Bartlett et al v. Preston et al
MEMORANDUM OPINION. Signed by Judge Madeline Hughes Haikala on 9/29/2015. (KEK)
2015 Sep-29 AM 08:48
U.S. DISTRICT COURT
N.D. OF ALABAMA
UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ALABAMA
JOHN W. BARTLETT, et al.,
DENNIS PRESTON, et al.,
Case No.: 1:10-cv-01620-MHH
This is the final chapter in a prolonged business dispute among friends. This
opinion disposes of a fraudulent transfer claim against the estate of Jack Norton.1
For the reasons stated below, the Court enters judgment in favor of the estate.
PROCEDURAL BACKGROUND AND RELEVANT FACTS
For a number of years, John and Barbara Bartlett have been working to
recover the $400,000 that they invested in a propane gas business that the Bartletts’
friends, Dennis and Joan Preston, owned and operated. Toward that end, the
Bartletts filed this lawsuit. Responding to a motion for summary judgment, the
Court held that the Bartletts and the Prestons never formalized their business
relationship with an enforceable contract, but the Bartletts were entitled to recover
Mr. Norton died on November 1, 2014. (Doc. 171). On April 16, 2015, the Court substituted
Janie Sue Norton, as the personal representative of the Estate of Jackson Enoch Norton, as a
party defendant in place of defendant Jackson Norton. (Doc. 190).
some of their investment via their equitable claim for money had and received.
(See Docs. 135, 136). Before the Court scheduled a hearing to determine the
amount that the Bartletts were entitled to recover under their equitable claim, the
Barletts and DAAK, Inc., the corporation through which the Prestons operated
their propane business, filed a joint motion for entry of a $400,000.00 consent
(Docs. 158, 158-1).2
On September 2, 2014, pursuant to a joint
stipulation and general release, the Court entered judgment in the amount of
$400,000.00 against DAAK, Inc. on the Bartletts’ claim for money had and
received. The Court dismissed with prejudice all claims against DAAK, Inc. d/b/a
D&S Propane. (Doc. 160).
Obtaining the judgment was one thing; collecting the judgment was another.
DAAK and its predecessor corporation, D&S Propane, Inc., were largely without
assets or income. Through a series of negotiations, the Bartletts received from
DAAK the assets of the corporation that had some value. (Doc. 158-1, pp. 2-3). In
addition, the Bartletts pursued fraudulent transfer claims against a number of the
Prestons’ relatives. This opinion concerns one of those fraudulent transfer claims.
The record demonstrates that over time, the Prestons mingled D&S and
DAAK’s assets with their personal assets. The Prestons continued to blur the line
Had the Court held a hearing on damages on the Bartletts’ claim for money had and received,
the Bartletts would not have recovered their entire $400,000 investment because it is undisputed
that the Prestons used some of the Bartletts’ investment in the propane business for legitimate
between business and personal funds after the Bartletts invested their $400,000 in
the Prestons’ propane business. Although the Prestons used some of the Bartletts’
funds to pay for legitimate business expenses, the Prestons also used some of the
Bartletts’ money to retire personal debt and satisfy loans for various members of
the Prestons’ family. Through negotiations to resolve the Bartletts’ fraudulent
transfer claims against these family members, the Bartletts recovered more than
Jack Norton is the one member of the Prestons’ extended family who
refused to negotiate with the Bartletts. He denied the Bartletts’ fraudulent transfer
claim and asked the Court to set that claim for hearing. The Bartletts’ claim
against Mr. Norton pertains to $25,000 that Dennis Preston paid to Mr. Norton to
retire a $25,000 loan that Mr. Norton made to D&S. Following Mr. Norton’s
death, the Court held a bench trial on the Bartletts’ fraudulent transfer claim
against Mr. Norton.4 Counsel for the Bartletts and Mr. Norton’s estate stipulated to
On December 29, 2014, the Court ordered Joan Preston to release, assign, and transfer a
$52,000 annuity contract to the Bartletts. (Doc. 174). On February 24, 2015, consistent with a
joint motion, the Court entered judgment in the amount of $8,871.75 in favor of the Bartletts on
their fraudulent transfer claims against Scotty Preston, and the Court dismissed those claims with
prejudice. (Doc. 179). On March 19, 2015, with Malisa Dunson’s consent, the Court entered
judgment in the amount of $3,245.16 in favor of the Bartletts on their fraudulent transfer claims
against Ms. Dunson, and the Court dismissed those claims with prejudice. (Docs. 181, 185).
The Bartletts settled their fraudulent transfer claim against Brenda Preston for $5,252.83, and the
Court dismissed that claim with prejudice on June 23, 2015. (Docs. 203, 204).
A court reporter was present at the May 19, 2015 bench trial. A transcript of the proceeding is
available upon request. The Court cites to the transcript as Tr. followed by the page number.
entry of a number of exhibits and agreed that the Court could resolve the Bartletts’
claim against Mr. Norton’s estate based on those exhibits and the parties’ legal
The record demonstrates that in November 2005, Mr. Norton loaned D&S
Propane, Inc. $25,000. (Doc. 93-1, p. 12). D&S Propane used the money to buy
100 propane tanks for the propane business. (Doc. 93-1, p. 12). In November
2005, Mr. Norton and D&S Propane, Inc. prepared but did not sign a written
agreement memorializing the terms of the $25,000 loan. (Doc. 93-1, p. 12; Def.
Ex. 1).5 The Prestons did not keep up with the principal payments described in the
unsigned promissory note; however, the Prestons made monthly interest payments
on the loan until 2009, and Mr. Preston repaid the principal balance of the loan in
October 2009. (Doc. 93-1, pp. 13-14; Def. Ex. 2; Def. Ex. 3). Mr. Preston repaid
the $25,000 loan in cash. (Doc. 93-1, p. 13).
On this record, the Court evaluates the Bartletts’ fraudulent transfer claim
against Mr. Norton’s estate.
The Alabama Fraudulent Transfer Act governs the Bartletts’ claim against
Mr. Norton’s estate. The Act provides four statutory grounds for recovery of
fraudulently transferred assets: Alabama Code §§ 8-9A-4(a), 8-9A-4(c), 8-9A5
The Court cites to the parties’ exhibits from the May 19, 2015 bench trial as Pl. Ex. and Def.
Ex. followed by the exhibit number.
5(a), and 8-9A-5(b). Section 8-9A-4(a) provides: “A transfer made by a debtor is
fraudulent as to a creditor, whether the creditor’s claim arose before or after the
transfer was made, if the debtor made the transfer with actual intent to hinder,
delay, or defraud any creditor of the debtor.” Ala. Code § 8-9A-4(a). Section 89A-8(a) adds: “A transfer is not voidable under Section 8-9A-4(a) against a person
who took in good faith and for a reasonably equivalent value or against any
subsequent transferee or obligee who took in good faith.” Ala. Code § 8-9A-4(a).
Section 8-9A-4(c) provides:
A transfer made by a debtor is fraudulent as to a creditor, whether the
creditor’s claim arose before or after the transfer was made, if the
debtor made the transfer without receiving a reasonably equivalent
value in exchange for the transfer and the debtor:
(1) Was engaged or was about to engage in a business or a transaction
for which the remaining assets of the debtor were unreasonably small
in relation to the business or transaction; or
(2) Intended to incur, or believed or reasonably should have believed
that he or she would incur, debts beyond his or her ability to pay as
they became due.
Ala. Code § 8-9A-4(c). Section 8-9A-5(a) provides:
A transfer made by a debtor is fraudulent as to a creditor whose claim
arose before the transfer was made if the debtor made the transfer
without receiving a reasonably equivalent value in exchange for the
transfer and the debtor was insolvent at that time or the debtor became
insolvent as a result of the transfer.
Ala. Code § 8-9A-5(a). Finally, Section 8-9A-5(b) provides:
A transfer made by a debtor is fraudulent as to a creditor whose claim
arose before the transfer was made if the transfer was made to an
insider for an antecedent debt and the debtor was insolvent at that time
and the insider had reasonable cause to believe that the debtor was
Ala. Code § 8-9A-5(b).
The Bartletts concede that they cannot recover under Sections 8-9A-4(a), 89A-4(c), or 8-9A-5(a) if Mr. Norton provided reasonably equivalent value in
exchange for the $25,000 that Mr. Preston paid Mr. Norton. (Tr. pp. 51-52). The
Bartletts also concede that they cannot recover under Section 8-9A-5(b) if Mr.
Norton did not have reasonable cause to believe that D&S Propane was insolvent
when Mr. Preston repaid the $25,000. (Tr. pp. 51-52). Therefore, the Court turns
its attention to these issues.
Alabama Code §§ 8-9A-4(a), 8-9A-4(c), 8-9A-5(a) – Reasonably
The Bartletts cannot recover from the Norton estate under Sections 8-9A4(a), 8-9A-4(c), or 8-9A-5(a) because the record establishes that Mr. Norton
provided reasonably equivalent value in exchange for the $25,000 that Mr. Preston
transferred in October 2009.6 The Bartletts acknowledge that Mr. Norton loaned
D&S $25,000, but they argue that because Mr. Preston repaid the loan using funds
Under the Alabama Fraudulent Transfer Act, “[v]alue is given for a transfer if, in exchange for
the transfer, property is transferred or an antecedent debt is secured or satisfied. . . .” Ala. Code
from his personal account, a fact that is not disputed, the $25,000 payment from
Mr. Preston to Mr. Norton cannot be linked to Mr. Norton’s $25,000 loan to D&S.
(See Doc. 93-1, pp. 13, 16, 24). The Court is not persuaded.
The record demonstrates that for all intents and purposes, D&S was DAAK;
DAAK was D&S; and the Prestons were the alter-ego of both corporations.
Admittedly, DAAK, Inc. and D&S Propane, Inc. are two distinct legal entities
pursuant to documents of incorporation on file with the Alabama Secretary of
State. (Tr. 35; Def. Ex. 15 and 16). But the Prestons operated the two corporations
interchangeably and subscribed to no corporate formalities with respect to either
company. (Tr. p. 39). The Prestons sometimes deposited company money into
their personal accounts, sometimes paid for personal expenses out of business
accounts, and sometimes paid business expenses from their personal accounts.
(Doc. 93-1, pp. 13, 16, 24; Pl. Ex. 1).
There is no better evidence of these blurred lines than the circumstances
surrounding the Bartletts’ investment in the Prestons’ propane business.
Bartletts issued five checks totaling $400,000 between March 2009 and August
2009. (Doc. 93-6, pp. 2-6). Dennis Preston is the payee on four of the checks; one
check names “D&S Propane” as the payee. (Doc. 93-6, pp. 2-6). Dennis Preston
provided hand-written receipts for the payments. (Doc. 93-6, p. 7). Two of the
receipts state that the payment is for “½ of D&S Propane.” Another states that the
payment is for “½ of propane business.” (Doc. 93-6, p. 7). The Prestons deposited
the Bartletts’ first, third, fourth, and fifth checks into their joint personal checking
account. (Doc. 93-1, pp. 16, 33; Doc. 93-4, p. 2-3; Pl. Ex. 1). The Prestons
deposited the Bartletts’ second check into a DAAK business account. (Doc. 93-4,
p. 2; Pl. Ex. 1).
Thus, the record demonstrates that everyone involved in these business
transactions among friends and family, including the Bartletts, made no distinction
between the Prestons’ personal and business accounts. The Court will not demand
corporate formalities of parties who failed to recognize or follow those formalities
themselves, particularly when the genesis of this attempted recovery is a judgment
based on the equitable theory of money had and received.7 Despite the muddy
waters resulting from the Prestons’ failure to keep their personal and business
funds separated, the record reflects that Mr. Norton provided reasonably equivalent
value in exchange for the $25,000 that Mr. Preston transferred in October 2009.
The record also demonstrates that the Prestons used the money borrowed from Mr.
Significantly, the Bartletts made no effort to protect their interests. Ignoring the requirements
of due diligence, the Bartletts did not ask to review D&S’s books before they invested in the
company. The Bartletts did not demand a written contract before investing in the Prestons’
propane business. (Doc. 101-1, pp. 8-10). Mr. Bartlett made no attempt to understand stock
ownership or any other essential aspect of the business in which he invested before he agreed to
partner with the Prestons. (Doc. 101-1, p. 14).
Norton to buy propane tanks. (Doc. 93-1, p. 12). This was not an inside family
deal; it was not a fraudulent conveyance.8
Alabama Code § 8-9A-5(b) – Knowledge of Insolvency
The Bartletts cannot recover from the Norton estate under section 8-9A-5(b)
because they have not demonstrated that Mr. Norton knew that D&S Propane was
insolvent when Mr. Preston repaid the $25,000 loan.
It is undisputed that
DAAK/D&S and the Prestons had debts greater than all of their assets at fair
valuation when Mr. Preston repaid the loan in October 2009, (Doc. 93-3, p. 5; Pl.
Ex. 20); but the Bartletts have not demonstrated that Mr. Norton was aware of that
In support of their attempt to recover under section 8-9A-5(b), the Bartletts
argue that Mr. Norton should have known that DAAK/D&S was insolvent because
neither D&S nor the Prestons made a principal payment on the $25,000 loan until
Mr. Preston repaid the entire $25,000 in October 2009, and the Prestons stopped
making interest payments in July of 2009. (Tr. pp. 53-54). It is too much of a
stretch to infer from this evidence that Mr. Norton knew or reasonably should have
The Bartletts contend that because no one signed the November 2005 promissory note on
D&S’s behalf, the debt evidenced by the note is invalid under the statute of frauds and, therefore,
cannot serve as a legitimate antecedent debt. (Tr. p. 39). Again, the Court is not persuaded. The
Prestons ratified the debt by making monthly interest payments on the loan, and Mr. Norton
accepted those payments. The Prestons and Mr. Norton treated the loan as a legitimate, legal
obligation. Given the equitable considerations at play in this action, strict application of the
statue of frauds is inappropriate.
known that the Prestons and/or DAAK/D&S was insolvent in October 2009. And
such an inference is contradicted by evidence that indicates that Mr. Norton had no
facts, documents, or communications relating to the financial condition of D&S,
DAAK, or the Prestons. (Pl. Ex. 6, p. 8). Before his death, Mr. Norton explained
in response to the Bartletts’ discovery requests that Mr. Preston gave no
explanation for why Mr. Preston wanted to repay the $25,000 in October 2009.
(Pl. Ex. 6, p. 7). On this record, the Court cannot conclude that Mr. Norton had
reasonable cause to believe that D&S, DAAK, or the Prestons were insolvent in
Had the Court been tasked with determining the amount of money that the
Bartletts could recover under their equitable claim for money had and received, the
Court would consider evidence that indicates that the Prestons spent at least
$140,000 (and possibly as much as $250,000) of the Bartletts’ $400,000 on
legitimate business expenses. (See Doc. 135, pp. 10-14; Pl. Ex. 1). The Court also
would consider the fact that the Bartletts have recovered more than $69,000 from
the Prestons’ relatives. The Court would receive evidence about the value of the
DAAK/D&S assets that have been transferred to the Bartletts (e.g., propane tanks,
D&S’s customer list, and the good will associated with the propane business) and
the consideration that the Bartletts received for transferring half of their interest in
DAAK/D&S to a third party.9 The Court also would examine the amount of
money that the Prestons reasonably could have taken from the propane business as
salary for running the business. Although there is no need for the Court to evaluate
these issues before closing the case, the Court observes that the interests of equity
have been served in this case.
For the reasons discussed above, the Court finds that the Bartletts may not
recover the $25,000 that Mr. Preston paid to Mr. Norton to satisfy a legitimate
business loan. The Court enters judgment in favor of the Norton estate on the
Bartletts’ fraudulent transfer claim against Mr. Norton. The Court will enter a
separate order dismissing this claim with prejudice and directing the Clerk to
please close this file.
DONE and ORDERED this September 29, 2015.
MADELINE HUGHES HAIKALA
UNITED STATES DISTRICT JUDGE
The Bartletts’ attorney has represented that the Bartletts received no money for transferring half
of their interest in the propane business, but the Court has not heard testimony or received
evidence on this issue.
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