Campbell v. Hanckel (In re Re)

• Decision Date: 01 January 2014
• Docket Number: Case No. 12–04936–dd,Adv. Pro. No. 12–80247–dd
• Citation: 512 B.R. 539
• Court: U.S. Bankruptcy Court — District of South Carolina
• Parties: In re, Richardson Miles Hanckel, III, Debtor. Kevin Campbell, Trustee, Plaintiff, v. R.M. Hanckel, III; Hanckel Marine, LLC; Pamela Hanckel; and R.M. Hanckel, Jr., Defendants.

512 B.R. 539

In re, Richardson Miles Hanckel, III, Debtor.Kevin Campbell, Trustee, Plaintiff,

v.R.M. Hanckel, III; Hanckel Marine, LLC; Pamela Hanckel; and R.M. Hanckel, Jr., Defendants.

Case No. 12–04936–dd

Adv. Pro. No. 12–80247–dd

United States Bankruptcy Court, D. South Carolina.

Signed 05/28/2014

R. Michael Drose, David B. Marvel, Prenner Marvel, PA, North Charleston, SC, for Debtor.

Andrew Kenneth Epting, Jr., Andrew K. Epting, Jr., LLC, for Kevin Campbell, Trustee.

Chapter 7

ORDER

David R. Duncan, Chief US Bankruptcy Judge

This matter is before the Court on cross-motions for summary judgment filed by the plaintiff, Kevin Campbell, Trustee (“Plaintiff”) and the defendants, R.M. Hanckel, III; Hanckel Marine, LLC; Pamela Hanckel; and R.M. Hanckel, Jr. (“Defendants”). Also before the Court are a second motion in limine, third motion in limine, and a motion to allow filing out of time filed by Defendants. Plaintiff responded in opposition to Defendants' motion for summary judgment and motions in limine. Plaintiff responded to the motion to allow filing out of time and indicated he did not oppose Defendants being permitted to file their motion for summary judgment and third motion in limine one day after the scheduling order deadline for such motions. Defendants responded in opposition to Plaintiff's motion for summary judgment. The Court held a hearing on the motions on March 25, 2014. After careful consideration of the applicable law, arguments of counsel, and evidence submitted, the Court rules as follows with respect to the motions before it.

JURISDICTION AND AUTHORITY TO ENTER A FINAL ORDER

The issue in this adversary proceeding is whether R.M. Hanckel, III fraudulently conveyed his interest in Hanckel Marine, LLC to R.M. Hanckel, Jr. Jurisdiction for this proceeding is premised upon 28 U.S.C. §§ 1334 and 157(a). Venue is proper under 28 U.S.C. § 1409. This adversary proceeding is a core proceeding. 28 U.S.C. § 157(b)(2)(H). This Court has previously concluded that its entering a final order or judgment in an action to set aside a fraudulent conveyance would be inconsistent with Article III of the United States Constitution without the express consent of the parties. Vieira v. Clutts (In re Clutts), C/A No. 13–00184–DD, Adv. Pro. No. 13–80068–DD, p. 2 (Bankr.D.S.C. Dec. 6, 2013). At the March 25, 2014 hearing, Defendants' counsel expressly consented on the record to this Court entering a final order or judgment. Plaintiff's counsel expressly consented at a previous hearing.

FACTS

Hanckel Marine, LLC was established in 2000. Richardson Miles Hanckel, III, also known as R.M. Hanckel, III (“Milo”), held a fifty percent membership interest in Hanckel Marine, LLC. Milo's father, R.M. Hanckel, Jr. (“Miles”), held the remaining fifty percent interest. In 2004, Steve Potts approved Hanckel Marine as an authorized Scout Boats dealer and eventually entered into a business arrangement with Milo to create the Sportsman's Island facility on Daniel Island, South Carolina, which was to be the new location for Hanckel Marine. Potts founded Scout Boats and is currently the president and chief executive officer of Scout.

In 2009, with the recreational and marine industry in decline, Milo defaulted on his obligations to Potts in connection with Sportsman's Island. The Hanckels also struggled with other obligations during this time. In May 2010, a judgment in the amount of $418,239.37 was entered against Milo and Hanckel Marine in a case filed by Caroline and Malcolm Rhodes arising out of a breach of a lease and guaranty. Pl.'s ex. C. Subsequently, Milo and Hanckel Marine entered into a “SETTLEMENT AGREEMENT AND MUTUAL RELEASE” dated August 31, 2010, with the Rhodes under which Pamela Hanckel (“Pam”), Milo's mother and Miles' spouse, would pay $30,000 to the Rhodes and the Rhodes would assign the judgment to Pam. Id.

On October 12, 2010, Defendants' attorney at that time emailed Milo, Pam, and Jeff Hutto, who was the Defendants' accountant, regarding dealing with the obligations to Potts:

Here is my overture to Potts' attorney. Note my insistence that Miles, Pam, [Hanckel Marine], and [Hanckel Properties, LLC] be protected.

Jeff, it seems to me to be advantageous to take Milo out of Hanckel Marine by a transfer of his interest to Miles and Pam. If and when Milo has to file, I would rather not list an interest in [Hanckel Marine] among his assets. A big creditor like Potts might find it tempting to make mischief out of that situation, even though Milo's interest will have a negative value for some time to come.

Pl.'s ex. J. On November 30, 2010, the same attorney emailed Milo, Pam, and Jeff Hutto regarding his negotiations with respect to a debt owed to Wells Fargo and again discussed dealing with Milo's interest in Hanckel Marine:

Note that I have suggested that Milo be left out of any new agreement. I anticipate that sooner or later we will have to deal with the Potts' liability, which may involve Milo's bankruptcy, and in the meantime, we are going to transfer Milo's interest in [Hanckel Marine] to Miles, and distance him from [Hanckel Marine] so that the company is not affected at all should Milo have to file Chapter 7.

Pl.'s ex. K.

In December 2010, Miles, Milo, Hanckel Marine, and Hanckel Properties, LLC entered into a “SETTLEMENT AGREEMENT” to resolve their debt to Hanckel Marine's floor plan lender, Fifth Third Bank. Pl.'s ex. D. Also in December 2010 Pam entered into a forbearance agreement with Wells Fargo combining three notes of Hanckel Properties and Hanckel Marine.

On January 25, 2011, Milo and two entities for which he was the managing member entered into an agreement regarding obligations owed to Potts; Potts Family Properties, LP; and Sportsman's Island, LLC (the “Potts creditors”). Pl.'s ex. G. Milo agreed to pay the Potts creditors $228,006 pursuant to a payment schedule and to pay $1,598,400 on an indebtedness to Wachovia pursuant to a payment schedule. Id. In exchange, Milo's responsibility for expenses under certain leases would be terminated, the Potts creditors would release any claim they had against Milo related to the indebtedness, and the Potts creditors would pay the remainder of the $3,996,000 indebtedness owed to Wachovia. Id. While Defendants do not dispute Milo's signature is on this agreement, they assert Milo never represented any intention or ability to pay the debt owed to the Potts creditors. Defs.' Obj. Pl.'s Mot. Summ. J., p. 3 (Docket # 95).

Later in 2011, Hanckel Marine, Milo, and Miles signed an “AGREEMENT TO TRANSFER SHARES OF DISSOCIATING MEMBER” (“Dissociation Agreement”) effective July 18, 2011. Under “Section 1.1 Declaration of Dissociation,” the agreement states:

The Dissociating Member [Milo] hereby declares that he is voluntarily dissociating from the Company; that he is aware of the terms of the Operating Agreement which result in the transfer of his ownership interest to the Remaining Member [Miles]; and that he affirms and agrees that the sole consideration to which he is entitled and expects to receive under the terms of this dissociation and transfer of ownership interest is the sum of Ten and 00/100 Dollars ($10.00).

Pl.'s ex. H. The Dissociation Agreement also provides that Miles “acknowledges and agrees that he shall, on behalf of the Company and in full satisfaction of the Company's duties and authority under the Operating Agreement, pay to the Dissociating Member the sum of Ten and 00/100 Dollars ($10.00).” Id. The Dissociation Agreement further sets forth that Milo “by his signature below, acknowledges the receipt and sufficiency of the above-described payment as full and complete consideration supporting this Agreement and that it represents the full measure of compensation, disbursement, distribution, and value associated with his ownership and other interests in the Company which is being conveyed hereby.” Id.

During his deposition, Milo testified as follows regarding what he received in exchange for transferring his interest in Hanckel Marine:

Q. What did you receive in exchange for transferring your interests in Hanckel Marine to your father?

A. Absolutely nothing. The business at this point has no value and had no value at these dates and now.

Q. Section 1.1 of that document says you received $10. Did you actually receive $10?

A. Technically, yes, as far as—

Q. Pass ten bucks over the table?

A. Exactly. Yes.

R. Miles Hanckel, III Dep., p. 32–33. At his earlier Federal Rule of Bankruptcy Procedure 2004 examination, Milo testified he did not receive the $10 recited in the Dissociation Agreement.¹ Additionally, in their motion for summary judgment and response in opposition to Plaintiff's motion for summary judgment, Defendants concede that Milo did not receive any money when he entered into the Dissociation Agreement. Defs.' Mot. Summ. J., pp. 3, 16 (Docket # 91); Defs.' Obj. Pl.'s Mot. Summ. J., p. 4 (Docket # 95). Defendants' counsel did not retract this concession at the hearing on the parties' motions for summary judgment.

In October of 2011, the Potts creditors filed suit in state court in South Carolina against Milo and two other entities with which Milo was associated. This lawsuit was concluded by a consent order of judgment entered on May 17, 2012, in the amount of $1,953,927.71. Pl.'s ex. I.

Milo filed for relief under chapter 7 of the Bankruptcy Code on August 9, 2012. His bankruptcy case was assigned case number 12–04936–dd. In his schedules, Milo listed no secured debt and $2,031,066 in unsecured debt of which $1,826,406 was indicated as owed to Potts and Sportsman's Island. Case No. 12–04936–dd, docket entry 1. In his statement of financial affairs, Milo listed the transfer of his interest in Hanckel Marine in response to question 10, which required him to list “all other property, other than property transferred in the ordinary course of the business or financial affairs of the debtor, transferred either absolutely or as security...