Oskin v. Johnson, No. 27187.

CourtUnited States State Supreme Court of South Carolina
Writing for the CourtJustice HEARN.
Decision Date07 November 2012
PartiesRobert W. OSKIN, Glenn Small, and Freddie Kanos, Appellants, v. Stephen Mark JOHNSON, Michael Brown, Joan Conner Brown and J. Conner, LLC, Respondents.
Docket NumberNo. 27187.

400 S.C. 390
735 S.E.2d 459

Robert W. OSKIN, Glenn Small, and Freddie Kanos, Appellants,
v.
Stephen Mark JOHNSON, Michael Brown, Joan Conner Brown and J. Conner, LLC, Respondents.

No. 27187.

Supreme Court of South Carolina.

Heard Feb. 22, 2012.
Decided Nov. 7, 2012.


[735 S.E.2d 461]


Michael J. Anzelmo, of Columbia, and Mark Andrew Brunty, of Myrtle Beach, for Appellants.

C. Scott Masel, Danny Villacarlos Butler, and Henrietta U. Golding, all of Myrtle Beach, for Respondents.


Chief Justice TOAL.

[400 S.C. 393]Robert W. Oskin, Glenn Small, and Freddie Kanos (collectively “Appellants” or individually by last name) contest the Master-in-Equity's ruling that the assignment of a note and mortgage on a Myrtle Beach property did not violate the South Carolina Fraudulent Conveyance Statute, S.C.Code Ann. § 27–23–10 (2007) (hereinafter the Statute of Elizabeth), and that a payment made to South Carolina Bank & Trust (SCB & T) did not result in a payoff of the amount due under the note and mortgage. We affirm.

Facts/Procedural Background

On April 27, 2005, Oskin entered into a contract to broker the sale of Wild Wing Plantation and Golf Course on behalf of Respondent Stephen Mark Johnson (Johnson). The contract obligated Johnson to pay Oskin a finder's fee in the amount of $1 million upon closing. Oskin found a buyer for the property, and the deal was closed on December 15, 2005. Johnson, however, failed to pay the finder's fee, and Oskin brought suit successfully obtaining a judgment against Johnson on December 8, 2008, for breach of contract.

While the breach of contract action was pending, Johnson approached his uncle, Respondent Michael D. Brown (M. Brown), about jointly purchasing an oceanfront lot and home located in Myrtle Beach, South Carolina. On November 30, 2006, Johnson and M. Brown co-signed a $3.5 million promissory note to jointly purchase the property. The term of the note was two years, and it provided for interest-only payments for the first twenty-three months, with a final balloon payment of the entire amount due on November 30, 2008. Title to the property was conveyed to M. Brown and Johnson as tenants in [400 S.C. 394]common. In addition to the SCB & T mortgage, the property was later encumbered in April 2007 by a second mortgage lien in favor of Ameris Bank in the amount of $500,000.1

Initially, Johnson made the monthly interest-only payments on the SCB & T note until early 2008 when he could no longer afford to make the payments, at which time M. Brown paid the remaining monthly payments. With the due date on the balloon payment approaching, in October 2008, M. Brown contacted Wachovia Bank (Wachovia) to refinance the SCB & T loan. Because of the Myrtle Beach property's low appraisal value,

[735 S.E.2d 462]

Wachovia refused to issue the loan unless it was secured with marketable securities worth $3.5 million. In early November 2008, M. Brown approached SCB & T in an attempt to reduce the note balance, but the effort ended in failure.

M. Brown was faced with the following dilemma. M. Brown's nephew was financially unable to pay off the $3.5 million loan they had obtained to buy a house in Myrtle Beach. Because of the recession, the house was appraised at $2.5 to $2.6 million, about $1 million less than the debt. M. Brown was a co-owner and co-obligor on this note. If the note was declared in default and the bank foreclosed, the sale of the Myrtle Beach home would not be sufficient to satisfy the outstanding debt. M. Brown and his wife, Joan Conner Brown, each had extensive security holdings. However, the stock market was also depressed by the economic crisis, and a sale of securities would be at below-value prices.

On November 20, 2008, Joan Conner Brown formed J. Conner, LLC (J. Conner). She used this LLC to obtain the Wachovia loan, which would be used to pay off the debt owed to SCB & T without having to liquidate any of her and her husband's assets. On December 18, 2009, Wachovia approved the loan to J. Conner in the amount of $3.5 million. J. Conner, whose only member was Joan Brown, used the loan proceeds it obtained from Wachovia to purchase the note and mortgage from SCB & T. Wachovia's loan to J. Conner was personally guaranteed by Joan and M. Brown and secured by five investment accounts owned by M. Brown and one by Joan Brown. Joan Brown, on behalf of J. Conner, signed the Certificate of Resolution to Borrow and the Promissory Note. [400 S.C. 395]Both Joan and M. Brown jointly signed the Security Agreement. To complete the transaction, Wachovia wired $3.5 million to SCB & T, and M. Brown paid the remaining $44,303.31 due to SCB & T by writing a personal check. After receiving full payment for the purchase of the note, SCB & T assigned the note and mortgage to J. Conner on December 30, 2008.

The assignment of the SCB & T note and mortgage to J. Conner allowed J. Conner to assume SCB & T's priority status as lien creditor. Ameris Bank's $500,000 lien on the property and Oskin's $1,036,000 judgments 2 against Johnson continued to be subordinate to the first lien for $3.5 million obtained by J. Conner.

The parties dispute the motive for the formation of J. Conner and the subsequent assignment of the note. Respondents maintain that they formed J. Conner to enable Joan Brown and her husband to obtain the Wachovia loan and avoid foreclosure without having to liquidate any assets since the SCB & T note was becoming due and the appraised value of the property was less than the amount borrowed. In contrast, Appellants assert that “[t]he only reason J. Conner existed was because [M. Brown] was obligated under the note and mortgage and wanted to avoid the Oskin judgment against Johnson.” 3 Appellants claim the transfer between SCB & T and J. Conner was fraudulent under the Statute of Elizabeth. Additionally, Appellants attempt to pierce the corporate veil by asserting that M. Brown is the alter-ego of J. Conner.

[400 S.C. 396]After a bench trial, the Horry County Master ruled against Appellants on all claims, holding: (i) the Statute of Elizabeth did not apply to the assignment of the note and mortgage because M. Brown and J. Conner were never indebted to Appellants, and (ii) even if applicable, the assignment of the

[735 S.E.2d 463]

note and mortgage did not violate the Statute of Elizabeth because no injustice or fraud was perpetrated on Appellants as a result of the assignment. In addition, the Master held that (iii) the payments to SCB & T for the assignment did not result in a pay-off of the note nor the satisfaction of the mortgage because M. Brown was not the alter-ego of J. Conner and due to a future advances clause, (iv) and even if the payments to SCB & T resulted in a pay-off of the note, M. Brown was equitably subrogated to Johnson's interest in the property to the extent of the monies paid by M. Brown in excess of his one-half share of the obligations on the note. After the Master denied Appellants' Rule 59, SCRCP, motion, Appellants filed a timely appeal. This case is before this Court pursuant to Rule 204(b), SCACR.

Issues

I. Whether the assignment of the note was a fraudulent conveyance in violation of the Statute of Elizabeth.

II. Whether the payment to SCB & T resulted in a pay-off of the note and satisfaction of the mortgage.

Standard of Review

A clear and convincing evidentiary standard governs fraudulent conveyance claims brought under the Statute of Elizabeth.4[400 S.C. 397]Windsor Props., Inc. v. Dolphin Head Constr. Co., 331 S.C. 466, 471, 498 S.E.2d 858, 860 (1998) (citations omitted). An action to set aside a conveyance under the Statute of Elizabeth is an equitable action, and a de novo standard of review applies. Future Group, II, 324 S.C. at 97 n. 6, 478 S.E.2d at 49 n. 6;S.C. Const. art. V, § 5.

An action to pierce the corporate veil under an alter-ego theory also lies in equity. Mid–South Mgmt. Co., Inc. v. Sherwood Dev. Corp., 374 S.C. 588, 596, 649 S.E.2d 135, 140 (Ct.App.2007) (citations omitted). Here, the appellate court has jurisdiction to find facts in accordance with its own view of the preponderance of the evidence. Pinckney v. Warren, 344 S.C. 382, 387, 544 S.E.2d 620, 623 (2001). However, an appellate court is not required to disregard the findings of fact by the trial court nor ignore the fact that the trial judge is in the better position to assess the credibility of the witnesses. Id.

Analysis
I. Statute of Elizabeth

Appellants claim the assignment of the note was a fraudulent conveyance in violation of the Statute of Elizabeth. We disagree.

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. [400 S.C. 398]Future Group, II, 324 S.C. 89, 96, 478 S.E.2d 45, 48–49 (citations omitted); McDaniel v. Allen, 265 S.C. 237, 242–43, 217 S.E.2d 773, 775–76 (1975) (citations omitted).

[735 S.E.2d 464]

It is undisputed that valuable consideration was paid for the transfer of the note and mortgage in this case. Appellants contend that the purpose and the fraudulent intent of M. Brown was to “structure a transaction relating to the SCB & T note mortgage in order to protect [M. Brown's] interest in the property from being affected by Oskin's judgments against Johnson and to preclude Appellants from executing against the property.” We disagree.

The Statute of Elizabeth is concerned with the intent of the grantor who conveys...

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41 practice notes
  • Arabi Gin Co. v. Plexus Cotton, Ltd. (In re, Joseph Walker & Co.), C/A No. 10–01948–JW
    • United States
    • United States Bankruptcy Courts. Fourth Circuit. U.S. Bankruptcy Court — District of South Carolina
    • September 25, 2014
    ...whether Plexus Limited enjoyed total domination and control over Debtor which resulted in inequitable consequences. SeeOskin v. Johnson, 400 S.C. 390, 400, 735 S.E.2d 459, 465 (2012) (“An alter-ego theory requires a showing of (1) total domination and control of one entity by another and (2......
  • Arabi Gin Co. v. Plexus Cotton, Ltd. (In re Joseph Walker & Co.), C/A No. 10–01948–JW
    • United States
    • United States Bankruptcy Courts. Fourth Circuit. U.S. Bankruptcy Court — District of South Carolina
    • September 25, 2014
    ...whether Plexus Limited enjoyed total domination and control over Debtor which resulted in inequitable consequences. See Oskin v. Johnson, 400 S.C. 390, 400, 735 S.E.2d 459, 465 (2012) (“An alter-ego theory requires a showing of (1) total domination and control of one entity by another and (......
  • Arabi Gin Co. v. Plexus Cotton, Ltd. (In re, Joseph Walker & Co.), C/A No. 10–01948–JW
    • United States
    • United States Bankruptcy Courts. Fourth Circuit. U.S. Bankruptcy Court — District of South Carolina
    • September 25, 2014
    ...whether Plexus Limited enjoyed total domination and control over Debtor which resulted in inequitable consequences. See Oskin v. Johnson, 400 S.C. 390, 400, 735 S.E.2d 459, 465 (2012) (“An alter-ego theory requires a showing of (1) total domination and control of one entity by another and (......
  • PCS Nitrogen, Inc. v. Ross Dev. Corp., Case No. 2:09–cv–03171–MBS.
    • United States
    • United States District Courts. 4th Circuit. United States District Court of South Carolina
    • August 21, 2015
    ...South Carolina law, "[a]n action to set aside a conveyance under the Statute of Elizabeth is an equitable action." " Oskin v. Johnson [400 S.C. 390], 735 S.E.2d 459, 463 (S.C.2012). "Equitable relief is generally available where there is no adequate remedy at law." Santee Cooper Resort, Inc......
  • Request a trial to view additional results
41 cases
  • Arabi Gin Co. v. Plexus Cotton, Ltd. (In re, Joseph Walker & Co.), C/A No. 10–01948–JW
    • United States
    • United States Bankruptcy Courts. Fourth Circuit. U.S. Bankruptcy Court — District of South Carolina
    • September 25, 2014
    ...whether Plexus Limited enjoyed total domination and control over Debtor which resulted in inequitable consequences. SeeOskin v. Johnson, 400 S.C. 390, 400, 735 S.E.2d 459, 465 (2012) (“An alter-ego theory requires a showing of (1) total domination and control of one entity by another and (2......
  • Arabi Gin Co. v. Plexus Cotton, Ltd. (In re Joseph Walker & Co.), C/A No. 10–01948–JW
    • United States
    • United States Bankruptcy Courts. Fourth Circuit. U.S. Bankruptcy Court — District of South Carolina
    • September 25, 2014
    ...whether Plexus Limited enjoyed total domination and control over Debtor which resulted in inequitable consequences. See Oskin v. Johnson, 400 S.C. 390, 400, 735 S.E.2d 459, 465 (2012) (“An alter-ego theory requires a showing of (1) total domination and control of one entity by another and (......
  • Arabi Gin Co. v. Plexus Cotton, Ltd. (In re, Joseph Walker & Co.), C/A No. 10–01948–JW
    • United States
    • United States Bankruptcy Courts. Fourth Circuit. U.S. Bankruptcy Court — District of South Carolina
    • September 25, 2014
    ...whether Plexus Limited enjoyed total domination and control over Debtor which resulted in inequitable consequences. See Oskin v. Johnson, 400 S.C. 390, 400, 735 S.E.2d 459, 465 (2012) (“An alter-ego theory requires a showing of (1) total domination and control of one entity by another and (......
  • PCS Nitrogen, Inc. v. Ross Dev. Corp., Case No. 2:09–cv–03171–MBS.
    • United States
    • United States District Courts. 4th Circuit. United States District Court of South Carolina
    • August 21, 2015
    ...South Carolina law, "[a]n action to set aside a conveyance under the Statute of Elizabeth is an equitable action." " Oskin v. Johnson [400 S.C. 390], 735 S.E.2d 459, 463 (S.C.2012). "Equitable relief is generally available where there is no adequate remedy at law." Santee Cooper Resort, Inc......
  • Request a trial to view additional results

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