Opinion
Case No. 99-13092-SSM, Adversary Proceeding No. 99-1186
August 3, 1999
Cynthia C. Hernholm-Kendrick, Alexandria, VA, Plaintiff, pro se
Tara Pons Orlando, Alexandria, VA, Plaintiff, pro se
Charles B. Martin, Esquire, Martin, Arif Petrovitch, Burke, VA, Of Counsel for the Ross Weaver Trust, Lind Weaver, and Rosalee Youngworth
George E. Kostel, Esquire, Hazel Thomas, PC, Falls Church, VA, Of Counsel for William P. Bock and Valerie A. Bock
MEMORANDUM OPINION AND ORDER
This matter is before the court on a motion by defendant Ross Weaver Trust, which has been joined in by defendants William and Valerie Bock, to dismiss the complaint filed by Cynthia C. Hernholm-Kendrick and Tara Pons Orlando. A hearing was held on July 21, 1999, on the plaintiffs' motion for a preliminary injunction. At the conclusion of that hearing, the court declined to issue a preliminary injunction and took the motion to dismiss under advisement.
Background
Cynthia C. Hernholm-Kendrick filed a voluntary chapter 7 petition in this court on June 15, 1999, and has not yet been granted a discharge. She recently filed an amended petition which the court has construed as a motion to convert her case to chapter 12, and an order converting her case to that chapter has been entered.
On July 7, 1999, the debtor and Tara P. Orlando filed a pleading in this court entitled "Affidavit in support of Order to show cause, or in the alternative Motion for Injunctive relief, and Motion for contempt of Court for violation of the automatic stay," which the court, upon review, treated as a verified complaint for injunctive relief and damages. The named defendants are the Ross Weaver Trust, Rosalee Youngworth, Lind Weaver, Bill Brock, Valerie Bock, and Ann Dimon. The subject matter of the complaint involves an alleged agreement by Ms. Weaver to lease to the plaintiffs a farm located in Fairfax County, Virginia, at 9903 Old Colchester Road, Lorton, Virginia. The improvements on the property, according to the testimony of Ms. Weaver at the preliminary injunction hearing, consist of a house, three barns, a garage with an upstairs apartment, and a workshop. The property, which had been owned for many years by Ms. Weaver and her late husband Ross Weaver, was conveyed in July 1997 to the Ross Weaver Trust (also referred to in the testimony at the preliminary injunction hearing as the Ross Weaver Family Trust). The trustee of the Ross Weaver Trust was Rebecca McCowan, who has since been replaced by Rosalee Youngworth, Ms. Weaver's mother. According to Ms. Weaver's testimony, the beneficiary of the trust is her daughter, Samantha.
A copy of the trust instrument was not produced at the preliminary injunction hearing. Ms. Weaver suggested in her testimony that the trust instrument made some provision for her as Samantha's mother, but she was unable to provide any details. In the absence of any further information, and given the description of her, in the lease from the Trust, as a "beneficiary," the court assumes, for the purpose of the present opinion, that Ms. Weaver has at least some beneficial interest in the property.
Ms. Weaver continued to occupy the property, on which she raised ponies and rented stalls, under a written one-year lease from the Trust dated October 1, 1997. The lease provided for a month-to-month tenancy if the tenant held over at the end of the term and further provided that, based on her status as a beneficiary of the Trust, the rent would not exceed the mortgage payment on the property. The lease contained language prohibiting sublease or assignment except with the Trust's consent, which, however, was not to be unreasonably withheld. In addition, Ms. Weaver did not need the Trust's consent for "subleases for the use of boarding horses" or subleases of the garage and the apartment over the garage. Ms. Weaver testified at the preliminary injunction hearing that around the end of March she had fallen behind in her rent and had determined that she could no longer continue her business operations at the property and needed to "liquidate." She further testified that the Trust, through its attorney, had given her formal notice terminating her tenancy as of June 30, 1999. During this time she was attempting to find purchasers for her horses and for the equipment — including a horse trailer, jumps, and riding tack — that she owned and had used in connection with her business.
The debtor, who had worked some years previously for Ms. Weaver and had also rented stall space at the farm, was living in South Carolina on property owned by Tara P. Orlando. Ms. Orlando is a herbalist whose business operations are financially separate from the debtor's. Sometime in the spring of 1999, the debtor had made an offer to Ms. McCowan, the trustee, to purchase the property, but the offer was declined. The debtor testified that she subsequently engaged in extensive telephone discussions and email communications with Ms. Weaver about an interim lease and ultimate purchase of the property. In an email message to the debtor dated June 6, 1999, Ms. Weaver stated:
Hello Clarice[.] Are you ok? Haven't heard from you in a long time. What is your situation? Are you still looking to come to VA? The real estate agent has a person interested in the property, but he is not a horse person. What I understand is he doesn't need housing and doesn't want all the barns. He is interested in partnering or leasing to someone who is interested in using the horse aspects of the property.
All I know is that he wants the garage and parking and storage areas. Can I give the real estate person your address? . . . The property is sitting vacant at this time. Becky and I are at ends over it and I am trying to hire a professional company to manage the property. . . . Get back to me I won't do anything unless I hear from you.
Then on June 9, 1999, she sent the debtor the following email message:
The farm is totally vacant and is being vandalized to hell. . . . Becky quit. She no longer wants to be trustee for the property (I think that relates to no easy sale so there wasn't any money in it. It worked out great because I was dealing with a Virginia attorney as to how to change controlof [sic] the trust. My mom will be the new trustee, and Charles Martin of Burke will be the new "manager". I wanted to put the property with a property management group, but I think Mr. Martin wants to do it himself. I really do not care. If you need a place come now. The place needs some one to mow the grass and make it look like it was lived in. I may need to rent the house for money but the apartment is quite nice (or shall I say, was nice before it got trashed). . . . I was going to hire some one to clean the place up but I want someone around who will supervise or I'm going to get more of the same.
You could probably still salvage some summer camps, or mini camps.
Get back to me. I'll get Mr. Martins number for you. He doesn't want to deal until he has all the paperwork from Becky, probably Tuesday or so. I need to do something quick.
* * *
If you want to do something quick and set it up temporary for the time I can do that. Anything long term will have to be with Mr. Martin or the real estate agent.
(emphasis added). Ms. Orlando testified at the preliminary injunction hearing that she had several telephone discussions with Ms. Weaver following the June 9th email, and that Ms. Weaver assured her that she (Ms. Weaver) had a lease for the property through October 9th and had the right to sublet it to the debtor and Ms. Orlando. She further testified that Ms. Weaver told her that there would be no rent for the first month in exchange for Ms. Orlando and the debtor cleaning up the property; that the rent for the following month would be $1,000.00; and that it would then increase to $1,500.00 per month for the remainder of the sublease. Ms. Orlando testified that, based on those assurances and the expectation that once on the property she and the debtor would be able to negotiate a purchase agreement, she made arrangements to auction her own property in South Carolina and that she came up to Virginia with the debtor around June 25, 1999, at which time she had electric service turned on and began moving in and cleaning up the property.
In the interim, the debtor had filed her chapter 7 petition in this court on June 15, 1999, for the purpose, it was represented, of discharging various disputed obligations related to the farm in New York that she and her husband had run. At the end of the week, Ms. Orlando and the debtor went back to South Carolina to make transportation arrangements for their belongings and the twelve horses that the debtor took care of. While there, they received a "flurry" of emails denying that there was an agreement for them to move on to the property. When they returned on July 1, 1999, they found the locks on the house had been changed, and a security guard told them they had to leave. They called the police and showed them the June 9th email as well as a copy of the debtor's bankruptcy petition. The police referred the parties (which by now included Charles Martin, the new attorney for the Trust) to the magistrate, who, wisely, declined to issue any arrest warrants. The debtor and Ms. Orlando then filed the present adversary proceeding on July 7, 1999.
As will be discussed, on July 2, 1999, they filed a nearly identical action in the Circuit Court of Fairfax County. Hernholm-Kendrick v. Ross Weaver Trust, Chy. No. 161555. The debtor represented they did so because they were told by an intake clerk of this court that the matter belonged in state court. This court has not had an opportunity to investigate this assertion, but it goes without saying that the clerk's office is not authorized to give legal advice to debtors or litigants.
Discussion A.
The motion to dismiss is based primarily on an assertion that the present action is barred by res judicata. Specifically, it is argued, the debtor filed an action asserting the same claims in the Circuit Court of Fairfax County, which held a hearing on July 8, 1999, on the debtor's motion for a preliminary injunction. At the conclusion of the hearing, the chancellor ruled:
I don't find any evidence whatsoever in the presentation today of there ever being a meeting of the minds or anything greater than negotiations. The telling documents, although absent from Ms Kendrick's submission, is contained in the defendants' submission, and that's the e-mail from Ms. Kendrick of 6/30 concerning discussions of a two-year or longer lease with an option to buy. This case, Ms. Kendrick, violates the statute of frauds. I further find that at best there's an agreement to enter into a lease, but certainly no lease. For all of those reasons, the motion for a temporary injunction is denied. I'm going to withhold my ruling as to attorneys' fees because there are still viable claims in Ms. Kendrick's lawsuit against the Ross Weaver Trust: Damages for emotional distress, consequence of [sic] damages, punitive damages, damages in the amount of $800,000, et cetera.
The email message (from the debtor to Ms. Weaver) referred to by the chancellor stated in relevant part:
You agreed that I would lease your farm with a two year or longer lease and an option to buy, you agreed to wait until Tara's property sold and I collected in my divorce suit for us to buy the farm. You also asked me to go get your tractor, two horse trailer, and the following horses and ponies all of which were to be included in the purchase and or lease: Millie, Gordon, CC, Rosie, Finnie, Buffy, Midnight.
(emphasis added). Under the Virginia Statute of Frauds, Va. Code Ann. § 11-2,
Unless a promise, contract, agreement, representation, assurance, or ratification, or some memorandum or note thereof, is in writing and signed by the party to be charged or his agent, no action shall be brought in any of the following cases:
* * *
6. Upon any contract for the sale of real estate, or for the lease thereof for more than a year[.]
Thus, the chancellor held, based on the evidence presented to him in the one-hour hearing, that the debtor was relying upon an oral two-year lease with a purchase option, and that an action to enforce such an agreement was barred by the statute of frauds.
It is true that the complaint filed in the present action likewise appears to rely upon a two-year lease: "On or about June 9, 1999 plaintiffs agreed to rent the premises for a 2 year term." Compl. ¶ 14. That allegation, however, must be read in the context of the entire complaint, which also asserts as follows:
Defendants, Lind Weaver, Rosalee Youngworth, and the Ross Weaver Trust is . . . the Landlord and has been negotiating a written instrument of lease to include an option to buy, from on or about April 1999, the Real Property at 9903 Colchester Rd, Lorton, Virginia with said written agreement between the parties being based on an already pre existing verbal and email written communication lease whereby the subject property was rented to the plaintiffs as of June 9, 1999.
Compl. ¶ 13 (emphasis added). Although not artfully pleaded, the complaint, read as a whole, is not inconsistent with the testimony of Ms. Orlando and the debtor at the preliminary injunction hearing that there were, in effect, two leases contemplated: (1) a four-month oral sublease; and (2) a follow-on written lease with a purchase option, the terms of which were to be negotiated. The latter, of course, could become binding only if it was in fact reduced to writing; but the former — assuming Ms. Weaver had the capacity to enter into it — could be binding, even though oral, since Ms. Weaver's own lease did not exceed one year.
It was because this court found there was insufficient evidence that Ms. Weaver's tenancy extended beyond June 30, 1999 — so that there was nothing for her to sublease after that date — and likewise that there was insufficient evidence to show that she had either actual or apparent authority to bind the Trust beyond that date, that this court denied the motion for a preliminary injunction, notwithstanding that the balance of hardships arguably favored the plaintiffs.
In any event, it is clear that the chancellor's ruling on the motion for preliminary hearing was not a final judgment on the merits. Accordingly, the denial of the preliminary injunction has no res judicata effect. Security Bank Corp. v. Jones (In re Jones), 1998 WL 939693 at *7-8 (Bankr. E.D. Va. 1998).
Among other things, it expressly left open the debtor's damage claims other than for breach of the lease. The chancellor did not rule on whether the debtor, as opposed to the bankruptcy trustee, was the appropriate party to assert those claims. Since the debtor's case has now been converted to chapter 12, the debtor, as debtor in possession, clearly has standing to assert claims on behalf of the bankruptcy estate. 11 U.S.C. § 1203. Thus, the court need not at this time address the question of what standing the debtor would have had if she had remained in chapter 7.
B.
Whether or not entitled to res judicata effect, the chancellor's ruling that a claim based on an oral two-year lease is barred by the statute of frauds is one with which this court independently concurs. Accordingly, the issue on the present motion to dismiss is whether the complaint pleads causes of action other than, or in addition to, a claim for specific performance and damages for breach of an oral two-year lease and purchase option.
The plaintiffs cite to Va. Code Ann. § 11-1 for the proposition that only leases "of more than five years" need be in writing. Section 11-1 states that a "contract, not in writing . . . made for the conveyance or sale of real estate, for a term therein of more than five years . . . shall be void, both at law and in equity, as to purchasers for value and without notice and creditors[.]" (emphasis added). Thus, § 11-1 defines the rights only of third parties creditors and subsequent bona fide purchasers — and not the parties to the contract. Section 11-2, by contrast, operates to bar certain suits by the parties to the alleged oral contract. Since that is the situation presented by the present case, § 11-2 and not § 11-1 determines the enforceability of the contract.
On a motion under Rule 12(b)(6), Federal Rules of Civil Procedure, and Federal Rule of Bankruptcy Procedure 7012, to dismiss a complaint for failure to state a claim upon which relief can be granted, the allegations of the complaint must be construed favorably to the pleader, Scheuer v. Rhodes, 416 U.S. 232, 236, 94 S.Ct. 1683, 1686, 40 L.Ed.2d 90 (1974), and the complaint should not be dismissed "unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 102, 2 L.Ed.2d 80 (1957). As the Supreme Court has cautioned, "The issue is not whether a plaintiff will ultimately prevail but whether the claimant is entitled to offer evidence to support the claims. Indeed it may appear on the face of the pleadings that a recovery is very remote and unlikely but that is not the test[.]" Scheuer, 416 U.S. at 236, 94 S.Ct. at 1686 (emphasis added). Additionally, it is well accepted that courts must liberally construe the pleadings of pro se parties. Gordon v. Leeke, 574 F.2d 1147, 1151 (4th Cir. 1978) ("In the great run of pro se cases, the issues are faintly articulated and often only dimly perceived.")
Given the latitude that must be accorded pro se pleadings, paragraphs 1 through 10 of the complaint sufficiently allege facts that could support causes of action for fraud, intentional infliction of emotional distress, and tortious interference with prospective business relations. Likewise, paragraphs 11 through 24 set forth facts that could support a cause of action by the debtor for damages under 11 U.S.C. § 362(h) for willful violation of the automatic stay in locking her out of the property. Whether sufficient evidence exists to make out a prima facie case against any particular defendant on any particular cause of action is better suited to resolution on a motion for summary judgment after a reasonable opportunity for discovery.
Only the debtor, not Ms. Orlando, has standing to assert a claim for violation of the automatic stay in the debtor's case. Winters v. George Mason Bank, 94 F.3d 130, 134-35 (4th Cir. 1996).
The violation of the stay is not dependent on the enforceability of the 2-year lease alleged in ¶ 14 of the complaint, since the automatic stay protects even the debtor's bare possession of real property. Court v. Nasir (In re Nasir), 217 B.R. 995, 997 (Bankr. E.D. Va. 1997) (Tice, J.); In re Mimi's of Atlanta, Inc., 5 B.R. 623, 627 (Bankr. N.D. Ga. 1980) (automatic stay applies where debtor has even "scintilla of equitable interest" in premises); In re 48th Street Steakhouse, Inc., 835 F.2d 427, 430 (2nd Cir. 1987) ("Indeed, a mere possessory interest in real property, without any accompanying legal interest, is sufficient to trigger the protection of the automatic stay."); In re Atlantic Business and Community Development Corp., 901 F.2d 325, 328 (3rd Cir. 1990) ("[A] possessory interest in real property is within the ambit of the estate in bankruptcy under [11 U.S.C.] Section 541, and thus the protection of the automatic stay under Section 362.") Of course, to the extent that the debtor were determined to have no legal right to continued possession, relief from the automatic stay would undoubtedly be speedily granted, Nasir, 217 B.R. at 997, but that is not the issue. One of the primary purposes of the automatic stay is to maintain the status quo and prevent self-help efforts by creditors until the bankruptcy court has an opportunity to sort out the competing interests.
In its motion to dismiss, the Trust asks, in the alternative, for summary judgment. Rule 12(b) allows a court to consider matters outside the complaint on a motion to dismiss for failure to state a claim for relief, but requires that such a motion "shall be treated as one for summary judgment and disposed of as provided in Rule 56, and all parties shall be given reasonable opportunity to present all material made pertinent to such a motion by Rule 56." Given the limited opportunity of the parties to prepare and present evidence at the preliminary injunction hearing, and the lack of any meaningful discovery, the court declines to treat the motion to dismiss as a motion for summary judgment.
ORDER
For the reasons stated, it is
ORDERED:
1. The motion to dismiss is denied. The Trust and defendants Bock shall file answers to the complaint within ten days of the entry of this order.
2. The clerk shall mail a copy of this memorandum opinion and order to the parties listed below.