Eastwood Construction, LLC v. McAlpine Grp., LLC (In re McAlpine Grp., LLC)

In re: THE MCALPINE GROUP, LLC, Debtor.

EASTWOOD CONSTRUCTION, LLC, Plaintiff,

v.THE MCALPINE GROUP, LLC and MCALPINE-BARRINGTON OAKS, LLC, Defendants.

CHARLES LINDSEY MCALPINE and MCALPINE-BARRINGTON OAKS, LLC, Plaintiffs,

v.PRINCETON PARTNERS, LLC, EASTWOOD CONSTRUCTION LLC, and JOSEPH DORITY, Defendants.

Case No. 10-32663

Adversary No. 11-3026

Adversary No. 11-3163

UNITED STATES BANKRUPTCY COURT FOR THE WESTERN DISTRICT OF NORTH CAROLINA Charlotte Division

Filed: December 11, 2012

______________

J. Graig Whitley

United States Bankruptcy Judge

Chapter 7

MEMORANDUM AND RECOMMENDED ORDER PARTIALLY GRANTING

MOTIONS FOR SUMMARY JUDGMENT

THESE MATTERS are before the Court upon Plaintiff Eastwood Construction, LLC's ("Eastwood") Motion for Summary Judgment in Adversary Nos. 11-3026 and 11-3163, Defendants The McAlpine Group, LLC's ("the McAlpine Group"), McAlpine Barrington Oaks, LLC's ("MBO"), and Charles Lindsey McAlpine's ("Lindsey McAlpine"), (collectively, "McAlpine Parties") Motion for Summary Judgment in Adversary Nos. 11-3026 and 11-3163, and Princeton Partners, LLC's ("Princeton") Motion for Summary Judgment in Adversary No. 11-3163.

A hearing was held on October 22, 2012. Fred W. DeVore, III appeared on behalf of The McAlpine Parties¹ , James C. Adams appeared on behalf of Eastwood, David Carmen appeared on behalf of Princeton, and Keith Johnson appeared on behalf of the Trustee for the McAlpine Group.

For the reasons set forth below, the undersigned recommends to the U.S. District Court entry of a final order and judgment as follows:

In Adversary No. 11-3026 (AP #26):

o Eastwood's First Claim for Relief (Declaratory Judgment/Fraudulent Foreclosure) - The McAlpine Parties' Motion for Summary Judgment should be

GRANTED.

o Eastwood's Second Claim for Relief (Breach of Contract) - Eastwood's Motion for Summary Judgment against the McAlpine Group should be GRANTED and the McAlpine Parties' Cross Motion for Summary Judgment DENIED.

o Eastwood's Third Claim for Relief (Unjust Enrichment) - Eastwood's Motion for Summary Judgment against MBO should be GRANTED and the McAlpine Parties' Cross Motion for Summary Judgment DENIED.

o Eastwood's Fourth Claim of Relief (Equitable Lien) - Eastwood's Motion for Summary Judgment should be PARTIALLY GRANTED and the McAlpine Parties' Motion for Summary Judgment PARTIALLY DENIED.

o The McAlpine Parties' First Counterclaim (Tortious Interference with Contract) - Eastwood's Motion for Summary Judgment should be GRANTED and the McAlpine Parties' Motion for Summary Judgment DENIED.

In Adversary No. 11-3163 (AP #63):

o The McAlpine Parties' First Claim for Relief (Negligence) - Princeton's Motion for Summary Judgment should be GRANTED.

o The McAlpine Parties' Second Claim for Relief (Breach of Contract) - Princeton's Motion for Summary Judgment should be GRANTED.

o The McAlpine Parties' Third Claim for Relief (Tortious Interference with Contract) - Princeton's and Eastwood's Motions for Summary Judgment should be GRANTED and the McAlpine Parties' Cross Motion for Summary Judgment DENIED.o The McAlpine Parties' Fourth Claim for Relief (Civil Conspiracy) - Eastwood's and Princeton's Motions for Summary Judgment should be GRANTED and the McAlpine Parties' Cross Motion for Summary Judgment DENIED.

o The McAlpine Parties' Fifth Claim for Relief (Unfair and Deceptive Trade Practices) - Eastwood's and Princeton's Motions for Summary Judgment should be GRANTED.

o Princeton's First Counterclaim (Promissory Note) - Princeton's Motion for Summary Judgment should be GRANTED and the McAlpine Parties' Motion for Summary Judgment PARTIALLY GRANTED.

o Princeton's Second Counterclaim (Guaranty) - Princeton's Motion for Summary Judgment should be PARTIALLY GRANTED and the McAlpine Parties' Motion for Summary Judgment PARTIALLY GRANTED.

FACTS

These actions arise out of a lot purchase agreement for a prospective residential subdivision known as Barrington Oaks, located in Guilford County, North Carolina. (the "Property"). On October 19, 2007, Eastwood and the McAlpine Group entered into the Eastwood Contract, pursuant to which the McAlpine Group was to develop the Property and then sell completed lots to Eastwood based on a contractually required schedule. Eastwood paid the McAlpine Group a cash deposit totaling $325,000. However, the McAlpine Group then gave Eastwood's deposit to a newly formed related entity, MBO. MBO used the funds to purchase the Barrington Oaks Property, taking title in its own name, and not that of the McAlpine Group. To obtain additional funds to purchase the Barrington Oaks property, MBO borrowed money fromCarolina Bank secured by a Deed of Trust dated January 11, 2008.

The Eastwood Contract provided that the McAlpine Group must complete twenty specification ready lots on or before September 15, 2008, unless excused by force majeure. Eastwood Contract 1.C, Ex. 2, AP #3026, ECF No. 56. Failure of the McAlpine Group to deliver the lots entitled Eastwood to declare the contract in default and recover the $325,000 deposit. Eastwood Contract 1.L., Id. The McAlpine Group did not complete the required lots by the deadline. After negotiations failed, Eastwood terminated the contract, demanded a return of the deposit, and filed the lawsuit that is now Adv. No. 11-3026. On August 5, 2009, Eastwood filed a notice of lis pendens on the Property.

MBO's loan from Carolina Bank, evidenced by the Note and Deed of Trust on the Barrington Oaks Property, was assigned to Princeton effective September 30, 2009. This was not a random purchase. Princeton and the McAlpine Parties had prearranged a transaction and entered into a contract, (the "Princeton Contract") on October 6, 2009 whereby Princeton would purchase the Loan and Deed of Trust from Carolina Bank, foreclose the Deed of Trust, and take title to the Property free and clear of all of the liens on the Property. Princeton Contract, Ex. E, AP #3163, ECF 51-5. Such liens included the construction liens arising from improvement of the Property and Eastwood's equitable lien claim/lis pendens. Pursuant to the Princeton Contract, Princeton foreclosed, bid the debt, and took title to the property on December 23, 2009.

Under the Princeton Contract, McAlpine or one of his companies (which includes the Debtor) would obtain a share of the sale price, a management fee, and potential ownership of individual lots in exchange for managing and marketing the Property. Princeton had the option of terminating the Contract if "less than ten lots are sold during any consecutive nine month period." Princeton Contract ¶ 9, Ex. E, AP #3163, ECF 51-5.

The Princeton Contract also addressed the personal guaranty that Lindsey McAlpine had given on the loan with Carolina Bank and which had also been assigned to Princeton. As partial consideration for Lindsey McAlpine's agreeing to market the lots within the Barrington Oaks Property, Princeton also agreed to limit his personal liability under the Guaranty to $25,000. Id. at ¶ 2.

Due to its acquired ownership of the Property, on April 27, 2010, Princeton was added as a defendant by Eastwood in the action against the McAlpine Parties, Adv. No 11-3026. Princeton responded with a motion to dismiss the claim lodged against it. While both motions were granted, prior to the entry of the order, on June 18, 2010, Eastwood filed a second notice of lis pendens in which it sought to cure the procedural deficiencies attendant to its first lis pendens notice.

At the time Princeton and the McAlpine Parties entered into the Princeton Contract, MBO entered into a contract with D.R. Horton for the sale of lots in the Barrington Oaks Property. The Horton Contract was expressly contingent on the outcome of the litigation among Eastwood, the McAlpine Group, and MBO—the lawsuit that is now Adversary No. 11-3026. D.R. Horton eventually decided it did not want to purchase the Property and the McAlpine Parties were unable to find another buyer. Princeton terminated the Princeton Contract upon the expiration of the first nine-month period. Ultimately, in December of 2010, Eastwood entered into a contract with Princeton to purchase the Property.

PROCEDURAL HISOTRY

These adversary proceedings originated as two state court actions and relate to the same residential subdivision, the Property. The procedural history is tortuously complicated and only the relevant details are provided below.

Eastwood instituted Adversary No. 11-3026 in N.C. Superior Court on May 5, 2009 in an effort to recover $325,000 from the McAlpine Group for breach of the Eastwood Contract. Compl., ¶ 35-42, AP #3026, ECF No. 1. Eastwood also sued MBO on a theory of unjust enrichment, and sought to impose an equitable lien on the real property that is the subject of the dispute. Id. ¶ 43-54. In March 2010, Eastwood amended its complaint to add Princeton because Princeton had acquired the Property and was therefore a necessary party to the equitable lien claim.

On September 9, 2010, the McAlpine Group was put into an involuntary Chapter 7 bankruptcy by Eastwood.

On Nov. 3, 2010, in state court, the McAlpine Group and MBO counterclaimed against Eastwood alleging tortious interference with the Princeton Contract and a further contract MBO entered into with D.R. Horton (the "Horton Contract"). AP #3026, ECF No. 4-9. On January 25, 2011, Eastwood voluntarily dismissed its claim against Princeton without prejudice. AP #3026, ECF No. 4-12. On February 4, 2011, Eastwood removed Adversary No. 11-3026 to this Court. ECF No. 1. On March 20, 2011, Eastwood filed a proof of claim in the McAlpine Group's bankruptcy case.

Adversary No. 11-3163 was commenced on August 2, 2010 in N.C. Superior Court when the McAlpine Group and MBO sued Princeton for breach of the Princeton Contract and for negligence in the performance of the Contract. Compl., AP #3163, ECF No. 3-3. Princeton filedtwo counterclaims, one seeking recovery on MBO's promissory note to Carolina Bank and another seeking recovery on Lindsey McAlpine's...