Summary Judgment; Fraudulent Conveyance
International Management Group, Inc. v. Bryant Bank, [Ms. 2170744, Oct. 12, 2018] __ So. 3d __ (Ala. Civ. App. 2018). The court (Thomas, J.; and Thompson, P.J., and Pittman and Moore, JJ., concur; Donaldson, J., recuses) reverses a summary judgment entered in favor of the plaintiff and movant, Bryant Bank, which was premised upon a fraudulent conveyance theory under the Alabama Uniform Fraudulent Transfers Act, § 8-9A-1 et seq., Ala. Code 1975, and set aside fraudulent transfers of a mortgage because they were transferred without consideration. On appeal, the transferees argued the trial court erred in entering summary judgment in favor of the bank for three reasons: (1) if the trial court's entry of summary judgment was based upon a violation of § 8-9A-5 (constructive fraudulent transfer), the summary judgment was improper because the bank committed a procedural error in not asserting its §8-9A-5(a) argument until it filed a brief in reply to the transferees' opposition to the bank's summary-judgment motion; (2) because the statute of limitations on a claim alleging constructive fraud under § 8-9A-5(a) had run by the time suit was filed; and, (3) if the summary judgment order was premised upon a violation of § 8-9A-4 (actual intent to hinder or defraud), the order was improper because issues of fraudulent intent are typically inappropriate for resolution via summary judgment. Ms. *8-9.
The court first reiterates the standard of review when the movant for summary judgment bears the burden of proof on its claims at trial:
"'"'[T]he manner in which the [summary-judgment] movant's burden of production is met depends upon which party has the burden of proof ... at trial.'"' Denmark v. Mercantile Stores Co., 844 So. 2d 1189, 1195 (Ala. 2002) (quoting Ex parte General Motors Corp., 769 So. 2d 903, 909 (Ala. 1999), quoting in turn Berner v. Caldwell, 543 So. 2d 686, 691 (Ala. 1989) (Houston, J., concurring specially)). If the movant is the plaintiff with the ultimate burden of proof, his '"proof must be such that he would be entitled to a directed verdict [now referred to as a judgment as a matter of law, see Rule 50, Ala. R. Civ. P.] if this evidence was not controverted at trial."' Ex parte General Motors, 769 So. 2d at 909 (quoting Berner, 543 So. 2d at 688).
"'The first prerequisite for [a summary judgment] in favor of a movant who asserts a claim ... is that the claim ... be valid in legal theory, if its validity be challenged. See Driver v. National Sec. Fire & Cas. Co., 658 So. 2d 390 (Ala. 1995). The second prerequisite for [a summary judgment] in favor of such a movant, who necessarily bears the burden of proof, American Furniture Galleries v. McWane, Inc., 477 So. 2d 369 (Ala. 1985), McKerley v. Etowah–DeKalb–Cherokee Mental Health Board, Inc., 686 So. 2d 1194 (Ala. Civ. App. 1996), and Oliver v. Hayes International Corp., 456 So. 2d 802 (Ala. Civ. App. 1984), is that each contested element of the claim ... be supported by substantial evidence. See Driver, supra, and McKerley, supra. The third prerequisite for [a summary judgment] in favor of such a movant is that the record be devoid of substantial evidence rebutting the movant's evidence on any essential element of the claim.... See Driver, supra, and First Fin. Ins. Co. v. Tillery, 626 So. 2d 1252 (Ala. 1993). Substantial rebutting evidence would create an issue of fact to be tried by the finder of fact and therefore would preclude [a summary judgment]. See Driver, supra, and First Financial, supra. [Summary judgment] in favor of the party who asserts the claim ... is not appropriate unless all three of these prerequisites coexist. See Driver, supra, and First Financial, supra, McKerley, supra, and Oliver, supra.'"
Ms. *15-16 (quoting Ross v. Rosen-Rager, 67 So. 3d 29, 35 (Ala. 2010) (quoting Ex parte Helms, 873 So. 2d 1139, 1143 (Ala. 2003)).
The court next rejects the transferees' argument that the bank was procedurally prohibited from invoking § 8-9A-5(a), because it failed to recite that statute in its complaint and raised that statute as a theory of recovery only for the first time in its reply to the transferees' opposition to the bank's motion for summary judgment. Citing Phillips Colleges of Alabama, Inc. v. Lester, 622 So. 2d 308 (Ala. 1993) (Ms. *23), the court reiterates "under modern rules of civil practice, the pleadings generally need only to put the defending party on notice of the claims against him," and that in light of the party's ability to fully develop their arguments, there could be no prejudice from allowing the parties to proceed under the § 8-9A-5(a) theory. The court quotes the holding of Bracy v. Sippial Elec. Co.., 379 So. 2d 582, 584 (Ala. 1980), that "[w]here an amendment merely changes the legal theory of a case or adds an additional theory, but the new or additional theory is based upon the same set of facts and those facts have been brought to the attention of the other party by a previous pleading, no prejudice is worked upon the other party." Ms. *23-24.
The court next considered the transferees' contention that the bank's § 8-9A-5 claim was barred by the four-year statute of limitations imposed by § 8-9A-9(3), and that § 6-2-3's discovery tolling provision did not save the claim. The court first notes that a party seeking to invoke § 6-2-3 must:
"'(1) ... aver with precision the facts and circumstances which allegedly were not discovered and to which [plaintiff] allegedly w[as] defrauded, (2) ... aver how or when these facts were discovered, (3) ... aver what prevented these facts from being discovered before the bar of the statute became complete and (4) ... aver facts acquitting [the plaintiff] of all knowledge of facts which ought to have put [it] on inquiry.'"
Ms. *25. Quoting Amason v. First State Bank of Lineville, 369 So. 2d 547, 550 (Ala. 1979), the court concludes the bank failed to establish it lacked "knowledge of facts which ought to have put [it] on inquiry." As a result, the bank did not present evidence sufficient to demonstrate it met each element required under § 6-2-3 to be supported by substantial evidence, such that the issue of the timeliness of the complaint was not properly resolved at the summary-judgment stage. The court reiterates, Ms. *26, n. 11, "[a]s a general rule, the question of when the plaintiff discovered, or should have discovered, the fraud is reserved for the jury." Id. (quoting Chambless-Killingsworth & Assocs., P.C. v. Osmose Wood Preserving, Inc., 695 So. 2d 25, 27 (Ala. Civ. App. 1996)).
Turning to whether summary judgment could be affirmed on the basis of the bank's proof of the required elements for fraudulent transfer under § 8-9A-4(a) (requiring proof that a debtor intended to "hinder, delay, or defraud" a creditor by transferring an asset), the court again found the bank's evidence insufficient. Section 8-9A-4(b) requires substantial evidence of at least three indicia of fraud:
"(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."
Citing numerous decisions (Ms. *31-32), the court holds that proving an actual intent to hinder, delay, or defraud is a heavily fact-dependent question, usually revealed through circumstantial evidence, requiring determinations concerning the credibility of witnesses, such that claims under § 8-9A-4(a) are not well suited for summary judgment.