Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-almd-2_07-cv-00506/USCOURTS-almd-2_07-cv-00506-0/pdf.json

Nature of Suit Code: 190
Nature of Suit: Other Contract Actions
Cause of Action: 28:1332 Diversity-Injunctive &amp; Declaratory Relief

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With respect to all defendants other than Shaner, the parties reached an agreement 1

that the entry of preliminary injunction was appropriate. The parties filed a joint motion to

that effect and asked the Court to enter a preliminary injunction which address only the

claims of Horton Homes against all defendants other than Shaner. This Court granted that

request. For this reason, the only issue before the Court is whether it is appropriate to grant

Horton Homes’ request for a preliminary injunction which relates only to Shaner. For this

IN THE UNITED STATES DISTRICT COURT

FOR THE MIDDLE DISTRICT OF ALABAMA

NORTHERN DIVISION

HORTON HOMES, INC., )

 )

PLAINTIFF, )

 )

v. ) CASE NO.: 2:07-cv-506-MEF

 )

LARUE BANDY, et al., ) (WO- Publish)

 )

DEFENDANTS. )

MEMORANDUM OPINION AND ORDER

This cause is before the Court on the Motion for Preliminary Injunction (Doc. # 15)

filed on July 13, 2007 by Plaintiff Horton Homes, Inc. (“Horton Homes”). The Court has

carefully considered all submissions and argument in support of and in opposition to the

motion and has convened a hearing on the matter. For the reasons set forth in this

Memorandum Opinion and Order, the motion is due to be DENIED to the extent that it seeks

a preliminary injunction as to the Horton Homes’ claims against William Shaner (“Shaner”).

The Court notes that nothing in this Memorandum Opinion and Order is intended to have any

effect on the Consent Preliminary Injunction (Doc. # 43) entered at the request of the parties

with respect to the claims of Horton Homes against Larue Bandy, Marie Bandy, Patrick

Pritchett, Elsie Fondren Averette, William Cruthirds, and Sherrie Cruthirds. 

1

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reason, this Memorandum Opinion and Order will address only Horton Homes’ claims

against Shaner.

 In both the Answer (Doc. # 9) and the Amended Answer (Doc. # 21), Defendants 2

admitted the allegations establishing subject matter jurisdiction pursuant to 28 U.S.C. § 1332.

Nevertheless, Defendants argued that this Court lacked subject matter jurisdiction to hear this

case in their brief in opposition to Plaintiff’s motion for preliminary injunction. See Doc. #

22. When pressed on this issue at the September 24, 2007 hearing, Defendants again

conceded that this Court has subject matter jurisdiction over this case. The Court relies not

on these concessions, but on its own analysis of whether the allegations of the Complaint

create a controversy over which this Court has subject matter jurisdiction. The Court finds

that it does because Horton Homes is a Georgia resident and all defendants are residents of

states other than Georgia and because the amount in controversy is satisfied. 

2

JURISDICTION AND VENUE

Upon an independent review of the allegations of the Complaint, the Court has subject

matter jurisdiction over this action pursuant to 28 U.S.C. § 1332(a)(3). Horton Homes has 2

alleged a factual basis establishing this Court as an appropriate venue for this action, and

Defendants have failed to dispute that allegation in their answers or otherwise. 

FACTUAL AND PROCEDURAL BACKGROUND

Horton Homes is a Georgia corporation that produces manufactured and modular

homes, which it sells to a variety of retailers for resale to consumers. Shaner purchased a

home manufactured by Horton Homes from a retailer known as H&S Homes, LLC (“H&S

Homes”). In order to consummate this purchase Shaner and H&S Homes executed a Retail

Installment Contract which contained a provision requiring arbitration of any claims arising

out of or relating to that contract. Horton Homes was not a party to the arbitration agreement

between Shaner and H&S Homes. 

In August of 2006, Shaner commenced an arbitration proceeding against both Horton

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Homes and H&S Homes. In this arbitration proceeding, Shaner alleged fraud, deceit,

conversion, forgery, negligence, and wantonness. Horton Homes filed a motion asking the

arbitrator to dismiss it from the arbitration proceeding because it was not a party to any

arbitration agreement and objected to being required to participate in the arbitration

proceeding. The arbitrator went forward with the hearing on June 5, 2007. Additionally, he

deferred ruling on Horton Homes’ motion and objection. On July 6, 2007, the arbitrator

entered a damage award against Horton Homes and H&S Homes in the amount of $487,500

and denied Horton Homes’ motion to dismiss. The arbitrator also taxed the costs of the

arbitration, including the filing fee and the arbitrator’s fee against Horton Homes and H&S

Homes. Horton Homes took an appeal of this award to the Alabama Supreme Court, where

the appeal is still pending. 

A few days after the hearing before the arbitrator was completed, Horton Homes filed

suit in this Court seeking a judgment declaring that Shaner cannot pursue any arbitration

against Horton Homes and that any award from any arbitration is of no effect because Horton

Homes was not a proper party to the arbitration. Horton Homes also sought the costs of the

action including attorney’s fees. 

On July 15, 2007, Horton Homes filed its Motion for Preliminary Injunction (Doc. #

15). By this motion, Horton Homes sought to enjoin Shaner from any further pursuit of

arbitration proceedings against Horton Homes until this Court rules on the issues of

arbitrability and the request for declaratory relief requested in this lawsuit. Shaner opposed

this motion. The Court conducted a hearing over the course of two days. 

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DISCUSSION

A preliminary injunction is “an extraordinary and drastic remedy” that cannot be

granted unless the moving party clearly establishes the following four prerequisites:

(1) it has a substantial likelihood of success on the merits; (2) irreparable

injury will be suffered unless the injunction issues; (3) the threatened injury to

the movant outweighs whatever damage the proposed injunction may cause the

opposing party; and (4) if issued, the injunction would not be adverse to the

public interest. 

Siegel v. LePore, 234 F.3d 1163, 1176 (11th Cir. 2000) (en banc). The moving party’s

failure to demonstrate a “substantial likelihood of success on the merits” may defeat the

party’s claim, regardless of the party’s ability to establish any of the other elements. Church

v. City of Huntsville, 30 F.3d 1332, 1342 (11th Cir. 1994).

In order to succeed on the merits in this case and obtain the declaratory relief it seeks,

Horton Homes must establish that it is not bound to any arbitration agreement with Shaner.

It is undisputed that Horton Homes is not a signatory to the arbitration agreement between

Shaner and H&S Homes, however, in certain circumstances non-signatories may be

compelled to arbitrate. See, e.g., Employers Ins. of Wausau v. Bright Metals Specialties Inc.,

251 F.3d 1316, 1322 (11th Cir. 2001) (“Courts, however, have recognized a number of

theories under which non-signatories may be bound to the arbitration agreements of others.

These theories arise out of common law principles of contract and agency law: 1)

incorporation by reference; 2) assumption; 3) agency; 4) veil piercing/alter ego; and

estoppel.”) (internal citations omitted). Here, Shaner argues that Horton Homes can be

compelled to arbitrate because H&S Homes, which did sign the arbitration agreement, was

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the mere instrumentality or alter ego of Horton Homes. Put another way, Shaner contends

that this is a case in which the corporate veil of H&S Homes should be pierced and the

separate corporate entities of Horton Homes and H&S Homes should be disregarded. 

The parties disagree over which state law applies to the veil-piercing issues. This

Court agrees that veil-piercing issues concerning disregard of corporate form are to be

determined by reference to the law of the state under which the corporation exists. Se, e.g.,

Edgar v. MITE Corp., 457 U.S. 624, 645 (1982); Jefferson Pilot Broad. Co. v. Hilary &

Hogan, Inc., 617 F.2d 133, 135 (5th Cir. 1980). Thus, because H&S Homes is a Georgia

corporation, it is Georgia law which governs the issue of whether its corporate form should

be disregarded and whether H&S Homes was a mere instrumentality or alter ego of Horton

Homes. 

Georgia law requires great caution in disregarding corporate form. To prevail based

upon this theory

it is necessary to show that the shareholders disregarded the corporate entity

and made it a mere instrumentality for the transaction of their own affairs; that

there is such a unity of interest and ownership that the separate personalities

of the corporation and the owners no longer exist. 

Baillie Lumber Co. v. Thompson, 612 S.E.2d 296, 299 (Ga. 2005). Further, in meeting this

burden the party seeking to pierce the corporate veil, here Shaner, must show that the

opposing party “disregarded the separateness of legal entities by commingling on an

interchangeable or joint basis or confusing the otherwise separate properties, records or

control.” Id. Accord, Scott Brothers, Inc. v. Warren, 582 S.E.2d 224, 287 (Ga. App. 2003).

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 Eatonton, Georgia is located in Putnam County, Georgia. 3

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[I]t must be shown that the stockholders’ disregard of the corporate entity

made it a mere instrumentality for the transaction of their own affairs; that

there is such a unity of interest and ownership that the separate personalities

of the corporation and the owners no longer exist; and to adhere to the doctrine

of corporate entity would promote injustice or protect fraud. Such evidence

may include the owner using corporate funds for personal expenses or the

owner treating all his companies and himself as one unit. This is a question for

the jury even if there is compliance with some corporate formalities.

Scott Brothers, Inc., 582 S.E.2d at 227 (internal citations omitted). The purpose of veilpiercing under Georgia law is “to remedy injustices which arise where a party has

overextended his privilege in the use of a corporate entity in order to defeat justice,

perpetuate fraud or to evade contractual or tort responsibility.” Baillie Lumber Co., 612

S.E.2d at 299. 

Horton Homes is a Georgia corporate founded in 1970 as Rivers & Horton Homes,

Inc. It formally began operating under the names Horton Homes, Inc. In 1996, when Horton

Homes’ production was at an all time high, it began to consider the prospect of investing in

a partnership which would own retailer dealers that would sell Horton Homes’ products

directly to consumers. Ultimately, Horton Homes did enter into this business by forming a

Georgia limited liability company known as American Manufactured Housing, LLC. The

name of this limited liability company was changed to H&S Homes, L.L.C. in 1997. Horton

Homes is the sole owner of H&S Homes. The corporate offices of H&S Homes are

maintained within the corporate offices of Horton Homes in Eatonton, Georgia. Horton 3

Homes and H&S Homes maintain separate bank accounts and pay payroll taxes separately.

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Dudley Horton is Chairman of the Board of Horton Homes, and he is also Chairman of the

Board of H&S Homes. Horton Homes pays the salary of H&S Homes’ President Steve

Sinclair and provides his office space in Horton Homes’ corporate headquarters. 

In its business operations, H&S Homes held itself out to the public as being Horton

Homes. Specific retail locations operated by Horton Homes were, with the knowledge and

consent of Horton Homes, denominated as “Horton Homes of” the city in which the retail

location was located. For example, the H&S Homes retail dealer in Montgomery was called

“Horton Homes of Montgomery.” 

A consumer named Christina McDonald, who had purchased a home from H&S

Homes, initiated an arbitration proceeding against H&S Homes which resulted in her being

awarded $500,000. H&S Homes appealed. On December 17, 2004, the Alabama Supreme

Court affirmed a $500,000 arbitration award against H&S Homes. H&S Homes, L.L.C. v.

McDonald, 910 So. 2d 79 (Ala. 2004). In January 4, 2005, Horton Homes brought suit

against H&S Homes to collect on debts H&S Homes owed to Horton Homes which had been

providing its financial support. This case was brought in the Superior Court of Putnam

County, Georgia. H&S Homes did not defend against the action and allowed Horton Homes

to take a default judgment against it. Ultimately, Horton Homes obtained a judgment against

H&S Homes in the amount of $22,003,000. This judgment was recorded in Putnam County,

Georgia. Thereafter, H&S Homes successfully blocked McDonald’s efforts to enforce the

judgment arising out of her arbitration award in the Superior Court of Putnam County,

Georgia. 

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Having reviewed and considered the evidence and testimony presented at the

evidentiary hearing and the argument of the parties, the Court cannot find that Horton Homes

has sufficiently demonstrated that it has a substantial likelihood of success on the merits. A

jury may consider the evidence in this case and decide to pierce the corporate veil and

enforce H&S Homes’ arbitration agreement against Horton Homes. For this reason, the

motion for preliminary injunction is due to be DENIED. 

CONCLUSION

For the foregoing reasons, it is hereby ORDERED as follows:

1. The Motion for Preliminary Injunction (Doc. # 15) is DENIED to the extent that

it seeks a preliminary injunction as to the Plaintiff’s claims against William Shaner and

DENIED as MOOT to the extent that it seeks a preliminary injunction as to the Plaintiff’s

claims against all defendants other than William Shaner. 

2. Nothing in this Memorandum Opinion and Order is intended to have any effect on

the Consent Preliminary Injunction (Doc. # 43) entered at the request of the parties with

respect to the claims of Horton Homes against Larue Bandy, Marie Bandy, Patrick Pritchett,

Elsie Fondren Averette, William Cruthirds, and Sherrie Cruthirds. 

DONE this the 26 day of December, 2007. th

 /s/ Mark E. Fuller 

CHIEF UNITED STATES DISTRICT JUDGE

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