Gene Garris Homes, Inc.

UNITED STATES BANKRUPTCY COURT
EASTERN DISTRICT OF NORTH CAROLINA
WILSON DIVISION
IN RE:
GENE GARRIS HOMES, INC.,
DEBTOR
CASE NO.
08-03917-8-RDD
ORDER DENYING MOTION FOR PRELIMINARY INJUNCTION
Pending before the Court is Wayne Investments, Inc.’s Motion for Temporary Restraining
Order and Preliminary Injunction (the “Motion”). Hearings were held in Wilson, North Carolina on
September 29, 2008 and October 21, 2008. The September 29, 2008 hearing resulted in the entry
of an order setting the hearing for preliminary injunction on October, 21, 2008, while BB&T agreed
to continue the foreclosure sale to October, 28, 2008.
Wayne Investments, Inc. (“Wayne Investments”) filed the pending Motion requesting that
the Court impose a temporary restraining order and preliminary injunction against Branch Banking
and Trust Company (“BB&T”) with respect to its foreclosure in connection with certain property
located in Craven County. Wayne Investments requests that the court enter a preliminary injunction
SO ORDERED.
SIGNED this 03 day of December, 2008.
________________________________________
Randy D. Doub
United States Bankruptcy Judge
____________________________________________________________
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until such time as the as the Court makes a determination as to Wayne Investments’ claim of title
to such property.
BB&T objected to the Motion at the Emergency Hearing on September 29, 2008 and renewed
its objection at the hearing on October 21, 2008.
I. 	BACKGROUND
On June 18, 2008, Gene Garris Homes, Inc. (“Debtor”) filed a voluntary petition for relief
under Chapter 7 of Title 11 of the United States Code. Walter L. Hinson was appointed Chapter 7
Trustee (the “Trustee”). Prior to the filing of the petition, Gene Garris, the president of Debtor, died,
leaving Arlene Garris as the surviving shareholder of the Debtor and in severe financial straights.
Upon his appointment, the Trustee commenced his investigation of potential assets that might
be available for distribution to unsecured creditors. On July 16, 2008, BB&T filed a Motion for
Relief from the Automatic Stay (the “Relief Motion”) requesting that the Court lift the automatic stay
and allow BB&T to proceed with its state law rights and remedies against certain properties owned
by the Debtor.
On July 28, 2008, the Trustee filed a Motion In the Cause to Stay All Actions and
Proceedings Against the Debtor, Related Entities, and Other Interested Parties (the “Blanket Stay
Motion”) requesting that the court stay all proceedings for ninety (90) days to permit the Trustee
ample time to investigate which properties, if any, should be surrendered to secured creditors or
which properties should be administered by the Trustee. 	Also on July 28, 2008, the Trustee filed
his Response to the Relief Motion requesting denial of the Relief Motion based on the facts alleged
in the Blanket Stay Motion. A hearing was held on September 3, 2008. Glenn A. Barfield, attorney
at law, was present at that hearing on behalf of Wayne Investments.
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1 Wayne Investments did not file a Motion for Relief from the Automatic Stay in either bankruptcy case.
However, based on the language of the Wayne Consent Order (herein defined), Wayne Investments asserts an interest
in the same real property on which BB&T claims a first priority lien.
3
At the hearing on September 3, 2008, the Court granted the Blanket Stay Motion and
requested that the Trustee circulate a proposed order with the parties. In addition, the Trustee stated
that he had reached an agreement with BB&T and that a consent order would be forthcoming in
connection to BB&T’s Relief Motion. Also, during that hearing, Wayne Investments and BB&T
indicated that they had reached a consent agreement in connection with 9122 Riverview Drive (the
“Real Property”).
The order granting the Blanket Stay Motion was filed on October 7, 2008 and provides that
the automatic stay will remain in place with respect to the real property at issue in this case and in
the Arlene Garris case with case no. 08-03920-8-RDD through and including October 28, 2008 (the
“Blanket Stay Order”)1 . Also, on October 7, 2008, the Court entered a Consent Order between the
Trustee and BB&T which set forth that BB&T was the holder of a Deed of Trust and Promissory
Note in connection with the Real Property, that the Trustee has made a determination that there was
no equity in this Real Property, and as a result, the automatic stay was lifted in favor of BB&T.
Although Wayne Investments did not file a motion seeking relief from the automatic stay,
the Trustee and Wayne Investments entered into a consent order. On October 7, 2008, the Court
entered the Consent Order Modifying the Automatic Stay between Wayne Investments and the
Trustee (the “Wayne Consent Order”). The Wayne Consent Order set forth, in part, that (1) BB&T
obtained relief from the automatic stay for the purpose of foreclosing on the Real Property; (2) the
Debtor acquired record title by Deed from Wayne Investments, dated June 26, 2006; (3) on April 24,
2008, Wayne Investments commenced a civil action in Craven County, Superior Court against the
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2 Factually, there appears to be a dispute as to when BB&T commenced the foreclosure proceeding in state
court. The Motion sets forth in paragraph 3 that the foreclosure proceeding was commenced after Wayne
Investments filed its complaint seeking to set aside the transfer; however, the Wayne Consent Order provides that the
foreclosure proceeding was commenced prior to the state court action brought by Wayne Investments. The
inconsistency in the timing of when the state court action was filed has no impact on the decision of this Court as
both state court actions were commenced prior to commencement of the bankruptcy case.
3 Hearings on the Blanket Stay Motion and Relief Motion were held on September 3, 2008. However, the
Blanket Stay Order, the BB&T Consent Order, and the Wayne Consent Order were not entered until October 7, 2008.
4
Debtor and BB&T seeking, among other relief, the invalidation of the Deed, dated June 26, 2006
from Wayne Investments to the Debtor, and the Deed of Trust from the Debtor to BB&T; (4) prior
to the filing of the state court action by Wayne Investments, BB&T had a pending foreclosure in
which Wayne Investments filed a Motion to Intervene on June 4, 2008 2 ; and (5) since BB&T has
obtained relief from the automatic stay, Wayne Investments likewise has relief from the stay to
pursue its Motion to Intervene in the foreclosure proceeding and attempt to stay the foreclosure.
On September 26, 2008, Wayne Investments filed the Motion requesting this Court to
temporarily restrain the foreclosure sale of the Real Property based on Wayne Investments’ claim
that the transfer of the Real Property to the Debtor from Wayne Investments was invalid. 	The
Motion sets forth that even though the orders lifting the automatic stay had not been entered by this
Court, 3 BB&T filed and served a “Notice of Foreclosure Under Deed of Trust” with respect to the
Real Property on September 9, 2008 setting the foreclosure sale for September 30, 2008 at 10:00 a.m.
The Motion also alleged that Wayne Investments sought and obtained a hearing in the state
court foreclosure action on its motion to stay the foreclosure proceeding. The state court hearing was
held in front of Judge Jack Jenkins in Carteret County Superior Court on September 22, 2008.
Counsel for Wayne Investments indicated that on September 26, 2008 he received a call from Judge
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4 Wayne Investments fails to acknowledge that its efforts to pursue a stay in the foreclosure proceeding also
violates the automatic stay. As of the hearing on its motion to stay the foreclosure action in the state court, the
Wayne Investments Order had not been entered granting Wayne Investments relief from the automatic stay to
proceed in the state court action. The Relief Order was not entered until October 7, 2008.
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Jenkins’ law clerk informing him that the judge intended to deny the motion to stay the foreclosure
but that the order had not yet been entered.
On October 1, 2008, Judge Jack Jenkins, presiding judge in the state court proceedings
entered an Order Denying the Motion to Intervene and Motion for Preliminary Injunction (the “State
Court Order”) filed by Wayne Investments.
In its Motion before this Court, Wayne Investments requests that the court temporarily
restrain BB&T from conducting the foreclosure sale until such time as the Court can conduct a
hearing on the merits of Wayne Investments’ motion to preliminarily enjoin the sale pending
disposition of Wayne Investments claim of title to the Real Property. Wayne Investments requests
the Court to restrain BB&T from moving forward with the sale scheduled on September 30, 2008
based on the fact that the foreclosure sale was set before the Relief Order was entered and that such
an action violates the automatic stay.4 In addition, Wayne Investments seeks a “preliminary
injunction restraining the foreclosure sale until the issues of legal and equitable title to the property
have been determined.” Motion, para. 16.
An emergency hearing was held in Wilson, North Carolina on September 29, 2008. During
that hearing, Joan Davis, counsel for BB&T, indicated that she informed her client that it could not
proceed with the foreclosure sale as the Relief Motion Order had not been entered. Based upon the
representation of counsel that the foreclosure sale was not going to proceed on September 30, 2008,
the Court continued the hearing until October 21, 2008 to consider whether a preliminary injunction
staying the foreclosure action should be entered by this Court. BB&T announced its intentions to
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postpone the foreclosure sale until October 28, 2008 and the Court set a hearing on the preliminary
injunction on October 21, 2008.
II. 	Factors to Consider in Granting Preliminary Injunctions
The Fourth Circuit recognizes that courts should issue preliminary injunctions sparingly and
only in limited circumstances. Microstrategy Inc. v. Motorola, Inc., 245 F.3d 335, 339 (4th Cir.
2001)(quoting Direx Israel, Ltd. v. Breakthrough Medical Corp., 952 F.2d 802, 816 (4th Cir. 1991).
A preliminary injunction is an extraordinary remedy that 	involves a broad reach of the Court’s
power. Microstrategy Inc., 245 F.3d at 339 (quoting Direx Israel, Ltd., 952 F.2d at 816).
The Fourth Circuit set forth the standard for issuing a preliminary injunction in Blackwelder
Furniture Co. v. Seilig Manufacturing, 550 F.2d 189 (4th Cir. 1977). See also Microstrategy Inc.,
245 F.3d at 339. Under the Blackwelder standard, courts should balance four factors in considering
if an injunction is warranted. These four factors include: (i) the likelihood of irreparable harm to the
movant if the injunction is denied; (2) the likelihood of harm to the respondent if the injunctive relief
is granted; (3) movant’s probability of success on the merits; and (4) whether public interest is served
by granting injunctive relief. Blackwelder, 550 F.2d at 196. The factors should be weighed on a
sliding scale, with the two more important factors being those of irreparable harm to the plaintiff and
the potential harm to the defendant should the injunction be granted. Id. at 195. If the balance of
harm is not shown to be in the plaintiff’s favor, the court should place more weight on the importance
of whether the plaintiff can establish that there is a likelihood of success on the merits. Id.
III. 	Analysis of the Preliminary Injunction Factors
Wayne Investments will not be irreparably harmed if the injunction is denied. 	Wayne
Investments has been an active participant in this bankruptcy case and in the matters related to the
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5 Wayne Investments consented to the removal of a similar action originally filed in Wayne County against
RBC Bank. See Adversary Proceeding No. 08-00103-8-RDD.
6 As previously noted, Wayne Investments did not file its own Motion for Relief from the Automatic Stay.
Wayne Investments seeks to invalidate a deed of trust in favor of BB&T with respect to the Real Property on the
grounds that Gene Garris, as an officer of Wayne Investments, did not have the authority to execute the deed
transferring the Real Property from Wayne Investments to Gene Garris Homes, Inc. As such, Wayne Investments
asserts that the deed is invalid. Wayne Investments claims that BB&T should have had knowledge that Mr. Garris
did not have the authority to transfer the deed; and therefore, invaliding its lien.
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BB&T Motion for Relief since the filing of the motion. Since that time, Wayne Investments
negotiated the specific terms of the Wayne Consent Order setting forth “that since BB&T has
obtained relief from the automatic stay, Wayne Investments likewise has relief from the stay to
pursue its Motion to Intervene in the foreclosure proceeding and attempt to stay the foreclosure.” See
Wayne Consent Order. Wayne Investments had the option to file a removal action5 or litigate this
matter before the state court. Based on the specific language in the Wayne Consent Order, it is clear
that Wayne Investments chose the state court, in which it intended to proceed with its claim against
both the Debtor and BB&T.6
Since the Wayne Consent Order was entered, the state court has heard argument and ruled
against Wayne Investments’ Motion to Stay the foreclosure proceeding based on its claim to title.
More specifically, Judge Jenkins found that “the Motion to Intervene should be denied in that the
Movants lack standing to intervene in the foreclosure action and that the Motion for Preliminary
Injunction should be denied on the grounds that the Movants have failed to meet their burden of
proof regarding irreparable harm and failed to demonstrate a likelihood of success on the merits of
their claims.” See Order Denying Motion to Intervene and Motion for Preliminary Injunction, Judge
Jack W. Jenkins, Carteret County Superior Court, Case Nos. 08-CVS-571 and 08-SP-186 (October
1, 2008).
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7 This issue of whether or not there was jurisdiction at the beginning of this bankruptcy case is not before this
Court. The court summarily makes this assumption to consider the matters before it in a light most favorable to
Wayne Investments.
8
Wayne Investments did not assert that it would be irreparably harmed in this Court until after
the motion had been argued before the state court. Wayne Investments did not file its Motion in this
Court until September 26, 2008, which was the same day that counsel stated he received a telephone
call from Judge Jenkins’ law clerk informing him that Judge Jenkins intended to deny the state court
motion.
It is only after argument of the same issue in the state court and the prospect that Wayne
Investments might not prevail in state court, that Wayne Investments requested that this Court enter
an order enjoining the sale of the Real Property pending the disposition of its claim to set aside the
deed. However, Wayne Investments’ request for relief is untimely.
Assuming that there may have been jurisdiction at the outset of this bankruptcy proceeding,7
the bankruptcy court no longer has jurisdiction with respect Wayne Investments’ request to stay the
foreclosure sale. The Rooker-Feldman doctrine prohibits a federal court, with the exception of the
Supreme Court, from exercising appellate jurisdiction over Judge Jenkins’s state court decision. D.C.
Court of Appeals v. Feldman, 460 U.S. 462 (1983); Rooker v. Fidelity Trust Co., 263 U.S. 413 (1923);
see also Jordahl v. Democratic Party of Virginia, 122 F.3d 192, 202 (4 th Cir. 1997) (“The doctrine
reinforces the important principal that review of state court decisions must be made to the state
appellate courts, and eventually to the Supreme Court, not by federal district courts or courts of
appeal.”); Crosson v. A.A. Fire Safety, 333 B.R. 794, 801-802 (Bankr. N.D. Ill. 2005) (finding that
the Rooker-Feldman doctrine prohibits the review of state court decisions by inferior federal courts
and that parties who wish to pursue relief must do so in state court, regardless of the errors that the
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state may have committed). Wayne Investments is attempting to re-litigate the same claims that it
argued in front of Judge Jenkins. The Court finds that Wayne Investments’ pursuit of its motion to
intervene and motion for preliminary injunction that resulted in an unfavorable ruling in the state court
precludes the bankruptcy court from hearing this matter based on the Rooker-Feldman doctrine.
Wayne Investments elected to proceed in state court, both based upon the language of the
Wayne Consent Order and its continued pursuit of the state court action. It had a choice to seek
removal of this matter but instead, opted to try its case in state court. Because Wayne Investments did
not like the result obtained in the state court, it does not get a second bite at the apple in bankruptcy
court. 	Consequently, since the state court has rendered a decision with respect to the stay of the
foreclosure proceeding, Wayne Investments will not be irreparably harmed should the preliminary
injunction be denied. Wayne Investments has already had its day in court.
Unlike the lack of harm to Wayne Investments, if the preliminary injunction is granted, BB&T
would be irreparably harmed. BB&T reasonably relied on Wayne Investment’s request to proceed
in state court as set forth in the Wayne Consent Order and has already litigated this matter with Wayne
Investments in those proceedings. Requiring BB&T to incur the costs and expenses to re-litigate this
matter would result in an irreparable harm since the Debtor has no equity in the Real Property and the
fees and expenses would continue to be borne by BB&T.
As to the third prong of the Blackwelder test, Wayne Investments failed to persuade the state
court that it would likely prevail on the merits if the injunction was entered. With the entry of the
order in the state court, Wayne Investments has the right to appeal the decision of the state court to
the N.C. Court of Appeals. Wayne Investments chose its forum in state court, and under Rooker-
Feldman cannot simply appeal or re-litigate the stay in the bankruptcy court.
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Lastly, granting the preliminary injunction will not serve a public interest. The Trustee agreed
that the automatic stay should be lifted to allow BB&T to foreclose on the Real Property and Wayne
Investments to proceed with its claims. 	The Trustee believes that there is no equity in the Real
Property and, therefore, any sale will not benefit unsecured creditors. 	During the hearing on the
preliminary injunction, the Trustee, informed the court that he did not take a position with respect to
a preliminary injunction but stated he has agreed for the automatic stay to be terminated.
In contrast, the public interest may be served by denying the preliminary injunction. For the
court to maintain the proper balance between the separation of the state courts and federal courts is
essential. Given the limits of the Rooker-Feldman doctrine and the preclusive effect of the state court
order, the Court finds that there is no overriding public policy that would be served in granting the
preliminary injunction.
IV. 	Conclusion
In weighing the factors outlined above, the Court finds that a preliminary injunction is not
warranted in this case. Wayne Investments will not be irreparably harmed if the injunction is denied
as it has obtained a decision from the state court and has certain remedies available to it in that court.
Furthermore, there is no overriding public policy which would support the entry of a preliminary
injunction by the bankruptcy court in this case. Wherefore, based on the foregoing, Wayne
Investments request for a preliminary injunction is DENIED.
SO ORDERED.
END OF DOCUMENT
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