Searching over 5,500,000 cases.

Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.

Walker v. Family Trust Services, LLC

United States District Court, M.D. Tennessee, Nashville Division

January 31, 2018

FAMILY TRUST SERVICES, LLC, et al., Appellees.



         Debtor-Appellant Charles E. Walker appeals from the July 13, 2016 Order (the “Order”) of the United States Bankruptcy Court for the Middle District of Tennessee (the “Bankruptcy Court”) in the Chapter 11 case In re: Charles E. Walker, No. 3:16-bk-03304, granting the appellee's Motion to Appoint Trustee. (Doc. No. 1; see also B'cy Doc. Nos. 134 (Order Granting Motion to Appoint Trustee, 145 (Notice of Appeal of Order).)[1] The following motions ancillary to the appeal are also pending: (1) Appellees' Motion to Supplement Record and Take Judicial Notice (Doc. No. 25) (as corrected by Doc. No. 29); and (2) Appellees' Motion to Consider Post-Judgment Facts and Take Judicial Notice (Doc. No. 34).

         The appeal and the motions have been fully briefed by both parties. For the reasons set forth herein, the Order will be affirmed, and the other pending motions will be denied as moot.

         I. Background and Procedural History

         Debtor Charles E. Walker filed a voluntary personal Chapter 11 Bankruptcy Petition with the United States Bankruptcy Court for the Western District of Tennessee on February 29, 2016. (B'cy Doc. No. 1.) The case was transferred to the Bankruptcy Court for the Middle District of Tennessee on May 6, 2016. Appellees Family Trust Services, LLC, Billy Gregory, Steven Reigle, Regal Homes Co., and John Sherrod are also the plaintiffs in a civil tort suit against Walker and REO Holdings, LLC (“REO”), filed in the Chancery Court for Davidson County, Tennessee and subsequently transferred to the Bankruptcy Court as an adversary proceeding. Family Trust Services, LLC et al. v. REO Holdings, LLC et al. (“FTS v. REO”), Adversary Proceeding No. 3:16-ap-90130 (M.D. Tenn. Bankr.) (formerly Chancery Court No. 15-780-BC).

         On June 8, 2016, the appellees filed their Motion for Appointment of Trustee, pursuant to Rule 2007.1 of the Federal Rules of Bankruptcy Procedure and 11 U.S.C. § 1104. (B'cy Doc. No. 77.) In the Memorandum in support of this motion (B'cy Doc. No. 78), the appellees argued that appointment of a trustee was warranted under both 11 U.S.C. § 1104(a)(1), which provides for the appointment of a trustee in a Chapter 11 case “for cause, ” or under § 1104(a)(2), which provides for such an appointment if it is “in the interests of creditors, any equity security holders, and other interests of the estate.” More specifically, the appellees argued that Walker and his company, REO, had engaged in deceptive and fraudulent business practices. Walker opposed the motion. (B'cy Doc. No. 105.) The Bankruptcy Court conducted an evidentiary hearing on July 12, 2016 and ruled from the bench and in a subsequent written Order that “sufficient grounds exist[ed] for appointment of a trustee pursuant to 11 U.S.C. § 1104.” (B'cy Doc. No. 134.) The Bankruptcy Court summarized the salient evidence presented by the appellees at the hearing as follows:

First was the testimony of Judith Weaver, which primarily related to portions of Exhibit 108 and Exhibit 60. And the bottom line is that Ms. Weaver is a notary in Georgia who is quite adamant that she did not sign the pertinent document that involved a quitclaim deed for the ultimate benefit of REO and Mr. Walker
The details get a little deep in terms of how notaries work but it, basically, boils down to the fact that she has certain procedures involving the embossing tool and a stamp and the way she signs her name and the type of ink she uses, and other factors that make it easy for her to tell when a document is not one that she signed or sealed. And the Court was quite convinced that this particular document, Exhibit 60, is one that she did not sign or seal and, therefore, in some manner or another REO and Mr. Walker ended up being the beneficiary of a document that was clearly forged by someone.
The situation is somewhat similar with regard to a Tennessee Notary who testified, Rhonda Norman. The . . . upshot is the same, that she is absolutely convinced and the Court is likewise convinced that Exhibit 58, which is also a part of Exhibit 108, was a document that did, in fact include some type of forgery.

(July 12, 2016 Hr'g Tr. (“Hr'g Tr.”), Doc. No. 11, at 39-40.)

         The Bankruptcy Court acknowledged that it was unclear how the forgeries took place or the extent to which Walker was involved in orchestrating the forgeries. However, the Bankruptcy Court observed that it was “fairly . . . undisputed that there was fraudulent activity connected to Mr. Walker and REO, connected in the sense that it was done for the ultimate benefit of Mr. Walker and REO. Whether it was done at the behest of Mr. Walker and REO it's hard to tell. Whether it was . . . instigated by them there's no clear evidence. But we do know that the Debtors were directly connected, through the use of forged documents, to some very fraudulent activity.” (Hr'g Tr. 40-41.) The Bankruptcy Court further noted that Walker had failed to rebut any of this evidence or offer an explanation that would satisfy the Court that Walker was unaware that dishonest acts were being perpetrated on his behalf. The Bankruptcy Court also found it significant that, after being accused of dishonesty in state court, Walker promptly filed his bankruptcy case in the Western District of Tennessee. The Bankruptcy Court noted that, to do so, Walker affirmatively lied on his petition, stating that he lived in Humboldt, Tennessee and that he had lived there for more than half of the preceding 180 days. (Hr'g Tr. 44-45.)

         The Bankruptcy Court, however, did not base the decision to appoint a trustee on a finding that Walker had committed fraud. Under the statute, the Bankruptcy Court only needed to find “dishonesty, imcompetence, or gross mismanagement.” (Hr'g Tr. 45.) In that regard, the Bankruptcy Court determined as follows:

One of two things had to occur . . . . That is, using forged documents, authenticating documents when there's not originals, signing a Petition saying you live in another place where you don't live. Either it's evidence of dishonesty or it's such an extraordinary inattention to detail and/or incompetence or mismanagement or something, that I don't know how I could feel comfortable leaving [Mr. Walker] in charge of a debtor in possession.
So, even giving the most positive spin on it that you could possibly put, it's still some type of state of being oblivious to important details. And that would be enough in this type of case to justify appointment of a trustee. And I say that because I don't think it's necessary, for purposes of the hearing today, to make any kind of determination, and I make this quite clear, any kind of determination as to specific fraudulent intent or specific participation in fraud, or anything of that nature, because it's not necessary . . . . It's only necessary to find cause, and I find that there is cause, based upon the evidence that demonstrates that there is either a level of dishonesty that does not justify leaving [this case] going forward without a trustee, or there's a level of other cause, whether you call ...

Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.