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Reed v. Big Water Resort, LLC

United States District Court, D. South Carolina, Charleston Division

May 20, 2016

WILLIAM REED, DONNA REED, BONNIE YOUMANS, JANE YATES, PHILLIP CAULDER, all individually and for the benefit and on behalf of all others similarly situated, Plaintiffs,
v.
BIG WATER RESORT, LLC; TLC HOLDINGS, LLC; RICHARD CLARK; JAMES THIGPEN; JIMMY “STEVE” LOVELL; and OCOEE, LLC, Defendants. BIG WATER RESORT, LLC; TLC HOLDINGS, LLC; RICHARD CLARK; JAMES THIGPEN; JIMMY “STEVE” LOVELL; OCOEE, LLC, Third-Party Plaintiffs,
v.
M.B. HUTSON, a/k/a M.B. HUDSON, Third-Party Defendant.

          ORDER

          DAVID C. NORTON UNITED STATES DISTRICT JUDGE

         This matter is before the court on the following three motions: (1) a motion for sanctions filed by third-party plaintiffs Big Water Resort LLC, Richard Clark, Jimmy Lovell, James Thigpen, Ocoee LLC, and TLC Holdings LLC (“third-party plaintiffs”) (ECF No. 179); (2) a motion for summary judgment filed by third-party plaintiffs (ECF No. 183); and (3) a motion for summary judgment filed by third-party defendant M.B. Hutson a/k/a M.B. Hudson (“Hutson”) (ECF No. 228). Pursuant to the provisions of Title 28 U.S.C. § 636(b)(1) and Local Rule 73.02(B)(2)(e), the court referred all pretrial matters in this case, involving a pro se litigant, to United States Magistrate Judge Mary Gordon Baker. The magistrate judge conducted a hearing on the aforementioned motions on March 16, 2016 and submitted a report and recommendation (“R&R”) to this court recommending that the court deny third-party plaintiffs’ motion for sanctions, grant third-party plaintiffs’ motion for summary judgment, and deny Hutson’s motion for summary judgment. For the reasons set forth below, the court adopts the R&R, denies third-party plaintiffs’ motion for sanctions, grants third-party plaintiffs’ motion for summary judgment, and denies Hutson’s motion for summary judgment.

         I. BACKGROUND

         The plaintiffs are members of a putative class of over 1, 000 individuals who purchased memberships in defendant Big Water Resort, LLC. Am. Compl. ¶¶ 40, 41. The Big Water Resort, LLC membership agreements (“membership agreements”) grant plaintiffs “a right to use all . . . campground facilities and services” at Big Water Resort (“BWR”), a recreational campground and an accommodation located in Clarendon County, South Carolina and owned by TLC Holdings LLC. Id. ¶¶ 14, 79. Third-party plaintiffs Big Water Resort, LLC, TLC Holdings, LLC, Richard Clark (“Clark”), James Thigpen (“Thigpen”), and Jimmy “Steve” Lovell (“Lovell”) allegedly had an interest in BWR in various capacities, fully set forth in the court’s order on plaintiffs’ motion to certify class. Id. ¶¶ 17, 19; see also ECF No. 193. Big Water Resort, LLC sold memberships from BWR’s opening in 2003 until the it was transferred to third-party defendant Hutson in December 2010 through a lease-purchase agreement. Am. Compl. ¶¶ 70-72; Hutson Answer and Countercl. ¶ 5.

         Plaintiffs make various allegations regarding this transfer. They allege that: (1) Big Water Resort, LLC was insolvent at the time of the transfer; (2) Hutson did not have the financial ability to continue its operations; and (3) there was no long term contract between defendant TLC Holdings, LLC-the owner of the property on which BWR is located-and Big Water Resort, LLC to ensure that members would have continued access to BWR. Am. Compl. ¶¶ 36, 38, 82. Following this transaction, the BWR became a public facility and Big Water Resort, LLC ceased operations. Id. ¶¶ 28, 82.

         Plaintiffs, taking issue with this conversion, filed suit in this court on April 22, 2014. The disputes between plaintiffs and third-party defendants have been settled. The court entered an order granting preliminary approval of the class settlement. ECF No. 248. The final fairness hearing, during which the court considered whether to finally approve the class action settlement, was held on May 16, 2016. The issues now before the court involve ancillary disputes between third-party plaintiffs and Hutson.

         In December 2011, TLC Holdings, LLC instituted an action against Hutson in the Court of Common Pleas for Clarendon County for “breach of the lease-purchase agreement, seeking damages and ejectment.” Third-Party Pls.’ Mot. Ex. 4. Hutson filed a third-party complaint against Clark, Lovell, and Thigpen. Id. at Ex. 5. The parties entered into a settlement agreement resolving the dispute on March 30, 2012. In this action, third-party plaintiffs allege that:

In March 2012, the parties to the lease-purchase agreement entered into a Settlement Agreement. The terms of the Settlement Agreement imposed many duties on [Hutson], including the duty to make certain improvements to the campground property and the duty to make certain payments to [TLC Holdings, LLC]. The Settlement Agreement was approved by consent order in April 2012.

         Third-Party Defs.’ Answer ¶ 138; see also Ex. 6. Judge James approved the Settlement Agreement and incorporated it into a Consent Order in April 2012. Third-Party Pls.’ Mot. Ex. 7. Hutson defaulted on the March 2012 Settlement Agreement, and despite third-party plaintiffs notifying him of such default on numerous occasions, he did not cure the default. Third-Party Defs.’ Answer ¶¶ 139-40; see also Ex. 9. Third-party plaintiffs filed an affidavit of default in December 2013, and Hutson filed a “motion to set aside the affidavit of default and a motion for a temporary restraining order” in response. Id. ¶ 141; see also Third-Party Pls.’ Mot. Exs. 11-13. On March 23, 2013, Judge James declined to set aside the affidavit of default or issue a preliminary injunction and ruled that the March 2012 Settlement Agreement and April 2012 Consent Order should be enforced. Id. ¶ 144; see also Ex. 8. Judge James deemed the lease-purchase agreement terminated and ordered Hutson to vacate the property pursuant to the terms of the settlement agreement. Id. In April 2014, Hutson vacated the property, at which time Clark, Lovell, and Thigpen resumed operation of BWR. Id. ¶ 145.

         After plaintiffs filed suit in this court, third-party plaintiffs filed a third-party complaint against Hutson alleging that Hutson failed to operate BWR in a manner beneficial to the members. Defs.’ Answer, ECF No. 72, ¶ 133. Third-party plaintiffs allege that in December 2010, they sold their membership interests in Big Water Resort, LLC to Hutson pursuant to a lease-purchase agreement, making Hutson the sole member of the LLC. Id. ¶ 134. According to third-party plaintiffs’ complaint, the sale price was $500, 000.00, $499, 990.00 of which was payable under a promissory note executed by Hutson in favor of Clark, Lovell, and Thigpen. Id.; see also Defs.’ Mot. Summ. J., Ex. 2. They further allege that they “entered into a lease-purchase agreement with . . . Hutson, ” under which third-party plaintiffs agreed to sell certain property to Hutson, including the land on which BWR was located. Id. ¶ 135; see also Ex. 3. Third-party plaintiffs contend that Hutson defaulted on both the promissory note and the lease-purchase agreement. Id. ¶ 136. Third-party plaintiffs bring a cause of action for equitable indemnity, alleging that Hutson’s actions during his control of the BWR exposed them to potential liability. Id. ¶¶ 146-50. Third-party plaintiffs further allege that they “have incurred, and may continue to incur, expenses necessary to protect their interest in defending the claims brought by the members of the [BWR] campground.” Id. ¶¶ 147, 150. According to the allegations in the complaint, “an obligation in equity exists on . . . Hutson to indemnify [third-party plaintiffs].” Id. ¶ 148.

         Hutson answered the third-party complaint and filed counterclaims against third-party plaintiffs. ECF No. 75. In his pleadings, Hutson explains how BWR came to be open to the public. He alleges that in early 2011, he contacted Clark “asking permission to convert the beautiful recreational building, known as the Clubhouse, into a public restaurant.” Hutson Answer ¶ 8. As a result of this conversion, members “would no longer have open, free access to that former recreational building as presented in their membership agreement. The restaurant was to be open to the public and all incoming business was required to pay for their meals.” Id.

         Hutson alleges that after learning about the property from a real estate agent, he met with Clark and Lovell, who told Hutson that if he purchased three tracts of land, he “would also be required to purchase the rights to approximately 700 existing club memberships.” Id. ¶¶ 51-54. Hutson alleges that when he asked Clark and Lovell how much the campground lost and profited, “[t]heir response was that it was not making a profit yet but had much potential.” Id. ¶ 55. Hutson further alleges that prior to purchasing the rights to club memberships and the option to purchase the real property, he told third-party plaintiffs that he intended to develop the property for sale to the public. Id. ¶ 56. Hutson alleges that third-party plaintiffs understood his desire to develop the property and never indicated that he would be prohibited from doing so by the terms of the membership agreements or otherwise. Id. Hutson alleges that after he moved onto the property, he discovered that there was only approximately $5, 000.00 in the club’s existing checking account. Id. ¶ 57. According to Hutson, he soon realized that there was not enough income to properly operate and maintain the campground. Id. Hutson alleges that he had no choice but to let go approximately 90% of the employees, cut back on the telephone lines, change insurance companies, and use part-time employees. Id. ¶ 58. Clark suggested that Hutson raise the membership fees drastically, which would encourage members to drop their memberships and allow Hutson to seek business from the general public. Id. ¶¶ 60-65. Thereafter, Hutson raised member fees, and members began to drop their memberships and threatened to file a class-action lawsuit. Id. ¶ 66.

         Hutson alleges that prior to his involvement with BWR, third-party plaintiffs allowed the public to access the campground. Id. ¶ 70. Hutson alleges that he eventually realized that third-party plaintiffs intended to use him as a scapegoat after collecting millions of dollars from lifetime club members. Id. ¶ 71. Hutson claims that third-party plaintiffs intentionally misled him and failed to disclose pertinent information, putting him in an impossible situation that prevented him from developing the property. Id. ¶ 72. Hutson alleges that third-party plaintiffs failed to disclose the exclusive nature of the memberships, BWR’s yearly losses of $250, 000.00, the lack of sufficient reserves or income for proper maintenance of the resort club, the fact that local authorities imposed a sewer moratorium on the property, and the fact that BWR was subject to large charges by the utility company. Id. ¶ 73. Hutson claims that third-party plaintiffs’ actions caused him to become financially destitute and forced him to file for bankruptcy. Id. ¶ 76. Hutson also alleges that third-party plaintiffs defamed him and caused him duress and mental anguish. Id. ¶ 76-77. Hutson brings the following counterclaims: (1) breach of contract; (2) breach of contract accompanied by fraud; (3) fraud and fraud in the inducement; (4) negligent misrepresentation; (5) constructive fraud; (6) breach of the covenant of good faith and fair dealing; (7) negligence, recklessness, willfulness, and wantonness; and (8) defamation.

         On September 3, 2015, third-party plaintiffs filed a motion for sanctions against Hutson. On September 9, 2015, third-party plaintiffs filed a motion for summary judgment. Hutson filed a response in opposition to the motion for sanctions on September 11, 2015, and an amended response that same day. On September 14, 2015, Hutson filed another response in opposition to the motion for sanctions and a response in opposition to the motion for summary judgment. Hutson filed an additional response to both motions on September 29, 2015. Third-party plaintiffs replied on October 8, 2015, and Hutson filed a sur-reply on October 13, 2015. Hutson filed a motion for summary judgment on third-party plaintiffs’ equitable indemnity claim on January 6, 2016. Third-party plaintiffs filed a response in opposition on January 25, 2016, and Hutson replied on February 5, 2016. Hutson filed a second reply on February 10, 2016. The magistrate judge held a hearing on all pending motions on March 16, 2015. On April 5, 2016, the magistrate judge issued an R&R, recommending that the court deny third-party plaintiffs’ motion for sanctions, grant third-party plaintiffs’ motion for summary judgment, and deny Hutson’s motion for summary judgment. Hutson and his counsel-representing him on the equitable indemnity claim only-filed objections to the R&R. Third-party plaintiffs did not file objections to the R&R, but they filed a reply to Hutson’s objections on May 9, 2016. The motions have been fully briefed and are ripe for the court’s review.[1]

         II. STANDARD

         This court is charged with conducting a de novo review of any portion of the magistrate judge’s report to which specific, written objections are made, and may accept, reject, or modify, in whole or in part, the recommendations contained in that report. 28 U.S.C. § 636(b)(1). The magistrate judge’s recommendation does not carry presumptive weight, and it is the responsibility of this court to make a final determination. Mathews v. Weber, 423 U.S. 261, 270-71 (1976). A party‚Äôs ...


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