Judge Edward Ellington, United States Bankruptcy Judge.
Having considered same, the Court finds that the Motion of Bobby Moak and Danny E. Cupit for Summary Judgment (Adv. Dkt. # 161) should be denied; that the MCF AF LLC's Motion for Summary Judgment (Adv. Dkt. # 166) should be granted; and that the joinder contained in WAG, LLC's Amended Combined Response to Motions for Summary Judgment filed by Defendants Bobby Moak and Danny Cupit, Dudley Guice, and MCF AF, LLC (Adv. Dkt. # 184) is granted as MCF AF, LLC's priority, but denied as to WAG, LLC's claim of priority.
The Court finds that the following facts
Eduardo A. Flechas (Flechas) is an attorney licensed to practice law in the State of Mississippi. According to the web site of the Secretary of State of the State of Mississippi, Flechas created the law firm of Flechas & Associates, P.A.
In October of 2007, the Debtor entered into Contract[s] of Employment (Employment Contracts) with five (5) separate parties.
The Simon Litigation involved an allegation that the plaintiffs suffered injuries as a result of ground water contamination from underground storage tanks allegedly owned and maintained by the defendants and/or their successors in interest. While the Simon Litigation was pending, the Debtor associated two additional attorneys to serve as co-counsel in the Simon Litigation.
On November 12, 2009, Danny Cupit, and Robert W. "Bobby" Moak (Cupit/Moak) entered into a contract styled Assignment Agreement
The basic terms of the Cupit/Moak Contract are that Cupit/Moak would provide to Flechas up to $100,000.00 "to be used in the prosecution"
Cupit/Moak allege that Flechas represented to them that he had not entered into any other similar contracts like the Cupit/Moak Contract. See Affidavit of Robert W. "Bobby" Moak, Adv. Proc. No. 1700006EE, Adv. Dkt. # 161-1, Exhibit A,
At the time that the Cupit/Moak Contract was entered into with Flechas, Cupit and Moak were attorneys licensed to practice law in Mississippi. Cupit and Moak were never in the same law firm as Flechas nor were they counsel of record for the plaintiffs in the Simon Litigation.
On March 15, 2011, MCF AF, LLC (MCF) and the Debtor entered into a Confidential Judgment Purchase and Sale Agreement
MCF paid the Debtor $295,500.00 in exchange for the Debtor selling $600,000.00 of the Debtor's attorney's fees in the Simon Litigation to MCF. In order to perfect its security interest, MCF filed a UCC Financing Statement
On May 14, 2012, The Grace Partnership, LP
On or about August 11, 2010, a jury in the Simon Litigation returned a verdict in favor of the plaintiffs. The verdict was for $19,000,000.00, however, the court subsequently reduced the verdict to a final judgment of $16,829,372.00. The defendants appealed the final judgment to the Supreme Court of Mississippi.
In September of 2013, the Simon Litigation plaintiffs entered into a settlement agreement with the defendants. In exchange for total releases of the defendants and dismissal with prejudice of the Simon Litigation, the plaintiffs agreed to accept $3,500,000.00 (Simon Litigation Settlement).
Flechas had other clients with claims similar to the Simon Litigation plaintiffs, but these claims had not been litigated. Out of the aggregate settlement amount, Flechas allocated $2,000,000.00 to the Simon Litigation. He allocated the remaining $1,500,000.00 to his clients whose claims had not been litigated.
Out of the Simon Litigation Settlement, Flechas disbursed portions of his attorney's fees to various parties, but did not tender any funds to Cupit/Moak, MCF or WAG. Instead of paying Cupit/Moak, MCF, and WAG, Flechas filed a Motion to Interplead and for Joinder of Parties.
It was at this point that Cupit/Moak, MCF, and WAG learned not only of each other, but also learned of other lending entities with whom Flechas and/or the Debtor had entered into contracts. Flechas and/or the Debtor sold, assigned or pledged a portion of the fees from the Simon Litigation to these parties in exchange for cash.
In the State Interpleader Motion, Flechas interplead $240,601.29 (Simon Litigation Funds). Flechas asserted that this was the balance of the fees owed to him from the Simon Litigation after the deduction of other fees and expenses.
MCF and some of the other named parties to the State Interpleader Motion, filed suit against Flechas and the Debtor in the United States District Court for the Southern District of Mississippi. (Case No. 3:13-cv-000621-DPJ-FKB) (District Court Litigation) instead of joining the State Interpleader Motion. The parties rigorously proceeded with the District Court Litigation.
Meanwhile in the State Interpleader Motion, the chancellor dismissed Flechas' interpleader motion and transferred Cupit/Moak's counter-claim to the Jefferson
On November 26, 2013, MCS Capital, LLC filed Involuntary Petitions under Chapter 7 of the Bankruptcy Code against the Debtor (Flechas & Associates, P.A.)
On September 30, 2016, this Court entered an Order Granting Motion for Release of Funds and Pay to Registry of the Court
On January 12, 2017, the Trustee commenced the above-styled adversary proceeding with the filing of the Complaint (Complaint). In the Complaint, the Trustee states that he received $240,295.29
The Court entered the Order Granting Motion for Interpleader (Adv. Dkt. # 27) (Interpleader Order) on February 3, 2017. The Interpleader Order states that "[t]he fact that the payment of the funds is in the Flechas & Associates, PA bankruptcy case (Case No. 13-03549 EE) is a convenience for the procedure of the interpleader and is not an adjudication that the funds are property of the Flechas & Associates, PA bankruptcy case."
The defendants filed answers to the Complaint and cross-claims against each other. A scheduling order was entered and discovery was conducted. The scheduling order was extended four or five times. Due to developments in the District Court Litigation (discussed below), on May 22, 2018, the parties entered into a Scheduling Order for Dispositive Motions (Adv. Dkt. # 159).
The two motions which are relative to this Opinion were filed by Cupit/Moak and MCF. On June 8, 2018, the Motion of Bobby Moak and Danny E. Cupit for Summary Judgment (Adv. Dkt. # 161) (Cupit/Moak Motion) and MCF AF LLC's
Cupit/Moak contend that they have priority over MCF and WAG because they hold a "valid and enforceable agreement with Flechas that gives them legal priority over any of the subsequent claims of these creditors."
Consequently, out of the $2,000,000.00 (Simon Litigation Funds), Cupit/Moak claim they are entitled to the total amount of $231,050.00. This figure includes $131,250.00 as 15% of Flechas' 50% contingent fee from the Simon Litigation plus the original $99,800.00 loaned to Flechas via the Cupit/Moak Contract.
MCF disputes Cupit/Moak's claim that they have a valid first lien on the Simon Litigation Funds. MCF alleges that the UCC does apply to the Cupit/Moak Contract. MCF asserts that even though Cupit/Moak entered into the Cupit/Moak Contract with Flechas before MCF entered into its contract with the Debtor, MCF has a valid first lien on the Simon Litigation Funds because unlike Cupit/Moak, MCF perfected its security interest in the Simon Litigation Funds with the filing of UCC-1 financing statements.
On July 17, 2018, WAG, LLC's Amended Combined Response to Motions for Summary Judgment filed by Defendants Bobby Moak and Danny Cupit, Dudley Guice, and MCF AF, LLC (Adv. Dkt. # 184) (WAG Joinder) was filed. In the WAG Joinder, WAG joined the MCF Motion with respect to MCF's position that MCF has a superior lien over Cupit/Moak, but "vehemently disputes the `fact' set forth in the MCF Motion and MCF Brief that MCF possesses a `first, perfected, secured lien and [the interpleaded funds] should be distributed to MCF AF.'"
As mentioned previously, in addition to litigation in Jefferson County, Mississippi, the parties were involved in litigation before the Honorable Daniel P. Jordan, III, in the United States District Court for the Southern District of Mississippi.
On November 7, 2016, the Agreed Final Judgment (Dt. Crt. Dkt. No. 320) (Cupit/Moak Judgment) was entered. In the Cupit/Moak Judgment, Cupit/Moak were awarded a final judgment against Flechas in the amount of $125,000.00 plus post-judgment interest. The judgment further states that "[t]his judgment shall constitute a lien and/or security interest on such portion of Flechas' attorney [sic] fees from the [Simon Litigation] assigned to Moak and Cupit to the same extent that the initial assignment was considered as a lien and/or security interest against said fees."
On July 20, 2017, the Agreed Findings of Fact, Conclusions of Law and Final Judgment in Favor of MCF AF LLC (Dt. Crt. Dkt. No. 323) (MCF Judgment) was entered. In the MCF Judgment, MCF was granted a final judgment against the Debtor, Flechas, and The Flechas Law Firm, PLLC, jointly and severally, in the amount of $400,000.00 plus post-judgment interest. The MCF Judgment further states that it is nondischargeable.
This Court has jurisdiction of the subject matter and of the parties to this proceeding pursuant to 28 U.S.C. § 1334 and 28 U.S.C. § 157. This is a core proceeding as defined in 28 U.S.C. § 157(b)(1) and (2)(K).
Rule 56 of the Federal Rules of Civil Procedure,
"The moving party bears the burden of showing the ... court that there is an absence of evidence to support the nonmoving party's case. Celotex Corp. v. Catrett, 477 U.S. 317, 325, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986)." Hart v. Hairston, 343 F.3d 762, 764 (5th Cir. 2003).
Once a motion for summary judgment is pled and properly supported, the burden shifts to the non-moving party to prove that there are genuine disputes as to material facts by "citing to particular parts of materials in the record, including depositions, documents, electronically stored information, affidavits or declarations, stipulations, ... admissions, interrogatory answers, or other materials."
When considering a motion for summary judgment, the court must view the pleadings and evidentiary material, and the reasonable inferences to be drawn therefrom, in the light most favorable to the non-moving party, and the motion should be granted only where there is no genuine issue of material fact. Thatcher v. Brennan, 657 F.Supp. 6, 7 (S.D. Miss. 1986), aff'd, 816 F.2d 675 (5th Cir. 1987)(citing Walker v. U-Haul Co. of Miss., 734 F.2d 1068, 1070-71 (5th Cir. 1984)); See also Matshushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 587-88, 106 S.Ct. 1348, 1356-57, 89 L.Ed.2d 538, 553 (1986). The court must decide whether "the evidence presents a sufficient disagreement to require submission to a jury or whether it is so one-sided that one party must prevail as a matter of law." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 251-52, 106 S.Ct. 2505, 2512, 91 L.Ed.2d 202 (1986).
As a preliminary matter, the Court must address the effect of the agreed judgments Cupit/Moak, MCF, and WAG entered into in the District Court Litigation. The bankruptcy cases of Flechas and the Debtor were held in abeyance to allow the parties to litigate the validity and extent of their liens. Before the District Court Litigation went to trial before Judge Jordan, all of the parties entered into agreed judgements and/settlements:
Black's Law Dictionary defines a judgment as "[a] court's final determination of the rights and obligations of the parties in a case."
In the Court of Appeals for the Fifth Circuit, the fact that a judgment resolving a dispute is reached by agreement rather than after a hearing on the merits does not mean that the judgment has no res judicata effect. "An agreed judgment is entitled to full res judicata effect. United States v. International Building Co., 345 U.S. 502, 505-06, 73 S.Ct. 807, 809, 97 S.Ct. 1182 (1953); Jones v. Texas Tech Univ., 656 F.2d 1137, 1144 (5th Cir.1981); Kaspar Wire Works, Inc. v. Leco Engineering & Mach., Inc., 575 F.2d 530, 538-39 (5th Cir. 1978)." United States v. Shanbaum, 10 F.3d 305, 313-14 (5th Cir. 1994).
Consequently, when Cupit/Moak, MCF, and WAG settled their claims in District Court and entered into agreed final judgments, the extent and validity of their claims against the Debtor and/or Flechas were finally determined and memorialized in the judgments.
Once the validity and extent of the claims of Cupit/Moak, MCF, and WAG were established in the District Court Litigation, the parties returned to the Bankruptcy Court to have the issue of the priority of their claims adjudicated. The parties all agree that the Cupit/Moak Contract is first in time, but then the question arises of whether Cupit/Moak have first priority.
The parties have thoroughly briefed the issues which they believe relate to who has first priority. The main arguments the parties have briefed are: (1) whether Article 9 of the U.C.C. applies to the Cupit/Moak Contract; (2) if Article 9 applies, is the Cupit/Moak Contract an account or an instrument; and (3) does any provision of Article 9 exclude the Cupit/Moak Contract from the filing requirements of Article 9.
The Court, however, believes the question of which party has first priority should not be decided on the basis of whether the U.C.C. or common law applies. Rather, the Court finds that the priority of the parties can be determined upon an examination of the Employment Contracts and the contracts Cupit/Moak, MCF, and WAG entered into with the Debtor and/or Flechas.
It is undisputed that the Debtor and Flechas entered into written contracts with Cupit/Moak, MCF, and WAG. The issue then becomes whether Flechas and the Debtor have breached the contracts with Cupit/Moak, MCF, and WAG.
It is evident that the parties have proven the second and third element: that Flechas and/or the Debtor's failure to pay was a breach of the contracts with Cupit/Moak, MCF, and WAG and that Cupit/Moak, MCF, and WAG each suffered monetary damages as a result of the breach. Therefore, in order to establish a breach of contract and to be entitled to damages, the parties must establish the first element — the existence of a valid and binding contract between the parties.
In order to prove the existence of a valid and binding contract, "Mississippi law is clear that, `in order to maintain an action to enforce a breach of contract or to recover damages growing out of a breach, a relationship of privity of contract must exist between the party damaged and the party sought to be held liable for the breach.' Allgood v. Bradford, 473 So.2d 402, 415 (Miss. 1985) (citing Burns v. Washington Savings, 251 Miss. 789, 171 So.2d 322, 324 (1965))."
Upon examination of the Employment Contracts the Simon Litigation plaintiffs signed, each contract
Under Mississippi law, when interpreting a contract, a court must undertake a three-step analysis of the contract:
Martindale v. Hortman Harlow Bassi Robinson & McDaniel PLLC, 119 So.3d 338, 342 (Miss. Ct. App. 2012).
Looking to the Cupit/Moak Contract, the contract is "between Eduardo A. Flechas ("Flechas"), Danny Cupit ("Cupit"), and Robert W. "Bobby" Moak ("Moak")."
The plain reading of the Cupit/Moak Contract is that it is between Cupit/Moak and Flechas. Therefore, Cupit/Moak has privity of contract with Flechas and has a claim against Flechas for breach of the Cupit/Moak Contract.
Cupit/Moak does not, however, have privity of contract with the entity entitled to the attorney's fees from the Simon Litigation — the Debtor. The Debtor (Flechas & Associates, P.A.) is the party that entered into the Employment Contracts with the Simon Litigation plaintiffs and the party that is entitled to the attorney's fees from the Simon Litigation. As the only party to the Employment Contracts, only the Debtor could enter into a contract to assign a percentage of the attorney's fees from the Simon Litigation. While Flechas may be the only member of the Debtor, "[a] corporation is [an] entity separate and distinct from its stockholders. Ill. Cent. RR. v. Miss. Cotton Seed Prod., Co., 166 Miss. 579, 148 So. 371, 372 (1933)." Rosson v. McFarland, 962 So.2d 1279, 1284, (¶ 22) (Miss. 2007).
The Court finds "`no contract, statute, or law that would establish that [Flechas & Associates, P.A.] had a duty to ... pay money to [Cupit/Moak,] a party it was not obligated to pay.'" United Plumbing, 30 So.3d at 347. (quoting trial judge). Since, Cupit/Moak does not have privity of contract with the Debtor, Cupit/Moak does not have a valid and binding contract with the Debtor. Consequently, Cupit/Moak does not have a lien on any attorney's fee earned by the Debtor in the Simon Litigation.
Unlike the Cupit/Moak Contract, both the MCF Contract and the WAG Contract are with the Debtor, Flechas & Associates, P.A.
WAG agrees with MCF that MCF "is properly perfected and that is [sic] stands ahead of Moak/Cupit's place in the line of lien priority .... [however] WAG contends that MCS Capital, LLC ("MCS") hold the priority position among creditors"
MCF disagrees and asserts that it has priority over MCS Capital, LLC and WAG. MCF states that before MCF filed its motion for summary judgment, MCF and MCS Capital, LLC reached a settlement with regard to claim priority over the Simon Litigation Funds. Therefore, MCF states that MCS Capital, LLC is no longer asserting a claim to the Simon Litigation Funds.
The Court acknowledges that an order has not been entered memorializing the settlement between MCS Capital, LLC and MCF. The Scheduling Order for Dispositive Motions (Adv. Dkt. # 159) was, however, served on MCS Capital, LLC (see Adv. Dkt. # 160). MCS Capital, LLC did not file a dispositive motion claiming an interest in the Simon Litigation Funds nor has MCS Capital, LLC filed pleadings in response to any of the summary judgment motions which were filed in this adversary proceeding.
Due to MCS Capital, LLC's lack of participation in the motions before the Court, the Court finds that MCS Capital, LLC is no longer claiming an interest in the Simon Litigation Funds. Consequently, the Court does not find WAG's argument that MCS Capital, LLC has a first priority on the Simon Litigation Funds to be persuasive.
Since the MCF Contract was entered into on March 15, 2011, and as conceded by WAG,
None of the parties have shown the existence of "disputes over facts that might affect the outcome of the suit under the governing law [in order to] properly preclude the entry of summary judgment." Anderson, 477 U.S. at 248, 106 S.Ct. 2505. Consequently, the Court must grant summary judgment as a matter of law.
In order to establish a breach of contract, the parties have to show a valid and binding contract, a breach of that contract, and damages. It is undisputed that Cupit/Moak, MCF, and WAG had valid and binding contracts, but the pivotal question is with whom. The Cupit/Moak Contract is a valid and binding contract with Flechas. The MCF Contract and WAG Contract are valid and binding contracts with the Debtor.
The MCF Contract and Financing Statement pre-date the WAG Contract. The Court finds that WAG cannot "piggy-back" on MCS Capital, LLC's contract with Flechas and the Debtor in order to gain priority over MCF. For these reasons, the Court finds that summary judgment should be granted as a matter of law in favor of MCF and that MCF has a first priority lien on the $240,295.29 interplead into the registry of the Court.
To the extent the Court has not addressed any of the parties' other arguments or positions, it has considered them and determined that they would not alter the result.
A separate judgment consistent with this opinion will be entered in accordance with Rule 7054 of the Federal Rules of Bankruptcy Procedure.