DOBSON —Presiding Judge Patrice Hinnant heard a full day of arguments in Surry County Superior Court last week attempting to make sense of the inability — or unwillingness — of Mount Airy businessmen C. Richard Vaughn Sr. and C. Richard “Rick” Vaughn to pay a $3.3 million debt.
The Guilford County judge granted several motions brought by the plaintiff, Broyhill Investments, a Lenoir-based company, allowing the creditor to move forward on post-judgment collection effort called “a fool’s errand” by Leigh Rodenbough, one of Vaughn’s attorneys.
Actions of the court included orders for Richard Vaughn Sr. to sell his entire stock holding of Insteel Industries Inc., of which he serves on the board of directors, and for both Vaughns to sell their 18 combined Limited Liability Company membership interests.
The debt was incurred by a failed retail development project spearheaded by Rick Vaughn and backed by his father.
Probing into any family dynamics that may be at work, “Some things become clearer, some things become murkier,” Hinnant stated during the proceeding.
“I’m sensing a deep tragedy here.”
Richard Vaughn Sr. was the longtime chairman and CEO of John S. Clark and was a chairman of N.C. Granite Corp. and Riverside Building Supply.
One of the founders of Cross Creek Country Club and the Millenium Charter Academy, he was named the 1990 Citizen of the Year by the Greater Mount Airy Chamber of Commerce.
Rick Vaughn, his son, is the registered agent of Main Street Granite, an East Pine Street real estate rental business, among others.
The father and son defendants, who have been involved in numerous development projects locally, were both principals of Granite Development Company, which, according to court documents, was one of the largest shopping center developers in the Southeastern United States prior to the Great Recession.
A motion filed by the defense attorney Clint Morse and Rodenbough included background on how the development project went south.
In 2007, Rick Vaughn was approached by James Edgar “Ed” Broyhill II to develop a proposed retail project on Silas Creek Parkway in Winston-Salem.
They formed a partnership, Granite/Broyhill, LLC, which included Richard Vaughn Sr. and other Granite Development principals.
To fund the Silas Creek project the Vaughns personally guaranteed one bank loan for more than $2.3 million and another for $2 million.
The Great Recession hit, commercial real estate values plummeted, killing the Granite/Broyhill project.
In 2012, “Granite/Broyhill was hopelessly in default of its obligations” under the loans, according to court records.
Broyhill Investments, whose principals are an uncle and cousin of Ed Broyhill, bought out the $2.3 million loan.
Attempts to execute
The Vaughns, however, could not meet their financial obligations on the loan now owned by the family of their former partner, according to court records.
In October 2012, the Vaughns and two other business partners signed a confession of judgment agreeing to pay a principal of about $2.5 million plus interest and legal fees to Broyhill Investments.
The judgment was ordered in February 2014, and an execution of the judgment was returned unsatisfied on March 7.
Attorneys for Broyhill Investments, Kirk Sanders and Matthew Bryant, have filed a series of motions since then trying to collect on the debt, alleging that the Vaughns had unjustly hidden assets.
Following a March hearing on the matter during which the defense argued that assets protected in irrevocable trusts and a prior $35 million loan owed to First Tennesse Bank made the post-judgment collection efforts an “exercise in futility,” Hinnant signed orders allowing the plaintiff to move forward in its efforts to uncover the Vaughns’ true financial picture.
The Vaughns were ordered to be deposed no later than July 15, despite an affidavit and a doctor’s note submitted by the defense attesting that Richard Vaughn Sr. was too infirm.
They were ordered to allow inspection of their residences and property and to produce a laundry list of financial statements and documents.
And in a move that would have bearing in a subsequent hearing, the order froze the Vaughns’ assets.
Plaintiff finds red flags
Sanders and Bryant had filed motions asking the court to order several discovered assets be turned over to the plaintiff and to allow their continued investigation of the trusts through subpoenas and depositions of independent trustees.
The Vaughn’s longtime attorney Edwin Woltz, who is also Surry County Attorney, is among the trustees.
At the beginning of the proceeding Monday, Sanders referred the judge to several questionable transactions that emerged upon preliminary inspection of the 10,000 pages of documents produced by the Vaughns as ordered in March, “to let the court know what we’re dealing with.”
Those highlights included about $665,000 worth of Insteel stock belonging to Richard Vaughn Sr., which had been transferred to a First Tennessee Bank brokerage account – about two weeks after Hinnant had ordered the defendants not to dispose of any assets.
Additionally, Richard Vaughn Sr. had been receiving monthly payments totaling more than $14,000 on two promissory notes totaling about $1.8 million, neither of which had been listed as assets or exemptions.
One of those notes, issued in May 2012, loaned more than $800,000 to an irrevocable trust of which Richard Vaughn Sr. is a beneficiary.
“He’s doing that while he has an active judgment against him,” Sanders stated.
The attorney listed a series of purchases made by Rick Vaughn Jr., including an $11,000 plus Superbowl 50 ticket, “while insolvent, while under the post judgment process.”
Sanders said the plaintiff’s attorneys had recieved the 10,000 documents less than a week before the hearing.
“We’re just touching on the tip of the iceberg,” he said. “What we’re finding is powerful stuff.”
The defense argued, as they had done in March, that the irrevocable trusts were established to provide for Richard Vaughn Sr. in his retirement and for his heirs, a process that began in 1999 — well before the Granite/Broyhill debacle.
Morse provided examples of the elder Vaughn’s philanthropy, citing $5 million in charitable and educational contributions made over the years.
He noted how prior to the sale of John S. Clark, Vaughn had given about 63 percent of his stock in the company to the employees, many of whom became millionaires.
“This is not a guy trying to dodge his debts,” Morse said.
He defended the previously unlisted promissory notes on the basis that Vaughn’s late wife Elizabeth “Betty” Kay Vaughn was listed jointly as a lender.
Ultimately, Morse argued, any attempts to collect a debt was fruitless because the $35 million owed by the Vaughns to First Tennessee Bank has priority.
Attorneys for the bank, Michael Montecalvo and Brent Powell, of Winston-Salem, appeared in court on Monday to argue a motion of their own, which, filed the morning of the hearing, asserts that priority.
However, Sanders said that the zero interest “bullet note” had been issued in 2010 with no payments due until 2020.
“We’re not sure this is actually indeed even valid.”
Bryant added that the plaintiff’s attorneys had not been made aware of the note until March, that the bank had made no moves to protect its own interests until after the March order was signed by Hinnant and had not declared the loan in default until a week before the Monday proceeding.
“It’s a sham,” Bryant said.
The judge denied the bank’s motion to intervene and allowed the plaintiff’s motions that Richard Vaughn’s 19,479 common shares and 2,227 restricted shares of Insteel stock be sold as well as the Vaughns’ 18 combined LLC membership interests.
She ordered the profits be held by the clerk of courts until Broyhill Investments and First Tennessee Bank either agree or litigate who gets what.
The plaintiff’s request that payments made on the promissory notes owed to Richard and Betty Kay Vaughn be redirected toward the Broyhill judgment was allowed with limitations.
Hinnant also signed an order for three independent trustees of five trusts, Edwin Woltz, Jeffrey Gordon, Monty Venable, to be deposed and produce subpoenaed documents within two weeks of the hearing.
Responding to Morse’s protests that the trustees’ schedule may not allow for such a quick turnaround, Hinnant said, “They’ll just have to cancel some of their trips.”
She also agreed to hasten the deadline for the Vaughns’ deposition from July 15 to one week following the trustees.
“Not only did they dispose of that (stock) but now there’s whispers, not just whispers, telephone discussions about bankruptcy,” she stated.
On May 17, the day after the hearing, the defense filed a motion for sanctions claiming that Broyhill Investments’ “pattern of vexatious litigation,” violates Rule 11 of North Carolina Rules of Civil Procedure.
Reach Terri Flagg at 415-4734.