Pavilion Development v. Jbj Partnership
| Decision Date | 10 August 2007 |
| Docket Number | No. 1040967.,1040967. |
| Parties | PAVILION DEVELOPMENT, L.L.C. v. JBJ PARTNERSHIP. |
| Court | Alabama Supreme Court |
H. Carey Walker III of Adams & Walker, P.C., Huntsville, for appellant.
Jesse P. Evans III and Henry J. Walker, Jr., of Adams & Reese, LLP/Lange Simpson, Birmingham, for appellee.
Pavilion Development, L.L.C., formerly known as John Lary, L.L.C., appeals a judgment for JBJ Partnership ("JBJ") in this litigation to enforce a statutory right of redemption with respect to certain realty purchased by JBJ in a foreclosure sale. We reverse.
In August 1991 Pace Properties, an Alabama general partnership ("Pace"), sold Gallop Enterprises, Inc. ("Gallop"), approximately 22 acres of unimproved real property located in Madison County. At the time of that sale, Gallop executed a promissory note for $1,439,010 in favor of Pace; this note was secured by a mortgage on the undeveloped realty. Thereafter, Gallop incurred expenses in developing the subject property for residential use. However, before the property could be fully developed and before it paid the promissory note to Pace, Gallop, in February 1994, filed for bankruptcy under Chapter 11 of the Bankruptcy Code.
After it filed its petition in bankruptcy, Gallop and its creditors, in April 1995, agreed to restructure Gallop's financial obligations and allow Gallop to continue the residential development of the property ("the restructure"). Richard Tracey was Gallop's principal manager at the time of the restructure; Tracey's wife was at that time the president of Gallop and owned all of its stock. At the time of the restructure, the respective obligations of Gallop, Tracey, and Pace were restated in a comprehensive set of documents ("the settlement documents"). The settlement documents included an April 26, 1995, settlement agreement signed by all parties interested in Gallop's bankruptcy filing ("the settlement agreement"), a promissory note for a $47,500 loan Pace made to Tracey and Gallop to allow Tracey to purchase his wife's stock in Gallop; an agreement under which Tracey, as security for the $47,500 loan, pledged to Pace the Gallop stock Tracey intended to acquire from his wife ("the stock-pledge agreement"); and an irrevocable stock power in which Tracey appointed Pace as his attorney-in-fact to sell, assign, or transfer the pledged Gallop stock if Tracey or Gallop defaulted on their obligations under the settlement documents ("the stock power").
The settlement documents provided a framework for resolving all the commercial disputes concerning Gallop that were outstanding when those documents were executed. First, the settlement agreement contemplated that Gallop would complete various phases of the residential-development project (e.g., roads, utility lines, gutters, etc.) by specific dates. Second, Gallop stipulated that Pace had a valid claim against Gallop in the amount of $1,439,010. As consideration and security for Gallop's agreement to pay Pace that amount, Gallop executed a new, restated mortgage on part of the subject property in favor of Pace ("the Pace mortgage"). The Pace mortgage applied to approximately 19 acres at the development site ("the development tract").1 The parties also stipulated that the Pace mortgage would be subordinate to a restated mortgage on the development tract that was executed in favor of another of Gallop's creditors.
Third, section 8.01(b) of the settlement agreement stated that, in the event of a default, "to the fullest extent permitted by law, [Gallop and Tracey waive] the benefit of all laws now existing or hereinafter enacted granting a right of redemption from any sale made [after a foreclosure on the Pace mortgage] ...." The settlement agreement also contemplated that, in the event of a default, Pace could enforce its mortgage lien and foreclose on the development tract without violating the automatic-stay provision of the Bankruptcy Code.
In June 1995 the bankruptcy court in which Gallop had filed its Chapter 11 bankruptcy petition approved the settlement documents and dismissed Gallop's bankruptcy case. After that case was dismissed, Gallop continued its development activities on the development tract. However, on December 18, 1995, Pace's counsel addressed the following correspondence to "Mr. Richard Tracey, Gallop Enterprises, Inc.":
Thereafter, on March 22, 1996, Pace sold the development tract to JBJ—the highest bidder at the foreclosure sale—for $100,000.2 The mortgage foreclosure deed stated that JBJ received title subject to "the statutory rights of redemption on the parts of those entitled to redeem as provided by the laws of the State of Alabama."
During the months after foreclosure, JBJ conveyed parcels in the development tract to two transferees—Asghar D. Pourhassani and Atlantis Development Company, Inc. ("Atlantis"). Pourhassani purchased his parcel(lot 15, block 1) from JBJ on June 10, 1996. JBJ transferred other parcels to Atlantis on September 20, 1996, and on January 16, 1997.3 Atlantis resold one of the lots it acquired from JBJ (lot 18) on January 16, 1997, to Fritz E. Nelson and Louise A. Nelson that same day.4
Several particularly pertinent events occurred in March 1997. On March 1, Gallop, through its president, Tracey, sent JBJ a letter expressing Gallop's intent to exercise its right of redemption on the development tract; that letter requested that JBJ furnish Gallop an itemized statement of the lawful charges JBJ had incurred in connection with the development tract. On March 9, Gallop, again acting through Tracey, sent similar written notices and requests for statements to Pourhassani and Atlantis—the parties to whom JBJ had resold lots within the development tract following the foreclosure sale.
On March 11, 1997, counsel for JBJ and Atlantis, E. Ray McKee, Jr., replied to Gallop's notices and requests for itemized statements in a letter to Tracey ("the McKee letter"). The McKee letter stated:
(Emphasis supplied.) Pourhassani did not respond in writing to the notice that Gallop sent him on March 9.5
On March 13, 1997, Gallop, acting through Tracey, transferred its statutory right of redemption in the development tract to Lary, in consideration for $1,000.6 The assignment and bill-of-sale instrument evidencing that transfer ("the assignment") stated:
"Gallop Enterprises, Inc. does ... hereby sell, bargain, bequeath, assign, transfer, convey, and deliver to John Lary, L.L.C. its statutory right of redemption with respect to the [development tract that was sold at a foreclosure sale held on March 22, 1996,] together with all right, title, claim, and interest it holds with respect to said statutory right of redemption ...."
On March 19, 1997—10 days after Gallop sent notice of its intent to redeem to Atlantis—McKee, counsel for Atlantis, drafted a second response to Tracey ("the supplemental response"). The supplemental response stated:
(Emphasis supplied.)
By March 21, 1997, neither Tracey nor Gallop had paid the indebtedness owed to Pace on the $47,500 loan or cured the breach noted in the McKee letter. Accordingly, as contemplated in that letter, Pace undertook on March 21 to foreclose on the Gallop stock Tracey had pledged to secure the $47,500 loan. Pace recorded the following instrument concerning the circumstances of that foreclosure:
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