775 F.2d 1209 (4th Cir. 1985), 84-1880, Havee v. Belk

Docket Nº:84-1880.
Citation:775 F.2d 1209
Party Name:Justin HAVEE, as Trustee for William Henry Belk, Jr., a/k/a William Henry Belk, Appellant, and Union Bank of Baveria, Plaintiff, v. Irwin BELK; Sarah Belk Gambrell, Appellees, and Henderson Belk; Belk-Broome Company of Marion, N.C., Inc.; Belk's Department Store of Asheville, N.C., Inc.; Belk Enterprises, Inc.; Belk Finance Company; Belk-Gallant Co
Case Date:October 24, 1985
Court:United States Courts of Appeals, Court of Appeals for the Fourth Circuit
 
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Page 1209

775 F.2d 1209 (4th Cir. 1985)

Justin HAVEE, as Trustee for William Henry Belk, Jr., a/k/a

William Henry Belk, Appellant,

and

Union Bank of Baveria, Plaintiff,

v.

Irwin BELK; Sarah Belk Gambrell, Appellees,

and

Henderson Belk; Belk-Broome Company of Marion, N.C., Inc.;

Belk's Department Store of Asheville, N.C., Inc.; Belk

Enterprises, Inc.; Belk Finance Company; Belk-Gallant

Company of Decatur, Ga., Inc.; Belk-Gallant Company of

Thomaston, Ga., Inc.; Belk-Gallant Company--Toccoa, Ga.;

Belk Insurance Reciprocal; Belk-Jones Company of Stuttgart,

Arkansas, Inc.; Belk-Tyler Company of Mount Olive, N.C.,

Inc.; Belk-Tyler of Greenville, N.C., Inc.; Gallant-Belk

Company, Gainesville, Ga.; Gallant-Belk Company, Hartwell,

Ga.; Gallant-Belk Company of Seneca, S.C., Inc., Defendants.

No. 84-1880.

United States Court of Appeals, Fourth Circuit

October 24, 1985

Argued June 5, 1985.

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James A. Beha, II, New York City (James F. Gleason, Jr., Hertzog, Calamari & Gleason, New York City, Phillips & Phillips, P.S., Barbara L. Phillips, Miami, Fla., on brief), for appellant.

Robert D. Dearborn, Charlotte, N.C. (John T. Allred, Moore, Van Allen, Allen & Thigpen, Charlotte, N.C., Larry D. Estridge, Wyche, Burgess, Freeman & Parham, Greenville, N.C., on brief), for appellees.

Before WINTER, Chief Judge, RUSSELL, Circuit Judge, and HAYNSWORTH, Senior Circuit Judge.

DONALD RUSSELL, Circuit Judge:

Initially two actions were instituted on the same day seeking to void as fraudulent conveyances a large number of transfers of corporate stock of the bankrupt William Henry Belk, Jr. (Henry Belk). The plaintiff in one action was the Union Bank of Bavaria (Bank), suing as a judgment creditor of the bankrupt and as the assignee of all the "powers [of the trustees of the bankrupt] under Sections 544, 548 and 550 of the Bankruptcy Code" by authorization of the "United States District Court for the Northern District of Florida, Bankruptcy Division." The plaintiff in the other action was the Trustee in bankruptcy of Henry Belk under appointment in the bankruptcy proceedings. Federal jurisdiction was predicated on diversity of citizenship. 1

The complaints in the two actions framed largely similar issues and invoked both the Fraudulent Conveyance Act of North Carolina 2 and sections 544(b) and 548 of the

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Bankruptcy Code (11 U.S.C.) as the legal basis for their claims for relief. The allegations in the Trustee's complaint were, however, much broader in scope and included more defendants than the complaint of the Bank in its action. In his action, the Trustee named seventeen different transferees of the challenged transfers and identified some 176 allegedly fraudulent conveyances, made during 1980 and 1981. These conveyances consisted of corporate stock in various separate, closely-held "Belk" corporations. All these transferees, including the defendants Irwin Belk and Sarah Belk Gambrell, were named defendants in the Trustee's action. The Bank in its complaint, on the other hand, specified as fraudulent conveyances only certain transfers of stock made in 1980 to the defendants Irwin Belk and Sarah Belk Gambrell and accordingly named those two as the defendants in its action. Before trial, however, the Trustee agreed to the dismissal in his action of all defendants other than Irwin Belk and Sarah Belk Gambrell. Moreover, both plaintiffs abandoned before trial their challenges to a great number of the transfers, including some made to the defendants, Irwin Belk and Sarah Belk Gambrell. As a result of these dismissals and abandonments, the adjusted book value of the stock, the transfer of which was asserted to be in violation of both the North Carolina state law and the Bankruptcy Code, was reduced from $13,539,115.69 to an adjusted book value of $7,053,285. Thus, in the course of the proceedings, the number of defendants in the consolidated actions was reduced from seventeen to two and the plaintiffs lowered the alleged adjusted value of the stock transferred by about a half. 3

The transactions in issue, as the cause was submitted to the jury, consisted of parts of two groups of stock transfers. 4 The first group covered transfers of stock pledged to Citicorp, Maryland National Leasing Corp., Farmers Bank, First Security Bank, and American National Bank, which transfers were made in April, May and July, 1980. The second group consisted of transfers of unencumbered stock and of stock pledged to Integon Insurance Company, which were made in June, 1981, about nine months before the bankruptcy petition was filed by Henry Belk. These transfers were, of course, covered by section 548 of the Bankruptcy Code. Since both actions--that of the Bank and that of the Trustee--asserted claims under the North Carolina Fraudulent Conveyance Statute and under section 548 of the Bankruptcy Code and involved challenges to many of the transfers to the defendants, the district judge in the interest of efficient disposition of the causes early consolidated the actions for discovery and trial after the

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plaintiffs had separately suggested that such consolidation might well be in order. 5

Following considerable discovery, which had been extended on at least three occasions on motion of plaintiffs' counsel, and after a number of motions relating, among other things, to the arrangement of parties plaintiff, the cause came on for trial before a jury, which, at the conclusion of the testimony returned a special verdict in favor of the defendants. 6 Before entering judgment on the jury verdict, the district judge filed an opinion, with findings of fact and conclusions of law in accordance with the requirements of Rule 52, Fed.R.Civ.P.

I.

We begin our review of the district judge's opinion with a summary of his explanation, as set forth therein, of the reason for the filing of an opinion, with his findings of fact and conclusions of law, after the submission of the action to a jury and after a jury verdict thereon. 7 He observed at the outset that the plaintiffs' actions combined suits under the State Fraudulent Conveyance Statute with suits under section 544 of the Bankruptcy Code. He said that under North Carolina law, the issues in the State actions were for the jury, but, since "only equitable relief" was sought in the federal action, the plaintiff in that action "would not [have been] entitled to a jury." He noted that the plaintiffs had in their complaints demanded a jury trial and the defendants had not "object[ed] to the plaintiffs' request for a jury trial but, by silence and inaction, [had] acquiesced in it." He concluded that under those circumstances neither party was in a position to question the submission of the case to a jury. However, out of an abundance of caution and on the assumption that his "reading of the law and procedure" might be found on appeal to be in error, and that the cause should have been treated as one for resolution by the trial judge and not by a jury, the district judge declared that he had made "these findings of fact and conclusions of law in accordance with the Federal Rules of Civil Procedure." 8

In discussing the merits of the plaintiffs' claims in his findings of fact and conclusions of law the district judge first identified what he found to be the "essence of the complaints," i.e., "that the prices paid by Irwin Belk and Sarah Belk Gambrell for the stocks in question were considerably lower than the alleged actual values of the stocks, and that the transfers were effected for the purpose of shielding the assets of William Henry Belk, Jr., from his creditors and at times when, to the knowledge of defendants, William Henry Belk, Jr., was insolvent or about to become insolvent and unable to meet his obligations." The district judge, then addressed that issue: First, he found that the "prices paid by defendants for the stocks in question were 'reasonably fair' prices (North Carolina standard) and were 'reasonably equivalent values' (federal standard)." He added, in explication of this finding, that plaintiffs' proof of a greater value was generally either irrelevant or incomplete, observing that the stock sold was not "freely traded" and, therefore, had no established market, unlike the stocks with which the plaintiffs wished to compare the stock in question. He expressly found "book value" an inappropriate

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guide for fixing value in this case, adding that "the average of the prices [paid by the defendants for stock transferred to them] was 57% of book value and the range of prices was from 42% to 146% of book value," (emphasis in text) indicating clearly that book value was of minimum value in determining the market value of any of the stock. He referred specifically to the fact that plaintiffs' expert witness had been unwilling to express an opinion on " 'fair' market or 'reasonable' " value of the stock transferred, contenting himself with a comparison of the hypothetical market value of the stock in issue with the market price of certain publicly held stock. For this purpose the witness had identified five publicly held merchandising stocks whose market value would be comparable with the hypothetical value of the closely-held stock involved here. Of these comparables, the one which was most like some of the companies involved here (though even here there were important differences) was that of Ivey's, a department store chain headquartered in Charlotte, North Carolina. The district judge commented, however, that the stock in Ivey's "was selling in January, 1980 at only 56% of book value, which was a lower percentage of book value than defendants paid in 1980 and 1981 for the stock in the Belk companies." He pointed out too, that, while the...

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