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Vieira v. Simpson

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

September 21, 2016

MICHELLE L. VIEIRA, as Ch. 7 bankruptcy trustee for debtors Ken C. Goss and Gretchen G. Goss, Plaintiff,
v.
MARK SIMPSON, CHRISTY A. SIMPSON, SIMPSON FAMILY HOLDINGS INC., AARON L. SILVERMAN, and JONES SIMPSON & NEWTON PA, Defendants.

          ORDER

          DAVID C. NORTON, UNITED STATES DISTRICT JUDGE

         This matter is before the court on a motion to alter or amend judgment filed by plaintiff Michelle L. Vieira, as bankruptcy trustee for debtors Ken and Gretchen Goss (“Vieira”). Vieira seeks reconsideration of the court's March 28, 2016 order (“March 2016 Order”) in which the court reconsidered its July 23, 2015 order (“July 2015 Order”)[1] and granted defendants Mark Simpson (“Mark”) and Jones, Simpson & Newton, P.A.'s (“JS&N, ” together with Mark, the “JS&N defendants”) motion for summary judgment as to Vieira's claims for legal malpractice and equitable subordination. For the following reasons, the court refers the instant motion and the remainder of this action to the United States Bankruptcy Court for the District of South Carolina (the “Bankruptcy Court”).

         I. BACKGROUND[2]

         This case arises out of a loan transaction between Ken and Gretchen Goss (“Ken” and “Gretchen, ” together “the Gosses”) and Simpson Family Holdings, Inc. (“SFH”). In June 2007, Ken, a residential home builder, contacted Mark, an attorney who had performed a number of real estate closings for Ken in the past, to ask whether Mark knew of any investors willing to make a loan that would allow the Gosses to finish a remodeling project on Hilton Head Island, South Carolina. Sometime later, Mark informed Ken that he had found an investor willing to make such a loan. Mark instructed the Gosses to meet with him and the lender at the law offices of JS&N, where Mark is a partner. Once they arrived at JS&N's offices, the Gosses learned that the prospective lender was SFH, a corporation owned by Mark's wife, defendant Christy Simpson (“Christy”).[3] Mark was SFH's vice president, though he did not disclose this fact at the time and did not advise the Gosses to seek independent legal counsel.

         The terms of the loan were set out in a note which the Gosses Dated: June 29, 2007 (the “Note”). ECF No. 62-2.[4] The Gosses consented to JS&N representing both parties to the transaction. ECF No. 62-10. The Note was modified either four or five times between June 29, 2007 and August 25, 2009.[5] ECF Nos. 62-13-62-15; ECF No. 72-9 at 5. Each modification extended the maturity date of the loan and adjusted the premium due at maturity. ECF Nos. 62-13-62-15; ECF No. 72-9 at 5. Mark signed the modifications as vice president of SFH. ECF Nos. 62-13-62-15; ECF No. 72-9 at 5.

         On August 3, 2009, SFH sued the Gosses in the South Carolina Court of Common Pleas for nonpayment of the Note. ECF No. 62-16. The case settled, resulting in the final modification of the Note, which extended the maturity date to August 30, 2010. ECF No. 62-1 at 4; see also ECF No. 62-17, Final Modification. In connection with this final modification, the Gosses signed a document titled “Collateral Assignment of Limited Partnership Interest” (the “GFLP Assignment”), which assigned the Gosses' right to receive payments from their interest in the Goss Family Limited Partnership (“GFLP”) to SFH in the event the Gosses defaulted on the loan. ECF No. 62-18. After a series of subsequent assignments, the parties eventually held the following relative interests in the note, mortgage, and the GFLP Assignment: defendant Aaron L. Silverman (“Silverman”) held 36.01%, SFH held 30.86%, Mark and Christy held 18.52%, PENSCO A held 7.41%, and PENSCO B[6] held 7.20%.[7] ECF No. 72 at 3.

         On January 25, 2012, the Gosses filed for Chapter 7 bankruptcy. On April 22, 2013, Vieira filed this action in the bankruptcy court alleging the following causes of action: fraud, negligence, and breach of fiduciary duty against Mark; malpractice against Mark and JS&N; breach of fiduciary duty against JS&N; violation of the Fair Debt Collection Practices Act (“FDCPA”) against SFH, Mark, and Christy; and civil conspiracy/joint enterprise, disgorgement of ill-gotten gain, and equitable subordination against all defendants. ECF No. 1-1, Compl. ¶¶ 64-119. On September 6, 2013, Mark and JS&N moved for an order withdrawing reference of this proceeding from the Bankruptcy Court. ECF No. 1. The matter was transferred to this court on September 25, 2013. On July 24, 2014, the JS&N defendants moved for summary judgment. ECF No. 62. The court granted the JS&N defendants' motion for summary judgment on March 23, 2015, [8] ECF No. 102, but on July 23, 2015, the court reconsidered its decision and denied summary judgment to the extent Vieira alleged that the JS&N defendants committed legal malpractice with respect to the GFLP Assignment. ECF No. 116. The July 2015 Order also held Viera's equitable subordination claim against the JS&N Defendants in abeyance. Id. at 4. On March 28, 2016, the court reconsidered its July 2015 Order and once again granted the JS&N defendants' motion for summary judgment on all claims. ECF No. 123. The court reasoned that, even if the JS&N defendants breached a duty owed to the Gosses, there was no evidence that this breach caused the Gosses any damages. Id. at 4-7.

         Vieira filed the instant motion on April 25, 2016, arguing that the court's most recent order-the March 2016 Order-incorrectly granted the JS&N defendants summary judgment on Vieira's equitable subordination claim. The JS&N defendants filed a response on May 12, 2016. The court held a hearing on July 15, 2016. The matter is now ripe for the court's review.

         II. DISCUSSION

         Though the court could address the merits of the underlying motion for summary judgment for a fourth time-or emphasize the impropriety of raising new arguments on a Rule 59(e) motion-it strikes the court that the only remaining issues in this action pertain to a claim that arises under 11 U.S.C. § 510(c) of the Bankruptcy Code. The original reasons for withdrawing this action's reference to the Bankruptcy Court no longer apply. In these circumstances, the court finds it appropriate to exercise its discretion to refer this matter back to the Bankruptcy Court.

         Pursuant to 28 U.S.C. § 157(a), district courts are authorized “to refer bankruptcy matters at their discretion to bankruptcy courts.” In re Grewe, 4 F.3d 299, 304 (4th Cir. 1993). This grant of authority extends to “any or all cases under title 11 and any or all proceedings arising under title 11 or arising in or related to a case under title 11.” 28 U.S.C. § 157(a). Though courts rarely provide any analysis when exercising their authority under § 157(a), [9] this court's decision is guided by decisions in this circuit referring cases to the Bankruptcy Court in the first instance.

         In Vieira v. AGM, II, LLC, another court in this district addressed a motion to refer a bankruptcy trustee's action against a creditor to the Bankruptcy Court. 363 B.R. 746 (D.S.C. 2007). The trustee alleged that the defendant had effectively inserted certain individuals into the debtor's business who made decisions that benefited the creditor and harmed the debtor. Id. at 749. The debtor was forced into bankruptcy under Chapter 7 of the Bankruptcy Code, and the trustee brought claims for breach of fiduciary duty to creditors, breach of fiduciary duty to the debtor, constructive trust, and accounting in the district court. Id.

         The AGM, II court applied the framework originally set forth in Travelers Ins. Co. v. Goldberg, 135 B.R. 788 (D. Md. 1992), which provides as follows:

In deciding whether to refer this case, the Court must first determine (1) whether this action is sufficiently “related to” the bankruptcy cases to permit a referral under § 157(a), and (2) whether and to what extent a referral is permissible at all in light of the plaintiffs' jury demand. If, after these issues are resolved, the Court finds that it has the discretion to grant defendants' motion [to refer the case], it must still decide whether a referral would be of practical benefit to the administration of the action.

AGM, II, LLC, 363 B.R. at 749 (alterations in original) (quoting Travelers Insurance Co., 135 B.R. at 790).

         A.“Related to” ...


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