KB Aircraft Acquisition, LLC v. Berry

• Decision Date: 16 August 2016
• Docket Number: No. COA15–823,COA15–823
• Citation: 790 S.E.2d 559,249 N.C.App. 74
• Court: North Carolina Court of Appeals
• Parties: KB AIRCRAFT ACQUISITION, LLC, Plaintiff, v. Jack M. BERRY, Jr., and 585 Goforth Road, LLC, Defendants.

249 N.C.App. 74

790 S.E.2d 559

KB AIRCRAFT ACQUISITION, LLC, Plaintiff,

v.Jack M. BERRY, Jr., and 585 Goforth Road, LLC, Defendants.

No. COA15–823

Court of Appeals of North Carolina.

Filed: August 16, 2016

Smith, Debnam, Narron, Drake, Saintsing, & Myers, L.L.P., Raleigh, by Byron L. Saintsing, for Plaintiff–Appellant.

Brooks, Pierce, McLendon, Humphrey, and Leonard, L.L.P., Greensboro, by John H. Small and Clint S. Morse, for Defendants–Appellees.

INMAN, Judge.

KB Aircraft Acquisition, LLC ("Plaintiff") appeals from an Order and Summary Judgment in favor of Jack M. Berry, Jr. ("Defendant Berry") and 585 Goforth Road, LLC ("Defendant 585") (together, "Defendants") dismissing Plaintiff's claims for fraudulent transfer of property and declaratory relief.

This appeal presents two issues of first impression: (1) the interpretation of the term "transfer" in N.C. Gen. Stat. § 39–23.9 (2015), part of the North Carolina Uniform Voidable Transactions Act; and (2) whether the statute is one of limitations or repose. We hold that the term "transfer" refers to the actual date on which an asset was transferred, rather than the date when its fraudulent nature became apparent to a creditor, and that the statute is one of repose. Accordingly, we hold that Plaintiff's claims are time-barred and affirm the trial court's Order and Summary Judgment.

I. Factual and Procedural History

This dispute arises out of the transfer of real property located in North Carolina by Defendant Berry during a time when Defendant Berry was indebted as a guarantor on a loan to a business he owned.

Plaintiff is a Delaware limited liability company with its principal place of business in New York. Defendant Berry is a resident of Florida. Jurisdiction in North Carolina is proper because the property is located at 585 Goforth Road in Blowing Rock, North Carolina ("the Property").

Defendant Berry became indebted to Plaintiff in 2010 after Plaintiff purchased all rights in a loan from Key Equipment Finance, Inc. ("Key"), made to BerryAir, LLC ("BerryAir"), which was guaranteed by Defendant Berry. At the time Plaintiff purchased the loan, BerryAir and Defendant Berry were in default on their loan obligations.

In 2006, Key, Plaintiff's predecessor in interest, loaned $10,156,500.00 to BerryAir for the purchase of an airplane. Defendant Berry, on behalf of BerryAir, executed a Promissory Note ("the Note") and an Airplane Security Agreement providing Key a security interest in a Bombardier Challenger 601–3A Aircraft purchased by BerryAir with the loan proceeds.

To provide further security for the loan, Defendant Berry signed a Personal Guaranty ("the Guaranty") stating that he "intend[ed] to guarantee at all times the performance and prompt payment when due, whether at maturity or earlier by reason of acceleration or otherwise, of all Obligations" of BerryAir under the loan. The Aircraft Security Agreement, in paragraph 2.11(b), provided that within 90 days after the last day of each year, BerryAir was required to provide to Key a copy of the personal financial statement for Defendant Berry regarding his financial condition during the prior year. At the time the loan was made, Defendant Berry's assets, which included the Property, were valued at more than $47 million. The majority of the assets were equity interests in various businesses. The Property, valued at more than $3 million, was Defendant Berry's largest real estate asset.¹

By October 2008, BerryAir, as the debtor, and Defendant Berry, as the guarantor, had defaulted on the loan and were negotiating with Key to modify the loan repayment terms.

On 10 October 2008, Defendant Berry organized Defendant 585 as a limited liability company in Florida with Defendant Berry and his wife as its only members. Defendant Berry transferred the Property to Defendant 585 by special warranty deed that same day. At the time, according to a personal financial statement later provided by Defendant Berry to Key, the Property was Defendant Berry's most valuable real estate asset and worth $4,250,626.00. No consideration was paid to Defendant Berry in the transfer. The deed stated on its face that "THIS TRANSACTION IS BETWEEN RELATED PARTIES AND THERE IS NO CONSIDERATION BEING PAID." The deed was recorded on 23 October 2008 in Book 1406, Page 196 of the Watauga County Register of Deeds. Neither Defendant Berry nor BerryAir provided actual notice to Key at the time of the transfer.

In November 2008, following negotiations with Key, Defendant Berry executed Amendment No. 1 to the Note on behalf of BerryAir, modifying the payment terms of the Note, along with a Confirmation of Guaranty. Both documents reaffirmed that there had been no interruption in the obligations of BerryAir and Defendant Berry under the terms of the Note and the Guaranty.

Despite the repayment modifications, BerryAir and Defendant Berry continued to default on the terms of the Note and the Guaranty throughout 2009 and the early months of 2010. Defendant Berry, on behalf of BerryAir as the debtor and on behalf of himself as the guarantor, continued negotiating with Key to resolve the payment defaults, ultimately entering into a Forbearance Agreement and eventually two Amendments to the Forbearance Agreement. The last of these agreements was signed by Defendant Berry on 24 February 2010, over a year after he had transferred the Property. Each document ratified, reaffirmed, and confirmed all terms, conditions, rights, and obligations contained within the original loan documents, except as modified by the Forbearance Agreement. The final agreement extended the forbearance period until 6 August 2010.

In accordance with the terms of the Note, the Security Agreement, and related Amendments and Forbearance Agreements, Defendant Berry annually provided to Key a copy of his personal financial statements for the preceding year, no later than 90 days after the last day of the respective year. The financial statements were certified by Defendant Berry as true and accurate statements of his financial condition during the time specified.

The record on appeal does not include any of Defendant Berry's personal financial records provided to Key prior to 2008. On or about 7 November 2008, during negotiations for Key to forbear from taking action on the loan default and to modify the repayment terms, Defendant Berry submitted to Key a one-page personal financial statement listing his assets for the years 2004, 2005, 2006, 2007, and as of 30 June 2008. The statement listed the Property, described as "Blowing Rock House," and represented its value as $4,250,626.00. No evidence in the record indicates that Key requested a current personal financial statement or looked any further than the statement provided on or about 7 November 2008.

At some point in 2009,² Defendant Berry provided Key with a three-page personal financial statement for the period ending 31 December 2008, along with a one-page attachment. The first page of the statement listed Defendant Berry's real estate assets as being valued at $353,355.00. The attachment, a balance sheet, stated the Defendant Berry owned a 100% interest in Defendant 585 valued at $1,142,100.00. This document was inaccurate in one respect—Defendant Berry owned a 100% interest in Defendant 585 jointly with his wife.³ This statement was also the first document of record provided to Key reflecting that Defendant Berry had transferred the Property and that Defendant Berry had an ownership interest in Defendant 585.

On 28 April 2010, Defendant Berry provided Key with his personal financial statement for the year ending 31 December 2009. The 2009 personal financial statement also reflected that Defendant Berry had transferred the Property, that the Property was owned by Defendant 585, and that Defendant Berry had an ownership interest in Defendant 585.

On or about 30 September 2010, Key sold and assigned to Plaintiff all of its right, title, and interest in and to the Note, the Guaranty, and all related loan documents. Plaintiff notified Defendant Berry of the assignment of his debt in a demand letter dated 4 October 2010.

Soon after demanding payment from BerryAir and Defendant Berry, Plaintiff filed suit against them in Florida for their failure to cure the longstanding default. In December 2010, a month after filing suit and two months after purchasing the loan from Key, Plaintiff conducted a title search on the Property which reflected that Defendant Berry had transferred it in 2008 to Defendant 585.

In July 2013, Plaintiff obtained a judgment for $10,577,895.90 against BerryAir and Defendant Berry in Florida. Plaintiff perfected a judgment lien in North Carolina which is enforceable against any real property owned by Defendant Berry in Watauga County. Plaintiff was unable to enforce the lien against the Property because, although it is in Watauga County, Defendant Berry no longer owned it.⁴

Plaintiff filed suit against Defendants in North Carolina on 2 December 2013, alleging a claim for fraudulent transfer pursuant to N.C. Gen. Stat. § 39–23.1 et seq. and a claim for declaratory relief. Plaintiff's complaint sought a judgment setting aside the conveyance of the Property to Defendant 585 and, in accordance with the statute, vesting the Property back into Defendant Berry's name and subject to Plaintiff's judgment lien. Defendants moved for summary judgment, arguing that Plaintiff's claims were time barred because they were brought outside the relevant limitations periods allowed by the Uniform Voidable Transactions Act. Following a hearing in January 2015, Judge Richard L. Doughton entered an Order and Summary Judgment in Defendants’ favor. Plaintiff timely appealed.

II. Analysis

A. Standard of Review

"Our standard of review of an appeal from summary judgment is de novo; such judgment is appropriate only when the record shows that there is no genuine issue as to any material fact and that any party is entitled to a judgment as a matter of law." In re Will...