Cadence Bank, N.A. v. Horry Props., LLC
| Decision Date | 02 April 2012 |
| Docket Number | Civil Action No.: 4:10-cv-2717-RBH |
| Court | U.S. District Court — District of South Carolina |
| Parties | Cadence Bank, N.A., Plaintiff, v. Horry Properties, LLC, a South Carolina Limited Liability Company; M&M Builders, LLC of OD, a South Carolina Limited Liability Company; Arthur F. McLean, Jr., Defendants. |
This matter is before the Court following a bench trial held on January 30, 2012. Having considered the testimony of the witnesses, both in-court and by way of deposition, the exhibits, and arguments of counsel, the Court issues the following Findings of Fact and Conclusions of Law pursuant to Rule 52 of the Federal Rules of Civil Procedure. To the extent that any findings of fact constitute conclusions of law, or vice-versa, they shall be so regarded.
As discussed more fully below, the Court finds in favor of Cadence Bank, N.A. ("Cadence Bank") on its claim that Defendant Horry Properties, LLC ("Horry Properties") fraudulently transferred certain property and assigned leases associated with that property to Defendant M&M Builders, LLC of OD ("M&M Builders"), and the challenged transfer and assignments are set aside as utterly void. However, the Court finds in favor of Defendants on Cadence Bank's claim to pierce the corporate veils of Horry Properties and M&M Builders, and the Court will not disregard the corporate forms of Horry Properties or M&M Builders.1
This lawsuit is an attempt by Cadence Bank to set aside an alleged fraudulent conveyance of a parcel of property and assignment of two leases associated with the property between Horry Properties and M&M Builders, which were both allege dly controlled by Defendant Arthur F. McLean ("Mr. McLean"). Cadence Bank, alternatively, seeks actual and punitive damages against Mr. McLean, Horry Properties, and M&M Builders for damages caused by their alleged fraudulent conduct. Specifically, Cadence Bank contends that after foreclosure proceedings were instituted against Horry Properties in North Carolina, Mr. McLean transferred Horry Properties' primary asset to M&M Builders in an attempt to prevent Cadence Bank from collecting on any deficiency from the North Carolina foreclosure.
Cadence Bank also seeks to disregard the corporate forms of Horry Properties and M&M Builders, arguing that Mr. McLean has abused the corporate form to such an extent and degree that principles of equity and fairness require the corporate veil to be pierced as to both entities.
Cadence Bank filed this lawsuit on October 10, 2010, alleging causes of action against HorryProperties, M&M Builders, and Mr. McLean.2 [Pl.'s Compl., Doc. # 1.] In its first cause of action, Cadence Bank alleges that after it instituted a foreclosure proceeding against Horry Properties, Horry Properties conveyed its primary asset to M&M Builders. [Pl.'s Compl., Doc. # 1, at ¶¶ 8-21, 23-30.] In addition to the transfer of land, Horry Properties assigned two leases associated with the property to M&M Builders. [Id. at ¶ 27.] Cadence Bank alleges that Mr. McLean was the sole member and manager of both M&M Builders and Horry Properties at the time of the conveyances and that the transactions between Horry Properties and M&M Builders were conducted by Mr. McLean with the intent to defraud Cadence Bank. [Id. at ¶ 28.] Based on the alleged fraudulent conduct, Cadence Bank seeks to set aside the transfers under S.C. Code Ann. § 27-23-10(A). [Id. at ¶ 30.] In the alternative, Cadence Bank requests actual and punitive damages. [Id. at ¶¶ 32-33.]
In its second cause of action, Cadence Bank seeks declaratory relief under 28 U.S.C. §§ 2201-2202. [Id. at ¶¶ 35-36.] Cadence Bank contends that because Mr. McLean abused the corporate form to defraud creditors, the corporate veil should be pierced as to both M&M Builders and Horry Properties. [Id. at ¶ 35.] Cadence Bank requests that the Court set aside the corporate entities known as Horry Properties, LLC and M&M Builders, LLC of OD, and hold Mr. McLean personally liable for the LLCs' debts and obligations. [Id. at ¶ 36.]
Mr. McLean, Horry Properties, and M&M Builders filed their answer on October 28, 2010. [Answer, Doc. # 22.] Defendants deny that the transfers were conducted with the intent to defraud Cadence Bank and argue that Cadence Bank should be estopped from seeking the requested reliefbecause: 1) the actual fair market value of the property received by Cadence Bank following the foreclosure sale exceeds the amount of Horry Properties' debt; 2) Cadence Bank failed to provide notice of the foreclosure sale to Arthur and Elizabeth McLean as guarantors of the North Carolina mortgage; and 3) Cadence Bank acted with full knowledge of the corporate structure of Horry Properties. [Id. at ¶¶ 13, 6-19.]
1. Plaintiff Cadence Bank, formerly known as Seasons Bank,3 is a banking institution chartered by the Office of the Comptroller of the Currency, an agency in the United States Treasury Department, pursuant to the National Bank Act. Cadence Bank has its headquarters in Starkville, Mississippi. [Pl.'s Compl., Doc. # 1-4, at ¶ 1; Defs.' Answer, Doc. # 22, at ¶ 2.]
2. Defendant Horry Properties is a South Carolina Limited Company organized in 1998. [Id.]
3. Defendant M&M Builders is a South Carolina Limited Liability Company organized in 2006. [Id.]
4. Defendant Mr. McLean is a citizen and resident of Horry County, South Carolina. [Id.] Mr. McLean has been in the real estate business for at least fifty years, and has sold more than 100properties. [Tr.4 at 75:5-11.]
Mr. McLean's interest in Horry Properties and M&M Builders
5. Mr. McLean was the sole member and manager of Horry Properties and at least the "owner-manager," if not the sole member, of M&M Builders at the time of the challenged conveyances. [See CBE5 1, 9, 16, 55, 77; Tr. at 80:5-10, 101:12-17.]
6. Mr. McLean does not dispute his status as sole member of Horry Properties. [See Tr. at 80:5-10; 101:12-17.] Regardless, the evidence also supports this finding. [See id.] However, Mr. McLean has claimed that he transferred all of his interest in M&M Builders to his children, Lance McLean and Jo Anne McLean, on or about February 2, 2008, and that he was merely acting as "owner-manager" on his children's behalf. [See CBE 55 at 1; Tr. at 99:4-22.] In several exhibits submitted to this Court, Mr. McLean held himself out to the public as the sole member of M&M Builders; Mr. McLean acknowledged that in the documents outlining the transactions at issue, he signed as the sole member of both Horry Properties and M&M Builders; and Mr. McLean conceded that his children never complied with the requirements of M&M's operating agreement regarding the addition of new members. [See, e.g., CBE 1, 9, 16; Tr. at 99:24-101:23.] Regardless of whether he was the sole member or "owner-manager" of M&M Builders, he exercised exclusive control over the affairs of M&M Builders.6 Basis for Horry Properties' indebtedness to Cadence Bank
7. On or about June 20, 2005, Horry Properties, by and through its sole member and manager Mr. McLean, executed and delivered a promissory note promising to pay Cadence Bank the principal sum of $816,355.00 ("Cadence Note"), in exchange for a loan from Cadence in that amount. [CBE 74; Tr. at 13:1- 22, 76:1-22.] The purpose of the loan was to purchase an adjacent bakery and combine it with an existing restaurant known as the Country Cottage. [Id.]
8. The Cadence Note was secured by a Deed of Trust on certain real estate located in Clay County, North Carolina, and recorded in Book DT M8, Page 043 in the Clay County Registry. [CBE 94, Tr. 14:14-15:23, 77:7-78:2.] The property used as collateral for the loan from Cadence Bank is set forth in Schedule A of the Deed of Trust and includes the property on which the Country Cottage Restaurant and Bakery was located and twelve undeveloped/wilderness lots ("Country Cottage property and Undeveloped Lots"). [Id.] The Cadence Note was also personally guaranteed by Mr. McLean and his wife, Elizabeth McLean. [CBE 67.] In July of2007, Cadence Bank granted Horry Properties and Mr. McLean an extension on the payment obligations required under the Cadence Note allowing them to miss payments due on June 27, 2007 and July 27, 2007. [CBE 75; Tr. 20:6-24, 79:18-80:4.]
9. Horry Properties and Mr. McLean ultimately defaulted on the Cadence Note for failure to make monthly payments of principal and interest. [Tr. at 21:2-3, 81:13-19.]
10. On May 7, 2008, Cadence Bank initiated foreclosure proceedings on the Country Cottage property and Undeveloped Lots in the Superior Court for Clay County, North Carolina, against Horry Properties for failure to meet its payment obligations under the Cadence Note. [CBE 82; Tr. at 24:16-25:12.]Horry Properties' notice of foreclosure proceedings and sale
11. The initial Notice of Hearing regarding the foreclosure action was served on the registered agent for Horry Properties, David Sowell, on June 10, 2008. [CBE 68-69, 79; Tr. at 24:16-25:5, 28:10-21.]
12. Mr. Sowell testified that although he could not specifically remember being served documents relating to the foreclosure, he had been served other documents in the past and had no reason to believe that service of the foreclosure documents was not effectuated or that the documents evidencing service were not authentic. [Tr. at 67:5-13.]
13. Mr. Sowell testified that it was his standard practice as registered agent to forward any documents to Mr. McLean, and that there was no reason to believe he did not do so regarding the foreclosure notice in the present case. [Tr. at 66:14-67:24.]
14. Mr. McLean testified that on previous occasions, Mr. Sowell had delivered documents to him, and he also acknowledged that Mr. Sowell could have told him by telephone about the filed documents. [Tr. at 83:1-2, 82:22-24.]
15. On June 30, 2008, an Order of Sale was issued authorizing the sale of the...
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