WILLIAM H. STEELE, Chief District Judge.
This matter comes before the Court on plaintiff's Motion for Partial Summary Judgment (doc. 90). The Motion has been briefed and is ripe for disposition.
Plaintiff, SE Property Holdings, LLC ("SEPH"), brought this fraudulent transfer action seeking to have certain transfers of property made by Charles Trammell and Belinda Trammell (collectively, the "Trammells") set aside and declared null and void under Alabama law. Plaintiff's position is that the Trammells owe it millions of dollars pursuant to certain guaranties they executed in favor of SEPH's predecessor during the period of 2005-2007. When the borrowers defaulted on their loan repayment obligations, SEPH looked to the Trammells to make good on their guaranty commitment. Between 2011 and 2013, and after SEPH demanded payment from and filed suit against them, the Trammells transferred ownership of various assets (including a house on Lake Martin, a beach condominium unit in Baldwin County, tens of thousands of shares of UPS stock, and ownership interests in limited liability companies) to LLCs and other family members. Plaintiff maintains that, as a result of these transfers, the Trammells were left with assets valued far less than their debts.
Based on these allegations, SEPH has asserted claims under the Alabama Uniform Fraudulent Transfer Act, Ala. Code §§ 8-9a-1 et seq., against the Personal Representative of the Estate of Charles H. Trammell (the "Estate"),
In the First Amended Complaint, SEPH parlays the foregoing allegations into claims of actual fraudulent transfer pursuant to Alabama Code § 8-9A-4(a) (Count One); constructive fraudulent transfer pursuant to Alabama Code § 8-9A-4(c) (Count Two); constructive fraudulent transfer pursuant to Alabama Code § 8-9A-5(a) (Count Three); and conspiracy (Count Four). SEPH now moves for summary judgment as to Count Three (and only Count Three) of the First Amended Complaint.
Between 2005 and 2007, SEPH's predecessor (Vision Bank) entered into certain loan agreements with companies called Bama Bayou, LLC (formerly known as Riverwalk, LLC) and Marine Park, LLC, whereby those entities became indebted to Vision Bank (and, later, SEPH) for certain commercial loans. (Braswell Aff. (doc. 92, Exh. A), ¶ 4 & Exh. A-1.)
In connection with those loans, Charles and/or Belinda Trammell executed at least four guaranties in Vision Bank's favor. (Braswell Aff., ¶ 5.) First, on March 20, 2005, Charles Trammell executed a Limited Continuing Guaranty with respect to Riverwalk's indebtedness in the March 24, 2005 promissory note. (Braswell Aff., ¶ 5 & Exh. A-2.) In that guaranty, Charles Trammell agreed to be liable for up to $315,000 in principal of the note, 100% of all interest accruing at any time, and 100% of collection costs, expenses, and reasonable attorney's fees. (Id., Exh. A-2 at ¶ 14.) Second, in May 2006 Charles Trammell and Belinda Trammell each executed Limited Continuing Guaranties with respect to Riverwalk's indebtedness in the June 12, 2006 promissory note. (Braswell Aff, ¶ 5 & Exh. A-3.) In those guaranties, the Trammells each agreed to be liable for up to $280,000 in principal of the note, 100% of all interest accruing at any time, and 100% of collection costs, expenses and reasonable attorney's fees. (Id., Exh. A-3 at ¶ 14.) Third, on January 26, 2006, Charles and Belinda Trammell jointly executed a Limited Continuing Guaranty with respect to Marine Park's indebtedness in the March 2, 2007 promissory note. (Braswell Aff., ¶ 5 & Exh. A-4.)
Plaintiff's evidence is that, even though the loans had been fully funded, Bama Bayou, LLC and Marine Park, LLC defaulted under the loans and notes. (Braswell Aff., ¶ 6.) Vision Bank subsequently demanded payment from the borrowers and guarantors, including Charles and Belinda Trammell. (Id.) When payment was not forthcoming, Vision Bank sued Bama Bayou, Marine Park, Charles and Belinda Trammell, and others in the Circuit Court of Mobile County, Alabama, on January 16, 2009 (the "Bama Bayou Action"). The Bama Bayou Action remains pending today. To date, it has not gone to trial; indeed, the Court's understanding is that no trial setting is in place at this time.
Pursuant to its collection efforts, on March 20, 2009, Vision Bank foreclosed on multiple parcels of real property that secured its loans to Bama Bayou and Marine Park, purchasing such property via credit bid. (Id., ¶ 7.) In the wake of that foreclosure, large deficiencies remained on both the Bama Bayou and Marine Park loans. (Id.) Indeed, SEPH's calculations are that, as of September 23, 2016, Charles Trammell (or, more accurately, the Estate) was indebted to SEPH in the amount of $4,872,895 in principal and interest pursuant to his guaranties of Bama Bayou's indebtedness. (Id., ¶ 8.) SEPH further calculates that, as of the same date, Belinda Trammell was indebted to SEPH in the amount of $2,524,791.84 in principal and interest pursuant to her guaranty of Bama Bayou's indebtedness. (Id.) Such calculations exclude costs of collection, which are claimed to be well in excess of a million dollars.
As noted, the claims asserted by SEPH herein focus on four specific transfers of property by Charles and Belinda Trammell. Most of those transfers were made to defendants Brown and Center (their daughters), either directly or through entities established and controlled by the Trammells; however, SEPH also seeks relief on transfers made by Charles Trammell to Belinda Trammell upon the former's death. Relevant facts pertaining to each such transfer include the following:
On January 26, 2011, after the Bama Bayou Action was underway, Charles and Belinda Trammell transferred ownership of their Baldwin County beach condominium unit to defendant Trammell Orange Beach, an Alabama limited liability company then owned 50% by Charles Trammell and 50% by Belinda Trammell. (Doc. 92, Exh. F, at #8; doc. 92, Exh. M, at #8.) On the same date, Charles and Belinda Trammell transferred ownership of their Lake Martin house to defendant Trammell Lake Martin, an Alabama limited liability company then owned 50% by Charles Trammell and 50% by Belinda Trammell. (Doc. 92, Exh. F, at #8; doc. 92; Exh. M, at #8.) The LLCs paid neither monetary consideration nor other property to the Trammells in exchange for these valuable transfers of real property. (Id.)
Belinda Trammell testified that, when she and Charles Trammell formed the defendant LLCs, they had planned to give their daughters (defendants Center and Brown) an ownership interest in those entities. (Doc. 92, Exh. E, at 53.) Defendant Center confirmed her understanding that, as part of their estate planning, her parents intended to give Center and Brown an interest in those LLCs. (Doc. 92, Exh. B, at 66.) The Trammells followed up on this plan on or about December 12, 2011, with each of Charles and Belinda Trammell transferring a 22.5% ownership/membership interest in each of Trammell Orange Beach and Trammell Lake Martin to each of Center and Brown. (Doc. 92, Exh. F, at #8; doc. 92, Exh. M, at #8.) Pursuant to these December 2011 transfers, then, Trammell Orange Beach came to be owned 45% by Center, 45% by Brown, 5% by Charles Trammell, and 5% by Belinda Trammell. The same was true of Trammell Lake Martin. Again, both of those entities had previously been owned 50% by Charles Trammell and 50% by Belinda Trammell, with the daughters holding no ownership interest at all. (Id.) Brown and Center paid no money or property to their parents in consideration for these ownership interests in the LLCs. Indeed, Center confirmed in her testimony that "[t]here was no money exchanged," that the transactions were set up as gifts, but that Center and Brown "did do consideration with [their] emotional support and help" to their parents. (Doc. 92, Exh. B, at 78-79.)
In April 2012, Charles Trammell transferred or caused to be transferred 12,551 shares of UPS stock that he owned individually to Trammell Orange Beach, and an additional 12,551 shares of UPS stock that he owned individually to Trammell Lake Martin. (Doc. 92, Exh. F, at #8; doc. 92, Exh. B, at 95; doc. 93, Exh. W, at 25.) Collectively, those shares were valued at close to $2 million at the time of the subject transfers. (Doc. 93, Exh. BB, at 53.)
Charles Trammell died on October 24, 2013. At the time of his death, his remaining UPS stock interests (which apparently totaled 8,798 shares) transferred to Belinda Trammell via a payable-on-death account. (Doc. 92, Exh. B at 17.) Likewise, Charles Trammell's interest in the couple's primary residence passed to Belinda Trammell by operation of law in accordance with their joint tenancy. (Id. at 18.) In the wake of those transfers, the assets remaining in the defendant Estate of Charles Trammell had a total valuation of $199,700. (Doc. 92, Exh. C.)
The centerpiece of SEPH's argument on summary judgment is that the Trammells' transfers of the beach condo and Lake Martin house to the defendant LLCs, and their transfers of 90% of their interests in the LLCs to defendants Center and Brown, were constructive fraudulent transfers as a matter of law; and that Charles Trammell's transfers of 25,102 shares of UPS stock to the defendant LLCs, and his transfers of his remaining shares of UPS stock and his interest in his personal residence to Belinda Trammell upon his death, were likewise constructive fraudulent transfers. Those transactions lie at the heart of the pending Motion for Partial Summary Judgment.
Summary judgment should be granted only "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." Rule 56(a), Fed.R.Civ.P. The party seeking summary judgment bears "the initial burden to show the district court, by reference to materials on file, that there are no genuine issues of material fact that should be decided at trial." Clark v. Coats & Clark, Inc., 929 F.2d 604, 608 (11
As noted, Count Three of the First Amended Complaint asserts a claim against defendants for constructive fraudulent transfer pursuant to Alabama Code § 8-9A-5(a). That subsection provides as follows: "A transfer made by a debtor is fraudulent as to a creditor whose claim arose before the transfer was made if the debtor made the transfer without receiving a reasonably equivalent value in exchange for the transfer and the debtor was insolvent at the time or the debtor became insolvent as a result of the transfer." Ala. Code § 8-9A-5(a); see also Baggett v. Baggett, 870 So.2d 735, 739 (Ala.Civ.App. 2003) ("A constructive fraudulent transfer occurs when a debtor transfers assets to another without consideration, and the debtor was, or became, insolvent at the time of the transfer.") (citations omitted); SE Property Holdings, LLC v. Braswell, 2013 WL 4498700, *5 (S.D. Ala. Aug. 21, 2013) (under § 8-9A-5(a), "a transfer is fraudulent if the debtor did not receive `reasonably equivalent value' and if the debtor was `insolvent'").
To prevail on Count Three, then, SEPH must prove each of the following elements: (i) that SEPH is a creditor of Charles and Belinda Trammell; (ii) that SEPH's claim against Charles and Belinda Trammell arose before the transfers were made; (iii) that Charles and Belinda Trammell made the transfers without receiving a reasonably equivalent value in exchange; and (iv) that the Trammells were insolvent at the time or became insolvent as a result of the transfers. 1 Ala. Pattern Jury Instr. Civ. § 18.20 (3d ed.); see also Lord Abbett Municipal Income Fund, Inc. v. Southern Farms, Inc., 2015 WL 9474287, *8 (M.D. Ala. Dec. 1, 2015) ("Under § 8-9A-5(a), Lord Abbett must establish (1) that its claim arose before the transfers were made, (2) that RDG-II made the transfers without receiving reasonably equivalent value in exchange, and (3) that RDG-II was insolvent at the time of the transfers or became insolvent as a result of the transfers.").
The plain language of the Alabama Uniform Fraudulent Transfer Act (the "AUFTA") requires a creditor/debtor relationship as a prerequisite to a viable constructive fraudulent transfer claim. See Ala. Code § 8-9A-5(a) ("a transfer made by a
To satisfy the debtor/creditor element of its § 8-9A-5(a) cause of action, SEPH presents evidence that the Trammells were indebted to it (or its predecessor, Vision Bank) at the time of the challenged transfers. In particular, SEPH has come forward with competent record evidence to show each of the following: (i) SEPH's predecessor loaned millions of dollars to Bama Bayou, LLC from 2005 to 2007; (ii) in connection with those loans, Charles and Belinda Trammell executed multiple continuing guaranties in favor of SEPH's predecessor, pursuant to which they guaranteed payment of hundreds of thousands of dollars of principal on each loan, all unpaid and accrued interest on each loan, and all costs of collection, including reasonable attorney's fees; (iii) Bama Bayou defaulted on all of those loans; (iv) Charles and Belinda Trammell never paid SEPH or its predecessor the sums they had promised to pay in the continuing guaranties; and (v) the Trammells are presently indebted to SEPH in the sum of millions of dollars in principal, accrued interest and costs of collection.
These record facts are plainly sufficient to satisfy SEPH's initial burden on summary judgment of showing that it is a creditor and that the Trammells are debtors within the meaning the Alabama Uniform Fraudulent Transfer Act. See Clark, 929 F.2d at 608 ("The moving party bears the initial burden to show the district court, by reference to materials on file, that there are no genuine issues of material fact that should be decided at trial."). The foregoing facts (as to each of which SEPH has made a showing via record evidence) would entitle SEPH to a directed verdict if not contradicted at trial; indeed, those facts (if not rebutted) show that the Trammells executed binding, enforceable guaranties in SEPH's favor, then failed or refused to pay when the borrowers defaulted.
SEPH having met its initial burden as to the debtor/creditor element of its § 8-9A-5(a) cause of action, the burden shifts to defendants to demonstrate the existence of genuine issues of material fact. See Clark, 929 F.2d at 608 (after movant meets initial burden, "the burden shift[s] to the non-moving party to demonstrate that there is indeed a material issue of fact that precludes summary judgment"). In their brief, defendants state in conclusory fashion that "SEPH has failed to prove that it has a right to payment from the Estate of Charles Trammell and Belinda Trammell." (Doc. 100, at 3.) In the context of the relevant Rule 56 analysis, however, that argument is unpersuasive. SEPH's evidence shows that the Trammells made promises to pay Vision Bank, that they failed to fulfill those obligations, that they transferred certain assets to the other defendants (the LLCs, Center and Brown) after SEPH attempted to enforce those promises to pay, and that they continue to owe SEPH millions of dollars today. If no other evidence were presented at trial, that showing would establish that the Trammells were liable on SEPH's claim for payment. Thus, that evidence (if uncontroverted) would entitle SEPH to a directed verdict on the issue of whether it was a "creditor" for AUFTA purposes, and whether the Trammells were "debtors" for AUFTA purposes, at the time of the challenged transfers. Accordingly, defendants cannot withstand summary judgment on this point by making an unsupported blanket statement that SEPH has not proven a right to payment. On the evidence before the Court, it has. If there is other evidence casting doubt — or creating genuine issues of material fact — on the existence of such a right to payment, then it is incumbent on defendants to submit it as part of the summary judgment record.
Stated differently, to meet their burden and defeat SEPH's summary judgment motion, defendants must come forward with evidence demonstrating the existence of a triable issue of fact. See Rich, 716 F.3d at 530 ("If the moving party makes such an affirmative showing, it is entitled to summary judgment unless the nonmoving party, in response, comes forward with
The second element of SEPH's claim asserted under Alabama Code § 8-9A-5(a) is that plaintiff must establish that its claim "arose before the transfer was made." The summary judgment record unambiguously demonstrates that this element is satisfied. Plaintiff's evidence, which has been neither controverted nor opposed by defendants, reveals the following timetable: The Trammells executed guaranties in favor of Vision Bank in 2005, 2006 and 2007. The borrower (Riverwalk / Bama Bayou) defaulted. Vision Bank demanded payment from the Trammells and others. When no such payment was forthcoming, Vision Bank filed suit against them in state court in January 2009. The Trammells transferred their interests in the beach condo, the Lake Martin house, the LLCs, and the UPS stock during the period of January 2011 through October 2013. Given this unrebutted factual showing, no reasonable finder of fact could conclude that SEPH's claim did not arise before the subject transfers were made. This element of Count Three is plainly satisfied. Defendants do not maintain otherwise.
The third element of a constructive fraud claim brought pursuant to Alabama Code § 8-9A-5(a) is that the Trammells must have made the transfers "without receiving a reasonably equivalent value in exchange for the transfer." This element is hotly debated in the parties' summary judgment briefs. For its part, SEPH relies on undisputed record facts that no money or property was given to Charles and Belinda Trammell in exchange for the beach condo and Lake Martin house when they transferred such real property to the LLCs; that no money or property was given to the Trammells in exchange for the 90% interest in the two LLCs that they transferred to their daughters (Center and Brown); and that no money or property was given to Charles Trammell in exchange for the thousands of shares of UPS stock that he transferred to the LLCs, or the remaining UPS stock and primary residence that he transferred to Belinda Trammell upon his death. In response, defendants criticize SEPH's argument as championing an excessively narrow definition of "value," and contend that the requisite value was exchanged in the form of support, tax savings and better asset management.
The appropriate analytical starting place is, of course, the statute itself. Alabama's version of the Uniform Fraudulent Transfer Act provides as follows: "Value is given for a transfer if, in exchange for the transfer, property is transferred or an antecedent debt is secured or satisfied, but value does not include an unperformed promise to furnish support to the debtor." Ala. Code § 8-9A-3(a). Where, as here, the transfers were made between family members, with the Trammells transferring property to their daughters (and/or to LLCs whose ownership was also largely transferred to those same daughters), the Alabama Supreme Court instructs that the "value" element must be scrutinized with particular care.
Significantly, it is incorrect to equate the AUFTA concept of "reasonably equivalent value" with the common-law notion of consideration. In the AUFTA constructive-fraud context, Alabama courts distinguish between "valuable consideration" (which does not give rise to a constructive fraudulent transfer) and merely "good consideration" (which can). See, e.g., McPherson Oil Co. v. Massey, 643 So.2d 595, 596 (Ala. 1994) ("[T]he law infers constructive fraud when it appears that an indebted grantor has conveyed property to a family member without receiving valuable consideration."); Reese v. Smoker, 475 So.2d 506, 508 (Ala. 1985) ("The term `constructive fraud' is generally used in referring to those instances where a grantor, indebted at the time, conveys property on a good as distinguished from a valuable consideration."). Where, as here, the creditor has made a showing on summary judgment that the grantees paid no money or property to the grantors in exchange for the transferred asset, an inference of constructive fraud arises; therefore, defendants bear the burden of proving the existence of valuable and adequate consideration. See McPherson Oil, 643 So.2d at 596 ("When that inference of constructive fraud arises, the burden then shifts to the grantee to prove the existence of such consideration."); Reese, 475 So.2d at 508 ("The burden is upon the grantee to show a consideration both valuable and adequate.") (citation omitted).
In evaluating whether valuable — as opposed to simply good — consideration has been given for a challenged transfer, the Uniform Fraudulent Transfer Act as adopted in Alabama (and other jurisdictions, for that matter) contemplates that courts must examine the nature and adequacy of the consideration from the standpoint of the creditor, not that of the debtor or the transferee of the subject property. In that regard, the Comments to the Uniform Fraudulent Transfer Act clarify that "[v]alue is to be determined in light of the purpose of the Act to protect a debtor's estate from being depleted to the prejudice of the debtor's unsecured creditors.
Defendants' primary argument on summary judgment is that reasonably equivalent value was given by defendants Brown and Center for their parents' transfers of the beach condo, the Lake Martin house, the UPS stock and the LLCs because Brown and Center furnished "emotional support" to Charles and Belinda Trammell. In particular, defendants rely on Center's deposition testimony that she and her sister provided emotional support to the Trammells while Charles Trammell was undergoing difficult blood transfusions and Belinda Trammell was experiencing health issues of her own. The first, most glaring shortcoming with this argument is that Alabama's Uniform Fraudulent Transfer Act expressly excludes unperformed promises of support from the definition of "value" given for a transfer. See Ala. Code § 8-9A-3(a) ("value does not include an unperformed promise to furnish support to the debtor"). Thus, promises of future support have been deemed insufficient as a matter of law to constitute "reasonably equivalent value" for a debtor's asset transfers to a third party. See, e.g., In re Ventimiglia, 362 B.R. 71, 83 (Bankr.E.D.N.Y. 2007) ("In general, a promise of future support is not considered a fair equivalent of property transferred."); Springfield Ins. Co. v. Fry, 267 F.Supp. 693, 696 (N.D. Okla. 1967) ("ordinarily a transfer of property in consideration of future support is held to be invalid, at any rate, as to existing creditors whose rights are prejudiced by such transfer"); American Surety Co. of New York v. Edwards & Bradford Lumber Co., 57 F.Supp. 18, 27 (N.D. Iowa 1944) ("That a conveyance by an insolvent in consideration of future support is void so far as it puts the property of the grantor out of the reach of creditors, is well settled.") (citation omitted).
A larger, more fundamental problem with defendants' reliance on "emotional support" as constituting reasonably equivalent value for the transfer of millions of dollars of real property and UPS stock shares from the Trammells to their daughters lies in the legal requirement that value be viewed from the standpoint of the creditor, not the debtor. As the above-cited authorities demonstrate, consideration having no utility from a creditor's vantage point may be "good" consideration supporting a valid contract, but it cannot constitute reasonably equivalent value under § 8-9A-5(a), as a matter of law. Courts in Alabama and elsewhere routinely find no reasonably equivalent value where the consideration is cited as love and affection, a moral obligation, or some other intangible psychological benefit to the debtor, for the simple reason that such consideration (while it might be "good") lacks "value" from a creditor's standpoint, such that the exchange injures creditors' interests. Pursuant to that line of reasoning, the Alabama Supreme Court has repeatedly "held that a conveyance given in return for `love and affection' is supported by `good,' rather than `valuable' consideration, and is thus a voluntary conveyance and void against existing creditors." McPherson Oil, 643 So.2d at 596 (citations omitted); see also Matter of Treadwell, 699 F.2d 1050, 1051 (11
Defendants' alternative arguments for "reasonably equivalent value" fare no better. Specifically, they maintain that the Trammells received reasonably equivalent value in the form of "tax savings" and "better asset management." (Doc. 100, at 17.) To support this theory, defendants point to a letter from the Trammells' lawyer dated January 11, 2010, in which the lawyer advised the Trammells that "[b]eginning a gifting program with your children, grandchildren, and in-laws could also help lower estate taxes, protect assets, and allow better asset management." (Doc. 100, Exh. 5, at 3.) The problem, once again, is that the Trammells' creditors (and, particularly, SEPH) did not benefit from these transfers in the specified (or any) ways. That the Trammells may have enjoyed favorable tax treatment and "better asset management" (whatever that means)
For all of the foregoing reasons, the Court finds on this record as a matter of law that the Trammells did not receive a reasonably equivalent value for any of the subject transfers. Therefore, SEPH has satisfied the third element of its claim for constructive fraudulent transfer set forth in Count Three of the First Amended Complaint.
The fourth element of a constructive fraudulent transfer cause of action brought under § 8-9A-5(a) is that plaintiff must establish that "the debtor was insolvent at the time or the debtor became insolvent as a result of the transfer." Ala. Code § 8-9A-5(a). The statute provides that "[a] debtor is insolvent if the sum of the debtor's debts is greater than all of the debtor's assets at a fair valuation." Ala. Code § 8-9A-2(a); see also Kaye, 453 B.R. at 668 ("Under the AUFTA, a debtor is insolvent if the sum of the debtor's debts is greater than all of the debtor's assets at a fair valuation.") (citation and internal quotation marks omitted). On summary judgment, the parties vigorously dispute whether the AUFTA's test for "insolvency" was satisfied at the time of the subject transfers.
In an attempt to bypass the need to weigh the Trammells' debts and assets at the time of the transfers, SEPH invokes the statutory presumption of insolvency, to-wit: "A debtor who is generally not paying his debts as they become due is presumed to be insolvent." Ala. Code § 8-9A-2(b). However, SEPH has not made a showing on summary judgment sufficient to support a conclusion as a matter of law that the Trammells were "generally not paying [their] debts as they bec[a]me due." The only evidence submitted by SEPH on this point is testimony that the Trammells did not fulfill their guaranty obligations when Vision Bank demanded payment in or around early 2009. (See Braswell Aff., ¶¶ 6-8.) That showing leaves many relevant questions unanswered. As the comments to the Uniform Fraudulent Transfer Act explain:
Uniform Fraudulent Transfer Act 1984, § 2, comment 2. On the summary judgment record presented, the Court has no information about the number of the Trammells' debts, the proportion of those debts not being paid, the duration of nonpayment and so on. On this record, the Court likewise cannot evaluate whether the Trammells did or did not have "bona fide disputes or other special circumstances" that might have influenced their stoppage of payments on the Bama Bayou / Riverwalk and Marine Park loans.
In the absence of a statutory presumption of insolvency, the critical question for purposes of the insolvency element is whether the sum of the Trammells' debts was greater than their assets at a fair valuation at the time of the subject transfers. To shoulder its summary judgment burden, SEPH presents evidence tabulating in detail Charles and Belinda Trammell's assets and liabilities immediately after each challenged asset transfer (i.e., the beach condo and Lake Martin house transfers on January 26, 2011; the LLC membership interest transfers on December 12, 2011; the UPS stock transfer on April 25, 2012; and the UPS stock and principal residence transfer on October 24, 2013). In its principal brief, SEPH offers charts summarizing the evidence for each line item of assets and liabilities. (Doc. 91, at 13-21.) In each instance, SEPH's evidence reflects that Charles and Belinda Trammell's liabilities exceeded their assets by a wide margin after the transfer took place, so as to satisfy the statutory definition of insolvency.
In response, defendants advance three specific criticisms against the validity of SEPH's calculations of the Trammells' assets and liabilities. First, defendants contend that the liability figures used by SEPH are inflated by millions of dollars in interest and collection costs on the Bama Bayou debt that they believe the Mobile County Circuit Court will set aside in the Bama Bayou Action. This objection centers on a ruling issued by Circuit Judge Stewart in Bama Bayou on October 26, 2016, setting aside certain foreclosure sales performed by Vision Bank in March 2009. (Doc. 100, Exh. 1.) After commencing the Bama Bayou Action in January 2009, Vision Bank foreclosed on real property securing its loans to Bama Bayou and Marine Park, and ultimately purchased that property through credit bids. (Braswell Aff., ¶ 7.) Judge Stewart ruled in October 2016 that Vision Bank's credit bids were "on their face so grossly inadequate as to shock the judicial conscience," and that "the extremely low bids at the foreclosure sale raise the presumption of unconscionableness and the grossly inadequate prices coupled with substantial evidence of misconduct justifies setting aside the foreclosure sale." (Doc. 100, Exh. 1, at 2.) On that basis, she "set[] aside the foreclosure sale and declare[d] the foreclosure deeds null, void and of no force and effect." (Id.)
Defendants' argument is that SEPH's liability calculations for insolvency purposes fail to take into account the effect of the state court order, whose likely corollary (according to defendants) is that interest and collection costs accruing after those March 2009 foreclosure sales will be set aside.
Second, defendants maintain that SEPH's asset/liability calculations are flawed because the liability side of the ledger includes hundreds of thousands of dollars of attorney's fees whose reasonableness is contested. Recall that, as part of the Limited Continuing Guaranties they signed, the Trammells agreed to be responsible for Vision Bank / SEPH's costs of collection, including "reasonable" attorney's fees.
Third, defendants take aim at SEPH's "assets" calculations by asserting that SEPH has systematically excluded the Trammells' interests in limited liability companies, to-wit: Gulf World, LLC; Bama Bayou, LLC; Trammell Family Orange Beach Properties, LLC; and Trammell Family Lake Martin Properties, LLC. Particularly significant, defendants argue, is Gulf World, LLC, the entity that purportedly owns the Bama Bayou parcels as to which the foreclosure sales were set aside by the Bama Bayou order. Because those foreclosure sales were set aside, defendants reason, Gulf World must be construed as owning those parcels (which are worth millions of dollars) at all relevant times, including the dates of the challenged transfers by the Trammells.
The cumulative effect of all of these objections is to create considerable uncertainty as to whether "the sum of the debtor's debts is greater than all of the debtor's assets at a fair valuation," as necessary to establish insolvency under the AUFTA. An example illustrates the point. On January 26, 2011 (the date on which the Trammells transferred their interests in the beach condo and the Lake Martin house to family-owned LLCs), the summary judgment record reflects Charles Trammell's debts consisted of $1.775 million in principal that he guaranteed on the Bama Bayou, Marine Park and Sundance debts, plus interest and collection costs. (Braswell Aff., ¶ 13.) Plaintiff's evidence identifies $1,818,806.09 in accrued interest and late fees, as well as $977,332.53 in costs of collection. But the October 26, 2016 order in the Bama Bayou Action likely reduces both interest and costs of collection, and SEPH offers no evidence as to reasonable estimates of those figures in the wake of the judicially-undone foreclosures. Moreover, SEPH's collection cost figures appear to consist primarily of attorney's fees as to which no showing of reasonableness has been made. Thus, for summary judgment purposes, we know only that Charles Trammell's debts included some amount of interest and collection costs. We do not know — and, on this record, cannot hazard a reasonable estimate — how much. On the asset side of the equation, SEPH identifies $27,033 that Charles Trammell held in joint bank accounts, $29,700 in automobiles and other personal property, $78,500 in his share of his personal residence, and $2,675,063 in UPS stock shares. (Doc. 91, at 13.) But SEPH does not identify Charles Trammell's interests in LLCs, much less assign any fair market valuation to those interests. The resulting gaps on both the liabilities and assets side of the equation preclude the Court from making any definitive determination at this time as to whether Charles Trammell was insolvent after transferring the beach condo and Lake Martin house to family-owned LLCs. This analysis would yield similar results for summary judgment purposes at each of the critical junctures for both Charles and Belinda Trammell.
In light of the foregoing, the Court finds that there are genuine issues of material fact as to whether defendants Charles Trammell and Belinda Trammell were insolvent at the time of the challenged transfers. Because insolvency is a necessary element of proof for Count Three (a cause of action asserted pursuant to Alabama Code § 8-9A-5(a)), that finding precludes entry of summary judgment at this time.
For all of the foregoing reasons, it is
DONE and ORDERED.
