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SE Property Holdings, LLC v. Center

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

January 2, 2018

SE PROPERTY HOLDINGS, LLC, Plaintiff,
v.
TAMMY T. CENTER, et al., Defendants.

          ORDER

          WILLIAM H. STEELE UNITED STATES DISTRICT JUDGE.

         This matter comes before the Court on plaintiff's Accounting and Motion for Additional Discovery (doc. 198). The issues presented in that filing have been briefed (docs. 199, 202, 203) and are now ripe for disposition.

         I. Background.

         Following a non-jury trial, the Court entered an Order (doc. 180) on August 8, 2017 pursuant to Rule 52(a)(1), Fed.R.Civ.P., setting forth findings of fact and conclusions of law. Among other things, the August 8 Order found that plaintiff, SE Property Holdings, LLC, had shown by a preponderance of the evidence that all defendants (Belinda R. Trammell, Amy T. Brown, Trammell Family Orange Beach Properties, LLC, Trammell Family Lake Martin Properties, LLC, and Tammy T. Center, both individually and in her capacity as Personal Representative of the Estate of Charles H. Trammell) were liable on Counts I, II and III for violations of the Alabama Uniform Fraudulent Transfer Act, Ala. Code §§ 8-9A-1 et seq.[1] As a remedy for these AUFTA violations, the August 8 Order enjoined defendants from further disposition of the fraudulently transferred assets, to-wit: the Perdido Beach Condo, the Lake House, the 45% interest held by each of Center and Brown in each of the two defendant LLCs, the UPS stock shares transferred to those LLCs in April 2012, and the UPS stock shares transferred to Belinda Trammell in October 2013. By its terms, this injunction “will remain in effect until such time as a final judgment has been entered in the Bama Bayou Action, and is intended to preserve the status quo dating back to when the fraudulent transfers occurred, in terms of available assets to satisfy any judgment that may be entered in SEPH's favor against Belinda Trammell and/or the Estate of Charles Trammell in the state-court proceedings.” (Doc. 180, at 58 (emphasis added and footnote omitted).)

         The August 8 Order did not specifically impose other remedies or award other relief. Nonetheless, the Court expressed concern that “the remedy of an injunction may be insufficient to protect SEPH's interests fully, ” given the evidence at trial that “transferee defendants have already wasted or otherwise dissipated many tens of thousands of dollars worth of the fraudulently transferred UPS stock shares.” (Id. at 62.) Given the transferee defendants' apparent dissipation of a significant chunk of the fraudulently transferred assets, the August 8 Order recognized the probable existence of a large gap (or deficiency) between the valuation of the fraudulently transferred assets in total, and the valuation of the remaining assets today. The August 8 Order also noted the dearth of record evidence as to “precisely how much has been spent” and “whether those funds have been used to purchase any other assets that might be subject to execution if SEPH prevails in the Bama Bayou Action.” (Id.) The Order emphasized that “the final remedies ordered in this case must take into account the seriousness of defendants' misconduct, must safeguard the bank's interests in full should it prevail in Bama Bayou, and must ensure that defendants do not profit from their fraudulent conduct by pocketing any appreciated value in the fraudulently transferred assets in the interim.” (Id. at 62-63.) With that objective in mind, the August 8 Order concluded as follows:

“As a starting point, the Court orders that an accounting be performed to quantify exactly how much the transferee defendants have dissipated or wasted the fraudulently transferred assets (and particularly the UPS stock shares), where those dissipated assets went, what the shortfall is between the fair value of those assets at the time of the fraudulent transfer and their valuation today as a result of such dissipation / waste, and whether defendant transferees have other property whose disposition might be enjoined to cover the deficiency and protect SEPH's interests in the event it prevails in the Bama Bayou Action.”

(Id. at 63.)

         Over the next three months, SEPH's accountant, Stacy Cummings, analyzed extensive financial documentation and information supplied by defendants for the purpose of ascertaining the disposition of the fraudulently transferred UPS stock and the present whereabouts of any proceeds. Based on Cummings' accounting, SEPH requests the following additional relief: (i) that the August 8 Order's injunction be expanded to cover the real property at 9513 Gunnison Drive and 333 Oak Ridge Drive; and (ii) that additional discovery (including depositions of the transferee defendants) be authorized to facilitate a comprehensive determination of where the UPS stock value has gone. Defendants oppose all such requests for additional relief.

         II. Analysis.

         From the outset, it is critical to focus on the purpose of this exercise. The August 8 Order found all defendants liable on SEPH's fraudulent transfer causes of action. It found that the transferor defendants had fraudulently transferred tens of thousands of shares of UPS stock, the Perdido Beach Condo, the Lake House, and a 90% interest in the two family-owned LLCs to the transferee defendants. To preserve the status quo and to protect SEPH to the greatest extent possible pending a final judgment as to the transferor defendants' liability in the underlying Bama Bayou Action, the August 8 Order imposed an injunction on further transfer or disposition of those assets.[2]

         Nonetheless, the remedy of enjoining further transfer of the UPS shares in particular struck the Court as potentially inadequate to achieve the stated objective of preserving the status quo.[3] For example, suppose the transferee defendants had previously cashed out of the UPS stock and spent the proceeds. In that circumstance, the August 8 Order's injunction remedy would have all the efficacy of padlocking the ranch after the cattle had already been rustled. The Court had no intention of awarding such an illusory remedy to SEPH. Fortunately, the AUFTA provides for flexible, open-ended remedies to enable a court to fashion a just, equitable outcome in a particular case. Indeed, the statute specifies that “[s]ubject to applicable principles of equity and in accordance with the applicable rules of civil procedure, ” a court finding that fraudulent transfers have occurred may award “[a]ny other relief the circumstances may require.” Ala. Code § 8-9A-7(a)(3)(c). Moreover, the AUFTA authorizes courts to extend an injunction to cover not only the fraudulently transferred asset itself, but also any other property. See Ala. Code § 8-9A-7(a)(3)(a) (providing for entry of “[a]n injunction against further disposition by the debtor or a transferee, or both, of the asset transferred or of other property”) (emphasis added).

         In light of these concerns, the August 8 Order required an accounting to be performed. The results of that accounting, as reported by SEPH and not materially contradicted by defendants, reflect that the UPS shares fraudulently transferred by Charles Trammell to the transferee defendants in 2012 and 2013 have been depleted to a large extent. Of the 12, 551 shares fraudulently transferred to Trammell Lake Martin, only 4, 032 remain today. Of the 12, 551 shares fraudulently transferred to Trammell Orange Beach, only 4, 026 remain today. Of the 8, 798 shares fraudulently transferred to Belinda Trammell, zero remain today. Simply stated, the transferee defendants have dissipated $2, 955, 291.12 (25, 842 shares x $114.36/share) in fraudulently transferred assets from 2012 and 2013 that would otherwise have been available to SEPH to collect on any judgment received against Charles and Belinda Trammell in the Bama Bayou Action. The precise allocation of those extraordinary expenditures is not entirely clear; however, defendants' accounting calculations, which are largely uncontradicted by defendants, show that (i) Belinda Trammell made gifts to the Brown family exceeding $147, 000, and to the Center family exceeding $227, 000; (ii) Trammell Orange Beach assets of more than $888, 000 were paid directly to or for the benefit of the Center family; and (iii) Trammell Lake Martin assets of more than $883, 000 were paid directly to or for the benefit of the Brown family. (Doc. 198, Exh. A.) These amounts exclude payments of legal and accounting fees, account fees, property taxes, interest expense, and so on.[4]

         The obvious and material question is where that approximately $2 million in UPS stock proceeds (gifted to or for the benefit of the Center or Brown families) went. In connection with the accounting performed in this case, Brenda Trammell, Center and Brown all completed interrogatories detailing their present assets and liabilities as of November 2017.[5] Belinda Trammell's assets consist of a personal residence located at 9513 Gunnison Drive, Pike Road, Alabama, valued at $295, 000 (with a mortgage whose current principal balance is $150, 000); a Merrill Lynch IRA valued at $356, 000; checking accounts with $74, 000 in total balances; and personal property, jewelry, vehicles and furnishings valued at $11, 000. (Doc. 198, Exh. B at 1-3.) Center's assets consist of joint ownership of the Gunnison Drive home, a joint checking account owned with Brown that has a balance of $7, 000, and personal property and bank balances totaling approximately $16, 000. (Id. at 4-6.) Brown's assets include joint ownership of the Gunnison Drive home, joint ownership with her husband of a home at 333 Oak Ridge Drive, Pike Road, Alabama valued at $330, 900 (with a mortgage whose principal balance is approximately $200, 000), the $7, 000 joint checking account with Center, and personal property and bank balances totaling approximately $13, 000. (Id. at 7-9.)[6]

         Thus, SEPH's accounting establishes that the transferee defendants have dissipated roughly $2 million in value from UPS stock shares fraudulently transferred to them by Charles Trammell in 2012 and 2013, with almost nothing to show for it in terms of assets on which SEPH may execute. Again, the intent of the injunctive relief prescribed in the August 8 Order was to preserve the status quo to the greatest extent possible, to prevent defendants from profiting from the very serious fraudulent conduct documented therein, and to safeguard SEPH's interests in having assets available to collect on any judgment it might receive against the Trammells in the Bama Bayou Action. Those objectives have been frustrated by the revelation that the transferee defendants have somehow frittered away more than three-quarters of the UPS shares that were fraudulently transferred to them in 2012 and 2013. Under the circumstances, the Court readily agrees with SEPH that expansion of the remedies ordered in the August 8 Order is warranted and appropriate in the interests of justice and under applicable principles of equity. Accordingly, the injunction set forth in the August 8 Order is hereby expanded to cover the real property ...


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