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Equity Trust Co. v. Breland

Supreme Court of Alabama

February 17, 2017

Equity Trust Company, as custodian f/b/o David E. Hudgens IRA #41458, et al.
v.
Charles K. Breland et al. Charles K. Breland et al.
v.
Equity Trust Company, as custodian f/b/o David E. Hudgens IRA #41458, et al.

         Appeals from Mobile Circuit Court (CV-14-900631)

          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. Hudgens to provide legal services for him and his companies. According to Hudgens, Breland 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 Hudgens, Hudgens & Associates, LLC ("H&A"), is "the holder of the rights to the attorney's fees" allegedly incurred by Breland and his companies over the course of Hudgens's representation of Breland.

         Hudgens also contends that in 2004 Breland 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. Breland guaranteed payment of those loans in separate promissory notes.

         On March 11, 2009, Breland filed a Chapter 11 bankruptcy petition ("the Breland 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 reorganization[3] that identified H&A as an unsecured creditor holding a $1 million claim and identified ETC as an unsecured creditor holding a $390, 000 claim. On May 3, 2010, Hudgens filed a proof of claim in the Breland bankruptcy on behalf 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 Breland 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 Ohana 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.
"....
"MR. GALLOWAY: I might announce 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.
"....
"MR. GALLOWAY: We are going to give him a mortgage on the Grand Bay property. We'll put this in the order.
"....
"MR. GALLOWAY: Of $1, 500, 000 which is the additional amount he has ...

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