Ex parte Hayslip

          Tuscaloosa Circuit Court, CV-14-901426

          PETITION FOR WRIT OF MANDAMUS

          MENDHEIM, JUSTICE.

         Luther S. Pate IV and New Pate, LLC, filed an action in the Tuscaloosa Circuit Court against Chris W. Hayslip, among others, seeking indemnity and to set aside a particular transfer of funds as fraudulent. Hayslip filed a motion to dismiss Pate and New Pate's action. The circuit court entered an order granting Hayslip's motion as to Pate and New Pate's indemnity claim and denying the motion as to the fraudulent-transfer claim. Hayslip petitions this Court for a writ of mandamus directing the circuit court to vacate that portion of its order denying Hayslip's motion to dismiss Pate and New Pate's fraudulent-transfer claim and to enter an order granting the entirety of Hayslip's motion to dismiss. We grant the petition and issue the writ.

         Facts and Procedural History

         In 2005, Hayslip and Harlan Homebuilders, Inc., formed The Townes of North River Development Company, LLC ("Townes Development Company"), to develop a residential subdivision. Christopher Dobbs and Teresa Dobbs own Harlan Homebuilders.

         At some point, a dispute arose as to the ownership of Townes Development Company. In June 2007, Hayslip and Harlan Homebuilders mediated the dispute and agreed to a settlement in which Hayslip and Harlan Homebuilders would sign a new operating agreement for Townes Development Company indicating that Hayslip owned 70% of Townes Development Company and that Harlan Homebuilders owned the remaining 30%. As part of the settlement agreement, the parties further agreed that the Dobbses would purchase Hayslip's 70% interest in Townes Development Company for $3, 825, 000.

         However, the Dobbses subsequently claimed that they had been fraudulently induced into entering into the settlement agreement and determined to sue Hayslip and Townes Development Company alleging fraud and other business torts. To that end, the Dobbses sought to retain the legal services of Andy Campbell, an attorney. Campbell required the Dobbses to pay for his legal representation on an hourly basis, but the Dobbses did not have the financial means to do so. Accordingly, Campbell recommended that the Dobbses request Pate loan them the money necessary to retain Campbell's legal services and also to cover the Dobbses' living expenses. Pate agreed to loan the Dobbses and their various business entities $400, 000 through New Pate, one of Pate's business entities.

         On January 22, 2008, New Pate and the Dobbses, Harlan Homebuilders, Dobbs Developments, Inc., and Dobbs Realty, LLC (Harlan Homebuilders, Dobbs Developments, and Dobbs Realty are hereinafter collectively referred to as "the Dobbs entities"), executed a promissory note in the amount of $400, 000.^[1] On the same date, New Pate and the Dobbses and the Dobbs entities also executed a "loan and security agreement." The loan and security agreement states, in pertinent part:

"Section 1.03 Security for Loan. The Loan will be secured by, among other things, all assets of [the Dobbses and the Dobbs entities], whether now owned or hereafter acquired, and all proceeds thereof (the 'Collateral'). [New Pate] shall not be obligated to make any advances hereunder unless the Mortgages, Investment Control Agreements, [the Dobbses' and the Dobbs entities'] tort and contract claims against Chris Hayslip, Kevin Vann, Bank Trust, or ... Townes [Development Company], or any other party arising out of the same controversy or facts (together, the 'Suit'), and UCC-1s create valid and enforceable liens on the property described therein.

"....

"Section 1.06 Equity Interest. For and as a material consideration and inducement for [New Pate] making this loan to [the Dobbses and the Dobbs entities], whether [New Pate] fully funds this loan or not, [the Dobbses and the Dobbs entities] agree[] to the following:

"(a) At the option of [New Pate], on or before January 15, 2010, [the Dobbses and the Dobbs entities] shall transfer to [New Pate] fifty per cent (50%) of [the Dobbses' and the Dobbs entities'] ownership in Townes [Development Company] at the time of [New Pate's] election of this option. Further the option shall extend to such additional ownership that the [Dobbses and the Dobbs entities] may acquire subsequent to [New Pate's] election, but [the Dobbses' and the Dobbs entities'] ownership in ... Townes [Development Company] shall at no time be no less than thirty per cent (30%) of the total ownership of ... Townes [Development Company]. Until such time that [New Pate] exercises it[s] said options, [the Dobbses and the Dobbs entities] shall pay to [New Pate] one-half of all distributions, income and proceeds that it receives from ... Townes [Development Company] or is entitled to receive from ... Townes [Development Company]. Such transfer shall not constitute payment in whole or in part of the Loan. Any and all distributions or income received by Harlan [Homebuilders] from ... Townes [Development Company] shall be subject to Section 1.06(b) herein. ...

"(b) Out of any settlement payment, distribution or payment of any kind whatsoever from Chris Hayslip or Townes [Development Company], their insuror [sic]; and any distributions and income received by Harlan [Homebuilders] from ... Townes [Development Company] shall be distributed as follows and in the following order:

"(i) First, to the repayment of that part of the indebtedness owed by [the Dobbses and the Dobbs entities] to [New Pate] for attorney fees, expert fees and litigation expenses incurred with the law firm of Campbell, Gidieie, Lee, Sinclair & Williams, PC, with interest as accrued.

"(ii) Second, the next $250, 000.00 shall be paid to [New Pate], and shall not be applied against the indebtedness owed by [the Dobbses and the Dobbs entities] to [New Pate] under this Agreement and the Loan Documents.

"(iii) Third, the remaining proceeds shall be divided equally between the [Dobbses and the Dobbs entities] and [New Pate]; with the [Dobbses' and the Dobbs entities'] proceeds to be first applied to the repayment of the indebtedness owed by [the Dobbses and the Dobbs entities] to [New Pate] under this Agreement and the Loan Documents. Upon full payment of the indebtedness owed by [the Dobbses and the Dobbs entities] to [New Pate] under this Agreement and the Loan Documents, the [Dobbses' and the Dobbs entities'] share of the proceeds shall then be disbursed to the [Dobbses and the Dobbs entities]. That part of the [New Pate] proceeds paid to [New Pate] under this section of the Agreement shall not be applied against the indebtedness owed by [the Dobbses and the Dobbs entities] to [New Pate] under this Agreement and the Loan Documents.

"(c) Any distributions in kind arising out of Hayslip, Townes [Development Company], or their insurer shall be owned equally by the [Dobbses and the Dobbs entities] and [New Pate], subject to [New Pate's] approval.

"(d) The payment in full of the indebtedness owed by [the Dobbses and the Dobbs entities] to [New Pate] shall not extinguish the rights, duties and obligations in this Section 1.06.

"Section 1.07 Additional Loan Terms. ...