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SE Property Holdings, LLC v. Braswell

United States District Court, S.D. Alabama, Southern Division

June 7, 2017

GEORGE S. BRASWELL, et al., Defendants.



         This fraudulent transfer action comes before the Court on plaintiff's Motion for Partial Summary Judgment (doc. 98) and defendants' Motion for Summary Judgment (doc. 99). Both of these overlapping Rule 56 Motions have been briefed, with considerable duplication of argument along the way, and are now ripe for disposition.

         I. Nature of the Action.

         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 its First Amended Complaint (doc. 22) against defendants, George S. Braswell and Vennie T. Braswell, alleging that George Braswell (“Braswell”) executed guaranties exceeding $1.1 million on loans made by SEPH's predecessor for the Bama Bayou / Marine Park project. After the borrowers defaulted on those loans, Braswell transferred certain real property to his wife, Vennie Braswell (“Mrs. Braswell”), on or about May 19, 2009. In particular, the Complaint alleges that Braswell conveyed to Mrs. Braswell the couple's primary residence in Baldwin County (purportedly valued at between $1 million and $2.5 million, with a mortgage balance of $600, 000) and a Baldwin County condominium unit (purportedly valued at $500, 000, with no outstanding mortgage balance). SEPH maintains that both transfers violate the Alabama Uniform Fraudulent Transfer Act, Ala. Code §§ 8-9A-1 et seq. (the “AUFTA”), in multiple respects.

         The First Amended Complaint alleges three distinct AUFTA causes of action against the Braswells. In Count One, SEPH brings a claim of actual fraudulent transfer, in violation of Alabama Code § 8-9A-4(a), based on allegations that Braswell made the subject transfers with the intent of hindering, delaying or defrauding SEPH's predecessor. In Count Two, SEPH asserts a claim of constructive fraudulent transfer, in violation of Alabama Code § 8-9A-4(c), based on allegations that Braswell's remaining assets after the transfers were unreasonably small and he believed or should have believed that he would be called upon to pay debts beyond his ability to pay. In Count Three, SEPH advances a claim of constructive fraudulent transfer, in violation of Alabama Code § 8-9A-5(a), predicated on an allegation that Braswell was insolvent at the time of, or as a result of, the subject transfers. Finally, in Count Four, SEPH brings a claim of civil conspiracy, alleging that the Braswells conspired with each other in effecting the subject asset transfers, all to SEPH's detriment in being deprived of assets that could have been used to collect on Braswell's guaranty obligations.

         II. Factual Background.[1]

         A. The Loans and Guaranties.

         Between 2005 and 2007, SEPH's predecessor (Vision Bank) entered into a series of four commercial loan agreements whereby it loaned $21 million to entities called Bama Bayou, LLC (formerly known as Riverwalk, LLC) and Marine Park, LLC. (Corbitt Aff. (doc. 101, Exh. A), ¶ 5.) Those loans were fully funded by Vision Bank and its participant banks. (Id., ¶ 7.)

         In connection with each of those loans, George Braswell executed a limited continuing guaranty in favor of Vision Bank. (Corbitt Aff., ¶ 6.) First, on or about March 10, 2005, he executed a guaranty with respect to Vision Bank's $6 million loan to Riverwalk, LLC in March 2005. (Id., ¶ 6 & Exh. A-2.) In that guaranty, Braswell agreed to be liable for up to $315, 000 in principal of the note, as well as 100% of all interest on the loan accruing at any time, and 100% of collection costs, expenses, and reasonable attorney's fees. (Id., Exh. A-2 at ¶ 14.) Second, on or about May 20, 2006, Braswell executed a guaranty with respect to Vision Bank's $5 million loan to Riverwalk LLC in June 2006. (Corbitt Aff., ¶ 6 & Exh. A-3.) In that guaranty, he agreed to be liable for up to $280, 000 in principal of the note, as well as 100% of all interest on the loan accruing at any time, and 100% of collection costs, expenses, and reasonable attorney's fees. (Id., Exh. A-3 at ¶ 14.) Third, on or about September 25, 2007, Braswell executed a guaranty with respect to Vision Bank's $5 million loan to Bama Bayou, LLC in September 2007. (Corbitt Aff., ¶ 6 & Exh. A-4.) In that guaranty, he agreed to be liable for up to $280, 000 in principal of the note, as well as 100% of all interest on the loan accruing at any time, and 100% of collection costs, expenses, and reasonable attorney's fees. (Id., Exh. A-4 at ¶ 14.) And fourth, on or about December 17, 2007, Braswell executed a guaranty with respect to Vision Bank's $5 million loan to Marine Park, LLC in March 2007. (Corbitt Aff., ¶ 6 & Exh. A-5.)[2] In that guaranty, he agreed to be liable for up to $280, 000 in principal of the note, as well as 100% of all interest on the loan accruing at any time, and 100% of collection costs, expenses, and reasonable attorney's fees. (Id., Exh. A-5 at ¶ 14.)

         B. The Defaults and SEPH's Collection Efforts.

         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 sometime prior to January 2009. (Corbitt Aff., ¶¶ 7-8.) Vision Bank subsequently demanded payment from the borrowers and guarantors, including Braswell. (Id., ¶ 8.) When payment was not forthcoming, Vision Bank sued Bama Bayou, Marine Park, Braswell, and others in the Circuit Court of Mobile County, Alabama, on January 16, 2009 (the “Bama Bayou Action”). (Id.) 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.

         On March 20, 2009, as part of its collection activities, Vision Bank foreclosed on multiple parcels of real property that secured its loans to Bama Bayou and Marine Park, purchasing such property via credit bids. (Id., ¶ 9.) In the wake of those foreclosure sales, large deficiencies remained on the Bama Bayou and Marine Park loans. Indeed, plaintiff's calculations are that, as of February 21, 2017, Braswell owes SEPH the sum of $875, 000 in principal on the Bama Bayou / Riverwalk guaranties, as well as $9, 294, 012.19 in interest on those loans (exclusive of attorney's fees and costs of collection). (Id., ¶ 16.)

         C. The Challenged Transfers.

         As noted, SEPH's claims herein focus on a pair of real property transfers made by Braswell to his wife, Mrs. Braswell, who is not a signatory on the subject guaranties and is not directly indebted to SEPH on the Bama Bayou / Riverwalk loans. Both of the challenged transfers occurred on May 19, 2009, some four months after Vision Bank commenced the Bama Bayou Action against Braswell to collect on the underlying debt.

         The first transfer from Braswell to Mrs. Braswell was of real estate described as “Unit 1001, The Sands at Romar Beach, a condominium, located in Baldwin County, Alabama.” (Doc. 101, Exh. G, at 1.) The Warranty Deed executed by Braswell conveyed and transferred to Mrs. Braswell his entire ownership interest in that condo unit, in exchange for a listed consideration of $10.00 cash. (Id.) Braswell confirms that his wife paid him no other consideration for that conveyance. (Braswell Dep. (doc. 101, Exh. H), at 28.) Braswell listed the value of that beach condo during the relevant time period as being $500, 000. (Doc. 101, Exh. K at Exh. 2; doc. 105, Exh. B.)

         The second transfer from Braswell to Mrs. Braswell was of real estate described as “Lot 73, of Sandy Creek Farms, Phase I.” (Doc. 101, Exh. F, at 1.) This property was the couple's primary residence. (Braswell Dep., at 143.) As with the Romar Beach condo, the only consideration furnished by Mrs. Braswell to her husband in exchange for this conveyance was $10.00 cash. (Id.) Braswell listed the value of the Sandy Creek Farms residence during the relevant time period as being $1 million, but a January 2008 appraisal valued it at $1, 365, 000. (Doc. 101, Exh. J at Supp. Exh. 3a; doc. 105, Exh. B.)

         George Braswell executed deeds conveying both of these properties to Vennie Braswell on May 19, 2009. (Doc. 24, ¶¶ 6, 8, 14.) Whether coincidentally or otherwise, this was precisely one day before Vision Bank foreclosed on the mortgaged real property securing its loans to Bama Bayou.

         Defendants' evidence is that these transfers were made in the ordinary course of estate planning activities with their attorney, Mort Swaim. In particular, defendants show that Braswell first met with Swaim for estate-planning purposes in February 2008. (Doc. 10, Exh. 23.) When Braswell consulted with Swaim again in May 2009, he did so for the stated purpose that he “wanted to update his estate plan.” (Swaim Dep. (doc. 100-1, Exh. 5), at 68.) Defendants' evidence is that the transfers of Braswell's interest in the Sandy Creek Farms residence and the Romar Beach condo to Mrs. Braswell were made pursuant to Swaim's advice that they “balance their assets for estate-planning purposes.” (Id. at 179.) According to Swaim, “the moment [Braswell] went above one million, … he had a tax problem. So I wanted to hit the … two main assets that I was aware of, which was this house and this condo.” (Id. at 28-29.) In his deposition, Braswell testified that the goal of these transfers was to “[r]educe taxes.” (Braswell Dep. (doc. 100-1, Exh. 6), at 157.)

         D. Braswell's Assets and Liabilities Following the Transfers.

         Notably, as of May 19, 2009, Braswell's liabilities were far beyond the $875, 000 in principal he owed on the Bama Bayou / Riverwalk guaranties, the $280, 000 in principal he owed on the Marine Park guaranty, and the accrued interest and costs of collection on all of those loans.[3] Indeed, Braswell was also indebted to Vision Bank in the amount of $900, 000 in principal and $21, 621 in interest pursuant to a guaranty that he had executed in September 2007 for a loan to Sundance, LLC. (Corbitt Aff., ¶¶ 12, 15.) Braswell and others had also signed a $2, 500, 000 promissory note in 2003 and a $3, 100, 000 promissory note in 2004 as part of the consideration for Braswell and nine other individuals to purchase stock in a company called Gulf World, Inc. (Doc. 101, Exhs. D & E; Hardy Dep. (doc. 101, Exh. C), at 10.) No more than $50, 000 in principal was ever paid on those notes, even though the full balance was due and owing as of January 1, 2007. (Hardy Dep., at 13-15, 18-19.) Braswell was individually liable for the full amount of the Gulf World notes.

         Given the importance of the relative magnitudes of Braswell's assets and liabilities at the time of the subject transfers to the legal issues joined in these proceedings, it is no surprise that each side has retained a Certified Public Accountant to serve as an expert witness herein. As defendants correctly point out, “[t]he two expert CPAs agreed on the value of many assets and liabilities; but they disagreed on the value of a few, resulting in a difference of opinion as to Braswell's solvency before and after the transfers.” (Doc. 100, at 7.) On the asset side of the ledger, there are only two significant differences between the experts' competing valuations. Both witnesses agree that Braswell's assets immediately after the May 19, 2009 transfers were approximately $1.4 million, plus (i) the value of his interest in Gulf World, Inc., and (ii) the value of his “Gulf World, Inc. right of contribution.” (Doc. 101, Exh. J, at Supp. Exh. 3a; doc. 101, Exh. K, at Exh. 2.) Plaintiff's expert (Stacy Cummings) places a value of $190, 000 on Braswell's interest in Gulf World, Inc., whereas defendants' expert (Mark Pawlowski) values that interest at $700, 000. Moreover, plaintiff assigns no value to Braswell's “right of contribution, ” whereas defendants' expert assigns it a value of $5, 169, 230. (Id.)

         On the liability side, both experts agree that as of May 19, 2009, Braswell had at least $6.1 million in liabilities, including the Gulf World promissory notes (in the amounts of $3.1 million and $2.5 million, as discussed supra) as well as more than $500, 000 in a HELOC through Regions Bank. (Doc. 101, Exh. J at Supp. Exh. 3a; doc. 101, Exh. K at Exh. 2.) However, Cummings (SEPH's expert) also lists among Braswell's liabilities some $1.155 million in principal for the Riverwalk / Bama Bayou / Marine Park guaranties, as well as $830, 000 in interest on those associated loans, $900, 000 for the Sundance guaranty, and $21, 621 in interest on the Sundance loan. By contrast, Pawlowksi (the Braswells' expert) lists none of these items among Braswell's liabilities. (Id.) These and other differences give rise to a $2.9 million discrepancy between the two experts' liability calculations for Braswell as of the applicable transfer date.[4]

         III. Summary Judgment Standard.

         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 (11th Cir. 1991). Once the moving party has satisfied its responsibility, the burden shifts to the non-movant to show the existence of a genuine issue of material fact. Id. “If the nonmoving party fails to make 'a sufficient showing on an essential element of her case with respect to which she has the burden of proof, ' the moving party is entitled to summary judgment.” Id. (quoting Celotex Corp. v. Catrett, 477 U.S. 317 (1986)) (footnote omitted). “In reviewing whether the nonmoving party has met its burden, the court must stop short of weighing the evidence and making credibility determinations of the truth of the matter. Instead, the evidence of the non-movant is to be believed, and all justifiable inferences are to be drawn in his favor.” Tipton v. Bergrohr GMBH-Siegen, 965 F.2d 994, 999 (11th Cir. 1992) (internal citations and quotations omitted). “Summary judgment is justified only for those cases devoid of any need for factual determinations.” Offshore Aviation v. Transcon Lines, Inc., 831 F.2d 1013, 1016 (11th Cir. 1987) (citation omitted).

         Here, both sides have moved for summary judgment on certain AUFTA causes of action. It is well-settled that “[t]he applicable Rule 56 standard is not affected by the filing of cross-motions for summary judgment.” Page v. Winn-Dixie Montgomery, Inc., 702 F.Supp.2d 1334, 1345 (S.D. Ala. 2010) (citations omitted); see also Murray v. Holiday Isle, LLC, 620 F.Supp.2d 1302, 1307 (S.D. Ala. 2009) (same). The Eleventh Circuit has explained that “[c]ross-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) (citation omitted); see also Wermager v. Cormorant Tp. Bd., 716 F.2d 1211, 1214 (8th Cir. 1983) (“the filing of cross motions for summary judgment does not necessarily indicate that there is no dispute as to a material fact, or have the effect of submitting the cause to a plenary determination on the merits”). Nonetheless, “cross-motions may be probative of the absence of a factual dispute where they reflect general agreement by the parties as to the dispositive legal theories and material facts.” Page, 702 F.Supp.2d at 1345 (citations omitted); see also Murray, 620 F.Supp.2d at 1307. Such is the case here.

         IV. Analysis.

         As noted, SEPH has brought three fraudulent transfer claims against the Braswells pursuant to the AUFTA, as well as a fourth claim for civil conspiracy. The Braswells move for summary judgment on all claims, whereas SEPH seeks summary judgment solely on the two constructive fraudulent transfer causes of action found in Counts Two and Three. The contours of each statutory cause of action differ; however, they also share certain common elements. In particular, each AUFTA claim requires that there be a creditor/debtor relationship between SEPH and Braswell at the time of the subject transfers. See Ala. Code §§ 8-9A-4(a), 8-9A-4(c), 8-9A-5(a) (each defining circumstances in which a “transfer made by a debtor is fraudulent as to a creditor”). Likewise, each constructive fraudulent transfer claim (i.e., Counts Two and Three) requires proof that “the debtor made the transfer without receiving a reasonably equivalent value.” See Ala. Code §§ 8-9A-4(c), 8-9A-5(a). Accordingly, the Court will begin by addressing these common elements, then move on to a claim-by-claim analysis.[5]

         A. The “Creditor/Debtor Relationship” Element.

         As indicated, the AUFTA only classifies as fraudulent certain transfers “made by a debtor … as to a creditor.” Ala. Code. §§ 8-9A-4(a), 8-9A-4(c), 8-9A-5(a). The statute defines “creditor” as “[a] person who has a claim.” Ala. Code § 8-9A-1(4). The term “debtor” is defined as “[a] person who is liable on a claim.” Ala. Code § 8-9A-1(6). And the AUFTA defines “claim” as “[a] right to payment, whether or not the right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured, or unsecured.” Ala. Code § 8-9A-1(3).

         Plaintiff's evidence on this element is both straightforward and undisputed. Indeed, SEPH has made an uncontroverted showing of each of the following facts: (i) SEPH's predecessor loaned $16 million to Bama Bayou, LLC (including loans to that entity under its former name of Riverwalk, LLC) between March 2005 and September 2007; (ii) Braswell executed limited continuing guaranties on those loans in the total principal amount of $875, 000, plus 100% of all interest and collection costs that accrue; (iii) Bama Bayou defaulted under all three loans and notes; (iv) SEPH's predecessor demanded payment from borrowers and guarantors; (v) despite their promises in the notes and guaranties, neither Braswell nor any other borrower or guarantor paid those principal amounts, interest and collection costs; and (vi) after the default, SEPH's predecessor filed suit against debtors and guarantors (including Braswell) in state court in January 2009. These record facts constitute an affirmative showing that Braswell executed binding, enforceable guaranties in SEPH's favor, then failed or refused to pay upon demand when the borrowers defaulted. Such facts would establish that, as of May 19, 2009, Braswell was a “debtor” and SEPH's predecessor was a “creditor” for AUFTA purposes.

         In response, defendants argue that a two-page order entered in the Bama Bayou Action on October 16, 2016 “established there is no debt.” (Doc. 104, at 11.) The October 16 Order set aside the March 2009 foreclosure sales on the grounds that Vision Bank's credit bids upon foreclosure were “so grossly inadequate as to shock the judicial conscience.” (Doc. 100-2, at Exh. 1.) On the basis of that finding, the October 16 Order concluded as follows:

“[T]he Court finds 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. The Court hereby sets aside the foreclosure sale and declares the foreclosure deeds null, void and of no force and effect.”

(Id.) Nowhere in the October 16 Order did Judge Stewart declare the underlying debt to be wiped away, the underlying notes and guaranties to be void or otherwise unenforceable, or Bama Bayou, Braswell or any other guarantor not to be liable on SEPH's claims. Rather, the October 16 Order simply set aside the foreclosure sales. On its face, that Order said nothing that would alter SEPH's status as a “creditor” for AUFTA purposes and ...

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