Filed: Apr. 17, 2014
Latest Update: Mar. 02, 2020
Summary: PUBLISHED UNITED STATES COURT OF APPEALS FOR THE FOURTH CIRCUIT No. 12-2465 In Re: PATRICIA SUSAN PFISTER, Debtor. - ROBERT F. ANDERSON, Plaintiff - Appellant, v. ARCHITECTURAL GLASS CONSTRUCTION, INC., Defendant - Appellee. Appeal from the United States District Court for the District of South Carolina, at Spartanburg. Henry M. Herlong, Jr., Senior District Judge; Helen E. Burris, Bankruptcy Judge. (7:12-cv- 01825-HMH; 09-05670-hb; 10-80162-hb) Argued: December 11, 2013 Decided: April 17, 2014
Summary: PUBLISHED UNITED STATES COURT OF APPEALS FOR THE FOURTH CIRCUIT No. 12-2465 In Re: PATRICIA SUSAN PFISTER, Debtor. - ROBERT F. ANDERSON, Plaintiff - Appellant, v. ARCHITECTURAL GLASS CONSTRUCTION, INC., Defendant - Appellee. Appeal from the United States District Court for the District of South Carolina, at Spartanburg. Henry M. Herlong, Jr., Senior District Judge; Helen E. Burris, Bankruptcy Judge. (7:12-cv- 01825-HMH; 09-05670-hb; 10-80162-hb) Argued: December 11, 2013 Decided: April 17, 2014 B..
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PUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 12-2465
In Re: PATRICIA SUSAN PFISTER,
Debtor.
-------------------------------
ROBERT F. ANDERSON,
Plaintiff - Appellant,
v.
ARCHITECTURAL GLASS CONSTRUCTION, INC.,
Defendant - Appellee.
Appeal from the United States District Court for the District of
South Carolina, at Spartanburg. Henry M. Herlong, Jr., Senior
District Judge; Helen E. Burris, Bankruptcy Judge. (7:12-cv-
01825-HMH; 09-05670-hb; 10-80162-hb)
Argued: December 11, 2013 Decided: April 17, 2014
Before MOTZ, KING, and SHEDD, Circuit Judges.
Reversed in part, vacated in part, and remanded by published
opinion. Judge Motz wrote the opinion, in which Judge King
joined. Judge Shedd wrote a dissenting opinion.
ARGUED: Richard I. Simons, ANDERSON & ASSOCIATES, P.A.,
Columbia, South Carolina, for Appellant. William Norman Epps,
III, EPPS, NELSON & EPPS, Anderson, South Carolina, for
Appellee. ON BRIEF: Marilyn E. Gartley, ANDERSON & ASSOCIATES,
P.A., Columbia, South Carolina, for Appellant.
2
DIANA GRIBBON MOTZ, Circuit Judge:
Seven months before declaring bankruptcy, Patricia Pfister
transferred her interest in real property to Architectural Glass
Construction, Inc. (“AGC”), a corporation wholly owned by her
husband. After a trial, the bankruptcy court made findings of
fact and concluded on the basis of those findings that this
conveyance was constructively fraudulent. The bankruptcy court
therefore ordered AGC to reimburse the bankruptcy estate in the
amount of $43,500. The district court found no fault in the
bankruptcy court’s findings of fact, but nonetheless reversed.
For the reasons that follow, we reverse in part, vacate in part,
and remand the case to the district court for further
proceedings consistent with this opinion.
I.
The following facts were found by the bankruptcy court or
are otherwise undisputed.
On May 10, 2001, Mrs. Pfister and her husband, Phillip
Pfister, acquired undeveloped real property in Greer, South
Carolina. Branch Banking & Trust (“BB&T”), as mortgagee,
entirely financed the transaction. Under the terms of the
mortgage, Mr. and Mrs. Pfister granted the bank a security
interest in the property and undertook to repay the loan.
3
Originally, Mr. Pfister intended to have his wholly owned
corporation, AGC, buy the property. The company, not Mr. and
Mrs. Pfister, would utilize the land. An initial contract
specified AGC as the buyer, but on the date of purchase, Mr.
Pfister changed his mind. On the advice of his accountant, Mr.
Pfister opted to buy the land himself, then lease the property
to AGC. This, he believed, would lower the company’s taxes,
benefiting him as the company’s sole owner. In furtherance of
this intent, Mr. Pfister titled the property in the name of
himself and Mrs. Pfister. As Mr. and Mrs. Pfister both
testified on repeated occasions, the decision to title the
property in their names –- not AGC’s -- was considered and
intentional.
Ultimately, AGC never paid any rent to the Pfisters.
Instead, AGC made mortgage payments directly to the bank. The
Pfisters did not transfer title to AGC. Thus, although the
company paid for the land, Mr. and Mrs. Pfister remained its
record owners.
On January 24, 2002, the Pfisters refinanced their
mortgage. In an agreement with South Trust Bank (“South
Trust”), the Pfisters granted South Trust a security interest in
the property in exchange for $168,000. In contrast to the
mortgage with BB&T, the agreement with South Trust listed AGC as
the borrower. As a result, the company bore legal
4
responsibility for making the loan repayments. Of course, the
new obligation did not change the parties’ pattern of practice:
AGC continued, as it always had, to shoulder the property’s
mortgage expense.
Over the next six years, the property was mortgaged several
more times. In each case, Mr. and Mrs. Pfister granted the bank
a security interest in the property. The mortgages differed,
however, with respect to the identity of the borrower. One
contract specified Mr. and Mrs. Pfister as the borrowers; others
obligated AGC. Notwithstanding the borrower listed, AGC made
all the loan repayments.
On December 31, 2008, AGC took out an $87,000 loan from
Greer State Bank. As with the other loan agreements, Mr. and
Mrs. Pfister pledged the property as collateral. In preparing
the mortgage documents, however, the bank listed AGC, not Mr.
and Mrs. Pfister, as the mortgagor. At closing, an attorney
realized that AGC could not grant the mortgage because the
company was not listed on the property’s deed. To rectify the
problem, Mr. and Mrs. Pfister deeded the property to AGC in
exchange for ten dollars consideration. With AGC now the record
owner, the bank processed the mortgage as drafted.
Seven months later, on July 31, 2009, Mrs. Pfister filed
for Chapter 7 bankruptcy protection. Some months after that,
the bankruptcy trustee moved to set aside the transfer of her
5
interest in the property to AGC as a constructively fraudulent
conveyance. In his complaint, the trustee alleged that Mrs.
Pfister’s one-half interest in the property had a value of
$270,000, but that she had disposed of the property for nominal
consideration. Because Mrs. Pfister was insolvent at the time
of the transfer, the transaction was assertedly avoidable under
11 U.S.C. §§ 548(a)(1)(B) and 544(b).
After a two-day trial in which a number of witnesses
testified, including both Mr. and Mrs. Pfister, the bankruptcy
court found in the trustee’s favor. It determined that Mrs.
Pfister held a one-half interest in the property, which she
transferred to AGC in December 2008 for less than “reasonably
equivalent value.” In so holding, the court rejected AGC’s
argument that it had always owned the property by way of a
resulting trust. The court concluded that prior to the December
2008 transfer, Mr. and Mrs. Pfister owned the property free from
any interest of AGC. Accordingly, the court held that Mrs.
Pfister’s transfer of the property to AGC at that time -- seven
months before filing her bankruptcy petition -- was a
constructively fraudulent, voidable transfer.
The district court reversed. It accepted the facts as
found by the bankruptcy court, but determined that AGC’s use of
the property and payment of the mortgage compelled reversal.
The district court reasoned that the facts found by the
6
bankruptcy court evidenced a resulting trust, pursuant to which
AGC held equitable title to the property and Mrs. Pfister held
only bare legal title. Because the district court concluded
that the interest Mrs. Pfister held lacked any value at the time
she conveyed it, the court held that Mrs. Pfister had not made a
voidable, constructively fraudulent conveyance in December 2008.
The trustee noted a timely appeal.
II.
A bankruptcy estate includes all the property a debtor owns
at the moment she files for bankruptcy. 11 U.S.C. § 541(a)(1).
Under certain conditions, the bankruptcy estate also includes
property the debtor disposed of before declaring bankruptcy.
Specifically, the Bankruptcy Code permits the bankruptcy trustee
to reclaim property the debtor fraudulently transferred before
filing her petition. 11 U.S.C. §§ 544 & 548. 1
The Bankruptcy Code bars both actual and constructive
fraud. See id. § 548(a)(1). Constructive fraud, the type at
issue here, obtains when in the two years preceding bankruptcy,
1
Section 544(b) provides the trustee in bankruptcy with all
the powers of an unsecured creditor under state debt collection
law. Because an unsecured creditor may avoid a fraudulent
transfer in South Carolina, see S.C. Code Ann. § 27-23-10(A),
the trustee in bankruptcy may do the same. Of course, the
trustee may also avoid fraudulent transfers under 11 U.S.C.
§ 548, irrespective of what state law provides.
7
an insolvent debtor transfers an asset for less than “reasonably
equivalent value.” Id. § 541(a)(1)(B). If the debtor so
transfers an asset, the trustee may avoid the transaction and
reclaim the relinquished asset.
Id. The transferee must
surrender the property or provide the bankrupt’s estate with the
asset’s cash equivalent.
Id. § 550.
Although a trustee may reclaim a property interest that the
bankrupt debtor has owned in the past, the trustee may not
reclaim a greater property interest than that which the debtor
actually owned. Mid-Atl. Supply, Inc. v. Three Rivers Aluminum
Co., 790 F.2d 1121, 1124 (4th Cir. 1986). This rule becomes
particularly important in the context of trusts. A trust severs
the legal and equitable interests in property, allowing the
debtor to possess either the property’s equitable interest (a
valuable asset) or bare legal title (a valueless asset). Cf.
id. at 1125; Epworth Children’s Home v. Beasley,
616 S.E.2d 710,
718 (S.C. 2005). Property in which the debtor holds “only legal
title and not an equitable interest . . . becomes property of
the [bankruptcy] estate” -- and so becomes available to satisfy
the debtor’s obligations -- “only to the extent of the debtor’s
[bare] legal title.” 11 U.S.C. § 541(d). The equitable
interest, owned by another, cannot be reached by the bankrupt
debtor’s creditors.
Id.
8
Here, the parties dispute the operation of a resulting
trust, and thus, the value of the property interest transferred
by Mrs. Pfister to AGC. On the one hand, AGC contends that a
resulting trust arose in its favor because it made all the
payments on the mortgage, which provided the funds to buy the
property. According to AGC, Mr. and Mrs. Pfister retained only
bare legal title (an asset without significant value), and so,
Mrs. Pfister could not -- and did not -- transfer property for
less than its value. See Mid-Atl.
Supply, 790 F.2d at 1125. On
the other hand, the trustee contends that the ownership of the
property involved no resulting trust. The trustee maintains
that the legal and equitable interests in the property were
never divided, and thus, in December 2008, seven months before
declaring bankruptcy, Mrs. Pfister transferred something of
value to AGC, i.e., her one-half interest in the property.
After finding the facts set forth above, the bankruptcy
court determined that there was “no justification for a
resulting trust.” The district court expressly accepted the
factual findings of the bankruptcy court, but nonetheless
reversed. It held that Mrs. Pfister held only bare legal title
to a one-half interest in the property, and that AGC, by
operation of a resulting trust, was the property’s equitable
owner. Accordingly, the transfer to AGC was not avoidable under
the Bankruptcy Code.
9
On appeal, we review the factual findings of the bankruptcy
court for clear error and the legal conclusions of the
bankruptcy court and the district court de novo. Kielisch v.
Educ. Credit Mgmt. Corp. (In re Kielisch), 258 F.3d 315, 319
(4th Cir. 2003). We look to South Carolina trust law to
determine the parties’ property rights. Butner v. United
States,
440 U.S. 48, 55 (1979). 2
III.
Under South Carolina law:
The general rule is that when real estate is conveyed
to one person and the consideration paid by another,
it is presumed that the party who pays the purchase
money intended a benefit to himself, and accordingly a
resulting trust is raised in his behalf. . . . But
when the conveyance is taken to a wife or child, or to
any other person for whom the purchaser is under legal
obligation to provide, no such presumption attaches.
On the contrary, the presumption in such case is that
the purchase was designed as a gift or advancement to
the person to whom the conveyance is made.
Caulk v. Caulk, 43 S.E.2d 600, 603 (S.C. 1947) (internal
citation omitted) (emphasis added).
2
AGC contends that whatever we do on appeal is irrelevant
because although the trustee appealed the district court’s
imposition of a resulting trust, he failed to contest the
court’s ultimate holding: that AGC possessed the property’s
equitable interest. Appellee’s Br. 19–20. We disagree. The
trustee properly appealed the antecedent issue: the existence
of a resulting trust. If we find no resulting trust to exist,
the court’s derivative ruling cannot stand.
10
Here, AGC paid for property deeded to Mrs. Pfister and her
husband, Mr. Pfister. Because Mrs. Pfister is the wife of Mr.
Pfister, and Mr. Pfister is the sole owner of AGC, South
Carolina law presumes that the purchase was intended as a gift
by Mr. Pfister to Mrs. Pfister. Windsor Props., Inc. v. Dolphin
Head Constr. Co., 498 S.E.2d 858, 861 (S.C. 1998) (applying gift
presumption to transfer from husband’s company to wife).
Accordingly, a court must presume that when the property was
titled in her name, Mrs. Pfister became the full owner of a one-
half interest in the property, holding both the land’s legal and
equitable interests. See Baptist Found. for Christian Educ. v.
Baptist Coll. at Charleston,
317 S.E.2d 453, 458 (S.C. 1984)
(explaining that a gift involves “the transfer of title and
beneficial ownership”) (emphasis added). 3
The gift presumption, of course, “is one of fact and not of
law.” Caulk, 43 S.E.2d at 603. An opponent to a gift may rebut
the presumption by offering clear and convincing evidence that a
gift was never intended. Glover v. Glover,
234 S.E.2d 488, 489
(S.C. 1977). If the party opposing a gift can establish a
resulting trust’s existence, the party in whose name the asset
3
AGC inaccurately argues that the trustee raises the
operation of a gift presumption for the first time on appeal.
On the contrary, the record is replete with invocations of the
gift presumption and the transfer’s intra-family nature. That
the district court failed to apply the presumption is
immaterial.
11
is titled will be stripped of any equitable interest in the
property, retaining only bare legal title. McDowell v. S.C.
Dep’t of Soc. Servs., 370 S.E.2d 878, 880 (S.C. 1987) (per
curiam) (explaining that a beneficiary of a resulting trust
holds the equitable interest in property). In that instance,
the titleholder is viewed as the asset’s trustee, who can
exercise control over the property only for the benefit of the
party who holds the property’s equitable interest, i.e., the
property’s valuable interest.
Id.
A party seeking to overcome the gift presumption and
establish a resulting trust must prove by clear and convincing
evidence that (1) it paid for the property (or committed to pay
for the property), (2) with the intent to own it, (3) on the
date of purchase. Moore v. McKelvey,
221 S.E.2d 780, 781 (S.C.
1976); Surasky v. Weintraub,
73 S.E. 1029, 1031 (S.C. 1912).
The last requirement is important. South Carolina trust law is
clear that a resulting trust “arises at the time . . . of [the]
purchase, or not at all.” Larisey v. Larisey,
77 S.E. 129, 130
(S.C. 1913) (emphasis added); see also Hodges v. Hodges,
133
S.E.2d 816, 819–20 (S.C. 1963). “[T]he trust must be coequal
with the deed, and cannot arise from any subsequent
transactions.”
Larisey, 77 S.E. at 130. That a party pays for
property and/or intends to own it at some point in time fails to
establish a trust. Green v. Green,
117 S.E.2d 583, 589 (S.C.
12
1960). For a resulting trust to arise, payment and intent must
coincide with a deed’s execution. Larisey, 77 S.E. at 130.
Here, it is undisputed that AGC committed to pay for the
property under post-May 2001 mortgages and intended to own the
property after the December 2008 transfer. But deferring, as we
must, to the facts found by the bankruptcy court, we cannot
conclude that the bankruptcy court erred in finding that these
requirements were not met on the date of the May 2001 purchase.
That contention must be rejected for two reasons.
First, with respect to the payment for the property, the
bankruptcy court found that the property’s purchase was entirely
financed by BB&T, and thus neither the Pfisters nor AGC paid for
the property on the date of the land’s acquisition. The
bankruptcy court did not even find that AGC committed to pay for
the property on this date. Accordingly, AGC did not prove by
clear and convincing evidence that it paid for the property or
intended to pay for it on the date of the property’s purchase.
Second, and equally important, with respect to intent, the
bankruptcy court found (and indeed, it is undisputed) that at
the time of the property’s purchase, the parties contemplated a
rental arrangement. That is, AGC would lease the property from,
and pay rent to, the owners, Mr. and Mrs. Pfister. Accordingly,
on the date of the purchase, the parties intended that AGC would
serve as the property’s tenant, not the property’s owner. This,
13
of course, belies any conclusion that AGC gained ownership of
the property on the date of purchase. If AGC wished to lease
the property, it could not have intended to own it. Thus, AGC
also did not prove that it intended to own the property on the
date of acquisition.
Reaching a different result, the district court emphasized
AGC’s habitual payment of the loans on the property. These
payments, however, standing alone, fail to supply the basis for
a trust. South Carolina law cabins the power of courts to
institute equitable remedies. With respect to the imposition of
a resulting trust, a court may sever an asset’s legal and
equitable interests only if a party commits to pay for an asset
on the date of purchase and intends to own it on that date. See
Hodges, 133 S.E.2d at 819–20;
Larisey, 77 S.E. at 130;
Surasky,
73 S.E. at 1031. Here, the bankruptcy court found no
justification for a resulting trust. We cannot hold that in so
concluding, the bankruptcy court clearly erred. 4
4
AGC has suggested that while the initial mortgage was “in
the individual names” of Mr. and Mrs. Pfister, the initial note
obligated AGC. This obligation, it argues, evidences the
corporation’s commitment to pay for the property on the date of
the land’s acquisition. But as AGC acknowledged at oral
argument, it never sought to admit the note into evidence.
Accordingly, neither we nor the bankruptcy court could examine
the note. Nor does Mr. Pfister’s testimony regarding the
company’s obligation under the note suffice to show AGC’s
commitment. In addition to being self-serving, the testimony
violates Federal Rule of Evidence 1002, which recognizes the
(Continued)
14
IV.
For these reasons, we reverse the district court insofar as
it found a resulting trust to sever Mrs. Pfister’s legal and
equitable interests in the property. Because the district court
found a resulting trust to exist, it did not reach other issues
presented to it. We therefore vacate the judgment of the
district court and remand the case to it for further proceedings
consistent with this opinion.
REVERSED IN PART,
VACATED IN PART,
AND REMANDED
inherent unreliability of oral testimony about the contents of a
document and so requires a party to introduce an “original
writing” to establish the document’s contents. See Fed. R.
Evid. 1002; Fed. R. Evid. 1004; cf. United States v. Alexander,
326 F.2d 736, 740 (4th Cir. 1964) (holding that the Government
had to produce an original check where it sought to establish
the terms of the check). In any event, the note obligation
speaks only to the first prong of the resulting trust analysis:
a commitment to pay for the property. AGC cannot show that it
has satisfied the test’s second prong: an intent to own the
property. As noted above, it is undisputed that AGC initially
intended to lease the land.
15
SHEDD, Circuit Judge, dissenting:
I agree with the district court that there was a resulting
trust in favor of Architectural Glass Construction (“AGC”).
Under South Carolina law, a resulting trust is an equitable
remedy designed “to effectuate the intent of the parties in
certain situations where one party pays for property, in whole
or in part, that for a different reason is titled in the name of
another.” Bowen v. Bowen, 575 S.E.2d 553, 556 (S.C. 2003). Here,
there is a resulting trust in favor of AGC because the testimony
regarding the intent of the parties is that Mrs. Pfister had
mere legal title and that AGC is and always has been the
equitable owner of the property.
In its order, the bankruptcy court offered no analysis for
its one-sentence conclusion that there was no resulting trust.
However, a review of the bankruptcy court’s comments during the
trial reveals that the bankruptcy court misunderstood the
requirements for a resulting trust. The court stated, “Every bit
of testimony that I heard is that [the property] was supposed to
be deeded in the name of the individuals, and that’s not a
mistake.” J.A. 1537 (emphasis added). The court later explained
that it did not believe there was a resulting trust, stating
that “[h]ere the intention of the parties was that the property
was to be deeded in the individual names.” J.A. 1544 (emphasis
added). Apparently, the bankruptcy court believed the
16
intentional act of putting Mrs. Pfister’s name on the deed was
the “intent” that proved that she was the equitable owner of the
property. That is incorrect.
Under South Carolina law, courts impose resulting trusts
when property is paid for by one party but titled in the name of
another. See Hayne Fed. Credit Union v. Bailey, 489 S.E.2d 472,
475 (S.C. 1997). Thus, with real estate, a resulting trust is
necessary only where property is deeded in the name of someone
other than the equitable owner. It is simply incorrect to
conclude, as the bankruptcy court did, that because the property
was deeded in Mrs. Pfister’s name, AGC—whom the Pfisters
intended to own the property and who indisputably paid for the
property—is not entitled to a resulting trust.
The controlling question is not what name is on the deed,
as the bankruptcy court seemed to believe, but rather whom the
parties intended to own the property at the time the property
interest was created, that is, at the real estate closing. Here,
the testimony clearly and convincingly indicates that AGC is,
and was always intended to be, the equitable owner of the
property. Mr. and Mrs. Pfister both testified that they put the
deed in their individual names based on advice from their
accountant to claim a rental arrangement for tax purposes, but
that the property was intended to be owned by AGC. J.A. 1260-61,
1353-54. AGC’s intent to own the property at the time the
17
property interest was created is corroborated by AGC’s actions
both before and after the interest arose. 1 AGC had the pre-deed
plat prepared in its name, J.A. 439-40, and AGC, not Mrs.
Pfister, executed the note which supplied the purchase price for
the property, J.A. 1474-75. 2 Furthermore, the two buildings
erected on the property were financed with loans made in AGC’s
name, and AGC made every payment on any and all obligations
1
While AGC’s intent is critical at the time the property
interest was created, its actions taken both before and after
confirm its intent at the time the interest arose.
2
Contrary to the majority’s assertion, we may properly
consider evidence concerning the note despite the fact that AGC
did not admit the note itself into evidence. Although Federal
Rule of Evidence 1002 generally requires a party to introduce an
“original writing” to prove the contents of a document, that
Rule—like most evidentiary rules—is subject to waiver where, as
here, no objection was made to the admissibility or relevance of
evidence offered to prove the contents of the document. See,
e.g., Ridgway v. Ford Dealer Computer Servs, Inc., 114 F.3d 94,
98 (6th Cir. 1997). Moreover, Mr. Pfister’s testimony, while
“self-serving,” was clearly admissible. See, e.g., U.S. v.
Sklena,
692 F.3d 725, 733 (7th Cir. 2012) (“To say that evidence
is ‘self-serving’ tells us practically nothing: a great deal of
perfectly admissible testimony fits this description.”); In re
Dana Corp.,
574 F.3d 129, 153 (2d Cir. 2009) (“Of course, the
fact that their denials were self-serving does not mean that
such testimony would not be admissible at trial . . . .”). In
any event AGC also offered the testimony of Greg Sisk,
previously a commercial lender at BB&T, regarding the contents
of the note, J.A. 1474-75; Sisk’s testimony is not self-serving.
Further, it is undisputed that AGC signed the note and
obtained the money to purchase the property at closing. The
majority assertion that AGC did not pay because BB&T financed
the transaction is at best puzzling.
18
attached to the property or the improvements. In re Pfister,
2012 WL 1144540, at *1 (Bankr. D.S.C. Apr. 4, 2012).
This case is straightforward—the bankruptcy court was
incorrect, and the district court was correct, in understanding
when a resulting trust occurs. Under South Carolina law, a
resulting trust arises in favor of AGC “to effectuate the intent
of the parties” because AGC paid for property “that for a
different reason [was] titled in the name of [Mrs. Pfister].”
See Bowen, 575 S.E.2d at 556. For that reason, I would affirm
the district court. Therefore, I dissent.
19
