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In re Queyrouze

United States District Court, E.D. Louisiana

November 8, 2017

IN RE QUEYROUZE, ET AL.

         SECTION: “E”

          ORDER AND REASONS

          SUSIE MORGAN UNITED STATES DISTRICT JUDGE

         This matter is before the Court on review from the United States Bankruptcy Court for the Eastern District of Louisiana.[1] Steve Queyrouze, Plan Trustee for the Forty Acre Corporation Plan Trust (the “Trust”), opposes the Bankruptcy Court's August 4, 2016 report and recommendation[2] that this Court grant Continental Casualty Company, Randall Alfred (“Alfred”), and Alfred, APLC's (collectively “Defendants”) motion for summary judgment.[3] The Trust also seeks review of the Bankruptcy Court's grant of the Defendants' motion to strike.[4]

         I. FACTUAL & PROCEDURAL BACKGROUND[5]

         Forty Acre Corporation (“Forty Acre”) owned two tracts of land, a 942 acre tract (sometimes referred to as the “Property”) and an 80 acre tract, both in Terrebonne Parish, Louisiana. In 2008, Michael and Kaye LeBlanc, Forty Acre's sole shareholders, decided to sell both tracts and approached Alfred for legal advice. After becoming aware that C&R Developers, Inc. (“C&R”) was interested in buying a portion of Forty Acre's land, the LeBlancs introduced Steven Serafin, Robert McCullough, and Robert Cook, C&R's principals, to Alfred. Thereafter, Forty Acre agreed to sell C&R the Property for $3, 500, 000.00.

         Shortly after Alfred met Serafin, McCullough, and Cook, Alfred agreed to serve as C&R's registered agent for service of process. Alfred also allowed C&R to use his law office in Houma to function as its Louisiana registered office.[6] As early as April 9, 2009, Alfred and Serafin began discussing the possibility of Alfred's being added to the Board of Directors of Serafin and McCullough's company, Adventure Harbor Estates LLC (“Adventure Harbor”), and Alfred's being included as an equity partner in the business.[7]During these discussions, Serafin (1) remarked “I want to stress that [the LeBlancs] are very trusting of you and your opinion. I believe if you support this parallel direction they will be on board[, ] especially with you[r] being on the Board of Directors”; (2) asked Alfred if he “h[ad] an interest in building [his] Bankruptcy business, ” adding that he had a friend who had “structured a deal with a large national Load Mod company that [wa]s referring the [bankruptcy] work to him”; and that (3) “[h]e could get a similar agreement for [Alfred] if [he were] interested.”[8]

         On June 23, 2008, with Alfred's assistance, Forty Acre and C&R entered into a Secured Investment Agreement (the “Agreement”), whereby Forty Acre agreed to transfer the Property to C&R in exchange for a later payment. Under the Agreement, C&R would secure two loans by using the Property as collateral. C&R would hold the proceeds of the first loan, secured by a collateral mortgage on the Property, until C&R secured a second loan, which C&R would use to satisfy the first loan and pay Forty Acre the $3, 500, 000.00 purchase price. If C&R were unable to secure the second loan, it would return the proceeds of the first loan to the lender, obtain a cancellation of the lien on the Property, and return the Property to Forty Acre unencumbered.

         Alfred represented to the LeBlancs that transferring ownership of the Property to C&R outright by quitclaim deed would allow C&R to receive more preferential lending terms from the bank. He also represented that the LeBlanc's ownership interest in the Property would be protected, as C&R would provide Forty Acre with a counter letter, which Alfred contended would allow Forty Acre to rescind the transfer of the Property to C&R and return record ownership of the Property to Forty Acre at any time.

         Pursuant to the Agreement, the LeBlancs transferred ownership of the Property to C&R. C&R then used the Property as security to obtain a $999, 999.00 loan from Louisiana Federal Land Bank (“Land Bank”). On June 30, 2008, C&R issued a check for $900, 000.00 payable to Alfred with the memo “for Mike and Kaye.” C&R also agreed to pledge two accounts, referred to as “the Wachovia Accounts, ” as collateral, but Alfred did not obtain a control agreement on these accounts and later discovered the accounts did not exist, information Alfred did not share with the LeBlancs. The deal ultimately failed because C&R was not able to secure the second loan. On May 28, 2009, Forty Acre recorded the counter letter, reconveying ownership of the Property back to Forty Acre. On June 30, 2009, Serafin made a request to Alfred that he wait “5 to 6 weeks” before attempting to negotiate the $900, 000.00 check. During August 2009, Alfred attempted to negotiate the $900, 000.00 check, but C&R's Wachovia account on which it was drawn had insufficient funds to honor its payment. Although C&R returned the Property to Forty Acre, it returned ownership of the Property with a $984, 082.62 encumbrance.

         C&R did not transfer the Land Bank loan proceeds to the LeBlancs, nor did it satisfy the Land Bank loan. Forty Acre, by and through the LeBlancs and on Alfred's advice, executed criminal affidavits against Cook in Terrebonne Parish, and the Terrebonne Parish District Attorney issued a warrant for Cook's arrest.

         On March 18, 2010, Land Bank initiated foreclosure proceedings against the Property, [9] and on January 11, 2011, acting on Alfred's advice, Forty Acre filed a Voluntary Petition for Relief under Chapter 11 of the Bankruptcy Code, employing Alfred as counsel. In its bankruptcy case, Forty Acre scheduled as assets and debts: (1) a 942 acre tract of land with a $5, 000, 000.00 value but encumbered by a $999, 000.00 lien in favor of Land Bank; (2) an unencumbered 80.235 acre tract of land with a $2, 000, 000.00 value; and (3) a checking account with a balance of $95.00. Serafin, William McCollough, and Adventure Harbor subsequently filed unsecured proofs of claim totaling $3, 050, 000.00 related to Forty Acre's alleged breach of contract to sell the 80 acre tract to Adventure Harbor.[10] After being charged with criminal fraud in Terrebonne Parish, Cook posted a $500, 000.00 bond which, upon Alfred's motion, was ultimately forfeited and deposited into the Bankruptcy Court's registry on September 16, 2011.

         Forty Acre's proposed reorganization plan was due to the Bankruptcy Court on July 11, 2011. Alfred moved for an extension of time to file the plan, and on July 25, 2011, the Bankruptcy Court granted Alfred's motion, setting the new deadline as August 10, 2011. When the proposed plan was not filed by August 10, 2011, [11] pursuant to 11 U.S.C. §§ 1121 and 1123, Forty Acre was forced to file a joint disclosure statement with it creditor, Land Bank. Forty Acre and Land Bank filed their joint disclosure statement on April 20, 2012. The Bankruptcy Court ultimately approved a subsequently filed joint plan (“the Plan”), establishing the Trust and naming Mark L. Roberts as Trustee. Queyrouze succeeded Roberts on June 25, 2014.

         Under the Plan, which went into effect on October 16, 2012, the Trust received any and all property in Forty Acre's estate, including the Property and the 80 acre tract, the $500, 000.00 proceeds from Cook's bond forfeiture, and any causes of action held by Forty Acre on the confirmation date. The Plan provided that a realtor would market the Trust's real estate for seven months, with closing to be no later than nine months from the Plan's effective date. The realtor could not sell the land for less than $3, 500, 000.00. If the realtor did not sell the land after nine months, Land Bank could foreclose on the Property. As for Serafin, McCollough, and Adventure Harbor's proof of claims, it was anticipated the Trust would object to the claims; however, in the event the Trust's objections were unsuccessful, the 80 acre tract would be sold at auction to satisfy the unsecured claims. The $500, 000.00 in the Bankruptcy Court's registry was disbursed to Alfred to hold in his trust account, pending transfer to the Trust.

         On October 3, 2013, Alfred sent a letter to the LeBlancs and Forty Acre terminating his representation. In the letter, he stated:

I have received and listened to the messages you left for me on my cell phone. I am of course disturbed by the tone and the content of these messages. The basic understanding I have from them is that you intend to pursue a claim against my errors and omissions insurance in connection with the bankruptcy and foreclosure cases.
I need to advise you that your position in that matter makes it impossible for me to continue as your attorney. I will be formally withdrawing from the bankruptcy matter and suggest you immediately secure another attorney in the Chapter 11 cases as well as the Lank Bank foreclosure.[12]

         On November 7, 2013, Alfred filed a Motion to Withdraw as Counsel for Forty Acre, alleging the LeBlancs intended to file a malpractice claim against him.[13] The Bankruptcy Court granted the motion to withdraw on November 15, 2013.

         On June 28, 2014, Alfred was deposed in connection with a separate case related to Forty Acre's alleged breach of contract in the sale of its 80 acre tract to Adventure Harbor. During this deposition, Alfred revealed that he knew approximately six months before he attempted to negotiate the $900, 000.00 check in late August 2009, that the Wachovia accounts C&R promised to pledge as collateral did not exist. He also admitted he never told the LeBlancs this fact, because they were “distraught, ” and he did not want to upset them any further.

         On October 2, 2014, the Trust filed a complaint against Alfred and his business, Alfred, APLC, for negligence and breach of fiduciary duty. The Trust filed an amended complaint on January 15, 2016, adding as a defendant Continental Casualty Company, the malpractice insurance carrier for Alfred and Alfred, APLC (collectively “Defendants”), and stating three causes of action: (1) breach of fiduciary duty, (2) pre-bankruptcy petition negligence, and (3) post-bankruptcy petition negligence.

         II. THE TRUST'S CLAIMS

         The Trust's pre-bankruptcy petition negligence claims are based on Alfred's failure to: (1) “appropriately structure the sale and transaction between C&R and Forty Acre involving the 942 acres”; (2) “secure collateral from C&R upon closing in the June 2008 transaction”; (3) “timely deposit the security check provided by C&R to Forty Acre in connection with the June 2008 transaction”; (4) “require a control agreement on C&R and/or Cook's Wachovia accounts”; (5) “disclose multiple conflicts of interest to Forty Acre and its principals”; (6) “timely pursue claims against William McCollough, Steven Serafin and Adventure Harbor Estates, LLC in connection with a failed sale to Adventure Harbor Estates, LLC”; and on Alfred's (7) “recommending that Forty Acre provide a Quitclaim deed to C&R”; and (8) “advising Forty Acre to pass on other qualified and willing purchases of Forty Acre's 942 (and 1022) acres in lieu of the deal proposed by C&R.”

         The Trust's post-bankruptcy petition negligence claims are based on Alfred's incompetence to handle a bankruptcy case, as evidenced by his failure to: (1) timely file a reorganization plan, leading to the Joint Plan with Land Bank that provided Forty Acre with less favorable terms; (2) challenge legality of the loan and mortgage to Louisiana Land Bank of the subject property in the bankruptcy; (3) disclose to the Trust the opportunity of sale to Sands Harris & Associates, LLC (“Sands Harris”) the two tracts totaling 1022 acres belonging to the bankruptcy estate; (4) object to Land Bank's secured claim; (5) use the $500, 000.00 in the Court's registry to negotiate a resolution with Land Bank; and (6) disclose his conflicts of interest.

         The Trust's breach of fiduciary duty claims are based on Alfred's conduct during the sale of the Property to C&R and the subsequent bankruptcy. According to the Trust, (1) “[d]uring the course of Alfred's discussions and negotiations with C&R, its agents and representatives made promises of future business dealings and opportunities for financial profit to Alfred”; (2) “Alfred agreed to serve as registered agent for C&R”; (3) “Alfred allowed C&R to use Alfred's law office in Houma to serve as the company's Louisiana business office”; (4) “Alfred notified the Louisiana Secretary of State that his law office would serve as the Louisiana business office of C&R”; (5) “Forty Acre and C&R had opposite and competing interests”; (6) and “Alfred did not disclose his conflict of interest to Forty Acre, and neither Forty Acre, nor the Plan Trustees knew nor had reason to know that Alfred had become conflicted during the period of time Alfred provided legal advice and counsel that was later revealed to be negligent and with catastrophic consequence for Forty Acre, the Plan Trust, and LeBlancs.”

         III. DEFENDANTS' MOTION FOR SUMMARY JUDGMENT

         On March 14, 2016, Defendants filed a motion for summary judgment on the Trust's pre- and post-bankruptcy malpractice claims, arguing the Trust's malpractice claims are perempted under Louisiana Revised Statutes 9:5605A.[14]

         The Trust attached several exhibits to its Opposition to the motion for summary judgment in the Bankruptcy Court, including the affidavits of Queyrouze and Roberts.[15]On June 17, 2016, Defendants filed a motion in the Bankruptcy Court to strike Queyrouze's and Roberts' affidavits, arguing the affidavits “contain self-serving, conclusory statements about the Affiants' lack of awareness of grounds for filing illegal malpractice claim against Alfred” and were not provided to Defendants during the discovery process. The Bankruptcy Court ultimately granted Defendants' motion to strike the two affidavits.[16] The Bankruptcy Court also recommended this Court grant Defendants' motion for summary judgment because all the Trust's claims had prescribed or been perempted.[17]

         In its Objection, [18] the Trust avers the Bankruptcy Court applied the incorrect prescriptive period to the malpractice claims, contending Alfred's “intentional withholding of facts . . . constitutes fraud with[in] the meaning of La RS 9:5605E, making the peremptive periods of 9:5605 inapplicable in favor of the one-year prescriptive period set forth in La. C.C. art. 3492.”[19] The Trust argues that, because Louisiana Civil Code article 3492 and the doctrine of contra non valentem apply to the Trust's claims, [20] the bankruptcy court erred in dismissing its negligence claims as untimely.[21]

         A. Standard of Review

         This Court reviews a bankruptcy court's report and recommendation on a motion for summary judgment de novo.[22] Summary judgment is proper only “if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.”[23] “An issue is material if its resolution could affect the outcome of the action.”[24] When assessing whether a material factual dispute exists, the Court considers “all of the evidence in the record but refrain[s] from making credibility determinations or weighing the evidence.”[25] All reasonable inferences are drawn in favor of the non-moving party.[26] There is no genuine issue of material fact if, even viewing the evidence in the light most favorable to the non-moving party, no reasonable trier of fact could find for the non-moving party, thus entitling the moving party to judgment as a matter of law.[27]

         “[A] party seeking summary judgment always bears the initial responsibility of informing the district court of the basis for its motion[] and identifying those portions of [the record] which it believes demonstrate the absence of a genuine issue of material fact.”[28] If the dispositive issue is one on which the non-moving party will bear the burden of persuasion at trial, to satisfy Federal Rule of Civil Procedure 56's burden, the moving party must do one of two things: it “may submit affirmative evidence that negates an essential element of the nonmoving party's claim” or “demonstrate to the Court that the nonmoving party's evidence is insufficient to establish an essential element of the nonmoving party's claim.”[29] Under the Rule 56 standard, the moving party bears the burden of presenting summary judgment evidence that conclusively shows that the limitations period has run.[30]

         If the moving party successfully carries its burden, the burden of production then shifts to the non-moving party to direct the Court's attention to something in the pleadings or other evidence in the record setting forth specific facts sufficient to establish that a genuine issue of material fact does indeed exist.[31] Thus, the non-moving party may defeat a motion for summary judgment by “calling the Court's attention to supporting evidence already in the record that was overlooked or ignored by the moving party.”[32]

         “[U]nsubstantiated assertions are not competent summary judgment evidence.”[33]Rather, “the party opposing summary judgment is required to identify specific evidence in the record and to articulate the precise manner in which that evidence supports his or her claim. ‘Rule 56 does not impose upon the district court a duty to sift through the record in search of evidence to support a party's opposition to summary judgment.'”[34]

         B. Applicable Law

         Under Louisiana Revised Statutes 9:5605, legal malpractice cases must be brought:

[W]ithin one year from the date of the alleged act, omission, or neglect, or within one year from the date that the alleged act, omission, or neglect is discovered or should have been discovered; however, even as to actions filed within one year from the date of such discovery, in all events such actions shall be filed at the latest within three years from the date of the alleged act, omission, or neglect.[35]

         The one-year prescriptive and three-year peremptive periods, however, do “not apply in cases of fraud, as defined in Civil Code Article 1953.”[36]

         Civil Code Article 1953 defines fraud as “A misrepresentation or a suppression of the truth made with the intention either to obtain an unjust advantage for one party or to cause a loss or inconvenience to the other.” “[T]o bring a cause of action for fraud, the following three elements must be alleged: ‘(1) a misrepresentation of material fact, (2)made with the intent to deceive, (3) causing justifiable reliance with resultant injury.'”[37]Civil Code article 1957 states “Fraud need only be proved by a preponderance of the evidence and may be established by circumstantial evidence.”[38] Under Article 1953, “fraud may result not only from an act, such as a false assertion or suppression of the truth, ...


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