The Estates of Moss v. Dorand (In re Dorand)
| Decision Date | 06 July 2022 |
| Docket Number | 21-30205,Adversary Case 21-3003 |
| Parties | In Re: RODNEY DIXON DORAND, Debtor. v. RODNEY DIXON DORAND, Defendant. THE ESTATES OF ROBERT MOSS AND BRENDA MOSS, et al., Plaintiffs, |
| Court | U.S. Bankruptcy Court — Northern District of Florida |
In Re: RODNEY DIXON DORAND, Debtor.
THE ESTATES OF ROBERT MOSS AND BRENDA MOSS, et al., Plaintiffs,
v.
RODNEY DIXON DORAND, Defendant.
No. 21-30205
Adversary Case No. 21-3003
United States Bankruptcy Court, N.D. Florida, Pensacola Division
July 6, 2022
FINDINGS OF FACT AND CONCLUSIONS OF LAW FOLLOWING TRIAL
HENRY A. CALLAWAY U.S. BANKRUPTCY JUDGE.
This adversary proceeding arises out of a failed condominium development on Lake Martin, Alabama during the "Great Recession" of 2007-2009. The plaintiffs, the Estates of Robert Moss and Brenda Moss by Danae Brown, Executrix, and the Estates of Charles Saunders and Peggy Saunders by Amanda Andrews, Administrator, filed this adversary proceeding for nondischargeability under 11 U.S.C. § 523(a)(2)(A) of a state court judgment against the debtor-defendant Rodney Dixon Dorand resulting from the failed development.[1]
The court held a trial on June 7 and 8, 2022. The court heard testimony from the debtor, Alabama attorney Brett Harrison, and Danae Brown (daughter of the Mosses). It admitted creditors' exhibits 1-65 (hereinafter "cred. ex.") and debtor's exhibits 1-19 (hereinafter "debtor ex.") without objection and creditors' rebuttal exhibit 1 over the debtor's objection.
This is a core proceeding under 28 U.S.C. § 157(b)(2), and the court has authority to enter a final order. The parties have also consented to the entry of a final judgment by this court. (See joint report, doc. 15). Having carefully considered the evidence and the applicable law, the court finds that the debtor's debt to the plaintiffs is dischargeable in the debtor's chapter 7 bankruptcy.
Findings of Fact
The debtor Dr. Dorand has had a long medical career; he also has a law degree but has never practiced law. Prior to 2006, he had no real estate experience. From 2005 to 2011, the debtor received long-term disability payments of around $20,000 a month because he could not practice medicine full time due to chronic back issues.
The Lake Martin project
In 2006, The Carroll & Green Group - a developer out of Birmingham, Alabama - was working on a condominium development in Lake Martin, Alabama referred to in this litigation as "The Bluffs at Copper Creek" or "The Bluffs." To that end, in February 2006, Lee Carroll and David Green (the "Carroll" and "Green" of The Carroll & Green Group) created Glenwood Development Company, LLC. Lee Carroll and David Green were the sole members of Glenwood Development. (See Glenwood Dev. articles of org., debtor ex. 1).
The debtor was not involved in the idea for The Bluffs and had had limited involvement with The Carroll & Green Group before 2006. He only knew of the Group because he bought a house from it in Birmingham for his youngest son Dixon (who was attending UAB at the time) and because Dixon worked as a "gopher" at Carroll & Green. Sometime in 2006, Dixon told the debtor about Carroll & Green's Lake Martin project. The debtor testified that Carroll & Green approached him, not the other way around.
The debtor provided his personal financial statement (cred. ex. 21) to Carroll & Green in late June or early July 2006,[2] which showed the debtor's net worth at about $7 million. Lee Carroll also met with the debtor while the debtor was on vacation in California sometime in July 2006. Carroll provided the debtor a "pro forma" (debtor ex. 19) about the Lake Martin project dated July 12, 2006. The pro forma projected that the entire project would cost $28.5 million.
The debtor then formed Dorand Development, LLC in late July 2006. (See Dorand Dev. articles of org., debtor ex. 2). The members of Dorand Development were KAD Away Trust, The Rodney D. and Barbara H. Dorand Living Trust ("the Living Trust"), and The Leigh and Kimberly Dorand Living Trust.[3] The debtor testified that when he agreed to become part of the Lake Martin project, it was his understanding that Dorand Development would make contributions as a "passive investor" in the project.
On September 11, 2006, articles of organization (cred. ex. 14) were filed with the Alabama Secretary of State's Office for "Glenwood-The Bluffs at Copper Creek, LLC." The stated purpose of the LLC was to acquire the land for the Lake Martin project and to develop that project. The members of Glenwood-The Bluffs at Copper Creek were Lee Carroll, David Green, Dan Walters, Scott Howell, Dixon Dorand, and Dorand Development. Glenwood Development (Lee Carroll and David Green) was the initial manager of Glenwood-The Bluffs at Copper Creek. The debtor has never held an interest in Glenwood Development - individually, through Dorand Development, or through the Living Trust.
The land for the Lake Martin project
The land for the project consisted of five parcels, known as the Cobb Parcel, the Copeland Parcel, the Lopez Parcel, the Hand Parcel, and the Moss Parcel (the subject of this suit).
The Moss Parcel
The Moss Parcel was important to the Lake Martin project because it was the only "easy" waterfront access to the lake and thus the only place for a boat dock and ramp. On July 1, 2006, Glenwood Development entered into a Real Estate Purchase Agreement (debtor ex. 6A; cred. ex. 2) with the Mosses and the Saunderses to buy the Moss Parcel for $450,000. The agreement was negotiated by realtor Eric Winkler and is signed by Lee Carroll as "Buyer" and by Robert Moss, Brenda Moss, Peggy Saunders, and Charles Saunders as "Sellers." The "Additional Provisions" section of the agreement contains the following: "Seller to subordinate to primary/1st mortgage holder. One or more corporation/LLC principals must sign and be
personally responsible for note up to $450,000. Should the corporation/LLC cease to exist or be unable to pay Sellers require a surety bond in the amount of $450,000."
The debtor, Dorand Development, and the Living Trust were not parties to the purchase agreement for the Moss Parcel and were not involved in the negotiation of the agreement. The debtor never met the Mosses or the Saunderses, never gave them his personal financial statement, and never authorized anyone to communicate or negotiate with them on his behalf. There is no evidence that the debtor, Dorand Development, or the Living Trust knew about the purchase agreement at the time that it was negotiated and signed, all of which occurred before Carroll met with the debtor in California, before the pro forma, and before the formation of Dorand Development and Glenwood-The Bluffs. No one discussed anything about the acquisition of the Moss Parcel - including the surety bond requirement - with the debtor, Dorand Development, or the Living Trust.
Lee Carroll and David Green signed a guaranty agreement (cred. ex. 63) dated July 31, 2006, related to the Moss Parcel. The surety bond was never provided, but the parties closed the transaction anyway. By general warranty deed (cred. ex. 3) dated July 31, 2006, the Mosses and Saunderses conveyed the Moss Parcel to Glenwood-Silver Hills, LLC. Glenwood-Silver Hills also signed a mortgage and promissory note (cred. exs. 4, 5) in favor of the sellers dated that date. A corrective deed and mortgage (cred. exs. 6, 7) were later recorded changing the purchaser/mortgagor to Glenwood-The Bluffs at Copper Creek, LLC. The Mosses and Saunderses also signed an agreement (cred. ex. 10) to subordinate "their rights under the Security Documents [related to the sale of the Moss Parcel] and payment under the Seller Note if so
requested by a Third Party Lender extending . . . Additional Financing [for the Lake Martin project]."
In October and November 2007 - more than a year after signing the purchase agreement and conveying their property - the Mosses and Saunderses asked about the missing surety bond in phone calls to Lee Carroll and Carroll & Green (see notes, cred. ex. 65) and a certified mail letter (cred. ex. 64[4]) to "Lee K. Carroll, Glenwood Development Company." The debtor (or Dorand Development or the Living Trust) was not copied on the letter and was unaware of the surety bond requirement. The debtor testified that Lee Carroll never discussed that with "any of them."
The Copeland, Cobb, and Lopez Parcels
The debtor never met the Copelands, the Cobbs, or the Lopezes, either. In late summer/early fall 2006, the Copeland, Cobb, and Lopez Parcels were conveyed to the debtor and he executed mortgages in favor of Henger Rast & Associates, LLC on those three parcels for a total of $1.675 million. (See deeds and Henger Rast mortgages, cred. exs. 52-57). He characterized it as a portfolio mortgage from Henger Rast to Glenwood-The Bluffs "in my name." The debtor did not have a previous relationship with Henger Rast; he was introduced to the company by Carroll & Green.
The debtor testified that although the deeds and mortgages were in his individual name, this was all part of a package of documents he signed from Henger Rast while he was in Florida recovering from a recent back surgery. The debtor also testified that Glenwood-The Bluffs
made payments on the mortgages and had asked him to take title to the properties and sign the mortgages on the Copeland, Cobb, and Lopez Parcels as an accommodation.[5] The debtor borrowed $1 million from Sterling Bank - secured by a mortgage on his Florida home ("Blue Mountain") at the time - to purchase the Copeland, Cobb, and Lopez Parcels for the project, although he testified that he used about $200,000 to remodel Blue Mountain. (See Sterling Bank mortgage, cred. ex. 23; Notice of Commencement, cred. ex. 40). He also executed a second mortgage (cred. ex. 24) for $580,000 in favor of Henger Rast on his Blue Mountain house.
The Hand Parcel
There was little evidence about this parcel at trial. The Hands conveyed this parcel to Leigh Dorand by deed (cred. ex. 60) dated November 15, 2006.
The funding for the Lake Martin project
The debtor did not sign the operating agreement dated October 2006 for...
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