859 S.E.2d 651
Va.2021Background
- Westwood leased office space to G&K/AMG; K&A (owned by Kubli) purchased G&K/AMG’s practice under a Buy‑Out Agreement; K&A assumed liabilities and executed a security agreement in favor of G&K/AMG.
- Grayson claimed large antecedent advances (the “Grayson Debt”); G&K/AMG and Grayson recorded UCC financing statements; GSA (a Grayson entity) made loans to K&A and obtained a confessed judgment.
- K&A defaulted on the lease; Westwood obtained judgments and issued garnishment against K&A’s bank account.
- After various transfers (Halldorson settlement proceeds, IDT fee payments, ~$42k transfers from G&K/AMG checking), Westwood sued Grayson, Kubli, G&K/AMG, K&A, related entities, and Coleman for fraudulent and voluntary conveyances and conversion.
- At bench trial the court found the Buy‑Out and GSA Loan agreements lacked consideration, entered joint-and-several in personam judgments and sanctions for fraudulent/voluntary conveyances against seven defendants, and awarded conversion damages against Grayson for Halldorson proceeds.
- The Virginia Supreme Court reversed: it held the agreements were supported by consideration, Westwood failed to prove the transfers were fraudulent or voluntary by clear, cogent, and convincing evidence, and the conversion judgment against Grayson was erroneous.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Validity of Buy‑Out Agreement & GSA Loan | Agreements were sham/backdated, lacked mutuality/consideration and were designed to hinder creditors | Agreements reflected bargained‑for exchange, antecedent debts, liens and other valid consideration | Reversed trial court: agreements supported by consideration; no clear, convincing proof they were shams |
| GSA Loan / confessed judgment as fraudulent conveyance | Loan/confessed judgment cloaked with badges of fraud; funds not from GSA; voidable | Loan gave interest, lien, profit motive, and attorney‑in‑fact power — valid consideration; relationship alone not a badge of fraud | Reversed: lawful loan and security; preference to creditor lawful even if debtor insolvent |
| 2011 checking‑account transfers (~$42k) to GLC/GCI/Grayson | Transfers were diverting debtor assets to Grayson and lacked consideration | Payments reduced antecedent debt to Grayson (secured creditor); valid consideration | Reversed: payments were for antecedent debt / valid security interest; not shown fraudulent/voluntary by clear, convincing proof |
| Halldorson settlement proceeds diversion & Coleman’s role | Proceeds were diverted to Grayson/others to frustrate Westwood; Coleman aided diversion | Proceeds were assigned to G&K/AMG and then to Grayson as secured creditor; Coleman was bookkeeper, not transferee | Reversed: proceeds subject to prior perfected security interests; Coleman not shown to be transferee; Westwood lacked immediate right to possession |
| IDT fee payments to GLC (May 2011–Sept 2012) | Payments actually belonged to pre‑Buy‑Out G&K/AMG and were fraudulently diverted | Payments were for services or otherwise transferred in satisfaction of antecedent claims; plaintiffs did not plead these transfers properly | Reversed: Westwood didn’t plead or prove these transfers as fraudulent/voluntary against these defendants; cannot impose in personam liability on mere participants |
| Asset take‑back / debt write‑off (K&A amended tax return) | Amended return and charge‑off evidence forgiveness of debt and a conveyance | A tax write‑off/Form 1099‑C or accounting charge‑off does not legally discharge debt; witnesses denied forgiveness | Reversed: trial court arbitrarily disregarded uncontradicted testimony; write‑off is accounting, not legal discharge |
| Conversion claim re Halldorson proceeds | Grayson wrongfully took proceeds after garnishment, converting funds owed to K&A/Westwood | Grayson (via assignments and perfected UCC filings) had superior security interest and UCC remedies; assignee for value without notice | Reversed: Westwood lacked an immediate, superior right to possession; Grayson’s perfected security interest precluded conversion finding |
Key Cases Cited
- La Bella Dona Skin Care, Inc. v. Belle Femme Enters., LLC, 294 Va. 243 (Va. 2017) (fraudulent‑conveyance statute ordinarily returns assets to transferor; narrow in personam exception applies only to recipients of fraudulent cash transfers)
- Price v. Hawkins, 247 Va. 32 (Va. 1994) (application of narrow in personam judgment against recipients of fraudulent cash transfers)
- Mills v. Miller Harness Co., 229 Va. 155 (Va. 1985) (general rule against in personam judgments when setting aside conveyances)
- Darden v. George G. Lee Co., 204 Va. 108 (Va. 1963) (inference of fraud where corporate debtor under complete control of creditor‑director)
- Neff v. Edwards, 148 Va. 616 (Va. 1927) (a debtor may prefer one creditor over another; preference not fraudulent per se)
- Luria v. Board of Dirs. of Westbriar Condo. Unit Owners Ass’n, 277 Va. 359 (Va. 2009) (creditor status can exist before judgment; bona fide creditor concept)
- Mackey v. McDannald, 298 Va. 645 (Va. 2020) (conversion of intangible rights requires a clear, definite, immediate right to possession)
- FDIC v. Cashion, 720 F.3d 169 (4th Cir. 2013) (filing a Form 1099‑C or charge‑off does not itself legally discharge a debt)