Mims v. Brunswick Homes LLC

Filing 9

MEMORANDUM OPINION AND ORDER "...For the foregoing reasons, the Court AFFIRMS in part and VACATES and REMANDS in part the July 20, 2007, Order Granting in Part and Denying in Part Objections to the Claim of Brunswick Homes, LLC. for clarification consistent with this opinion." Signed by Judge Michael H. Schneider on 9/30/08. (cm, )

I N THE UNITED STATES DISTRICT COURT F O R THE EASTERN DISTRICT OF TEXAS S H E R M A N DIVISION J E F F R E Y H. MIMS, CHAPTER 7 T R U S T E E OF THE BANKRUPTCY E S T A T E OF JAMES H. MOORE, III A p p e llan t, v. B R U N S W IC K HOMES, LLC, a Texas L im ite d Liability Company A p p e lle e . § § § § § § § § § § § §

Case No. 4:07-cv-420

B a n k ru p tc y Case No. 06-41556

M E M O R A N D U M OPINION AND ORDER B ef o re the Court is an appeal from the United States Bankruptcy Court for the Eastern D is tric t of Texas, Sherman Division. Appellant Jeffrey H. Mims, Chapter 7 Trustee of the B a n k r u p t c y Estate of James H. Moore, challenges the Bankruptcy Court's July 20, 2007, O r d e r Granting in Part and Denying in Part Objections to the Claim of Brunswick Homes, L L C .1 This Court has jurisdiction over the matter pursuant to 28 U.S.C. § 158(a). Having c a re f u lly reviewed the submissions of the parties and in light of the record on appeal, the c irc u m s t an c e s of this case, and the applicable law, the Court AFFIRMS in part and V A C A T E S and REMANDS in part the decision of the Bankruptcy Court.

The Court notes that a separate appeal was filed regarding the same order by the appellee in this case, Brunswick Homes, LLC (Case No. 4:07-cv-421). However, this memorandum opinion and order will only address the issues presented by Jeffrey H. Mims' appeal. A separate memorandum opinion and order will address the appeal by Brunswick Homes, LLC.

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I.

S T A T E M E N T OF THE APPEAL A s the Bankruptcy Court points out, this matter involves a tangled web of transactions

b y and between Debtor, Horseshoe Nail Ranch, L.P., and a number of business entities c re a te d or managed by James H. Moore ("Moore"). It appears that the loans and transactions b e tw e e n these entities were often inadequately or inaccurately documented, leading to a n u m b e r of disputes that had to be resolved by the Bankruptcy Court. At the heart of this p a rtic u la r dispute is the determination of which business entity loaned Debtor over $500,000 in May 2002. The Bankruptcy Court determined that the loan was made by Brunswick H o m e s, LLC ("Brunswick Homes" or "Appellee"). Appellant Jeffrey H. Mims ("Mims" or " A p p e lla n t" ) contends that the loan was made by James H. Moore & Associates, Inc. II. F A C T U A L BACKGROUND A ro u n d 1997, Moore and Rod Miller ("Miller") formed Brunswick Homes, a c o m p a n y that builds homes and develops lots. Miller owns 50% of Brunswick Homes. The o th e r 50% is owned by JHM Properties, Inc., a corporation that was formed by Moore's wife an d that pays Moore's living expenses pursuant to an employment agreement between Mr. a n d Mrs. Moore. Brunswick Properties, LLC ("Brunswick Properties") is an affiliate of B r u n s w ic k Homes, which shares the same management and offices as Brunswick Homes. D e b to r, Horseshoe Nail Ranch, L.P. ( "Debtor") was formed around May 22, 2001, f o r the purpose of developing certain real property in Denton County, Texas, known as H o rse sh o e Nail Ranch and Dane Ranch (collectively, the "Ranch"). Brunswick Homes is a 51% Limited Partner of Debtor. Trey Wasser ("Wasser") is the General Partner and a 38% 2

L im ited Partner of Debtor. Mia Hendrickson is a 10% Limited Partner of Debtor. D u rin g the relevant time period, Moore also owned and operated James H. Moore and A s s o c ia te s ("Associates") a company formed to do real estate brokerage. Associates shared th e same address as Brunswick Properties and Brunswick Homes. On May 29, 2001, Debtor e x e cu te d an agreement with Associates to manage and develop the Ranch. Pursuant to a M a n a g e m e n t Agreement, Associates was to provide all accounting services and receive all m a il for the Ranch. On the same date Debtor and Associates entered into their Management Agreement, D e b to r obtained a loan of $1,450,000 from Northstar Bank of Texas ("Northstar Bank") to p u rc h a se additional property and to develop its existing property. In May 2002, Debtor s o u g h t additional funding to complete its development efforts. In particular, Debtor sought f u n d in g to pay a company called Richmond Construction to construct roads, ponds, and u tilitie s on the Ranch. The Bankruptcy Court found that Richmond Construction was really B ru n s w ic k Properties d/b/a Richmond Construction, and that Miller agreed to have B ru n s w ic k Homes extend a $500,000 line of credit to Debtor to pay Brunswick Properties d /b /a Richmond Construction for the work. The Bankruptcy Court also found that

u n b e k n o w n s t to Miller, Moore documented the loan to show that the funds were advanced b y Associates, not Brunswick Homes. After making these findings, the Bankruptcy Court d e te rm in e d that Debtor owed Brunswick Homes for the May 2002 loan. III. T H E APPEAL A p p e lla n t contends that it was Associates, not Brunswick Properties, that was doing 3

b u s in e ss as Richmond Construction, and that Debtor owes Associates a net receivable of $ 5 5 1 ,8 3 6 .8 1 , plus interest and attorneys fees, for unpaid invoices from Richmond C o n s tr u c tio n . Appellant also contends that, in May 2002, Brunswick Homes loaned

$ 5 0 0 ,0 0 0 to Associates, not Debtor, for work to be done by Richmond Construction.2 IV . S T A N D A R D OF REVIEW O n appeal, the district court reviews the bankruptcy court's findings of fact for clear e rr o r and its conclusions of law de novo. See In re Hamilton, 125 F.3d 292, 295 (5th Cir. 1 9 9 7 ). Under the clearly erroneous standard, a bankruptcy court's findings of fact will be re v e rs e d only if, considering all the evidence, the district court is left with the definite and f irm conviction that a mistake has been made. See In re Kemp, 52 F.3d 546, 550 (5th Cir. 1 9 9 5 ). V. D IS C U S S IO N A. T h e Bankruptcy Court did not Clearly Err in Finding that Brunswick P r o p e r tie s, not Associates, was Doing Business as Richmond Construction A p p e l la n t first argues that the Bankruptcy Court erred in finding that Brunswick P r o p e rtie s was doing business as Richmond Construction in 2002. Appellant contends that th e determination of which entity was doing business as Richmond Construction was not p ro p e rly before the Bankruptcy Court, and even if it was, Associates, not Brunswick P r o p e r tie s , was doing business as Richmond Construction. This is significant, because

It is unclear from the Bankruptcy Court's opinion whether the May 2002 loan was designed to pay the unpaid invoices that Appellant claims Debtor owes Associates. 4

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A sso ciates claims the Debtor owes it over half a million dollars in unpaid invoices for work it did as Richmond Construction. First, the Court finds that the issue of which entity was doing business as Richmond C o n stru c tio n was properly before the Bankruptcy Court. Unlike the cases cited by Appellant, th e issue in this case was a factual determination that was helpful in resolving the objections to Brunswick Homes' claim. Moreover, both Miller and Moore testified regarding the c h a n g in g of the assumed name certificates to reflect that it was Brunswick Properties, not A s s o c ia te s, doing business as Richmond Construction. Further, the Court finds that there w a s adequate evidence showing that Brunswick Properties, not Associates, was doing b u s in e ss as Richmond Construction. Therefore, the Court finds that this determination by th e Bankruptcy Court was not clearly erroneous. Appellant also argues that the fact that Associates had at one time filed an assumed n a m e certificate as Associates d/b/a Richmond Construction is prima facie evidence that A sso ciates was, in fact, doing business as Richmond Construction. The Bankruptcy Court a c k n o w le d g e d that Associates filed an assumed name certificate as Richmond Construction. H o w e v e r, the Bankruptcy Court also found that the actual work on Debtor's property was p e rf o rm e d by Brunswick Properties doing business as Richmond Construction, that Miller w a s unaware that Moore had filed the assumed name certificate for Associates, and that upon le a r n in g of Associates' assumed name certificate, Miller had Moore withdraw Associates' a ss u m e d name certificate. The Bankruptcy Court further found that the day Associates w ith d re w its assumed name certificate, Brunswick Properties filed an assumed name 5

c e rtif ic a te as Richmond Construction. This was part of a larger agreement to sort out B ru n s w ic k Homes' books and records for 2002. The Court finds that these factual

d e ter m in a tio n s were not clearly erroneous and overcome any presumption that may initially a c co m p a n y an assumed name certificate. A p p e lla n t raises several other arguments as to why the Bankruptcy Court should have f o u n d that Associates, not Brunswick Properties, was doing business as Richmond C o n s tru c tio n . None of these arguments lead this Court to a firm conviction that the B a n k ru p tc y Court erred. These arguments include the fact that Properties' 2002 tax return, w h ic h carried revenue generated by Richmond Construction, was inaccurate, that Brunswick P r o p e rtie s books and records were later altered to reflect that Brunswick Properties, not A s s o c ia te s, was doing business as Richmond Construction, and that there was evidence that A ss o c iate s held a bank account that deposited checks from Brunswick Homes and paid R ic h m o n d Construction's operating expenses. These arguments were not lost on the B an k rup tcy Court. It is apparent the Bankruptcy Court believed that, unbeknownst to Miller, M o o re registered Associates as Richmond Construction and had Associates collect the funds i n t e n d e d for Brunswick Properties. When Miller learned what Moore had done, Miller tra n sf e rre d the name and assets of Associates d/b/a Richmond Construction to Brunswick P r o p e r tie s in order to correct Moore's misdeeds. Testimony and evidence supports these f in d in g s , such that they are "plausible in light of the record as a whole." In re Ramba, Inc., 4 1 6 F.3d 394, 402 (5 th Cir. 2005). Therefore, the Court AFFIRMS the Bankruptcy Court's d e c is io n that Brunswick Properties, not Associates, was doing business as Richmond 6

C o n s tr u c tio n . B. T h e Bankruptcy Court did not Clearly Err in Finding that Brunswick H o m e s , not Associates, Funded the Loan to Debtor in May 2002, but Must C la r ify Whether that Loan was, or Needed to be, Assented to by Debtor A p p e lla n t also contends that the Bankruptcy Court erred in finding that Brunswick H o m e s loaned Debtor $500,000 in May 2002. Appellant claims that Brunswick Homes lo a n e d the money to Associates, not Debtor, for work to be done by Richmond Construction. T h is money was then loaned from Associates to Debtor. Therefore, according to Appellant, B ru n s w ic k Homes has a claim against Associates, not Debtor, for the loan money. Appellant p o in ts to the fact that the checks written by Brunswick Homes to payee Richmond C o n s tru c tio n contain the annotation "loan," which Appellant claims is evidence that B ru n s w ic k Homes intended to loan the money to Associates. First, the payee on the checks is listed as Richmond Construction, not Richmond Construction d/b/a Associates. Second, it is clear that the Bankruptcy Court questioned Moore's credibility and found that the d o cu m en ts he created, as well as his testimony, were self-serving. As the Bankruptcy Court n o te s, any evidence suggesting that the loan was made to Associates was created by Moore, w h o , as President of Brunswick Homes and author of the checks, made the "loan" annotation h im s e lf . Further, in his letter to Moore dated November 11, 2005, Miller clearly states that it was Brunswick Homes' money that funded the 2002 loan and that Miller never agreed to h a v e Brunswick Homes loan Debtor money through any of Moore's companies. Miller then in s tru c ts Moore to transfer the loan to Brunswick Properties. The fact that Moore funneled 7

th e loan from Brunswick Homes through Associates without Miller's knowledge or consent d o e s not change the fact that the funding for the loan, used to pay Debtor's obligations, came f ro m Brunswick Homes. Further, the Court is unpersuaded by Appellant's arguments that B ru n s w ic k Homes' 2002 tax return does not evidence a loan from Debtor or that checks w ritte n by Brunswick Homes to Richmond Construction in 2002 do not represent draws on a line of credit loan. The Bankruptcy Court's finding that funding for the loan came from B ru n sw ick Homes is sufficiently supported by evidence. Moreover, the Court is unable to fin d that the Bankruptcy Court's assessment of Moore's credibility, on which Appellant's a rg u m e n t substantially rests, was clearly erroneous. Appellant further claims that even if Miller and Moore agreed to have Brunswick H o m e s loan the money to Debtor, that agreement does not bind Debtor. Appellant points to a lack of evidence, such as a written agreement, between Brunswick and Debtor.3 The B an k ru p tc y Court has noted inadequate documentation of loans by Moore to suit his own p u rp o s e s. Nevertheless, there is ample evidence, including Brunswick Homes' 2002 tax r e tu r n , that the loan occurred and that the money funding it came from Brunswick Homes. T h e re is also ample evidence that when Miller found out the loan was funneled through A s s o c ia te s, he sought to have the loan assigned to Brunswick Properties, and, in a December

Appellant also argues that a statement by Brunswick Homes that "Brunswick, by and through J.H. Moore and Associates, Inc., made a loan of $500,000...to the Debtor..." is a judicial admission that Associates, not Brunswick Homes, was the source of the loan. The Court finds that this argument is without merit. Brunswick Homes was simply acknowledging the fact that Moore funneled the loan through Associates. 8

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1 2 , 2003, letter to Wasser, Moore confirmed that said assignment occurred. Also, in a N o v e m b e r 21, 2006, letter, counsel for Moore stated that his client "does not possess the o rig in a l or copies of the Assignment of the Note from [Associates] to Richmond, d/b/a B ru n s w ic k , at this time....Mr. Moore assumes that the Assignment is in the possession of B r u n s w ic k ." Moore's counsel also stated, "...my client does not assert any ownership interest in this Note through himself individually or through James H. Moore & Associates, Inc." M o re o v e r, Wasser acknowledges in a January 25, 2006, letter to Miller that "...my audit c o n f irm s the amounts of money put into the Partnership [the Ranch]. I have no doubt that a ll this money came from you." 4 By all accounts, after Moore's unauthorized funneling of th e loan was uncovered, all parties agreed that Brunswick Homes was the source of the loan.5 N e v e rth e le s s , the Court feels that this issue needs some clarification from the B a n k ru p tc y Court. The crux of Appellant's argument is that there is no evidence Debtor a ss e n te d to a loan from Brunswick Homes; rather, all evidence shows that Debtor only a ss e n te d to a loan from Associates. The Bankruptcy Court noted that because Brunswick H o m e s fully performed its obligations under the loan by advancing the funds, a written

Appellant contends that the Bankruptcy Court erred in finding that Wasser admitted Brunswick Homes was owed money from the loans, because these statements were made in compromise negotiations. Along the same lines, Appellant contends that Wasser's audit was incomplete and altered documents. The Court finds that even without Wasser's statements, there is sufficient evidence to support the Bankruptcy Court's finding that the May 2002 loan originated from Brunswick Homes. The Court is unpersuaded by Appellant's argument that the determination of which entity funded the loan was not before the Bankruptcy Court. This determination was necessary in order to establish which entity held a claim to the money. 9
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c o n tra c t was not required under the statute of frauds. However, the Bankruptcy Court cites n o evidence that Debtor orally agreed to a loan from Brunswick Homes. Nor does the B a n k ru p tc y Court clarify whether, in the absence of such evidence, it determined that B ru n s w ic k Homes deserved some sort of equitable relief, since Brunswick Homes was the so u rce of the funds. Therefore, the Court VACATES and REMANDS Bankruptcy Court's O rd e r on this issue for further clarification. . V I. C O N C L U SIO N F o r the foregoing reasons, the Court AFFIRMS in part and VACATES and R E M A N D S in part the July 20, 2007, Order Granting in Part and Denying in Part Objections to the Claim of Brunswick Homes, LLC. for clarification consistent with this opinion. It is SO ORDERED.
SIGNED this 30th day of September, 2008.

____________________________________ MICHAEL H. SCHNEIDER UNITED STATES DISTRICT JUDGE

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