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O'Dell v. Carolina Internet, Ltd.

United States District Court, W.D. North Carolina, Charlotte Division

January 8, 2015

BRAD O'DELL, Appellant,
v.
CAROLINA INTERNET, LTD., Appellee.

ORDER

GRAHAM C. MULLEN, District Judge.

THIS MATTER is before the Court upon Appellant Brad O'Dell's appeal of an April 18, 2014 order of the bankruptcy court enjoining a state court action initiated by O'Dell. That order enjoined O'Dell from maintaining an action to collect a debt against Appellee Carolina Internet, Ltd. for allegedly breaching a contract that was not provided for during Appellee's bankruptcy proceedings (Doc. No. 1-1, Bankr. Dkt. 636, hereinafter "Bankruptcy Order"). For the reasons set forth below, the Court finds no error and AFFIRMS the ruling of the bankruptcy court.

I. STANDARD OF REVIEW

This Court has jurisdiction over "final judgments, orders, and decrees" of the bankruptcy court. 28 U.S.C. § 158(a). Courts in this circuit apply two standards of review for bankruptcy appeals: "The Bankruptcy Court's conclusions of law are reviewed de novo and its findings of fact are reviewed for clear error." Campbell v. Hanover Ins. Co., 457 B.R. 452, 456 (W.D. N.C. 2011). "Typically, mixed questions of law and fact are also reviewed de novo ." Suntrust Bank v. Den-Mark Const., Inc., 406 B.R. 683, 686 (E.D. N.C. 2009); see In re Litton, 330 F.3d 636, 642 (4th Cir. 2003).

II. BACKGROUND

Most of the relevant facts of this case are not in dispute. Appellee Carolina Internet filed a voluntary Chapter 11 case in this district on September 23, 2011. At the time of filing, Appellee had an agreement[1] with Appellant Brad O'Dell whereby Appellee was regularly paying him 6.5% of the revenue from its sales to a company called Data Conversions. O'Dell was neither an employee of Data Conversions nor Carolina Internet; however, O'Dell was a founder of Data Conversions and had been instrumental in securing the Data Conversions account for Carolina Internet. This account represented 60% of Appellee's revenues, and Appellee apparently believed that O'Dell could also take the account away. These payments ranged between $25, 000 and $45, 000 each month.

When Carolina Internet filed for bankruptcy on September 23, it failed to list O'Dell in the petition or matrix. Nor was O'Dell mentioned in Appellee's schedules and statements filed on October 6, 2011, in its cash collateral motions, at the initial hearings, or in the proposed operating budget. Significantly, Carolina Internet made no mention of O'Dell in Schedule G where a debtor is required to list its executory contracts. As a result, O'Dell did not receive formal notice of the bankruptcy filing or the case hearings.

The parties do not dispute, however, that O'Dell was fully aware of Carolina Internet's Chapter 11 filing. In the period leading up to the bankruptcy, O'Dell had weekly conversations with Mike White, the president of Carolina Internet, in which the bankruptcy and the circumstances precipitating it were discussed. In fact, O'Dell was present in meetings with Carolina Internet and Data Conversions on the day before and the day after the Chapter 11 filing. These meetings continued throughout the pendency of the case.

Despite failing to include O'Dell in its executory contracts, Appellee continued to pay O'Dell after filing for bankruptcy. In the budget submitted in conjunction with the cash collateral hearing, Carolina Internet included a $22, 124.66 expense in October described as "Sales Commissions." When the creditors' committee discovered that this was a payment to O'Dell, and that O'Dell was not employed by Carolina Internet, it demanded by letter of December 6, 2011 that the payments cease and that Appellee take steps to recover the payments. Just days later, apparently fearing the loss of the Data Conversions account, Appellee moved to assume O'Dell's alleged executory contract. (Bankr. Dkt. 134). Appellee did not serve O'Dell with the motion; however, O'Dell was entirely aware of it. He even helped prepare it, drafting an attachment describing his alleged services to Carolina Internet for which he was to be compensated. The creditors' committee objected to the motion and even threatened to sue O'Dell to recover the sums previously paid. After several continuances of the hearing on the motion, "and with it increasingly clear that it was unlikely to succeed, " (Bankr. Order at 4), Appellee abandoned the motion.[2] White kept O'Dell informed of the proceedings through e-mails, telephone conversations, and face-to-face meetings. The payments to O'Dell eventually ceased in June of 2012. (Bankr. Dkt. 656 at 31).

While these proceedings were taking place, O'Dell hired attorney Joe Ledford to represent him after he was subpoenaed by TW Telecom to testify in regard to another matter in the bankruptcy case.[3] Ledford never entered a formal appearance in the case, but did speak to both debtor's counsel and counsel for the committee on several occasions on O'Dell's behalf. After it became clear that the motion to assume would not be approved, Ledford spoke with Richard Mitchell, counsel for Carolina Internet, and asked how else O'Dell might have his payments resumed. Mitchell suggested filing a proof of claim, but noted that O'Dell "would be submitting himself to bankruptcy court jurisdiction." (Bankr. Order at 5). O'Dell never filed a claim, and never filed any motion of his own to compel payment.

On April 23, 2012, Carolina Internet filed its first Plan and Disclosure Statement. In an attempt to win support for the plan, it proposed to withdraw the motion to assume and reject O'Dell's contract. Once again, O'Dell did not receive service of the plan, but he was made aware through his conversations with White that the plan did not provide for the assumption of his contract. ( See Bankr. Order at 5). The creditors opposed the first plan, and over the next nine months, Appellee and its creditors negotiated the terms and conditions of a consensual plan. That plan-Appellee's Third Amended Plan (the "Plan")-was confirmed without opposition on December 12, 2012. That Plan depended on a $3.2 million loan by Scott Coffman, the principal of Data Conversions, which was used to fund the Plan and pay unsecured creditors. As a condition of the loan agreement, Appellee agreed that it would "not incur, create, assume or permit to exist any Indebtedness... except for indebtedness provided or allowed under the Plan...." (Bankr. Order at 7). Similarly, the Plan provided that:

Unless otherwise specified by an order of the Bankruptcy Court, any Proofs of Claims based on the rejection of the Debtor's Executory Contracts or Unexpired Leases pursuant to the Plan or otherwise, must be filed with the Court no later than 30 days after the effective date of such rejection.... (Bankr. Dkt. 524 at 3). Upon the Plan's confirmation on December 12, all executory contracts not expressly assumed were effectively rejected.[4] The Plan was consummated and Carolina Internet's debts were discharged pursuant to 11 U.S.C. § 1141(d)(1)(A). ( See Bankr. Dkt. 585). The bankruptcy case was closed on March 11, 2013. ( See Bankr. Dkt. 617).

At no point before or after Plan confirmation did O'Dell file a claim or otherwise request payments. As the bankruptcy court aptly noted, "O'Dell's passivity about losing $22, 000 per month makes no rational sense." (Bankr. Order at 6). It is at least partially explained, however, by conversations that took place between O'Dell and White. Beginning in April 2012 with the filing of its first proposed plan, Carolina Internet began telling creditors that it would reject its arrangement with O'Dell. At the same time, White was telling O'Dell the opposite. White advised O'Dell of the creditor opposition to their arrangement, told him it was unlikely the motion to assume would succeed, and explained that the payments could not continue during the bankruptcy. White promised, however, that once Carolina Internet was out of bankruptcy, the payments could resume. It would be "business as usual." (Bankr. Dkt. 656 at 60). Here the bankruptcy court noted that "O'Dell was mollified, sat out the confirmation process, and waited for the case to be closed." (Bankr. Order at 6).

It apparently was not business as usual after Appellee was discharged from bankruptcy, as Appellee never resumed its payments to O'Dell. O'Dell filed a complaint in Superior Court in Mecklenburg County on October 22, 2013 seeking commissions allegedly owed to him under the previous payment arrangement. Upon motion from Appellee, the bankruptcy court reopened the bankruptcy case on November 4, 2013 (Bankr. Dkt. 620). Thereafter Appellee filed a motion (Bankr. Dkt. 623) seeking to enjoin the state court action and for sanctions for violating the discharge injunction. The bankruptcy ...


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