Topic Judkins Alabama Punitive Damages Voidable Transactions And Fraudulent Transfers

 

Adkisson's

VOIDABLE TRANSACTIONS & FRAUDULENT TRANSFERS

 

 

2020 - Judkins - Alabama

 

 

 

SE Property Holdings, LLC v. Judkins, 822 Fed.Appx. 929 (11th Cir. July 27, 2020).

 

This case was not selected for publication in West’s Federal Reporter.

 

See Fed. Rule of Appellate Procedure 32.1 generally governing citation of judicial decisions issued on or after Jan. 1, 2007. See also U.S. Ct. of App. 11th Cir. Rule 36-2.

 

United States Court of Appeals, Eleventh Circuit.

 

SE PROPERTY HOLDINGS, LLC, Plaintiff-Appellee,

 

v.

 

Russell G. JUDKINS and Highway 59, LLC, Defendants-Appellants.

 

No. 18-15059

 

Non-Argument Calendar

 

(July 27, 2020)

 

Attorneys and Law Firms

 

Richard M. Gaal, J. Stephen Harvey, James Blair Newman, Jr., McDowell Knight Roedder & Sledge, LLC, MOBILE, AL, Gilbert Larose Fontenot, Maples & Fontenot, LLP, Mobile, AL, for Plaintiff - Appellee

 

James Willis Garrett, III, Robert M. Galloway, Galloway Wettermark & Rutens, LLP, Mobile, AL, for Defendants - Appellants

 

Appeal from the United States District Court for the Southern District of Alabama, D.C. Docket No. 1:17-cv-00413-TFM-B

 

Before WILSON, BRANCH, and HULL, Circuit Judges.

 

Opinion

 

PER CURIAM:

 

*1 Faced with a struggling construction business and past-due payments on millions of dollars of personal loans, Russell G. Judkins (“Judkins”) transferred various assets to himself and his wife, Linda Judkins (“Mrs. Judkins”), as “tenants by the entirety,” or, alternatively, to Florida limited liability companies that Judkins and Mrs. Judkins owned (in whole or in part) as tenants by the entirety. In effect, these transfers made property that was previously reachable by Judkins’s creditors now unreachable. Soon after making these transfers, Judkins defaulted on his bank loans—totaling between $15 and $18 million—that he had either borrowed himself or personally guaranteed.

 

SE Property Holdings (“SEPH”), one of Judkins’s creditors, attacked Judkins’s transfer of his 50 percent interest in real property to Highway 59, LLC (“Highway 59”) as fraudulent in violation of the Alabama Uniform Fraudulent Transfer Act (“AUFTA”). Ala. Code. § 8-9A-4(a). The district court found Judkins and Highway 59 violated AUFTA, ordered Highway 59 to transfer the real property to SEPH within 30 days, and entered a punitive damages award of $300,000 against both defendants. Judkins and Highway 59 appealed. On appeal, they assert the punitive damage award is unjustified and excessive.

 

We disagree. The district court did not abuse its discretion in finding that Judkins and Highway 59’s wrongful conduct justified the punitive damages award. Nor is the punitive damages award unconstitutionally excessive. Accordingly, we affirm.

 

I.

 

Rewind to 2006, when the housing market was booming. Back then, Judkins was one of three members of Coastal Construction, LLC (“Coastal), a residential real estate development company that crumbled during the 2008 recession. Coastal operated like this: Coastal would take out loans from Vision Bank—SEPH’s predecessor—and other banks to finance its construction of new beach houses in the Gulf Coast region. Coastal would then sell the new beach house, repay the loans, and distribute the profit among its three members—Judkins, Hans Van Aller, III, and Robert Harris (the “Members”). On some of those loans, the Members signed guaranties that made them jointly and severally liable for the loans. On other loans, the individual Members were the principal borrowers. All told, Judkins guaranteed or borrowed between $15 and $18 million in loans. The loans from Vision Bank alone totaled over five million dollars.

 

This arrangement worked fine until the 2008 recession hit and Coastal could not sell its beach houses. Consequently, Coastal could no longer pay its loans, and the Members were forced to pay personally the interest payments. By fall 2008, Coastal began to default on its loans. Between September 2008 and June 2010, various lenders, such as Vision, RBC Bank, Pen Air Federal Credit Union, and Trustmark sued Coastal and its guarantors, including Judkins.

 

Around June 25, 2008 (after Coastal had begun to default on the loans, but before the banks sued), Judkins met with a Florida attorney, David Hightower. According to SEPH and the district court’s findings, the purpose of this meeting was to develop a scheme to shield the entirety of Judkins’s assets from his creditors. Judkins maintains that he met with Hightower because his father-inlaw’s terminal illness prompted him to develop an estate plan. But everyone agrees on the results of this meeting: beginning on July 28, 2008 Judkins identified his unencumbered and non-exempt assets (which creditors could reach) and—with Hightower’s assistance—transferred those assets either to himself and his wife as tenants by the entirety, or to limited liability companies that Judkins and his wife owned in whole or in part. Tenancy by the entirety is a form of ownership available to married couples under Florida law whereby the property is unreachable by creditors of only one spouse. By the end of August 2008, Judkins did not own any unencumbered, non-exempt property in his own name. In effect, Judkins was legally insolvent but still held substantial assets with his wife.

 

*2 At issue here is the transfer of Judkins’s fifty percent interest in real property off Highway 59 in Gulf Shores, Alabama. Since June 1993, Judkins and his business partner, Gary Sluder (“Sluder”), each owned one-half interest in the property as tenants in common. They leased this property to Gene’s Floor Covering II, Inc.—Sluder and Judkins’s flooring business. Judkins controlled all aspects of the business and Sluder was a silent partner. On July 28, 2008, Hightower organized Highway 59, LLC, of which Judkins and Mrs. Judkins owned fifty percent as tenants by the entirety and Sluder and his wife owned fifty percent as tenants by the entirety. Judkins and Sluder then transferred both couples’ interests in the real property to the newly formed LLC. After the transfer, Judkins continued to use the property for his flooring business. At trial, a real estate appraiser testified that the value of the real property was $795,000.00. Judkins did not offer any evidence to rebut this appraisal.

 

SEPH sued Judkins and Highway 59 in the United States District Court for the Southern District of Alabama. After two days of trial, the district court issued a judgment in favor of SEPH.1 The court held that Judkins transferred his interest in the real subject property with the actual intent to hinder, delay or defraud his creditor, SEPH. The district court then turned to the proper remedy under Alabama law. First, in accordance with Alabama’s fraudulent transfer statute, the district court ordered Highway 59 to transfer the property at issue to SEPH. It further found punitive damages were appropriate because Judkins and Highway 59 “consciously or deliberately engaged in fraud, wantonness, and malice with regard to SEPH.” After weighing the factors for determining a reasonable punitive damages award, as laid out by the United States Supreme Court in BMW North America, Inc. v. Gore, 517 U.S. 559, 574, 116 S.Ct. 1589, 134 L.Ed.2d 809 (1996) and the Alabama Supreme Court in Green Oil v. Hornsby, 539 So.2d 218, 223 (Ala. 1989),2 the district court issued a punitive damages award of $300,000 against Judkins and Highway 59, jointly and severally.

 

fn1. SEPH only seeks to set aside the Highway 59 transfer, but the other transfers deserve notice. The district court found:

 

Similar to the Hwy 59 transfer, Judkins transferred his shares of Gene’s Floor Covering II, Inc., to GFC Holdings, LLC, another Florida company that was formed by Hightower on July 28, 2008. Judkins and Mrs. Judkins owned one hundred percent (100%) of GFC Holdings, LLC, as tenants by the entirety. With Hightower’s assistance, Judkins, also, transferred his and his wife’s real property directly to themselves as tenants by the entirety. Hightower, also, drafted a mortgage agreement pursuant to which Judkins and his wife as tenants by the entirety secured a purported loan to Judkins.

 

fn2. In Green Oil v. Hornsby, the Alabama Supreme Court adopted the factors that Justice Houston set forth in his concurrence in Aetna Life Ins. Co. v. Lavoie, 505 So. 2d 1050, 1062 (Ala. 1987) (Houston, J., concurring specially)). The parties and district court refer to these factors as the “Lavoie factors.”

 

II.

 

Judkins and Highway 59 appeal both the propriety of a punitive damages award, as well as the amount of the award. “After a bench trial, we review a district court’s decision to award or deny punitive damages for abuse of discretion.” Winn-Dixie Stores, Inc. v. Dolgencorp, LLC, 746 F.3d 1008, 1035 (11th Cir. 2014).3 We review the district court’s application of Alabama’s standards for punitive damages for clear error. See Johansen v. Combustion Eng’g, Inc., 170 F.3d 1320, 1334 (11th Cir. 1999) (reviewing district court’s determination of reprehensibility, which required an interpretation of state law, for clear error). Whether a punitive damages award is unconstitutionally excessive is subject to de novo review. Cooper Industries, Inc. v. Leatherman Tool Group, Inc., 532 U.S. 424, 443, 121 S.Ct. 1678, 149 L.Ed.2d 674 (2001).

 

fn3. Appellants assert that we should review the decision to award punitive damages de novo. That standard does not apply here. Instead, it applies when we review the “denial ... [of a] motion for judgment as a matter of law on the issue of punitive damages” in the context of a district court’s review of a jury’s punitive damages award. See Goldsmith v. Bagby Elevator Company, Inc., 513 F.3d 1261, 1275 (11th Cir. 2008); Myers v. Central Florida Investments, Inc., 592 F.3d 1201, 1211 (11th Cir. 2010) (reviewing jury award of punitive damages de novo).

 

III.

 

*3 Judkins and Highways 59’s appeal centers on the district court’s award of punitive damages. In addition to ordering Highway 59 to transfer the property at issue to SEPH, the district court imposed a punitive damages award against Judkins and Highway 59 pursuant to the AUFTA, which states:

 

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). To determine actual intent, the statute provides eleven factors courts may consider (the “AUFTA factors”), including but not limited to, whether the transfer was disclosed or concealed.4 See id. If the trial court finds the debtor made a fraudulent transfer, it has wide discretion in issuing a remedy: it may avoid the transfer, issue an attachment against the asset, and, “subject to the applicable principles of equity and in accordance with applicable rules of civil procedure ... [grant] [a]ny other relief the circumstances may require.” Ala. Code § 8-9A-7(a).5 And Alabama law allows punitive damages: the Alabama punitive damages statute provides, “[p]unitive damages may not be awarded in any civil action ... other than a tort action where it is proven by clear and convincing evidence that the defendant consciously or deliberately engaged in oppression, fraud, wantonness, or malice with regard to the plaintiff. Ala. Code. § 6-11-10.

 

fn4. Section 8-9A-4(b) provides:

 

(b) In determining actual intent under subsection (a), consideration may be given, among other factors, to whether:

 

(1) The transfer was to an insider; (2) The debtor retained possession or control of the property transferred after the transfer; (3) The transfer was disclosed or concealed; (4) Before the transfer was made the debtor had been sued or threatened with suit; (5) The transfer was of substantially all the debtor’s assets; (6) The debtor absconded; (7) The debtor removed or concealed assets; (8) The value of the consideration received by the debtor was reasonably equivalent to the value of the asset transferred; (9) The debtor was insolvent or became insolvent shortly after the transfer was made; (10) The transfer occurred shortly before or shortly after a substantial debt was incurred; and (11) The debtor transferred the essential assets of the business to a lienor who transferred the assets to an insider of the debtor.

 

Ala. Code § 8-9A-4(b).

 

fn5. Further, “[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.” Ala. Code § 8-9A-7(b).

 

In determining the amount of a punitive damages award, the district court followed the Supreme Court’s guidance in BMW North America, Inc., v. Gore, 517 U.S. 559, 574, 116 S.Ct. 1589, 134 L.Ed.2d 809 (1996). The factors the Supreme Court advised the courts to consider in Gore include:

 

(1) The degree of reprehensibility of the defendant’s misconduct;

 

(2) The disparity between the actual or potential harm suffered by the plaintiff and the punitive damages award; and

 

(3) The difference between the punitive damages awarded by the jury and the civil penalties authorized or imposed in comparable cases.

 

Id. at 575, 116 S.Ct. 1589. The Alabama Supreme Court has laid out several additional considerations, including whether the defendant engaged in “any concealment, or ‘cover-up,’ ” and “the financial position of the defendant.” Green Oil v. Hornsby, 539 So.2d 218, 223 (Ala. 1989).6

 

fn6. The Alabama Supreme Court’s opinion in Green Oil recommends that trial courts consider the following seven factors in setting the amount of punitive damages:

 

(1) Punitive damages should bear a reasonable relationship to the harm that is likely to occur from the defendant’s conduct as well as to the harm that actually has occurred. If the actual or likely harm is slight, the damages should be relatively small. If grievous, the damages should be much greater.

 

(2) The degree of reprehensibility of the defendant’s conduct should be considered. The duration of this conduct, the degree of the defendant’s awareness of any hazard which his conduct has caused or is likely to cause, and any concealment or “cover-up” of that hazard, and the existence and frequency of similar past conduct should all be relevant in determining this degree of reprehensibility.

 

(3) If the wrongful conduct was profitable to the defendant, the punitive damages should remove the profit and should be in excess of the profit, so that the defendant recognizes a loss.

 

(4) The financial position of the defendant would be relevant.

 

(5) All the costs of litigation should be included, so as to encourage plaintiffs to bring wrongdoers to trial.

 

(6) If criminal sanctions have been imposed on the defendant for his conduct, this should be taken into account in mitigation of the punitive damages award.

 

(7) If there have been other civil actions against the same defendant, based on the same conduct, this should be taken into account in mitigation of the punitive damages award.

 

505 So. 2d at 1062.

 

A. The Punitive Damages Award Against Judkins

 

*4 Judkins and Highway 59 raise two objections to the imposition of the punitive damages award against Judkins: that a punitive damages award is not available in this case and, even if it is available, the punitive damages award is grossly excessive. We take each in turn.

 

1. Whether an Award of Punitive Damages is Available

 

Judkins argues that he should not be held liable for punitive damages under the AUFTA because the district court erred in finding that the one of the AUFTA factors—whether the transfer was disclosed or concealed—was met. See Ala. Code. § 8-9A-4(b)(3).7 Judkins claims, contrary to the district court’s findings, that he disclosed the transfer of real property to Highway 59.8 Had Judkins disclosed the transfer to his creditor, we might be inclined to agree with him. But he did not. Judkins and Sluder recorded the deed transferring the property to Highway 59 in the Office of the Judge of Probate for Baldwin County, Alabama. Judkins claims that recording is enough to put his creditors on constructive notice of the transfer.9 But all Judkins and Sluder accomplished by recording the deed was ensure that the title to the property was protected under Alabama law. Ala. Code § 35-4-50; Ala. Code § 35-4-62. By Judkins’s logic, any time someone conveys real property in Alabama and records the deed—no matter the underlying fraud—a creditor cannot attack that transfer because the creditor is “on notice.” Such a result would kneecap fraudulent transfer statutes like the one the State of Alabama has enacted. And Judkins cites no case, in Alabama or any other jurisdiction, where a district court declined to award damages—punitive or otherwise—because the defendant had recorded the fraudulent transfer. Absent any Alabama statutes or case law instructing courts to apply the ill-fitting doctrine of constructive notice to the punitive damages analysis, we decline to rely on it here.

 

fn7. On appeal, Judkins does not challenge the district court’s findings that an additional seven of the eleven AUFTA factors were also met.

 

fn8. Judkins relies on the AUFTA and cases applying that statute to argue that his conduct was not reprehensible. That argument conflates the statutory inquiry to determine whether the transferor may be liable for fraudulent transfer and the reasonableness of the amount of punitive damages award based on the Supreme Court’s decision in Gore, 517 U.S. at 562, 116 S.Ct. 1589. AUFTA puts forward eleven factors, including whether the transfer was disclosed or concealed, for courts to employ to determine the actual intent of the transferor. Ala. Code § 8-9a-4(b). Together, these considerations are referred to as the “badges of fraud.” In Gore, the Supreme Court instructed courts to consider the “degree of reprehensibility” of the defendants’ conduct. While the inquiries may overlap, a court is not required to find the defendant concealed his conduct in order to award punitive damages.

 

fn9. Ala. Code 1975 § 35-4-90(a) provides that:

 

All conveyances of real property, deeds, mortgages, deeds of trust, or instruments in the nature of mortgages to secure any debts are inoperative and void as to purchasers for a valuable consideration, mortgagees, and judgment creditors without notice, unless the same have been recorded before the accrual of the right of such purchasers, mortgagees, or judgment creditors.

 

In the context of property ownership disputes, the Alabama Supreme Court held that although “the purpose of our recording laws is to provide a means to protect and give notice of conveyances,” the statute does not mandate recording of all conveyances. Deutsche Bank Nat’l Tr. Co. as trustee of any specific residential mortgage-backed security (RMBS) at issue v. Walker Cty., 292 So.3d 317, 326–28 (Ala. 2019). See Smith v. Arrow Transp. Co., 571 So. 2d 1003, 1006 (Ala. 1990) (“A deed that is unrecorded is good between the grantor and grantee, but is void against bona fide purchasers for value, mortgagees, and judgment creditors without notice.”)

 

*5 More to the point, the evidence supports the district court’s finding that Judkins affirmatively omitted evidence of the transfer in the personal financial statement he submitted to Vision Bank. That statement contains no mention of Highway 59, LLC. Judkins claims that this failure was merely an “honest mistake” and a “cursory glance” at the financial statement reveals a change in his property interest because it shows that his interest in “personal property” with a market value of $300,000 in 2007 was replaced with his interest in “Judkins Sluder LLC” with a market value of $300,000 in 2008. The district court did not accept his explanation. Instead, it found that the third AUFTA factor was present because

 

[T]he transfer was not disclosed to Vision Bank. Judkins’ Personal Financial Statement, which was provided to Vision Bank a few months after he transfer, did not list Hwy 59 as an asset, and Judkins admitted he misidentified the asset on this Personal Financial Statement. Further, the Personal Financial Statement did not inform Vision Bank Judkins made personal assets exempt when he transferred them to tenant by the entirety ownership, which is the type of change in financial condition of which Judkins agreed to notify Vision Bank.

 

The testimony and exhibits at trial support the district court’s finding that Judkins concealed the transfer. Therefore, the district court did not abuse its discretion in finding that Judkins was liable under the AUFTA, and therefore punitive damages were available.

 

2. Whether the Punitive Damages Award is Excessive

 

Judkins also claims the punitive damages award of $300,000 is grossly excessive. This Court has held that “punitive damages must bear a ‘reasonable relationship’ to actual damages.” Johansen v. Combustion Eng’g, Inc., 170 F.3d 1320, 1336 (11th Cir. 1999); see also Gore, 517 U.S. at 580, 116 S.Ct. 1589 (“The second and perhaps most commonly cited indicium of an unreasonable or excessive punitive damages award is its ratio to the actual harm inflicted on the plaintiff.”). Absent an award of compensatory damages, Judkins asserts, punitive damages bear no relationship to actual damages and are therefore unconstitutionally excessive.

 

But the district court did not just enter a punitive damages award against Judkins and Highway 59: it also elected to remedy the harm against SEPH by ordering Highway 59 transfer the property to SEPH by quitclaim deed.10 The transfer determines the equation we use to analyze an appropriate ratio.

 

fn10. Ala. Code § 8-9A-8(b) provides this remedy for a fraudulent transfer :“to the extent a transfer is voidable in an action by a creditor under Section 8-9A-7(a)(1), the creditor may recover ... judgment for conveyance of the asset transferred. The judgment may be entered against ... [t]he first transferee of the asset or the person for whose benefit the transfer was made.” Ala. Code. § 8-9A-8(a)(1).

 

Consistent with Gore, our case law does not impose a requirement that the punitive damages bear a relationship to compensatory damages specifically. Instead, we consider “the ratio between the actual or potential harm suffered by the plaintiff and the punitive damages award.” McGinnis v. American Home Mortgage Servicing, Inc., 901 F.3d 1282, 1288 (11th Cir. 2018); see also TXO Production Corp. v. Alliance Resources Corp., 509 U.S. 443,460, 113 S.Ct. 2711, 125 L.Ed.2d 366 (1993) (noting the ratio looks to “the harm that is likely to occur from the defendant’s conduct as well as to the harm that actually occurred.”) The appropriate ratio, therefore, is not based on a comparison of compensatory damages to the punitive damages award, but on harm likely to occur or that has actually occurred. Suppose Highway 59 had sold the property at issue and the district court elected to award SEPH compensatory damages in the amount of the value of the property, which in this case was $795,000. In that case, according to their argument, Defendants would not have any objection to the reasonableness of the $300,000 punitive damages award. But in effect, there is no difference between those awards: either transferring the property or awarding compensatory damages serves to make SEPH whole. Thus, nothing requires the district court remedy SEPH’s harm in the form of compensatory damages in order to award punitive damages.

 

*6 Moreover, the ratio between the harm (i.e., the value of the asset transferred) and the punitive damages award is less than 1:1. The evidence at trial indicated that the value of the Highway 59 property was $795,000, and Judkins transferred his 50 percent interest in that property (approximately $397,500) to the LLC. The $300,000 damages award is less than half the value of the property and less than Judkins’ interest in that property. We have upheld ratios much higher than 1:1. See, e.g. McGinnis v. American Home Mortgage Servicing, Inc., 901 F.3d 1282, 1290 (11th Cir. 2018) (ratio of 5.9:1); Bogle v. McClure, 332 F.3d 1347, 1362 (11th Cir. 2003) (ratio of 3.8:1). Having considered the various factors as laid out by the Supreme Court of the United States and the Supreme Court of the State of Alabama, we hold the district court did not err in entering an award of $300,000 in punitive damages against Judkins.

 

B. The Punitive Damages Award Against Highway 59

 

Judkins and Highway 59 also object to the propriety and amount of the punitive damages award as against Highway 59. Again, we take each argument in turn.

 

1. Whether an Award of Punitive Damages is Available

 

Judkins and Highway 59 first claim that punitive damages against Highway 59 are inappropriate. Pursuant to the AUFTA, a transfer is fraudulent, only if the transfer was made “with actual intent to ... defraud any creditor.” Ala. Code § 8-9A-4(a). Because the limited liability company did not exist at the time Judkins and his attorney formulated the scheme to transfer his assets, Judkins argues that Highway 59 did not intentionally participate in the transfer.

 

This argument ignores reality in favor of artificial, legal distinctions. True, Highway 59 is a separate “legal entity,” but it is also “an artificial person, and can only act through its agents.” Townsend Ford, Inc. v. Auto-Owners Ins. Co., 656 So. 2d 360, 363 (Ala. 1995) (citing Warwick Development Co. v. GV Corp., 469 So. 2d 1270, 1276 (Ala. 1985) (holding that the intent of a company’s employees can be attributed to the company). The evidence shows that Judkins—Highway 59’s agent—created and controlled Highway 59 “for the purpose of fraudulently transferring assets.” Because Judkins acted with fraudulent intent, so did Highway 59. Moreover, whether Highway 59 existed when Judkins first concocted the scheme is irrelevant, because his fraudulent transfer would not have been possible unless there was someone, or something, to accept it. As the district court found, Highway 59 “was an instrument of, and participant in, fraud since its inception” and “shared Judkins’ intent.” In its findings, the district court noted that “Judkins and Hwy 59 effectuated the subject transfer with the intentional and deliberate purpose of injuring Judkins’ creditor, SEPH,” and “Judkins and Highway 59 acted with the deliberate and actual intent to defraud.” Our review of the entire record, including the trial transcripts, confirms those findings are not clearly erroneous. Accordingly, the district court did not abuse its discretion in awarding punitive damages against Highway 59.

 

Judkins and Highway 59 also claim that the district court should not have issued punitive damages against Highway 59 because it did not find that Sluder (who owned half of Highway 59 prior to the fraudulent transfer as a tenant in common) acted in bad faith. Accordingly, they contend that the district court failed to consider “[t]he financial position of the defendant,” contrary to the Alabama Supreme Court’s guidance and that entering a judgment against Sluder’s interest in Highway 59 is inequitable. Lavoie, 505 So.2d at 1062.

 

Although the parties dispute whether Sluder acted in bad faith, the district court was not required to make that determination in order to issue the punitive damages award against the entity. For one, Sluder’s intent is irrelevant in determining whether an entity acted fraudulently: the Alabama Supreme Court has held that “a culpable intent by any of the corporate agents involved in a transaction amounts to corporate fraud, regardless of the facts that other corporate agents ... had no such fraudulent intent.” Townsend Ford, Inc., 656 So. 2d at 362. Sluder’s alleged good faith has no effect on the fraudulent acts of Highway 59, and therefore the district court was correct in not limiting the punitive damages award to Judkins’s interest in the company. Further, the district court did consider Highway 59’s finances, albeit briefly. The district court stated that Highway 59’s financial condition was not a “significant” consideration because it is “an instrument of fraud that would not exist except for Judkins’ and Hwy 59’s fraud.” The district court addressed Highway 59’s financial condition, but found other considerations outweighed it. That determination does not constitute clear error.

 

2. Whether the Amount of the Punitive Damages Award is Excessive

 

*7 Finally, Judkins and Highway 59 object that “the same issue of proportionality discussed in relation to Judkins would make an award of $300,000 against Highway 59 so excessive as to violate due process.” For the same reasons the $300,000 award was not grossly excessive as to Judkins, it passes constitutional muster for Highway 59. The district court did not abuse its discretion here either. See supra pp. –––– – ––––.

 

We therefore AFFIRM the district court’s award of punitive damages against Judkins and Highway 59.

 

- - - - - -

 

SE Property Holdings, LLC v. Judkins, 2019 WL 177981 (S.D.Ala., 2019).

 

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

 

SE PROPERTY HOLDINGS, LLC, Plaintiff,

 

v.

 

Russell G. JUDKINS and Highway 59, LLC, Defendants.

 

NO. 1:17-cv-00413-TM-B

 

Signed 01/11/2019

 

Attorneys and Law Firms

 

Gilbert L. Fontenot, Maples & Fontenot, LLP, J. Blair Newman, Jr., James S. Harvey, Richard M. Gaal, McDowell Knight Roedder & Sledge, L.L.C., Mobile, AL, for Plaintiff.

 

James Willis Garrett, III, Robert M. Galloway, Galloway, Wettermark, Everest, Rutens & Gaillard, LLP, Mobile, AL, for Defendants.

 

MEMORANDUM ORDER AND OPINION

 

TERRY F. MOORER, UNITED STATES DISTRICT JUDGE

 

*1 A non-jury trial was held in this matter before the undersigned that began on October 31, 2018, and concluded on November 5, 2018. Pursuant to Rule 52(a)(1) of the Federal Rules of Civil Procedure, the Court finds the facts specially and states its conclusions of law separately.

 

I. Nature of the Case

 

This fraudulent transfer action was brought by Plaintiff, SE Property Holdings, LLC (“SEPH” or “Plaintiff”), against Defendants Russell Judkins (“Judkins”) and Highway 59, LLC (“Hwy 59”) (collectively, “Defendants”). The only cause of action at issue in this case is Plaintiff’s claim for actual fraudulent transfer pursuant to section 8-9A-4(a) of the Alabama Uniform Fraudulent Transfer Act (the “AUFTA”). Plaintiff alleges Judkins transferred his interest in a parcel of real property to Hwy 59 with the actual intent to hinder, delay, or defraud SEPH, as his creditor.

 

In the parties’ Joint Pretrial Document, they agreed to the elements of Plaintiff’s claim, which are set out in the AUFTA, Ala. Code § 8-9A-1 et seq., and, further, agreed SEPH is a creditor of Judkins, and Judkins transferred an interest in an asset. (Doc. 53, at 3). The disputed fact, as defined by the parties in their Joint Pretrial Document, is whether the transfer was made with the intent to hinder, delay, or defraud a creditor. (Doc. 53, at 3). In resolving the triable issues, the Court has reviewed and considered the arguments presented, the testimony and exhibits admitted into evidence during the bench trial, and other portions of the Court’s file where appropriate.

 

II. Findings of Fact

 

The Court finds Plaintiff proved the following facts by clear and convincing evidence:

 

1. SEPH is the successor by merger to Vision Bank. Vision Bank made a series of loans to Coastal Construction, LLC (“Coastal”), a company that focused on the development of residential real estate on the Gulf Coast. Judkins, Hans Van Aller, III, and Robert Harris were the members of Coastal. Coastal’s members, including Judkins, signed guaranties that made them jointly and severally liable for the funds that were loaned by Vision Bank. The final four loans by Vision to Coastal were in the amount of $1,695,000.00, $1,599,900.00, $1,248,143.50, and $1,073,258.66.

 

2. Coastal, also, borrowed money from banks other than Vision Bank, such as Trustmark and RBC, and the Coastal members, including Judkins, guaranteed those loans. Additionally, Judkins, Van Aller, and Harris were the principal borrowers (rather than guarantors) on loans from Pen Air Federal Credit Union. In all, Judkins was a guarantor or borrower of between $15 million and $18 million in loans.

 

3. Prior to the transfer at issue, Coastal’s business was struggling. With the economy and real estate market in decline, Coastal was unable to sell its properties, and its members were required to personally pay the interest payments on Coastal’s substantial loans. Further, at some point prior to early 2008, Harris ceased making contributions to Coastal. In early 2008, Coastal sued Harris in an effort to require him to make contributions. Coastal was unsuccessful in that regard, so Judkins and Van Aller continued to be the only members who made Coastal’s interest payments.

 

*2 4. Coastal and its guarantors began to default on their loans in 2008. Most, if not all, of Coastal’s loans went into litigation.

 

5. For example, Coastal’s (and Judkins’) last voluntary payment to Vision Bank was in September 2008. Vision Bank filed suit against Coastal, Judkins, Harris, and Van Aller on February 2, 2009. RBC Bank sued Coastal, Judkins, Harris, and Van Aller on March 10, 2009. Wachovia Bank sued Judkins and others on October 27, 2009. Pen Air Federal Credit Union sued Judkins, Harris, and Van Aller in June 2010. Although these lawsuits were filed after the subject transfer, they were imminent and foreseeable at the time of the transfers.

 

6. Vision Bank ultimately obtained a judgment against Judkins in the amount of $4,551,860.05.

 

7. On or about June 25, 2008, Judkins met with a Florida attorney, David Hightower, in a scheme to shield his assets from creditors. With Hightower’s assistance, beginning on July 28, 2008, Judkins transferred select assets that were unencumbered and non-exempt, which could be reached by his creditors, to either himself and his wife, Linda Judkins (“Mrs. Judkins”), “as tenants by the entirety,” a status under Florida law that makes such assets exempt from a creditor of only one spouse, or to Florida limited liability companies that were created by Hightower and owned in whole, or in part, by Judkins and Mrs. Judkins as tenants by the entirety.

 

8. One of those transfers is the subject of this lawsuit. Judkins and his business partner, Gary Sluder, owned real property located off Alabama State Route 59 (“Highway 59”) in Gulf Shores, Alabama. Sluder and Judkins each owned a one-half interest in the real property as tenants in common. Since June 1993, for over fifteen (15) years, Sluder and Judkins owned this real property in their personal names and leased it to Gene’s Floor Covering II, Inc., their floor covering business that is located in Baldwin County, Alabama. Sluder and Judkins were partners with respect to Gene’s Floor Covering II, Inc., but Judkins testified he controlled all aspects of the business and Sluder was a “silent partner” in the business.1 As part of the scheme, on July 28, 2008, Hightower organized Hwy 59, a Florida limited liability company of which Judkins and Mrs. Judkins owned fifty percent (50%) as tenants by the entirety and Sluder and his wife, Cynthia Sluder, owned fifty percent (50%) as tenants by the entirety. Judkins and Sluder, then, transferred their interests in the subject real property to Hwy 59. The deed to Hwy 59 is dated August 29, 2008, and the deed was recorded on September 16, 2008. Judkins was not provided consideration in exchange for the transfer.2 After the transfer to Hwy 59, Judkins continued to possess, and control, the property and use it for his floor covering business.

 

fn1. The testimony indicated Sluder owned a separate “Gene’s Floor Covering” business in Florida, but Judkins was not a partner in that business.

 

fn2. Judkins, and his wife, as tenants by the entirety, received their interest in Hwy 59, or at least received the increase in value of that interest, but Judkins did not receive anything. Mrs. Judkins did not contribute anything to Hwy 59.

 

*3 9. At trial, Plaintiff offered a real estate appraiser’s testimony that the value of one hundred percent (100%) of the subject property was $795,000.00. Defendants did not offer any testimony in regard to the value of the property.

 

10. Contemporaneous with the subject transfer, and as part of the same representation, Hightower handled other transfers for Judkins.3 Similar to the Hwy 59 transfer, Judkins transferred his shares of Gene’s Floor Covering II, Inc., to GFC Holdings, LLC, another Florida company that was formed by Hightower on July 28, 2008. Judkins and Mrs. Judkins owned one hundred percent (100%) of GFC Holdings, LLC, as tenants by the entirety. With Hightower’s assistance, Judkins, also, transferred his and his wife’s real property directly to themselves as tenants by the entirety. Hightower, also, drafted a mortgage agreement pursuant to which Judkins and his wife as tenants by the entirety secured a purported loan to Judkins and Van Aller.

 

fn3. Although SEPH only seeks the setting aside of the Hwy 59 transfer in this case, the other transfers effected at the same time and, according to Judkins, for the same reasons, are relevant to the crucial question of intent.

 

11. The effect of the foregoing transfers was property that would have been reachable by Judkins’ personal creditors became exempt from, or unreachable by, his creditors. Indeed, the testimony was, after the foregoing transfers, Judkins did not have unencumbered, non-exempt assets that remained in his name.

 

12. Judkins and Mrs. Judkins testified they employed Hightower’s legal services because Judkins’ father-in-law was dying, which gave them a sense of urgency to have their estates planned. Hightower testified to the estate planning advantages of the foregoing transfers and, in addition to the transfers, Judkins and Mrs. Judkins executed documents such as wills, durable powers of attorney, and advance healthcare directives. However, the testimony that estate planning was the reason for the subject transfer was simply not credible. Judkins’ father-in-law was in poor health for years prior to the transfers, and Judkins and Mrs. Judkins had not made an estate plan. Additionally, Judkins testified at his deposition his father-in-law did not have a will and left his estate in disarray upon his death, but at trial, the undisputed evidence was Judkins’ father-in-law did have a will. Judkins admitted one of the reasons for the subject transfer was in the case he was sued, but he claimed he was concerned about a premises liability suit rather than collection cases by Coastal’s lenders. This testimony was not credible. Hightower had little to no independent recollection of the representation, but his notes reflected Judkins’ joint and several guarantor liability of $15 million to $18 million of Coastal’s debt was one of the topics discussed by Judkins with Hightower.

 

13. At the time of the transfer, and immediately following the transfer, Judkins was “insolvent” as that term is defined by the AUFTA. On this topic, Plaintiff’s expert Stacy Cummings testified the sum of Judkins’ debts was greater than the sum of his assets at the time of the transfer(excluding property to the extent generally exempt under nonbankruptcy law). Defendants did not offer an expert on the issue of insolvency.

 

*4 14. Judkins did not disclose the subject transfer to Vision Bank. Judkins made some changes to his Personal Financial Statement but none that would have put Vision Bank on notice that, following the transfers that were handled by Hightower, he had placed significant non-exempt assets out of the reach of his creditors.

 

15. At the same time as Judkins transferred assets, Judkins’ fellow Coastal member, Van Aller, made transfers to a family-owned limited partnership. Judkins and Van Aller denied they spoke to each other about the asset transfers. However, some of Van Aller’s transfers were within days of Judkins’ transfers, and Judkins and Van Aller admitted they spoke to each other frequently and were close friends. Further, Van Aller actually signed the mortgage agreement that Hightower handled for Judkins and Mrs. Judkins in connection with the “estate planning.”

 

16. Judkins transferred his interest in the subject real property with the actual intent to hinder, delay, or defraud his creditor, SEPH. Hwy 59 was created at the direction of Judkins for the purpose of fraudulently transferring assets, and Hwy 59 was an instrument of, and participant in, fraud since its inception. Hwy 59 was controlled by Judkins with respect to this transfer and shared Judkins’ intent that this transfer hinder, delay, or defraud Judkins’ creditor, SEPH. Further, in effecting the subject transfer, Defendants consciously or deliberately engaged in fraud, wantonness, and malice with regard to SEPH.

 

III. Conclusions of Law: Liability

 

This case is before the Court in diversity jurisdiction, and the parties agree the substantive law of the State of Alabama applies. (Doc. 53, at 3.) When this action was commenced, Plaintiff was a citizen of Ohio, and Defendants were citizens of Florida.

 

SEPH brings a claim for actual fraudulent transfer pursuant to section 8-9A-4(a) of the AUFTA. That section 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 the actual intent to hinder, delay, or defraud any creditor.” Ala. Code § 8-9A-4(a). Thus, to prevail, SEPH was required to prove “[t]hat the plaintiff is a creditor of the debtor,” and “[t]hat the debtor transferred an asset or an interest in an asset with the actual intent to injure, delay or defraud the plaintiff or any other creditor of the debtor.” Ala. Pattern Jury Instr. Civ. 18.22 (3d ed.).4

 

fn4. In the Joint Pretrial Document, the parties agreed the legal elements of the actual fraudulent transfer claim are as set forth in instruction 18.22 of the Alabama Pattern Jury Instructions in Civil Cases. (Doc. 53, p. 3).

 

At trial, it was undisputed SEPH is a creditor of Judkins, and Judkins is a debtor of SEPH, as those terms are defined by the AUFTA. Judkins was also a debtor of SEPH at the time of the subject transfer.5 Also, it was undisputed at trial Judkins transferred an interest in an asset, namely his interest in the subject real property.

 

fn5. Under the AUFTA, a “creditor” is a person who has a “claim,” and a “debtor” is a person who is liable on a “claim.” Ala. Code § 8-9A-1(4) & (6). “Claim” is defined as “[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, and specifically shall include the nonpayment of child support pursuant to a court order.” Ala. Code § 8-9A-1(3). Based on the guaranties, Judkins and Vision Bank/SEPH had a creditor/debtor relationship at the time of the transfers.

 

*5 The critical issue is whether the transfer was effected with the requisite level of intent. “Actual fraud denotes the actual mental operation of intending to defeat or delay the rights of the creditor.” Cox v. Hughes, 781 So. 2d 197, 201 (Ala. 2000). The AUFTA includes a list of eleven (11) factors that may be considered to determine “actual intent.” Ala. Code § 8-9A-4(b). These factors are sometimes called “badges of fraud.” See In re XYZ Options, Inc., 154 F.3d 1262, 1271 (11th Cir. 1998) (referring to the eleven factors that may be considered to determine fraudulent intent and are found in the AUFTA as “badges of fraud”). The factors are not exclusive, as indicated by the statute. See Ala. Code § 8-9A-4(b) (providing “consideration may be given” to the listed factors). The statutory factors are whether:

 

(1) The transfer was to an insider;

 

(2) The debtor retained possession or control of the property transferred after the transfer;

 

(3) The transfer was disclosed or concealed;

 

(4) Before the transfer was made the debtor had been sued or threatened with suit;

 

(5) The transfer was of substantially all the debtor’s assets;

 

(6) The debtor absconded;

 

(7) The debtor removed or concealed assets;

 

(8) The value of the consideration received by the debtor was reasonably equivalent to the value of the asset transferred;

 

(9) The debtor was insolvent or became insolvent shortly after the transfer was made;

 

(10) The transfer occurred shortly before or shortly after a substantial debt was incurred; and

 

(11) The debtor transferred the essential assets of the business to a lienor who transferred the assets to an insider of the debtor.

 

Ala. Code § 8-9A-4(b). Many of the badges of fraud are met in this case.

 

Defendants have rightly conceded the transfer was to an insider. Further, it is significant the transfer was to a limited liability company of which Judkins and Mrs. Judkins owned fifty percent (50%) as tenants by the entirety. “Conveyances of property between family members in the face of a pending suit against the grantor must undergo especially careful scrutiny.” Granberry v. Johnson, 491 So. 2d 926, 929 (1986) (citing Reese v. Smoker, 475 So. 2d 506 (Ala. 1986) ). Alabama courts have long recognized “[s]uch purchases are so often made a cover for a debtor’s property, are so frequently resorted to for the purpose of withdrawing his property from the reach of his creditors and preserving it for his own use, and they hold forth such temptations for fraud, that they require close scrutiny.” Waddle v. Great S. Phosphate Co., 63 So. 462, 463 (Ala. 1913).

 

As to the second factor, Judkins retained possession or control of the transferred property. Prior to the transfer, the property was leased to Judkins’ business, Gene’s Floor Covering II, Inc. After the transfer, the property continued to be leased to Gene’s Floor Covering II, Inc., pursuant to the same terms and conditions as before. Further, Judkins continued to receive the rental income via Hwy 59. It was clear at trial Judkins was in control and possession of the property before and after the transfer and up to the time of trial.

 

Third, the transfer was not disclosed to Vision Bank. Judkins’ Personal Financial Statement, which was provided to Vision Bank a few months after the transfer, did not list Hwy 59 as an asset, and Judkins admitted he misidentified the asset on his Personal Financial Statement. Further, the Personal Financial Statement did not inform Vision Bank Judkins made personal assets exempt when he transferred them to tenant by the entirety ownership, which is the type of change in financial condition of which Judkins agreed to notify Vision Bank.

 

Fourth, while Judkins does not appear to have been personally sued at the time of the transfer, there is no doubt that he faced an imminent threat of litigation on the date of the transfer. Judkins knew about his and Coastal’s dire financial situation. Van Aller, the manager of Coastal, frequently spoke with Judkins. Judkins and Van Aller made Coastal’s substantial interest payments when Coastal was unable to sell properties. Coastal made only one additional payment after the deed to Hwy 59 was recorded in connection with the subject transfer. Coastal and its guarantors, including Judkins, defaulted, and the collection cases commenced.6 Hightower’s notes reflect Judkins told Hightower about Judkins’ joint and several guarantor liability for Coastal’s $15 million to $18 million of loans.

 

fn6. There was also evidence of a pre-transfer from an August 20, 2008 letter that notified Judkins, and others, a loan would mature on October 12, 2008, and would not be renewed unless the principal was reduced by twenty percent (20%) at closing.

 

*6 The fifth factor is whether the transfer was of substantially all of the debtor’s assets. The subject transfer was not of substantially all of Judkins’ assets. However, after the series of transfers effected around the same two-month time period as the subject transfer, substantially all of Judkins’ assets were either exempt from creditors or encumbered by mortgages.

 

As to the eighth factor, the value received by Judkins was not reasonably equivalent to the value of the asset transferred. In fact, Judkins did not receive consideration for the transferred asset. Judkins and Mrs. Judkins, as tenants by the entirety, received an interest in Hwy 59. Florida law states, “property held by husband and wife as tenants by the entireties belongs to neither spouse individually, but each spouse is seized of the whole.” Beal Bank, SSB v. Almand & Assocs., 780 So. 2d 45, 53 (Fla. 2001). To the extent Judkins can be considered to have received any consideration for the transfer, it is not valuable consideration from the perspective of SEPH. Numerous courts that have interpreted fraudulent transfer statutes, including the Uniform Fraudulent Transfer Act, have recognized whether reasonably equivalent value was received must be determined from the perspective of the creditor.7 The Official Comments to the Uniform Fraudulent Transfer Act state: “ ‘Value’ is to be determined in light of the purpose of the Act to protect a debtor’s estate from being depleted to the prejudice of the debtor’s unsecured creditors. Consideration having no utility from a creditor’s viewpoint does not satisfy the statutory definition.” Unif. Fraudulent Transfer Act § 3 cmt. 2 (Unif. Law Comm’n 1984). “[W]hen property is held as tenancy by the entireties, only the creditors of both the husband and wife, jointly, may attach the tenancy by the entireties property; the property is not divisible on behalf of one spouse alone, and therefore it cannot be reached to satisfy the obligation of only one spouse.” Beal Bank, SSB, 780 So. 2d at 53 (citations omitted). Exempt tenancy by the entireties property has no utility from the viewpoint of the creditor of one spouse.

 

fn7. See In re TransTexas Gas Corp., 597 F.3d 298, 306 (5th Cir. 2010); In re Sergio, 552 B.R. 9, 21 (D. Mass. 2016); In re David Cutler Indus., Ltd., 502 B.R. 58, 73 (E.D. Pa. 2013); Kaye v. Lone Star Fund V (U.S.), L.P., 453 B.R. 645, 667 (N.D. Tex. 2011); ASARCO LLC v. Ams. Mining Corp., 396 B.R. 278, 337 (S.D. Tex. 2008).

 

The ninth factor is whether the debtor was insolvent or became insolvent shortly after the transfer was made. SEPH demonstrated Judkins was insolvent at the relevant time because his debts exceeded his assets at a fair valuation. See Ala. Code § 8-9A-2(a) (“A debtor is insolvent if the sum of the debtor’s debts is greater than all of the debtor’s assets at a fair valuation.”). SEPH presented unrebutted expert testimony on this point. Defendants’ attorney argued Ms. Cummings did not consider assets such as intangible assets, streams of income, and net operating losses for periods when Judkins’ allowable tax deductions were greater than his taxable income. However, Defendants did not specify any particular assets (rather than broad categories of potential assets) that Ms. Cummings did not consider. Nor did Defendants present evidence of the value of any such assets as of the relevant date. Further, Ms. Cummings testified she considered all of the assets that Defendants disclosed during the litigation, and Defendants did not rebut that testimony.

 

*7 The tenth factor is whether the transfer occurred shortly before, or shortly after, a substantial debt was incurred. The Coastal notes in favor of Vision Bank that Judkins guaranteed were renewed, modified, or extended shortly before the transfers, with the maturity dates listed as February 2009. However, this factor is accorded little weight because the evidence at trial was not that the transfers were prompted by the recent incurring of substantial debt. Rather, the evidence at trial demonstrated the transfers were prompted by Coastal’s (and its members’) impending default on their debts to a number of financial institutions, including Vision Bank.

 

Weighing the badges of fraud as a whole, they overwhelmingly confirm the subject transfer was intended to injure, delay, or defraud Judkins’ creditor, SEPH.8 Other factors, also, demonstrate Judkins’ intent. Mr. Judkins admitted one of the reasons for the transfers was to protect his assets if he was sued, but he testified his concern was hypothetical premises liability rather than his millions of dollars of guarantor liability and imminent default.9 This testimony was not credible because, among other reasons, Judkins discussed his guarantor liability with the attorney who handled the transfers. Judkins’ friend and partner, Van Aller, who was, also, personally liable for many of the same debts, transferred assets around the same time as Judkins. Judkins’ and Mrs. Judkins’ testimony that these transfers were prompted by Mrs. Judkins’ father’s illness was not credible for the reasons previously stated. Finally, Judkins is presumed to have known the effect of the subject transfer (i.e., the subject property became exempt from creditors) because his attorney’s knowledge of the effect is imputed to Judkins based on their principal-agent relationship. See First Ala. Bank of Montgomery, N.A. v. First State Ins. Co., Inc., 889 F.2d 1045, 1060 n.8 (“[I]n Alabama and elsewhere the general rule is that a principal is chargeable with and bound by the knowledge of his agent while acting within the scope of his authority.... [T]he reason courts impose constructive knowledge upon a principal is to avoid the injustice which would result if the principal could have an agent conduct business for him and at the same time shield himself from the consequences which would ensue from knowledge of conditions or notice of the rights and interests of others had the principal transacted his own business in person.”).

 

fn8. The Court gives little to no weight to the sixth, seventh, and eleventh factors. As to the sixth factor, Judkins did not flee or hide, but the Court does not view that fact as a strong indicator of Judkins’ intent in this case. Based on the Official Comments to the Uniform Fraudulent Transfer Act, the seventh factor, whether the debtor removed or concealed assets, refers to the concealment or removal of goods or assets or their proceeds, and thus is difficult to apply to a real property transfer. Unif. Fraudulent Transfer Act § 4 cmt. 6(g) (Unif. Law Comm’n 1984). However, as noted, Judkins certainly removed assets from his own personal name, and he did not fully, and completely, disclose the transfers to Vision Bank. Therefore, the eleventh factor is not applicable in this case.

 

fn9. Judkins admitted that neither he, Sluder, nor the business had been sued since they acquired the subject property in 1993, and liability insurance existed in the event of such a suit.

 

For the foregoing reasons, the Court concludes Judkins and Hwy 59 effected the subject transfer with the actual intent to hinder, delay, or defraud Judkins’ creditor, SEPH. Further, Plaintiff proved Defendants’ liability by clear and convincing evidence.

 

IV. Conclusions of Law: Remedy

 

*8 The AUFTA grants the trial court wide discretion in fashioning an appropriate remedy. Section 8-9A-7 of the AUFTA provides:

 

(a) In an action for relief against a transfer under this chapter, the remedies available to creditors, subject to the limitations in Section 8-9A-8, include:

 

(1) Avoidance of the transfer to the extent necessary to satisfy the creditor’s claim;

 

(2) An attachment or other provision remedy against the asset transferred or other property of the transferee in accordance with the procedure prescribed by any applicable provision of any other statute or the Alabama Rules of Civil Procedure;

 

(3) Subject to applicable principles of equity and in accordance with applicable rules of civil procedure,

 

a. An injunction against further disposition by the debtor or a transferee, or both, of the asset transferred or of other property;

 

b. Appointment of a receiver to take charge of the asset transferred or other property of the transferee; or

 

c. Any other relief the circumstances may require.

 

(b) If 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.

 

Ala. Code § 8-9A-7. Additionally, section 8-9A-8(b) of the AUFTA provides “to the extent a transfer is voidable in an action by a creditor under Section 8-9A-7(a)(1), the creditor may recover ... judgment for conveyance of the asset transferred. The judgment may be entered against ... [t]he first transferee of the asset or the person for whose benefit the transfer was made.” Ala. Code § 8-9A-8(b)(1).

 

The transferred asset at issue was Judkins’ undivided one-half interest in the subject real property in fee simple as a tenant in common. Following the subject transfer, Judkins’ former interest is owned by Hwy 59. SEPH is a judgment creditor that holds a judgment against Judkins in the principal amount in excess of $4 million, which is, now, worth over $6 million due to years of post-judgment interest. The transfer of Judkins’ one-half interest is voidable, and the Court deems it appropriate to enter a judgment for conveyance of the asset transferred pursuant to sections 8-9A-7(a)(1) and 8-9A-8(b)(1) of the AUFTA. Thus, the first component of the remedy in this case is Defendant Hwy 59 shall transfer the subject asset to Plaintiff by quitclaim deed.

 

Next, the Court decided an award of punitive damages is appropriate in this case. Alabama’s punitive damages statute provides, “[p]unitive damages may not be awarded in any civil action ... other than in a tort action where it is proven by clear and convincing evidence that the defendant consciously or deliberately engaged in oppression, fraud, wantonness, or malice with regard to the plaintiff.” Ala. Code § 6-11-20. Alabama “cases have uniformly held that punitive damages may be awarded in actions for fraud if there is evidence from which the jury can conclude that the fraud was malicious, oppressive, or gross.” State Farm Mut. Auto Inc. Co. v. Ling, 348 So. 2d 472, 476 (Ala. 1977); see also Myers v. Redmill, 96 So. 2d 450, 452 (1957) (“It appears to us that a fraudulent conveyance as to a plaintiff with a demand sounding in punitive damages is infected with just as much fraud as one against a plaintiff with a demand in compensatory damages.”)

 

*9 The AUFTA states the act is supplemented by the principles of law and equity unless displaced by its provisions. Ala. Code § 8-9A-10. Nothing in the AUFTA displaces Alabama law in regard to punitive damages. Indeed, the AUFTA authorizes the Court to award “any other relief the circumstances require.” Ala. Code § 8-9A-7(a)(3)(c); see also Johns v. A.T. Stephens Enters., Inc., 815 So. 2d 511, 516 (Ala. 2001) (“We conclude that the [AUFTA] permits damages awards in cases involving fraudulent conveyances, but that the facts of this case require such an award.”). Therefore, section 8-9A-7(a)(3)(c) of the AUFTA allows for the award of punitive damages if the circumstances require.10

 

fn10. See, e.g., Klein v. Weidner, 729 F.3d 280, 295 (3d Cir. 2013) (holding that punitive damages are available under the Pennsylvania UFTA); Macris & Assocs., Inc. v. Neways, Inc., 60 P.3d 1176, 1181 (Utah Ct. App. 2002) (Utah UFTA); Volk Const. Co. v. Wilmescherr Drusch Roofing Co., 58 S.W. 3d 897, 900 (Mo. Ct. App. 2001) (Missouri UFTA); Henderson v. Henderson, No. CV-00-53, 2001 WL 1719192, at *2 (Me. Super. 2001) (Maine UFTA); Locafrance United States Corp. v. Interstate Distribution Servs., Inc., 451 N.E.2d 1222, 1225 (Ohio 1983) (Ohio UFCA).

 

The circumstances of this case direct the undersigned to conclude an award of punitive damages against Defendants is merited. Plaintiff proved by clear and convincing evidence Judkins transferred the subject property for the purpose of evading his creditor, SEPH; Hwy 59 was created at the direction of, controlled by, and shared the intent of Judkins with respect to the transfer; and Defendants consciously or deliberately engaged in fraud, wantonness, and malice with regard to SEPH.11

 

fn11. Hwy 59, a legal entity, can only act through agents. See Townsend Ford, Inc. v. Auto-Owners Ins. Co., 656 So. 2d 360, 363 (Ala. 1995) (“A corporation is a legal entity, an artificial person, and can only act through agents.”). Judkins was Hwy 59’s agent and, in fact, was in control of Hwy 59, which was created for Judkins’ own fraudulent purpose. Judkins’ intent is the intent of Hwy 59.

 

The factors enunciated in BMW North America, Inc. v. Gore, 517 U.S. 559, 574 (1996), and Aetna Life Ins. Co. v. Lavoie, 505 So. 2d 1050, 1062 (Ala. 1987) are considered when determining whether the amount of a punitive damage award is reasonable. The Gore factors include:

 

(1) the degree of reprehensibility of the defendant’s misconduct;

 

(2) the disparity between the actual or potential harm suffered by the plaintiff and the punitive damages award; and

 

(3) the difference between the punitive damages awarded by the jury and the civil penalties authorized or imposed in comparable cases.

 

Gore, 517 U.S. at 574.

 

The Lavoie factors are:

 

(1) Punitive damages should bear a reasonable relationship to the harm that is likely to occur from the defendant’s conduct as well as to the harm that actually has occurred. If the actual or likely harm is slight, the damages should be relatively small. If grievous, the damages should be much greater.

 

(2) The degree of reprehensibility of the defendant’s conduct should be considered. The duration of this conduct, the degree of the defendant’s awareness of any hazard which his conduct has caused or is likely to cause, and any concealment or “cover-up” of that hazard, and the existence and frequency of similar past conduct should all be relevant in determining this degree of reprehensibility.

 

(3) If the wrongful conduct was profitable to the defendant, the punitive damages should remove the profit and should be in excess of the profit, so that the defendant recognizes a loss.

 

*10 (4) The financial position of the defendant would be relevant.

 

(5) All the costs of litigation should be included, so as to encourage plaintiffs to bring wrongdoers to trial.

 

(6) If criminal sanctions have been imposed on the defendant for his conduct, this should be taken into account in mitigation of the punitive damages award.

 

(7) If there have been other civil actions against the same defendant, based on the same conduct, this should be taken into account in mitigation of the punitive damages award.

 

Lavoie, 505 So. 2d at 1062.

 

The Court has weighed these factors and determined an award of punitive damages of $300,000.00, which, based on the evidence provided by SEPH’s appraiser, is less than half of the value of the transferred asset, satisfies the requirements set forth in Gore and Green Oil, and adequately satisfies the purposes of punitive damages, to deter future wrongful acts and punish past wrongful conduct. Judkins and Hwy 59 effected the subject transfer with the intentional and deliberate purpose of injuring Judkins’ creditor, SEPH. As admitted by Judkins, the subject transfer was part of a series of similar transfers. It is clear Judkins’ and Hwy 59’s intent with respect to those other transfers established a pattern of conduct. This series of transfers had the effect of depriving creditors of all, or almost all, of Judkins’ collectible assets. Judkins attempted to conceal and hide the fact of the transfer, and the Court determines he knowingly offered a false reason for the transfers (i.e., the “estate planning” defense). Hwy 59 was created by Judkins, controlled by Judkins, and Judkins was its agent. Judkins’ and Hwy 59’s wrongful conduct was profitable to them in that they shielded a valuable asset from creditors, which could then be leased to Judkins’ business. The financial condition of Judkins, who continues to have substantial assets held tenants by the entirety with his wife, while being insolvent as an individual due to the many millions of dollars of judgments against him, has been taken into account. Hwy 59, created for the purpose of defrauding creditors, is an instrument of fraud that would not exist except for Judkins’ and Hwy 59’s fraud, and thus Hwy 59’s financial condition is not a significant consideration in this analysis. Judkins, Hwy 59, and others should be deterred from engaging in any future action of this manner. Without an award of punitive damages or attorneys’ fees, there would be no deterrence to a debtor weighing whether to make a fraudulent transfer. This is because the debtor would only lose the same asset he would have lost if he had not made a fraudulent transfer. In this case, there was not physical harm or criminal sanctions, and there are other civil fraudulent transfer actions against Judkins (although none that have proceeded to judgment), all of which mitigate the award. For all of these reasons, as well as those stated in the factual findings and legal conclusions, the Court has determined an award of $300,000.00 is appropriate in this case.

 

The Court has also determined an award of attorneys’ fees is appropriate. Again, the AUFTA authorizes the Court to award “any other relief the circumstances require.” Ala. Code § 8-9A-7(a)(3)(c). Plaintiff has no doubt been required to expend significant resources to discover and investigate the fraud, bring the case, and litigate the case to its conclusion. This matter would not have been necessary if Judkins and Hwy 59 did not engage in fraudulent behavior. Creditors should not be discouraged from bringing meritorious fraudulent transfer actions by the potential fees and costs. Additionally, it is significant Judkins and Hwy 59 acted with the deliberate and actual intent to defraud. Even if the AUFTA did not give courts broad discretion to award any relief the circumstances require, Alabama precedent allows for recovery of attorneys’ fees in the presence of “fraud, willful negligence or malice.” Reynolds v. First Ala. Bank of Montgomery, N.A., 471 So. 2d 1238, 1243 (Ala. 1985). As discussed, the Court found fraud and malice in this case.

 

V. Conclusion

 

*11 Based on the above, the Court finds Plaintiff established by clear and convincing evidence Defendants violated section 8-9A-4(a) of the Alabama Uniform Fraudulent Transfer Act. Therefore, the Court orders as a remedy the following pursuant to its Judgment (Doc. 64) that was entered on November 5, 2018:

 

1. Hwy 59 shall transfer the subject asset to Plaintiff by quitclaim deed;

 

2. an award of $300,000.00 is entered in favor of Plaintiff and against all Defendants as “other relief the circumstances may require” or as punitive damages pursuant to section 8-9A-7(a)(3)(c) of the Alabama Uniform Fraudulent Transfer Act and the law cited herein; and

 

3. Plaintiff will be awarded costs and reasonable attorneys’ fees as determined by the Court.

 

DONE and ORDERED this the 11th day of January 2019.

 

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2019.12.07 ... New York Finally Modernizes Its Fraudulent Transfer Laws By Adopting The Uniform Voidable Transactions Act

2019.10.29 ... Repeal Of Kentucky’s Fraudulent Transfer Law In Favor Of UVTA Causes Headaches In Orchard

2019.10.19 ... Texas Homestead Gets Constitutional Protection From Fraudulent Transfer Claim In Lapides

 

 

Many more articles on voidable transactions law found here

 

UVTA - LOGICAL ORGANIZATION

(Designed For Litigators)

 

Click here to go to the Voidable Transactions Decision Chart

 

Overview of UVTA -- The process and result

 

Learn The Vocabulary Of The Act (Main Page)

 

Has A Voidable Transaction Occurred? (Main Page)

 

Does The Transferee Have A Defense? (Main Page)

 

What Remedies Are Available? (Main Page)

 

Other Helpful Provisions (Main Page)

 

UVTA - NUMERICAL ORGANIZATION

(Confusing & Difficult To Use)

 

The Uniform Law Commission's complete copy of the UVTA with comments in PDF format is available here. The webpage for the UVTA, showing states that have enacted and much other information regarding the Act is found here.

 

1 - Definitions

(1) Affiliate -- (2) Asset -- (3) Claim -- (4) Creditor -- (5) Debt -- (6) Debtor -- (7) Electronic -- (8) Insider -- (9) Lien -- (10) Organization -- (11) Person -- (12) Property -- (13) Record -- (14) Relative -- (15) Sign -- (16) Transfer -- (17) Valid Lien

2 - Insolvency - How insolvency is calculated

3 - Value - Issues relating to calculating value

4 - Transfer Or Obligation Voidable As To Present Or Future Creditor

(a)(1) {Intent Test} - To hinder, delay or defraud any creditor

(a)(2)(i) {Overextending Insolvency Test} - The debtor engages in a transaction for which it does not have the financial strength

(a)(2)(ii) {Sinking Insolvency Test} - The debtor is not technically insolvent but headed for insolvency

(b) {Badges of Fraud} - Circumstances available to prove the debtor's intent

5 - Transfer or Obligation Voidable As To Present Creditor

(a) {Insolvency Test} - The test preferred by creditors

(b) {Insider Preference Test} - Not really a fraudulent transfer test at all

6 - When Transfer Is Made Or Obligation Is Incurred - Determines the time of the transfer

7 - Remedies Of Creditor

      {Non-Money Judgment Remedies} - Avoidance, attachment, etc.

8 - Defenses, Liability, And Protection Of Transferee Or Obligee

{Main Provisions} -The transferee's good faith for-value defense

(b) and (c) {Money Judgment Remedy} - Alternative remedy for creditors when avoidance is not good enough

9 - Extinguishment Of Claim For Relief - Similar to Statutes of Limitation

10 - Governing Law - Conflicts of Laws provisions

11 - Application To Series Organization - Applies to intra-series transfers

12 - Supplementary Provisions - Allows application of other law to issues unresolved by the UVTA

13 - Uniformity Of Application And Construction - Court opinions from other states may be looked to for guidance

14 - Relation To Electronic Signatures In Global And National Commerce - Waste of statutory space

15 - Short Title - From fraudulent transfers to voidable transactions

16 - Repeals; Conforming Amendment - Information for enacting legislatures

 

OTHER SOURCES OF

FRAUDULENT TRANSFER LAW

 

Fraudulent Transfers In Bankruptcy - Main Page

 

28 U.S.C. § 3301, et seq. - Where United States is the creditor

 

Common Law Fraudulent Transfer - Still exists in most states

 

Criminal Statutes -- Jurisdictions that criminalize fraudulent transfers

 

Fraudulent Conveyances Act of 1571 a/k/a Statute of 13 Elizabeth - The medieval statute to which the modern American UVTA traces some of its roots.

 

Statutes Of The U.S. Jurisdictions -- State and Territorial Voidable Transaction and Fraudulent Transfer Laws

 

TOPICAL COURT OPINIONS

 

DEFINITIONS

     Creditor Definition - Court opinions on the definition of creditor

     Debtor Insider Affiliate Relative Organization Person Definitions   - Court opinions on the definitions of debtor, insider, etc.

     Claim And Debt Definitions  - Court opinions on the definitions of claim and debt

     Asset And Property Definitions  - Court opinions on the definitions of assets and property

     Lien And Valid Lien Definitions  - Court opinions on the definitions of lien and valid lien

     Transfer Definition  - Court opinions on the definition of transfer

     Value And Reasonably Equivalent Value (REV) Definition  - Court opinions on the definitions of value and reasonably equivalent value

     Insolvency Definition  - Court opinions on the definition of insolvency

TESTS

     Insolvency Test  - Court opinions relating to the Insolvency Test

     Insider Preference Test  - Court opinions relating to the Insider Preference Test

     Overextending Insolvency Test  - Court opinions relating to the Overextending Insolvency Test

     Sinking Insolvency Test  - Court opinions relating to the Sinking Insolvency Test

     Intent Test  - Court opinions relating to the Intent Test

           Badges Of Fraud  - Court opinions relating to the Badges of Fraud

DEFENSES

     Extinguishment Periods a/k/a (incorrectly) Statute Of Limitations  - Court opinions relating to the extinguishment periods

     Transferee Good Faith  - Court opinions relating to the transferee good faith for-value defense

REMEDIES

     Non-Money Remedies  - Court opinions relating to avoidance and other non-money remedies

     Money Judgment Remedies  - Court opinions relating to money judgments

     Attorney Fees -- Court opinions relating to awards of attorney fees

     Punitive Damages - Court opinions relating to punitive and exemplary damages

OTHER

     Burdens of Proof  - Court opinions relating to the burdens of proof

     Conflict Of Laws  - Court opinions relating to conflict of laws

     Uniformity  - Court opinions relating to uniformity with the laws of other jurisdictions

     Supplementary Law  - Court opinions relating to the interplay of the UVTA with other law

     Jurisdictional Issues - Court opinions relating to jurisdiction of UVTA actions.

BANKRUPTCY

     Section 548  - Court opinions relating to 11 USC 548

 

OTHER RESOURCES

 

 

OTHER INFORMATIONAL WEBSITES

by Jay Adkisson

 

  • Jay Adkisson - More about Jay D. Adkisson, background, books, articles, speaking appearances.

 

  • Captive Insurance - Licensed insurance companies formed by the parent organization to handle the insurance and risk management needs of the business, by the author of the best-selling book on the topic: Adkisson's Captive Insurance Companies.

 

  • Asset Protection - The all-time best-selling book on asset protection planning by Jay Adkisson and Chris Riser.

 

  • Creditor-Debtor - An explanation of common creditor remedies, strategies and tactics to enforce a judgment, including a discussion of common debtor asset protection strategies.

 

  • Private Retirement Plans - An exploration of a unique creditor exemption allowed under California law which can be very beneficial but is often misused.

 

  • Charging Orders - The confusing remedy against a debtor's interest in an LLC or partnership is explained in reference to the Uniform Partnership Act, the Uniform Limited Partnership Act, and the Uniform Limited Liability Company Act.

 

  • Protected Series - An examination of the single most complex statutory legal structure yet created, with particular reference to the Uniform Protected Series Act of 2017.

 

  • California Enforcement of Judgments Law - Considers the topic of judgment enforcement in California, including the California Enforcement of Judgments Law and other laws related to California creditor-debtor issues.

 

  • Anti-SLAPP Laws - A collection of and commentary about Anti-SLAPP laws and significant court decisions on the subject within the United States, and special section on California Anti-SLAPP.

 

 

Voidable Transactions:

Fraudulent Transfers In American Law

 

by Jay D. Adkisson (Available 2021)

 

Click here for more information

Contact Jay Adkisson:

 

Phone: 702-953-9617     Fax: 877-698-0678     jay [at] jayad.com

 

Unless a dire emergency, please send me an e-mail first in lieu of calling to set up a telephone appointment for a date and time certain.

 

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© 2020 Jay D. Adkisson. All rights reserved. No claim to government works or the works of the Uniform Law Commission. The information contained in this website is for general educational purposes only, does not constitute any legal advice or opinion, and should not be relied upon in relation to particular cases. Use this information at your own peril; it is no substitute for the legal advice or opinion of an attorney licensed to practice law in the appropriate jurisdiction. This site https://voidabletransactions.com Contact: jay [at] jayad.com or by phone to 702-953-9617 or by fax to 877-698-0678.