Lord Abbett Municipal Income Fund, Inc. v. Southern Farms, Inc., et al
MEMORANDUM OPINION AND ORDER DENYING defendants' 50 and 52 MOTIONS for Summary Judgment, as further set out in order. Signed by Chief Judge William Keith Watkins on 12/28/15. (Attachments: # 1 civil appeals checklist)(djy, )
IN THE UNITED STATES DISTRICT COURT
FOR THE MIDDLE DISTRICT OF ALABAMA
LORD ABBETT MUNICIPAL
INCOME FUND, INC.,
SOUTHERN FARMS, INC., et al.,
CASE NO. 1:12-CV-1099-WKW
MEMORANDUM OPINION AND ORDER
Before the court are motions for summary judgment filed by Defendants
Southern Farms, Inc. (Doc. # 50) and John Keith Givens (Doc. # 52). Upon
consideration of the parties’ arguments, the evidence, and the relevant law, the
motions are due to be denied.
I. JURISDICTION AND VENUE
The court exercises subject-matter jurisdiction over the instant claims
pursuant to 28 U.S.C. § 1332(a)(1).
The parties do not contest personal
jurisdiction or venue.
II. STANDARD OF REVIEW
To succeed on a motion for summary judgment, the moving party must
demonstrate “that there is no genuine dispute as to any material fact and the
movant is entitled to judgment as a matter of law.” Fed. R. Civ. P. 56(a). The
court must view the evidence and the inferences from that evidence in the light
most favorable to the nonmoving party. Jean-Baptiste v. Gutierrez, 627 F.3d 816,
820 (11th Cir. 2010).
On a motion for summary judgment, the moving party “always bears the
initial responsibility of informing the district court of the basis for its motion.”
Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). This responsibility includes
identifying the portions of the record illustrating the absence of a genuine dispute
of material fact.
If the moving party does not bear the trial burden of
production, it may assert, without citing the record, that the nonmoving party
“cannot produce admissible evidence to support” a material fact. Fed. R. Civ. P.
56(c)(1)(B); see also Fed. R. Civ. P. 56 advisory committee’s note (“Subdivision
(c)(1)(B) recognizes that a party need not always point to specific record materials.
. . . [A] party who does not have the trial burden of production may rely on a
showing that a party who does have the trial burden cannot produce admissible
evidence to carry its burden as to the fact.”). If the moving party meets its burden,
the burden shifts to the nonmoving party to establish – with evidence beyond the
pleadings – that a genuine dispute of material fact exists as to each of its claims for
relief. Celotex, 477 U.S. at 324. A genuine dispute of material fact exists when
the nonmoving party produces evidence allowing a reasonable fact finder to return
a verdict in its favor. Waddell v. Valley Forge Dental Assocs., 276 F.3d 1275, 1279
(11th Cir. 2001).
This case arises from the development of Country Crossing, a mixed-use
entertainment complex in Houston County, Alabama. The brainchild of developer
Ronnie Gilley (“Gilley”), Country Crossing offered patrons a variety of diversions
from the workaday routine. The original scheme contemplated a theater, an RV
park, restaurants, a bed and breakfast, and, controversially, an electronic bingo
Country Crossing showed early promise. It garnered the support of several
successful country recording artists, including the late George Jones. But in the
wake of Governor Bob Riley’s efforts to quell gambling in the state, the project
swiftly met its demise. As the neon lights faded over southern Houston County,
creditors were left to wonder who would fill Country Crossing’s shoes.1
In the action at bar, Plaintiff Lord Abbett Municipal Income Fund, Inc.
(“Lord Abbett”) asserts two claims against Defendants Southern Farms, Inc.
(“Southern Farms”) and John Keith Givens (“Givens”). The factual background of
See George Jones, Who’s Gonna Fill Their Shoes (Epic Records 1985).
these claims were addressed at length in a previous opinion (Doc. # 44), but the
complex nature of the events calls for a recitation.
Before Gilley could begin building, he needed to acquire suitable property.
He dispersed ownership of the Country Crossing project among three separate
limited liability companies (the “Country Crossing Entities”), one of which would
take a central role in the Southern Farms transaction. Resorts & Entertainment
Group II, LLC was responsible for management and operations.
Crossing, LLC oversaw issues of intellectual property and licensing.
Development Group II, LLC (“RDG-II”) handled acquisition of real property and
construction. Each of the Country Crossing Entities issued ownership shares in the
form of membership units.
In October of 2008, RDG-II made arrangements to purchase a 375-acre
parcel of land from Southern Farms, an entity wholly owned by Givens. They
agreed on a purchase price of $19,840,000. Southern Farms received additional
consideration in the form of five percent of the membership units of each of the
Country Crossing Entities.
Pursuant to the Promissory Note and Security
Agreement,2 Southern Farms financed the transaction at zero percent interest.
In contemplation of the land transaction, RDG-II and Southern Farms entered into a
Land Purchase Agreement (Doc. # 59-1, at 12–22), a Promissory Note and Security Agreement
(Doc. # 59-1, at 23–31), a Mortgage Agreement (Doc. # 59-1, at 32–50), and several Guaranty
Agreements (Doc. # 59-1, at 51–72).
RDG-II granted Southern Farms a first priority mortgage on the property, but
Southern Farms agreed that it would subordinate its interest to those of lenders
financing future improvements to the property.
As additional security for
repayment of the purchase price, Southern Farms received personal guaranties
from Gilley and associated business entities.
Gilley and related entities also
pledged to Southern Farms a twenty-five percent equity interest in the Country
After RDG-II finalized the land purchase transaction, it became insolvent.
An independent appraisal of the property revealed a fair market value of
approximately $3,000,000. Because the purchase price and the debt obligations
were substantially higher than the actual value of the property, RDG-II’s assets
exceeded its liabilities. RDG-II had no steady source of income, and it lacked
sufficient cash flow to make the payments contemplated under the Land Purchase
To facilitate Country Crossing’s development, the Houston County
Commission created two districts: (1) the Cooperative District of Houston County
– Country Crossing Project (the “Cooperative District”), and (2) the Improvement
District of Houston County – Country Crossing Project (the “Improvement
District”) (collectively the “Districts”). The Districts were authorized to issue
bonds to finance infrastructure improvements on the Country Crossing property.
In 2009, the Districts issued the first series of obligation bonds, which totaled
$21,325,000. They issued a second series of bonds, which totaled $7,735,000, in
2010. Lord Abbett purchased both series after their issuance. These bonds were to
be repaid from the collection of assessments on the Country Crossing property and
fees from related business activities.
The Cooperative District successfully
petitioned the Circuit Court of Houston County for validation of all bonds, fees,
assessments, and means of repayment.
Alabama state officials eventually determined that the electronic bingo
activities at Country Crossing constituted illegal slot machine gambling. All bingo
operations ceased, and Country Crossing closed its doors.
It has not since
reopened. Because there has been no economic activity at Country Crossing, and
no receipt of assessments, the Districts have not made payments due on the Bonds.
Payments to Southern Farms
RDG-II made several payments to Southern Farms after the initial land
purchase. The payments can be categorized as those relating to the parcel on
which the electronic bingo facility would be built (the “Bingo Facility Property”),
and those relating to the parcel on which the district utility improvements would be
made (the “District Utility Property”). Lord Abbett argues that these payments,
which allegedly total $4,700,000, can be set aside as fraudulent transfers made
with the intent to hinder, delay, or defraud creditors.
Bingo Facility Property
Because it lacked cash flow, RDG-II needed loans to finance construction of
the bingo facility. It made arrangements to obtain a loan from businessman Milton
McGregor (“McGregor”) in the amount of $5,000,000 (the “McGregor Loan”).
RDG-II and McGregor, along with other parties, executed a Construction
Financing Agreement, the terms of which required RDG-II to obtain a release of
the Southern Farms mortgage as to the Bingo Facility Property. Southern Farms
was already obligated, under the terms of the Land Purchase Agreement, to
subordinate its mortgage interest in favor of lenders who financed Country
Crossing property improvements.
Despite this pre-existing subordination
obligation,3 Southern Farms required RDG-II to make principal reduction
payments before it released its mortgage interest as to the bingo facility site.
Pursuant to the Principal Reduction Agreement between RDG-II and Southern
Farms, RDG-II would make payments totaling $500,000 to Southern Farms.
Those payments were to be applied to the outstanding principal on the land
purchase promissory note.
In exchange, Southern Farms would release its
It is unclear what advantage the parties gained from releasing the mortgage on the bingo
facility as opposed to subordinating the mortgage. Southern Farms was obligated to subordinate
its interest to parties financing improvements. (Doc. # 59-1, at 14.) The McGregor Loan
nevertheless depended on a release of the Southern Farms mortgage as to the Bingo Facility
Property. (Doc. # 59-1, at 270.)
mortgage as to the bingo facility site. RDG-II made a $300,000 payment to
Southern Farms on January 26, 2009.
It then made a $200,000 payment to
Southern Farms on February 25, 2009.
The McGregor Loan was originally set to close on April 30, 2009. Before
the closing could take place, however, Governor Riley took action to suppress
gambling activity in Alabama. Due to complications from this anti-gambling
effort, RDG-II and McGregor extended the loan’s closing date to September 30,
2009. In June of 2009, before the loan could be finalized, RDG-II defaulted on its
obligations under the Land Purchase Agreement. Southern Farms and RDG-II
then executed an Amended and Restated Promissory Note and Security
Agreement. Southern Farms had not executed the mortgage release, despite the
payment of $500,000, because closing had been delayed.
Under the terms of the amended note, RDG-II was required to make an
initial loan payment in the amount of $1,180,486.
The new agreement also
required that RDG-II pay eighteen percent interest on $3,000,000 of the original
purchase price, and that Southern Farms would only release its mortgage on the
bingo facility parcel after RDG-II made the initial $1,180,460 payment. The new
agreement did not apply the “principal reduction” payments, totaling $500,000, to
the outstanding land purchase principal. Instead, it treated these payments as mere
inducements for Southern Farms to agree to the Amended Mortgage. RDG-II paid,
in essence, half a million dollars to refinance the original promissory note on terms
more favorable to Southern Farms. On August 19, 2009, RDG-II made the initial
payment of $1,180,486, and Southern Farms finally released the mortgage as to the
bingo facility site.
District Utility Property
RDG-II also made payments to Southern Farms relating to the District
The Cooperative District was scheduled to issue municipal
bonds, the proceeds from which would be used to make public infrastructure
improvements benefitting the Country Crossing project.
As a part of this
transaction, RDG-II was required to convey the District Utility Property to the
Cooperative District unencumbered by the Southern Farms mortgage.4 RDG-II
thus needed Southern Farms to execute another release.
Before it would provide the release, Southern Farms demanded an
unscheduled $3,000,000 payment from RDG-II, which would be applied to the
land purchase principal.
RDG-II lacked the funds necessary to make such a
substantial payment, so it obtained a loan from Specialized Services, Inc. in the
amount of $2,235,000. In November of 2009, it remitted these funds to Southern
Farms and executed yet another promissory note, in the amount of $765,000, to
Again, in light of the subordination obligation, the reason for a full release is unclear.
Taylor stated that RDG-II believed this release to be consistent with Southern Farms’s
subordination obligation. (Taylor Affidavit, Doc. # 59-1, at 11.)
cover the remaining portion of the demanded payment.
The terms of the
promissory note required interest in the amount of $35,000 per week. RDG-II
eventually extinguished this promissory note when it made a payment to Southern
Farms on December 8, 2009, in the amount of $855,714.
After Lord Abbett filed the initial complaint in December of 2012, Southern
Farms and Givens moved for dismissal under Rule 12(b)(6) of the Federal Rules of
Lord Abbett sought and was granted leave to amend its
complaint. Southern Farms and Givens again filed a motion to dismiss, which was
In June of 2015, Southern Farms and Givens filed motions for partial
summary judgment (Docs. # 50 and 52). Southern Farms filed a supporting brief
(Doc. # 51), on which Givens relies to support his own motion (see Doc. # 52, at
3). Lord Abbett later agreed to dismiss several claims raised in the Amended
(See Doc. # 64.)
In the currently operative Second Amended
Complaint (Doc. # 65), Lord Abbett only asserts two claims against Southern
Farms and Givens. Count One alleges that Givens can be held personally liable for
the actions of Southern Farms by operation of the doctrine of piercing the
corporate veil. Count Two alleges that payments made by RDG-II to Southern
Farms can be avoided as fraudulent transfers.
Southern Farms and Givens have not altered their motions for summary
judgment in response to the filing of the Second Amended Complaint. Their
arguments regarding the remaining claims apply with equal force to the new
Southern Farms seeks summary judgment on both the claim for
fraudulent transfer and the claim for piercing the corporate veil. (See Doc. # 50.)
Givens seeks summary judgment only on the claim for fraudulent transfer. (See
Doc. # 52.) Lord Abbett filed a response (Doc. # 58) and a supporting brief (Doc.
# 59).5 Southern Farms and Givens then filed a joint reply (Doc. # 60), which
contains a supporting brief. In light of the new pleading, the motions for summary
judgment will not be addressed as they relate to dismissed claims.
The claim for fraudulent transfer, which appears in Count Two,6 is addressed
first. The transfers at issue include: (1) $300,000 on January 26, 2009, (2)
$200,000 on February 25, 2009, (3) $1,180,000 on August 19, 2009, (4)
$2,235,238.07 in November of 2009, and (5) $855,714 on December 8, 2009. The
claim for piercing the corporate veil, which appears in Count One, is addressed
Lord Abbett did not move for summary judgment.
The beginning is, ordinarily, the best place to start. There is no need to address the
propriety of piercing the corporate veil, however, if Southern Farms is entitled to summary
judgment on the issue of fraudulent transfer. If the claimant is unsuccessful on the sole
underlying cause of action, there is no liability to impute to the individual. See Part IV.B, infra.
Accordingly, Count Two goes first.
In Count Two of the Second Amended Complaint, Lord Abbett alleges that
payments made by RDG-II to Southern Farms constitute fraudulent transfers. The
payments at issue were made in connection with RDG-II’s efforts to obtain
mortgage releases for the Bingo Facility Property and the District Utility Property.
Ultimately, Southern Farms is not entitled to summary judgment on this claim.
The authority to set aside fraudulent transfers originally derives from the
court’s equitable powers, but here it is exercised pursuant to an Alabama statute. If
a creditor is successful in establishing the fraudulent nature of a conveyance, it
may be entitled to an array of related remedies. Under the Alabama Fraudulent
Transfer Act, these include avoidance of the transfer, attachment against the asset,
an injunction against further disposition, and receivership. Ala. Code § 8-9A-7. In
the Second Amended Complaint, Lord Abbett demands a judgment voiding the
transfers and prays for damages.
A claim for fraudulent transfer consists of three fundamental elements. The
claimant must establish (1) that there was a creditor to be defrauded, (2) that the
debtor intended to defraud, and (3) that there was a conveyance of property out of
which the creditor could have realized its claim. Champion v. Locklear, 523 So.
2d 336, 338 (Ala. 1988). Southern Farms and Givens do not dispute that Lord
Abbett is a creditor by virtue of its status as a bondholder.7 See Ala. Code § 11-81224 (providing that an order validating bonds shall be conclusive as to the
existence of an enforceable obligation to the bondholder); see also Bond
Validation Order (Doc. # 59-2, at 184). Defendants also do not dispute that Lord
Abbett’s claims against RDG-II, for unpaid principal and interest on the bonds,
could have been realized out of the money RDG-II paid to Southern Farms in
connection with the Bingo Facility Property and District Utility Property mortgage
See Ala. Code § 11-99A-17 (providing that all proceeds of the
assessments allocable to the bonds are pledged to the bondholder). Accordingly,
the disposition of this motion turns on RDG-II’s intent to defraud.8
Recognizing that the debtor’s intent is often difficult to prove, Alabama law
provides for two varieties of fraudulent transfers: actual and constructive. An
actual fraudulent transfer occurs where the debtor conveys assets with “actual
intent to hinder, delay, or defraud any creditor of the debtor.” Ala. Code § 8-9A4(a). A constructive fraudulent transfer occurs, irrespective of actual intent, where
Southern Farms and Givens do argue that they are not in a debtor-creditor relationship
with Lord Abbett. (See Doc. # 60, at 8.) But they do not dispute Lord Abbett’s contention that it
is a creditor of RDG-II as a result of the bond issuance. Lord Abbett argued in its brief that it is
a creditor by virtue of Ala. Code § 11-81-224. (Doc. # 59, at 8–9 (“[T]here can be no question
that Lord Abbett is a creditor of RDG-II with a lien against the Property.”).) Defendants did not
address this argument in their reply.
In addition to the ample evidence Lord Abbett produced, Defendants must contend with
the fact that issues of “intent, motive, and subjective feelings” are ill-suited for disposition on a
motion for summary judgment. Loveless v. Graddick, 325 So. 2d 137, 149 (Ala. 1975).
an insolvent debtor conveys assets to another without receiving valuable
consideration in exchange. Ala. Code § 8-9A-5.
To survive this motion for summary judgment on actual intent, Lord Abbett
must present sufficient evidence to establish the existence of a genuine dispute of
material fact as to RDG-II’s intent to defraud. Lord Abbett succeeds. It offers
sufficient evidence to raise triable issues with respect to both actual and
constructive fraudulent transfer.
Actual Fraudulent Transfer
Lord Abbett’s evidence suffices to raise a genuine dispute of material fact
regarding RDG-II’s actual intent to defraud creditors.9 When determining whether
the debtor made a transfer with “actual intent to hinder, delay, or defraud”
creditors, several factors may be considered. Ala. Code § 8-9A-4. These factors,
or badges of fraud, include whether (1) the transfer was to an insider, (2) the debtor
retained possession of the property after the transfer, (3) the transfer was
In their Joint Reply, Defendants make much ado about the purported irrelevance of the
transferee’s intent to defraud. (Doc. # 60, at 8.) It is true, under the Alabama Fraudulent
Transfer Act, that the claimant must establish intent to defraud on the part of the debtor to make
out a prima facie case. Ala. Code § 8-9A-4(a). Defendants’ arguments are well taken, but with
the following caveat.
There are instances in which the transferee’s intent to defraud is in fact relevant. See
Dial v. Morgan, 525 So. 2d 1362, 1364 (Ala. 1988) (holding that the mutual fraudulent intent of
the debtor and the transferee must be shown to set aside a fraudulent conveyance). And where
the badges of fraud enumerated in the Fraudulent Transfer Act are considered, the transferee’s
dealings with the debtor are most relevant. See Ala. Code § 8-9A-4(b). Because the debtor’s
subjective state of mind rarely will emerge as a matter of direct evidence, the statute provides
this objective means of inferring intent. Here, Defendants’ relationship with RDG-II and the
motivations behind its dealings with the same are properly under consideration.
concealed, (4) the debtor had been threatened with suit prior to the transfer, (5) the
transfer was of substantially all of the debtor’s assets, (6) the debtor absconded, (7)
the debtor concealed assets, (8) the value of the consideration the debtor received
was comparable to the value of the asset transferred, (9) the debtor was insolvent at
the time of the transfer or shortly thereafter, (10) the transfer took place before or
shortly after the debtor incurred a substantial debt, and (11) the debtor transferred
essential business assets to a lienor who then transferred the assets to an insider.
Id. Though these objective factors may come to bear on the actual intent inquiry,
they are not conclusive. In re Earle, 307 B.R. 276, 293 n.9 (Bankr. S.D. Ala.
2002). Lord Abbett has offered evidence establishing that the payments RDG-II
made to Southern Farms bore several of these badges of fraud. The following
issues relate to Lord Abbett’s claim: (a) whether the transfer was to an insider; (b)
whether the debtor was threatened with suit; (c) whether the value of the asset
transferred exceeded the value of consideration received; and (d) whether the
debtor was insolvent.
Transfer to an Insider
First, Lord Abbett has evidence from which a reasonable finder of fact could
determine that RDG-II made transfers to an insider. An “insider” includes, inter
alia, a person in control of the debtor. Ala. Code § 8-9A-1(8). According to
Chuck Taylor (“Taylor”),10 former Chief Financial Officer of Country Crossing,
Southern Farms and Givens enjoyed access to inside information about RDG-II.
(Taylor Aff., Doc. # 59-1, at 10.) Taylor testified that the stock pledges, mortgage,
and guaranties gave Southern Farms and Givens substantial leverage to influence
RDG-II’s decisions. (Taylor Aff., Doc. # 59-1, at 10.) He further averred that
Southern Farms and Givens used their influence to force RDG-II to make
unscheduled payments to Southern Farms at the expense of other creditors.
(Taylor Affidavit, Doc. # 59-1, at 10.) Lord Abbett’s evidence also reveals that
Givens was included in email correspondence containing “strictly private [and]
confidential” information about the Country Crossing project. (Email Exhibit,
Doc. # 59-9.)
It is true, as Defendants note, that Southern Farms did not initially own thirty
percent of the membership units of the Country Crossing Entities.
Farms first received title to only five percent of the membership units of each
entity as additional consideration for the land purchase transaction.
Purchase Agreement, Doc. # 59-1, at 14.)
Two entities then pledged their
Defendants devote a tremendous portion of their reply brief to the value of Taylor’s
affidavit testimony. Specifically, they decry his testimony as incredible. The role of the court,
on a motion for summary judgment, is not to weigh the probative value of conflicting evidence.
Lane v. Celotex Corp., 782 F.2d 1526, 1528 (11th Cir. 1986). This invitation to invade the
province of the finder of fact will be declined. The proper course of action is merely to review
the record, in light of the controlling legal principles, to determine whether the nonmoving party
has presented sufficient evidence to raise a genuine dispute of material fact. See id. With
respect to the issue of whether RDG-II intended to defraud, there is ample evidence supporting
the existence of such a factual dispute.
collective twenty-five percent interest as collateral securing the purchase price of
(Pledge Agreements, Doc. # 59-1, at 74.)
But the fact that
Southern Farms initially held title to only five percent of the Country Crossing
venture does not indicate that Defendants lacked capacity to control RDG-II. The
Pledge Agreement granted Southern Farms a lien on the pledged twenty-five
percent share, clouding title to the Country Crossing Entities. A lienor’s interest,
though not commensurate with outright ownership, nonetheless places the lienor in
a position of power vis a vis the debtor.
When RDG-II memorialized the Land Purchase Agreement, it did so with
full knowledge of its own insolvency. (Taylor Affidavit, Doc. # 59-1, at 7.) It
conducted business under the spectre of foreclosure. It was surely aware that its
failure to satisfy the land purchase obligations would result in Southern Farms’
ownership of thirty percent of the venture. Perhaps this awareness colored its
response when Southern Farms demanded unscheduled payments. Perhaps, by
virtue of the looming risk of delinquency, Southern Farms and Givens did enjoy
substantial control over the operations of RDG-II.
A finder of fact could
Southern Farms eventually exercised its pledge rights, though the date on which it did
so is unclear. (Givens Deposition, Doc. # 59-10, at 8.) It is evident that Southern Farms took
ownership of a majority of the Class B membership units of RDG-II, which included voting
rights, at some time before February of 2012. (Givens Deposition, Doc. # 59-10, at 10–14.) It is
not clear from the record how Southern Farms came to possess a majority of the ownership units,
given that the potential ownership based on the Land Purchase Agreement and the Pledge
Agreements amounted to a total of only thirty percent of the Class B membership units. In his
deposition, however, Givens confirmed that Southern Farms eventually held fifty-five percent of
the Class B membership units. (Givens Deposition, Doc. # 59-10, at 14.)
reasonably conclude, based on this evidence, that Southern Farms and Givens used
their knowledge and potential ownership to exert influence such that they were in
control of RDG-II. Whether the evidence establishes this fact need not be decided.
At this point, there is no need to venture further than to determine whether the
nonmoving party has raised a genuine dispute of material fact.
Even if Southern Farms and Givens were not in complete control of RDG-II,
control is not the only means of establishing Defendants’ insider status. The list of
insiders provided in the definition section of the Alabama Fraudulent Transfer Act
is not exhaustive. See Ala. Code § 8-9A-1 (stating that the definition of insider
“includes” the enumerated examples); Earle, 307 B.R. at 291 (noting that the list is
merely illustrative). In the bankruptcy context, for example, “insider” includes
anyone “so closely related to a debtor that any deal between them will not be
considered an arm’s length transaction and will be subject to close scrutiny.”
Insider, BLACK’S LAW DICTIONARY (10th ed. 2014). Lord Abbett’s evidence is
sufficient to allow the inference that Defendants were so closely related to RDG-II
that the conveyances between them should be subject to heightened scrutiny.
Debtor was Threatened with Suit
Lord Abbett also offers evidence to show that RDG-II had been threatened
with suit before it made payments to Southern Farms. See Ala. Code § 8-9A4(b)(4).
It argues that the First Amendment to the Construction Financing
Agreement supports this contention (Doc. # 59-1, at 283).
In that amended
agreement, which related to the McGregor Loan, Southern Farms and Givens
acknowledged that construction financing was difficult to procure in light of
Governor Riley’s anti-gaming task force. (First Amendment to the Construction
Financing Agreement, Doc. # 59-1, at 285.) That this representation is evidence of
a threat to sue RDG-II is a dubious proposition. It is well established in the
evidence that Governor Riley took certain actions intended to stifle electronic
bingo activity. But neither the existence of the task force nor the difficulty of
obtaining construction financing is sufficient to establish that the state actually
threatened to take legal action against RDG-II, Gilley, or any related entity.
Even if the First Amendment to the Construction Financing Agreement does
not establish that the state actually threatened RDG-II with a lawsuit, this evidence
nevertheless speaks to the issue of RDG-II’s intent to hinder, delay, or defraud
creditors. All the circumstances under which RDG-II made the disputed payments
to Southern Farms are relevant.
See Earle, 307 B.R. at 293 n.9 (“‘[A]ctual
fraudulent intent requires a subjective evaluation of the debtor’s motive.’
Although consideration of the objective factors has a bearing ‘on whether
constructive fraudulent intent exists, . . . it is not conclusive . . .’”) (citation
omitted) (quoting In re Jeffery Bigelow Design Grp., 956 F.2d 479, 484 (4th Cir.
1992)). The fact that state law enforcement officials deemed a large portion of the
Country Crossing business to be illegal may have motivated the payments at issue,
making it more likely that RDG-II made transfers with fraudulent intent. This fact
contributes to the finding that there exists a genuine dispute of material fact with
respect to RDG-II’s intent to defraud creditors.
Payment Exceeded Value of Consideration Received
Lord Abbett further offers evidence indicating that the money paid to
Southern Farms far exceeded in value any consideration RDG-II received in return.
Taylor testified that Givens forced RDG-II to make an unscheduled payment of
$3,000,000 before releasing the Southern Farms mortgage as to the District Utility
Property. (Doc. # 59-1, at 11.) He also stated that RDG-II acquiesced in this
payment despite its understanding that the release fell within the scope of Southern
Farms’s subordination duty under the Land Purchase Agreement. (See Doc. # 591, at 11.) Because Southern Farms was required to subordinate its interest under
the original agreement, the value of its release paled in comparison to the value of
the cash payment it received. This evidence also supports a finding that there
exists a genuine dispute of material fact precluding summary judgment.
Debtor Was Insolvent at Time of Transfer
Finally, with respect to the badges of fraud under Ala. Code § 8-9A-4(b),
Lord Abbett presents evidence that RDG-II was insolvent at the time it made the
payments in question to Southern Farms. Taylor testified that RDG-II lacked
sufficient cash flow to make payments to Southern Farms under the Land Purchase
Agreement. (Taylor Aff., Doc. # 59-1, at 7.) Lord Abbett bolsters Taylor’s
testimony with RDG-II’s balance sheets (Doc. # 59-1, at 90) and Trends Report
(Doc. # 59-1, at 123). These documents reveal that RDG-II had little cash flow or
income. And as soon as RDG-II signed the Land Purchase Agreement, according
to Taylor, its liabilities greatly exceeded its assets. (Taylor Aff., Doc. # 59-1, at 8.)
This unrebutted evidence adequately supports a factual finding that RDG-II was
insolvent at the time it made the payments.
Taken together, these evidentiary submissions are sufficient to raise a
genuine dispute of material fact regarding RDG-II’s intent to defraud its creditors.
They suggest that RDG-II made transfers to an insider, that the value of the
transfers exceeded the consideration it received in exchange, and that RDG-II was
insolvent at the time it made the transfers. They also shed light on the climate of
uncertainty in which RDG-II made decisions about its financing, and on the
opportunities for manipulation thus precipitated.
Because Lord Abbett has
presented sufficient evidence to raise a genuine dispute of material fact as to RDGII’s intent to defraud creditors, summary judgment is improper.
Constructive Fraudulent Transfer
Lord Abbett’s evidentiary submissions are also sufficient to support a factual
finding that RDG-II engaged in constructive fraudulent transfer. That theory,
codified in the Alabama Fraudulent Transfer Act, provides that a creditor can state
a claim for fraudulent transfer without proving the debtor’s intent to defraud. Ala.
Code § 8-9A-5. Under § 8-9A-5(a), Lord Abbett must establish (1) that its claim
arose before the transfers were made, (2) that RDG-II made the transfers without
receiving reasonably equivalent value in exchange, and (3) that RDG-II was
insolvent at the time of the transfers or became insolvent as a result of the
transfers. Ala. Code § 8-9A-5(a). Under § 8-9A-5(b), Lord Abbett must establish
(1) that its claim arose before the transfers were made, (2) that the payments to
Southern Farms constituted transfers to an insider for an antecedent debt, (3) that
RDG-II was insolvent at the time of the transfers, and (4) that Southern Farms had
reasonable cause to believe the debtor was insolvent. Ala. Code § 8-9A-5(b).
Relief Under § 8-9A-5(a)
Lord Abbett has submitted sufficient evidence to support a claim under § 89A-5(a). The second and third elements of a claim under § 8-9A-5(a) have already
been addressed. For the reasons set out in Part IV.A.2.c, supra, Lord Abbett has
carried its burden on the issue of whether RDG-II made a transfer without
receiving reasonably equivalent value.
And for the reasons set out in Part
IV.A.2.d, supra, Lord Abbett has submitted sufficient evidence to support a
finding that RDG-II was insolvent at the time it made the transfers. Yet to be
determined is the issue of whether Lord Abbett’s claim arose before the transfers
In their Joint Reply, Defendants contend that Lord Abbett has produced “no
evidence what so every [sic]” that Lord Abbett’s claim arose before RDG-II made
the payments at issue. The statute defines “claim” broadly to include “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 . . .” § 8-9A-1(3). Though the evidence it presented is less
than overwhelming, Lord Abbett has offered adequate proof to survive this motion
for summary judgment.
The record does not reveal the exact date on which Lord Abbett became
“holder” of the bonds. The Houston County Commission authorized the bonds by
a resolution dated July 13, 2009. (Doc. # 59-2, at 98.) The Circuit Court of
Houston County then validated the bonds by an order dated October 1, 2009.
(Doc. # 59-2, at 183.) On November 1, 2009, the Districts actually sold the bonds
to the Indenture Trustee. (Trust Indenture, Doc. # 59-2, at 6.) Lord Abbett stated
in its answers to interrogatories propounded by Defendants that it purchased the
first series of bonds “following” the bond validation order. (Answers to Interrogs.,
Doc. # 52-14, at 3.) In addition, Craig Wrathell confirmed that Lord Abbett is the
holder of the bonds. (Craig Wrathell Dec., Doc. # 59-2, at 3.) There is no doubt
that a bondholder is entitled to the proceeds from the assessments and fees after
validation, and thus has a claim within the meaning of the Alabama Fraudulent
Transfer Act. See Ala. Code § 11-81-224.
Based on the evidence presented, one could reasonably conclude that Lord
Abbett, as a bondholder, has a valid claim for unpaid bond obligations. One may
also reasonably conclude from the record that Lord Abbett’s claim on the bond
obligations at issue arose on November 1, 2009.12 Southern Farms and Givens, the
moving parties with the Rule 56 burden, cite no evidence to undermine this
The evidentiary submissions establish with greater clarity the dates on which
the payments at issue took place.
Three payments clearly occurred prior to
November 1, 2009. RDG-II made the $300,000 payment on January 26, 2009
(Balance Sheets, Doc. # 59-1, at 92), the $200,000 payment on February 25, 2009
Lord Abbett presumably knows with certainty the date upon which it purchased the
first series of bonds. It may be able to show, based on evidence to that effect, and in light of the
controlling legal principles, that its claim arose on some date earlier than November 1, 2009. For
purposes of this summary judgment motion, and viewing the evidence in the light most favorable
to Lord Abbett, the line must be drawn at November 1, 2009. This is the date upon which the
Cooperative District actually agreed to issue bonds to the Indenture Trustee. And without more
evidence or briefing on the issue, it cannot be concluded that Lord Abbett’s right to payment
arose any sooner.
In fact, Defendants only make reference to one piece of evidence in support of their
motion for summary judgment on the issue of fraudulent transfer. They cite the Southern Farms
Affidavit, which states, in conclusory fashion, that payments made to Southern Farms were
pursuant to the land purchase agreements, that all payments were part of an arm’s length
transaction between RDG-II and Southern Farms, and that Southern Farms was not an insider of
RDG-II. (Doc. # 50-1, at 4–5.) None of these averments rebuts the evidence suggesting that
Lord Abbett’s claim arose on November 1, 2009.
(Balance Sheets, Doc. # 59-1, at 92), and the $1,180,000 payment on August 19,
2009 (Balance Sheets, Doc. # 59-1, at 98).
The other two payments, however, took place after November 1, 2009. In
his response to interrogatories propounded by Lord Abbett, Givens confirmed that
Southern Farms received a $2,235,238.07 payment from RDG-II in November of
2009. (Answers to Interrogatories, Doc. # 59-5, at 4.) This amount correlates with
the amount of the loan RDG-II received from Specialized Services, which allowed
RDG-II to make a $3,000,000 payment under the amended mortgage agreement.
(Specialized Services Promissory Note, Doc. # 59-12, at 5.) The record reveals
that RDG-II did not execute the promissory note related to this loan until
November 23, 2009. (Specialized Services Promissory Note, Doc. # 59-12, at 5.)
RDG-II made another payment to Southern Farms in the amount of $855,714 on
December 8, 2009. (Balance Sheets, Doc. # 59-1, at 102.)
Viewing all the evidence in the light most favorable to Lord Abbett, Lord
Abbett has submitted sufficient evidence to raise a genuine dispute of material fact
regarding whether the claim arose before RDG-II made payments to Southern
Farms. The evidence is sufficient to allow a factual finding that the claim arose on
November 1, 2009. The evidence is further sufficient to allow a finding that RDGII made three payments to Southern Farms after that date. Accordingly, as it
relates to a claim for relief under § 8-9A-5(a), the motions for summary judgment
are due to be denied.
Relief Under § 8-9A-5(b)
To previal under § 8-9A-5(b), Lord Abbett must show that its claim arose
before RDG-II made the transfer, that the transfer was to an insider, that the
transfer was for an antecedent debt, that the debtor was insolvent at the time, and
that the transferee has reason to believe the debtor was insolvent at the time of the
transfer. As explained in Part IV.A.3.a, supra, Lord Abbett has successfully raised
a factual dispute as to whether its claim arose before RDG-II made the transfers.
For the reasons stated in Part IV.A.2.a, supra, Lord Abbett has presented sufficient
evidence on the issue of whether RDG-II made the transfers to an insider. As set
forth in Part IV.A.2.d, supra, Lord Abbett’s evidence is adequate to raise a genuine
issue of material fact regarding RDG-II’s insolvency. The remaining issues are
whether the transfer was for an antecedent debt, and whether the transferee had
reason to believe the debtor was insolvent at the time of the transfer.
As to the antecedent nature of the debt, it is clear from the record that RDGII made monetary transfers to Southern Farms in satisfaction of the pre-existing
land purchase obligation. (See Principal Reduction Agreement, Doc. # 59-1, at
261; Amended and Restated Promissory Note and Security Agreement, Doc. # 591, at 293; Taylor Affidavit, Doc. # 59-1, at 11.) There is also evidence in the
record sufficient to raise an issue of fact as to whether Southern Farms and Givens
were aware of RDG-II’s insolvency. Though Givens stated at his deposition that
he was unaware of RDG-II’s cash flow issues (Givens Deposition, Doc. # 59-10, at
6), Taylor testified that he informed Givens of these issues (Taylor Affidavit, Doc.
# 59-1, at 7). This conflicting testimony evidences a material dispute of fact as to
this element of a § 5-9A-5(b) claim. Accordingly, as the motions for summary
judgment relate to a claim for relief under § 8-9A-5(b), they are due to be denied.
Southern Farms and Givens emphasize that the transfers giving rise to this
controversy were “pursuant to the arm’s length transaction” between RDG-II and
Southern Farms. (Doc. # 51, at 10; Doc. # 60, at 10.) Lord Abbett generously
suggests that these arguments could be construed as an assertion of affirmative
defenses to a fraudulent transfer action. (Doc. # 59, at 23.)
For the following
reasons, however, Defendants are not entitled to summary judgment based on
either of the two potential affirmative defenses.
First, Southern Farms and Givens are not entitled to summary judgment on
the basis of the “good faith” defense. That defense, which appears in the Alabama
Fraudulent Transfer Act, provides that a transfer is not voidable under § 8-9A-4(a)
against a transferee who took the asset in good faith and for a reasonably
equivalent value. Ala. Code § 8-9A-8(a). Courts construing similar good faith
defenses under state and federal laws have concluded that the transferee’s
knowledge of the debtor’s insolvency or dire financial circumstances precludes a
finding of good faith. See In re Evergreen Sec., Ltd., 319 B.R. 245, 255 (Bankr.
M.D. Fla. 2003); In re Sherman, 67 F.3d 1348, 1355 (8th Cir. 1995). Lord Abbett
has submitted sufficient evidence to raise an issue of fact regarding Defendants’
knowledge of RDG-II’s insolvency.
See Part IV.A.3.b, supra.
It also has
demonstrated the existence of a genuine dispute of material fact as to whether
RDG-II received reasonably equivalent value in exchange for the payments. See
Part IV.A.3.c, supra. Accordingly, the good faith defense fails.
Second, Defendants are not entitled to summary judgment on the basis of the
“ordinary course of business” defense. This defense, also codified in the Alabama
Fraudulent Transfer Act, provides that a transfer is not voidable under § 8-9A-5(b)
if it was made in the ordinary course of business of the debtor and the insider. Ala.
Code § 8-9A-8(f)(2).
Lord Abbett’s evidence suggests that several of the
payments made to Southern Farms were not contemplated under the terms of their
original agreements. See generally Part III.A.3, supra. The ordinary course of
business defense thus provides no relief.
Piercing the Corporate Veil
Southern Farms and Givens also seek summary judgment with respect to
Count One of Lord Abbett’s Amended Complaint (Doc. # 65). In that Count, Lord
Abbett seeks relief “pierc[ing] the corporate veil and declar[ing] Southern Farms to
be the alter ego of Givens.” (Doc. # 33, at ¶ 74). For the following reasons,
Southern Farms and Givens are not entitled to summary judgment on Count One.
Remedial Nature of a Claim for Piercing the Corporate Veil
As a preliminary matter, piercing the corporate veil is merely a procedural
device. A claim seeking this form of relief, as Southern Farms and Givens point
out in their respective motions,14 is not in itself a claim for substantive relief.
Rather, a finding in support of piercing the corporate veil allows the claimant to
impose liability on an individual or parent corporation for underlying causes of
action brought against the defendant corporation. Ryals v. Lathan Co., 77 So. 3d
1175, 1179 (Ala. 2011) (citing 1 Fletcher, Cyclopedia Corporations § 41.10
(1990)). Despite the remedial nature of the claim, it is nonetheless proper to
consider its propriety at the summary judgment phase of the proceedings. See
Johnston v. Green Mountain, Inc., 623 So. 2d 1116, 1121 (Ala. 1993) (affirming
an order granting summary judgment on a claim for piercing the corporate veil).
Elements of an Alter Ego Claim
Lord Abbett proceeds under the theory that Southern Farms is the alter ego
of Givens. To prevail on such a claim, Lord Abbett must show (1) that Givens had
Curiously, Southern Farms argues that it is entitled to summary judgment as to Count
One of Lord Abbett’s Second Amended Complaint. In fact, Southern Farms did the lion’s share
of the briefing with respect to Count One. As the corporate defendant, Southern Farms faces
potential liability on the underlying claim regardless of the court’s resolution of the alter ego
issue. Only Givens stands to gain from an order granting summary judgment as to Count One.
complete control and domination over Southern Farms, (2) that Givens misused
that control, and (3) that the misuse caused harm to Lord Abbett. See Messick v.
Moring, 514 So. 2d 892, 894 (Ala. 1987).
Control and Domination
With respect to the first element of this alter ego claim, it is clear that Givens
is the exclusive shareholder and the sole officer of Southern Farms. (Answers to
Interrogs., Doc. # 59-5, at 4.) Southern Farms and Givens do not dispute Givens’s
complete control and domination of the corporation. They focus instead on the
remaining elements, arguing that Givens did not misuse that control and that any
misuse did not cause harm to Lord Abbett.
Southern Farms and Givens argue that the undisputed evidence shows that
Givens did not misuse the corporate form. Though fraud or violation of some
positive legal duty constitutes misuse, the claimant need not always prove that
conduct to make out its alter ego claim. Messick, 514 So. 2d at 895. Alabama law
allows a court to presume misuse of control where necessary to prevent injustice or
unfairness. Id. Southern Farms and Givens rely on the affidavit of Southern
Farms (Doc. # 50-1), wherein Givens served as the affiant on behalf of the
The evidence they cite in support of their motion is Givens’s
conclusory assertion that Southern Farms “remained free from any misuse by its
President and principal shareholder.” (Doc. # 51, at 9 (citing Doc. # 50-1, at 4).)
They close their arguments with the similarly conclusory assertion that “there is no
evidence to contradict the affidavit testimony of Southern Farms.” (Doc. # 51, at
Lord Abbett responds with four examples of evidence purportedly
contradicting the affidavit testimony of Southern Farms.
First, Lord Abbett offers evidence suggesting that Givens misused the
corporate form by effecting payments to Southern Farms that were unfair to other
Taylor stated that Givens, while knowing of RDG-II’s insolvency,
obtained RDG-II share pledges upon the representation that he would protect
Gilley from other creditors. (Taylor Aff., Doc. # 59-1, at 7–8.) Givens, in his
deposition, denies that he made such a representation. (Givens Deposition, Doc. #
59-10, at 6-7.) Even if such a representation does not rise to the level of fraudulent
or illegal conduct on the part of Givens, it suggests that Givens used Southern
Farms to effect transactions that were unfair to other creditors. See Heisz v. Galt
Indus., Inc., 93 So. 2d 918, 931 (Ala. 2012) (recognizing the propriety of piercing
the corporate veil in light of evidence that transactions in question were unfair);
Ala. Corp. Law § 8:4 (4th ed.) (“Alabama cases embrace the fraud principle, even
extending it to include various degrees of unfairness, where such is deemed
subversive of the ends of justice.”). The conflicting testimony of Taylor and
Givens evidences a genuine dispute of material fact regarding Givens’s misuse of
the corporate form.
Second, Lord Abbett offers evidence of alleged fraudulent transfers of funds
between RDG-II and Southern Farms. As set forth in Part IV.A, supra, Lord
Abbett has come forth with substantial evidence supporting a fraudulent transfer
claim. Measured against the conclusory affidavit testimony offered by Southern
Farms and Givens regarding misuse of the corporate form, this evidence is
sufficient to raise a genuine dispute of material fact regarding the misuse element
of an alter ego claim.
Third, Lord Abbett contends that Givens misused the corporate form by
taking advantage of share-pledge rights to effectuate transfers of funds from RDGII to Southern Farms. By exercising its share-pledge rights, Southern Farms took
ownership of the majority of the Class B membership units. (Givens Deposition,
Doc. # 59-10, at 9.) This ownership allowed Givens, as sole shareholder and
officer of Southern Farms, to appoint his son to the RDG-II Board of Managers.
(Givens Deposition, Doc. # 59-10, at 15.) It also allowed Givens, around February
of 2012, to take a position as chairman of the RDG-II’s board of managers. (See
Givens Deposition, Doc. # 59-10, at 199.) Givens held that position for the
majority of the pendency of RDG-II’s bankruptcy petition. (Givens Deposition,
Doc. # 59-10, at 199.) In connection with those bankruptcy proceedings, RDG-II
made $200,000 in adequate protection payments to Southern Farms. (Doc. # 5911, at 5.) These circumstances at least allow the inference that Givens misused his
position to effectuate transfers that ultimately benefitted him as sole shareholder.
Fourth, Lord Abbett argues that Givens failed to observe the corporate form
by signing agreements individually with the expectation that Southern Farms
would be a party to the agreement. According to Lord Abbett, the fact that the sole
shareholder individually executes agreements on behalf of the corporation is
sufficient to preclude summary judgment on the issue of piercing the corporate
veil. Lord Abbett attributes this proposition to Ex parte AmSouth Bank of America,
669 So. 2d 154, 157-158 (Ala. 1995). In support of its argument, Lord Abbett
offers the Principal Reduction Agreement between Ronnie Gilley Properties, LLC,
RDG-II, Givens, and Southern Farms. (Principal Reduction Agreement, Doc. #
59-1, at 262.)
Lord Abbett contends that Givens signed this agreement
individually, yet expected Southern Farms to be a party. The signature lines of the
document belie this assertion, as Givens plainly signed the agreement both on
behalf of Southern Farms in his capacity as its president and in his individual
capacity. (Principal Reduction Agreement, Doc. # 59-1, at 262.) The fact that
both Givens and Southern Farms were parties to this agreement does not, without
more, indicate a disregard for corporate formalities.
Though the fourth argument regarding misuse is not particularly persuasive,
the first three are well taken. The evidence Lord Abbett has submitted is sufficient
to raise a genuine dispute of material fact regarding Givens’s alleged misuse of the
Lord Abbett offers several pieces of evidence supporting the contention that
it suffered harm as a result of Givens’s misuse of the corporate form. First, Taylor
averred that RDG-II’s transfers to Southern Farms, the potentially fraudulent
nature of which is well supported by the evidence, came at the expense of other
creditors. (Taylor Aff., Doc. # 59-1, at 10.) Because RDG-II devoted so much of
its cash assets to making payments to Southern Farms, and because the business
ultimately failed, RDG-II was unable to pay the assessments. These assessment
proceeds would have benefitted Lord Abbett in its position as bondholder. (See
Declaration of Craig Wrathell, Doc. # 59-2, at 3–4.) Ultimately, the obligations
owing to Lord Abbett remain outstanding in the amount of $29,060,000. (Proof of
Claim, Doc. # 59-7, at 2.) Viewing the evidence in the light most favorable to
Lord Abbett, the nonmoving party, it is clear there is a genuine dispute of material
fact with respect to whether Givens’s alleged misuse of the corporate form caused
harm to Lord Abbett.
Lord Abbett presented sufficient evidence to raise genuine dispute of
material fact regarding the alter ego theory of piercing the corporate veil.
Specifically, it raised sufficient evidence from which the finder of fact could
conclude that Givens exercised complete control over Southern Farms, that he
misused that control, and that his misuse caused harm to Lord Abbett. This
conclusion follows from the general principle that the question of whether the
corporate form should be disregarded is a heavily fact-dependent inquiry to be
determined on a case-by-case basis. See Hill v. Fairfield Nursing & Rehab. Ctr.,
LLC, 134 So. 3d 396, 411 (Ala. 2013); Shelton v. Clements, 834 So. 2d 775, 792
(Ala. Civ. App. 2002) (“Whether a party is an alter ego of his corporation is a
question of fact to be resolved by the fact-finder.”) (citing Woods v. Commercial
Contractors, Inc., 384 So. 2d 1076, 1072 (Ala. 1980)). As to Count One of the
Second Amended Complaint, Defendants’ motions for summary judgment are due
to be denied.
Accordingly, it is ORDERED that Defendants’ motions for summary
judgment (Docs. # 50 and 52) are DENIED.
DONE this 28th day of December, 2015.
/s/ W. Keith Watkins
CHIEF UNITED STATES DISTRICT JUDGE
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