MARC T. TREADWELL, District Judge.
Defendant Joseph P. McClelland, Jr., Defendant The McClelland Qualified Personal Residence Trust (the "Trust"), and Plaintiff First State Bank of Northwest Arkansas have moved for summary judgment. (Docs. 35; 45; 56). For the following reasons, the motions are
In 2005 and 2006, McClelland, Jr. took out two loans — Loan 2000 and Loan 6800 — from First Georgia Community Bank ("First Georgia"), where he served on the board of directors. (Docs. 61 at 75:7-13; 66-1 at ¶ 1). According to McClelland, Jr., as First Georgia grew and needed additional capital it had an "agreement" with its directors: they would borrow money from other banks, buy stock from First Georgia, and then use that stock as collateral to borrow money from First Georgia. (Doc. 61 at 75:7-76:21). Thus, McClelland, Jr. understood that Loan 2000 and Loan 6800 were cross-collateralized against all of his collateral at First Georgia, including the stock he owned. (Doc. 61 at 20:24-21:12, 24:8-13).
In late 2007, McClelland, Jr. was diagnosed with cancer. (Doc. 61 at 73:22-74:2). Dan Fears, who also served on the board of directors, suggested to McClelland, Jr. that he make sure his estate plan was in order. (Doc. 61 at 67:25-68:9). Around the same time, McClelland, Jr. believed the government was considering reducing the estate tax exemption level from $5 million to $1.5 million. (Doc. 61 at 68:10-13). Accordingly, McClelland, Jr. "decided to undertake some estate planning efforts" and hired his attorney and son, Joseph P. McClelland, III, to create an estate plan. (Doc. 61 at 67:25-69:6). McClelland, Jr. testified that the purposes of estate planning were to minimize the amount of tax he needed to pay and to "keep the family property." (Doc. 61 at 143:14-23). He testified "[his] plan was to move tangible assets to the [T]rust and to [T]he McClelland [Family Limited Partnership] [the "Partnership"] and to keep all negotiable stuff, cash and stocks and stuff, outside. That was going to be my retirement."
In March 2008, McClelland, Jr. made five transfers of real property to the Partnership and one transfer to the Trust.
Notwithstanding the apparent lack of consideration for the transfers, McClelland, Jr.; McClelland, III; Allison McClelland; and Leila M. Robinson, McClelland, Jr.'s ex-wife, testified that the transfers were made for reasonably equivalent value. Specifically, McClelland, Jr., Allison McClelland, and Robinson all testified that McClelland, Jr. had a contract with Allison "that if she went to graduate school and maintained the NC property, then she would be deeded the property." (Docs. 45-3 at ¶ 2; 61 at 79:9-23; 45-5 at ¶ 1; 62 at 29:12-17; 45-6 at ¶¶ 2-3). Allison graduated from graduate school and maintained and continues to maintain the property. (Docs. 45-3 at ¶¶ 3-4; 45-5 at ¶¶ 2-4; 62 at 29:12-17). Moreover, McClelland, Jr. testified that he had an understanding with McClelland, III that he would transfer the property in exchange for his son's legal work and that this has "kind of been implied since I paid for his . . . law school." (Doc. 61 at 81:5-15). McClelland, III testified that he provided $19,000 of legal work regarding the estate planning efforts and that he has generally provided almost $175,000 of legal representation to McClelland, Jr., the Partnership, and the Trust.
McClelland, Jr. testified that he "notified First Georgia of all transfers into the Partnership and Trust with an affidavit and by telling them in multiple conversations before and after the transfers." (Doc. 35-3 at ¶ 4). The "affidavit" McClelland, Jr. refers to is a financial report, dated March 27, 2008, which he prepared "in connection with [his] service as a bank director in Georgia" (the "Financial Report"). (Docs. 61 at 74:8-12, 282-83). McClelland, Jr. created the Financial Report because "[a]ll board of directors are required to submit this at the beginning of each year for the financial records required by the State of Georgia." (Doc. 61 at 30:20-31:14). Under "Assets," and in the category "Real Estate — from Schedule A," McClelland, Jr. wrote, "N/A." (Doc. 61 at 282). Under "Schedule A — Real Estate Owned," McClelland, Jr. listed "Residence," "NC house," and "Land +- 70 Acres" and, under "Title in Whose Name," he wrote, "The McClelland Qualified Personal Residential Trust," "The McClelland Family Limited Partnership," and "same," respectively.
McClelland, Jr. resigned from the board of directors in May 2008. (Doc. 61 at 133:14-19, 166:3-7). He signed the final renewal of Loan 2000 on August 18, 2008, and the final renewal of Loan 6800 on July 11, 2008. (Doc. 61 at 20:7-14, 25:4-7). The Plaintiff contends that Loan 2000 and Loan 6800 went into default on November 17, 2008. (Doc. 56-1 at ¶ 18). The Defendants dispute this, claiming that "[Loan] 2000 was due on November 17, 2008 but was in the process of being renewed." (Doc. 66-1 at ¶ 18). At the time, McClelland, Jr. was expecting to receive almost $90,000 from his deferred compensation and bank-owned life insurance and "had a line of credit for about $30,000." (Doc. 61 at 41:11-14). "Historically," McClelland, Jr. would use those "to keep all the notes current," but "for some reason, when I went back in in November, it had changed." (Doc. 61 at 41:15-20). McClelland, Jr. testified that when Loan 2000 and Loan 6800 came due in November, he was discussing with First Georgia what to do: "I asked for a line of credit. For some reason, something was going on. And before we could reach an agreement or whatever, the bank failed."
On December 5, 2008, First Georgia failed and went into receivership by the Federal Deposit Insurance Corporation ("FDIC"). (Doc. 66-1 at ¶ 19). The FDIC sued McClelland, Jr. to recover amounts due on Loan 2000 and Loan 6800 in the United States District Court for the Northern District of Georgia
The Plaintiff has moved for partial summary judgment, seeking to set aside the seven transfers of property, which it contends are fraudulent, as well as damages, injunctive relief, and the imposition of a constructive trust pursuant to Georgia's Uniform Fraudulent Transfers Act ("GUFTA"), O.C.G.A. § 18-2-70, et seq.
A court must grant summary judgment "if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(a). "A factual dispute is genuine only if `a reasonable jury could return a verdict for the nonmoving party.'" Info. Sys. & Networks Corp. v. City of Atlanta, 281 F.3d 1220, 1224 (11th Cir. 2002) (quoting United States v. Four Parcels of Real Prop., 941 F.2d 1428, 1437 (11th Cir. 1991)). The burden rests with the moving party to prove that no genuine issue of material fact exists. Id. The party may support its assertion that a fact is undisputed by "citing to particular parts of materials in the record, including depositions, documents, electronically stored information, affidavits or declarations, stipulations (including those made for purposes of the motion only), admissions, interrogatory answers, or other materials." Fed. R. Civ. P. 56(c)(1)(A).
"If the moving party bears the burden of proof at trial, the moving party must establish all essential elements of the claim or defense in order to obtain summary judgment." Anthony v. Anthony, 642 F.Supp.2d 1366, 1371 (S.D. Fla. 2009) (citing Four Parcels of Real Prop., 941 F.2d at 1438). The moving party must carry its burden by presenting "credible evidence" affirmatively showing that, "on all the essential elements of its case on which it bears the burden of proof at trial, no reasonable jury could find for the nonmoving party." Four Parcels of Real Prop., 941 F.2d at 1438. In other words, the moving party's evidence must be so credible that, if not controverted at trial, the party would be entitled to a directed verdict. Id.
"If the moving party makes such an affirmative showing, it is entitled to summary judgment unless the nonmoving party, in response, `come[s] forward with significant, probative evidence demonstrating the existence of a triable issue of fact.'" Id. (quoting Chanel, Inc. v. Italian Activewear of Fla., Inc., 931 F.2d 1472, 1477 (11th Cir. 1991)) (alteration in original). However, "credibility determinations, the weighing of the evidence, and the drawing of legitimate inferences from the facts are jury functions, not those of a judge. . . . The evidence of the non-movant is to be believed, and all justifiable inferences are to be drawn in his favor." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255 (1986). Thus, the Court "`can only grant summary judgment if everything in the record demonstrates that no genuine issue of material fact exists.'" Strickland v. Norfolk S. Ry. Co., 692 F.3d 1151, 1154 (11th Cir. 2012) (quoting Tippens v. Celotex Corp., 805 F.2d 940, 952 (11th Cir. 1986)).
In contrast, "[w]hen the nonmoving party has the burden of proof at trial, the moving party is not required to `support its motion with affidavits or other similar material negating the opponent's claim.'" Four Parcels of Real Prop., 941 F.2d at 1437 (quoting Celotex Corp. v. Cartrett, 477 U.S. 317, 323 (1986)). The moving party "simply may show . . . that there is an absence of evidence to support the nonmoving party's case." Id. at 1438 (internal quotation marks and citation omitted). "Assuming the moving party has met its burden, the non-movant must then show a genuine dispute regarding any issue for which it will bear the burden of proof at trial." Info. Sys. & Networks Corp., 281 F.3d at 1224-25 (citing Celotex Corp., 477 U.S. at 324).
The standard of review for cross-motions for summary judgment does not differ from the standard applied when only one party files a motion. See Am. Bankers Ins. Grp. v. United States, 408 F.3d 1328, 1331 (11th Cir. 2005). "Cross-motions for summary judgment will not, in themselves, warrant the court in granting summary judgment unless one of the parties is entitled to judgment as a matter of law on facts that are not genuinely disputed." United States v. Oakley, 744 F.2d 1553, 1555 (11th Cir. 1984) (internal quotation marks and citation omitted). The Court will consider each motion on its own merits, resolving all reasonable inferences against the party whose motion is under consideration. See Am. Bankers Ins. Grp., 408 F.3d at 1331.
GUFTA "is modeled on the Uniform Fraudulent Transfer Act promulgated by the national Conference of Commissioners on Uniform State Laws and adopted in various forms by 43 states and the District of Columbia." Truelove v. Buckley, 318 Ga.App. 207, 209, 733 S.E.2d 499, 501 (2012) (citation and internal quotation marks omitted). O.C.G.A. § 18-2-74(a) provides that a transfer made by a debtor "is voidable as to a creditor, whether the creditor's claim arose before or after the transfer was made[,]" if the debtor made the transfer:
O.C.G.A. § 18-2-75(a), on the other hand, provides that a transfer made by a debtor "is voidable as to a creditor whose claim arose before the transfer was made . . . if the debtor made the transfer or incurred the obligation without receiving a reasonably equivalent value in exchange for the transfer or obligation and the debtor was insolvent at that time or the debtor became insolvent as a result of the transfer or obligation."
"Because actual intent to defraud is difficult to prove, [GUFTA] lists 11 nonexclusive factors (sometimes called `badges of fraud') that can be considered in determining whether funds were transferred with the actual intent to defraud a creditor." SRB Inv. Servs., LLLP v. Branch Banking & Tr. Co., 289 Ga. 1, 3-4, 709 S.E.2d 267, 270 (2011); O.C.G.A. § 18-2-74(b)(1)-(11). The Plaintiff argues it has established "multiple badges of fraud" and thus the Court should find as a matter of law that McClelland, Jr. "actually intended to defraud his creditors by transferring his interest in the [p]roperties to the Trust and the Partnership." (Doc. 56-13 at 7). Specifically, the Plaintiff argues the transfers were made to "insiders" because McClelland, III and Allison are relatives of McClelland, Jr., O.C.G.A. § 18-2-74(b)(1); McClelland, Jr. continued to reside at his personal residence after the transfer to the Trust, O.C.G.A. § 18-2-74(b)(2); he did not receive reasonably equivalent value for the transfers because they were made by deed of gift, no purchase price was paid, and the alleged agreements with McClelland, III and Allison cannot support a finding of reasonably equivalent value, O.C.G.A. § 18-2-74(b)(8); the transfers were executed shortly before Loan 2000 and Loan 6800 were due, O.C.G.A. § 18-2-74(b)(10); and, he was insolvent or became insolvent shortly after the transfers because he was not paying his debts at the time of the transfers or shortly thereafter, O.C.G.A. § 18-2-74(b)(9).
The Defendants admit the transfers were made to insiders but argue there are genuine disputes of fact with respect to the other badges of fraud. They admit that McClelland, Jr. has continued to use the property transferred to the Trust as his personal residence but argue that his right of use has changed under the terms of the Trust. (Docs. 66 at 11; 61-3 at 3-15). They argue the evidence shows McClelland, Jr. received more than reasonable value for the transfers in light of his agreements with Allison and McClelland, III and the fact that the $220,000 mortgage should be considered in determining the value of the property transferred to the Trust. They argue that McClelland, Jr. "clearly did not run up any debts shortly before a transfer" and, given his "long history of repayment [and] renewals," this badge weighs against the Plaintiff. (Doc. 66 at 19). They provide evidence that McClelland, Jr. was not insolvent in March 2008 and that his "capital diminished and cash flow stopped" only after the "unforeseen events of the FDIC taking the stock collateral to zero, pulling his accounts, and First Georgia breaching his contracts." (Docs. 61 at 72:3-20; 66 at 17). Finally, the Defendants provide evidence that McClelland, Jr. fully disclosed the transfers to First Georgia, which weighs against the Plaintiff, O.C.G.A. § 18-2-74(b)(3). (Docs. 35-3 at ¶ 4; 61 at 74:8-22, 282-83).
"The law is well established that the question of intent in a fraudulent conveyance case is generally one for the jury."
"While actual or intentional fraud requires a showing of intent, `[c]onstructive fraudulent transfers are established conclusively, without regard to the actual intent of the parties. . . ." Truelove, 318 Ga. App. at 210, 733 S.E.2d at 501 (citation and internal quotation marks omitted). Relying on the same evidence discussed above, the Plaintiff argues the Court can find as a matter of law that McClelland, Jr. was insolvent at the time of the transfers or should have reasonably believed that he would become insolvent and that he transferred his interest in the properties without receiving reasonably equivalent value. (Doc. 56-13 at 14-15). Yet, as discussed above, there is at least a genuine dispute with respect to whether McClelland, Jr. "[i]ntended to incur, or believed or reasonably should have believed that he . . . would incur, debts beyond his . . . ability to pay as they became due" and "was insolvent at [the] time [of the transfers] or . . . became insolvent as a result of the transfer[s]." O.C.G.A. §§ 18-2-74(a)(2)(B), 18-2-75(a). Accordingly, the Plaintiff's motion for summary judgment (Doc. 56) is
The Trust argues it is entitled to summary judgment because it took in good faith and for a reasonably equivalent value. See O.C.G.A. § 18-2-78. Construing the evidence in the light most favorable to the Plaintiff, the Court cannot say as a matter of law that the Trust gave reasonably equivalent value for the property transferred to it, which had a provable "As-Is" market value of $250,000. (Docs. 45-1 at 1; 66-1 at ¶ 16). At the very least, public record evidence indicates that McClelland, Jr. received no value for the transfer. (Doc. 66-1 at ¶ 13). Accordingly, the Trust's motion for summary judgment (Doc. 45) is
Finally, McClelland, Jr. has moved for summary judgment as to all of the Plaintiff's claims, arguing that "[w]ith complete knowledge of all transfers, First Georgia ratified the contracts as made by accepting payments, origination fees, and then, renewing both contracts, thereby waiving any alleged fraud."
GUFTA provides that under certain conditions a transfer "is voidable as to a creditor." O.C.G.A. §§ 18-2-74(a)(1)-(2), 18-2-75(a) (emphasis added). "The term `voidable' is defined as `That which may be avoided, or declared void; not absolutely void, or void in itself. That which operates to accomplish the thing sought to be accomplished, until the fatal vice in the transaction has been judicially ascertained and declared.'" Dal-Tile Corp. v. Cash N' Go, Inc., 226 Ga.App. 808, 811, 487 S.E.2d 529, 532 (1997) (Beasley, J., concurring) (citation omitted); see Stoudemire v. HSBC Bank USA, 2015 WL 3480428, at *1 (Ga. Ct. App.) ("A void contract is one that has no effect whatsoever and is incapable of being ratified, while a voidable contract is one that is unenforceable at the election of the injured party.").
Because a fraudulent transfer "is not void, but voidable," courts have generally held that "it can be ratified by a creditor who is then estopped from seeking its avoidance." In re Adelphia Recovery Trust, 634 F.3d 678, 691 (2d Cir. 2011) (citation and internal quotation marks omitted); see also In re Lyondell Chem. Co., 503 B.R. 348, 383-84 (Bankr. S.D.N.Y. 2014) ("[C]reditors who are participants in an alleged fraudulent transfer, or who have ratified it, cannot then seek to have that transfer avoided. The rubrics under which that conclusion has been reached have varied slightly—`ratification,' `consent,' `estoppel,' or `material participa[tion] in the transaction'—but the underlying point is the same. Creditors who authorized or sanctioned the transaction, or, indeed, participated in it themselves, can hardly claim to have been defrauded by it, or otherwise to be victims of it."). But see In re Morse Tool, Inc., 108 B.R. 389, 390 (Bankr. D. Mass. 1989).
Assuming that ratification (or estoppel or whatever it may be called) is a defense to a GUFTA claim, the question of ratification generally "depends upon the intention of the parties, and is a matter of fact to be determined by the jury." Nalley v. Langdale, 319 Ga.App. 354, 366, 734 S.E.2d 908, 918 (2012) (quoting Warner v. Hill, 153 Ga. 510, 513, 112 S.E. 478, 480 (1922)). "Ratification involves full knowledge of all the facts." Warner, 112 S.E. at 480; see also Stewart v. Storch, 274 Ga.App. 242, 245, 617 S.E.2d 218, 222 (2005) ("Generally, ratification requires both knowledge of the act and acceptance of benefits resulting from the act."). It is true, as McClelland, Jr. points out and the Plaintiff candidly admits, that the Plaintiff is not in a position to refute his evidence with regard to whether First Georgia knew about the transfers. The problem is none of the evidence relied upon by McClelland, Jr. is sufficient to establish, as a matter of law, that First Georgia knew about the transfers before it renewed Loan 2000 and Loan 6800.
McClelland, Jr. testified in his affidavit that "First Georgia knew of the transfers prior to renewal of the same contracts/loans" and that "First Georgia renewed said obligations to McClelland, Jr. with knowledge of transfers." (Doc. 35-3 at ¶¶ 6, 7). These conclusory statements are not sufficient. McClelland, Jr. also testified that he "notified First Georgia of all transfers into the Partnership and Trust with an affidavit and by telling them in multiple conversations before and after the transfers." (Doc. 35-3 at ¶ 4). The Court has pieced together that when McClelland, Jr. says he notified the bank "with an affidavit" he is referring to the Financial Report. (Doc. 61 at 74:8-12). The Financial Report likely was sufficient to disclose the transfers and, circumstantially, it appears that First Georgia likely had it. But McClelland, Jr. never quite puts any evidence into the record establishing that he provided First Georgia with the Financial Report before he renewed the loans. McClelland, Jr.'s affidavit does not say when he provided it to the bank. His affidavit says he notified "First Georgia" in "multiple conversations" but never identifies who he notified. For all the Court knows, he walked into the bank and told the janitor. That is not sufficient.
McClelland, Jr. has also provided an affidavit from Art Hammond, President of First Georgia in 2008, who testified that "in 2008 [First Georgia] received all of the board of director's financial statements including director Joseph P. McClelland, Jr.'s for the year of 2008." (Doc. 66-3 at ¶ 4). At most, this suggests First Georgia received the Financial Report at some point in 2008. But it does not directly speak to whether First Georgia received the Financial Report before the loans were renewed. Similarly, McClelland, Jr. has provided an affidavit (which he never cites in his briefs) from Herb Warren, a member of the board of directors, who testified that "[w]hile as a director of the bank Joseph P. McClelland, Jr. disclosed to all board of directors that he did an estate plan and transferred property into entities" and that McClelland, Jr. "resigned from the bank board late spring 2008." (Doc. 66-5 at ¶¶ 2, 6, 7). Again piecing things together on its own, the Court could conclude that McClelland, Jr. resigned from the board before the loans were renewed and thus that Warren's affidavit suggests First Georgia was aware of some unspecified transfers McClelland, Jr. made before the renewals. But even then the Court could not conclude as a matter of law that First Georgia was aware of the transfers at issue.
Finally, McClelland, Jr. has provided an affidavit from Pam Browning, a loan officer at First Georgia, who testified, "I think [McClelland, Jr.] was transparent about his financial position throughout 2008" and "[First Georgia] followed the normal banking procedures for all of [McClelland, Jr.'s] loan renewals." (Docs. 66-4 at ¶¶ 2-4; 66-7 at ¶¶ 2-4). This bolsters McClelland, Jr.'s credibility, but it does not entitle him to summary judgment.
In short, although the record suggests that McClelland, Jr. could establish that First Georgia had notice of the transfers before the loans were renewed, he has not yet proved the point as a matter of law. Therefore, his motion for summary judgment (Doc. 35) is
Defendant McClelland, Jr.'s, Defendant Trust's, and the Plaintiff's motions for summary judgment (Docs. 35; 45; 56) are