Kennedy Funding, Inc. v. Pawleys Island N., LLC, Appellate Case No. 2013-001447
| Decision Date | 11 March 2015 |
| Docket Number | Unpublished Opinion No. 2015-UP-138,Appellate Case No. 2013-001447 |
| Court | South Carolina Court of Appeals |
| Parties | Kennedy Funding, Inc., as predecessor-in-interest, and BNP Paribas, Respondents, v. Pawleys Island North, LLC, Will Darwin Wheeler, Peggy Wheeler-Cribb, and J. Mars Sapp, Defendants, Of Whom Pawleys Island North, LLC, Will Darwin Wheeler, and Peggy Wheeler-Cribb are the Respondents, And J. Mars Sapp is the Appellant. |
THIS OPINION HAS NO PRECEDENTIAL VALUE. IT SHOULD NOT BE CITED OR RELIED ON AS PRECEDENT IN ANY PROCEEDING EXCEPT AS PROVIDED BY RULE 268(D)(2), SCACR.
Appeal From Georgetown County
Joe M. Crosby, Master-in-Equity
AFFIRMED IN PART AND REVERSED IN PART
Thomas Whatley Bunch, II, and Paul Hamilton Hoefer, of Robinson McFadden & Moore, PC, of Columbia for Appellant.
Robert H. Gwin, III, of Gwin Law Office, LLC, of Myrtle Beach, for Respondents Pawley's Island North, LLC, Will Darwin Wheeler, and Peggy Wheeler-Cribb; and Robert Hope Jordan and Merritt Gordon Abney, of Nelson Mullins Riley & Scarborough, LLP, of Charleston, for Respondents Kennedy Funding, Inc., as predecessor-in-interest, and BNP Paribas.
In this action arising from a mortgage foreclosure, J. Mars Sapp appeals, arguing the master erred in (1) not finding the conveyance of the property from Will Darwin Wheeler to Pawleys Island North, LLC (Pawleys) was fraudulent; (2) not finding the mortgage transaction between Pawleys and Kennedy Funding, Inc. (Kennedy) was fraudulent; and (3) not setting aside the mortgage as a fraudulent conveyance or declaring Kennedy's lien is subordinate to Sapp's lien on the property. We affirm in part and reverse in part.
This action arises from a mortgage foreclosure initiated by Kennedy, a New Jersey corporation. Kennedy loaned Pawleys, a South Carolina limited liability company, $960,000 on April 30, 2009. The loan was secured by a mortgage and security agreement that was recorded in the Office of the Registrar of Deeds in Georgetown County. Pawleys mortgaged to Kennedy two parcels of real property (Lots 3 and 4) located on Pawleys Island. Additionally, Wheeler and Peggy Wheeler-Cribb1 (Guarantors) executed a guaranty whereby they individually, jointly, and severally guaranteed repayment under the loan to Pawleys, including all costs of collection and reasonable attorney's fees. Pawleys defaulted on the loan payments, and Kennedy initiated a foreclosure action on the property on February 9, 2011.2
In the interim, Sapp attempted to collect on a 2010 civil judgment against Wheeler by executing against the property. However, Sapp could not collect on thejudgment because the property at issue was conveyed from Wheeler to Pawleys in April 28, 2009, by quitclaim deed for $5.3 As a result, Kennedy named Sapp as a possible subordinate lien holder with an interest in the mortgaged property. Sapp answered the amended complaint, asserting he was a judgment lien holder and requesting his lien be declared senior to Kennedy's lien. Kennedy filed a motion for summary judgment, requesting an order dismissing Sapp's claim of a lien interest superior to Kennedy's lien, and in the alternative, an order declaring Sapp's lien junior and subordinate to Kennedy's lien. After a hearing on the motion, the trial court granted Kennedy's motion for summary judgment and ruled Sapp's lien, if he had one, was junior and subordinate to Kennedy's lien. Sapp filed a motion to reconsider, which the court denied. Sapp filed a cross-claim against Wheeler for violation of the Statute of Elizabeth, contending Wheeler's transfer of the property to Pawleys constituted a fraudulent conveyance and all subsequent transfers were void. However, he argued if the conveyance of property was not completely void, it was void as to Lot 3, which was unencumbered at the time of the transfer from Wheeler to Pawleys.
In March 2012, the parties agreed by consent order to refer the case to a master-in-equity. The master held a non-jury trial on February 11, 2013. During trial, Sapp contended that even if he were not deemed to have a lien interest superior to Kennedy, he should be deemed to be a junior lien holder against Pawleys based on the alleged fraudulent transfer from Wheeler to Pawleys. Kennedy and Wheeler opposed Sapp's claim to be a junior lien holder on the basis that no fraudulent conveyance occurred. The master filed his order on June 7, 2013, finding (1) the mortgage was an arms-length transaction and no familial or prior business relationship existed between Pawleys and Kennedy; (2) valuable consideration existed to support the mortgage; (3) Sapp failed to prove by clear and convincing evidence that Kennedy participated in a fraudulent scheme; and (4) Kennedy was a good faith purchaser for value when it entered into the mortgage agreement with Pawleys and did not participate in a plan to defraud Sapp. As for Sapp's contention that the first transfer from Wheeler to Pawleys was fraudulent and should be declared void for purposes of establishing a junior lien in his favor, the master found the increase in the value of Wheeler's ownership interest in Pawleys was valuable consideration to support the transfer and no proof was presented that Wheeler intended to defraud Sapp at the time he transferred the property. Themaster concluded Kennedy was entitled to foreclosure of the property and ordered it sold at a public auction.
Sapp filed a notice of appeal, appealing the master's February 14, 2012 summary judgment order and June 7, 2013 order and judgment. He also filed an amended notice of appeal, confirming Pawleys, Wheeler, and Wheeler-Cribb were also respondents in the appeal.
A clear and convincing evidentiary standard applies to fraudulent conveyance claims brought under the Statute of Elizabeth. Oskin v. Johnson, 400 S.C. 390, 397, 735 S.E.2d 459, 463 (2012). "An action to set aside a conveyance under the Statute of Elizabeth is an equitable action, and a de novo standard of review applies." Id.
Sapp argues the assignment of the note was a fraudulent conveyance in violation of the Statute of Elizabeth. We agree.
The Statute of Elizabeth provides:
Every gift, grant, alienation, bargain, transfer, and conveyance of lands . . . for any intent or purpose to delay, hinder, or defraud creditors and others of their just and lawful actions, suits, debts, accounts, damages, penalties and forfeitures must be deemed and taken . . . to be clearly and utterly void . . . .
S.C. Code Ann. § 27-23-10(A) (2007).
"In interpreting this statute, this Court has held conveyances shall be set aside under two conditions: First, where there was valuable consideration and the transfer is made by the grantor with the actual intent to defraud; and, second, where a transfer is made without actual intent to defraud but without valuable consideration." Oskin, 400 S.C. at 397, 735 S.E.2d at 463. "'To annul for fraud adeed based upon a valuable consideration, it must not only be shown that the grantor intended thereby to hinder, delay, or defraud creditors, but it must also appear that the grantee participated in such fraudulent purpose.'" McDaniel v. Allen, 265 S.C. 237, 243, 217 S.E.2d 773, 776 (1975) (quoting McElwee v. Kennedy, 56 S.C. 154, 170, 34 S.E. 86, 91-92 (1899)). "The Statute of Elizabeth is concerned with the intent of the grantor who conveys an interest in land." Oskin, 400 S.C. at 398, 735 S.E.2d at 464.
Sapp argues Wheeler's transfer of the property to Pawleys fails under both of the conditions required to set aside a conveyance. He asserts the transfer was void and the property is subject to Sapp's judgment against Wheeler. Sapp argues this case is factually identical to Coleman v. Daniel, 261 S.C. 198, 199 S.E.2d 74 (1973). In Coleman, a judgment creditor brought an action to set aside as fraudulent the transfer of real estate by a judgment debtor to his daughter and son-in-law. Id. at 200, 199 S.E.2d at 75. The transfer included the property where the judgment debtor had lived his entire life and the debtor made a separate agreement with his daughter to continue living on the property rent-free. Id. at 202-03, 199 S.E.2d at 76. Our supreme court held the evidence showed the judgment debtor was insolvent at the time the transfer was made; he received grossly insufficient consideration for the land transferred; he intended in making the transfer to defraud the judgment creditor; and this intent was imputable to the grantees. Id. at 210-11, 199 S.E.2d at 80.
Sapp claims the circumstances of Wheeler's transfer to Pawleys were never explained, Wheeler did not testify, and the circumstantial evidence points only to a fraudulent transfer. Sapp asserts the evidence of fraud includes (1) Wheeler was indebted to Sapp at the time of the transfer; (2) there was no consideration for the transfer, or at best, the consideration received by Wheeler was grossly inadequate; (3) Wheeler conveyed the property to a family-owned limited liability company solely owned by him and his mother; (4) litigation was pending; (5) the transfer was carried out in secret without Sapp's knowledge; (6) Wheeler owned the property in fee simple for years and departed from his normal course of business by conveying it to Pawleys; (7) the transfer rendered Wheeler insolvent as he never paid anything on the debt, the Sapp execution was returned nulla bona, and Wheeler had no other unencumbered property on which to execute; and (8) Wheeler, through Pawleys, reserved the use, possession, and development of the property.
The master found the transfer from Wheeler to Pawleys was supported by valuable consideration because Wheeler increased the value of his 99% membership interest in Pawleys by more than $1.9 million by the conveyance of the property valued at $1.92 million and this was valuable consideration to support the transfer. However, Sapp argues Wheeler actually lost $1.92...
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