Johnson v. Edwards Family P'ship, LP (In re Cmty. Home Fin. Servs., Inc.), CASE NO. 12–01703–NPO

583 B.R. 1

IN RE: COMMUNITY HOME FINANCIAL SERVICES, INC., Debtor.

Kristina M. Johnson, as Trustee for the Estate of Community Home Financial Services, Inc., Plaintiff

v.Edwards Family Partnership, LP and Beher Holdings Trust, Defendants

Kristina M. Johnson, as Trustee for the Estate of Community Home Financial Services, Inc., Plaintiff

v.Charles Edwards, Edwards Family Partnership, LP, Edwards Family Partnership, LLP, and Beher Holdings Trust, Defendants

Kristina M. Johnson, Chapter 11 Trustee of the Estate of Community Home Financial Services, Inc., Plaintiff

v.Edwards Family Partnership, LP, Beher Holdings Trust, and Charles C. Edwards, individually and as Managing Partner of Edwards Family Partnership, LP and Beher Holdings Trust, Defendants

CASE NO. 12–01703–NPO

ADV. PROC. NO. 12–00091–NPO

ADV. PROC. NO. 13–00104–NPO

ADV. PROC. NO. 15–00080–NPO

United States Bankruptcy Court, S.D. Mississippi.

Signed February 27, 2018

Jonathan Bissette, Wells Marble & Hurst, PLLC, Derek A. Henderson, Jackson, MS, Roy H. Liddell, Wells Marble & Hurst, PLLC, Ridgeland, MS, for Plaintiff.

Kristina M. Johnson, Jones Walker, Jackson, MS, pro se.

Louis B. Lanoux, Stephanie Rippee, Jim F. Spencer, Jr., Watkins & Eager PLLC, Jackson, MS, for Defendants.

Stephanie Bentley McLarty, Jones Walker LLP, Jackson, MS, for Trustee.

Jeffrey Ryan Barber, Jackson, MS, Mark Alan Mintz, Jones Walker LLP, New Orleans, LA

MEMORANDUM OPINION AND ORDER ON THIRD AMENDED COMPLAINT IN ADVERSARY PROCEEDING 12–00091–NPO; CONSOLIDATED AMENDED COMPLAINT IN ADVERSARY PROCEEDING 13–00104–NPO; AMENDED COMPLAINT FOR TURNOVER, RECOVERY OF PROPERTY TRANSFERRED POST–PETITION, DAMAGES, DECLARATORY RELIEF, EQUITABLE SUBORDINATION, AND OTHER RELIEF IN ADVERSARY PROCEEDING 15–00080–NPO; AND CONSOLIDATED CONTESTED MATTERS¹

Judge Neil P. Olack, United States Bankruptcy Judge

From October 30, 2017, through November 2, 2017, and on November 27, 2017, the Court conducted a consolidated trial (the "Trial") consisting of three (3) adversary proceedings and five (5) related contested matters.

A. Adversary Proceedings

At Trial, the Court heard evidence in: (1) adversary proceeding 12–00091–NPO (the "Home Improvement Loans Adversary"); (2) adversary proceeding 13–00104–NPO (the "Mortgage Portfolios Adversary"); and (3) adversary proceeding 15–00080–NPO (the "Post–Petition Conduct Adversary" or, collectively, the "Adversary Proceedings"). The following pleadings were before the Court: (1) in the Home Improvement Loans Adversary, the Third Amended Complaint (the "HIL Third Amended Complaint") (HIL Adv. Dkt. 237)² filed by Kristina M. Johnson ("Johnson"), chapter 11 trustee (the "Trustee") of the estate of Community Home Financial Services, Inc. ("CHFS"); the Answer, Defenses and Counterclaim of Edwards Family Partnership, LP and Beher Holdings Trust to Third Amended Complaint (Ct Dkt. # 237) (the "HIL Answer & Counterclaim") (HIL Adv. Dkt. 289) filed by Edwards Family Partnership, LP ("EFP") and Beher Holdings Trust ("BHT" or, together with EFP, "EFP/BHT"); and the Reply and Affirmative Defenses to Counterclaim of Edwards Family Partnership, LP and Beher Holdings Trust (the "HIL Reply to Counterclaim") (HIL Adv. Dkt. 294) filed by the Trustee; (2) in the Mortgage Portfolios Adversary, the Consolidated Amended Complaint (the "MPF Complaint") (MPF Adv. Dkt. 61) filed by the Trustee; the Amended Joint Answer of Edwards Family Partnership, L.P., Edwards Family Partnership, LLP, Beher Holdings Trust, Charles C. Edwards, James R. Edwards, The Atkinson Trust, L.L.C. to the Consolidated Amended Complaint (Dkt. # 61) (the "MPF Answer & Counterclaim") (MPF Adv. Dkt. 70) filed by EFP, BHT, Charles C. Edwards, M.D. ("Dr. Edwards"), James Edwards, and the Atkinson Trust, L.L.C. (the "Atkinson Trust"); and the Reply and Affirmative Defenses to Counterclaim of Edwards Family Partnership, LP and Beher Holdings Trust, Acting by and Through its Trustee, Church Bay Trust (the "MPF Reply to Counterclaim") (MPF Adv. Dkt. 72) filed by the Trustee; and (3) in the Post–Petition Conduct Adversary, the Amended Complaint for Turnover, Recovery of Property Transferred Post–Petition, Damages, Declaratory Relief, Equitable Subordination, and Other Relief (the "PPC Amended Complaint") (PPC Adv. Dkt. 48) filed by the Trustee; and the Joint Answer and Defenses of Edwards Family Partnership, LP, Beher Holdings Trust and Charles C. Edwards, Individually and as Managing Partner of Edwards Family Partnership, LP and Beher Holdings Trust (PPC Adv. Dkt. 76) filed by EFP/BHT and Dr. Edwards.

B. Contested Matters

Also before the Court at Trial were the following contested matters (collectively, the "Contested Matters") filed in the Bankruptcy Case, related to Proofs of Claim 4–1 through 9–1 and CHFS's use of alleged cash collateral:

Proofs of Claim 4–1 & 5–1

Objection to Claim of Beher Holdings Trust (Claim No. 4) and to Claim of Edwards Family Partnership (Claim No. 5) (the "Objection to POC 4 & 5") (Bankr. Dkt. 162) filed by CHFS

Edwards Family Partnership, LP and Beher Holdings Trust's Responses to Objection to Proof of Claim of Beher Holdings Trust No. 4 and to Proof of Claim of Edwards Family Partnership, LP No. 5 (DK # 162) (the "Responses to Objection to POC 4 & 5") (Bankr. Dkt. 208) filed by EFP/BHT

Proofs of Claim 6–1 & 9–1

Objection to Claims of Edwards Family Partnership (Claim No. 6 and Claim No. 9) (the "Objection to POC 6 & 9") (Bankr. Dkt. 163) filed by CHFS

Edwards Family Partnership, LP's Responses to Objection to Proof of Claim of Edwards Family Partnership, LP No. 6 and to Proof of Claim of Edwards Family Partnership, LP No. 9 (DK # 163) (the "Responses to Objection to POC 6 & 9") (Bankr. Dkt. 209) filed by EFP

Proofs of Claim 7–1 & 8–1

Objection to Claims of Beher Holdings Trust (Claim No. 7 and Claim No. 8) (the "Objection to POC 7 & 8") (Bankr. Dkt. 164) filed by CHFS

Beher Holding Trust's Response to Objection to Proof of Claim of Beher Holdings Trust No. 7 and to Proof of Claim of Beher Holdings Trust No. 8 (Dkt # 164) (the "Response to Objection to POC 7 & 8") (Bankr. Dkt. 210) filed by BHT

Cash Collateral

Edwards Family Partnership, LP and Beher Holdings Trust's Third Motion to Prohibit Use of Cash Collateral Until the Court Rules in Adversary Proceeding 12–00091 (the "Cash Collateral Objection") (Bankr. Dkt. 901) filed by EFP/BHT

Trustee's Objection to Edwards Family Partnership, LP and Beher Holdings Trust's Third Motion to Prohibit Use of Cash Collateral Until the Court Rules in Adversary Proceeding 12–00091 (Dkt. No. 901) (the "Response to Cash Collateral Objection") (Bankr. Dkt. 927) filed by the Trustee

Trustee's Supplemental Objection to Edwards Family Partnership, LP and Beher Holdings Trust's Third Motion to Prohibit Use of Cash Collateral Until the Court Rules in Adversary Proceeding 12–00091 (Dkt. No. 901) (the "Supplemental Response to Cash Collateral Objection") (Bankr. Dkt. 1024) filed by the Trustee

Trustee's Motion for Use of Cash (to Extent Required) Nunc Pro Tunc (the "Trustee's Cash Motion") (Bankr. Dkt. 906) filed by the Trustee

Edwards Family Partnership, LP and Beher Holdings Trust's Response to Trustee's Motion for Use of Cash Collateral (to the Extent Required) Nunc Pro Tunc (DOC. No. 906) (the "Response to Trustee's Cash Motion") (Bankr. Dkt. 919) filed by EFP/BHT

Trustee's Reply to Edwards Family Partnership, LP and Beher Holdings Trust's Response to Trustee's Motion for Use of Cash Collateral (to the Extent Required) Nunc Pro Tunc (the "Reply to Response to Trustee's Cash Motion") (Bankr. Dkt. 926) filed by the Trustee

Trustee's Supplemental Reply to Edwards Family Partnership, LP and Beher Holdings Trust's Response to Trustee's Motion for Use of Cash Collateral (to the Extent Required) Nunc Pro Tunc (the "Supplemental Reply to Response to Trustee's Cash Motion") (Bankr. Dkt. 1023) filed by the Trustee

C. Pretrial Orders & Trial

The Court consolidated the Contested Matters in the Bankruptcy Case, the Home Improvement Loans Adversary, the Mortgage Portfolios Adversary, and the Post–Petition Conduct Adversary for purposes of the Trial, due to common questions of fact, law, witnesses, and exhibits. (HIL Adv. Dkt. 285; MPF Adv. Dkt. 57). On September 5, 2017, the Joint Pretrial Order was entered in the Home Improvement Loans Adversary (HIL Adv. Dkt. 322) and in the Mortgage Portfolios Adversary (MPF Adv. Dkt. 118). As agreed upon by the parties, the Addendum to Joint Pretrial Order was entered in the Home Improvement Loans Adversary (HIL Adv. Dkt. 324) and in the Mortgage Portfolios Adversary (MPF Adv. Dkt. 120) on September 18, 2017. On October 17, 2017, the Joint Pretrial Order (PPC Adv. Dkt. 108) was entered in the Post–Petition Conduct Adversary.

On October 24, 2017, the Court entered an order granting the parties permission to correct certain errors that appeared in the document lists and to incorporate the Addendum to Joint Pretrial Order into a single amended joint pretrial order in the Home Improvement Loans Adversary and the Mortgage Portfolios Adversary. (HIL Adv. Dkt. 330; MPF Adv. Dkt. 125). That same day, the Amended Joint Pretrial Order was entered in the Home Improvement Loans Adversary (the "HIL Amended Pretrial Order") (HIL Adv. Dkt. 331) and in the Mortgage Portfolios Adversary (the "MPF Amended Pretrial Order") (MPF Adv. Dkt. 126). On October 30, 2017, the Court entered an order in the Post–Petition Conduct Adversary likewise granting the parties permission to correct certain errors that appeared in the documents lists into a single amended joint pretrial order in the Post–Petition Conduct Adversary (PPC Adv. Dkt. 114), and on that say day, the Amended Joint Pretrial Order was entered in the Post–Petition Conduct Adversary (the "PPC Amended Pretrial Order") (PPC Adv. Dkt. 118).

At Trial,³ Jeffrey R. Barber ("Barber"), Kristina M. Johnson, Mark A. Mintz, and Stephanie B. McLarty represented the Trustee, and Jim R. Spencer, Jr. and Stephanie M. Rippee represented EFP/BHT and Dr....