Summary:
In a blistering opinion befitting the severity of the fraud, Judge David M. Warren awarded B & M Realty, LLC over $1.17 million in damages, including trebled damages and attorneys’ fees, against Dwight Elam and his defunct corporate shell United Properties. The court found that Elam fraudulently induced the debtor into entrusting him with over $323,000—derived from both direct payments and loan proceeds secured by multiple rental properties—and then converted those funds under the guise of managing property renovations. Not only did Elam do little or no work, but he also lied about being a licensed contractor, fabricated financial documents, and fronted a long-dissolved corporate entity as a legitimate business operation.
The debtor, B & M Realty, was formed by the Lindsey family to manage real estate inherited after the death of Ms. Brown-Lindsey’s father. Seeking to update and improve the properties, the Lindseys were introduced to Elam, who claimed to be a contractor operating under "United Properties"—a dissolved entity Elam continued to use interchangeably with other similarly named but equally hollow LLCs. At Elam’s urging, the debtor incurred five real estate-secured loans totaling over $700,000. Elam and United Properties received over $183,000 from the loan proceeds—on top of $140,000 in direct payments—and left the properties in disrepair.
The court dismissed claims against Elam’s associate Allen Simmons and their co-formed entity Alight Investments due to insufficient evidence. However, it found Elam’s conduct satisfied the elements of fraud, conversion, and a violation of North Carolina’s Unfair and Deceptive Trade Practices Act (UDTPA), pierced the corporate veils of United Properties and its variants, and awarded trebled damages and attorney fees.
Commentary:
Judge Warren found that Elam’s fraud in connection with the debtor’s rental property renovations affected commerce and therefore fell within the UDTPA. While there is some debate in North Carolina case law about whether conduct purely within the context of litigation is “in commerce,” Elam signals that Warren should look to the substance and economic effect of the conduct.
For consumer debtors, this may open a judicial door, which has often seemed hostile to what it has labelled "alphabet soup laws", to UDTPA claims (both those arising pre- and post-petition) in bankruptcy cases including, for example, mortgage servicing abuses, particularly misapplication of payments or escrow mismanagement, noncompliance with NCGS 45-91 or Rule 3002.1, etc. If the deceptive conduct affects the debtor’s use or enjoyment of consumer financial products (mortgage, car loan, credit card), Warren’s opinion suggests he might consider such conduct to fall “in or affecting commerce.”
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