United States District Court, S.D. Alabama, Southern Division
ORDER
WILLIAM H. STEELE UNITED STATES DISTRICT JUDGE.
This
matter comes before the Court on defendants'
“Motion to Dismiss or in the Alternative for More
Definite Statement and Motion for Court to Abstain or in the
Alternative Stay” (doc. 10). The Motion has been the
subject of extensive briefing and is now ripe.[1] Also pending is
Defendants' Motion to Correct (doc. 28), which is
granted. The revised text from the Motion to Correct is
hereby substituted for the fourth paragraph of Section II.A.
of Defendants' Reply (doc. 24), beginning on page 11 and
extending to the top of page 12.
I.
Relevant Background.
This
case is one of a number of fraudulent transfer actions that
SE Property Holdings, LLC (“SEPH”), is pursuing
in this District Court against guarantors of multimillion
dollar loans made by SEPH's predecessor for the
development and financing of certain real estate projects in
Orange Beach, Alabama known as Bama Bayou and Marine Park.
When the projects failed and the loans went into default, the
guarantors declined to pay, thereby embroiling SEPH and the
guarantors in many years of litigation spanning numerous
cases and courts, including this District Court and the
Mobile County Circuit Court, as well as probate and
bankruptcy courts.
In this
particular action, SEPH filed a Complaint (doc. 1) against
defendants, Saint Family Limited Partnership
(“SFLP”); Frances J. Saint, in her individual
capacity; Frances J. Saint, in her capacity as Personal
Representative of the Estate of John B. Saint, deceased (the
“Estate” or the “Saint Estate”); and
Kasubra, LLC.[2] The well-pleaded factual allegations of
the Complaint, which are accepted as true for purposes of the
Motion to Dismiss analysis, include the following: During the
period of 2005 to 2007, John Saint (“Saint”)
executed certain guaranties in favor of SEPH's
predecessor, Vision Bank, pursuant to which Saint guaranteed
a total of $7, 875, 000 in principal on Vision Bank loans for
the Bama Bayou and Marine Park developments. (Doc. 1, ¶
8.) Saint was not only the largest individual owner of the
Bama Bayou and Marine Park projects, but he was also the
single largest individual guarantor of the subject loans.
(Id.) Vision Bank “relied greatly on John
Saint's guaranties and his reported net worth and assets
in its decision to make the Loans and extend credit to Bama
Bayou and Marine Park.” (Id.)[3]
According
to the Complaint, John Saint was aware by no later than early
2007 that Bama Bayou's financial condition was rapidly
deteriorating (i.e., that it was “running out
of cash”). Vision Bank relied on Saint's guaranties
and reported assets / net worth to loan an additional $5
million to Bama Bayou in September 2007 on a short-term basis
to help service the debt. (Id., ¶ 9.) Even so,
Bama Bayou and Marine Park ultimately defaulted on the loans
and notes in December 2008. (Id.) Vision Bank
demanded payment from Saint in accordance with his
guaranties; however, he refused to pay, and “[t]he
entire debt remains unpaid” today. (Id.) The
total amount of Saint's indebtedness to SEPH as of the
filing of the Complaint in November 2016 is alleged to be in
excess of $20, 905, 000 in principal and accrued interest
(exclusive of attorney's fees, expenses and costs of
collection). (Id., ¶ 25.)
The
Complaint also chronicles what it describes as a series of
asset transfers undertaken by John Saint mostly between
December 2006 and October 2007, which had the effect of
“transferr[ing] away the bulk of his wealth and assets
(over $35, 000, 000 in value) to entities he owned or
controlled, to family members and to other insiders.”
(Id., ¶ 21.) Those asset transfers are
enumerated in the Complaint as follows: (i) on December 12,
2016, Saint transferred 500 shares in JDC Acquisition
Corporation (valued at $31 million, according to the
Complaint) to defendant SFLP; (ii) on December 14, 2016,
Saint and defendant Frances Saint transferred their 70%
interest in defendant Kasubra (valued at $3.4 million) to
SFLP; (iii) on June 29, 2007, Saint transferred his ownership
interest in a house and lot in Dauphin Island, Alabama
(valued at $275, 000) to Frances Saint; (iv) in July or
August 2007, Saint transferred certain Wachovia Securities
(valued at $10, 000), 8, 307 shares of Wachovia Corporation
(valued at $450, 000), 6, 294 shares of Colonial Bancgroup
(valued at $200, 000), and 100 shares of Colonial Properties
(valued at $14, 000) to SFLP; (v) also in 2007, Saint
transferred his stock in Detroit Edison (valued at $20, 000)
to SFLP; (vi) on October 29, 2007, Saint transferred his
ownership interest in his residence on Chimney Top Drive
South in Mobile, Alabama (valued at $275, 000) to Frances
Saint; (vii) on October 29, 2007, Saint transferred his 98%
ownership interest in SFLP as a limited partner to Frances
Saint, with Saint and Frances Saint each retaining a 1%
ownership interest in SFLP as general partners; and (viii) in
2007 or 2008, Saint transferred the contents of his Morgan
Keegan account (valued at $31, 000) to SFLP. (Id.,
¶¶ 10-20.)[4] The Complaint alleges that, as a direct
result of these transfers, Saint's holdings plummeted
from $45, 725, 000 in valuation to just a shade over $2
million. (Id., ¶ 20.)
The
Complaint further alleges that John Saint concealed these
transfers from Vision Bank by, among other things, delivering
to Vision a false, inaccurate and fraudulent personal
financial statement in May 2007. (Id., ¶¶
20-21.) According to the Complaint, Saint listed in that
financial statement many assets he had already transferred
away (including most notably the $31 million in JDC
Acquisition stock and the $3.4 million interest in Kusabra,
which combined to total 77% of Saint's net worth as
reported in the financial statement) some five months
earlier, in December 2006. (Id., ¶ 21.) Because
of this and other acts of concealment by Saint and Frances
Saint, plaintiff alleges, SEPH/Vision was unaware of these
transfers until September/October 2016. (Id.)
Plaintiff avers that, had Saint's 2007 financial
statement accurately reflected these transfers, it would not
have continued to fund the Marine Park loan, would not have
made additional loans for the Bama Bayou project, and would
not have extended the loans' maturity dates on multiple
occasions to allow Bama Bayou and Marine Park time to seek
out other financing. (Id., ¶ 22.)
On the
strength of these factual allegations, the Complaint asserts
five causes of action against defendants. Counts One and Two
are statutory claims of fraudulent transfer under the Alabama
Uniform Fraudulent Transfer Act, Ala. Code §§
8-9A-1 et seq. (“AUFTA”). In particular,
Count One alleges that the above-described transfers are
constructive fraudulent transfers pursuant to Ala. Code
§§ 8-9A-5 and/or 8-9A-4(c); meanwhile, Count Two
alleges that those transfers are actual fraudulent transfers
pursuant to Ala. Code § 8-9A-4(a). The remedies sought
by SEPH for these alleged AUFTA violations include a monetary
judgment against all defendants (as well as subsequent
transferees) for compensatory and punitive damages, as well
as declaratory relief “that the Court set aside said
fraudulent transfers and declare such transfers (and any
subsequent transfers of the property and assets) null and
void.” (Id., at 11-12.)
Count
Three is a claim for conspiracy to defraud, alleging that
Saint, defendants “and other subsequent transferees
conspired to commit said fraud on SEPH in an effort to
deprive SEPH of assets that could be used to pay the debts
owed to SEPH by John Saint and the Saint Estate.”
(Id., ¶ 33.) Counts Four and Five are
common-law fraud causes of action against the Estate relating
to John Saint's May 2007 personal financial statement. As
pleaded, the claims are that Saint “intentionally
misrepresented his assets and net worth to Vision” in
that statement (fraudulent representation), and that Saint
breached his “duty to disclose to and inform
Vision” of such asset transfers before,
contemporaneously with, and after submitting that financial
statement to Vision Bank (fraudulent concealment).
(Id., ¶¶ 36, 39.)
Defendants
now move for dismissal of all such claims and causes of
action. Alternatively, defendants move for a more definite
statement as to Count Three and abstention or a stay of this
matter in its entirety pending the outcome of proceedings
involving the John Saint Estate that are pending in Mobile
County Probate Court.
II.
Analysis.
A.
Counts One and Two and the “Real Party in
Interest” Objection.
With
respect to SEPH's claims under the AUFTA, defendants
maintain that dismissal is appropriate because SEPH is not
the real party in interest for those fraudulent transfer
claims.[5]Defendants' position is that the
“real party in interest” for the fraudulent
transfer claims is not SEPH, but is instead defendant Frances
Saint, in her capacity as Personal Representative of the
Estate of John Saint.
In so
contending, defendants' reasoning begins with the
proposition that, as pleaded in the Complaint, Saint's
liabilities were approximately 16 times greater than his
assets at the time of his death (roughly $32 million versus
roughly $2 million), and creditors have filed more than $25
million in claims against the Saint Estate in Probate Court.
Thus, the claims against the Saint Estate outstrip its assets
by a wide margin. Next, defendants point to a section of the
Alabama Probate Procedure Act that reserves for the personal
representative the power to recover property as needed to pay
the decedent's unsecured debts, to-wit:
“The property liable for the payment of unsecured debts
of a decedent includes all property transferred by the
decedent by any means which is in law void or voidable as
against creditors, and subject to prior liens, the right
to recover this property, so far as necessary for the payment
of unsecured debts of the decedent, is exclusively in the
personal representative.”
Ala.
Code § 43-2-838 (emphasis added).[6] Because §
43-2-838 vests authority in recovering property transferred
by the decedent in a void or voidable manner exclusively with
the personal representative, and because these assets are
needed to pay the Estate's debts which greatly exceed its
assets, defendants conclude that Frances Saint (as the
Estate's personal representative) is the real party in
interest for Counts One and Two. Accordingly, defendants
posit, she must be realigned as a plaintiff pursuant to Rule
17(a) of the Federal Rules of Civil Procedure. Of course, any
such realignment would destroy federal diversity jurisdiction
(because Frances Saint's citizenship is the same as that
of other defendants) and require dismissal. Defendants say
this result is warranted from a public policy standpoint, in
order to prevent “a multitude of lawsuits filed by
separate creditors of the deceased which could result in
inconsistent determinations by a multitude of courts setting
aside the transfers of the same assets in favor of different
creditors.” (Doc. 11, at 9.)[7]
As
noted in footnote 6, supra, the parties have not
identified a single case authority construing the language of
§ 43-2-838 in the context of Uniform Fraudulent Transfer
Act claims brought by a creditor against an estate for
transfers made by the decedent to the estate's personal
representative. Thus, this Court's analysis must focus on
the statutory language itself.[8] By its terms, § 43-2-838
vests the “right to recover” the decedent's
“property” “exclusively in the personal
representative” where (i) the decedent transferred
property “by any means which is in law void or voidable
as against creditors;” and (ii) recovery of the
property is “necessary for the payment of unsecured
debts of the decedent.” This plain language would
appear to support defendants' position insofar as SEPH
may be seeking in Counts One and Two the remedy of having the
transfers set aside and the transferred assets restored to
the Estate of John Saint for purposes of paying Saint's
unsecured debts in probate proceedings.
A fair
reading of Counts One and Two, however, reflects that SEPH
seeks remedies far beyond revesting title to the transferred
assets in the Estate. Indeed, in both AUFTA claims, SEPH
demands “compensatory and punitive damages”
against the Saint Estate, Frances Saint, SFLP and Kasubra; as
well as that the Court “declare such transfers (and any
subsequent transfers of the property and assets) null and
void.” (Doc. 1, at 11-12.) These remedies are outside
the scope of the plain language of § 43-2-838, which
gives the Estate's personal representative the exclusive
right “to recover this property, so far as necessary
for the payment of the unsecured debts of the
decedent.” In seeking money damages from the
transferees of the subject property, SEPH is not seeking to
recover property to pay John Saint's unsecured debts, but
is rather pursuing compensation from those defendants
pursuant to Alabama Code § 8-9A-8(b) for the harm they
allegedly caused SEPH by receiving those
transfers.[9] Moreover, a declaratory judgment that the
transfers violate the AUFTA would not appear to implicate
§ 43-2-838. Stated differently, nothing in §
43-2-838 purports to grant a personal representative the
exclusive right to pursue any and all fraudulent transfer
remedies related to the decedent's estate; rather, it
only affords the personal representative the exclusive right
“to recover this property, so far as necessary for the
payment of unsecured debts of the decedent.” The
remedies sought by SEPH - other than setting aside the
fraudulent transfers - are not reserved for Frances Saint (as
personal representative of the Estate) by the clear language
of § 43-2-838. That is to say, while § 43-2-838
gives Frances Saint the exclusive right to recover property
that belongs in the Estate for administration in the Mobile
County Probate Court proceedings, it does not confer upon her
the exclusive right to pursue any and all remedies that are
or might be available to creditors under the
AUFTA.[10]
Because
certain remedies are still available to it in Counts One and
Two, notwithstanding the constraints imposed by §
43-2-838, SEPH - and not Frances Saint as personal
representative - is the real party in interest for those
claims, and diversity jurisdiction properly lies as to those
claims without realigning Frances Saint as a plaintiff.
Counts ...