Smith v. Porter

• Decision Date: 15 July 2009
• Docket Number: Civil Action No. 2:09cv188.
• Citation: 416 B.R. 264
• Court: U.S. District Court — Eastern District of Virginia
• Parties: Tom C. SMITH, Trustee for the Estate of Carr & Porter, LLC, Appellant, v. J. Ridgely PORTER, III, Appellee.

416 B.R. 264

Tom C. SMITH, Trustee for the Estate of Carr & Porter, LLC, Appellant, v. J. Ridgely PORTER, III, Appellee.

Civil Action No. 2:09cv188.

United States District Court, E.D. Virginia, Norfolk Division.

July 15, 2009.

COPYRIGHT MATERIAL OMITTED

Robert Vincent Roussos, Harbour Law PLC, Norfolk, VA, for Appellant.

Conrad Moss Shumadine, Laura Chernitsky Pyle, Willcox & Savage PC, Norfolk, VA, for Appellee.

MEMORANDUM OPINION AND ORDER

RAYMOND A. JACKSON, District Judge.

This matter is before the Court on appeal from the United States Bankruptcy Court for the Eastern District of Virginia, Chapter 7 Case No. 07-70238-SCS. Appellant Tom C. Smith, Trustee ("Trustee") for the Estate of Carr & Porter, LLC ("Debtor") appeals from a March 17, 2009 Memorandum Opinion and Order granting J. Ridgely Porter, III's Motion for Summary Judgment and denying the Trustee's Motion to Amend. For the reasons set forth below, the Bankruptcy Court's conclusions of law and findings of fact are AFFIRMED.

I. FACTUAL & PROCEDURAL HISTORY

The Debtor was a law firm in the City of Portsmouth, Virginia, whose sole owner was J. Ridgely Porter, III. On February 14, 2005, Porter entered into an agreement ("Agreement") with the Debtor, Kelly L. Daniels-Sheeran, and Matthew Pethybridge, who were two attorneys with the firm. Pursuant to the Agreement, which took effect on March 31, 2005, Porter was to receive $1,000,000.00, which was to be paid by the Debtor over a period of five years in 119 installments of $8,333.33, plus a final installment of $8,333.73, pursuant to a promissory note ("Note"). From the time of the execution of the Agreement until July 15, 2006, Porter received $255,500.00 from the Debtor. In exchange for that sum, Porter transferred his equity interest in the Debtor to these two attorneys. Porter was to continue to be employed by the Debtor, with his compensation to be determined by a formula based on his collected fees.

The Debtor subsequently experienced financial difficulties and filed a petition in bankruptcy on February 8, 2007. The Trustee was appointed the interim chapter 7 trustee and initiated this action against Porter on May 7, 2008, seeking to recover the payments received by Porter prior to the Debtor's bankruptcy. The Trustee argued that Porter was an "insider" under Section 547(b) of the Bankruptcy Code, and alternatively, that the payment could be set aside under Section 55-81 of the Virginia Code because it violated the state's voluntary transfer law.

Porter filed a Motion for Summary Judgment on October 10, 2008, and a hearing was held on November 3, 2008. On November 4, 2008, the Trustee filed a Motion to Amend, and a hearing was held on December 11, 2008. On March 17, 2009, the Bankruptcy Court granted the Motion for Summary Judgment and denied the Motion to Amend.

II. STANDARD OF REVIEW

Jurisdiction is conferred upon this Court pursuant to 28 U.S.C. § 158(a)(1). A district court reviews a bankruptcy court's decisions of law de novo and its findings of fact for clear error. See In re Meredith, 527 F.3d 372, 375 (4th Cir.2008); In re Phinney, 405 B.R. 170, 175 (E.D.Va.2009); BNY, Capital Funding, LLC v. U.S. Airways, Inc., 345 B.R. 549, 552 (E.D.Va. 2006). Decisions committed to the discretion of the bankruptcy court are reviewed for abuse of discretion. See In re Morris, 385 B.R. 823, 828 (E.D.Va.2008); Boleman Law Firm, P.C. v. U.S. Trustee, 355 B.R. 548, 551 (E.D.Va.2006).

III. DISCUSSION

The Trustee seeks review of the Bankruptcy Court's March 17, 2009 Memorandum Opinion and Order (1) denying the Motion to Amend as untimely and prejudicial, and (2) granting the Motion for Summary Judgment in Porter's favor on both counts of the Complaint. For the reasons set forth below, the Bankruptcy Court's conclusions of law and findings of fact are AFFIRMED.

A. Notice of Appeal

As an initial matter, Porter argues that the Notice of Appeal is fatally defective because it fails to properly identify (1) the appellee, and (2) the matter to be appealed. The Trustee concedes these defects, but argues that dismissal is inappropriate because the Notice of Appeal was timely, Porter suffered no prejudice from the errors, and dismissal would be unreasonably harsh.

Rule 8001(a) of the Bankruptcy Rules provides that a Notice of Appeal must "(1) conform substantially to the appropriate Official Form [and] (2) contain the names of all parties to the judgment, order, or decree appealed from and the names, addresses, and telephone numbers of their respective attorneys." Appellant's Notice of Appeal reads:

Tom C. Smith, Trustee for the Estate of Carr & Porter, LLC, by counsel, appeals to the United States District Court for the Eastern District of Virginia from the final decision of the Bankruptcy Court denying the plaintiff's Complaint to Determine Dischargeability of Debt and plaintiff's Motion to Amend, which Orders were entered on or about March 17, 2009. The parties to the decision appealed from and the names and address of their respective attorneys, if any, are as follows:

The Trustee then listed the counsel for himself and Porter, along with counsels' addresses, but failed to name the parties.

Porter cites In re United Refuse LLC, 171 Fed.Appx. 426 (4th Cir.2006) for the proposition that an appeal must be dismissed where the notice of appeal does not name the party continuing to seek review. However, that case is distinguishable from the facts here. In United Refuse LLC, there were several parties to the bankruptcy proceedings, and the Notice of Appeal specified only two parties as the parties on appeal. The District Court dismissed the appeal of two other parties to the bankruptcy proceedings, who were not designated as parties on appeal, reasoning that the Notice of Appeal did not name them as appellants, express their intent to appeal, or establish privity between them and the named appellant. The District Court then confined the Notice of Appeal to the named appellant, and this decision was upheld by the United States Court of Appeals for the Fourth Circuit ("Fourth Circuit").

In the instant case, there were only two parties in the case before the Bankruptcy Court; two orders entered on March 17, 2009 with respect to these parties; and counsel for each of those parties was specified on the Notice of Appeal. Even though the Notice of Appeal was poorly drafted, there can be no doubt which matters the Trustee intended to appeal from and against which appellee (as there could only be one). There is not the same potential for confusion here that concerned the Court in United Refuse LLC. Indeed, Porter does not contend that he suffered any confusion or was prejudiced in any way by the defective Notice of Appeal. Other courts have held that "failure of complete, literal conformity to Rule 8001(a)" is not "unforgivable." See Fadayiro v. Ameriquest Mortgage Co., 371 F.3d 920 (7th Cir.2004) (holding dismissal of appeal was erroneous where appellant did supply the required information but not in the prescribed format). Accordingly, the Court finds that dismissal of the appeal on this basis is not appropriate.

B. Motion to Amend

During the hearing on the Motion for Summary Judgment, the Bankruptcy Court inquired whether Count One of the Complaint, in addition to stating a claim under Section 547(b) of the Bankruptcy Code, also stated a claim under Section 548. Porter argued that Count One asserted only a single cause of action, and that any amendment to assert a new count would be untimely and should not be permitted. The Trustee argued that the Complaint stated facts sufficient to establish a claim under Section 548. The day following the hearing, the Trustee filed a Motion to Amend the Complaint, arguing that the Complaint already states a claim pursuant to Section 548, and requesting leave to state with greater specificity the relief sought. Porter filed a Memorandum in Opposition, arguing that the Complaint does not state such a claim and that the Motion is untimely and prejudices Porter.

The Bankruptcy Court found that, despite the liberal standard of notice pleading under Rule 8 of the Federal Rules of Civil Procedure, the Complaint as originally filed did not state a claim under Section 548. The Bankruptcy Court found that despite references to Section 548 in the preamble of the Complaint, such references largely disappeared after such mention; that the Complaint contained only two counts and clearly stated causes of action under 11 U.S.C. § 547 and Va.Code Ann. § 55-81; that the prayer for relief under Count One seeks a measure of damages consistent with Section 547 (amount preferentially transferred during one year) and inconsistent with Section 548 (full amount transferred while Debtor was insolvent); and that Section 548 was not designated as a cause of action on Official Form 104.

The Bankruptcy Court further found that the Motion to Amend was untimely and would cause undue delay, as it was filed after argument on the Motion for Summary Judgment and after the deadline for filing motions prior to the trial date had passed. The Bankruptcy Court also found that granting such Motion to Amend would prejudice Porter, because the Motion for Summary Judgment was fully briefed and argued with the understanding that Section 548 was not at issue, and discovery was closed and Porter had taken no discovery with regard to a Section 548 claim. Accordingly, the Bankruptcy Court denied the Trustee's Motion to Amend.

On appeal, the Trustee argues that the Bankruptcy Court abused its discretion in denying the Trustee's Motion, or alternatively, in finding that the pleadings were insufficient to state a claim under Section 548. The Trustee contends that an amendment would not prejudice Porter because (1) no new factual allegations would be pled, but merely more specific information regarding the legal basis for the relief being sought on the facts already pled; and (2) no trial date was scheduled and Appell...