511 B.R. 163
Bankr. S.D. Ala.2014Background
- Vista Bella, Inc. is in bankruptcy; trustee sues alleged insiders and related parties over default, liens, and a foreclosure on Vista Bella’s units and LCEs.
- Vista Bella funded the project with a large AmSouth/Regions mortgage; AmSouth later merged into Regions Bank; the mortgage secures the property and rents.
- Defendants include RBL, L.L.C. (Ronnie Carr and Bob Shallow own/control), Bob Shallow (RE/MAX Paradise broker), and Susan Shallow; Carr owned unit 1001 and later 204, with LCEs appurtenant to PH-1.
- LCEs (limited common elements: 8 garages, 28 boat slips) were identified as appurtenant to PH-1 and were later reallocated/withheld from foreclosure; AUCA governs LCEs.
- Foreclosure of Vista Bella on June 1, 2009 by RBL proceeded without including the LCEs; the court previously found the foreclosure proper and that the sale price was not shocking to conscience; post-foreclosure activity included LCE reallocations and various releases/sales.
- Adversary proceeding seeks to avoid transfers as fraudulent or preferential under 11 U.S.C. §§ 548 and 544; issues cover January 22, 2009 releases, LCE reallocations, 2011 release of Trustee’s claims, and the June 1, 2009 foreclosure scheme.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the January 22, 2009 release of the vendor’s lien and cancellation of the promissory note were actual or constructive fraud under § 548. | Trustee asserts releases were fraudulent transfers harming creditors. | Shallow/Wilson argued value received offset any harm; transfers were not intended to defraud. | Not proven; court finds no actual or constructive fraud; REV supported by value exchange. |
| Whether LCE reallocations (May 19, 2009 and July 27, 2010 and subsequent) were fraudulent transfers under § 548 and AUFTA § 8-9A-4. | Trustee claims transfers depleted estate and were done to defraud creditors. | Transfers followed AUCA, with value preserved and no detrimental effect on estate; could be incentive/recovery for debt. | Not proven; reallocations amounted to REV and did not harm creditors; not fraudulent. |
| Whether the January 14, 2011 release of claims against RBL, Carr, and Shallows was fraudulent under § 548/544. | Release intended to hinder creditors. | Release was based on merit/weak claims; no fraudulent intent shown. | Not proven; claims released without evidence of fraud; judgment for defendants. |
| Whether the June 1, 2009 foreclosure, in light of other conduct, shows actual fraud or a scheme to defraud creditors. | Foreclosure coupled with prior actions evidences a fraudulent scheme. | Sale conducted properly; LCE withholding did not deplete assets; market conditions affected outcomes. | No clear pattern of fraudulent scheme; foreclosure proper and value not forced; judgment for defendants. |
Key Cases Cited
- In re Fruehauf Trailer Corp., 444 F.3d 203 (3d Cir. 2006) (fraudulent transfer analysis and standards for § 548)
- In re Knight, 473 B.R. 847 (Bankr.N.D. Ga. 2012) (tripartite REV test for value under § 548(d)(2)(A))
- In re Earle, 307 B.R. 276 (Bankr.S.D. Ala. 2002) (actual intent considerations under AUFTA/§ 548)
- TOUSA, Inc., 680 F.3d 1298 (11th Cir. 2012) (REV concept and value preservation for fraudulent transfers)
- Rodriguez, 895 F.2d 725 (11th Cir. 1990) (value and equivalence concepts under § 548)
- In re Manhattan Inv. Fund Ltd., 397 B.R. 1 (S.D.N.Y. 2007) (badges of fraud and actual intent evidence)