Rainsford v. Apex Bank

Filing 32

ORDER - Bankruptcy Appeal re 1 Bankruptcy Appeal filed by Bettis C Rainsford. It is the judgment of this Court the decision of the Bankruptcy Court is REVERSED, and this matter is REMANDED for further proceedings. Signed by Honorable Mary Geiger Lewis on 8/3/2017. (abuc)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF SOUTH CAROLINA
ANDERSON/GREENWOOD DIVISION
BETTIS C. RAINSFORD,
Appellant,
vs.
APEX BANK,
Appellee.

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CIVIL ACTION NO. 8:16-03521-MGL

MEMORANDUM OPINION AND ORDER
REVERSING THE DECISION OF THE BANKRUPTCY COURT
AND REMANDING FOR FURTHER PROCEEDINGS
I.

INTRODUCTION
This is a bankruptcy appeal. The Court reviews this appeal pursuant to 28 U.S.C. § 158(a)(1)

and Rule 8001(a) of the Federal Rules of Bankruptcy Procedure. Having carefully considered the
briefs, the record, and the applicable law, it is the judgment of the Court the decision by the
Bankruptcy Court will be reversed and the matter will be remanded for further proceedings.

II.

FACTUAL AND PROCEDURAL HISTORY
The Court takes the facts for purposes of this appeal from the order of the highly esteemed

Bankruptcy Court granting Appellee Apex Bank’s (Apex) motion to dismiss under Rule 12(b)(6)
of the Federal Rules of Civil Procedure and dismissing the amended complaint with prejudice
(Dismissal Order). The Bankruptcy Court drew the facts from Appellant Bettis C. Rainsford’s
(Rainsford) amended complaint. The facts are as follows:

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August 18, 2015 – Gup’s Hill Plantation, LLC’s chapter 11 bankruptcy case was filed.
Rainsford is the sole member of the debtor.
Summer 2015 – Rainsford was approached by Kevin Molony, an attorney who represented
himself to Rainsford as an attorney for Apex. Molony was attempting to obtain information about
two of Rainsford’s former business partners in connection with Apex’s attempts to collect
unrelated debts owed by those individuals to Apex.
Early October 2015 – Rainsford again met with Molony. During that meeting, Molony
advised Rainsford that Apex was considering the purchase of the judgment at issue here, and
intended to pursue collection against Rainsford’s former business partner. Rainsford raised the
issue he was also obligated on that judgment. Rainsford and Molony discussed the possibility of
Apex agreeing to forbear from pursuing Rainsford and his companies if that judgment was
acquired, in exchange for Rainsford providing information to Apex regarding his former business
partner’s assets and executing deeds in lieu of foreclosure to Apex on two lots owned by one of
Rainsford’s companies and subject to a mortgage lien held by Apex.

Rainsford provided

information regarding his former business partner’s assets to Molony during this conversation.
Molony suggested that Rainsford draft documents to memorialize these discussions for execution
by an officer of Apex.
October 7, 2015 – Rainsford sent an email to Molony providing a draft settlement
agreement and proposed deed in lieu of foreclosure. Molony responded on the same date,
requesting a change to the documents. He stated, “If you are satisfied with adding that language,
I’ll get it to the bank and try to have this done by tomorrow. . . . [T]hat sentence would allow us to
knock this out in my opinion.”

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Mid-October 2015 – Rainsford made the requested change to the documents and sent them
back to Molony.

Rainsford followed up with Molony on several occasions, and in each

conversation Molony stated the executed documents would soon be returned. Rainsford alleges
Molony repeatedly advised he had authority to bind Apex to their agreement.
October 28, 2015 – Molony advised Rainsford “the bank’s CEO has become involved and
that he’s in charge now.” The agreement and the deed in lieu of foreclosure were never signed by
Apex.
October 29, 2015 – Apex completed the acquisition of the judgment at issue from SunTrust
Bank.
May 10, 2016 – Apex filed its proof of claim in Gup’s Hill Plantation, LLC’s bankruptcy
case. Apex asserts a claim in the amount of $1,439,286.39, based on the SunTrust judgment
against Rainsford and his former business partner. The judgment attached to real property that
Rainsford later transferred to Gup’s Hill Plantation, LLC.
May 31, 2016 – Rainsford commenced the underlying action in the Edgefield County
Court of Common Pleas, asserting causes of action for breach of contract and enforcement of an
agreement.
July 14, 2016 – Apex removed the proceeding to the Bankruptcy Court.
August 22, 2016 – Rainsford filed his amended complaint.
August 26, 2016 – Apex filed its Rule 12(b)(6) motion to dismiss the amended complaint.
September 30, 2016 – Rainsford filed his memorandum in opposition to the motion to
dismiss the amended complaint.
October 13, 2016 – The Bankruptcy Court entered its Dismissal Order.
October 28, 2016 – Rainsford appealed the Dismissal Order to this Court.

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The Court, having been fully briefed on the relevant issues, is now prepared to discuss
Rainsford’s appeal.

III.

STANDARD OF REVIEW
The United States District Court refers matters arising under Title 11 of the United States

Code to the Bankruptcy Court pursuant to 28 U.S.C. § 157. Local Rule 83.IX.01, D.S.C. Final
orders of the Bankruptcy Court are appealable to the District Court. 28 U.S.C. § 158. The Court
reviews the Bankruptcy Court’s dismissal of Rainsford’s claims under Rule 12(b)(6) de novo. See
In re Dubois, 834 F.3d 522, 526 (4th Cir. 2016). The United States Court of Appeals for the Fourth
Circuit may only review “final decisions, judgments, orders, and decrees” entered by the district
court. § 158(d). A district court’s order is not “final” under § 158(d) if it remands the case with
instructions for the bankruptcy court to conduct further proceedings. See Mort Ranta v. Gorman,
721 F.3d 241, 247 (4th Cir. 2013).

IV.

ISSUE ON APPEAL
Whether the learned Bankruptcy Court erred in dismissing Rainsford’s amended complaint

with prejudice on the basis of (1) a failure to satisfy the South Carolina Statute of Frauds (Statute
of Frauds) inasmuch as the court held the e-mail exchange between Rainsford and Molony is
insufficient to constitute a clear agreement between the parties, and (2) Molony lacked actual,
apparent, and implied authority to bind Apex to the alleged agreement.

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V.

DISCUSSION AND ANALYSIS
A.

Statute of Frauds

First, Rainsford takes exception to the Bankruptcy Court’s dismissing his amended complaint
for failure to satisfy the Statute of Frauds. The Statute of Frauds provides:
No action shall be brought whereby:
(1) To charge any executor or administrator upon any special promise to
answer damages out of his own estate;
(2) To charge the defendant upon any special promise to answer for the debt,
default or miscarriage of another person;
(3) To charge any person upon any agreement made upon consideration of
marriage;
(4) To charge any person upon any contract or sale of lands, tenements or
hereditaments or any interest in or concerning them; or
(5) To charge any person upon any agreement that is not to be performed
within the space of one year from the making thereof;
Unless the agreement upon which such action shall be brought or some
memorandum or note thereof shall be in writing and signed by the party to be charged
therewith or some person thereunto by him lawfully authorized.
S.C. Code Ann. § 32-3-10.
As noted above, in the Dismissal Order, the well-respected Bankruptcy Court held the alleged
agreement between Rainsford and Apex failed to satisfy the Statute of Frauds. The court articulated
that the e-mail allegedly establishing the agreement failed to satisfy the requirement of a writing
containing the essential terms of the parties’ agreement. According to the court, the e-mail from
Molony to Rainsford constituted, at the maximum, a counterproposal.
“To satisfy the Statute of Frauds, every essential element of the contract must be expressed in
a writing signed by the party to be compelled.” Fici v. Koon, 642 S.E.2d 602, 604 (S.C. 2007). “The
burden of proof is on the party seeking to enforce the contract.” Id. Consequently, for the alleged
agreement to be enforceable, a writing must exist containing both (1) the essential terms of the parties’

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agreement and (2) the signature of an authorized representative of Apex, the party against whom
Rainsford seeks to enforce the agreement. Exceptions to the Statute of Frauds, however, exist.
For instance, “[a]n oral contract within the Statute of Frauds may be taken out by
performance where one party does some act essential to performance of the agreement resulting
in loss to himself and benefit to the other.” Graham v. Prince, 358 S.E.2d 714, 717 (S.C. Ct. App.
1987). Also, when the parties fully perform the contract, the Statute of Frauds no longer applies.
DeWitt v. Kelly, 182 S.E.2d 65, 68 (S.C. 1971). There is also an exception such that the Statute of
Frauds may not apply where there has been partial performance. Settlemeyer v. McCluney, 596
S.E.2d 514, 516 (S.C. Ct. App. 2004).
Construing the facts in the light most favorable to Rainsford, as the Court must do at the
motion to dismiss stage, see Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009), Rainsford and Molony
first discussed the terms of the alleged agreement in person, which included Apex’s agreeing to
forbear from pursuing Rainsford and his companies in exchange for Rainsford’s providing
information to Apex regarding his former business partner’s assets and executing deeds in lieu of
foreclosure to Apex on two lots owned by one of Rainsford’s companies and subject to a mortgage
lien held by Apex. Rainsford in fact provided information regarding his former business partner’s
assets to Molony during this conversation. Rainsford then drafted documents, including a deed in
lieu of foreclosure, to memorialize the alleged agreement between the parties and submitted them to
Molony.
Having made a de novo review of the Dismissal Order, the Court is unable to hold, as a matter
of law, the alleged agreement fails to satisfy the requirement in the Statute of Frauds of a writing
containing the essential terms of the parties’ agreement, particularly given it may fall under one of the
exceptions to the Statute of Frauds.

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B.

Molony’s Authority to Bind Apex

Second, Rainsford argues the Bankruptcy Court erred in holding Molony, as Apex’s attorney,
lacked actual, apparent, or implied authority to bind Apex to the alleged agreement. Rainsford insists
Molony’s statement he was Apex’s attorney and he had complete authority to address all issues related
to collecting on judgments from Apex in South Carolina clearly shows his authority to bind Apex to
the alleged agreement.
South Carolina law recognizes actual, apparent, and implied authority. “[A]ctual authority is
expressly conferred upon the agent by the principal.” Roberson v. S. Fin. of S.C., Inc., 615 S.E.2d
112, 115 (S.C. 2005). Apparent authority, on the other hand,
is created as to a third person by written or spoken words or any other conduct of the
principal which, reasonably interpreted, causes the third person to believe the principal
consents to have the act done on his behalf by the person purporting to act for him.
Either the principal must intend to cause the third person to believe that the agent is
authorized to act for him, or he should realize that his conduct is likely to create such
belief. Moreover, an agency may not be established solely by the declarations and
conduct of an alleged agent.
Froneberger v. Smith, 748 S.E.2d 625, 630 (S.C. Ct. App. 2013) (internal citations and quotation
marks omitted). Finally, the doctrine of implied authority states an attorney lacks the power to bind
a client in matters outside the context of pending litigation absent express authority given by the client.
See Hall v. Benefit Ass’n of Ry. Emps., 161 S.E. 867, 868 (S.C. 1932). It “is the well-settled law of
this state that the authority of an attorney of record to settle claims is limited to the claims presented
by the pleadings in a given case and that any settlement that goes beyond these matters must be
expressly agreed to by the client.” Graves v. Serbin Farms, Inc., 368 S.E.2d 682, 683 (S.C. Ct. App.
1988).
The doctrine of ratification, however, states a principal may ratify the authority of a purported
agent by express or implied adoption and confirmation of an act or contract performed or entered into

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on its behalf by the purported agent. Lincoln v. Aetna Cas. & Sur. Co., 386 S.E.2d 801, 803 (S.C. Ct.
App. 1989). “Ratification exists upon the occurrence of three elements[:] (1) acceptance by the
principal of the benefits of the agent’s acts, (2) full knowledge of the facts, and (3) circumstances or
an affirmative election indicating an intention to adopt the unauthorized arrangements.” Id.
Here, Rainsford relies on statements made to him by Molony, the alleged agent, to establish
Molony’s purported authority to bind Apex. Specifically, Rainsford asseverates Apex repeatedly
confirmed Molony’s authority through multiple conversations between Molony and Rainsford in
which Molony described the authority given to him by Apex’s officer, Brad Hailey. Rainsford also
declares there was litigation pending between himself and Apex involving the SunTrust judgment.
Rainsford cites a September 19, 2015, e-mail from Jim Clayton, Apex’s principal, stating, “With
litigation pending, it would be inappropriate and uncomfortable to communicate at this time.” ECF
No. 17-1 at 1. Rainsford relies on this e-mail to assert Apex intended to purchase the SunTrust
judgment and infers it is likely a deal had already been struck. Furthermore, Rainsford avers
Molony’s subsequent visit demonstrates he represented Apex in the matter of the SunTrust judgment,
allegedly establishing Molony’s implied authority to bind Apex to the purported agreement. Finally,
Rainsford argues Apex has benefited from the alleged agreement, given his disclosure regarding his
former business partner’s assets during his conversation with Molony.
Again, when examining the motion to dismiss, the Court views the facts in the light most
favorable to Rainsford as the nonmoving party. In doing so, the Court is unable to determine as a
matter of law Molony lacked authority to bind Apex to the alleged agreement, via the doctrine of
ratification or otherwise.

The Court holds this matter is more properly suited for further

proceedings to establish the merits of Rainsford’s allegations.

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VI.

CONCLUSION
Wherefore, based on the foregoing discussion and analysis, it is the judgment of this Court

the decision of the Bankruptcy Court is REVERSED, and this matter is REMANDED for further
proceedings.
IT IS SO ORDERED.
Signed this 3rd day of August, 2017, in Columbia, South Carolina.
s/Mary Geiger Lewis
MARY GEIGER LEWIS
UNITED STATE DISTRICT JUDGE

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