Eagle Creek Subdivision, LLC

UNITED STATES BANKRUPTCY COURT
EASTERN DISTRICT OF NORTH CAROLINA
WILMINGTON DIVISION
IN RE:
EAGLE CREEK SUBDIVISION, LLC 	Case No. 08-04292-8-JRL
EAGLES TRACE, LLC 	Case No. 08-04293-8-JRL
AUMOND GLEN, LLC 	Case No. 08-04294-8-JRL
BACK CREEK FARMS SUBDIVISION, LLC 	Case No. 08-04295-8-JRL
SADDLEBROOK SUBDIVISION, LLC 	Case No. 08-04296-8-JRL
THE HEIGHTS SUBDIVISION, LLC 	Case No. 08-06502-8-JRL
KELSEY GLEN, LLC 	Case No. 08-06503-8-JRL
THE RAPIDS AT BELMEADE, LLC 	Case No. 08-06504-8-JRL
WATER MILL, LLC 	Case No. 08-06506-8-JRL
CHANDLER OAKS, LLC 	Case No. 08-06507-8-JRL
MYERS MILL, LLC 	Case No. 08-06508-8-JRL
RIVER CHASE SUBDIVISION, LLC 	Case No. 08-06509-8-JRL
THE VILLAGE AT WINDSOR CREEK, LLC 	Case No. 08-07020-8-JRL
LISMORE PARK, LLC 	Case No. 08-07026-8-JRL
OLD TOWNE, LLC 	Case No. 08-07170-8-JRL
CALEDONIA SUBDIVISION, LLC 	Case No. 08-07535-8-JRL
Chapter 11
DEBTORS.
___________________________________________________________________________
ORDER
This case is before the court on the motion for reconsideration and re-opening of the
evidence by J. Franklin Martin and Scott A. Stover (the “Movants”). For the following reasons, the
motion is denied.
SO ORDERED.
SIGNED this 09 day of March, 2009.
________________________________________
J. Rich Leonard
United States Bankruptcy Judge
____________________________________________________________
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BACKGROUND
The debtors are limited liability companies managed by Landcraft Management, LLC.
(“Landcraft”). The sole members of each debtor and the sole owners of Landcraft are J. Franklin
Martin, Scott A. Stover, and Matthew A. McDonald. Each of the debtors was created for the
purpose of acquiring undeveloped tracts of land located in North or South Carolina, obtaining
the necessary permits and approvals, developing the tracts as residential subdivision projects,
and selling the lots to various builders for their subsequent construction and sale.
On June 27, 2008, Eagle Creek Subdivision, LLC, Eagles Trace, LLC, Back Creek Farms
Subdivision, LLC, Aumond Glen, LLC, and Saddlebrook Subdivision, LLC filed petitions for
Chapter 11 relief. Subsequently, on September 22, 2008, The Heights Subdivision, LLC, Kelsey
Glen, LLC, The Rapids at Belmeade, LLC, Water Mill, LLC, Chandler Oaks, LLC, Myers Mill,
LLC, and River Chase Subdivision, LLC filed for relief under Chapter 11. Next, The Village at
Windsor Creek, LLC and Lismore Park, LLC filed for Chapter 11 relief on October 9, 2008. On
October 15, 2008, Old Towne, LLC also filed for Chapter 11 relief. Caledonia Subdivision,
LLC filed a Chapter 11 petition on October 29, 2008.
On February 2, 2009, the committee representing the holders of junior deeds of trust and
tenancy-in-common interests (the “Committee”) filed a motion for appointment of a trustee in
these cases (the “Motion to Appoint Trustee”). The debtors and several construction lenders
filed objections to the Motion to Appoint Trustee. At the conclusion of the hearing held on
February 11, 2009, the court provided an oral ruling allowing the Motion to Appoint Trustee.
Thereafter, on February 18, 2009, the Movants filed a motion for reconsideration and to re-open
the record (the “Motion to Reconsider”). The Movants expressly provide in the Motion to
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Reconsider that they “do not seek to alter the Court’s ruling on the appointment of a trustee in
these cases.” Rather, the Movants request authorization to submit additional evidence
subsequent to the conclusion of hearing.
DISCUSSION
A motion to reconsider or to alter or amend a judgment is governed by Rule 59(e) of the
Federal Rules of Civil Procedure, made applicable by Rule 9023 of the Federal Rules of
Bankruptcy Procedure. FED . R. BANKR . P. 9023(e). The bankruptcy court will deny a motion to
reconsider unless the Movants show such relief is necessary “(1) to accommodate an intervening
change in controlling law; (2) to account for new evidence not available at trial; or (3) to correct
a clear error of law or prevent manifest injustice.” In re Morris, 365 B.R. 613, 617 (Bankr. E.D.
Va. 2007) (citing E.E.O.C. v. Lockheed Martin Corp., 116 F.3d 110, 112 (4th Cir. 1997)). The
purpose of Rule 59(e) is not to allow a disappointed party to advance new arguments which
should have been raised prior to the issuance of judgment. In re DEF Invs., Inc., 186 B.R. 671,
681 (Bankr. D. Minn. 1995) (citing Concordia Coll. Corp. v. W.R. Grace & Co., 999 F.2d 326
(8th Cir.), cert. denied, 510 U.S. 1093, 114 S. Ct. 926 (1994)). In general, reconsideration of a
judgment is “an extraordinary remedy which should be used sparingly.” Pacific Ins. Co. v. Am.
Nat’l Fire Ins. Co., 148 F.3d 396, 403 (4th Cir.), cert. denied, 525 U.S. 1104, 119 S. Ct. 869
(1999).
The Movants argue in favor of re-opening the record because they allegedly did not know
what testimony would be presented at hearing and because Mr. Stover was not present to address
the evidence before the court. However, the court finds that the testimony at hearing was
directly related to the management of Landcraft and that the Movants knew or should have
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known their managing practices would be the focal point of the hearing. Under § 1104(a)(1) of
the Bankruptcy Code, the court will order the appointment of a trustee “for cause, including
fraud, dishonesty, incompetence, or gross mismanagement of the affairs of the debtor by current
management . . . .” 11 U.S.C. § 1104(a)(1) (emphasis added). “The clearest examples [where
appointment of a trustee is warranted] are those in which the debtor or its managers have
engaged in serious fraud or dishonesty, or have grossly mismanaged the business.” 7 Collier on
Bankruptcy ¶ 1104.02[1], (Alan N. Resnick & Henry J. Sommer, eds, 15th ed. Rev. 2007).
Because the Movants are members of the debtors and principals of Landcraft, it should have
been apparent to the Movants that their business practices would be subject to attack.
Furthermore, counsel for Mr. Martin, the debtors, and the objecting lenders were present at
hearing and had every opportunity to cross-examine the Committee’s witnesses. The absence of
Mr. Stover from the hearing does not excuse the Movants’ failure to defend themselves from the
Committee’s allegations; on the contrary, Mr. Stover’s absence illustrates the need for a trustee
in these cases.
The court further finds that the purpose of the Motion to Reconsider is to reargue and
bring forth new assertions in response to allegations initially raised in the Committee’s Motion
to Appoint Trustee. A motion to reconsider “cannot be used to raise arguments which could
have been raised prior to the issuance of judgment.” Concordia Coll. Corp. v. W.R. Grace Co.,
999 F.2d 326, 330 (8th Cir.), cert. denied, 510 U.S. 1093, 114 S. Ct. 926 (1994) (quoting
Hagerman v. Yukon Energy Corp., 839 F.2d 407, 413 (8th Cir.), cert. denied, 488 U.S. 820, 109
S. Ct. 63 (1988)). The arguments brought forth in the Motion to Reconsider are multiple. First,
the Movants allege that Mr. Neal, the Committee’s expert witness in accounting, misstated the
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ownership structure of Landcraft Properties, Inc., as well as the reasons behind Landcraft’s
formation in 2002. The court finds that any inaccuracies in Mr. Neal’s testimony regarding
Landcraft Properties, Inc. or Landcraft should have been addressed on cross-examination or
through the testimony of other witnesses. Additionally, the Motion to Appoint Trustee provided
the Movants with sufficient notice that the Committee would address Landcraft Properties, Inc.
at hearing. Motion to Appoint Trustee, p. 4, ¶ 8(i)-(j). Even if Mr. Stover’s absence from
hearing was reasonable, counsel for the debtors and Mr. Martin had the opportunity at hearing to
cross-examine Mr. Neal and present witnesses. Second, the Movants argue that the Committee’s
witnesses failed to divulge the “fundamental fact” that Landcraft shared its financial statements
only with construction lenders. The court finds that this omission neither represents new
evidence nor creates a manifest injustice and could have been raised at hearing by the debtors,
Landcraft, or their principals. Third, the Movants argue that Landcraft did not mislead investors
into believing that their money would be used to further specific subdivisions. Again, the
Movants cannot wait until the conclusion of hearing to raise an argument against an allegation
originally made by the Committee in its Motion to Appoint Trustee, which expressly asserts that
“[i]nvestor funds were solicited for particular projects, then immediately used for other projects.”
Motion to Appoint Trustee, p. 4, ¶ 8(h). Finally, the Movants assert that Landcraft and its
principals reasonably believe that Landcraft will be profitable going forward. The court finds
that the Movants could and should have asserted this argument, like the others incorporated in
the Motion to Reconsider, in a response to the Motion to Appoint Trustee or at hearing.
Finally, the court finds that the Movants cannot satisfy any of the three factors adopted
by the Fourth Circuit that would warrant reconsideration and re-opening of the record. First, the
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Movants do not allege an intervening change in controlling law. Second, the Movants fail to
offer any new evidence that was not available at hearing. Rather, the court finds that all
arguments and evidence brought forth in the Motion to Reconsider were available and should
have been raised prior to the court’s ruling at the conclusion of hearing. Third, denying the
Movants’ motion would not result in manifest injustice. In fact, the Movants admit that they do
not object to the court’s ruling authorizing the appointment of a trustee. Rather, the Motion to
Reconsider appears to be an attempt to mitigate harm against the Movants resulting from
testimony by the Committee’s witnesses. To the extent the Movants would be harmed by any
misstated testimony of the Committee’s witnesses, the court finds that the Movants had
sufficient notice and opportunity to address such inconsistencies at hearing.
Based on the foregoing, the motion for reconsideration and re-opening of the evidence is
DENIED.
“END OF DOCUMENT”
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