Justia Alabama Supreme Court Opinion SummariesArticles Posted in Bankruptcy
Equity Trust Co. v. Breland
Charles Breland was a developer of real property, with properties in Alabama and Florida. In 2002, Breland hired David Hudgens to provide legal services for him and his companies. According to Hudgens, Breland informed him early during their professional relationship that he "was suffering significant cash flow problems." As a result, Hudgens says, the various law firms with which Hudgens worked while providing Breland and his companies with legal services delayed billing "a significant portion of the attorneys' fees and costs" for those services. Breland disputed that, claiming that he and/or his companies paid Hudgens more than $2.7 million for Hudgens's legal services between 2004 and 2010. In 2009, Breland filed a Chapter 11 bankruptcy petition. Breland filed the required schedules, required disclosure statement, and a proposed plan of reorganization that identified Hudgens & Associates, LLC ("H&A") as an unsecured creditor holding a $1 million claim and identified ETC as an unsecured creditor holding a $390,000 claim. Hudgens filed a proof of claim in the Breland bankruptcy on behalf of H&A for "legal fees" in the amount of $2,334,987.08 and filed proofs of claim on behalf of ETC for "guaranty of note" in the amounts of $879,929.55. Breland did not make payments according to the bankruptcy reorganization plan. Breland conveyed property to Gulf Beach Investment Company of Perdido, LLC which Hudgens alleged was in violation of the reorganization plan. Hudgens filed suit against Breland and Gulf Beach seeking enforcement of the plan, monies owed under the plan, and to void transfer of the property to Gulf Beach. The trial court entered a judgment on the parties' motions for a partial summary judgment, noting that it was not addressing the plaintiffs' "mortgage claim" because it had denied that claim in a September 2015 order. After setting forth extensive findings of fact and conclusions of law, the trial court awarded the plaintiffs $2,189,342.96 (consisting of $1.5 million in principal, plus interest); "denied and dismissed" the defendants' fraud, breach-of-contract, and slander-of-title claims; and certified the judgment as final pursuant to Rule 54(b). The trial court denied the defendants' postjudgment motion, and the defendants appealed. That case was assigned case no. 1150876, and the Alabama Supreme Court consolidated case nos. 1150302 and 1150876 for the purpose of writing one opinion. After review, the Court dismissed both appeals, finding the trial court exceeded its discretion in certifying as final the underlying appeals. View "Equity Trust Co. v. Breland" on Justia Law
Gaddy v. SE Property Holdings, LLC
In 2005, Water's Edge, LLC purchased lots 62-69 of "Re-Subdivision A" in Baldwin County, commonly referred to as Gulf Shores Yacht Club and Marina ("the property"). Fairfield Financial Services, Inc. loaned Water's Edge $12.8 million of the $13 million needed to purchase the property. In 2006, Fairfield notified Water's Edge that it would not renew Water's Edge's loan. The members of Water's Edge authorized the managers to seek new financing. In December 2006, Vision Bank agreed to loan Water's Edge $14.5 million. Vision Bank later merged with SE Property Holdings, LLC ("SEPH"). Certain members of Water's Edge signed agreements guaranteeing all of Water's Edge's debt to SEPH. In October 2008, SEPH notified Water's Edge that the loans were in default. In October 2010, SEPH sued Water's Edge and 28 individuals, including the guarantors, based on the promissory notes and guaranty agreements pertaining to the various loans issued over the years. The trial took place in late 2014. The trial court did not submit the case to the jury, but instead discharged the jury and entered an order granting SEPH's motion for a JML. The trial court found the guarantors and the other defendants jointly and severally liable on continuing unlimited guaranty agreements. The trial court found each of them individually liable for differing amounts based on continuing limited guaranty agreements they had signed. A month later, the trial court revised its earlier order, taking into account settlements and declarations of bankruptcy that certain guarantors had declared. The guarantors timely filed a motion to alter, amend, or vacate the judgment, which the trial court denied. The guarantors then appealed. The Alabama Supreme Court dismissed the appeals, finding that the trial court's judgment was not final because the trial court did not have jurisdiction to dismiss SEPH's claims against one of the guarantors, and the trial court did not certify its order as final pursuant to Rule 54(b). "An order entered in violation of the automatic bankruptcy stay is void as to the debtor, thus leaving the claims against [one of the guarantors] pending and rendering the judgment nonfinal. A nonfinal judgment will not support an appeal." View "Gaddy v. SE Property Holdings, LLC" on Justia Law
Paint Rock Turf, LLC v. First Jackson Bank et al.
In 2004, Paint Rock Turn, LLC purchased a sod farm and related farm equipment. To partially finance the purchase, Paint Rock borrowed $1,706,250 from First Jackson Bank. The loan was secured by a mortgage on the sod farm and a security interest in the equipment used on the farm. By February 2009, reflecting in part a drop in demand for sod caused by the collapsing market for new homes, Paint Rock had defaulted on the loan. In early 2009, Paint Rock filed a Chapter 11 bankruptcy petition. The filing of the petition operated as an automatic stay and precluded First Jackson from foreclosing on the sod farm or retaking the equipment. The bankruptcy petition was dismissed later that year, and a few months later, First Jackson moved forward with its intent to foreclose by publishing the first of three notices of a foreclosure sale on the Paint Rock property. On the morning of the scheduled sale, Paint Rock filed a second bankruptcy petition, which stayed the sale. This second petition was dismissed a month later for failure to file the proper schedules and statements. First Jackson published another notice that the foreclosure sale was rescheduled for December 30, 2009. December 26, Paint Rock filed a third bankruptcy petition. Four days later, the bankruptcy court lifted the automatic stay, expressly finding that Paint Rock misused the bankruptcy process to "hinder and delay First Jackson's efforts to foreclose its mortgage and security agreement." First Jackson was the high bidder at the sale, purchased the property, and sent Paint Rock a letter demanding possession of the sod farm. In early 2010, First Jackson filed an ejectment action. The same day, Paint Rock demanded access to the farm to recover "emblements in the form of sod which is being grown on the real property recently foreclosed upon ...." Paint Rock also requested the return of its equipment. First Jackson denied Paint Rock's request. Paint Rock, relying on a section of the Alabama Code that permits a tenant at will to harvest its crop, counterclaimed for damages for harm suffered as the result of being unable to harvest the sod. Paint Rock also sought damages for conversion of "plats of sod" contained on the sod farm. First Jackson sold the sod farm to Mrs. Goodson, subject to any claim Paint Rock may have to the emblements growing on the property. Paint Rock filed a joint third-party complaint against First Jackson and Mr. and Mrs. Goodson, alleging conversion and detinue, as well as the emblements claim. After the trial court denied motions for a summary judgment filed by First Jackson and the Goodsons, the case proceeded to trial. At the close of Paint Rock and Jones's case, the trial court granted a motion for a JML filed by First Jackson and the Goodsons on Paint Rock's counterclaim for emblements on the ground that Paint Rock was not an at-will tenant. After Paint Rock withdrew its detinue claims and the trial court granted a JML on the wantonness claims, leaving only the conversion and negligence claims. The jury awarded Paint Rock damages against First Jackson for conversion of a sod cutter and cut sod that had been loaded on a tractor-trailer when First Jackson took possession of the property. The jury also awarded Paint Rock damages against the Goodsons for conversion of business property and equipment. Paint Rock appealed the JML in favor of the defendants on the emblements claim; First Jackson cross-appealed the judgment awarding Paint Rock damages for conversion of the cut sod. The Supreme Court affirmed with regard to Paint Rock's emblements claim, but reversed on the conversion of the cut sod claim. View "Paint Rock Turf, LLC v. First Jackson Bank et al. " on Justia Law
Anderson v. Jackson Hospital & Clinic
Joanne Anderson sued Jackson Hospital and Clinic, Inc., Dr. Stephen K. Kwan, and Dr. Kwan's practice group, Capital Cardio-Thoracic, P.C. asserting medical-malpractice claims against them. The trial court granted a motion to substitute bankruptcy trustee Daniel Hamm for Anderson as the real party in interest because Anderson had filed a petition for Chapter 7 bankruptcy after her medical malpractice claim had accrued. The Jackson Hospital defendants subsequently petitioned the Alabama Supreme Court for permission to file an interlocutory appeal, arguing that Hamm's attempt to be substituted as the real party in interest was untimely. Anderson filed a separate Rule 5 petition for permission to appeal challenging the trial court's decision to remove her as the plaintiff in this case. The Supreme Court granted both petitions; however, treated the parties' petitions for permissive appeals as petitions for writs of mandamus, found that neither were entitle to mandamus relief, and denied the petitions. View "Anderson v. Jackson Hospital & Clinic" on Justia Law
In re: API Holdings, LLC v. Frost Cummings Tidwell Group, LLC
Tommy Sundy petitioned for a writ of mandamus to direct the circuit court to dismiss third-party claims asserted against him by accounting firm Frost Cummings Tidwell Group, LLC ("FCT"). Adams Produce Company, Inc. ("APCI"), purchased Crestview Produce of Destin, Inc., from Sundy. As part of the transaction, APCI and Sundy executed a promissory note in the amount of $850,000, and Sundy became an employee of APCI. FCT alleges that, based on representations from APCI and Sundy, certain budget and bonus projections were set for APCI, but those goals were not met. Because of that failure, Sundy was not entitled to bonuses that had been paid to him throughout 2009. With the alleged help and direction of FCT, APCI recharacterized the bonuses as repayments of principal on the promissory note. The nonpayment of certain amounts to Sundy in the context of this action effectively increased APCI's income and decreased its indebtedness. APCI also allegedly entered into an oral, undocumented agreement with Sundy stipulating that it would make him whole in future years for the forfeited bonus payments. In 2009, APCI's shareholders decided to sell the company to API Holdings, LLC. API Holdings alleges that it discovered that, contrary to representations made by FCT in an audit report, APCI's financial statements were fraudulent, causing API Holdings to believe that APC was worth more than it actually was. API Holdings sued FCT asserting claims of negligent misrepresentation, auditing malpractice, fraud, and other claims of professional malfeasance. Among several other claims, API Holdings alleged that FCT had failed to uncover misrepresentations by Sundy and APCI and that FCT had acted fraudulently in confirming the recharacterization of Sundy's bonuses as payments on principal of the promissory note. A few months later, APC filed for Chapter 11 bankruptcy protection. APC filed an adversarial complaint in FCT's bankruptcy case, alleging that FCT's audit work had painted a false financial picture of APC upon which APC had relied in continuing to operate its business even after reaching the point of insolvency. FCT filed a third-party complaint with the bankruptcy court against Sundy and others. FCT's complaint alleged various theories under Alabama law as bases for FCT to "recover over" against Sundy. Sundy subsequently moved to dismiss FCT's third-party complaint on the basis of 6-5-440, Ala. Code 1975, Alabama's abatement statute. The circuit court denied the motion, and Sundy then filed his petition for a writ of mandamus seeking to have the Supreme Court direct the circuit court to vacate its judgment denying his motion to dismiss and to order the circuit court to dismiss FCT's claims against Sundy asserted in its third-party complaint at circuit court. The Supreme Court concluded that FCT's third-party claims against Sundy were not barred by the abatement statute. The circuit court properly declined to dismiss those claims. Therefore, the Court denied the petition for a writ of mandamus. View "In re: API Holdings, LLC v. Frost Cummings Tidwell Group, LLC" on Justia Law
Gentry III v. Lindsey, Sr., et al.
Andrew J. Gentry III ("Drew Gentry") appealed a circuit court judgment dismissing his claims against Daniel Lindsey, Sr., Jackson Thornton & Co., P.C. ("Jackson Thornton"), Daniel Lindsey, Jr., Justin M. Parnell ("Matt Parnell"), Parnell & Crum, and Wilbur Investments, LLC ("Wilbur Investments"). In 1992, Andrew J. Gentry, Jr. ("Andy Gentry") petitioned for Chapter 11 bankruptcy protection. Andy Gentry hired Charles N. Parnell III ("Nick Parnell"), an attorney at Parnell & Crum, to represent him in the bankruptcy proceedings. Nick Parnell hired Daniel Lindsey, Sr., a certified public accountant with Jackson Thornton, to assist him. According to Drew Gentry, who (Andy Gentry's son), Andy Gentry suffered from a mental illness throughout his life, which, Drew Gentry argued, was not controllable by medication at the time of the bankruptcy proceedings. Drew Gentry argues that, at the time of the bankruptcy proceedings, Nick Parnell and Daniel Lindsey, Sr., knew of Andy Gentry's reduced mental capacity and also knew that Andy Gentry was terminally ill with AIDS. Andy Gentry died in 1995, while the bankruptcy proceedings were pending. During the bankruptcy proceedings and prior to Andy Gentry's death, Nick Parnell and Daniel Lindsey, Sr., incorporated LeeCo Properties, Inc. ("LeeCo"), in the names of their minor sons, Matt Parnell and Daniel Lindsey, Jr. Nick Parnell and Daniel Lindsey, Sr., persuaded Andy Gentry and the bankruptcy court to allow the transfer of certain real estate owned by Andy Gentry to LeeCo in return for either payment of the debts owed on those properties or the assumption of those debts. The bankruptcy proceedings concluded in 1997. In 2010, Nick Parnell and Matt Parnell acquired the interests of Daniel Lindsey, Sr., and Daniel Lindsey, Jr., in LeeCo. LeeCo's assets were later transferred to Wilbur Investments, and LeeCo was dissolved in December 2010. Drew Gentry sued over the transfer of his father's assets to LeeCo. In March 2013, the circuit court entered a certification, pursuant to Rule 54(b), making final the dismissal of the claims against Daniel Lindsey, Jr., the Jackson Thornton defendants, Matt Parnell, Parnell & Crum, and Wilbur Investments. The circuit court did not make final the dismissal of the claims in an amended complaint against Nick Parnell, presumably because claims remained pending against him in the original complaint. Drew Gentry appealed the circuit court's judgment to the Court of Civil Appeals. In August 2013, the Court of Civil Appeals transferred the appeal to the Supreme Court, citing a lack of subject-matter jurisdiction. Daniel Lindsey, Jr., and Nick Parnell separately moved this Court to dismiss them from the appeal. Daniel Lindsey, Jr., argued that Drew Gentry had not listed him on the notice of appeal and that the notice of appeal did not "give any indication of an intent to appeal the judgment in favor of [Daniel] Lindsey, Jr." Nick Parnell argued that claims remained pending against him in the circuit court, that "there ha[d] been no final judgment against him," and that "the [circuit] court's [March 20 judgment] did not include him." The Supreme Court denied the motion filed by Daniel Lindsey, Jr., but granted Nick Parnell's motion and dismissed him from the appeal. Because the Rule 54(b) certification was improper, Drew Gentry's appeal was dismissed. View "Gentry III v. Lindsey, Sr., et al. " on Justia Law
SE Property Holdings, LLC v. Eagerton
Fred and Nancy Eagerton petitioned the Supreme Court for a writ of mandamus to direct the Circuit Court to enter a judgment as a matter of law in their favor and against SE Property Holdings, LLC, consistent with the Court's mandate in "Eagerton v. Vision Bank," (99 So. 3d 299 (Ala. 2012)). SE Property Holdings, LLC, is the successor by merger to Vision Bank. The underlying suit arose from a loan that the Eagertons personally guaranteed, secured by a mortgage on property within the Rock Creek Tennis Club in Fairhope. The bank declared the original and second loans in default and accelerated balances due under both. The bank sued the primary obligor, and the Eagertons as person guarantors on one of the original loans. The primary obligor declared Chapter 11 bankruptcy. The reorganization plan consolidated the two loans. The obligor eventually defaulted on the terms of the reorganization plan. The bankruptcy was dismissed, the property foreclosed, and the money obtained in the foreclosure sale was applied to the consolidated loan. The Eagertons argued that the Chapter 11 reorganization of the debts of primary obligor (the consolidation of the original loan with the second loan), created a new indebtedness not encompassed by their guaranty contracts. The Eagertons therefore argued that the creation of this new indebtedness, without their knowledge or consent, operated to discharge them from any further obligations under their guaranty contracts. The bank, on the other hand, argued, among other things, that the consolidated loan was a replacement note contemplated by the guaranty contracts and that the Eagertons had waived the material-modification defense. The Supreme Court in "Eagerton v. Vision Bank" concluded that the Eagertons' guaranty contracts were unambiguous; that based on the language in the guaranty contracts the Eagertons did not intend to guarantee any indebtedness other than that indebtedness arising out of the original loan and any extensions, renewals, or replacements thereof; and that, once the Eagertons' original loan was modified pursuant to the Chapter 11 reorganization of Dotson 10s, the Eagertons were at that point discharged from any further obligations under their guaranty contracts. Because the circuit court did not follow the mandate in the Court's prior decision in "Vision Bank," the Supreme Court granted the Eagertons' petition and issued the writ. View "SE Property Holdings, LLC v. Eagerton" on Justia Law
Malfatti v. Bank of America, N.A.
The United States Bankruptcy Appellate Panel of the Court of Appeals for the Ninth Circuit ("the BAP") certified a question to the Alabama Supreme Court: "In Alabama, is a 'default' judgment premised upon discovery sanctions or other post-answer conduct of the defendant sufficient to support the application of issue preclusion in a later proceeding?" Debtor-Defendant Anthony Malfatti was one of three principals of TA Financial Group ('TAF') purportedly designed to assist credit card holders in arbitration of disputes with the card issuers. The arbitration providers were selected by the card holders from a list provided by TAF. Among the arbitration providers was Arbitration Forum of America, Inc. ('AFOA'). AFOA was not conducting legitimate arbitrations; every arbitration resulted in an award in favor of the card holder, which was then reduced to judgment. Malfatti claims he was unaware that AFOA's practices and the judgments stemming therefrom were illegitimate. At some time after the banks involved learned of the judgments, they filed cross-complaints against the card holders to set aside the judgments as fraudulently obtained. In September 2005, the banks, including Bank of America, N.A. (USA) filed Amended Third Party Complaints against, among others, Malfatti and TAF, alleging tortious interference with contract, abuse of process, wantonness, and civil conspiracy, and sought an injunction against further arbitrations. The Banks moved for default judgments against Malfatti and TAF for failing to comply with discovery orders, repeated failures to appear for depositions, and failure to respond to written discovery. Malfatti and TAF filed a motion to set aside the defaults. The court found Malfatti and TAF to be jointly and severally liable for compensatory damages, awarded punitive damages against Malfatti, and found Malfatti to be liable for punitive damages awarded against TAF under the alter ego doctrine. Malfatti filed for Chapter 7 bankruptcy the Banks filed an adversary proceeding alleging the debt owed to them by Malfatti was nondischargeable. Upon review, the Alabama Supreme Court answered the certified question in the negative: "[f]or purposes of determining whether an issue is precluded by the doctrine of collateral estoppel, Alabama law makes no distinction between a simple default and a penalty default." View "Malfatti v. Bank of America, N.A." on Justia Law
City of Prichard v. Balzer
The U.S. District Court for the Southern District of Alabama, Southern Division certified a question to the Supreme Court: whether Ala. Code 11-81-3 (1975) required that an Alabama municipality refund or fund bond indebtedness as a condition of eligibility to proceed under Chapter 9 of Title 11 of the U.S. Code. Upon review, the Alabama Supreme Court concluded that the legislature intended to authorize every county, city, town and municipal authority to file for Chapter 9, and therefore, they are not required to have indebtedness prior to filing for Chapter 9 protection. View "City of Prichard v. Balzer" on Justia Law
Eagerton v. Vision Bank
Fred and Nancy Eagerton appealed a summary judgment granted in favor of Vision Bank in the bank's action seeking to enforce the Eagertons' obligations under certain guaranty contracts. "Dotson 10s, LLC" was organized to operate a tennis club in Fairhope. Dotson 10s executed a note and security agreement with Vision Bank, and the bank obtained in exchange, unlimited personal guarantees from John and Elizabeth Dotson, and limited guarantees from the Eagertons. The Dotsons executed a second loan to which the Eagertons were not a party. The Dotsons defaulted on both loans, and the bank sued the Dotsons as the primary obligors, and the Eagertons as personal guarantors. Dotson 10s then filed for bankruptcy protection. Part of the reorganization plan provided in part that the two loans would be combined and paid in full. Dotson 10s subsequently defaulted on the bankruptcy plan. The properties were foreclosed and sold, with the proceeds applied to the consolidated loan. The circuit court then entered a partial summary judgment in favor of the bank against Dotson 10s, but denied the motion as to the Eagertons. The bank argued that the Eagertons were still responsible under their guaranty contracts for the deficiency remaining on the consolidated loan. The Eagertons argued that the creation of the consolidated loan without their knowledge or consent, operated to discharge them from any further obligations under their guaranty contracts. Upon review, the Supreme Court agreed, and reversed the circuit court's judgment in favor of the bank, and remanded the case for further proceedings. View "Eagerton v. Vision Bank " on Justia Law