Plepis v. Horrocks (In re Horrocks), Bky. No. 13-15161

• Decision Date: 04 April 2016
• Docket Number: Bky. No. 13-15161,Adv. No. 13-0420
• Parties: IN RE: GEOFFREY CORNOG HORROCKS, Sr., Debtor. MARK PLEPIS, Plaintiff, v. GEOFFREY CORNOG HORROCKS, Sr., Defendant.
• Court: U.S. Bankruptcy Court — Eastern District of Pennsylvania

IN RE: GEOFFREY CORNOG HORROCKS, Sr., Debtor.

MARK PLEPIS, Plaintiff,
v.
GEOFFREY CORNOG HORROCKS, Sr., Defendant.

Bky. No. 13-15161
Adv. No. 13-0420

UNITED STATES BANKRUPTCY COURT EASTERN DISTRICT OF PENNSYLVANIA

April 4, 2016

Chapter 7

OPINION

BY: JEAN K. FITZSIMON United States Bankruptcy Judge

I. INTRODUCTION

Plaintiff Mark Plepis ("Plepis") served as Operations Manager at Diversified Realty, Inc. ("Diversified"), a company owned in part by Debtor Geoffrey Cornog Horrocks, Sr. (the "Debtor" or "Horrocks"). Plepis also lent considerable sums of money to both Diversified and to another company at which the Debtor worked, Amrock Investments, LP ("Amrock") (together with Diversified, the "Companies").¹

The Plaintiff filed this Adversary Proceeding, originally seeking to have the debts owed to him by the Companies declared nondischargeable in Horrocks' bankruptcy.

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However, Plepis ran into a problem. The debts were owed by the Companies and not by Horrocks directly. This problem has proved insurmountable.

The Plaintiff re-plead the Amended Complaint to add a count for piercing the corporate veil and insisted that the Companies were an alter-ego of the Debtor.² Plepis argued that the Debtor was, therefore, on the hook for the debts owed to him. A trial was held solely on this preliminary issue. For the reasons discussed below, the Court finds that the Plaintiff failed to present sufficient evidence that Amrock is the alter-ego of the Debtor; therefore, the corporate veil will not be pierced and relief will not be granted to the Plaintiff. As a result, no further trial or hearing is necessary.

II. PROCEDURAL HISTORY

This adversary proceeding was filed on August 1, 2013. For reasons stated on the record, the Court granted the Debtor's first two Motions to Dismiss.See doc. nos.11 and 20. After the Debtor again sought dismissal of the Second Amended Complaint (doc. no. 22, the "SAC"), the Court denied the requested relief and ordered the Debtor to file an answer. Doc. no. 30.

The SAC alleges three causes of action:³ 1) that the Defendant is the alter-ego of the Companies and, therefore, that the corporate veil should be pierced in order to hold Horrocks liable for the debts owed to Plepis; 2) that any debt owed by the Debtor to the Plaintiff is nondischargeable pursuant to 11 U.S.C. §523(a)(2)(A); and 3) that any debt owed by the Debtor to the Plaintiff is nondischargeable pursuant to 11 U.S.C. §523(a)(2)(B).

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The Debtor's Answer (the "Answer") to the SAC included a counterclaim (the "Counterclaim") seeking a declaratory judgment that Counts I through XII of a Court of Common Pleas action by the Plaintiff in 2007 (the "State Law Action") be "discharged." Doc. no. 35 at 25-26.⁴ The Plaintiff answered the Counterclaim on May 12, 2014, denying all relevant allegations. Doc. no. 36 (the "Counterclaim Answer"). Pursuant to the Court's scheduling order, the parties filed a joint pretrial statement on May 29, 2015. Doc. no. 51.⁵

On June 24, 2015, the Court both granted the Plaintiff's Motion in Limine to exclude testimony at the trial relating to the Debtor's unclean hands defense and denied the Debtor's Motion in limine to exclude certain documents relating to his financial condition.See doc. nos. 46, 48, 56, 62, 69, 70.⁶

Because the Court determined the issue of piercing the corporate veil to be a preliminary one - i.e., if the Plaintiff is not able to succeed on this cause of action, then the other aspects of the SAC are moot - the trial in this matter was bifurcated. A trial with regard only to the issue of

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the alter-ego/piercing the corporate veil was held on November 10, 2015 (closing arguments were heard separately) with the understanding that if the Plaintiff prevailed, the trial would be continued to a later date in order to determine the nondischargeability causes of action. However, if the Plaintiff failed to meet his burden of proof with regard to piercing the corporate veil, then there would be no need for further trial because the Debtor is not personally liable for the debts of Amrock owed to Plepis.

Three witnesses testified at the November trial: the Debtor, Geoffrey Cornog Horrocks, the Plaintiff, Mark Plepis, and Brian Good ("Good"), the accountant for the Companies. Counsel for the parties made closing arguments on January 26, 2016.

The Plaintiff submitted a post-trial brief on January 4, 2016 (doc. no. 80, as edited by doc. no. 85 on February 5, 2016, the "Plaintiff's Post-Trial Brief"),⁷ as did the Debtor. Doc. no. 81.⁸ The Defendant filed a reply brief on February 22, 2016 (doc. no. 86, the "Debtor's Reply").

III. FINDINGS OF FACT

Upon consideration of the testimony and documentary evidence offered at trial, as well as the pleadings, the Court makes the following findings of fact:

The Debtor's Background in Business

1. In 1991, Horrocks received his real estate license. Transcript of trial on November 10, 2015. Doc. No. 79 ("Tr. 1") at 128. After representing clients for a couple of years, in 1993 the

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Debtor formed a partnership in Montgomery County with Jeff Clemens called the Clemrock Group.Id. at 128-129.

2. The Clemrock Group later became Clemrock Incorporated ("Clemrock, Inc.") in 1995. Tr.1 at 129. Clemrock, Inc. worked with distressed properties, and went into partnerships on residential and commercial developments with a local developer.Id.

3. The Debtor and Jeff Clemens financed the acquisition of the properties for Clemrock, Inc. by borrowing money. Tr.1 at 130.

4. During his time at Clemrock, Inc., Horrocks became involved in land development as well. Tr.1 at 130. By developing land, the Debtor and his partner strove to identify "property that would lend itself for something other than the use that it currently" maintained. Tr.1 at 131.

5. As part of this venture, the Debtor became involved in the logistics of land development in addition to the finances of it. Tr.1 at 131-135. The period from identification of desirable land until the time of township approval usually took about three years to complete. Tr.1 at 132. The developer usually does not realize a profit until after the approvals (by a zoning board). Tr.1 at 136.

6. In the late 1990's, the Debtor was involved in a number of land development projects in Montgomery County, including the Meadow Glen Development and Hillandale. Tr.1 at 136-137.

7. Around this time period (the late 1990's), Jeff Clemens and Horrocks separated professionally. Tr.1 at 138. Each executed a joint venture agreement with a new company, Eastern Equities. Tr.1 at 138.

8. In 2002 or 2003, Horrock's formed a company called Telford Land Holdings, LLC ("Telford") with a partner named Ed Jones. Tr.1 at 158, 171. Telford bought real estate and performed "other real estate activities."Id at 158.

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9. Horrocks also formed an LLC called Trinity Land Holdings ("Trinity") with developers named Ed Jones and Tom Bonner. Tr.1 at 162. Trinity was responsible, inter alia, for selling parcels of land and retaining profits. Tr.1 at 217.

10. The Debtor formed Skippack Land Holdings, LLC ("Skippack") with Ed Jones and Tom Bonner for land development activities in Montgomery County. Tr.1 at 165. In 2007, Skippack lost approximately $300,000 in land sales. Tr.1 at 218.

11. Horrocks was the sole member of an entity called Burlington County Woods, LLC, which obtained financing, purchased and sold land in New Jersey. Tr.1 at 168.

Background of the Companies

Diversified

12. Diversified was a real estate investment firm which was in the business of, inter alia, locating and identifying land suitable for development. SAC at 2.

13. Horrocks was - at certain, but not all relevant times - the President, Secretary, Treasurer and a shareholder of Diversified. SAC at 2; Tr. 1 at 12, 146; Ex. D-11.

14. The Debtor was not the sole officer, director, or shareholder of Diversified. Ex. D-11. Kimberly Horrocks, the Debtor's wife, held shares in Diversified.Id. A.T. Mathis⁹ was, during certain time periods, an officer of Diversified. Ex. D-11.

15. Diversified was a Nevada corporation and obtained a fictitious name in Pennsylvania in order to "buy, sell, lease, develop and otherwise deal in real estate." D-6 at 1; Tr.1 at 140; Exs. D-5 and D-6.

16. Diversified was the general partner of Amrock. Tr.1 at 255.

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17. Diversified's "Resolution of the Board of Directors" permits the President of the Company, inter alia, to "make loans to employees or enter onto and execute any document representing debt or encumbrances or obligations of any type at his/her discretion and in his/her best judgment." Ex. D-11 at 5; Tr.1 at 52.

Amrock

18. In 1999, Amrock was formed as a limited partnership by Joe Amity (through his company Rabbit Ridge Enterprises) and Horrocks. Tr.1 at 137-138. Eastern Equities, one of the Debtor's land development companies, was involved in this venture of identifying properties and finding funding sources to back the projects.Id. at 138.

19. Amrock was a Nevada Corporation. Tr.1 at 139; Exs. D-1 through D-5.

20. Diversified was a general partner of Amrock. SAC at 2; Tr.1 at 140; Ex. D-1.

21. Horrocks was a limited partner of Amrock. SAC at 2; Tr.1 at 12; Ex.D-3. The other limited partners of Amrock were Rabbit Ridge Enterprises and Kimberly Horrocks. Tr.1 at 140; Ex. D-3.¹⁰

22. One of the purposes of Amrock was to fund Eastern Equities, one of the Debtor's land development companies. Tr.1 at 172. Amrock did not itself take title to properties.Id.

23. Pursuant to Amrock's Agreement of Limited Partnership, "[t]he management and control of the Partnership and its business shall be vested exclusively in the General Partners, who shall have all the powers . . . ." Ex. D3, §9.1.

24. Diversified was the only General Partner of Amrock and owned 1% of the Company. Ex. D-3.

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25. Amrock's balance sheets for the years from 2002 through 2006 show that the company had liabilities that were greater than its assets and, consequently, a negative equity. Ex...