Equity Trust Co. v. Breland

229 So. 3d 1091
CourtSupreme Court of Alabama
DecidedFebruary 17, 2017
Docket1150302 and 1150876
StatusPublished

This text of 229 So. 3d 1091 (Equity Trust Co. v. Breland) is published on Counsel Stack Legal Research, covering Supreme Court of Alabama primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Equity Trust Co. v. Breland, 229 So. 3d 1091 (Ala. 2017).

Opinion

BRYAN, Justice.

Facts and Procedural History

Charles K, Breland is a developer of real property who, through his ownership of multiple companies, has owned and developed real property in Alabama and Florida. In 2002, Breland hired David E. Hud-gens to provide legal services for him and his companies. According to Hudgens, Bre-land informed him early during their professional relationship that he “was suffering significant cash flow problems.” As a result, Hudgens says, the various law firms with which Hudgens worked while providing Breland and his companies with legal services delayed billing “a significant portion of the attorneys’ fees and costs” for those services. Breland disputes that contention and claims that he and/or his companies paid Hudgens,more than $2.7 million for Hudgens’s legal services between 2004 and 2010. According to Hud-gens, Hudgens & Associates, LLC (“H & A”), is “the holder of the rights to the attorney’s fees” allegedly incurred by Bre-land and his companies over the course of Hudgens’s representation of Breland.

Hudgens also contends that in 2004 Bre-land informed him that Shores of Panama, Inc. (“Panama”), one of Breland’s companies, had insufficient funds to begin a condominium project in Florida. As a result, Hudgens caused Equity Trust Company (“ETC”), as custodian for the benefit of Hudgens’s individual retirement account #41457 (“IRA #41457”) and individual retirement account # 41458 (“IRA #41458”), to loan Panama $390,000 and $80,000 from those IRAs, respectively, so that Panama could begin the project. Bre-land guaranteed payment of those loans in separate promissory notes.

On March - 11, 2009, Breland filed a Chapter 11 bankruptcy petition (“the Bre-land bankruptcy”) in the United States Bankruptcy Court for the Southern District of Alabama (“the bankruptcy court”). Breland subsequently filed the required schedules,1 required disclosure statement,2 and a proposed plan ’ of reorganization3 that identified H & A as an unsecured creditor' holding a $1 million claim . and identified ETC as an unsecured creditor [1093]*1093holding a $390,000 claim. On May 3, 2010, Hudgens filed a proof of claim in the Bre-land bankruptcy on b.ehalf of H. & A for “legal fees” in the amount of $2,334,987.08 and filed proofs of claim on behalf of ETC for “guaranty of note” in the amounts of $879,929.55 (as to IRA #41457) and ,$180,498.37 (as to IRA # 41458). According to Hudgens, Breland telephoned him on May 4, 2010, and “berated [him] and complained vociferously about the H & A proof of claim, including claiming that it was fraudulent.” Later that day, Breland informed Hudgens in writing that he was “shocked” that Hudgens had filed claims in the Breland bankruptcy alleging that Bre-land had “outstanding legal bills .,. amounting to several million dollars” and asked Hudgens to provide him with-itemized billing of those fees. On October 1, 2010, Breland amended his disclosure statement and proposed plan of reorganization to reflect that the H & A and ETC claims were disputed but that settlement negotiations were then ongoing.

, On December 6, 2010, Breland and Oha-na Cabo, LLC (“Ohana Cabo”), a creditor in the Breland bankruptcy, filed with the bankruptcy court a proposed plan of .reorganization (“the Plan”), The Plan provided that “each holder of an allowed unsecured claim” would be paid in full and identified ETC as custodian of IRA # 41457 and of IRA #41458 as a “holder[] with agreed allowed amounts” of $879,929 and $180,498, respectively. The Plan also provided that “holders of unsecured claims” that were not identified as “holders with agreed allowed amounts,” a group,'that included H & A, held claims that were disputed and that Breland was preserving his objection to those claims. However, it appears that, later that day, Breland and Hudgens reached a settlement of the-H <& A and ETC claims, the terms, of which are set forth in a December 6, .2010, e-mail from Robert Galloway, Breland’s attorney, to Hudgens:

“David, this letter will confirm our settlement of your claims. We will allow your, claims for your retirement plans in the full amount of $1,080,000. With regard to your fees, we have agreed to a claim of $1,500,000 to be evidenced by a note and mortgage on the Grand Bay property due [in] one year with 6% interest,” ., , . .

(Emphasis added.) It is undisputed that the Grand Bay property, located entirely in Mobile County, consists of 6- distinct parcels of property comprising approximately 508 acres that, at that time, were owned by Breland.

On' December 8, 2010, the bankruptcy court held a hearing regarding confirmation of the Plan. At that hearing, the following colloquy occurred between Galloway and the bankruptcy court.

“MR. GALLOWAY: Judge, I’m proud to announce that we have settled everything,
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“MR. GALLOWAY: I might an■nounce some of the things that were said today with Mr. Hudgens.
“THE COURT: All right.
“MR. GALLOWAY: We have reached a settlement of his attorney’s fee claim.
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“MR. GALLOWAY: We are going to give him a mortgage on the Grand Bay property. We’ll put this in the order.
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“MR. ■'GALLOWAY: Of $1,500,000 which is the additional aínount he has agreed to accept.
“THE COURT: All right.
“MR. GALLOWAY: Now when we— he has his retirement plan claims too.
“THE COURT: Yes, right.
. “MR. GALLOWAY: And we’re going to work with him as to how we apportion [1094]*1094the cash, but he will have a mortgage left for $1,500,000—he’s going to get $1,080,000 cash. There’s going to be a mortgage for a million-five; but some of that might be retirement plan and some of it attorney’s fee, depending on how he wants that paid this year versus next year.”

In light of those agreements, on December 10, 2010, Breland and Ohana Cabo filed a proposed amended version of the Plan that added a new provision (hereinafter referred to as “Section 3.2.3”), which provided:

“3.2.3 Hudgens & Associates LLC and Equity Trust Company fbo David E. Hudgens IRA Claims. [The ETC claim on behalf of IRA # 41457] shall be paid $0.00. [The H .& A claim and the ETC claim on behalf of IRA # 41458] shall be Allowed in ■ the cumulative amount of $2,580,000, of which $1,080,000 shall be paid on the Distribution Date .... The $1,500,000 balance, together with" interest from the Confirmation Date at the rate of 6% per annum, shall be paid on or before December 31, 2011[,] in accordance with the terms ... of a promissory note and mortgage to be agreed upon by the parties. The Debtor shall execute and deliver said promissory note and mortgage to his attorney Robert M. Galloway immediately upon confirmation of the Plan. On the Distribution Date, Mr. Galloway shall record said mortgage in the real property records maintained in the Office of the Judge of Probate of Mobile County, Alabama, and shall deliver said promissory note to David E. Hudgens as agent for [H & A] and [ETC] as Custodian for the benefit of David E.

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Bluebook (online)
229 So. 3d 1091, Counsel Stack Legal Research, https://law.counselstack.com/opinion/equity-trust-co-v-breland-ala-2017.