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McLemore v. Jones

United States District Court, E.D. Virginia, Norfolk Division

September 6, 2017

JOHN C. MCLEMORE, Chapter 7 Trustee, Plaintiff,
v.
FARRIS M. JONES, Defendant.

          OPINION & ORDER

          Henry Coke Morgan, Jr. Senior United Slates District Judge.

         This matter comes before the Court on the Report and Recommendation of the Bankruptcy Judge, Doc. 2 at 167-180, the objections of John C. McLemore, Chapter 7 Trustee for Bly-Holland Land Company, LLC (the "Trustee"), 14 at 246-69, and the objections of Defendant Farris M. Jones ("Jones"), Id. at 180-84. For the reasons stated herein, the Court SUSTAINS the Trustee's objections IN PART and RECOMMITS the matter to the bankruptcy court.

         I. BACKGROUND

         Neither Party objects to the recitation of the procedural and factual background of this case contained in the R&R, instead only objecting to the legal effect of the background. See generally Id. at 180-84, 246-69. A limited portion is relevant to the procedural question presented in the R&R regarding the status of Count I of the complaint, and thus, only that portion need be recounted here.

         On September 2, 2015, Debtor Bly-Holland Land Company, LLC (the "Debtor") filed a voluntary petition under Chapter 7 of the Bankruptcy Code. Id. at 169. On September 30, 2015, Jones filed a motion seeking relief from the automatic stay to allow him to pursue remedies in state court against the Debtor's commercial sports facility (the "Property"). Id. at 169-70. On December 16, 2015, the Trustee requested authority to sell the Property and filed a complaint initiating an adversary proceeding. Id. at 170.

         On January 20, 2016, the Parties appeared before the bankruptcy court and represented their intent to settle the pending motions and adversary proceeding. Id. Their proposal involved allowing the Trustee until February 29, 2016, to sell the Property and distribute the proceeds. Id. The bankruptcy court approved the compromise at a hearing on February 2, 2016, and in an Order dated February 9, 2016. Id. at 171.

         Beginning on June 3, 2016, the Parties filed various motions reflecting that the Trustee had failed to timely sell the Property and that the settlement had failed. Id. The bankruptcy court determined in light of that failure that it should reissue summons for the adversary proceeding and have the Trustee serve the complaint on Jones. Id. at 172. The Trustee served the summons and complaint on Jones on July 21, 2016. Id.

         On August 15, 2016, Jones moved to dismiss all five (5) counts of the complaint. Id. Once the Motion to Dismiss was ripe, the Court held a hearing on November 15, 2016, and subsequently dismissed Counts I-III with leave to amend in an Order dated December 5, 2016. Id. at 172-73; see also Id. at 11-16 (a copy of the dismissal Order). On Count I, the bankruptcy court found that the Trustee could not state a claim for constructive trust under Virginia law because Jones had committed no misconduct and was not unjustly enriched. Id. at 13, 173.

         On December 21, 2016, the Trustee filed an Amended Complaint. Id. at 174. Under Count I, he pled as follows:

This Count has been removed pursuant to the Court's Order entered on December 5, 2016 granting Mr. Jones' Rule 12(b)(6) Motion with regard to Count II [sic] of the Complaint. It is not intended as a waiver of this claim.

Id. at 36 (Am. Compl. ¶ 42). He pled similarly for Count II while adding facts to renew Count III in the Amended Complaint. Id. at 174.

         On January 6, 2017, Jones filed a Renewed Motion to Dismiss the Amended Complaint. Id; see also Id. at 83-93 (a copy of the motion). The Renewed Motion to Dismiss did not address Counts I and II, instead discussing only Counts III-V. Id. at 174-75. It stated as follows regarding Counts I and II:

Final disposition of the non-re-pled legal theories of constructive trust (Count I) and equitable subordination (Count II) remains subject to this Court's report and recommendation to the district court, the submission objections and supporting statements by the parties, and entry of a final order.

Id. at 86 (Renewed Motion to Dismiss ¶ 10). At a pretrial conference on January 31, 2017, the Trustee indicated that he would voluntarily dismiss Counts II-V of the Amended Complaint, and the bankruptcy court dismissed those Counts with consent of the Parties. Id. at 175. Because of the dismissal of all but one (1) of the Counts, the bankruptcy court ORDERED further briefing on Count ...


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