Select Bank & Tr. Co. v. Crawford (In re Crawford), 21-01296-5-JNC
| Decision Date | 12 May 2022 |
| Docket Number | 21-01296-5-JNC,Adversary Proceeding 21-00092-5-JNC |
| Parties | IN RE: GEORGE RONALD CRAWFORD, Debtor v. GEORGE RONALD CRAWFORD, Defendant. SELECT BANK & TRUST COMPANY, Plaintiff, |
| Court | U.S. Bankruptcy Court — Eastern District of North Carolina |
Before the court is defendant George Ronald Crawford's Motion to Dismiss the Amended Complaint (Dkt. 23) filed by Select Bank & Trust Company ("Select Bank"), pursuant to Federal Rule of Civil Procedure 12(b)(6) and made applicable to this adversary proceeding by Federal Rule of Bankruptcy Procedure 7012. A hearing in the matter was noticed for and held on April 13, 2022. David F. Mills appeared and argued on behalf of the Defendant, and Paul A. Fanning appeared and argued on behalf of Select Bank.
Mr Crawford filed a voluntary petition for relief under chapter 12 of the Bankruptcy Code on June 4, 2021 (Case No. 21-01296-5-JNC). Select Bank filed its original complaint (Dkt. 1; the "Complaint") in this adversary proceeding on September 21, 2021, seeking a determination that Mr. Crawford's debt owed to Select Bank should be excepted from discharge pursuant to 11 U.S.C § 523(a)(6). Mr. Crawford filed an Answer to the Complaint and Motion to Dismiss (Dkt. 3), Memorandum of Law in Support of Motion to Dismiss (Dkt. 4), and Motion to Dismiss the Adversary Proceeding (Dkt. 6). Select Bank filed a response opposing the first motion to dismiss (Dkt. 7). A hearing thereon was held on January 12, 2022. At the hearing an oral motion to amend was made by the plaintiff, which was granted in open court. A written order granting leave to amend was filed on January 12, 2022. (Dkt. 15).
Select Bank filed its Amended Complaint on February 11, 2022 (Dkt. 19; the "Amended Complaint"), asserting supplemental factual allegations and additional claims under 11 U.S.C. § 523(a)(2) and (a)(4). On March 10, 2022, Mr. Crawford filed a Motion to Dismiss all claims contained in the Amended Complaint (Dkt. 23; the "Motion to Dismiss"), supported by a Memorandum of Law (Dkt. 24). He also filed his Answer to Amended Complaint (Dkt. 25). Select Bank filed a response to the Motion to Dismiss on March 31, 2022 (Dkt. 26).
BACKGROUND[1]
Mr. Crawford has farmed for decades, having participated in row crop farming, custom farming, hog farm operations, custom harvesting, other contract farm work, and fee-for service equipment maintenance and repairs for other farmers (Dkt. 19 ¶ 9). In early 2017, Mr. Crawford sought an extension of credit from Select Bank for the purpose of conducting his farming operations (Dkt. 19 ¶ 10). Before approving and making the loan, Select Bank hired Blue Water Ag Group, Inc. ("Blue Water Ag") to inspect and appraise farm equipment offered as collateral for the loan (Dkt. 19 ¶ 12). Blue Water Ag produced a report which assigned the purported equipment collateral a fair market value of $1, 021, 750 (Ex. A, Dkt. 19 ¶ 13-15).
On March 7, 2017, Mr. Crawford executed and delivered to Select Bank a Promissory Note in the original principal amount of $199, 980 (the "Term Note") (Ex. C, Dkt. 19 ¶ 21). The same day, he executed a commercial security agreement (the "2017 Security Agreement"), which granted Select Bank a blanket security interest in "accounts and other rights to payment, inventory, equipment, instruments and chattel paper, general intangibles, documents, farm products and supplies (including crops), government payments and programs, investment property, deposit accounts, crop insurance proceeds, proceeds of other insurance policies relating to the foregoing, and any other proceeds of the foregoing" (collectively, the "Collateral") (Ex. D, Dkt. 19 ¶ 24). Mr. Crawford executed an extension and modification agreement of the Term Note on May 21, 2020 (Ex. F, Dkt. 19 ¶ 32). As of the petition date, the balance due under the Term Note and its extensions (collectively the "Term Note Loans") was the sum of $111, 138.26 (Dkt. 19 ¶ 36).
In early 2018, Mr. Crawford sought additional credit from Select Bank in the form of an operating line of credit (Dkt. 19 ¶ 37). He executed and delivered to it a Promissory Note in the original principal amount of $925, 000 on February 21, 2018 (the "Credit Line Note") (Ex. H, Dkt. 19, ¶ 42). As security for the Credit Line Note, Mr. Crawford executed a commercial security agreement granting Select Bank an additional security interest in the Collateral and any proceeds thereof (Ex. I, Dkt. 19 ¶ 45).
Select Bank perfected its security interests in the Collateral by filing UCC Financing Statements on March 8, 2017 and February 22, 2018 (Dkt. 19 ¶¶ 30 and 51). Mr. Crawford subsequently executed and delivered to Select Bank four separate change of term agreements, which effectively modified his payment obligations under the Credit Line Note on March 21, 2019; June 21, 2019; January 20, 2020; and on May 21, 2020 (Dkt. 19. ¶¶ 55, 57, 59, and 70). As of the Petition Date, the balance of the indebtedness under the Credit Line Note and its subsequent modifications totaled $721, 877.34 (Dkt. 19 ¶ 74).
Select Bank engaged Dale W. Young to re-inspect and re-appraise the farm equipment identified in the 2017 Appraisal as Collateral for Select Bank (Dkt. 19 ¶ 62). Mr. Young inspected the farm equipment located on Mr. Crawford's farm on February 24, 2020 (Dkt. 19 ¶ 63). Mr. Crawford was physically present during the inspection (Dkt. 19 ¶ 64), and he represented to Mr. Young that he owned all the farm equipment on site (Dkt. 19 ¶ 65). Mr. Young produced an appraisal report (the "2020 Appraisal") that assigned the equipment an aggregate fair market value of $835, 400 (Dkt. 19 ¶ 66, Ex. O). Certain pieces of the equipment included in the 2017 Blue Water Ag Appraisal were not included in the 2020 Appraisal and were listed by Mr. Young as "unable to locate." (Dkt. 19 ¶ 69). The missing and unaccounted for equipment had appraised for a total of $362, 800 (Dkt. 19 ¶ 82). The Amended Complaint identifies numerous pieces of equipment that were inspected and appraised in the 2020 Appraisal that are not included in Mr. Crawford's Schedules and Statement of Financial Affairs in this bankruptcy case and were not located or recovered by Select Bank prepetition (Dkt. 19 ¶ 83).
In addition, Mr. Crawford received various government program and crop insurance payments for the 2018, 2019, and 2020 crop years (Dkt. 19 ¶ 88). His crop insurance provider, Ace Property and Casualty Insurance Company, provided documents indicating they paid Mr. Crawford crop insurance proceeds in the aggregate amount of $506, 391 during 2019 and 2020 (Dkt. 19 ¶ 91-92; Ex. S). However, documents produced by Mr. Crawford in a Bankruptcy Rule 2004 examination document request approved by the court disclose his receipt of crop insurance proceeds of only $256, 320 during years 2019 and 2020 (Dkt. 3 ¶ 91; Exhibit S). These amounts were not paid or turned over by him to Select Bank. According to it, Mr. Crawford never notified Select Bank of the existence of those crop insurance and government program payments prior to filing his bankruptcy petition (Dkt. 19 ¶ 97). Mr. Crawford defaulted on his payment obligations to it prior to the Petition Date. Select Bank gave notice of default and acceleration on September 8, 2020 (Dkt. 19 ¶¶ 77-78).
Select Bank contends Mr. Crawford misrepresented his ownership of certain items of farm equipment he pledged as part of the Collateral securing the loans made by Select Bank. (Dkt. 19 ¶ 85.) It also alleges Mr. Crawford transferred substantial items of farm equipment constituting its Collateral to third parties in breach of the Security Agreement, and that he has not accounted for sale proceeds received or submitted payments for application to the debt (Dkt. 19 ¶¶ 82-85). Select Bank further contends Mr. Crawford received crop insurance and government proceeds subject to its lien that he also did not remit to Select Bank (Dkt. 19 ¶ 89-101.)
The Amended Complaint includes the following claims for relief:
Claim I: Exception to Discharge for Obtaining Money or Credit by False Pretenses, False Representation, or Actual Fraud, 11 U.S.C § 523(a)(2)(A);
Claim II: In the Alternative, Exception to Discharge for Obtaining Money or Credit through Use of Materially False Statement in Writing, 11 U.S.C. § 523(a)(2)(B);
Claim IV: Exception to Discharge for Willful and Malicious Injury by Defendant to Another Entity or to the Property of Another Entity, 11 U.S.C. § 523(a)(6).
The Motion to Dismiss filed by Mr. Crawford seeks dismissal of all claims pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure, challenging the "relation back" timeliness of the three new causes of action added by the Amended Complaint, contending that all new claims are filed untimely. He further maintains that even if all well-pleaded facts in this action are taken as true, Select Bank has failed to state a viable claim for relief in the Amended Complaint.
1. Relation Back of New Claims
Before analyzing whether the specific claims in the Amended Complaint plead facts sufficient to survive the Motion to Dismiss under Rule 12(b)(6)[2] standards, the court must first analyze whether Claims I, II, and III of the Amended Complaint are timely filed. The Complaint asserted only a single claim for relief under § 523(a)(6), which is an exception to discharge for any debt originating from a willful and malicious injury caused by the defendant to the claimant or its property. In the Amended Complaint,...
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