Filed: Dec. 17, 2012
Latest Update: Feb. 12, 2020
Summary: UNPUBLISHED UNITED STATES COURT OF APPEALS FOR THE FOURTH CIRCUIT No. 11-2274 EUN O. KIM; AMY HSIANG-CHI TONG; CHIN KIM; DANIEL I. KIM; GOOM Y. PARK; GYEASOOK KIM; KAP J. CHUNG; HONG S. CHUNG; LENA KIM; MI YOUNG KIM; MYONG HO NAM; YOUN HWAN KIM; YOUNG JOO KANG; ALAN YOUNG CHENG; SHUI QUI ZHANG; EVA YIHUA TU; HELENA LEE; KI N. LEE; SUN H. LEE; KWANG BAG LEE; KWANG JON KIM; NAM DOLL HUH, Plaintiffs - Appellants, v. PARCEL K- TUDOR HALL FARM LLC, Defendant - Appellee, and DOUGLAS A. NYCE; NYCE AND
Summary: UNPUBLISHED UNITED STATES COURT OF APPEALS FOR THE FOURTH CIRCUIT No. 11-2274 EUN O. KIM; AMY HSIANG-CHI TONG; CHIN KIM; DANIEL I. KIM; GOOM Y. PARK; GYEASOOK KIM; KAP J. CHUNG; HONG S. CHUNG; LENA KIM; MI YOUNG KIM; MYONG HO NAM; YOUN HWAN KIM; YOUNG JOO KANG; ALAN YOUNG CHENG; SHUI QUI ZHANG; EVA YIHUA TU; HELENA LEE; KI N. LEE; SUN H. LEE; KWANG BAG LEE; KWANG JON KIM; NAM DOLL HUH, Plaintiffs - Appellants, v. PARCEL K- TUDOR HALL FARM LLC, Defendant - Appellee, and DOUGLAS A. NYCE; NYCE AND C..
More
UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 11-2274
EUN O. KIM; AMY HSIANG−CHI TONG; CHIN KIM; DANIEL I. KIM;
GOOM Y. PARK; GYEASOOK KIM; KAP J. CHUNG; HONG S. CHUNG;
LENA KIM; MI YOUNG KIM; MYONG HO NAM; YOUN HWAN KIM; YOUNG
JOO KANG; ALAN YOUNG CHENG; SHUI QUI ZHANG; EVA YIHUA TU;
HELENA LEE; KI N. LEE; SUN H. LEE; KWANG BAG LEE; KWANG JON
KIM; NAM DOLL HUH,
Plaintiffs - Appellants,
v.
PARCEL K− TUDOR HALL FARM LLC,
Defendant - Appellee,
and
DOUGLAS A. NYCE; NYCE AND CO., INC.,
Defendants.
No. 11-2298
EUN O. KIM; AMY HSIANG−CHI TONG; CHIN KIM; DANIEL I. KIM;
GOOM Y. PARK; GYEASOOK KIM; KAP J. CHUNG; HONG S. CHUNG;
LENA KIM; MI YOUNG KIM; MYONG HO NAM; YOUN HWAN KIM; YOUNG
JOO KANG; ALAN YOUNG CHENG; SHUI QUI ZHANG; EVA YIHUA TU;
HELENA LEE; KI N. LEE; SUN H. LEE; KWANG BAG LEE; KWANG JON
KIM; NAM DOLL HUH,
Plaintiffs - Appellees,
v.
PARCEL K− TUDOR HALL FARM LLC,
Defendant - Appellant,
and
DOUGLAS A. NYCE; NYCE AND CO., INC.,
Defendants.
Appeals from the United States District Court for the District
of Maryland, at Greenbelt. Alexander Williams, Jr., District
Judge. (8:09-cv-01572-AW)
Argued: October 25, 2012 Decided: December 17, 2012
Before KING and FLOYD, Circuit Judges, and R. Bryan HARWELL,
United States District Judge for the District of South Carolina,
sitting by designation.
Affirmed in part, vacated in part, and remanded by unpublished
per curiam opinion.
ARGUED: James P. Koch, Baltimore, Maryland, for
Appellants/Cross-Appellees. Stephen Ari Metz, SHULMAN, ROGERS,
GANDAL, PORDY & ECKER, PA, Potomac, Maryland, for
Appellee/Cross-Appellant. ON BRIEF: Morton A. Faller, SHULMAN,
ROGERS, GANDAL, PORDY & ECKER, PA, Potomac, Maryland, for
Appellee/Cross-Appellant.
Unpublished opinions are not binding precedent in this circuit.
2
PER CURIAM:
In 2004, Sunchase Capital Partners XI, LLC, purchased 141
acres of real property from Tudor Hall Farm, Inc. This property
included a parcel known as Parcel K, to which Appellee and
Cross-Appellant Parcel K–Tudor Hall Farm, LLC, (PK-THF) took
title. To raise funding for the purchase, Sunchase asked
individuals—including Eun O. Kim and the other twenty-one
appellants and cross-appellees (collectively “the Investors”)—to
invest in the project. Sunchase ultimately filed for
bankruptcy. Under its Chapter 11 plan, Sunchase sold all of the
Tudor Hall Farm property except Parcel K, and the Investors
received nothing.
The Investors brought a cause of action against PK-THF,
seeking to impose a constructive trust on Parcel K because,
according to the Investors, PK-THF came to own it due to
Sunchase’s fraudulent behavior. The district court granted the
Investors’ motion for summary judgment and imposed a
constructive trust in the amount of $50,640. The Investors now
appeal, challenging the method the district court used to value
the constructive trust, and PK-THF cross-appeals the district
court’s decision to impose the trust. For the reasons set forth
in the district court’s opinion, we affirm the district court’s
imposition of a constructive trust and its adoption of the
“proportionality approach” to value the trust. See Kim v. Nyce,
3
807 F. Supp. 2d 442 (D. Md. 2011). However, because we find
that the district court erred in its application of the
proportionality approach, we vacate in part and remand for
further proceedings.
I.
A.
In April 2004, Sunchase signed an Agreement of Sale to
purchase property from Tudor Hall Farm, Inc., for $15 million.
The Agreement concerned 141 acres of real property known as
Parcels A, B, C, E, F, G, H, I, J, and K. Pursuant to the
Agreement, PK-THF obtained title to Parcel K, which consisted of
7.88 acres, and Sunchase took title to the remaining parcels.
Both Sunchase and Tudor Hall Farm possessed initial membership
stakes in PK-THF, with Sunchase taking an eighty-percent
membership interest and Tudor Hall Farm taking the remaining
twenty-percent stake. Nyce & Co., Inc.—a company owned by
Douglas A. Nyce—was a Class B member of Sunchase and had the
sole authority to make all decisions with respect to Sunchase’s
management and operations.
To raise the $15 million necessary to purchase the
property, Sunchase offered 100 Class A membership units in
Sunchase for $150,000 each. The Investors purchased these Class
A units. Pursuant to the Confidential Summary of Offering,
which described the investment plan, the “Minimum Offering” was
4
fifty Class A units or $7.5 million. The Confidential Summary
also specified that, if Sunchase did not raise $15 million by
selling 100 Class A units—the “Maximum Offering”—and could not
obtain alternate funding, it would not purchase the property.
As part of their transaction with Sunchase, each investor signed
a Subscription Agreement that required Sunchase to terminate the
offer and return each investor’s payment “if subscription[s] for
at least 50 Units [were] not received and accepted by the
Company on or prior to April 29, 2005.” Each investor also
signed an Operating Agreement, which obligated Nyce to “act at
all times in a fiduciary manner toward the Company and the
Members.”
Sunchase closed on the Tudor Hall Farm property on May 2,
2005, despite its failure to raise the $15 million required in
the Confidential Summary. As of the closing date, Sunchase had
made $3.125 million by selling Class A membership units.
Sunchase sold an additional $3.972 million in Class A membership
units over the next three months, bringing its total to $7.097
million, $3.120 million of which came from the Investors. This
total fell $403,000 short of the Minimum Offering and $7.903
million short of the Maximum Offering. In light of this
shortfall, Sunchase negotiated a modification of the Agreement
of Sale, which allowed Sunchase to pay Tudor Hall Farm in
installments under the terms of a Purchase Money Note in
5
exchange for a $500,000 increase in the purchase price of the
property. A first deed of trust on the property secured the
Purchase Money Note.
When Sunchase experienced difficulties making payments on
the Purchase Money Note, Nyce asked William D. Pleasants to make
a $5.25 million investment in Sunchase. Via the 2003 Trust of
the Descendants of William D. Pleasants, Jr. (Pleasants Trust),
Pleasants made a $5.315 million investment in Sunchase in
exchange for a Class A membership interest, leaving the
Investors with a twenty-five-percent Class A membership
interest. 1 The Pleasants Trust created Tudor Hall Funding, Inc.,
to oversee the investment, and Tudor Hall Funding ultimately
purchased the Purchase Money Note from Tudor Hall Farm.
Sunchase eventually defaulted, causing Tudor Hall Funding to
initiate foreclosure proceedings against the Tudor Hall Farm
property. Parcel K was not included in the foreclosure
proceedings.
On September 10, 2007, Sunchase filed a Chapter 11
bankruptcy petition in the United States Bankruptcy Court for
1
We arrive at this figure by adding the Investors’ $3.12
million contribution, the non-litigant Class A investors’ $3.977
million contribution, and the Pleasants Trust’s $5.315
investment, creating a sum of $12.412 million. The Investors’
$3.12 million contribution is approximately twenty-five percent
of $12.412 million.
6
the District of Maryland. Sunchase and Tudor Hall Funding
proposed a Chapter 11 plan that required Sunchase to sell the
property to Tudor Hall Funding free of any liens, claims, and
encumbrances to satisfy Sunchase’s obligation under the Purchase
Money Note. The sale did not affect Parcel K, which PK-THF
continued to own. Under the plan, Sunchase’s Class A members—
including the Investors—received nothing, their equity interests
were eliminated, and they were prohibited from bringing certain
claims against Tudor Hall Funding. The plan allowed Sunchase to
assign its eighty-percent membership interest in PK-THF to Tudor
Hall Funding. In a separate transaction, Tudor Hall Funding
acquired Tudor Hall Farm’s twenty-percent interest in PK-THF,
making Tudor Hall Funding the sole owner of all membership
interests in PK-THF. On March 13, 2009, the bankruptcy court
confirmed the proposed plan.
B.
The Investors allege that Nyce created a constructive trust
in Parcel K when he used fraudulent methods to sell Sunchase’s
Class A membership units and purchase the property. Although
PK-THF obtained title to Parcel K, the Investors contend that
their funding is traceable to the purchase of that property,
giving them an equitable claim to Parcel K. On October 1, 2009,
the district court entered default judgments against Nyce and
7
Nyce & Co. in the amount of $3.12 million, which left the
Investors’ constructive trust cause of action against PK-THF as
their only remaining claim.
The district court granted the Investors’ motion for
summary judgment on the constructive trust issue on September 2,
2011, holding in relevant part that (1) Sunchase had used the
Investors’ funds to purchase Parcel K, (2) Nyce had obtained
those funds through fraud or other improper conduct, (3) it
would be unjust for PK-THF to retain the benefit of this fraud,
and (4) Sunchase’s Chapter 11 plan did not enjoin the Investors’
claims. To determine the appropriate valuation for the
constructive trust, the district court invited both parties to
submit memoranda regarding which portion of the Investors’ $3.12
million contribution Sunchase used to purchase Parcel K.
On November 2, 2011, the district court found that the
Investors were entitled to a constructive trust on Parcel K in
the amount of $50,640. 2 The Investors argued that the court
2
The district court referred to this amount as the
“constructive trust lien.” The Investors suggest that this
terminology is “internally inconsistent” because a party cannot
have the “unlimited ownership interest” that a constructive
trust provides and have a lien valued at less than that amount.
The district court was presumably determining the value of the
constructive trust, which at least one other court has allowed.
See generally Pike v. Commodore Motel Corp., Civ. A No. 940,
1989 WL 57026 (Del. Ch. May 25, 1989). To mirror the
terminology that other courts have employed, we refer to the
8
should take a “commingled funds approach” and impose a trust
equivalent in value to the Investors’ total investment: $3.12
million. Instead, the district court arrived at the $50,640
figure by adopting PK-THF’s proposed “proportionality approach.”
Because the Investors contributed $3.12 million—or approximately
twenty percent of the total purchase price for the Tudor Hall
Farm property—the district court found that the trust should
equal twenty percent of the purchase price of Parcel K. The
court acknowledged that the parties had not introduced any
“direct proof as to what dollar amount of the acquisition went
toward Parcel K” and decided to use the consideration recited in
the deed—$253,200—as the purchase price when calculating the
trust’s value. See Kim, 807 F. Supp. 2d at 455, 457. This
amount stems from Maryland’s tax assessment of Parcel K and
contradicts the value included in the Operating Agreement, which
sets Parcel K’s value at $1 million “for all purposes.”
In this appeal, the Investors challenge the district
court’s decision to employ a proportionality approach, and PK-
THF cross-appeals the court’s finding that a constructive trust
was appropriate. We affirm the district court’s decision to
impose a constructive trust and its adoption of the
“value” or “amount” of the trust rather than a “constructive
trust lien.”
9
proportionality approach to calculate the trust’s value.
However, we vacate in part the district court’s grant of summary
judgment and remand for further consideration of (1) whether
$253,200 is the appropriate purchase price to use when
calculating the trust’s value and (2) whether the trust should
equal twenty percent of the purchase price of Parcel K.
II.
Having had the benefit of oral argument and after carefully
reviewing the briefs, record, and controlling legal authorities,
we agree with the district court’s analysis with respect to its
decision that the facts of this case warrant the imposition of a
constructive trust. See Kim, 807 F. Supp. 2d at 448-49, 451-52.
Specifically, we agree that (1) the Investors’ funds are
traceable to Parcel K, (2) Nyce and Nyce & Co. obtained those
funds through fraud, (3) it would be unjust for PK-THF to retain
the benefit of this wrongful conduct, and (4) Sunchase’s Chapter
11 plan does not enjoin the Investors’ claims. Accordingly, we
affirm the district court’s decision to impose a constructive
trust on the reasoning of the district court.
10
III.
A.
We also agree that the district court correctly adopted PK-
THF’s proposed “proportionality approach” rather than the
Investors’ suggested “commingled funds approach.” See Kim, 807
F. Supp. 2d at 456-58. We therefore affirm the district court’s
decision to use the proportionality approach on the reasoning of
the district court. However, as discussed below, we find that
the district court erred in its application of the
proportionality approach.
B.
Summary judgment is appropriate only if “there is no
genuine dispute as to any material fact.” Fed. R. Civ. P.
56(a). Under this standard, “[o]nly disputes over facts that
might affect the outcome of the suit under the governing law
will properly preclude the entry of summary judgment.” Anderson
v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). A court
considering a summary judgment motion must view the facts in the
light most favorable to the non-moving party. United States v.
Diebold, Inc.,
369 U.S. 654, 655 (1962) (per curiam). Because
this case concerns cross-motions for summary judgment, we
consider “each motion . . . individually, and [view] the facts
relevant to each . . . in the light most favorable to the non-
11
movant.” Mellen v. Bunting, 327 F.3d 355, 363 (4th Cir. 2003).
We review de novo both the district court’s decision to grant
the Investors’ motion for summary judgment and its conclusions
of law. Moore Bros. Co. v. Brown & Root, Inc.,
207 F.3d 717,
724 (4th Cir. 2000); Shaw v. Stroud,
13 F.3d 791, 798 (4th Cir.
1994).
The Investors claim that the district court erred in
determining the value of Parcel K, which resulted in the court
incorrectly computing the amount of the constructive trust. The
Investors make two arguments regarding why the district court
erred when it set Parcel K’s value at $253,200. First, the
Investors contend that the district court should not have
decided this issue on summary judgment. Although the district
court concluded without discussion that the value recited in the
Parcel K deed—$253,200—constituted the “best evidence” of Parcel
K’s purchase price, the record contains additional evidence of
Parcel K’s value that the district court did not acknowledge:
the $1 million figure that appears in the Operating Agreement.
The Investors contend that the existence of two estimates of
Parcel K’s value created a genuine dispute of material fact, so
the district court should not have resolved the issue on summary
judgment. We agree.
Second, the Investors argue that the district court erred
when it used the value recited in the Parcel K deed as the
12
purchase price because this figure was drawn directly from
Maryland’s tax assessment of Parcel K. In E.L. Gardner, Inc. v.
Bowie Joint Venture, the Maryland Court of Appeals explained
that “generally, in and of itself, assessed valuation is not
admissible as evidence of valuation for purposes other than
taxation.” 494 A.2d 988, 991 (Md. 1985) (quoting C.C. Marvel,
Annotation, Valuation for Taxation Purposes as Admissible to
Show Value for Other Purposes,
39 A.L.R. 2d 209, § 2 (1955))
(internal quotation marks omitted). The primary rationale for
this rule is that the tax assessment value typically does not
mirror the fair market value of the property. Marvel, 39
A.L.R.2d at § 2. The district court did not consider the deed
value’s connection to the Maryland tax assessment figure in its
opinion.
In their brief, the Investors illustrate the applicability
of the rationale behind not using tax assessment values in non-
tax contexts in this case. The Investors explain that using the
tax assessment as the purchase price yields a price per acre of
$32,132 3 for Parcel K, which is drastically different from the
3
The Investors calculated the price per acre to be $32,106
because they rounded the deed price to $253,000. Our figure
differs because we did not round the deed price.
13
$108,924 per acre 4 that Sunchase paid for the other Tudor Hall
Farm parcels. By contrast, using the Operating Agreement’s $1
million figure as the purchase price produces a price per acre
of $126,904, which is more consistent with the price that
Sunchase actually paid for the other parcels. The rule against
using tax assessments for non-tax purposes and this case’s
alignment with the rationale behind that rule further
illustrates that the district court may have erred when it
assumed that the Parcel K deed was the “best evidence” of the
property’s value. Because the dispute regarding Parcel K’s
value will affect the outcome of this lawsuit and therefore
qualifies as an issue of material fact, the district court
should not have resolved the matter on summary judgment.
C.
In addition to contending that the district court erred in
determining Parcel K’s value on summary judgment, the Investors
also argue that the district court erred in calculating which
4
We arrived at this amount by subtracting the Parcel K
value recited in the Operating Agreement ($1 million) from the
total purchase price ($15.5 million) to determine the purchase
price of the other parcels. We then divided this figure ($14.5
million) by the acreage of the other parcels (133.12 acres).
Using the $253,200 value recited in the deed as Parcel K’s
purchase price yields a price per acre of $114,534, which is an
even starker contrast.
14
percentage of Parcel K’s worth to allocate to the constructive
trust. The district court decided to value the constructive
trust at twenty percent of Parcel K’s purchase price because the
Investors’ $3.12 million investment represented twenty percent
of the $15.5 million purchase price of the Tudor Hall Farm
property. Kim, 807 F. Supp. 2d at 457. However, the Investors’
contribution also represented a twenty-five-percent Class A
membership interest in Sunchase, and Class A membership sales
financed Sunchase’s purchase of the Tudor Hall Farm property.
This discrepancy—which the district court failed to address—
creates a genuine dispute of material fact regarding whether the
Investors contributed twenty or twenty-five percent of Parcel
K’s purchase price. The district court therefore erred in
resolving this issue on summary judgment.
IV.
For the foregoing reasons, we affirm in part, vacate in
part, and remand for further proceedings consistent with this
opinion. On remand, the district court should determine Parcel
K’s value and consider what percentage of the Investors’
contribution financed the purchase of Parcel K. It should then
adjust the value of the constructive trust accordingly.
AFFIRMED IN PART,
VACATED IN PART,
AND REMANDED
15
