03128-8-SWH,ADVERSARY PROCEEDING NO. 13-00055-8-SWH-AP |
| Parties | IN RE: WILLIAM D. PARKER, JR. and DIANA LYNNE PARKER, DEBTORS. WILLIAM D. PARKER, JR. and DIANA LYNNE PARKER, Plaintiffs v. CONAN R. MCCLAIN Defendant. |
| Court | U.S. Bankruptcy Court — Eastern District of North Carolina |
This matter came on before the court upon the motion for summary judgment filed by Conan McClain ("McClain"), the defendant in this adversary proceeding. A hearing was held on February 4, 2015, in Raleigh, North Carolina.
William Parker, Jr. and Diana Lynne Parker (collectively, the "Parkers"), the plaintiffs in this adversary proceeding and the debtors in the main bankruptcy case,1 own various tracts of real property in North Carolina, and prior to filing for bankruptcy, had engaged in the business of developing real estate in and around Raleigh. The Parkers operated their business through two companies in which they are the primary shareholders and officers, Gregory & Parker, Inc. ("G&P"), and Gregory & Parker - Seaboard, LLC (collectively, "the Companies"). Particularly relevant to this action is the Companies' ownership of real estate located near downtown Raleigh referred to as Seaboard Station.
The parties' interactions leading up to this lawsuit are largely contested, but the undisputed background facts are recounted as follows. In or around 1999, Mr. Parker hired William Russ ("Russ") to manage Seaboard Station, but the Parkers retained decision making authority and control over the Companies' bank accounts. At some point later in time, a decision was made to engage in a redevelopment project at Seaboard Station, and in 2004, G&P contracted with Trammell Crow Company ("Trammell Crow") for development services. McClain was vice president of Trammell Crow at the time of its involvement in the project, but sometime thereafter resigned from that company. In 2005, G&P terminated its contract with Trammell Crow due to dissatisfaction with its performance. However, McClain was retained by G&P in his individual capacity to continue withredevelopment efforts at Seaboard Station.2 McClain mainly reported to Russ, who was primarily responsible for reporting to the Parkers at their home in Johnston county, but McClain sometimes reported directly to the Parkers at their home.
During his involvement with the Seaboard Station project, McClain helped pursue lease agreements and also facilitated loans to the Companies and the Parkers. In exchange, McClain received paychecks from G&P, was paid commissions with respect to certain leases entered into between the Companies and Seaboard Station tenants, and was also paid sums out of loan proceeds.3 McClain also received payments in accordance with a stabilization fee, the propriety of which is in dispute, once Seaboard Station reached 75 percent occupancy.
In 2008, a new entity, Gregory & Parker - Seaboard II, LLC ("G&P - Seaboard II"), was formed for the purpose of developing an apartment site at Seaboard Station. McClain was retained to provide development services related to the apartment project, and entered into a contract with G&P - Seaboard II for such services. In 2010, McClain created RPM Redline, LLC ("Redline"), in which he and Russ were each member-managers and in which each owned a 50 percent interest. The apartment project's feasibility was dependent on G&P - Seaboard II obtaining ownership or control of a portion of contiguous property owned and/or controlled by the Triangle Transit Authority ("TTA"). McClain proceeded with efforts to develop the apartments, including assisting with the procurement of loans in the amount of $2,550,000.00 and $1,400,000.00 from Georgia Capital, LLC, and entering into a contract on behalf of G&P - Seaboard II4 with CF Evans & Co.Construction Services, LLC ("CF Evans") to demolish and remove an existing structure on the apartment site. Ultimately, however, G&P - Seaboard II did not acquire use of the TTA property and the apartment project failed.
On February 22, 2012, the Companies filed chapter 11 petitions,5 and on April 25, 2012, the Parkers filed a chapter 11 petition in bankruptcy. On March 25, 2013,6 the Companies, through the Parkers, filed suit against McClain alleging fourteen causes of action: preferential transfers; fraudulent transfers; breach of fiduciary duty; constructive fraud; fraud; negligent misrepresentation; negligence; breach of contract; collection on guaranty; conversion; unfair or deceptive trade practices; disallowance of claim; setoff; and equitable subordination (the "Companies' Adversary Proceeding"). The Companies' Adversary Proceeding was resolved by Order dated June 11, 2014, which approved a settlement and compromise among the parties. Gregory & Parker, Inc. v. McClain (In re Gregory & Parker, Inc.), Adv. Pro. No. 13-00052-8-SWH (Bankr. E.D.N.C. June 11, 2014). The Parkers individually initiated the present adversary proceeding against McClain in this bankruptcy case on March 27, 2013,7 asserting causes of action for fraudulent transfers under the North Carolina Uniform Fraudulent Transfer Act; breach of fiduciary duty; constructive fraud; fraud; negligent misrepresentation; negligence; conversion; unfair or deceptive trade practices; disallowance of claim; setoff; and equitable subordination. On November 12, 2014, McClain filed a motion for summary judgment as to all of the Parkers' claims.
"[S]ummary judgment is proper 'if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law.'" Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986) (quoting Fed. R. Civ. P. 56(c)). In making this determination, the court views all facts and inferences to be drawn from the facts in the light most favorable to the nonmoving party. U.S. v. Diebold, Inc., 369 U.S. 654, 655 (1962) (per curiam). Summary judgment is not a "disfavored procedural shortcut," but an important mechanism for filtering out baseless claims and defenses. Celotex, 477 U.S. at 327. "[A] complete failure of proof concerning an essential element of the nonmoving party's case necessarily renders all other facts immaterial." Celotex, 477 U.S. at 323.
Before considering whether the Parkers' claims survive summary judgment on substantive grounds, the court turns its attention to McClain's affirmative defenses of lack of standing, res judicata, and judicial estoppel. McClain asserts that the Parkers lack standing as to all of their claims against him because the claims belong to the Companies, and the Parkers do not allege any unique, distinct harm. See Barger v. McCoy Hillard & Parks, 346 N.C. 650, 658-59, 488 S.E.2d 215, 219 (1997). However, to the extent that the Parkers allege harm resulting from McClain's allegedly wrongful conduct in counseling them to take out loans in their individual names, become guarantors of the Companies' loans, pledge their personal property as security, and sign promissory notes to McClain, the court cannot conclude as a matter of law that the Parkers lack standing as to all of their claims because genuine issues of material fact exist regarding these allegations. See id., 346 N.C. at 662, 488 S.E.2d at 221.
McClain is also not entitled to summary judgment as to his res judicata and judicial estoppel affirmative defenses. McClain argues that the Parkers' claims against him are barred by the settlement agreement entered into in the Companies' Adversary Proceeding. McClain relies upon Smoky Mountain Enterprises, Inc. v. Rose, 283 N.C. 373, 196 S.E.2d 189 (1973), for the proposition that "[a] person who is not a party but who controls an action . . . is bound by the adjudications of litigated matters as if he were a party if he has a proprietary interest or financial interest in the judgment or In [sic] the determination of a question of act [sic] or a question of law with reference to the same subject matter, or transactions . . . ." 283 N.C. at 377, 196 S.E.2d at 192 (quoting Thompson v. Lassiter, 246 N.C. 34, 97 S.E.2d 492 (1957)) (internal quotations omitted). McClain urges that the Parkers, as sole shareholders and members of the Companies, are bound by the settlement. However, the quoted principle is inapplicable to the matter at hand in several respects. Although the Parkers were shareholders and members of the Companies, upon conversion of the Companies' bankruptcy case to chapter 7, the chapter 7 trustee was substituted as plaintiff and the Parkers were no longer in control of the action, including the decision to settle.
More importantly, the settlement agreement does not bar the Parkers' claims because the settlement itself explicitly states that it has no effect on this adversary proceeding. As the U.S. Court of Appeals for the Fourth Circuit8 has held, when a dismissal is based on a settlement agreement, the principles of res judicata apply in a modified form, and only apply to "matters specified in the settlement agreement, rather than the original complaint." U.S. ex rel. May v. Purdue Pharma L.P., 737 F.3d 908, 913 (4th Cir. 2013) (quoting Norfolk S. Corp. v. Chevron, U.S.A., Inc., 371 F.3d1285, 1288 (11th Cir. 2004)) (internal quotations omitted). Because a settlement agreement is contractual in nature, the preclusive effect of a judgment based on such an agreement can be no greater than the agreement itself. Purdue Pharma, 737 F.3d at 913. Additionally, the intent of the parties to the agreement determines the extent of the preclusive effect. Id. (citing Keith v. Aldridge, 900 F.2d 736, 740 (4th Cir. 1990)). The settlement agreement cannot bar the Parkers' claims against McClain because it specifically states that "McClain understands that this release shall not include any claims as to which the Parkers or their estate are a real party in...
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