In re Southeastern Eye Center-Pending Matters

2021 NCBC 27

IN RE SOUTHEASTERN EYE CENTER-PENDING MATTERS

No. 15 CVS 1648

Superior Court of North Carolina, Wake

April 26, 2021

Smith Debnam Narron Drake Saintsing & Myers, L.L.P., by Byron L. Saintsing, for Plaintiffs Old Battleground Properties Inc. and Nivison Family Investments, LLC.

Oak City Law LLP, by Robert E. Fields III and Samuel Pinero II for Gerald A. Jeutter, Jr., as Receiver for JDPW Trust U/T/A Dated June 8, 2007, Central Carolina Surgical Eye Associates P.A., HUTA Leasing LLC, Southeastern Eye Management, Inc. Southeastern Cataract Laser Center, PLLC, EMS Partners, LLC, KEPES Newco, LLC, and DRE Newco, LLC.

Wyatt Early Harris Wheeler LLP, by Scott F. Wyatt and Donavan J. Hylarides, for Defendants Richard A. Harris, Historic Castle McCulloch, LLC, and Castle McCulloch, Inc.

Law Offices of Richard M. Greene, by Richard M. Greene, for C. Richard Epes.

Douglas S. Harris, Pro se.

ORDER AND OPINION ON MOTIONS FOR SUMMARY JUDGMENT OR PARTIAL SUMMARY JUDGMENT (OLD BATTLEGROUND v. CCSEA)

LOUIS A. BLEDSOE, III CHIEF BUSINESS COURT JUDGE

I. BACKGROUND

A. Factual Background

1. THIS MATTER is before the Court on four motions for summary judgment or partial summary judgment filed by (i) Plaintiffs Old Battleground Properties, Inc. and Nivison Family Investments LLC^[1] (partial summary judgment), (ECF No. 1377), (ii) the Receiver for JDPW Trust^[2] (partial summary judgment), (ECF No. 1383); (iii) Defendant Douglas S. Harris ("Doug Harris") (summary judgment), (ECF No. 1380), and (iv) Defendants Richard Harris, Castle McCulloch Inc., and Historic Castle McCulloch, LLC^[3] (summary judgment), (ECF No. 1374), (together, the "Motions").

2. For the reasons set forth below, the Court (i) DENIES Plaintiffs' motion, (ii) GRANTS in part and DENIES in part the Receiver's motion, (iii) DENIES Doug Harris's motion, and (iv) GRANTS in part and DENIES in part the CM Defendants' motion.

3. The Court does not make findings of fact when ruling on a motion for summary judgment, but "it is helpful to the parties and the courts for the trial judge to articulate a summary of the material facts which he considers are not at issue and which justify entry of judgment." Hyde Ins. Agency, Inc. v. Dixie Leasing Corp., 26 N.C.App. 138, 142 (1975).

4. This action represents part of a large group of cases before the Business Court that have been consolidated into two files: In re Se. Eye Ctr.-Pending Matters (15 CVS 1648, Wake County) and In re Se. Eye Ctr.-Judgments (12 CVS 11322, Guilford County). The extensive background of these cases is set forth in previous orders and opinions. The Court recites only the factual background relevant to the issues presented in these Motions.

5. Defendant Central Carolina Surgical Eye Associates, P.A. ("CCSEA") is a North Carolina medical services professional association located in Guilford County, North Carolina. (See Am. Consolidated Compl. ¶ 3, ECF No. 179.) James Mark McDaniel, Jr. ("McDaniel") was the chief executive officer of CCSEA, and Dr. C. Richard Epes ("Dr. Epes") was an interest owner in CCSEA. (See Am. Consolidated Compl. ¶¶ 8, 10, 24, Exs. A, B, ECF No. 180.) Beginning in 2002, McDaniel and Dr. Epes took out three loans with NewBridge Bank ("NewBridge")^[4] to fund CCSEA and other related entities (the "CCSEA Loans").^[5]

6. In 2004, NewBridge loaned approximately $2 million (the "CM Loan") to Castle McCulloch, Historic Castle, and NSITE Management, LLC ("NSITE"), three additional entities with ties to McDaniel and Dr. Epes. The CM Loan was represented by a promissory note executed by Castle McCulloch, Historic Castle, and NSITE in favor of NewBridge (the "CM Note"). (See ECF No. 1384.12; see also Am. Consolidated Compl. Ex. N, ECF No. 183.) At all times relevant, Castle McCulloch and Historic Castle were owned and managed, either in whole or substantial part, by Richard Harris, brother of Doug Harris. (See Harris Dep. 31:6-24, 47:12-14, 49:8- 51:23, 53:10-25, 55:2-25;^[6] Am. Consolidated Compl. ¶¶ 14, 15.) As relevant here, the CM Note was secured by two forms of collateral (the "CM Collateral"): a deed of trust from Historic Castle in favor of NewBridge (the "CM Deed"), ^[7] (see ECF No. 1384.11), and an assignment of leases and rents granted by Historic Castle in NewBridge's favor (the "CM Assignment"), ^[8] (see ECF No. 1384.10).

7. By mid-2012, the CM Loan and the CCSEA Loans were in default, with a combined outstanding balance of over $3.3 million. (See Am. Consolidated Compl. Ex. X ["Settlement Agrmt."] at 2, ECF No. 185.) To partially collect on these loans, NewBridge agreed to a settlement with the CM Defendants, NSITE, McDaniel, Dr. Epes, and other involved parties. Under the settlement, the debtors arranged for NewBridge to sell the involved loan documents, including the CM Loan, Note, and Collateral, to a third party for a discounted price. (See Settlement Agrmt. at 1-6.)

8. That third party was JDPW. At all times relevant, Doug Harris (Richard Harris's brother) was the trustee of JDPW. (See Receiver's Cross Claims Against Douglas Harris ["Receiver's Cross-cls."] ¶ 434, ECF No. 716; Douglas S. Harris's Ans. Cross Claims ["Harris Ans. Cross-Cls."] ¶ 434, ECF No. 739.) JDPW was formed by Dwight Cox ("Cox") as a revocable trust under a trust agreement dated June 8, 2007 (the "Trust Agreement"). (See Revocable Tr. Agrmt. Clement Dwight Cox ["Tr. Agrmt."] at 4, ECF No. 1376.4.) Doug Harris was appointed trustee. (See Tr. Agrmt. ¶ VI.) The Trust Agreement designated Cox as the trust's beneficiary for the remainder of his lifetime. (See Tr. Agrmt. ¶ V.) It further provided that upon Cox's death, JDPW would become irrevocable and that Cox's wife, Kay Harris Turner ("Turner"), would become the primary beneficiary. (See Tr. Agrmt. ¶ XIII(P), (R).) Upon her death, any remaining trust property was to be distributed to Cox's heirs at law. (See Tr. Agrmt. ¶ XIII(R).)

9. With respect to property held by JDPW, the Trust Agreement stated that Cox had transferred "all of his interest in the property described in Schedule A" to serve as the "Trust Property." (Tr. Agrmt. ¶ II.) But while the Trust Agreement contained boilerplate language that "[t]he Trustee hereby acknowledges receipt of the Trust Property," (Tr. Agrmt. ¶ II), no Schedule A is attached to the Trust Agreement in the evidentiary record and one has never been produced. Additionally, Doug Harris has confirmed that the only document relating to JDPW's creation that he had as trustee was the Trust Agreement. (See Harris Dep. Ex. 79, ECF No. 1379.) Doug Harris also testified that JDPW never had a bank account and that the only funds that ever came into JDPW's possession were those in connection with the transactions at issue in this case. (See Harris Dep. 822:18-823:14.)

10. The only evidence of any property transferred into JDPW during Cox's lifetime relates to several poker machines. Doug Harris testified that shortly after JDPW was formed, "Cox put some poker machines into it that he owned, and his purpose was to resell them." (Harris Dep. 611:12-14.) However, Doug Harris was not involved in these purported transactions because "Cox was still alive when they [the poker machines] were sold and he handled that himself." (Harris Dep. 823:16- 17.) In Doug Harris's view, "technically speaking, they were trust stuff, but, you know, he [Cox] was doing with them what he wanted to do with them, and I let it be." (Harris Dep. 823:17-19.) It is unclear whether Cox eventually sold all or only some of the machines. (See Harris Dep. 823:20-824:3.)

11. In any event, Doug Harris never saw the machines or took possession or control of them as trustee. There also appears to be no paper documentation purporting to transfer them from Cox to JDPW. (See Harris Dep. 824:4-20.) According to Doug Harris, the machines "never got physically in the possession of the trust. And really, other than, you know, some notes to me saying that's what he [Cox] was going to do, I never heard anything about that." (Harris Dep. 824:9-12.)

12. The record is undisputed that Doug Harris never made any distributions out of JDPW to any beneficiary. (See Harris Dep. 826:9-17.) It is also undisputed that by 2012, JDPW held no assets. (See Harris Dep. 827:17-24.) In fact, JDPW remained more or less inactive until 2012. (See Harris Dep. 824:25-825:2.)

13. In 2012, Doug Harris saw JDPW as a potential vehicle to aid in a plan to refinance the CM Loan and CCSEA Loans, specifically to help his brother reorganize his businesses and minimize tax consequences. (See Harris Dep. 229:1-25, 829:17- 830:14.) During this time, Richard Harris had retained Doug Harris, who was a licensed attorney, to represent him in negotiating the refinancing deal. (See Harris Dep. 229:7-12; Receiver's Cross-cls. ¶ 434; Harris Ans. Cross-Cls. ¶ 434.) As explained more thoroughly below, the plan essentially entailed JDPW's purchase of the CM Loan and the CCSEA Loans from NewBridge, with that purchase to be funded by a loan from Arthur Nivison ("Nivison"), who managed Plaintiffs Old Battleground and NFI. (See ECF No. 879, Ex. 3 ["Nivison Aff."] ¶¶ 1, 11.)

14. Before bringing JDPW into the picture, Doug Harris made arrangements for himself personally. In July 2012, Doug Harris-in his individual capacity-entered into two agreements: one with Dr. Epes (the "Epes Agreement") and one with McDaniel, CCSEA, and a variety of other entities (the "McDaniel Agreement"). (See ECF No. 1384.4 ["Epes Agrmt."] at 1; ECF No. 1384.5 ["McDaniel Agrmt."] at 1.) In each agreement, Doug Harris promised to cause JDPW to buy the CM Loan from NewBridge. (See Epes Agrmt. ¶ 1; McDaniel Agrmt. ¶ 1.) In exchange, Dr. Epes (in the Epes Agreement) and McDaniel and certain companies (in the McDaniel Agreement) promised to pay Doug Harris...