Cadence Bank, NA v. Horry Properties, LLC et al

Filing 31

ORDER denying 22 Motion to Change Venue. Signed by Magistrate Judge Dennis Howell on October 13, 2010. (jhg)

C a d e n c e Bank, NA v. Horry Properties, LLC et al

D o c . 31

IN THE UNITED STATES DISTRICT COURT F O R THE WESTERN DISTRICT OF NORTH CAROLINA B R Y S O N CITY DIVISION 2 :0 9 cv 4 4 C A D E N C E BANK, N. A., P l a i n t if f , V s. H O R R Y PROPERTIES, LLC, a South C a r o lin a Limited Liability Company; A R T H U R F. McLEAN, JR.; and E L IZ A B E T H A. McLEAN, D efen d a n ts. _______________________________ ) ) ) ) ) ) ) ) ) ) ) ) )

ORDER

T H IS MATTER is before the court on defendants Arthur F. McLean, Jr.'s and E liz ab e th A. McLean's (hereinafter "the McLean defendants") Motion to Transfer V en u e.1 The court has also received plaintiff's response and defendants' reply. H a v in g considered defendants' motion and reviewed the pleadings, the court enters th e following findings, conclusions, and Order. F IN D IN G S AND CONCLUSIONS I. B a c kg r o u n d A. N a tu re of the Action

P la in t i f f brings this action under the court's diversity jurisdiction 28, United S ta te s Code, Section 1332. In accordance with Section 1348, plaintiff, a national b an k in g association, is a citizen of Mississippi, the state in which it is located.

Default and Default Judgment have been entered against defendant Horry Properties, LLC. -1-

1

Dockets.Justia.com

C o m p lain t, at ¶ 1. The McLean defendants are alleged to be "citizens" of the State of N o rth Carolina. Compl., at ¶¶ 3-4. Plaintiff alleges that the amount in controversy ex ceed s the statutory minimum, amounting to $367,516.21in controversy, exclusive o f interest and costs. Compl., at ¶ ¶ 5 & 14. R e v ie w of the factual allegations of the Complaint reveals that the defaulted d efen d an t, Horry Properties, LLC, delivered a promissory note to plaintiff in 2005 in th e face amount of $816,355.00 by and through its member-manager, defendant A rth u r F. McLean. Compl., at ¶ 7. A default judgment has been entered by the d istrict court in this matter against Horry Properties, LLC. W h en Horry Properties, LLC, delivered the promissory note underlying this d e f ic ie n c y action, the McLean defendants executed and delivered to plaintiff a p erso n al guaranty for the debt owed by Horry Properties, LLC, as represented by the p ro m isso ry note. Compl., at ¶ 9. In the Second Cause of Action, plaintiff seeks to red u ce the McLean defendants' personal guaranty to a judgment for the deficiency. B. F a ctu a l Setting

The court has carefully considered the Complaint, the briefs, and the ev id en tiary material submitted by all parties. A fair review of all of the pleadings r ev e a ls that the proceeds of the loan underlying this action were used to purchase a restau ran t in Hayesville, North Carolina, by Horry Properties, LLC. In turn, it ap p ears that Horry Properties, LLC, has as a managing member defendant Arthur F. M cL ean , Jr. See A. F. Mclean Aff. (#22-1), at ¶ 6. When Horry Properties. LLC, so u g h t to do business in North Carolina, Mr. McLean provided his name to the North

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C aro lin a Secretary of State as the "name of the registered agent in the State of North C aro lin a . . . ."Plaintiff's Ex. 2 (#28-1), at p. 3. It also appears that defendant Elizabeth A. McLean played an active role d e v e lo p in g the North Carolina restaurant. Plaintiff contends in its response that E liz ab e th A. McLean is a managing member of The Country Cottage of Hayesville, L L C , which purportedly operated the Hayesville restaurant.2 The court has reviewed an d takes judicial notice of the public records maintained by the Secretary of State of N o rth Carolina, and it appears that defendant Arthur F. McLean, Jr., and "Beth M c L e an " (who, it is reasonable to conclude, is Elizabeth A. McLean) were listed as th e initial managers of The Country Cottage of Hayesville, LLC, in the Articles of O rg an izatio n .3 During the pendency of this action, such entity has been dissolved by th e North Carolina Secretary of State for failure to file an annual report. The face of th e Promissory Note given in this matter reveals that Horry Properties, LLC, was d o in g business as "Country Cottage of Hayesville, LLC." Complaint (#1), Ex. A, at p . 7. F in an cin g was secured through Seasons Bank in Blairsville, Georgia, which is p l ain tif f's predecessor in interest on the loan and guaranty. Such restaurant venture a p p aren tly failed, Horry Properties, LLC, defaulted on the loan, and plaintiff and

The court notes that plaintiff has failed to provide a citation for such factual allegation in its response, a violation of L.Cv.R. 7.1(C). Review of the evidentiary material submitted by plaintiff in support of its response fails to disclose any evidence supporting such factual contention.
3

2

See http://www.secretary.state.nc.us/corporations/Filings.aspx?PItemId=6510522 -3-

fo reclo sed under North Carolina law on the collateral securing the note, Compl., at ¶ 1 1 , leaving a substantial deficiency which is the subject of this action. The McLean defendants contend that this action should be transferred to the U n ite d States Court for the District of South Carolina inasmuch as they are domiciled in South Carolina, they lack minimum contacts with North Carolina, and such would b e a more convenient forum for the parties. II. T h e McLean Defendants' Motion I n their Answer, the McLean defendants specifically asserted, among other d efen ses, motions to dismiss under Rules 12(b)(2) and (3) of the Federal Rules of C iv il Procedure. Answer (#14). Motions contained in answers, but not briefed, act as p laceh o ld ers under the Local Civil Rules, until such time as some or all of those m o tio n s are reasserted and briefed. The Motion to Transfer Venue (#22) makes it clear that the McLean defendants seek transfer under 28, United States Code, Section 1406(a) (where venue is im p ro p erly laid) and, in the alternative, under Section 1404(a) (where venue is p ro p erly laid in this district). While the McLean defendants discuss at length in their b r ie f a lack of personal jurisdiction, they do not raise, mention, or request dismissal o f this action under Rule 12(b)(2) for lack of personal jurisdiction. The court will, th erefo re, consider the Motion to Transfer under both Sections 1404 and 1406.4

Such distinction is important to the court under 28 U.S.C. § 636 inasmuch as the district judge to whom this case is assigned, as well as other judges in the district, have determined that motions that only seek transfer of an action to another judicial district, and do not seek dismissal of the action, are non-dispositive motions subject to disposition under Section 636(b).
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III.

M o tio n to Transfer Under Section 1406(a) W h e r e it has been shown that venue is mislaid in a district, the court may

tr an s f er venue to a court where it could have been brought. 28 U.S.C. § 1406(a).

T h e district court of a district in which is filed a case laying venue in the w ro n g division or district shall dismiss, or if it be in the interest of ju stice, transfer such case to any district or division in which it could h av e been brought. 2 8 U.S.C. § 1406(a). When considering a motion seeking transfer based on improper v e n u e , a court must accept the facts alleged in the Complaint as true and must draw all reasonable inferences in the plaintiff's favor. Micromuse, Inc. v. Aprisma

M a n a g e m e n t Technologies, Inc., 2005 WL 1241924, *2 (S.D.N.Y. 2005).5 E s se n tia lly , the McLean defendants are arguing that personal jurisdiction over th e m is so lacking as to warrant transfer of this action to the District of South C aro lin a. When personal jurisdiction is determined on the basis of briefs and the alleg atio n s in the Complaint without an evidentiary hearing, "the plaintiff bears the b u r d e n of making a prima facie showing of a sufficient jurisdictional basis to survive th e jurisdictional challenge." Consulting Engineers, Inc. v. Geometric Limited, 561 F .3 d 273, 278 (4th Cir. 2009) (citation omitted). In considering the McLean defendants' Motion to Transfer, analysis begins w ith the two-step approach furnished by the Court of Appeals for the Fourth Circuit in English & Smith v. Metzger, 901 F.2d 36, 38 (4th Cir. 1990). First, the court must

Due to limits of electronic case filing, a copy of such unpublished opinion is in c o rp o ra te d into the electronic record through reference to the Westlaw citation. -5-

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co n sid er whether the forum state's long-arm statute authorizes personal jurisdiction. C o n su ltin g Engineers, 561 F.3d at 278. Second, if personal jurisdiction is authorized, th e court next considers whether there are sufficient contacts with the forum state to m eet the requirements of the Due Process Clause of the fourteenth amendment. Id. T h ere are two categories into which personal jurisdiction falls: "general" or "sp ecific." Helicopteros Nacionales de Colombia, S.A. v. Hall, 466 U.S. 408, 411 (1 9 8 4 ). General personal jurisdiction will exist when a defendant has "continuous and s ys te m a tic " contacts with the forum state. Id., at 411 fn. 9. If, however, general ju risd ictio n is lacking, plaintiff may then attempt to establish "specific" jurisdiction b y showing that the claims asserted arose from or are related to defendants' alleged actio n s within the state. Id., at fn. 8. A district court may exercise specific personal jurisdiction over a defendant o n l y if the defendant has sufficient "minimum contacts" with the forum state. I n te r n a tio n al Shoe v. Washington, 326 U.S. 310, 316 (1945). Where there is more th an one defendant, as here, plaintiff has the burden of establishing each defendant's co n ta cts with the forum state; the court must then, in turn, assess such contacts in d iv id u ally. Calder v. Jones, 465 U.S. 783, 790 (1984). It is well-settled that a d e f en d a n t must have contact with the forum state in order to be subject to the personal ju r is d ic tio n of that state. Burger King Corp. v. Rudzewicz, 471 U.S. 462, 475 (1985). I n this case, a fair reading of the Complaint as well as the evidentiary material su b m itted outside the initial pleadings, as well as documents in the public record, rev eals that the McLean defendants have had substantial, systematic contacts with

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N o rth Carolina. Indeed, defendant Elizabeth A. McLean, while contending she is a d o m iciliary of South Carolina, avers that she is still registered to vote in North C a ro lin a and holds a North Carolina drivers license even though she states she has r etu r n e d to North Myrtle Beach. See Elizabeth A. McLean Affidavit. Likewise, Mr. M cL ean contends that he is a domiciliary of South Carolina, but contends that his h o m e in Hayesville is held in trust for his children. Review of the pleadings makes it clear that both general and specific ju risd ictio n exists over these defendants. While they may indeed be domiciliaries of th e State of South Carolina, where they are domiciled is of little importance to what co n tacts they have with this forum. While they have certainly taken steps to lawfully sh ield themselves, they have continuous and systematic contacts with North Carolina a s well as sufficient activities within the forum related to this action so as to satisfy th e requirements of due process. Clearly, the McLean defendants, while ostensibly o p eratin g through LLCs, represented themselves to be the managing members of the N o rth Carolina LLC that operated the restaurant in Hayesville. While little is

d isclo se d by any party as to who was in charge of the daily operations of the r es ta u r an t, a reasonable inference form these pleadings is that the managing members o f the LLC that owned and operated the restaurant actually had a hand in the day-tod ay operations. While the McLean defendants argue that this action is only about the g u aran ty, the guaranty appears to be contextual to the loan it backed and the business th at such loan funded. It simply is not credible for the McLeans, who were the driving fo rce behind the restaurant, the loan, and the guaranty to argue that they lack contacts

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w ith North Carolina. Indeed, Mr. McLean represented to the he Secretary of State o f North Carolina that he was the "registered agent in the State of North Carolina" f o r the foreign LLC. Such analysis coincides with the analysis approved in Burger K in g , supra, wherein the Court held in relevant part, as follows: . . . we have emphasized the need for a "highly realistic" approach that r ec o g n iz es that a "contract" is "ordinarily but an intermediate step s er v in g to tie up prior business negotiations with future consequences w h ic h themselves are the real object of the business transaction." Id., at 3 1 6 -3 1 7 , 63 S.Ct., at 604-605. It is these factors-prior negotiations and c o n te m p la te d future consequences, along with the terms of the contract an d the parties' actual course of dealing-that must be evaluated in d eterm in in g whether the defendant purposefully established minimum co n tacts within the forum. Id ., at 479. Clearly, among the future consequences of a guaranty of a loan backing a restaurant in North Carolina, secured by real property in North Carolina, based on a guaranty that was likely entered into by defendants in North Carolina, is the p o ssib ility that the creditor holding the guaranty will seek to enforce it in North C aro lin a. The McLean defendants argue that even if the guarantee agreement was entered into in North Carolina, "an isolated transaction is generally insufficient for the lo n g -arm statute to establish personal jurisdiction." Brief in Support (#23), at p. 7 (citin g Harrelson Rubber Co. v. Layne, 69 N.C. App. 577 (1984)). This was not, h o w ev er, an "isolated transaction," but appears to have been an additional and n ecessary step for the LLCs through which the McLean defendants were operating to se c u r e financing for a restaurant in North Carolina. Nor was such guaranty likely a m arg in al or perfunctory event; according to the affidavit of Mr. Hall, the bank in rev iew in g the loan for the restaurant considered Mr. McLean's personal assets,

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in clu d in g his home in Hayesville, making it reasonable to conclude that the guaranty w as critical to the restaurant securing financing .The North Carolina Long Arm Statute au th o rizes the exercise of personal jurisdiction in twelve circumstances. N.C. Gen. S tat. § 1-75.4(1) - (12). Section 1-75.4(7) provides the provision most relevant to th ese circumstances: 7) Deficiency Judgment on Local Foreclosure or Resale. ­ In any actio n to recover a deficiency judgment upon an obligation secured by a mortgage, deed of trust, conditional sale, or other security instrument ex ecu ted by the defendant or his predecessor to whose obligation the d e f en d a n t has succeeded and the deficiency is claimed either: a. In an action in this State to foreclose such security in stru m en t upon real property, tangible personal property, o r an intangible represented by an indispensable in stru m en t, situated in this State; or b. Following sale of real or tangible personal property o r an intangible represented by an indispensable instrument in this State under a power of sale contained in any security in s tr u m e n t. N .C .G en .S tat. § 1-75.4(7). Inasmuch as the North Carolina Supreme Court has held that such jurisdictional statu te applies to a defendant who meets the minimal contacts requirement of In tern atio n al Shoe Co. v. Washington, supra, the two-pronged approach approved by th e circuit in English & Smith, supra, "collapses into the question of whether (the D e fe n d a n ts have) the minimum contacts with North Carolina." Fieldcrest Mills, Inc. v . Mohasco Corp., 442 F. Supp. 424, 426 (M.D.N.C. 1977). The statutory and co n stitu tio n al inquiries merge. Hiwassee Stables, Inc. v. Cunningham, 135 N.C.App. 2 4 , 27 (1999). Even though the inquiries merge, if jurisdiction is authorized under the N o rth Carolina Long Arm Statute, the court need not engage in additional due process
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an alysis. Clearly, the McLean defendants have sufficient minimum contacts with N o r th Carolina, making relief under Section 1406(a) unavailable inasmuch as ju risd ictio n is properly laid in this district. IV. S e ct io n 1404(a) Transfer W h ere plaintiff has, as here, properly invoked the courts jurisdiction, d is cr etio n a ry transfer is still available under 28, United States Code, Section 1404(a), w h ich provides, as follows: For the convenience of parties and witnesses, in the interest of justice, a d istrict court may transfer any civil action to any other district or d iv is io n where it might have been brought. 28 U.S.C § 1404(a) In Jim Crockett Promotions, Inc. v. Action Media Group, Inc., 751 F. Supp. 93 (W .D .N .C . 1990), this court established a litany of considerations applicable to any m o tio n to transfer made under 28, United States Code, Section 1404(a). In order to d e te rm in e whether the proposed transfer is proper, a balance must be struck between th e competing interests. Unless the balance is tipped strongly in favor of the moving p a r ty , Collins v. Straight, Inc., 748 F.2d 916, 921 (4th Cir. 1984), plaintiff's choice o f forum should not be disturbed. Upon a motion to transfer, the moving party carries th e burden, 1A Moore's Federal Practice, paragraph 0.345[5] at 4360 (Matthew B e n d er 1990); and the burden is heavy, Datasouth Computer Corp. v. Three D im e n s io n a l Technologies, Inc., 719 F. Supp. 446, 451 (W.D.N.C. 1989). A defendant carries a particularly heavy burden when it moves pursuant to [Section] 1404(a) to transfer an action from a district where venue is p r o p e r. As this court has noted previously, it is "black letter law," that "p lain tiff's choice of a proper forum is a paramount consideration in any d e te r m in atio n of a transfer request, and that choice . . . should not be lig h tly disturbed."
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P h illip s v. S. Gumpert Co., Inc., 627 F. Supp. 725, 726-27 (W.D.N.C. 1986) (citations o m itted ) (quoting Western Steer Mom 'N' Pop's v. FMT Invs., Inc., supra, at 265). As provided in Jim Crockett Promotions, Inc., supra, the considerations relevant to discretionary transfer of venue are, as follows: 1. 2. 3. 4. T h e plaintiff's initial choice of forum; T h e residence of the parties; T h e relative ease of access of proof; T h e availability of compulsory process for attendance of w itn esses and the costs of obtaining attendance of willing w itn e s s e s ; T h e possibility of a view; T h e enforceability of a judgment, if obtained; T h e relative advantages and obstacles to a fair trial; O th er practical problems that make a trial easy, expeditious, and i n e x p e n s iv e ; T h e administrative difficulties of court congestion; T h e interest in having localized controversies settled at home and th e appropriateness in having the trial of a diversity case in a fo ru m that is at home with the state law that must govern the actio n ; and T h e avoidance of unnecessary problems with conflict of laws.

5. 6. 7. 8. 9. 10.

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Id.,at 7-8. Courts should make both a quantitative and a qualitative analysis of the facto rs. McDevitt & Street Co. v. Fidelity and Deposit Co., 737 F. Supp. 351, 354 (W .D .N .C . 1990). a. T h e plaintiff's initial choice of forum.

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I n this case, plaintiff clearly desires to litigate this matter in the Western District o f North Carolina. The court assigns this choice great weight. b. T h e residence of the parties.

I n accordance with Section 1348, plaintiff resides in Mississippi. The McLean d efen d an ts contend that they are domiciliaries of South Carolina. While this factor in itially weighs in favor of transfer, the weight is diminished by Mrs. McLean's m ain ten an ce of voter registration and a driver's license in North Carolina. Also d im in ish in g this factor is Mr. McLean's ownership interest in a residence in H ayesv ille, which he contends is held in trust for his children. c. T h e relative ease of access of proof.

This factor is unaffected by the choice of forum provision. Plaintiff's action is, e ss en tia lly , for breach of a contract of guaranty, and the papers evidencing such g u aran ty, the underlying foreclosure, the default, and the loan are all easily tr a n s m itte d . While the McLean defendants contend that they have at least one

w itn e s s in South Carolina (apparently a registered agent of the defaulted Horry P ro p e rties, LLC, it appears from the answer that the defenses will revolve around n o tic e and the activities of foreclosure, most of which occurred in North Carolina. T h is factor favors retention. d. T h e availability of compulsory process for attendance of w it n esses and the costs of obtaining attendance of w illin g witnesses.

T h e key witnesses, if this matter were to go to trial would be the McLean d e f en d a n ts , bank personnel, and members of the LLCs. In their reply, the McLean

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d e f en d a n ts argue that "others with specific knowledge of the loan and deed of trust are n o t residents of North Carolina." Reply, (#29) at p. 5. Who these witnesses are, how th eir testimony would be relevant, and where they reside have not been disclosed to th e court by the moving defendants. Based on the Answer, the court assumes that the d e f en s e at trial will center around the notice of default and demand provided to Horry P r o p e r tie s, LLC, as well as the McLean defendants, as well as any alleged deficiencies in the foreclosure proceedings. While there may certainly be other witnesses in South C aro lin a, it appears that Mr. McLean was the registered agent in North Carolina for s er v ic e of process for Horry Properties, LLC.6 Thus, there has been no showing that co m p u lso ry process will be unavailable, and the court is satisfied that the parties have th e ability to notice and take the depositions of any unwilling South Carolina r e s id e n ts . Turning next to the costs, the costs of obtaining willing witnesses will be u n a f f e c t e d by venue. Clearly, the costs deposing and then having willing witnesses a p p e a r in either Asheville or Florence will be substantial; however, the court finds that n o substantial savings will be realized by having the matter transferred to Florence. R eg ard less of where this action is tried, there will be substantial costs to both sides for trav el to and from North Carolina. Inasmuch as plaintiff has the burden of proof, it w i ll likely have the bulk of witnesses, especially if a defense is mustered on notice, d em an d , and irregularity in foreclosure. Plaintiff will incur the bulk of travel costs. This factor is, at best for defendants, neutral.

6

http://www.secretary.state.nc.us/corporations/Corp.aspx?PitemId=6536177 -13-

e.

T h e possibility of a view.

A lth o u g h the bricks and mortar restaurant is located in Hayesville, this factor is neutral in that there is nothing both relevant and tangible to view other than d o c u m e n ts . f. T h e enforceability of a judgment, if obtained.

W h ile the McLean defendants contend that their assets are all in South Carolina, th is factor is also neutral inasmuch as a judgment obtained in a federal court in North C aro lin a is easily enforceable nationwide. g. T h e relative advantages and obstacles to a fair trial.

This factor is neutral in that a fair trial can be obtained in any federal court for eith er side. h. O th er practical problems that make a trial easy, e x p e d it io u s , and inexpensive.

T h ere appear to be no other practical problems outside of the factors previously co n s id ered that make trial any easier here than in South Carolina. This factor is n e u tr a l. i. T h e administrative difficulties of court congestion.

T h ere appears to be no significant difference in court congestion. Indeed, the A sh ev ille Division is currently running without a backlog. The court is without data p r e se n te d by the parties as to court congestion in Florence; however, from experience, th e court assumes that most districts operate with backlogs as criminal cases must be a d d r e ss ed first under the Speedy Trial Act. Assuming statistical data was presented to such effect, this factor would likely weigh in favor of retention, but the court will
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co n sid er this factor to be neutral. j. T h e interest in having localized controversies settled at h o m e and the appropriateness in having the trial of a d iv e r sit y case in a forum that is at home with the state la w that must govern the action. The guaranty

T h e r e is a clause concerning choice of laws in the guaranty.

p ro v id es that it "shall be governed by the laws of the State in which it is executed." C o m p ., Ex. C, at ¶ 13. While the document mentions "Blairsville, Georgia" in the h ead in g , the defendants appear to concede that the document was executed in North C a r o lin a and that North Carolina law will apply. Although the court agrees that a fed eral court in South Carolina could apply North Carolina law, this factor weighs in fav o r of retention as North Carolina has a greater interest in resolution of a dispute in v o lv in g a business that was operated in North Carolina as well as resolution of the en su in g indebtedness and is at home with the law that likely governs enforcement of th e guaranty. This factor favors retention. k. T h e avoidance of unnecessary problems with conflict of laws.

T h ere appear to be no conflicts of law, making this factor favor retention. *** H av in g considered all of the factors individually, the undersigned will now co n sid er all the factors cumulatively. Quantitatively, the factors weigh in favor of r e te n tio n . Qualitatively, a similar result is reached as plaintiff's initial choice of

f o r u m must be given great weight. It would be difficult to argue that the McLean d efen d an ts were unaware of the risk, or would be surprised to discover, that executing a guaranty in North Carolina for a business operating in North Carolina would
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ex p o se them to the risk of litigation in this forum. ORDER IT IS, THEREFORE, ORDERED that defendants Arthur F. McLean, Jr.'s an d Elizabeth A. McLean's Motion to Transfer Venue (#22) is DENIED.

Signed: October 13, 2010

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