IN RE: BRIAN K. MONROE KERI B. MONROE CASE NO. 93-51859

UNITED STATES BANKRUPTCY COURT 

FOR THE EASTERN DISTRICT OF KENTUCKY

LEXINGTON DIVISION

IN RE:

BRIAN K. MONROE

KERI B. MONROE CASE NO. 93-51859

DEBTORS

CUMBERLAND SURETY INSURANCE

COMPANY, INC. PLAINTIFF

v. ADV. NO. 94-5041

BRIAN K. MONROE DEFENDANT

and

IN RE:

NEW VISIONS CONSTRUCTION COMPANY, INC. CASE NO. 93-51537

DEBTOR

CUMBERLAND SURETY INSURANCE

COMPANY, INC. PLAINTIFF

v. ADV. NO. 95-5001

ROY K. MONROE DEFENDANT

MEMORANDUM OPINION

This matter is before the court on the joint motion of Brian K. Monroe, the defendant and debtor in adversary proceeding no. 94-5041, and Roy K. Monroe, the defendant in adversary proceeding no. 95-5001, to consolidate the adversary proceedings and on the motion of Cumberland Surety Insurance Company, Inc., the plaintiff in each of the adversary proceedings asking the court to abstain from hearing adversary proceeding no. 95-5001 pursuant to 28 U.S.C. 1334(c)(1) or (c)(2) or in the alternative to remand adversary proceeding no. 95-5001 to Fayette Circuit Court pursuant to 28 U.S.C. 1452(b).

FINDINGS OF FACT:

On September 29, 1993, New Visions Construction Company, Inc. filed a petition for relief under chapter 7, title 11 United States Code, case no. 93-51537. On November 24, 1993, Brian K. Monroe and Keri B. Monroe, husband and wife, filed a joint petition for relief under chapter 7 of the Bankruptcy Code, case no. 93-51859. Brian Monroe was the president of New Visions Construction Company. His father, Roy K. Monroe, the defendant in adversary proceeding no. 95-5001, is alleged to have been chairman of the board of directors and chief executive officer of New Visions as of April 16, 1991.

Plaintiff, Cumberland Surety Insurance Company, Inc., issued bonds to secure payment and performance obligations of New Visions under certain construction contracts. The complaint in adversary proceeding no. 94-5041 alleges as follows. Cumberland Surety first issued bonds on behalf of New Visions in October 1991. The bonds were secured by two irrevocable letters of credit in the amounts of $25,200.00 and $35,000.00. In June 1992 in connection with its request for additional bonding New Visions submitted to Cumberland Surety a financial statement for the year ending December 31, 1991. The financial statement reflected a net operating loss in the amount of $61,658.00. In July 1992 Cumberland Surety again agreed to act as surety for a construction project undertaken by New Visions.

New Visions subsequently requested additional bonds and in connection therewith submitted to Cumberland Surety in September 1992 a revised financial statement of New Visions for the year ending December 31, 1991, which showed an operating profit of $48,342.00 instead of the loss previously shown for that year. In addition, Brian Monroe and his wife Keri Monroe submitted a statement of their personal financial condition as of November 1, 1992. Thereafter Cumberland Surety issued additional bonds to secure payment and performance obligations of New Visions under three new construction contracts.

On or about August 5, 1993, New Visions notified Cumberland Surety by letter that New Visions would be unable to complete performance of the five construction contracts for which Cumberland Surety had issued bonds. Cumberland Surety paid claims of laborers and suppliers in the approximate amount of $208,965.67 and applied as a setoff the amount of $60,592.32 received from payment on the letters of credit and the amount of $40,377.00 received as payment on one of the projects ($208,965.67 - $60,592.32 - $40,377.00 = $107,996.35). Cumberland Surety expects to pay additional claims of up to the approximate amount of $34,322.

Cumberland Surety alleges that Brian Monroe is individually liable to Cumberland Surety for amounts Cumberland Surety must pay in accordance with the bonds, plus costs, expenses, and attorneys fees, by reason of a "General Agreement of Indemnity" executed by New Visions, Brian Monroe and Keri Monroe on or about January 30, 1991. Cumberland Surety further alleges that the debt of Brian Monroe is excepted from discharge pursuant to 11 U.S.C. 523(a)(2)(B) in that the revised financial statement of New Visions and the personal financial statement of Brian Monroe are statements in writing that are materially false, respecting the financial condition of the debtor (Brian Monroe) and an insider of the debtor (New Visions), on which Cumberland Surety reasonably relied, and that Brian Monroe caused to be made or published with intent to deceive. This adversary proceeding is set for trial on Wednesday, March 29, 1995.

On December 7, 1994, Cumberland Surety commenced a civil action in Fayette Circuit Court against Roy K. Monroe, civil action no. 94-CI-3699. The complaint alleges that on April 16, 1991, the officers of New Visions, including Brian Monroe as president and Keri Monroe as vice-president, executed a corporate resolution providing that "as of April 16, 1991, Roy K. Monroe is taking over control of New Visions Construction Co. He will be the Chief Executive Officer and Chairman of the Board. Even though he is not a stockholder in the company he is the owner of a note from New Visions Construction Co. in the amount of $100,000.00." The complaint further alleges that Roy Monroe provided start-up capital to New Visions, that Roy Monroe loaned money to Brian Monroe for use in the operation of New Visions, that Roy Monroe loaned money to New Visions, that these debts remain outstanding, that Roy Monroe signed certain corporate checks of New Visions, and that Roy Monroe paid certain debts of New Visions.

In Count I of the complaint Cumberland Surety alleges that New Visions operated as the instrumentality or alter ego of Roy Monroe, that there was no separation of identity between New Visions and Roy Monroe, that the failure to disregard the corporate identity of New Visions would result in an unjust loss to Cumberland Surety, and that Roy Monroe should be adjudged liable to Cumberland Surety for the entire amount owed by New Visions to Cumberland Surety, plus interest, costs, expenses and attorneys fees.

In Count II of the complaint Cumberland Surety alleges that Roy Monroe as chief executive officer and chairman of the board of New Visions had the duty to exercise ordinary attention to the business operations of New Visions, that to the extent he was unaware of the false financial statements provided to Cumberland Surety he negligently breached his duty, and that Roy Monroe should be adjudged liable to Cumberland Surety for losses attributable to the three construction projects for which bonds were issued by Cumberland Surety in reliance upon the allegedly false financial statements, plus interest, costs, expenses and attorneys fees.

On January 3, 1995, Roy Monroe by counsel filed an answer in Fayette Circuit Court. On January 6, 1995 he removed the civil action to this court. Simultaneously therewith, Brian Monroe and Roy Monroe, both by counsel, jointly filed a motion to consolidate the removed adversary proceeding, adv. no. 95-5001 (Cumberland Surety vs. Roy Monroe), with adversary proceeding no. 94-5041 (Cumberland Surety vs. Brian Monroe). On January 13, 1995, Cumberland Surety filed a motion requesting the court to abstain from hearing adversary proceeding no. 95-5001 pursuant to 28 U.S.C. 1334(c)(1) or (c)(2) or in the alternative to remand the proceeding to Fayette Circuit Court pursuant to 28 U.S.C. 1452(b). The motions were heard on February 1, 1995.

CONCLUSIONS OF LAW:

The court is of the opinion the motion to consolidate these adversary proceedings for purposes of trial should be sustained, and that the motion to remand or in the alternative for the court to abstain from hearing adversary proceeding no. 95-5001 should be overruled. Consolidation for purposes of trial means only that these matters shall be tried concurrently. For all other purposes the files in these adversary proceedings shall remain separate.

In view of this ruling the trial of these consolidated matters shall be postponed and a new trial date shall be set by the court.

Dated:

By the court -

 

Judge

 

Copies to:

 

Susan Hellerman

Scott Rickman

Kathryn Warnecke

Charles Gore