In re Carter

570 B.R. 500

IN RE Carol Fisher CARTER, Debtor.

Case No. 17–50262

United States Bankruptcy Court, M.D. North Carolina, Winston–Salem Division.

Signed May 11, 2017

Kristen Scott Nardone, Concord, NC, for Debtor.

MEMORANDUM OPINION GRANTING MOTION TO DISMISS

LENA MANSORI JAMES, UNITED STATES BANKRUPTCY JUDGE

On April 13, 2017 the case of Carol Fisher Carter (the "Debtor") came on for hearing on: (1) Motion to Dismiss Chapter 12 Bankruptcy Case filed on March 13, 2017 by Carolina Farm Credit, ACA ("CFC") (Docket No. 9); (2) Motion to Dismiss Chapter 12 Bankruptcy Case and Joinder to Motion to Dismiss of Carolina Farm Credit, ACA filed on March 14, 2017 by Uwharrie Bank ("Uwharrie") (Docket No. 12); and (3) Motion to Dismiss Chapter 12 Bankruptcy Case filed on March 21, 2017 by Ryan Incorporated Mining ("Ryan Mining") (Docket No. 20). At the hearing, Kristen S. Nardone appeared for the Debtor, Daniel C. Bruton appeared on behalf of CFC, Ashley A. Edwards appeared on behalf of Uwharrie, Jessica V. Shaddock appeared on behalf of Ryan Mining, Kathryn Bringle appeared as Chapter 12 Trustee, and Sarah Bruce appeared on behalf of the Bankruptcy Administrator.

The Debtor was present at the hearing and testified. Additionally, the court took judicial notice of the Debtor's prior Chapter 13 case (Case No. 16–50228).¹ At the conclusion of oral arguments, the Chapter 12 Trustee and the Bankruptcy Administrator joined in support of the Motions to Dismiss. After careful consideration of the entire record in this case, including the Debtor's schedules and statements, the motions and other pleadings, the exhibits, testimony, the record in the Debtor's prior case, and arguments of counsel presented at each hearing held in this case, the court found and concluded that the case should be dismissed, and an Order Granting Motions to Dismiss was entered on May 4, 2017 (the "Order").

PREPETITION BACKGROUND

The series of events leading up to the filing of this case are complex, with the truth difficult to discern amidst competing narratives. It appears to the court:

The Debtor and her husband, Joe Carter ("Mr. Carter," collectively "the Carters") own and reside on several tracts of real property located in Stanly and Cabarrus Counties in North Carolina comprising approximately 390 acres, with various tracts subject to Deeds of Trust held by Uwharrie and CFC, and subordinate Deeds of Trust held by Ryan Mining and Kirby.

On December 17, 2014, Uwharrie commenced a foreclosure proceeding, and after notice and hearing the court entered an order allowing Uwharrie to sell the subject tracts in satisfaction of its Deed of Trust beginning May 26, 2015 (the "Uwharrie Foreclosure"). On May 27, 2015, CFC initiated its own foreclosure proceeding (the "CFC Foreclosure").

According to Ryan Mining's Motion, on May 28, 2015 the Carters formed a joint venture with Ryan Mining to complete a lake excavation and mining project on their property. (Docket No. 20). Through a company named J.F. Carter & Co., Inc., owned 50% by the Debtor and 50% by Mr. Carter, the Carters and Ryan Mining became equal partners in forming Barringer Natural Resources, LLC ("Barringer"). The Carters then leased the portion of their property subject to lake excavation to Barringer. All costs were to be jointly reviewed by Mr. Carter and Ryan Mining, all revenues deposited into a joint bank account with dual signature control by Mr. Carter and Ryan Mining, and all costs to be paid from the account before profits distributed. Ryan Mining agreed to provide rock crushers, a front-end loader or excavator, and any additional equipment necessary to crush approximately 40,000 tons of existing rock aggregate located on the property for subsequent gravel sale. Ryan Mining also agreed to advance $150,000.00 for the purchase of adjacent land to provide better access between the main road and the project site. Finally, Ryan Mining advanced a $25,000.00 loan to the Carters to help prevent default on an unrelated loan. The advanced funds were to be repaid prior to any profit distribution from Barringer. The advances were reduced to writing in the form of two notes, and on July 21, 2015 the Carters executed a Deed of Trust in favor of Ryan Mining for $175,000.00 to secure the promissory notes (encumbering a 116.46–acre tract of land) subordinate to CFC's Deed of Trust. Barringer performed the excavation work, funded by Ryan Mining, incurring costs of $373,265.23. Mr. Carter was to market and sell the gravel, which was believed by Ryan Mining to be worth approximately $600,000.00.

It is not disputed that on August 19, 2015, a sale was held in the Uwharrie Foreclosure, and Uwharrie bid. However, both the Uwharrie Foreclosure and the CFC Foreclosure were stayed when Mr. Carter filed for Chapter 13 protection in the United States Bankruptcy Court for the Eastern District of North Carolina (Eastern Case No. 15–04884). On November 23, 2015, Mr. Carter's case was transferred to the Middle District of North Carolina (Middle Case No. 15–51222), and the following day on November 24, 2015 the case was automatically dismissed by the court pursuant to 11 U.S.C. § 521(a)(1) for failure to file schedules within 45 days after the date of filing the petition.

Following dismissal, sales were set in the Uwharrie Foreclosure and the CFC Foreclosure by the respective substitute trustees. However, the foreclosures were again stayed as the Debtor filed a Chapter 13 case (the "Chapter 13") in the Eastern District of North Carolina (Eastern Case No. 16–00198) on January 13, 2016. The Debtor filed her schedules on February 29, 2016, and her case was transferred to the Middle District of North Carolina on March 8, 2016 (Middle Case No. 16–50228). On March 15, 2016, CFC filed a motion to dismiss the Chapter 13. In a hearing on March 30, 2016, the Carters stated they could raise sufficient funds to pay off the debts in the Debtor's Chapter 13 case through the sale of aggregate or gravel. On April 5, 2016, the court entered an order continuing the hearing on the motion to dismiss, in the interim prohibiting the debtor from selling aggregate or gravel located on or derived from CFC's real property collateral without obtaining CFC's consent. (Case No. 16–50228, Docket No. 42).

On April 15, 2016, Ryan Mining filed an emergency motion to prevent the sale of any gravel. Ryan Mining noted that the Carters had represented that the sale of gravel could generate $1.5 million, sufficient funds to pay off their creditors, but argued that the maximum potential sale value of the gravel was one third of the Carters' representations. Ryan Mining alleged that the Carters should have known that their valuation was high due to prior attempts to market the gravel, and that the $1.5 million valuation was a delay tactic. Further, Ryan Mining stated that Barringer directly owned the gravel, an ownership that was not disclosed to the court by the Carters, and that the gravel could not be sold without Ryan Mining's input and/or approval, subject to the Barringer operating agreement. Ryan Mining further stated that the Debtor did not even claim an interest in the aggregate or gravel in her schedules, and that she does not have an individual interest in the gravel.

Ryan Mining and the Bankruptcy Administrator joined CFC's motion to dismiss, but the hearing was continued several times based on representations by the Carters that they were on the cusp of arranging a large sale of aggregate and gravel, and that there would be significant funds flowing into the estate. On May 25, 2016, after repeated continuances and no culminated sale, it had become clear that the Debtor's schedules were woefully inaccurate. The court ordered the Debtor to amend her schedules to accurately disclose her assets and liabilities; amended schedules were filed June 5, 2016. The court entered a second order continuing the hearing on the motion to dismiss on June 10, 2016. The order required that the Debtor obtain consent from both Ryan Mining and the Chapter 13 Trustee for any sale of aggregate or gravel. (Case No. 16–50228, Docket No. 76).

On July 6, 2016, the court heard the continued hearing on CFC's motion to dismiss, and the court found cause to dismiss the case. First, pursuant to 11 U.S.C. § 1307(c)(4), the case was dismissed for cause for failure to make timely payments to the Chapter 13 Trustee in her case. Second, the court found that the Debtor had made sales without authorization pursuant to the April 5 or June 10, 2016 orders, and that the Debtor therefore directly violated prior orders of this court by unilaterally selling aggregate or gravel. And third, relying on the factors set forth in In re Page , 519 B.R. 908 (Bankr. M.D.N.C. 2014), the court found that the case was filed in bad faith. In an oral ruling, the court found that the Carters demonstrated a "complete lack of honesty" in representing the facts and a lack of candor with the court. The court further admonished the Debtor for deficient schedules even after amendment. Additionally, the court concluded that the Carters were "repeatedly and intentionally evasive in their testimony and even made false statements at times." The court concluded that the Debtor had engaged in dilatory tactics for a Chapter 13 case that was over the debt limit, and dismissed the case. On July 7, 2016, the court entered an order dismissing the Debtor's case, enumerating the reasons and incorporating the findings from the hearing the day prior. (Case No. 16–50228, Docket No. 95).

Following dismissal, both CFC and Uwharrie again scheduled sales in their respective foreclosures, CFC on August 11, 2016 and Uwharrie on August 17, 2016. In each sale, multiple upset bids were filed.

In the CFC foreclosure, bidding was between three parties: Ben Clifton, an attorney employed by Mr. Carter who formed Barringer and is alleged to be Mr. Carter's partner; James Potts, an acquaintance of Mr. Carter from church;² and Ryan Mining. Between August 22 and...