United States District Court, M.D. North Carolina
EPCON COMMUNITIES CAROLINAS, LLC, and EPCON FARRINGTON LLC, Plaintiffs,
IRIS M. TILLEY, THOMAS E. TILLEY, MELBA GEORGE, BARBARA WRIGHT, and UNITED STATES OF AMERICA, Defendants, UNITED STATES OF AMERICA, Counter-Claimant,
EPCON COMMUNITIES CAROLINAS, LLC, and EPCON FARRINGTON, LLC, Counter-Defendants, BARBARA WRIGHT, Cross-Claimant,
UNITED STATES OF AMERICA, Cross-Defendant.
ORDER AND RECOMMENDATION OF UNITED STATES MAGISTRATE JUDGE
JOI ELIZABETH PEAKE, Magistrate Judge.
This matter comes before the Court on (1) the United States' Motion for Judgment that Epcon Farm Trust is Nominee of Iris and Thomas Tilley [Doc. #60]; (2) Epcon Communities Carolinas, LLC's and Epcon Farrington, LLC's (the "Epcon Plaintiffs") Motion for Relief in the Nature of Interpleader [Doc. #83]; (3) the Epcon Plaintiffs' Motion for Judgment on the Pleadings and for Summary Judgment [Doc. #87]; (4) the Epcon Plaintiffs' Motion for Rule 54(b) Certification [Doc. #89]; and (5) the Epcon Plaintiffs' Consent Motion for Interpleader Order Pursuant to Settlement Agreements [Doc. #93]. For the reasons that follow, the Court will deny the United States' Motion for Judgment that Epcon Farm Trust is the Nominee of Iris and Thomas Tilley [Doc. #60] without prejudice to refiling at a later time. The Court will recommend that the Epcon Plaintiffs' Motion for Relief in the Nature of Interpleader [Doc. #83] and the Epcon Plaintiffs' Consent Motion for Interpleader Order Pursuant to Settlement Agreements [Doc. #93] be granted. The Court will also recommend that the Epcon Plaintiffs' Motion for Judgment on the Pleadings and for Summary Judgment [Doc. #87] be denied as moot. Finally, all claims by or against the Epcon Plaintiffs having been resolved, the Epcon Plaintiffs having no further interest in this litigation, and no just reason existing for delay, the Court will recommend that the Epcon Plaintiffs' Motion for Rule 54(b) Certification [Doc. #89] be granted in that the Court will recommend that the Court's dismissal of the Epcon Plaintiffs from this action be certified as a final judgment.
I. FACTS, CLAIMS, AND PROCEDURAL HISTORY
This case involves claims related to a real estate transaction between the Epcon Plaintiffs and certain trusts allegedly controlled by Defendant Thomas Earl Tilley. According to the Complaint, on May 2, 2007, the Epcon Plaintiffs contracted to purchase certain real property from trusts associated with Defendants Thomas and Iris Tilley for $4.25 million. Defendant Thomas Tilley executed the Purchase Contract as a trustee for the B&R Farms Trust, and Defendant Iris Tilley executed the Purchase Contract as a trustee of the Tilley Six Trust. The Purchase Contract was subsequently amended on December 22, 2008, and again on April 20, 2010. The Purchase Contract, as amended, provided for the Epcon Plaintiffs to purchase the property in two phases. Phase 1, consisting of 16.364 acres, was to be purchased for $2 million, and Phase 2, consisting of 17.467 acres, was to be purchased at a later date for $2.25 million.
In accordance with that Purchase Contract, the Epcon Plaintiffs purchased Phase 1 on December 23, 2008, for $2 million. In January 2010, the B&R Farms Trust and the Tilley Six Trust conveyed the Phase 2 property to the Epcon Farm Trust - an entity which, despite its name, is unassociated with the Epcon Plaintiffs. In March and August of 2010, prior to the Epcon Plaintiffs closing on Phase 2, the Internal Revenue Service ("IRS") filed a number of liens against the Phase 2 property on assertions that the Epcon Farm Trust is a nominee and/or alter ego of Defendant Thomas Tilley, and that Defendant Thomas Tilley had unpaid taxes exceeding $6 million. Those tax liens are designated in the Durham County Clerk's Office as Files Numbered 10-M-566, 10-M-1950, 10-M-1948, 10-M-2008, 10-M-1995, and 10-M-2014 (the "Federal Tax Liens").
The existence of the Federal Tax Liens rendered the Epcon Plaintiffs unable to obtain financing to complete the purchase of Phase 2 as originally contemplated. However, having already made substantial improvements to Phase 2 as part of its efforts to develop Phase 1, the Epcon Plaintiffs sought to close on Phase 2 by means of owner financing rather than abandon the property. Accordingly, the Epcon Plaintiffs closed its purchase of Phase 2 by means of a Promissory Note in the amount of $2.25 million payable to the Epcon Farm Trust [Doc. #5-6] and secured by a Deed of Trust [Doc. #5-7]. The Promissory Note specifies that the $2.25 million purchase price for the Phase 2 property will be paid to Defendants Melba George and Barbara Wright as trustees of the Epcon Farm Trust. Likewise, Melba George and Barbara Wright are designated as Beneficiaries of the Deed of Trust.
Although closing by use of owner financing enabled the Epcon Plaintiffs to record title in their name, the encumbrances on the property continue to cloud title and inhibit the Epcon Plaintiffs' ability to develop and sell that property. Accordingly, the Epcon Plaintiffs filed this action to interplead the funds owed for purchase of Phase 2, to quiet title to the Phase 2 property, and to seek damages against Thomas and Iris Tilley for breach of warranties in the Purchase Contract to deliver good and marketable title. (See Compl. [Doc. #5]; Am. Compl. [Doc. #18].) The United States answered the Complaint and filed a counter-claim seeking a declaration that the liens against the property are valid, and seeking an order that Phase 2 be sold and the sale proceeds distributed in accordance with the rights of the parties, with the amounts attributable to Thomas Tilley's interest applied against his tax liabilities. (See Answer [Doc. #21].) Barbara Wright also answered the Complaint and asserted a cross-claim against the United States seeking a declaration that the United States' liens do not apply against her in her individual capacity or as trustee of any trusts associated with this action. (See Answer [Doc. #24].) Melba George filed a pro se answer to the Complaint, but did not assert any counter or cross claims. (See Answer [Doc. #38].) Finally, although the Court construed one of Thomas and Iris Tilley's responses as an answer (see Jan. 23, 2013 Order [Doc. #58] at 4 n.3), Thomas and Iris Tilley, proceeding pro se, never made a filing admitting or denying the allegations of the Complaint.
Of note, Thomas Tilley is a defendant in a parallel criminal proceeding related to the tax issues central to this action. See United States v. Thomas E. Tilley, No. 1:14CR130-1 (M.D. N.C. ). The indictment in that case charges Thomas Tilley with violations of 26 U.S.C. § 7212(a) and 18 U.S.C. § 2 - Attempts to interfere with administration of internal revenue laws, and 26 U.S.C. § 7201 - Attempt to evade or defeat tax. Thomas Tilley has pled guilty to the offense in Count 1, and, pursuant to the terms of his Plea Agreement, Count 2 will be dismissed at sentencing, which remains pending.
The Epcon Plaintiffs and the United States reached an early settlement between themselves, although further proceedings were held in abeyance while the criminal case against Mr. Tilley was proceeding. The Epcon Plaintiffs filed the following motions in order to effectuate that settlement: (1) Motion for Relief in the Nature of Interpleader [Doc. #63]; (2) Motion for Judgment on the Pleadings and for Summary Judgment [Doc. #65]; and (3) Motion for Rule 54(b) Certification [Doc. #67]. The Epcon Plaintiffs' agreement with the United States, along with the foregoing Motions, contemplated that the Epcon Plaintiffs would deposit $1.8 million of the $2.25 million purchase price for Phase 2 into the Court's registry in accordance with a predetermined schedule. Under the terms of their agreement, the United States agreed to discharge its liens against Phase 2 and to pursue its interests instead solely as to the $1.8 million deposited with the Court. Thomas and Iris Tilley were not part of that settlement, and the Epcon Plaintiffs sought entry of summary judgment against the Tilleys and an award of damages from them of $2, 623, 480. With respect to the Promissory Note and Deed of Trust, the Epcon Plaintiffs sought court-ordered release of both on the basis that the $2.25 million purchase price would be satisfied by the $1.8 million deposited with the Court in conjunction with $450, 000 offset for their claimed damages against Thomas and Iris Tilley. Finally, the Epcon Plaintiffs requested that the Court certify any orders related to the foregoing as final judgments under Rule 54(b) of the Federal Rules of Civil Procedure. The Epcon Plaintiffs represented that a certification of final judgment was necessary in order to obtain the financing necessary to fund the settlement with the United States.
After Thomas Tilley's entry of a guilty plea in the criminal case, the Epcon Plaintiffs sought to expedite resolution of this action. The Court held a hearing on that request and the pending motions on May 4, 2015. (See Docket Entry dated May 4, 2015.) At the hearing, the Court noted its concerns with the relief requested by the Epcon Plaintiffs. Specifically, the Court noted that the allegations against Defendant Thomas Tilley in this action overlap significantly with the claims against him in the criminal proceeding and that, although Defendant Thomas Tilley has pled guilty to Count One in his criminal proceeding, his sentencing remains pending. In addition, he is proceeding pro se in this case where the United States is a party. Accordingly, the Court noted the need to consider any possible ramifications and objections on that issue before proceeding. In addition, the Court noted practical concerns with the Court's ability to grant the specific relief contemplated by the settlement outlined by the Epcon Plaintiffs, particularly the request for final judgment under Federal Rule of Civil Procedure 54(b) while the Epcon Plaintiffs' obligations of payment into the fund remained ongoing. The Court also noted the need for an evidentiary hearing on any damages claim and concerns with the Epcon Plaintiffs' entitlement to and calculation of certain damages amounts, particularly lost profits.
In order to address those concerns, the Epcon Plaintiffs suggested a slightly modified version of their proposed agreement with the United States, which eliminated ongoing payments to the Court's registry in favor of a lump sum payment of $1.8 million; however, the United States had not yet had the opportunity to review that proposal. Moreover, Mr. Tilley, who appeared at the hearing pro se, indicated an interest in discussing the possibility of settlement in this case, and also requested the opportunity to speak to his criminal defense counsel in order to ensure that no adverse effects might result from the Court proceeding in this action prior to the sentencing in his criminal case. Accordingly, the Court set this matter for a further hearing on June 16, 2015, in order to allow for the Epcon Plaintiffs and the United States to consider a modified settlement arrangement, for the Epcon Plaintiffs to continue settlement discussions with Thomas and Iris Tilley, and for Thomas Tilley to confer with his criminal defense attorney. In addition, the Court ordered the Clerk's Office to provide notice of that hearing to counsel of record in Mr. Tilley's criminal case.
Subsequently, on May 29, 2015, the Epcon Plaintiffs filed a modified settlement agreement with the United States, and filed the instant renewed Motions to effectuate that settlement. The agreement reflected by way of those Motions is largely the same as the Epcon Plaintiffs' prior agreement with the United States, although it now contemplates immediate, lump sum payment of $1.8 million into the Court's registry rather than ongoing deposits pursuant to a predetermined schedule. In addition, the Epcon Plaintiffs again sought summary judgment against Thomas and Iris Tilley, but claimed that their damages against Thomas and Iris Tilley total $5, 898, 250 rather than the $2, 623, 480 in damages previously claimed.
On June 15, 2015, the Epcon Plaintiffs filed notice of a supplemental settlement agreement with Thomas and Iris Tilley. (See Notice of Supplemental Settlement Agreement [Doc. #92].) Under the terms of that agreement, the Epcon Plaintiffs would deposit $2.025 million into the Court's registry rather than $1.8 million, and would release all other claims against Thomas and Iris Tilley (effectively mooting the pending Summary Judgment Motion to the extent it applies to Thomas and Iris Tilley). In exchange, Thomas and Iris Tilley would release Phase 2 from the Deed of Trust and the related Promissory Note. Thus, in conjunction with its earlier agreement with the United States, the Epcon Plaintiffs envisioned that all claims by or against the Epcon Plaintiffs would be resolved and all encumbrances against the property would be removed. Moreover, given its lump sum payment, the Epcon Plaintiffs would have no further role in these proceedings. The Epcon Plaintiffs continued to request that they be permitted to interplead the funds at issue, that they be dismissed from this action, and that the Court certify the order effectuating the dismissal of claims by or against them, and their dismissal from this action, as a final judgment pursuant to Federal Rule of Civil Procedure 54(b).
The Court held a hearing on the Epcon Plaintiffs' renewed Motions on June 16, 2015. Michael Medford and Judson Welborn appeared on behalf of the Epcon Plaintiffs and Stephanie Sasarak appeared on behalf of the United States. Thomas Tilley, Iris Tilley, Melba George, and Barbara Wright did not appear, though James Quander, Thomas Tilley's counsel in the parallel criminal proceeding, was present. At the hearing, the Court considered the Epcon Plaintiffs' proposal. The Court first considered whether this matter should proceed at this time. Mr. Tilley's criminal defense attorney noted that, in light of the nature of the settlement and the fact that the Tilleys were now included in the settlement, Mr. Tilley had no objection to proceeding with the settlement at this time. Therefore, the Court proceeded with consideration of the proposed settlement. However, in considering the proposal, the Court noted the lack of any input from Melba George or Barbara Wright, who, at least nominally, are the beneficiaries of the Deed of Trust and the individuals to whom the funds under the Promissory Note are payable in their roles as trustees of the Epcon Farm Trust. Moreover, the Court addressed the Epcon Plaintiffs' proposed Interpleader Order. In that regard, the Court noted generally that the proposed Interpleader Order did not appear to accurately reflect the steps necessary among the parties to accomplish the Epcon Plaintiffs' deposit of the $2.025 million and the discharge of the liens and the release of the Promissory Note and Deed of Trust. The Court also addressed other issues with the proposed Interpleader Order, and suggested that the Epcon Plaintiffs submit a separate motion to effectuate the settlement agreements with a ...