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THIS MEMORANDUM OPINION HAS BEEN ENTERED f bel th / Bata _
ON THE DOCKET. PLEASE SEE DOCKET FOR Paul M. Black
ENTRY DATE. UNITED STATES BANKRUPTCY JUDGE
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE WESTERN DISTRICT OF VIRGINIA
ROANOKE DIVISION
IN RE: )
) CHAPTER 13
PHYLLIS ADELE JOHNSON )
)
Debtor. ) CASE NO. 18-71446
MEMORANDUM OPINION
This matter comes before the Court on an objection to Proof of Claim Number 8 of James
D. Carter (“Carter”) filed on March 1, 2019 by the Debtor, Phyllis Adele Johnson (the “Debtor’’).
Discovery was lengthy and, prior to a trial set for October 2019, the parties requested the matter
be referred to mediation. The Court granted that request, but the mediation was unsuccessful. A
new trial date was set for June 18, 2020. At trial, Carter and the Debtor each testified and
numerous exhibits were admitted into evidence. At the conclusion of the hearing, the Court took
the matter under advisement. For the reasons that follow, the objection to claim will be sustained
in part and overruled in part.
FINDINGS OF FACT
This case involves two people from disparate professional backgrounds who got into the
real estate investment business together. Carter is a veterinarian and the Debtor was once a
patron of his clinic, as Carter treated animals she owned. In the course of that relationship,
Carter learned that the Debtor supposedly had real estate investment experience, including
knowledge of using historic rehabilitation tax credits, and Carter advised her that he had cash he
would like to invest in a real estate venture. The Debtor advised she could put his cash to work.1
As the record established at trial, Carter’s communications with the Debtor over the course of
their dealings together were erratic and infrequent. For a number of years, Carter was, at best, an
absentee inquisitor as to most of the Debtor’s dealings in their relationship. That relationship
soured over time, primarily because bills were not being paid on time and Carter was having to
pump additional cash into the venture. The Debtor eventually ran into her own financial
difficulties, and to no surprise, so did the real estate venture with Carter.
As a result of her financial difficulties, the Debtor filed a voluntary petition for relief
under Chapter 13 of the United States Bankruptcy Code on October 24, 2018. Her Chapter 13
plan has not been confirmed. As Carter is her dominant creditor, until her relationship and debts
to Carter can be determined, it will be difficult, if not impossible, for the Debtor to propose a
confirmable plan.
On December 27, 2018, Carter filed Proof of Claim Number 8 for funds used or owed in
the joint real estate venture. On March 1, 2019, the Debtor filed an objection to the Claim
disputing that the Debtor is liable to Carter for all of the amounts listed on the Claim and
1 When the Court uses the word “cash,” it does so for a reason. Most of Carter’s substantial contributions to this real
estate venture were in cash, not by check, wire transfer or other means. This created some concern on the Court’s
part as to, among other things, the lack of a paper trail for Carter’s investments.
asserting that the Debtor is entitled to multiple credits against any balance determined to be owed
to Carter. On March 19, 2020, Carter filed Amended Proof of Claim Number 8 (the “Claim”)
asserting that he is entitled to a general unsecured claim in the Debtor’s case for $380,141.53.
The amount consists of: (1) $108,000.00 for payments due under a partnership agreement; (2)
$15,373.14 for repayment of real estate taxes; (3) $24,239.97 for reimbursement of current
delinquent real estate taxes as listed on the Debtor’s schedules; (4) $55,702.00 in unpaid rents
from rental properties; (5) $99,344.66 for sums due secured by a credit line deed of trust to the
Bank of Botetourt; (6) $2,743.91 for late fees and penalties on debts to the bank; (7) $41,891.85
in attorney’s fees; (8) $15,600.00 in unaccounted for checks drawn from the renovation account;
and (9) $17,246.00 in rental commissions taken by the Debtor without the agreement of Carter.
The Debtor argues that the Claim does not reflect that the partnership’s assets, consisting of
rental real estate on Woods Avenue (the “Woods Property”) and on Allison Avenue (the “Allison
Property”) in Roanoke, Virginia, are available to be liquidated to repay a portion of the funds.
The Claim arises out of a largely undocumented joint venture between the Debtor and
Carter. The arrangement was that Carter would provide most of the funds to purchase and
renovate properties and the Debtor would provide her experience to rehabilitate and maintain the
properties. The Debtor and Carter agreed that they would search for properties that would
qualify for participation in the historic tax credit program. The only written agreement between
the parties is a document signed by the Debtor and Carter on January 10, 2003, entitled
“Partnership Agreement” which reflects a “capital contribution” made by Carter “for the purpose
of renovation of properties owned by the partnership.” Carter’s Ex. 2. The Partnership
Agreement further states that Carter’s capital contributions would be repaid “[u]pon sale of the
property located at 421-423 Woods Ave., S.W., Roanoke, Va. and belonging to Johnson-Carter
Investments.”2
On July 25, 1995, the Debtor and Carter purchased the Woods Property and took title in
their individual names as tenants in common. Debtor’s Ex. B. On May 31, 1996, the Debtor and
Carter purchased the Allison Property and again took title in their individual names as tenants in
common. Debtor’s Ex. C. On November 8, 1996, the Debtor and Carter executed a $100,000.00
credit line deed of trust with the Bank of Botetourt to fund renovations and maintenance of the
properties. Carter’s Ex. 4. Through October 1997, the Debtor and Carter borrowed $80,027.00
on the line of credit. Debtor’s Ex. M, 2. On October 9, 1997, the parties paid the line of credit
down to zero. Debtor’s Ex. M, 3.
On December 5, 1997, the Debtor submitted an application for the historic tax credit for
the Woods Property. The Commonwealth of Virginia Department of Historic Resources
certified the Woods Property as eligible for the historic tax credit on April 30, 1998. Debtor’s
Ex. N. On July 15, 1999, the Debtor submitted an application for the historic tax credit for the
Allison Property. The Commonwealth of Virginia Department of Historic Resources certified
the Allison Property as eligible for the historic rehabilitation tax credit on April 11, 2000.
Debtor’s Ex. O.
The parties originally intended to renovate the two properties, qualify for the historic tax
credits, and then sell the properties. However, upon finishing the renovation of each property,
the properties were rented instead of sold. Since the properties were rented, the Debtor managed
the properties including getting tenants and collecting rent. Carter appeared to agree with this.
2 There is no such entity formally organized as “Johnson-Carter Investments.”
On August 24, 2014, Carter discovered that the City of Roanoke real estate taxes for the
Allison and Woods Properties were unpaid. Carter paid $15,373.14 to the City of Roanoke from
his personal funds to clear up the tax debt. Carter’s Ex. 6, 1. As discussed below, there are
numerous other components of the Claim that Carter asserts are directly caused by the Debtor’s
actions or inactions, which give rise to the sums claimed in the case, including the Debtor taking
substantial real estate management commissions to which Carter never agreed. The Debtor
asserts that many of the sums claimed are not due Carter, or that she is entitled to credits against
the Claim asserted. It is undisputed that both the Woods and Allison Properties are currently
listed for sale with a realtor. Whether they will bring enough to pay the secured liens against the
properties, and the debts due Carter, remains to be seen.
JURISDICTION
This Court has jurisdiction of this matter by virtue of the provisions of 28 U.S.C.
§§ 1334(a) and 157(a) and the referral made to this Court by Order from the District Court on
December 6, 1994 and Rule 3 of the Local Rules of the United States District Court for the
Western District of Virginia. This Court further concludes that this matter is a “core” bankruptcy
proceeding within the meaning of 28 U.S.C. § 157(b)(2)(A) and (B).3
CONCLUSIONS OF LAW
I. The Applicable Law
A. Burden of Proof
Section 502 of the Bankruptcy Code governs the allowance of claims to be paid from the
bankruptcy estate. See In re Harford Sands Inc., 372 F.3d 637, 640 (4th Cir. 2004) (“The
3 A reasonable argument could be made that the Court should abstain and let an appropriate state court sort this out.
However, the parties have been before this Court for an extended period and have tried but failed to settle it, even
with the assistance of a gifted mediator. Everyone has had their day in court and, in the best exercise of judicial
resources and the resources of the parties, it is time for this matter to be resolved.
Bankruptcy Code establishes a burden-shifting framework for proving the amount and validity of
a claim.”). When a claimant files a proof of claim with the required supporting documentation, it
is prima facie evidence of the claim’s validity and the amount owed by the debtor. In re Falwell,
434 B.R. 779, 783 (Bankr. W.D. Va. 2009). “The burden then shifts to the debtor to object to the
claim” and to “introduce evidence to rebut the claim’s presumptive validity.” Harford Sands,
372 F.3d at 640. The evidence “must be sufficient to demonstrate the existence of a true dispute
and must have probative force equal to the contents of the claim.” Falwell, 434 B.R. at 784. “If
the debtor offers such evidence, the burden shifts back to the creditor to produce evidence
meeting the objections and establishing the claim.” Id. “If the claimant cannot produce
sufficient evidence, the claim fails, and the court should sustain the objection.” In re Hilton, No.
12-61102, 2013 WL 6229100, at *5 (Bankr. W.D. Va. Dec. 2, 2013).
B. Organizational Structure
The parties in this case are two people who never should have gotten into business with
each other, certainly without documenting their rights and responsibilities with one another.
Nevertheless, they did go into business together, and the Court is left to sort out the shambles of
their failed relationship. There is no question the law of Virginia applies to this relationship.
In PGI, Inc. v. Rathe Productions, Inc., 265 Va. 334, 342, 576 S.E.2d 438 (2003), the
Virginia Supreme Court stated as follows:
In Legum Furniture Corp. v. Levine, 217 Va. 782, 787, 232 S.E.2d
782, 786 (1977), we cited 46 Am.Jur.2d Joint Ventures §§ 36, 37
with approval as follows:
The rights, duties, and obligations of joint venturers and of members
of syndicates, as between themselves, depend primarily upon the
terms of the contract by which they assumed that relationship. They
are also affected, however, by certain general principles which
operate in the absence of specific provisions in the contract, or
sometimes in conjunction with such provisions. These principles . .
. are much the same as, or at least are clearly analogous to, those
which govern the relations of partners.
In Roark, 234 Va. at 475, 362 S.E.2d at 714, we restated the
principle at stake with greater emphasis: “the rules of law governing
the rights, duties, and liabilities of joint venturers are substantially
the same as those which govern partnerships.”
In this case, there is no express contract between the Debtor and Carter which established their
relationship as a joint venture.4 However, the evidence adduced at trial establishes an implied
contract for a joint venture and, to the extent this implied contract does not address an issue, the
law of partnership is applied. In Virginia, “[t]he Virginia Uniform Partnership Act (the ‘Act’),
Code §§ 50-73.79 to -73.149, ‘governs relations among the partners and between the partners
and the partnership’ except as provided in a partnership agreement and to the extent that the
agreement does not violate certain specific statutory requirements.” Va. Code § 50-73.81. “If
the issue in question is not addressed by the partnership agreement or the Act, ‘the principles of
law and equity’ apply.” PGI, Inc., 265 Va. at 342 (citing Va. Code § 50-73.82).
At common law, ordinarily one partner was not permitted to sue another partner before
settlement of all partnership business occurred. See, e.g., Dulles Corner Props. II Ltd. P’ship v.
Smith, 246 Va. 153, 155, 431 S.E.2d 309, 311 (1993). The Act specifically addresses exceptions
to this common law rule. Va. Code § 50-73.103. Among other provisions, Section 50-
73.103(B)(2)(a) provides that “A partner may maintain an action against the partnership or
another partner for legal or equitable relief, with or without an accounting as to partnership
business, to: [e]nforce that partner’s rights under this chapter, including . . . [t]hat partner’s rights
under § 50-73.99. . . .” (emphasis added). In turn, Section 50-73.99 of the Act provides, in part,
4 The “Partnership Agreement” signed January 10, 2003 is a one page “fill in the blank” document that basically
acknowledges a $113,000.00 capital contribution, a $5,000.00 credit, and when the capital contribution is due to be
reimbursed. It does nothing more. It is far from a formal partnership or joint venture agreement.
that (i) each partner is deemed to have an account that is: “[c]redited with an amount equal to the
money plus the value of any other property, net of the amount of any liabilities, the partner
contributes to the partnership and the partner’s share of the partnership profits”, (ii) a partnership
shall reimburse a partner for an advance to the partnership based on the amount of capital the
partner agreed to contribute, (iii) a partner may use or possess partnership property only on
behalf of the partnership, and (iv) a partner is not entitled to compensation for services
performed for the partnership, except for reasonable services rendered in winding up the business
of the partnership. The Act further provides in Section 50-73.99(D) that “[a] partnership shall
reimburse a partner for an advance to the partnership beyond the amount of capital the partner
agreed to contribute.” Subsection (E) provides that “[a] payment or advance made by a partner
which gives rise to a partnership obligation under subsections C or D constitute a loan to the
partnership which accrues interest from the date of the payment or advance.” Va. Code § 50-
73.99(D), (E). Subsection (F) provides that each partner has equal rights in the management of
the partnership business. Va. Code § 50-73.99(F).
It is with these principles in mind that the Court addresses the various allegations among
the parties.
II. Application of Law to Facts
(1) Payment due under the Partnership Agreement
Carter’s counsel conceded at trial the net $108,000.00 payment under the Partnership
Agreement was only to be recouped by Carter upon the sale of the Woods Property. He further
conceded that he was no longer making a claim for that amount in the Proof of Claim. The
Claim will be reduced in that amount.
(2) Repayment of Real Estate Taxes
Next, Carter requests $15,373.14 in delinquent real estate taxes due on the Allison and
Woods Properties which were paid by Carter personally. Attached to the Amended Proof of
Claim is the City of Roanoke Treasurer’s Office Real Estate Tax Payment History for the Allison
Property showing payment of taxes for tax years 2011, 2012, 2013, 2014, and 2015.
Applying the burden-shifting framework, Carter’s Amended Proof of Claim and the
attached payment history constitute prima facie evidence of the claim. The burden of proof then
shifts to the Debtor to introduce evidence to rebut the claim’s presumptive validity. The Debtor
testified that she does not contest that Carter personally expended the $15,373.14 for real estate
taxes; however, she contends that the funds were an additional investment into the partnership
and not a loan that the Debtor agreed to personally repay to Carter. At trial, Carter’s counsel
conceded that the $15,373.14 in real estate taxes will be reimbursed to Carter from the sale of the
properties. Indeed, this is consistent with Va. Code § 50-73.99(C).5 Thus, the $15,373.14 in real
estate taxes paid by Carter will be paid to Carter out of the proceeds from the sale of the
properties and the settlement of the partnership accounting, and the Claim will be reduced in that
amount.
(3) Reimbursement of Delinquent Real Estate Taxes
Next, Carter seeks reimbursement in the amount of $24,239.97 for current delinquent real
estate tax amounts owed for the two properties. These taxes are not yet paid. Attached to the
Amended Proof of Claim are City of Roanoke Real Estate Tax Statements for tax year 2020 on
5 Va. Code § 50-73.99(C) provides that “[a] partnership shall reimburse a partner for payments made and indemnify
a partner for liabilities incurred by the partner in the ordinary course of the business of the partnership or for the
preservation of its business or property; however, no person shall be required as a consequence of the
indemnification to make any payment to the extent that the payment would be inconsistent with subsections B and C
of § 50-73.96.” (emphasis added).
the two properties. The Debtor testified that she does not contest that real estate taxes are owed
on the properties; however, she testified that the debt is not hers personally but a debt of the
partnership. At trial, the Debtor’s counsel agreed that the real estate taxes will be paid out of the
proceeds when the properties are sold. Thus, the Claim will be reduced by that amount.
(4) Unpaid Rent
Carter seeks to recover $55,702.00 in unpaid rent from the two properties. Attached to
the Amended Proof of Claim is an exhibit showing how Carter calculated the amount of rent
owed. Applying the burden-shifting framework, Carter’s Amended Proof of Claim and the
attached calculation of rent constitute prima facie evidence of the claim. The burden of proof
then shifts to the Debtor to introduce evidence to rebut the claim’s presumptive validity. The
Debtor denies that she kept any funds collected as rent from the properties for her personal use
and that all rent collected was used to pay the partnership’s debts or for maintenance of the
properties. The Debtor further testified that Carter accepted the partnership’s practice of the
Debtor handling the rental receipts for more than twenty years without requesting an accounting.
The evidence produced by the Debtor is sufficient to establish that there is a true dispute
regarding unpaid rents. Thus, the burden shifts back to Carter to prove the amount and validity
of the claim by a preponderance of the evidence. The Court does not believe that Carter has
carried this burden.
Carter testified regarding how he came up with the rents received. See Carter’s Ex. 8.
He testified that he took the rents received amount from the tax returns and subtracted the
expenses listed on the tax returns to determine the amount of profit. He further testified that
depreciation was not part of the calculation. He testified that there are no existing tax returns for
1996, 1997, 2018, and 2019, so he determined the amounts for these years by averaging rent and
expenses from prior years.
The Court is not persuaded by Carter’s methodology that the numbers are credible.
Further, Carter could have asked the Debtor years ago why he was not receiving rent checks or
checks in a higher amount, but failed to do so. He turned a blind eye to the Debtor’s handling of
their arrangement for not months – but years. Carter has not carried his burden of proving by a
preponderance of evidence the validity and amount of the unpaid rent part of his claim and this
part of the Claim will be disallowed.
(5) Sums due Under the Credit Line Deed of Trust
Carter seeks to recover $99,344.66 on the Bank of Botetourt credit line deed of trust.
Attached to the Amended Proof of Claim is a Loan Payment Notice showing this amount due.
Carter’s position is that the sums due under the credit line were used by the Debtor in her
personal name and not as partnership expenses. Applying the burden-shifting framework,
Carter’s Amended Proof of Claim, the attached Loan Payment Notice, and description of why
the Debtor owes the money constitute prima facie evidence of the claim. The burden of proof
then shifts to the Debtor to introduce evidence to rebut the claim’s presumptive validity. The
Debtor denies that the funds were used for personal expenses and states that all funds were used
for maintenance and other costs associated with the properties. The evidence produced by the
Debtor is sufficient to establish that there is a true dispute regarding whether the sums due under
the Bank of Botetourt credit line deed of trust were used for the Debtor’s personal expenses or
solely for partnership expenses. Thus, the burden shifts back to Carter to prove the amount and
validity of the claim by a preponderance of the evidence. The Court does not believe that Carter
has carried this burden.
At trial, Carter testified that he received an email from the Debtor responding to
questions regarding distribution of funds upon the sale of properties. One of the questions posed
by Carter in the email was “And that you will pay off the Line of Credit Loan from the Bank of
Botetourt with your own funds?” The response was “Yes, we’ve discussed this before.” These
emails were admitted into evidence as Carter’s Exhibit 12. Later, the Debtor testified that she
did not send that email and that the email Carter sent the questions to (sterest@rbinternet.net)
was an old, non-working email for her.
In rebuttal, Carter sought to introduce a letter signed by “Dawn L. Jones For Phyllis
Johnson.” Carter’s Ex. 18. The letter written by Dawn Jones stated, among other things,
“Phyllis will be busy with an out of town couple showing property for the next few days, but has
asked me to send you a note telling you that you can e-mail her at sterest@rbinternet.net. . . .”
The Debtor objected to the letter’s admission by asserting that it is inadmissible hearsay. The
Court took the objection under advisement.
Under the Federal Rules of Evidence, hearsay is an out-of-court statement offered to
prove the truth of the matter asserted in the statement. Fed. R. Evid. 801(c). “The purpose of the
hearsay rule is to remove from evidence out-of-court statements offered for their truth that have
questionable trustworthiness when the opposing party has no opportunity to contest the hearsay’s
reliability.” In re Davis, 607 B.R. 522, 527 (Bankr. D.S.C. 2019) (citations omitted). The Court
finds that the letter is inadmissible hearsay because it is being offered by Carter to show that the
email address in question is in fact the Debtor’s email. Thus, the Court sustains the Debtor’s
objection on the basis that the letter is inadmissible hearsay without exception.
While the Court finds it more than curious that the email and letter were sent purportedly
on the Debtor’s behalf, there was no third-party testimony to shore up or corroborate the
testimony on this matter. Dawn Jones was not a witness, and her testimony would have been
most helpful.6 The Court concludes that Carter did not prove the validity and amount of this
aspect of the claim by a preponderance of the evidence. Other than Carter’s Exhibit 12, which
the Court does not find persuasive, there is no credible admitted evidence that shows that the
Debtor agreed to pay the credit line deed of trust personally. Thus, Carter has not carried his
burden. The debt secured by the credit line deed of trust will have to be paid upon sale of the
properties and the settlement of the partnership accounting, and it will be excluded from the
Claim in this case.
(6) Late Fees and Penalties under the Deed of Trust
Carter seeks to recover $2,743.91 in late fees and penalties on the Bank of Botetourt deed
of trust and credit line deed of trust, as well as NBC Bank late fees. Attached to the Proof of
Claim is an exhibit showing a breakdown of the late fees and penalties requested. Applying the
burden-shifting framework, Carter’s Amended Proof of Claim and the attached breakdown of
fees constitute prima facie evidence of the claim. The burden of proof then shifts to the Debtor
to introduce evidence to rebut the claim’s presumptive validity. The Debtor denies that there is
any basis for a claim that she personally owes Carter late fees and penalties. The Debtor further
asserts that the fees and penalties were partnership fees on partnership debt. The evidence
asserted by the Debtor is sufficient to establish that there is a true dispute regarding fees and
penalties. Thus, the burden shifts back to Carter to prove the amount and validity of the claim by
a preponderance of the evidence. The Court does not believe that Carter has carried this burden.
6 Dawn Jones was purportedly an employee of an attorney doing work for the Debtor. Both the letter and the email
have a fishy smell. While the Court has some concerns about the Debtor’s testimony on this point, it is not enough
to persuade the Court these documents were actually sent by the Debtor such that they can bind her.
Carter testified that based on the rents paid there should have been sufficient money to
pay the monthly payments when due without incurring any penalties or late fees. The Debtor
was the partner responsible for collecting rent and made payments on the loans; however, Carter
could have inquired, intervened, and put a stop to this issue long ago. Carter has not carried his
burden to prove that he is entitled to a claim for late fees and penalties and this part of the Claim
will be disallowed.
(7) Attorney’s Fees
Carter seeks recovery of attorney’s fees of $41,891.85 plus additional fees that continue
to accrue, representing his legal fees incurred in pursuing his general unsecured claim and
defending the Debtor’s objection to his claim. Attached to the Amended Proof of Claim is a
document showing a breakdown of attorney’s fees including the hours worked and hourly rate.
Applying the burden-shifting framework, Carter’s Amended Proof of Claim and the attached
breakdown of attorney’s fees constitute prima facie evidence of the claim. The burden of proof
then shifts to the Debtor to introduce evidence to rebut the claim’s presumptive validity. The
Debtor denies that any agreement exists that she agreed to pay Carter’s legal fees if he pursued a
claim against her personally. She further denies that any form of partnership agreement exists
under which either partner would be entitled to reimbursement of legal fees from the partnership.
The evidence asserted by the Debtor is sufficient to establish that there is a true dispute regarding
reimbursement of attorney’s fees. Thus, the burden shifts back to Carter to prove the amount and
validity of the claim by a preponderance of the evidence. The Court does not believe that Carter
has carried this burden.
Ordinarily, each party bears their own costs of litigation and the prevailing party may
only seek recovery of attorney’s fees if otherwise permitted by contract or independent statute.
DIRECTV, LLC v. Coley (In re Coley), Nos. 18-02154-5-JNC, 2020 WL 265931, at *5 (Bankr.
E.D.N.C. Jan. 16, 2020) (citations omitted). As stated by the United States Supreme Court,
“[o]ur basic point of reference when considering the award of attorney’s fees is the bedrock
principle known as the American Rule: Each litigant pays his own attorney’s fees, win or lose,
unless a statute or contract provides otherwise.” Baker Botts L.L.P. v. ASARCO LLC, 576 U.S.
121, 126, 135 S. Ct. 2158, 2164 (2015) (internal citations omitted).
Carter cites to Prospect Development Co., Inc. v. Bershader, 258 Va. 75, 515 S.E.2d 191
(1999), in support of the assertion that the Debtor should pay Carter’s attorney’s fees. In
Bershader, the Supreme Court of Virginia ruled that a chancellor in equity may, in his discretion,
award attorney’s fees to a prevailing party in a fraud suit. Id. at 92. The Court finds that
Bershader is inapplicable to the present case because there is no allegation of fraud in this case,
and Carter has provided no other persuasive authority that the Debtor’s actions as a miscreant
partner give right to a reimbursement of attorney’s fees. Indeed, consistent with federal law
guidance, “[t]he general rule in this Commonwealth is that in the absence of a statute or contract
to the contrary, a court may not award attorney’s fees to the prevailing party.” Id. (citing
Gilmore v. Basic Indus., Inc., 233 Va. 485, 490, 357 S.E.2d 514, 517 (1987)). Thus, because
Carter points to no contract, independent statute, or exception to the general rule that would
entitle Carter to attorney’s fees, the objection to this aspect of the Claim will be sustained.
(8) Checks Drawn from the Renovation Account
Carter seeks to recover $15,600.00 for unaccounted for checks drawn by the Debtor from
a bank account designated for renovation expenses. Attached to the Claim are two checks, for
$15,000.00 and $600.00 respectively, signed by the Debtor. Also attached to the Claim are the
financial statements showing the withdrawals from the partnership bank account.
Applying the burden-shifting framework, Carter’s Amended Proof of Claim and the
attached document showing the checks and financial statements constitute prima facie evidence
of the claim. The burden of proof then shifts to the Debtor to introduce evidence to rebut the
claim’s presumptive validity. The Debtor denies that the funds were used for her personal
benefit and states that they were used to pay for renovation costs associated with the two
properties. The evidence asserted by the Debtor is sufficient to establish that there is a true
dispute regarding the withdrawals. Thus, the burden shifts back to Carter to prove the amount
and validity of the claim by a preponderance of the evidence. The Court believes that Carter has
carried this burden.
At trial, Carter testified that the Debtor wrote a check to NBC Bank for $15,000.00. He
stated that at the time the check was written the partnership was not paying NBC Bank and thus
the money was basically a cash withdrawal. The Debtor presented conflicting testimony at trial.
First, the Debtor testified that the $15,000.00 check was a transfer from the operating account to
the money market account. Later, the Debtor testified that the check was used to pay off the
mortgage on the Woods Property because it had to be paid by a cashier’s check. The Court finds
the Debtor’s descriptions unpersuasive to show how this money was spent.
Carter further testified that $600.00 was withdrawn from the partnership money market
account at NBC Bank with no explanation as to how it was used. The relevant Financial
Services Statement shows a $600.00 withdrawal. The Debtor testified she believed she had to
pay somebody for work done renovating the properties. The Court finds that the Debtor’s
description is inadequate to show how this money was spent.
The Court finds Carter has met his burden in proving the amount and validity of this
portion of the claim by a preponderance of the evidence. Thus, Carter has a claim under Section
50-73.103 against the Debtor and this portion of the claim, $15,600.00, will be allowed.
(9) Management Fees Taken by the Debtor
Carter seeks to recover $17,246.00 constituting management fees that the Debtor paid
herself from 2005 to 2012 for management of the partnership’s rental properties without
agreement. Attached to the Claim is a document showing the fees taken which are based on
Schedule E of the applicable tax returns.
Carter testified that his arrangement with the Debtor was that Carter would supply capital
to buy properties and the Debtor would oversee locating, renovating, and renting the properties.
Carter further testified that the Debtor took management fees from 2005 to 2012 with no
agreement that she would take a commission or management fees from the rental of the
properties. Pursuant to Carter’s Amended Proof of Claim and Schedule E of the tax returns, the
Debtor took $17,246.00 in management fees from 2005 to 2012. The Court finds that Carter
carried his burden of proving by a preponderance of the evidence the validity and amount of the
management fees part of his claim. The Debtor started taking management fees in 2005 without
agreement from Carter. This also violates Section 50-73.99(H).7 The Debtor was supposed to
manage the properties as part of her partnership duties, while Carter was to supply most of the
capital. Thus, the Court finds that Carter may enforce his rights as a partner under Section 50-
73.103 against the Debtor to recover these sums, and this portion of the claim will be allowed in
the amount of $17,246.00.
7 “A partner is not entitled to remuneration for services performed for the partnership, except for reasonable
compensation for services rendered in winding up the business of the partnership.” Va. Code § 50-73.99(H).
CONCLUSION
For the foregoing reasons, the Court will sustain in part and overrule in part the Debtor’s
Objection to the Claim of James D. Carter. The Claim will be allowed in the amount of
$32,846.00, which includes the $17,246.00 in management fees taken by Debtor without
agreement or permission and the $15,600.00 in unaccounted for checks and withdrawals. The
capital contribution of $108,000.00, the $15,373.14 repayment of real estate taxes, the
$24,239.97 in current delinquent real estate taxes, and the $99,344.66 debt secured by the credit
line deed of trust are matters that should be paid when the properties are sold and the final
partnership/joint venture accounting is settled. The unpaid rent, attorney’s fees and late fees
sought are not otherwise recoverable.
A separate Order will be entered contemporaneously herewith.