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Spoor v. Barth

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

November 3, 2017

RICHARD B. SPOOR, Appellant,
JOHN M. BARTH, Appellee. IN RE: AMERLINK, LTD., Debtor. No. 14-145-8-CRA



         This matter is before the court on appeal by defendant-appellant Richard B. Spoor ("appellant"), from final order of the United States Bankruptcy Court dated February 3, 2017, (DE 1-1), denying appellant's revised motion for sanctions against counsel for plaintiff-appellee John M. Barth ("appellee"), including Michael J. Small, Reginald B. Gillespie, Jr., and N. Hunter Wyche, Jr., and the law firms of Foley & Lardner LLP and Wilson & Ratledge, PLLC, which motion was filed in the course of an adversary proceeding commenced by appellant September 12, 2014. The parties have submitted briefs on appeal, and in this posture the issues raised are ripe for ruling. Because the facts and legal arguments are adequately presented in the briefs and record, the court dispenses with any argument, as the same would not aid significantly the decisional process. For the reasons that follow, the court affirms the bankruptcy court's order denying sanctions.


         This adversary proceeding constitutes the latest in a series of actions arising from events surrounding the demise of Amer Link, Ltd. ("debtor"), a North Carolina corporation engaged in the business of selling materials for construction of log homes. According to the complaint, appellant founded the debtor and was, at various times the CEO, Treasurer, Chairman of the Board and majority shareholder. (DE 14-1 at 6 ¶ 6). Appellee is the father of John M. Barth Jr. ("Barth Jr.") who became President and CEO of the debtor in September 2006. (Id. ¶ 7).

         Debtor's petition for Chapter 11 bankruptcy, later converted to a Chapter 7 proceeding ("the bankruptcy case"), constitutes the first action leading to the instant proceeding. In that action, the bankruptcy court for this district appointed as trustee Stephen L. Beaman ("the trustee") by order entered November 23, 2009. The trustee filed an adversary proceeding naming as defendants, among others, appellant and appellee. That adversary proceeding concluded in settlement executed July 26, 2011. The memorandum of settlement provides "[t]rustee shall... to the fullest extent of his power and authority, release any and all claims now known or hereafter acquired by the Trustee or the estate against . . . [appellee] . . ." (DE 14-1 at 336). The bankruptcy court approved settlement September 19, 2011.

         According to the complaint, between years 2011 and2014, appellant's counsel represented various plaintiffs in actions litigated before North Carolina courts (collectively, "the state court actions") arising from facts surrounding the debtor's bankruptcy, naming appellee as defendant in each.[1] In the first, third, and fourth state court actions, filed October 5, 2011, May 22, 2014, and July 30, 2014, respectively, appellant was joined as plaintiff, and, in the second action, filed February 14, 2012, appellant was never joined as a party because, after the superior court ordered that appellant be so joined, plaintiffs took voluntary dismissal. Although each of the state court actions arises from facts surrounding debtor's bankruptcy, the North Carolina courts have determined that claims asserted in the state court actions are distinct from claims waived by the trustee where the state court plaintiffs suffered injuries "separate and distinct from other [debtor] shareholders or [debtor] itself." Spoor v. Barth, 781 S.E.2d. 627, 636 ( N.C. Ct. App. 2016); see Newton v. Barth, 788 S.E.2d. 653, 661 ( N.C. Ct. App. 2016) ("To be sure, the allegations in the Newton and Diorio Plaintiffs' complaints do relate to conduct that undoubtedly harmed [debtor] itself. However, the gravamen of the Newton and Diorio Plaintiffs' fraud and [Unfair and Deceptive Trade Practices] claims is not merely that they were injured by [debtor]' s collapse and the resulting breach of its contractual obligations to them, but instead that they never would have suffered any injury if they had not been fraudulently induced into entering into contracts with [debtor] as a result of misrepresentations...").

         Appellee commenced this adversary proceeding September 12, 2014, seeking declaratory judgment that the state court actions could have been brought by the bankruptcy trustee and, therefore, those actions are barred by the trustee's release and must be dismissed where the state court plaintiffs lack standing. Appellee also sought an injunction requiring appellant to cause dismissal of the state court actions and a pie-filing injunction prohibiting appellant from filing any additional actions concerning issues encompassed by the settlement agreement without prior authorization of the court. On September 26, 2014, appellant moved to dismiss the complaint pursuant to Federal Rules of Civil Procedure 12(b)(6), (7), and 19(a), on the grounds that appellee failed to state a claim, failed to join necessary parties, that the court lacked jurisdiction, and that appellee's request for injunctive relief was prohibited under the Anti-Injunction Act, 28 U.S.C. § 2283. On October 1, 2014, appellee filed a motion seeking injunctive relief as described in the prayer for relief. On December 19, 2014, the bankruptcy court denied appellee's motion for injunctive relief and granted appellant's motion to dismiss the adversary proceeding.

         Following dismissal appellant moved for sanctions pursuant to North Carolina Rule of Civil Procedure 11, 28 U.S.C. § 1927, 11 U.S.C. § 105, and the court's inherent authority as codified in part in Federal Rule of Bankruptcy Procedure 9011, on the ground that arguments advanced in support of appellee's motion for injunctive relief, and in opposition to appellant's motion to dismiss, were frivolous and unnecessarily multiplied proceedings. After hearing held January 4, 2017, the bankruptcy court denied the motion by order entered February 3, 2017. The bankruptcy court held that although appellee obtained none of the relief sought in the complaint, appellee's filings were not frivolous, vexatious, nor otherwise advanced in bad faith. This appeal followed.


         A. Standard of Review

         This court has jurisdiction to hear appeals from "final judgments, orders, and decrees" of the bankruptcy court. 28 U.S.C § 158(a)(1). The court reviews the bankruptcy court's legal determinations de novo. Ford Motor Credit Co. v. Reynolds & Reynolds Co. (In re JKJ Chevrolet MX 26 F.3d 481, 483 (4th Cir. 1994). The court reviews the bankruptcy court's decisions on sanctions for abuse of discretion. See In re Weiss. 111 F.3d 1159, 1169 (4th Cir. 1997). The court reviews the bankruptcy court's findings of fact for clear error. Green v. Staples (In re Greenl 934 F.2d 568, 570 (4th Cir. 1991). A finding of fact is "clearly erroneous" when "although there is evidence to support it, the reviewing court on the entire evidence is left with the definite and firm conviction that a mistake has been committed." Anderson v. City of Bessemer City, 470 U.S. 564, 573 (1985). A court necessarily abuses its discretion "if it base[s] its ruling on an erroneous view of the law or a clearly erroneous assessment of evidence." Cooter & Gell v. Hartmarx Corp, 496 U.S. 384, 405 (1990).

         B. Analysis

         1. Analysis of Sanctions Under the Court's Inherent Authority, Fed.R.Bankr.P. 9011, and 11U.S.C.§105

         Appellant's arguments pertaining to the court's inherent authority to issue sanctions and its authority to issue sanctions under Federal Rule of Bankruptcy Procedure 9011 and 11 U.S.C. § 105 turn on similar legal ...

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