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In re Braxton

United States District Court, E.D. North Carolina, Western Division

September 5, 2014


Page 788

For W.S. Badcock Corporation, Movant: Christopher L. DeCort, John E. Johnson, LEAD ATTORNEYS, Johnson & Cassidy, P.A., Tampa, FL; Tasha E. Agruso, LEAD ATTORNEY, Sharpless & Stavola, PA, Greensboro, NC.

For Stephen L. Beaman, Trustee: Stephen Levi Beaman, LEAD ATTORNEY, Stephen L. Beaman, PLLC, Wilson, NC.


Page 789


LOUISE W. FLANAGAN, United States District Judge.

This matter comes before the court on emergency motion by W.S. Badcock Corporation (" Badcock" ), to stay enforcement of six orders of the bankruptcy court, entered August 8, 2014, in Case No. 09-08876-8-RDD, allowing the trustee to examine on August 27, 2014, and August 28, 2014, Badcock and five individuals believed to be managers/owners of Badcock furniture stores in this district, in accordance with Federal Rule of Bankruptcy Procedure 2004 (the " Rule 2004 examination orders" ). By order entered August 26, 2014, this court temporarily stayed enforcement of the Rule 2004 examination orders for a period of fourteen (14) days to allow for decision on the motion. The trustee has responded in opposition to the motion. In this posture the matter is ripe for ruling. For the reasons stated below, the court denies the emergency motion to stay.


On October 12, 2009, debtors filed a joint voluntary petition for Chapter 13 bankruptcy in the United States Bankruptcy Court for the Eastern District of North Carolina (the " bankruptcy court" ). The petition specified that debtor Edward

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L. Braxton formerly was doing business as " Babcock [sic] Furniture" and " Levy Management Group." Debtor Edward L. Braxton died in March 2010, and thereafter the case was converted to a Chapter 7 proceeding with the trustee appointed to preserve, recover, and investigate assets on behalf of the estate.

As part of his duties, the trustee disclosed in submissions to the bankruptcy court starting in August 2012 further information regarding debtor Edward L. Braxton's connection with Badcock and Levy Management Group. In particular, the trustee explained that prior to filing bankruptcy, debtor Edward L. Braxton was the sole shareholder and president of Levy Management Group, Inc. (" Levy" ), a North Carolina corporation that entered into agreements with Badcock to operate several furniture stores in eastern North Carolina owned by Badcock. Upon becoming sick in 2009, Edward L. Braxton decided to cease operation of the stores. According to the trustee, debtors' estate may have assets in the form of an unliquidated claim in excess of $400,000.00 against Badcock for money owed under Levy's operation agreements.

In a status report filed January 2013, the trustee disclosed that he had been investigating the potential contract claim against Badcock since January 2012, that he had sought Florida co-counsel for litigation in July 2012, and that he had reached a tentative agreement in December 2012 to reopen prior mediation of the claim. In July and October 2013, the trustee reported that he was working to settle the claim.

In the meantime, upon commencement of the bankruptcy proceedings in 2009, and upon conversion to Chapter 7 proceedings in 2011, Badcock also appeared as a creditor for a small consumer claim against debtors. In particular, Badcock filed a request as a creditor in the Chapter 13 proceeding on November 20, 2009, seeking to have notices of filings in the case, and to have its name and address added to the clerk's list of creditors. Badcock was listed as a creditor in the Chapter 13 petition with a claim in the amount of $698.00 for a consumer credit card balance. After the case was converted to Chapter 7, on June 20, 2011, Badcock again filed a request for notices, and it again sought to have its name and address added to the clerk's list of creditors. A final report and accounting, filed by the trustee on August 22, 2011, provides that the trustee disbursed the entirety of the allowed claim remaining due to Badcock, as a creditor, in the amount of $635.06.

As pertinent to the present emergency motion for stay, the trustee first filed on December 5, 2013, a motion for a bankruptcy court order requiring Badcock to appear and be examined and to produce documents specified in the motion, pursuant to Federal Rule of Bankruptcy Procedure 2004.[1] In particular, the motion sought to require Badcock to produce documents to the trustee in Wilson, North Carolina, on or before December 20, 2014, including documents related to contracts and correspondence between Badcock and Levy or debtor Edward L. Braxton. The motion also sought to require Badcock to designate an agent to appear for examination in Tampa, Florida, to testify regarding such " above-described matters" on January 13, 2014. The trustee served the motion on Badcock and its counsel. The trustee also served a subpoena on Badcock, in

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Tampa, Florida, requesting the same documents and examination.

The bankruptcy court entered an order on December 31, 2014, granting the motion for Rule 2004 examination of Badcock. Badcock did not file any objection or response to the order, and Badcock did not otherwise produce documents or an agent for examination as directed by the order.

On January 17, 2014, the trustee filed an application to employ special counsel to assist the trustee in the mediation, arbitration, and litigation of claims of Levy against Badcock in Polk County, Florida. The trustee further detailed the basis for the asserted claims against Badcock, stating that three of four contracts in dispute require arbitration in Polk County, Florida, and one requires venue of litigation in state court in Polk County, Florida.

On January 25, 2014, the trustee moved for a modified order for Rule 2004 examination, noting that the previous order was entered after the specified date for production of documents. The trustee also noted that counsel for Badcock communicated with the trustee and contended the order to produce records in North Carolina was not enforceable. The trustee accordingly sought a modification of the order to require production of the documents sought in the state of Florida, and to require examination of an agent of Badcock on March 24, 2014 in Tampa, Florida.

Also on January 25, 2014, the trustee filed a motion for order confirming the authority of the trustee to fully and completely prosecute claims of Levy against Badcock, and authorizing the trustee to continue efforts to enforce such claims by negotiation, litigation, mediation, arbitration, or otherwise, in the trustee's discretion. The trustee noted in the motion that " expensive litigation and arbitration is about to be initiated in Florida" and that counsel for Badcock had taken the position that the trustee has no authority to prosecute such claims of Levy. The trustee attached to the motion a dealership agreement between Levy and Badcock, executed February 10, 2007, by Edward Levy Braxton, as president of Levy, and Donald C. Marks, as president of Badcock.

According to documentation subsequently submitted by the trustee, the trustee in fact commenced an action on behalf of Levy against Badcock in state court in Polk County, Florida, on January 29, 2014, asserting breach of contract claims.

The bankruptcy court granted the trustee's motion to employ on February 5, 2014, and granted the motion for Rule 2004 examination and for order confirming authority on February 14, 2014. In an interim report filed in the bankruptcy court April 30, 2014, the trustee noted that " hearings [were] scheduled against Badcock Corporation in Florida," including a hearing scheduled for July 30, 2014. According to documentation subsequently submitted by the trustee, however, further proceedings regarding the enforcement of the Rule 2004 examination order took place in the bankruptcy court in the Middle District of Florida. In particular, upon motion of Badcock, on May 5, 2014, the Florida bankruptcy court quashed a subpoena for the Rule 2004 examination issued by the North Carolina bankruptcy court, and instead directed that a subpoena issue from the Florida bankruptcy court for an examination to take place in Tampa, Florida. Badcock did produce a witness for examination on May 12, 2014, the date specified for examination, but that witness had knowledge only of the Badcock consumer credit claim against Braxton and provided no testimony on the subject matter specified in the Rule 2004 examination.

On May 19, 2014, the trustee filed in the North Carolina bankruptcy court a consent order as between the estate of debtors and

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a creditor, Self Help Credit Union, stating that the trustee shall prosecute any and all claims against Badcock and that any recovery received, after payment of costs and expenses, will be distributed in equal part between Levy and Self Help Credit Union.

On June 13, 2014, the trustee moved for an order for Badcock to appear and show cause why it should not be held in contempt of court for failing to comply with the December 31, 2014 and February 14, 2014, orders of the bankruptcy court. The trustee detailed failed efforts to conduct the 2004 examination in Florida, including further proceedings on a motion for protective order filed by Badcock in the Florida bankruptcy court.

That same date, the trustee filed its third motion for 2004 examination of Badcock, this time seeking examination and production of documents, in the same subject matter as noticed previously, on July 10, 2014, at Wilson, North Carolina. On June 18, 2014, the court granted the motion for show cause ...

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