Pettie v. Ringo (In re White)

• Decision Date: 24 October 2016
• Docket Number: ADVERSARY PROCEEDING NO. 15-05421-WLH,CASE NO. 14-65320-WLH
• Citation: 559 B.R. 787
• Parties: In re: Rocky Rene White, Debtor. Jason Pettie, as Chapter 7 Trustee For the Estate of Rocky Rene White, Plaintiff, v. Kevin Ringo and Shechem Industries, Inc., Defendants.
• Court: U.S. Bankruptcy Court — Northern District of Georgia

559 B.R. 787

In re: Rocky Rene White, Debtor.

Jason Pettie, as Chapter 7 Trustee For the Estate of Rocky Rene White, Plaintiff,

v.Kevin Ringo and Shechem Industries, Inc., Defendants.

CASE NO. 14-65320-WLH

ADVERSARY PROCEEDING NO. 15-05421-WLH

United States Bankruptcy Court, N.D. Georgia, Atlanta Division.

Signed October 24, 2016

Karen Scott Greene, Karen Scott Greene, PC, Lawrenceville, GA, for Debtor.

Jason L. Pettie, Decatur, GA, Terrence Shannon, Terrence Shannon, P.C., Porterdale, GA, for Plaintiff.

J. Michael Lamberth, Lamberth, Cifelli, Ellis & Nason, P.A., Hal Wright, Atlanta, GA, Robert Jackson Wilson, Robert Jackson Wilson, P.C., Lawrenceville, GA, for Defendants.

ORDER ON SHECHEM'S MOTION FOR SUMMARY JUDGMENT ON THE REMAINING COUNTS AND RENEWED MOTION FOR SUMMARY JUDGMENT ON COUNT 9

Wendy L. Hagenau

, U.S. Bankruptcy Court Judge

This matter is before the Court on Defendant Shechem Industries, Inc.'s Motion for Summary Judgment on Remaining Counts (“Motion”) (Docket No. 61) and Renewed Motion for Summary Judgment on Count 9 (“Renewed Motion”) (Docket No. 78). The Court has jurisdiction over this proceeding under 28 U.S.C. §§ 157

and 1334 and the Plaintiff and Shechem have admitted this is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(H).

PROCEDURAL BACKGROUND

Debtor Rocky White (“Debtor”) filed his voluntary petition under Chapter 7 of the Bankruptcy Code on August 5, 2014. Plaintiff Jason Pettie, as Chapter 7 trustee for the estate of Debtor (“Plaintiff”), filed this Adversary Proceeding on October 30, 2015 against Shechem Industries, Inc. (“Shechem”) and Kevin Ringo (“Ringo”) (“Complaint”). In the Complaint, Plaintiff sought to avoid Debtor's transfer of his interest in certain business entities and real property, and sought the payment of a two million dollar debt allegedly owed to Debtor by Shechem. The Complaint alleges the debt should be paid under the theories of turnover, open account and unjust enrichment.

Shechem filed a Motion for Partial Summary Judgment on June 6, 2016 seeking summary judgment on Counts 7, 8 and 9 of the Complaint, which are the claims for turnover, open account and unjust enrichment, respectively (Docket No. 42). The Court ruled that summary judgment was appropriate on the claims for turnover and open account, but held there was insufficient evidence to rule on the claim for unjust enrichment (Docket No. 66). Prior to that ruling, Shechem filed the Motion, seeking summary judgment on Counts 4, 5 and 6, arguing that Plaintiff cannot prove Debtor fraudulently transferred certain real property. On September 14, 2016 Shechem filed the Renewed Motion seeking summary judgment on Count 9, arguing that a claim for unjust enrichment cannot lie where there is a contract between the parties and that Shechem was not unjustly enriched through the termination of the lease agreement (Docket No. 78).

UNDISPUTED FACTS

Plaintiff labels only a few “facts” as disputed; however, the material facts themselves are not disputed. What is disputed is the parties' interpretation of the agreements involved in this case and the legal conclusions derived therefrom. The Court finds the following facts are undisputed.

The Debtor was involved in the development of a technology to treat wastewater which is referred to by the parties as the NJUN System. Joe Forrester (“Forrester”) had experience in product manufacturing and had an interest in learning about wastewater treatment technology. Through his acquaintance with Keith Moore, Forrester became aware that Ringo was involved with the NJUN System. After being exposed to the NJUN System, Forrester formed Shechem with the intention of monetizing the value of the NJUN System. On December 22, 2009, Shechem and NJUN-One LLC (“NJUN-One”) entered into a contract that granted Shechem rights to install NJUN Systems throughout the state of Georgia for a fee of $600,000.

By the spring of 2010, Shechem had made its last payment under the agreement with NJUN-One. However, the NJUN System was not yet ready for market. The NJUN System needed additional development, and regulatory approval still needed to be obtained. Ringo requested additional funds, and further negotiations took place between Shechem, Ringo and NJUN-Southeast (“NJUN-SE”). On June 3, 2010, Shechem negotiated a second agreement with NJUN-SE and Ringo that provided Shechem with the right to supply products associated with the NJUN System throughout six other states in the southeast (“Six States Agreement”). In exchange for the right to supply these products, Shechem was to pay NJUN-SE a territory fee of $30,000,000 (“Territory Fee”). The Territory Fee would be paid in part in monthly installments. For the first year, the payments were at least $50,000 per month, and thereafter the payments were based on monthly sales.

The Territory Fee could be partially satisfied by a transaction involving real property located at 1390 Hillside Drive, Grayson, Georgia (“Hillside Property”). Shechem purchased the Hillside Property for $789,000, leased the property “to [Debtor] at the express direction of NJUN-SE”, and was to eventually deed the Hillside Property to Debtor when the mortgage was paid. The Six States Agreement provided that Shechem had obtained a mortgage “in connection with the purchase of the property” and that Shechem “shall be responsible for satisfying the terms of the [mortgage] in full”. Under the Six States Agreement, Shechem could retain $250 of each monthly payment based on sales to pay toward the mortgage. The Six States Agreement also provided that Shechem “shall transfer ownership of the property to [Debtor] within sixty (60) days of the [mortgage] having been satisfied in full”, at which time Shechem would be entitled to a $2,000,000 credit toward the Territory Fee Shechem owed NJUN-SE.

On June 3, 2010, Shechem and Debtor entered into a lease, providing that Debtor would live in the Hillside Property rent free while Shechem paid the mortgage on the property (“Lease Agreement”). Neither the Six States Agreement nor the Lease Agreement contain any set period of time during which the loan had to be paid off. The record includes no information as to the term of the initial loan, but the Lease Agreement contemplates the loan could be renewed, extended or modified, and provides Debtor with no control or veto power over such renewal, extension or modification. Debtor would pay taxes, insurance, any homeowner association fees and all utilities on the Hillside Property during the term of the lease. Debtor was also responsible for maintenance of the Hillside Property. The Lease Agreement provided no basis for termination by the tenant and it could not be terminated by the landlord upon default. Termination of the lease was only permitted if “Landlord fails as a business (where ‘fails as a business' is determined by Landlord's inability to pay its debts as they become due) prior to the (i) expiration or (ii) earlier termination of this Lease by consent of both Landlord and Tenant.” Additionally, the Lease Agreement could not be assigned or sublet without Shechem's consent, but such consent was not to be unreasonably withheld.

Debtor never resided at the Hillside Property. He failed to pay ad valorem taxes in the amount of $30,599.84 and insurance of $23,800.67 on the Hillside Property during the pendency of the Lease Agreement, but he did spend money on improvements to the house and his brother Rudy White lived there for a period of time. Debtor was unable to pay the estimated $21,000 a year for taxes and insurance and struggled to keep up with the utility payments with five HVAC units in the house.

On June 15, 2012, Robbie White, Debtor's brother, obtained a judgment against Debtor in the amount of $162,074.72 for funds due dating back to 2001.

On November 5, 2012, Shechem recorded a security deed on the Hillside Property securing a debt of $582,530.

By 2013, no products had been sold under the Six States Agreement. On June 14, 2013 Shechem entered into a Patent License Agreement (“PLA”) with NJUN, LLC, NJUN Holding, LLC, NJUN-One, NJUN-SE and Ringo. Under the PLA, Shechem was granted the right to sell and use licensed NJUN products in the same territory laid out in the Six States Agreement. The PLA stated expressly it was intended to supersede the Six States Agreement. The PLA also required Shechem to pay a percentage of its net revenue as royalties to NJUN-SE.

On the same day, NJUN, LLC, NJUN-SE, Ringo, Shechem and Debtor entered into an agreement terminating the Lease Agreement (“Lease Termination Agreement”). In addition to terminating the Lease Agreement, the Lease Termination Agreement provided for the payment of an “advance” from Shechem to NJUN-SE in the amount of $200,000. The initial $25,000 was paid upon signing the PLA. The balance of $175,000 would be paid after the mortgage on the Hillside Property was refinanced, but if refinancing did not occur, the parties agreed to negotiate “mutually agreeable terms for the SE-PLA and this TRANSACTION, but in any event, the LEASE termination survives any re-negotiation or termination of this TRANSACTION”. The agreement called for the sale of the Hillside Property, with the proceeds being used to satisfy the mortgage (including the referenced advance), reimburse Shechem and NJUN-SE for all expenditures on the house, and reimburse Shechem for property taxes and insurance. Any excess cash would then be paid to NJUN-SE.

On December 23, 2013, Shechem recorded a security deed on the Hillside Property securing a debt of $750,000.¹

On December 27, 2013, the same parties entered into a Revised Lease Termination Agreement (“Revised Agreement”) that acknowledged the termination of the Lease Agreement for the Hillside Property. The Revised Agreement called for the payment of the balance of the $200,000 advance required by the Lease Termination Agreement, but no longer referred to the payment as an advance. It also called for an additional “guaranteed” payment of $250,000...