Hoch v. Hoch (In re Hoch)

577 B.R. 202

IN RE: Marilynn Jane HOCH, Debtor

Scott M. Hoch, Plaintiff

v.Arthur E. Hoch, individually, Marilynn J. Hoch, individually, Marilynn J. Hoch as Trustee of the Marilyn Jane Hoch Revocable Trust, the Marilyn Jane Hoch Revocable Trust, Marilynn J. Hoch as Trustee of the Marilynn Jane Hoch Revocable Trust, the Marilynn Jane Hoch Revocable Trust, Marilynn J. Hoch as Trustee of the Jane Hoch Revocable Trust, and the Jane Hoch Revocable Trust, Defendants.

Case No.: 16–03678–5–JNC

Adversary Proceeding No.: 16–00123–5–JNC

United States Bankruptcy Court, E.D. North Carolina, Raleigh Division.

Signed September 20, 2017

Katherine J. Clayton, Brian C. Fork, Gary S. Parsons, Brooks Pierce McLendon Humphrey Leonard, Raleigh, NC, Kimberly M. Marston, Brooks, Pierce, McLendon, Humphrey, Greensboro, NC, for Plaintiff.

Sean Delaney, Delaney Law Firm, P.A., Ryan J. Adams, Adams, Howell, Sizemore & Lenfestey, PA, William F. Braziel, III, Janvier Law Firm, PLLC, William P. Janvier, Samantha Y. Moore, Janvier Law Firm, PLLC, Raleigh, NC, for Defendants.

ORDER ALLOWING IN PART AND DENYING IN PART CROSS-MOTIONS FOR SUMMARY JUDGMENT

Joseph N. Callaway, United States Bankruptcy Judge

The matters before the court are the Motion for Partial Summary Judgment filed by Defendant Marilynn J. Hoch, individually and as trustee for the various trusts named in the case caption above (collectively, "Jane" or the "Debtor") on February 2, 2017 (Dkt. 43; the "Jane Motion"), and the Motion for Partial Summary Judgment filed by plaintiff Scott M. Hoch ("Scott") on February 2, 2017 (Dkt. 44; the "Scott Motion"). Scott and Jane each objected to the summary judgment motion filed by the other, and co-defendant Arthur E. Hoch ("Buddy") opposed the Scott Motion to the extent it seeks the entry of summary judgment against him. A hearing on the cross-motions for summary judgment was held on June 6, 2017. At the request of the court, supplemental position papers were filed by the parties on August 11 and 14, 2017. The matters are now ripe for decision.

FACTUAL BACKGROUND

This case dates back to 2001, and concerns at its heart a disagreement between two brothers over the proper distribution of net proceeds generated from the sale of real property owned by their investment partnership. The pleadings, deposition testimony, affidavits, answers to interrogatories, admissions on file, and other matters of record in the case establish the following facts as undisputed or indisputable.

Scott and Buddy are brothers, and the chapter 11 debtor Jane is Buddy's wife. Scott and Buddy were both partners in a partnership referred to as WS/CBC. WS/CBC owned real property known as the "WS/CBC Property" sold on January 8, 2001 for $1.75 million. Following the sale, Scott and Buddy disagreed over the amount of the sale proceeds Buddy was entitled to retain and Scott was entitled to receive. Buddy distributed approximately $600,000 (the "WS/CBC Proceeds") from the sale into a brokerage account maintained in Jane's sole name at Raymond James (the "RJ Account") (the "2001 Transaction"). Buddy held signatory rights over the RJ Account, and at no time since 2001 has he held or maintained a bank account in his own name, whether singularly or jointly.

From September 2001 through December 2015, attorney Keith Kapp of Raleigh, North Carolina, represented Scott in the dispute with Buddy. On September 27, 2001, a meeting was held at Mr. Kapp's office to discuss the dispute. Scott, Buddy, Mr. Kapp, and Richard Speers, a financial advisor to both Scott and Buddy, were in attendance. Toward the end of the meeting, when it was clear that a final resolution would not be reached that day, Mr. Speers drafted a hand-written document listing several agreed-upon points. The document (the "Agreement") was signed that day by Scott and Buddy, but not Jane. The original was left with Mr. Kapp and he later caused copies of it to be mailed to Scott, Buddy, and Mr. Speers. In the Agreement, Buddy indicated that he had the authority to transfer the funds held in the RJ Account and that he would "give notice to Scott before transferring any money out of Jane's account at Raymond James."

The dispute between Buddy and Scott continued unabated for ten years. During this time, Scott and Buddy (but not Jane) entered into a series of tolling agreements concerning the WS/CBC Proceeds. In 2009, Mr. Speers changed brokerage firms, and the RJ Account was moved to a similar account at TD Ameritrade in the name of Jane only, with Buddy retaining signatory rights over the new account (the "TD Account"). On July 27, 2011, Scott sued Buddy (but not Jane) in the Wake County, North Carolina Superior Court in the case of Scott M. Hoch v. Arthur E. Hoch, et al., 11–CVS–1692 (the "2011 Lawsuit").

Extensive discovery was conducted in the 2011 Lawsuit. Thousands of pages of documents were reportedly produced by the litigants, including a copy of the Agreement, copies of tax returns filed by Buddy and Jane, and some of Jane's RJ Account statements. Several depositions were taken, including those of Mr. Speers. Buddy, and Scott.¹

While the 2011 Lawsuit was pending, on August 14, 2013, Jane removed Buddy's signatory authority on the TD Account. Shortly thereafter, on September 24, 2013, she formed the Marilynn Jane Hoch Revocable Trust (the "Jane Trust"). The next day, on September 25, 2013, Jane moved the funds, including the WS/CBC Proceeds, from the TD Account into an account held by Jane as the trustee of the Jane Trust (the "2013 Trust Transfer"). Two days later, Jane and Buddy, as tenants by the entirety, conveyed their residence, located on Pictou Road in Raleigh (the "Pictou Road Property") to Jane as the trustee of the Jane Trust.

Then, on October 17, 2013, a partial summary judgment order in favor of Buddy was entered in the 2011 Lawsuit, requiring Scott to transfer to Buddy his one-half interest in two jointly-owned townhouses located in Wake County, North Carolina, known as 3615 Top of Pines ("3615 TOP") and 3613 Top of Pines ("3613 TOP") (together, the "TOP Properties"). As a result, Buddy owned and controlled the entire interest in the TOP Properties without encumbrance. On December 23, 2013, and January 7, 2014, Buddy ostensibly sold the TOP Properties (first 3615 TOP and then 3613 TOP) to Jane as trustee of the Jane Trust, for a purchase price of $100,000 each. The TOP Properties have since been sold to a bona fide third-party purchaser by the Jane Trust. On February 9, 2014, Jane and Buddy sold a jointly-owned vehicle (the "Vehicle") to CarMax for $21,450.44. Jane used the funds to purchase a new car, which she subsequently titled in her name only.

Scott obtained a judgment against Buddy in the 2011 Lawsuit on February 26, 2014 in the amount of $364,269.² Frustrated in his efforts to collect on the judgment against Buddy, and soon after learning of the sales of the TOP Properties, Scott filed the State Court Action against Buddy and Jane, the primary asserted causes of action being founded in alleged violations of the North Carolina Uniform Voidable Transactions Act (the "UVTA"),³ North Carolina General Statutes §§ 39–23.1 to 39–23.12, for the fraudulent transfers of specified assets to Jane, including the TOP Properties and the WS/CBC Proceeds. However, in at least two instances, the Complaint (now the Second Amended Complaint) also alleges voidable transfers of assets by Jane. Whether Jane is a transferee or a transferor (or perhaps both) may impact whether Scott has standing to pursue the claims, as under normal circumstances, only a bankruptcy trustee or debtor-in-possession may pursue a fraudulent transfer action, whether under federal or state law, against the transferee of a debtor transferor.

PROCEDURAL POSTURE

The original complaint in this adversary proceeding was filed in the Superior Court of Wake County, North Carolina, on July 22, 2014, Case No. 14–CVS–9658 (the "State Court Action"). Pursuant to 28 U.S.C. §§ 157, 1334, and 1452, the State Court Action was removed to this court by Jane on July 15, 2016 (see Dkt. 9), the same date she filed her chapter 11 petition. Scott did not object to the removal, and, along with Buddy, consented to the jurisdiction of the bankruptcy court and its authority to enter final orders in the case in the Joint Preliminary Pretrial Conference Report signed by respective counsel and filed August 25, 2016. (Dkt. 24).

The cross-motions for summary judgment before the court pertain to the Second Amended Complaint filed on October 1, 2015 (Dkt. 10 at 79–97; the "Complaint"). Nine causes of action are asserted the Complaint, briefly described as follows:

1. Fraudulent Transfer of the WS/CBC Proceeds (regarding the 2001 Transaction);

2. Fraudulent Transfer of the TOP Properties;

3. Fraudulent Transfer of Pictou Road Property;

4. Fraud by Buddy Hoch only;

5. Extending Liability for Claims against Buddy Hoch and Jane Hoch to the Jane Trust;

6. Fraudulent Transfer of WS/CBC Proceeds (regarding the 2013 Trust Transfer);

7. Breach of Contract as to the Agreement;

8. Fraudulent Transfer of the Vehicle; and

9. August 2013 Fraudulent Transfer (regarding Jane's revocation of Buddy's signatory authority on the TD Account).

In the Scott Motion, the plaintiff seeks summary judgment against all defendants on Claims 2, 7, and 8, and against Buddy only on Claim 4. Jane opposes the Scott Motion on the specified claims made against her and, in the Jane Motion, seeks summary judgment in her favor on Claims 1, 2, 3, 5, 6, and 9. Buddy opposes the Scott Motion on the claims asserted against him by Scott, but did not move for summary judgment in his own right.

The parties have filed multiple memoranda of law in support of or opposition to the other's motion. Buddy filed Defendant Arthur E. Hoch's Memorandum in Opposition to Plaintiff's Motion for Summary Judgment (Dkt. 48). Jane filed Defendant Marilynn J. Hoch's, Individually and as Trustee, Memorandum of Law in Support of Motion for Partial Summary Judgment (Dkt....