DFWMM Holdings LLC v. Richmond (In re Richmond)

615 B.R. 758

IN RE: Dennis RICHMOND, Debtor.

DFWMM Holdings LLC, Appellant,

v.Dennis Richmond, Appellee.

1:19CV667

United States District Court, M.D. North Carolina.

Signed March 9, 2020

Samuel Pinero, II, Oak City Law LLP, Raleigh, NC, for Appellant.

Kenneth M. Johnson, Greensboro, NC, for Debtor/Appellee.

MEMORANDUM OPINION AND ORDER

OSTEEN, JR., District Judge

This case is before the court on Appellant DFWMM Holdings LLC's ("DFWMM") appeal from the June 21, 2019 Order of the United States Bankruptcy Court for the Middle District of North Carolina (the "Bankruptcy Court"). That order dismissed Appellant's claims for nondischargeability of Debtor-Appellee Dennis Richmond's (the "Debtor") prior court judgments and held that Appellant did not have standing as an assignee of a creditor to bring an adversary proceeding against Debtor. (Doc. 5-3.) Debtor did not file a responsive brief.

The court dispenses with oral argument because the materials before it adequately present the facts and legal contentions, and argument would not aid the decisional process. Accordingly, this matter is ripe for ruling. The court exercises jurisdiction pursuant to 28 U.S.C. § 158(a)(1).

For the reasons contained herein, the court will affirm the Bankruptcy Court with one exception, that is, to remand the case for additional findings as to any advice of counsel.

I. FACTUAL AND PROCEDURAL BACKGROUND

A. Parties

DFWMM Holdings LLC, is a limited liability company organized under the laws of North Carolina and doing business there as well. (Bankruptcy Record on Appeal (Doc. 5) Ex. 3, Complaint Seeking Determination of Dischargeability of Judgment Debts ("DFWMM's Compl.") (Doc. 5-3) ¶ 1.)

Debtor Dennis Richmond is an individual debtor in Alamance County, North Carolina. (Bankruptcy Record on Appeal (Doc. 5) Ex. 4, Voluntary Petition (Doc. 5-4) at 1–2.)¹

B. DFWMM's Judgments

A brief review of the proceedings related to the judgments at issue is appropriate here.

1. The 2014 Judgment

In a previous case, the Estate of Flora Jones (the "Estate"), Appellant's predecessor in interest, filed suit in North Carolina Superior Court against Debtor's wife for constructive fraud and waste, receiving a judgment for $176,061 in addition to $55,000 in punitive damages. (Doc. 5-10 at 15–17.) This judgment was awarded to the ancillary administratrix (the "Administratrix") of the Estate. (Id. at 15, 17.) In 2013, the Administratrix, on behalf of the Estate, filed suit in North Carolina Superior Court against Debtor, alleging Debtor's wife fraudulently transferred $46,850 to Debtor, which the Estate only learned about through discovery in the previous action. (DFWMM's Compl. (Doc. 5-3) ¶ 8; Bankruptcy Record on Appeal (Doc. 5) Ex. 1, Bankruptcy Court Memorandum Opinion ("Mem. Op.") (Doc. 5-1) at 4.) Debtor apparently refused to comply with discovery orders, resulting in the North Carolina Superior Court striking his pleadings. (Doc. 5-10 at 41, 43–44.) On July 18, 2014, the North Carolina Superior Court "deemed all of [Appellant's] allegations admitted and entered judgment [ (the "2014 Judgment") ] in favor of [Appellant's] predecessor in interest against [Appellee] for $46,850 plus costs and interest for [Appellee's] ‘fraudulent transfers,’ " which apparently remains unsatisfied. (DFWMM's Compl. (Doc. 5-3) ¶ 9; see also Doc. 5-10 at 46–47.)

On October 27, 2014, Debtor "executed a promissory note and settlement agreement [ (the "2014 Settlement Agreement") ] for $157,334.00 secured by all of his personal and real property in favor of [Appellant]." (DFWMM's Compl. (Doc. 5-3) ¶ 10; Doc. 6-3 at 20.) Under the 2014 Settlement Agreement, Debtor and his spouse agreed to execute a promissory note and a security agreement with DFWMM. (DFWMM's Compl. (Doc. 5-3) ¶ 10; Mem. Op. (Doc. 5-1) at 4.) Debtor, however, defaulted on his obligations to pay the promissory note, and the promissory note was reduced to a judgment in July 2017. (DFWMM's Compl. (Doc. 5-3) ¶ 11; Doc. 5-8 at 2, 6–7.)

2. The 2017 Judgment

"The Court awarded the [Appellant] judgment for $152,324.41, attorney's fees of $22,848.66 plus costs and interest [ (the "2017 Judgment") ]. The Court also ordered that the security agreement be enforced." (DFWMM's Compl. (Doc. 5-3) ¶ 11; see also Doc. 5-8 at 6.) This judgment also remains unsatisfied. (DFWMM's Compl. (Doc. 5-3) ¶ 11.)

C. Debtor's Bankruptcy Filing

In December 2017, Debtor filed a voluntary petition for relief under Chapter 7 of Title 11 of the United States Bankruptcy Code, 11 U.S.C. § 101 et seq. (the "Bankruptcy Code"). (DFWMM's Compl. (Doc. 5-3) ¶ 5; Voluntary Petition (Doc. 5-4).)

Appellant brought an adversary proceeding in the bankruptcy action, raising two counts in its Complaint: (1) The 2014 and 2017 Judgments were nondischargeable under 11 U.S.C. § 523(a)(2) and (a)(6) ; and (2) an objection to discharge of Appellee's bankruptcy filing under Fed. R. Bankr. P. 7001(2) alleging Appellee failed to disclose assets and liabilities to the Bankruptcy Court. (DFWMM's Compl. (Doc. 5-3) ¶¶ 15–29.) The Bankruptcy Court held a hearing on Appellant's adversary proceeding complaint on May 16, 2019. (Mem. Op. (Doc. 5-1) at 1; Doc. 7.)

The Bankruptcy Court concluded that Appellant lacked standing to object to the discharge of the 2014 Judgment but found Appellant did have standing to contest the discharge of the 2017 Judgment. (Mem. Op. (Doc. 5-1) at 9–10.) The Bankruptcy Court then held that the 2017 Judgment was dischargeable. (Id. at 11–12.) The Bankruptcy Court also denied Appellant's motion to deny Debtor's discharge under § 727(a)(4), finding Appellant failed to establish that Debtor "in fact made any misstatements or omissions on his petition with fraudulent intent." (Id. at 15–16.)

Appellant filed the present appeal on July 8, 2019. (Doc. 1.) Appellant argues that the Bankruptcy Court erred in concluding it did not have standing to contest the 2014 Judgment, that collateral estoppel did not apply to the 2014 Judgment thus allowing the 2017 Judgment to be discharged, and that Debtor had shown the affirmative defense of reliance on counsel when debtor failed to plead or argue that defense.

II. STANDARD OF REVIEW

On appeal from the Bankruptcy Court, this court functions as an appellate court and reviews the Bankruptcy Court's findings of fact for clear error and conclusions of law de novo. In re Merry-Go-Round Enters., Inc., 400 F.3d 219, 224 (4th Cir. 2005). A finding of fact is clearly erroneous if a court reviewing it, considering all of the evidence, "is left with the definite and firm conviction that a mistake has been committed." Anderson v. Bessemer City, 470 U.S. 564, 573, 105 S.Ct. 1504, 84 L.Ed.2d 518 (1985) ; accord In re Mosko, 515 F.3d 319, 324 (4th Cir. 2008).

If the district court's account of the evidence is plausible in light of the record viewed in its entirety, the court of appeals may not reverse it even though convinced that had it been sitting as the trier of fact, it would have weighed the evidence differently. Where there are two permissible views of the evidence, the factfinder's choice between them cannot be clearly erroneous.

Anderson, 470 U.S. at 574–75, 105 S.Ct. 1504. Mixed questions of law and fact are reviewed de novo. In re Litton, 330 F.3d 636, 642 (4th Cir. 2003).

III. ANALYSIS

The court will address each of Appellant's arguments in turn.

A. Standing

Appellant appeals the Bankruptcy Court's ruling that Appellant did not have standing to challenge the nondischargeability of the 2014 Judgment. Appellant argues that "the fact that [Appellant] was the assignee of the debt was admitted by the Defendant-Appellee and undisputed." (Appellant's Brief ("Appellant Br.") (Doc. 10) at 17.) Appellant contends that this was an "undisputed fact and therefore a judicial admission." (Id. at 18.)

The Bankruptcy Court instead found that:

[t]he only evidence before the Court with respect to DFWMM's involvement with the Debtor is that DFWMM was included as a third-party beneficiary under the [2014] Settlement Agreement between the Debtor, his spouse, and the Administratrix. The [2014] Settlement Agreement makes no reference to DFWMM as the Administratrix's assignee for purposes of the Underlying Judgments, and DFWMM presented no evidence at trial as to any assignments from the Administratrix.

(Mem. Op. (Doc. 5-1) at 8 (footnotes omitted).) The Bankruptcy Court found that Appellant failed to establish that it was the Administratrix's assignee of the 2014 Judgment and thus concluded that Appellant failed to establish standing with respect to the nondischargeability of the 2014 Judgment. (Id. at 9.)

Appellant claims it did prove it is the assignee of the 2014 Judgment. (DFWMM's Compl. (Doc. 5-3) ¶ 2.) It points to Debtor's Answer to Appellant's Complaint in the adversarial proceeding below, which admitted that DFWMM was the assignee of the judgment in the 2014 Judgment. (Appellant Br. (Doc. 10) at 15; Doc. 5-5 ¶ 2.) Appellant alleges that this is a binding judicial admission. (Appellant Br. (Doc. 10) at 18.)

Appellant has not challenged the Bankruptcy Court's finding that the nondischargeability of the 2014 Judgment is reviewed under 11 U.S.C. § 523 or the Bankruptcy Court's finding that it must first determine standing. Instead, Appellant's sole challenge is to the finding that it failed, factually, to establish standing. (Id. at 16–17.)

Appellant clearly bases standing on a claim arising under the 2014 Judgment and its status as assignee. Thus, Appellant was required to prove that it was the assignee of the 2014 Judgment pursuant to a valid assignment. Under North Carolina law, "[a] valid assignment must designate the assignor, the assignee, and the thing assigned." Erichsen v. RBC Capital Markets, LLC, 883 F. Supp. 2d 562, 570 (E.D.N.C. 2012) (internal quotation marks omitted) (citing Morton v. Thornton, 259 N.C. 697, 699, 131 S.E.2d 378, 380 (1963) ). An assignment need not be in writing. See In re Napoleon, 551 B.R. 200, 204 (Bankr. E.D.N.C. 2016) ; In...