Starnes Family Office Llc v. Mccullar

• Decision Date: 28 January 2011
• Docket Number: No. 10–2186.,10–2186.
• Citation: Starnes Family Office Llc v. Mccullar, 765 F.Supp.2d 1036 (W.D. Tenn. 2011)
• Parties: STARNES FAMILY OFFICE, LLC, Plaintiff,v.Meredith McCULLAR, Defendant.andMeredith McCullar, Third–Party Plaintiff,v.Michael S. Starnes, Third–Party Defendant.
• Court: U.S. District Court — Western District of Tennessee

765 F.Supp.2d 1036

STARNES FAMILY OFFICE, LLC, Plaintiff,

v.Meredith McCULLAR, Defendant.andMeredith McCullar, Third–Party Plaintiff,

v.Michael S. Starnes, Third–Party Defendant.

No. 10–2186.

United States District Court, W.D. Tennessee, Western Division.

Jan. 28, 2011.

John J. Heflin, III, John Marshall Jones, Bourland Heflin Alvarez Minor & Matthews Memphis, TN, for Plaintiff and Third–Party Defendant.

Erika D. Roberts, Stephen C. Barton, Thomason Hendrix Harvey Johnson & Mitchell, Memphis, TN, for Defendant and Third–Party Plaintiff.

ORDER ON MOTIONS

SAMUEL H. MAYS, JR., District Judge.

Plaintiff Starnes Family Office, LLC (“SFO”) sues Defendant Meredith McCullar (“McCullar”), alleging that he owes SFO more than $1.5 million as co-maker of two promissory notes. ( See Compl. ¶¶ 5–8, ECF No. 1.) McCullar denies the allegations and brings counterclaims against SFO and third-party claims against Third–Party Defendant Michael S. Starnes (“Starnes”). ( See Answer, Counter Compl. and Third Party Compl., ECF No. 6; Am. Answer, Counter Compl. and Third Party Compl., ECF No. 19.)

Before the Court are two motions to strike filed by SFO on May 17, 2010. ( See Pl.'s Combined Mot. and Mem. to Strike Affirmative Defenses and Counter Claim, ECF No. 9 (“Mot. to Strike Defenses”); Mot. to Strike Jury Demand, ECF 10.) McCullar responded on June 1, 2010. ( See Def.'s Resp. in Opp'n to Pl.'s Mot. to Strike Jury Demand, ECF No. 15 (“Resp. to Jury Demand”); Meredith McCullar's Resp. to Pl.'s Mot. to Strike Affirmative Defenses and Counter Claim, ECF No. 16 (“Resp. to Defenses”).) SFO replied on June 15, 2010. ( See Reply Mem. in Supp. of Mot. to Strike Affirmative Defenses and Counterclaim, ECF No. 23; Reply Mem. in Supp. of Mot. to Strike Jury Demand, ECF No. 24.) With leave of Court, McCullar filed surreplies on July 2, 2010. ( See Surreply Br. of Meredith McCullar in Opp'n to Mot. to Strike Affirmative Defenses and Counterclaim, ECF No. 33 (“Def.'s Surreply to Defenses”); Surreply Br. of Meredith McCullar in Opp'n to Mot. to Strike Jury Demand, ECF No. 34.)

Also before the Court are a motion to dismiss and a motion to strike jointly filed by SFO and Starnes on May 17, 2010.¹ ( See Pl. Starnes Family Office, LLC's and Third–Party Def. Michael S. Starnes' Combined Mot. and Mem. to Dismiss Third Party Compl., ECF No. 12 (“Mot. to Dismiss”); Pl. Starnes Family Office, LLC's and Third–Party Def. Michael S. Starnes' Combined Mot. and Mem. to Strike Allegations Relating to Starnes' Competence, ECF No. 11 (“Mot. to Strike Allegations”).) McCullar responded on June 1, 2010. ( See Def. and Third Party Pl. Meredith McCullar's Mem. in Opp'n to Pl.'s and Third Party Def.'s Mot. to Strike Allegations Relating to Starnes' Competence, ECF No. 17 (“Resp. to Allegations”); Meredith McCullar's Resp. in Opp'n to Pl.'s and Third Party Def.'s Mot. to Dismiss Third Party Compl., ECF No. 18 (“Resp. to Dismiss”).) SFO and Starnes replied on June 15, 2010. ( See Pl. Starnes Family Office, LLC.'s and Third–Party Def. Michael S. Starnes' Reply Mem. in Supp. of Mot. to Strike Allegations Relating to Starnes' Competence, ECF No. 25; Pl. Starnes Family Office, LLC's and Third–Party Def. Michael S. Starnes' Reply Mem. in Supp. of Mot. to Dismiss Third Party Complaint, ECF No. 26.) With leave of Court, McCullar filed surreplies on July 2, 2010. ( See Surreply Br. of Meredith McCullar in Opp'n to Mot. to Strike Allegations Regarding Starnes' Competence, ECF No. 31; Surreply Br. of Meredith McCullar in Opp'n to Mot. to Dismiss Third Party Compl., ECF No. 32.)

For the following reasons, the Court GRANTS SFO's Motion to Strike Affirmative Defenses and Counter Claim, GRANTS SFO's Motion to Strike Jury Demand, GRANTS IN PART and DENIES IN PART Starnes' Motion to Dismiss Third Party Complaint, and DENIES SFO's and Starnes' Motion to Strike Allegations Regarding Starnes' Competence.

I. Background

SFO sues to recover from McCullar as co-maker of two promissory notes, but the litigation arises in the context of a business relationship turned sour. McCullar alleges that he and Starnes had been friends since 1990 when, in 2003, Starnes suggested they go into business together. (Am. Counter Compl. ¶ 2, ECF No. 19.) At the time, McCullar was an established real estate developer, and Starnes had acquired significant personal wealth from a Memphis, Tennessee-based trucking company he sold in 2001. ( Id. ¶¶ 1–2.) McCullar agreed to work with Starnes, and they formed various partnerships, limited liability companies, and other business entities (the “Entities”), through which they acquired real estate in and around Memphis and northern Mississippi. ( Id. ¶ 2.)

To purchase and sell real estate, Starnes and McCullar took on various loans from 2003 to 2006 (the “Loans”), which were secured by the Entities' real estate holdings and Starnes' personal guarantees. ( Id. ¶ 5.) McCullar alleges that, when they obtained the Loans, they “understood and agreed” that “only Starnes had the personal financial resources and wherewithal to service and back the [Loans] if ... the value of the real estate being used as collateral was insufficient to do so” and that “McCullar lacked this financial capability and would not be expected to do so.” ( Id. ¶ 6.) According to McCullar, their business ventures did well, but “it was always understood between Starnes and McCullar that Starnes' primary contribution to the business ventures and partnerships was his enormous financial capability and access to credit and that McCullar's primary contribution was his experience and expertise in the real estate market.” ( Id. ¶ 4.)

In January 2006, Starnes suffered a stroke that limited his contact with individuals other than “a few select family members and business, legal, and financial associates.” ( Id. ¶ 7.) Since then, McCullar has done business primarily through Starnes' agents and representatives. ( Id.) Whenever McCullar met with Starnes after January 2006, McCullar found that Starnes was unable to communicate effectively, leading McCullar to question Starnes' competence. ( Id. ¶¶ 7–8.)

In 2007 and 2008, the real estate market collapsed, and the Entities' holdings declined in value such that they were no longer sufficient to secure the Loans. ( See id. ¶ 9.) Because McCullar was unable to satisfy his portion of the Loans, the parties entered into an agreement on August 15, 2008 (the “Agreement”). ( See id. ¶ 11.) Although Starnes signed the Agreement himself, Raymond Blankenship and Robert Orians negotiated on behalf of Starnes and signed the Agreement as his attorneys-in-fact. ( Id. ¶ 12.)

The Agreement states that the Entities have approximately $26.5 million in debt obligations and lack the capital to service that debt. ( Id. ¶ 13; see also Ex. A, at 1, ECF No. 6–1.) It states that “McCullar has indicated that he is not capable, at this time, of funding his proportionate share of any capital contribution necessary to capitalize” the Entities and that “Starnes has agreed to finance the costs of [the Entities] for the time being, upon the terms and subject to the conditions set forth herein.” (Am. Counter Compl. ¶ 13; see also Ex. A., at 1.) The Agreement does not include a termination date. (Am. Counter Compl. ¶ 16.) McCullar alleges that the Agreement was to operate “until all of the real estate involved was disposed of or the Agreement itself was no longer necessary because of an improvement in the real estate market, which was anticipated to take between two to five years.” ( Id.)

The Agreement identifies a line of credit with BankPlus as one of the Entities' debt obligations. ( See Am. Counter Compl. ¶ 18; see also Ex. A, ¶ 1(a)(iv).) When BankPlus refused to restructure the Entities' debt, Blankenship arranged for Independent Bank of Memphis (“Independent Bank”) to loan McCullar and Starnes approximately $3 million, which they used to satisfy the Entities' obligation to BankPlus. ( See Am. Counter Compl. ¶ 18.) In return for that loan, on November 26, 2008, McCullar and Starnes executed the two promissory notes to Independent Bank (the “Notes”) that are the subject of this litigation. ( Id.; see Compl. ¶ 5.) Starnes also provided $6 million in personal collateral to guarantee the Notes. (Am. Counter Compl. ¶ 18.)

Although McCullar and Starnes were jointly and severally liable under the Notes and the Notes had a one-year maturity date of November 25, 2009, McCullar alleges that “it was understood between McCullar and Starnes or Starnes' representatives that the maturity date on the Notes would be extended by Independent Bank, if necessary, as a matter of course.” ( Id. ¶ 19.) According to McCullar, it was understood by Starnes or his representatives that McCullar would not be able to pay his share of the Notes by their November 25, 2009 maturity date and that, if Independent Bank refused to extend their maturity date, Starnes would personally assume the Notes and McCullar's obligation to Starnes would be added to the amount he owed Starnes under the Agreement. ( See id. ¶ 20.) McCullar alleges that he relied on that “understanding” when he executed the Notes. ( See id.)

On April 6, 2009, SFO was created. ( Id. ¶ 21.) According to McCullar, Starnes was an officer of SFO, and SFO was managed by SFO Management. ( Id.) McCullar also alleges that Starnes was the chief operating officer of SFO Management and sat on its board of directors. ( Id.) On August 21, 2009, SFO purchased the Notes from Independent Bank. ( See id. ¶ 22.) The Notes have matured, and McCullar has not made any payments on them. (Compl. ¶¶ 6–7.)

SFO filed this suit against McCullar, alleging that it holds the Notes as a “holder in due course” and that Starnes, McCullar's co-maker on the Notes, has satisfied one half of the total due under them. ( See Compl. ¶¶ 6–7.) McCullar denies that SFO is “entitled to any relief from him under any theory whatsoever,” pleads various affirmative defenses, alleges a...