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International Management Group, Inc. v. Bryant Bank

Alabama Court of Civil Appeals

October 12, 2018

International Management Group, Inc., and Michael Carter
v.
Bryant Bank

          Appeal from Jefferson Circuit Court (CV-17-901725)

          THOMAS, JUDGE.

         In March 2010, International Management Group, Inc. ("IMG"), through its owner and president, Michael Carter, [1] executed six promissory notes to Bryant Bank ("the Bank"); Carter personally guaranteed the notes. At that time, IMG was the mortgagee of a mortgage executed by James L. Banks and Martha R. Rembert ("the mortgage"). In July 2010, Carter organized Liberty Assets, LLC ("Liberty"). In August 2010, IMG assigned the mortgage to Liberty; no consideration for the assignment was exchanged between IMG and Liberty.

         In February 2011, Liberty assigned the mortgage to Clarence Carter and Phyllis Carter, Carter's parents. In March 2011, the Bank renewed IMG's promissory notes. In December 2011, IMG defaulted on the promissory notes, and, in January 2012, the Bank sued IMG and Carter; in March 2013 and in February 2014, the Bank received two separate judgments against IMG and Carter totaling $291, 673.87.

         In October 2015, Carter filed for bankruptcy; he received a bankruptcy discharge in August 2016. IMG was "administratively dissolved" by the State of Georgia on December 31, 2015.[2] In December 2016, Liberty was also "administratively dissolved" by the State of Georgia.

         Clarence predeceased Phyllis, leaving her as the sole assignee of the mortgage. Phyllis died in September 2012. Carter was the executor of Phyllis's estate, and, in December 2016, in his capacity as executor of Phyllis's estate, he assigned the mortgage to himself.

         In April 2017, the Bank sued IMG, Carter, Liberty, Banks, and Rembert in the Jefferson Circuit Court ("the trial court"), seeking to have the assignment of the mortgage by IMG to Liberty set aside pursuant to the Alabama Uniform Fraudulent Transfer Act ("the AUFTA"), codified at Ala. Code 1975, § 8-9A-1 et seq. In the complaint, as amended, the Bank alleged that IMG had transferred its interest in the mortgage for nominal or no consideration and that the assignment of the mortgage "was made with the intent to hinder, delay, or defraud [the Bank]," in violation of Ala. Code 1975, § 8-9A-4. The Bank sought a preliminary injunction requiring the mortgage payments be paid into the court instead of to Carter and an order subjecting the mortgage to execution as a means of enforcing the Bank's rights as a judgment creditor. IMG and Carter answered the complaint, specifically admitting "that [IMG] transferred the mortgage to Liberty ... without consideration" but denying "that the assignment was made with the intent to defraud [the Bank]." After holding an evidentiary hearing, the trial court granted the requested preliminary injunction on July 6, 2017, and, on September 21, 2017, the trial court entered a default judgment against Banks and Rembert, ordering them to pay the mortgage payments to the circuit clerk. Also on September 21, 2017, the Bank sought and received a voluntary dismissal of its claims against Liberty.

         In November 2017, the Bank moved for a summary judgment on its claims against IMG and Carter. The Bank supported its motion with copies of the mortgage; the three mortgage assignments; the articles of organization of Liberty; the certificates of administrative dissolution of both Liberty and IMG; the promissory notes executed by Carter, as president of IMG; copies of the 2013 and 2014 judgments in its favor; and an affidavit of John Platt, the vice president of the Bank. In his affidavit, Platt stated that the Bank had been unaware that, when it renewed IMG's promissory notes in March 2011, IMG was actively transferring its assets to other entities without consideration.

         IMG and Carter sought a continuance of the hearing on the motion, pursuant to Rule 56(f), Ala. R. Civ. P., so that they could take Platt's deposition. In addition, IMG and Carter submitted in opposition to the motion for a summary judgment Carter's affidavit, in which he stated that he "did not transfer the mortgage from [IMG] to Liberty ... with actual intent to hinder, delay, or defraud the [Bank]." The trial court continued the hearing on the summary-judgment motion, and IMG and Carter took Platt's deposition, which they later submitted as a supplemental exhibit in opposition to the Bank's motion.

         The trial court held a hearing on the summary-judgment motion on March 22, 2018, after which IMG and Carter submitted a "supplemental opposition" in which they contended that the Bank had, for the first time at the hearing, indicated its reliance on Ala. Code 1975, § 8-9A-5(a), which governs constructive fraudulent transfers, and that, therefore, the trial court should not consider the Bank's argument regarding constructive fraud. In addition, IMG and Carter contended that, insofar as the trial court might accept the Bank's claim grounded on constructive fraud under § 8-9A-5(a), that claim was barred by the applicable four-year statute of limitations set out in Ala. Code 1975, § 8-9A-9(3), because the transfer from IMG to Liberty was made in August 2010 and the Bank did not bring suit until April 2017.

         In reply, the Bank argued that the applicability of § 8-9A-5 was not a surprise to IMG and Carter because, although that particular statute had not been cited in the complaint, it had been specifically raised in its reply to IMG and Carter's response in opposition to the motion for a summary judgment.[3] Furthermore, the Bank pointed out that it had alleged in its complaint and amended complaint, and had contended in its motion for a summary judgment, [4] that the transfer of the mortgage from IMG to Liberty had been accomplished without the payment of consideration, a fact that would support the application of § 8-9A-5(a). Finally, the Bank contended that the statute of limitations on its claim alleging constructive fraud under § 8-9A-5(a) had not expired for two reasons. According to the Bank, Ala. Code 1975, § 6-2-3, known as the "savings clause," had prevented the running of the statute of limitations until the date upon which the Bank had discovered the fraudulent transfer of the mortgage, which date, it said, was October 5, 2015. In addition, the Bank contended that, pursuant to 11 U.S.C. § 108(c), the statute of limitations was suspended during the pendency of Carter's bankruptcy case.

         On March 28, 2018, the trial court entered a summary judgment in favor of the Bank. The judgment specifically found that "[i]t is undisputed that [IMG] transferred the mortgage to Liberty ... without consideration." Based on this finding, the trial court set aside the transfer of the mortgage from IMG to Liberty and "all subsequent transfers" and concluded that the Bank could execute on the mortgage. See Ala. Code 1975, 8-9A-7(b) (providing that, "[i]f a creditor has obtained a judgment on a claim against the debtor, the creditor, if the court so orders, may levy execution on the asset transferred or its proceeds"). IMG and Carter appealed to the Alabama Supreme Court on April 25, 2018, and our supreme court transferred the appeal to this court, pursuant to Ala. Code 1975, § 12-2-7(6).

         On appeal, IMG and Carter argue that the trial court erred in entering a summary judgment in favor of the Bank based on § 8-9A-5(a) because that particular statute was not raised by the Bank until its reply to IMG and Carter's response in opposition to the Bank's summary-judgment motion and because the statute of limitations on a claim alleging constructive fraud under § 8-9A-5(a) had run. IMG and Carter, noting that issues of fraudulent intent are typically inappropriate for resolution via a summary judgment, see Andrews v. RBL, L.L.C. (In re Vista Bella), 511 B.R. 163, 194-95 (Bankr. S.D. Ala. 2014) ("Vista Bella"); Premier Capital Funding, Inc. v. Earle (In re Earle), 307 B.R. 276, 293 (Bankr. S.D. Ala. 2002) ("Earle"), also argue that genuine issues of material fact precluded the entry of a summary judgment on the Bank's claims under § 8-9A-4. In addition, IMG and Carter contend that the trial court's judgment should be set aside because the Bank failed to name all subsequent transferees, or, specifically, Clarence and Phyllis, as parties to the action.[5] Finally, IMG and Carter argue that the trial court erred in entering a summary judgment in favor of the Bank against Carter because, they contend, the Bank is no longer Carter's creditor because his obligations to the Bank were extinguished by his bankruptcy discharge.

         As a preliminary matter, we first address whether the estates of either or both Clarence and Phyllis should have been named as parties in the Bank's action. Relying on Aucoin v. Aucoin, 727 So.2d 824 (Ala. Civ. App. 1998), IMG and Carter contend that all grantees of the mortgage transfers at issue were required to be named as parties to the Bank's action. Indeed, in Aucoin, we explained that the grantee, who was the current owner of the property, was a necessary party to an action seeking to set aside the conveyance as fraudulent. Aucoin, 727 So.2d at 826. However, Aucoin does not hold that all grantees in the chain of title, regardless of their current interest in the property, are necessary parties in an action seeking to set aside a fraudulent transfer. In Aucoin, we relied on Simmons v. Clark Equipment Credit Corp., 554 So.2d 398, 399 (Ala. 1989), as support for our agreement with the grantee in Aucoin that she was a necessary party. A reading of Simmons makes it immediately clear that only those grantees who still hold title to or an interest in the property at issue must be named as parties in an action seeking to assail a transfer as fraudulent. Simmons, 554 So.2d at 399 ("The grantee, where it still retains title to the property ..., is a necessary party to an action by the grantor's creditors to set aside a conveyance as fraudulent."). Clarence and Phyllis are both deceased, and Carter, acting as executor of Phyllis's estate, transferred the mortgage out of Phyllis's estate to himself, so neither Clarence's nor Phyllis's estate have a current interest in the mortgage, and they were not required to have been named as parties in this action.

         Carter also argues that his discharge in bankruptcy prevents the Bank from securing a judgment in its favor against him, personally. Although Carter is correct insofar as he posits that a bankruptcy discharge serves to extinguish the personal liability of a debtor, see 11 U.S.C. § 524(a)(2), he is incorrect that his bankruptcy discharge isolates the transfer of the mortgage from the Bank's reach in this fraudulent-transfer action. See 11 U.S.C. § 524(e). The transfer the Bank attacked as fraudulent in this action was the transfer of the mortgage from IMG to Liberty.[6] Thus, the Bank, acting as IMG's creditor, seeks to reach the transferred mortgage to satisfy its claim against IMG. That is, the Bank's action against Carter is premised not on any personal liability he may owe to the Bank, if any, but on his status as a subsequent transferee of the mortgage.

         In Roberson v. Johnson, 950 So.2d 317 (Ala. Civ. App. 2006), we explained that a bankruptcy discharge of Gene Johnson and Vicki Johnson ("the debtors") did not insulate a third-party transferee from a fraudulent-transfer action instituted by the creditor, Roberson. In reaching our holding, this court discussed National Union Fire Insurance Co. of Pittsburgh v. Grusky, 763 So.2d 1206 (Fla. Dist. Ct. App. 2000).

"In ... Grusky, ... a federal bankruptcy court had discharged a debtor's debt and one of the debtor's creditors sought, in a subsequent state-court action, to have a transfer from the debtor to a third party declared fraudulent. The state trial court entered a summary judgment in the third party's favor and the creditor appealed; the state appellate court reversed the entry of the summary judgment in favor of the transferee. In concluding that the bankruptcy court's discharge of the debt did not affect the creditor's rights to pursue an action against the transferee, the appellate court noted:
"'"[T]he discharge provision of the Bankruptcy Code, 11 U.S.C. § 524, consistent with fundamental bankruptcy policy, provides the debtor with a fresh start free from the burdens of preexisting liabilities. Under § 524, the discharge only (i) extinguishes personal liability of the debtor; and (ii) prevents creditors whose claims arose pre-bankruptcy from any actions to impose personal liability on the debtor. 11 U.S.C. § 524 (1978). Section 524(e) expressly provides that the 'discharge of a debt of the debtor does not affect the liability of any other entity on, or the property of any other entity for, such debt.' § 524(e).
"'"Under § 16 of the Bankruptcy Act of 1898, Ch. 541, 30 Stat. 544, 550 (1898), the limitation of discharge provision restricted actions to those against co-debtors, guarantors, or other sureties. The language of § 524(e) of the 1978 Bankruptcy Code reveals a congressional intent to broaden the rights of creditors, by preserving their actions against third parties and their property, and to restrict the effect of a discharge solely to a release of the personal liability of the debtor."'
"National Union Fire Ins. Co. of Pittsburgh, Pa. v. Grusky, 763 So.2d at 1208-09 (quoting Dixon v. Bennett, 72 Md.App. 620, 637, 531 A.2d 1318, 1326 (1987))."

Roberson, 950 So.2d at 321 (emphasis added).

         As we explained in Roberson, "[a]lthough the discharge of [the debtors'] debts may have given [them] a 'fresh start,' the bankruptcy court's discharge of the debt owed to Roberson had no effect on Roberson's rights with regard to the alleged fraudulent transfer to [a third party]." Id. Thus, Roberson was permitted to seek to set aside the transfer of certain funds to the third party, despite the fact that the debtors had received a bankruptcy discharge. Id. The same result obtains in the present case.

         We turn now to the substantive issues decided by the summary judgment. Before we begin, however, we note that the Bank, as the plaintiff, bore the burden of proof on its claims at trial, and, therefore, we must be mindful that its burden on a motion for a summary judgment is different than the burden placed on a defendant seeking a summary judgment in its favor.

"'"'[T]he manner in which the [summary-judgment] movant's burden of production is met depends upon which party has the burden of proof ... at trial.'"' Denmark v. Mercantile Stores Co., 844 So.2d 1189, 1195 (Ala. 2002) (quoting Ex parte General Motors Corp., 769 So.2d 903, 909 (Ala. 1999), quoting in turn Berner v. Caldwell, 543 So.2d 686, 691 (Ala. 1989) (Houston, J., concurring specially)). If the movant is the plaintiff with the ultimate burden of proof, his '"proof must be such that he would be entitled to a directed verdict [now referred to as a judgment as a matter of law, see Rule 50, Ala. R. Civ. P.] if this evidence was not controverted at trial."' Ex parte General Motors, 769 So.2d at 909 (quoting Berner, 543 So.2d at 688).
"'The first prerequisite for [a summary judgment] in favor of a movant who asserts a claim ... is that the claim ... be valid in legal theory, if its validity be challenged. See Driver v. National Sec. Fire & Cas. Co., 658 So.2d 390 (Ala. 1995). The second prerequisite for [a summary judgment] in favor of such a movant, who necessarily bears the burden of proof, American Furniture Galleries v. McWane, Inc., 477 So.2d 369 (Ala. 1985), McKerley v. Etowah-DeKalb-Cherokee Mental Health Board, Inc., 686 So.2d 1194 (Ala. Civ. App. 1996), and Oliver v. Hayes International Corp., 456 So.2d 802 (Ala. Civ. App. 1984), is that each contested element of the claim ... be supported by substantial evidence. See Driver, supra, and McKerley, supra. The third prerequisite for [a summary judgment] in favor of such a movant is that the record be devoid of substantial evidence rebutting the movant's evidence on any essential element of the claim.... See Driver, supra, and First Fin. Ins. Co. v. Tillery, 626 So.2d 1252 (Ala. 1993). Substantial rebutting evidence would create an issue of fact to be tried by the finder of fact and therefore would preclude [a summary judgment]. See Driver, supra, and First Financial, supra. [Summary judgment] in favor of the party who asserts the claim ... is not appropriate unless all three of these prerequisites coexist. See Driver, supra, and First Financial, supra, McKerley, supra, and Oliver, supra.'"

Ross v. Rosen-Rager, 67 So.3d 29, 35 (Ala. 2010) (quoting Exparte Helms, 873 So.2d 1139, 1143 ...


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