Scarver v. Zurich Am. Ins. Co. (In re Hardin)
| Decision Date | 29 September 2021 |
| Docket Number | 18-70395-LRC,ADVERSARY PROCEEDING 19-05221-LRC |
| Parties | IN THE MATTER OF: HENRY C. Hardin, III, Debtor. v. ZURICH AMERICAN INSURANCE COMPANY, AMERICAN ZURICH INSURANCE COMPANY, and THE ZURICH SERVICES CORPORATION, Defendants. CATHY L. SCARVER as Chapter 7 Trustee for the Estate of HENRY C. HARDIN, III, Plaintiff, |
| Court | U.S. Bankruptcy Court — Northern District of Georgia |
IN PROCEEDINGS UNDER CHAPTER 7 OF THE BANKRUPTCY CODE
Henry C. Hardin, III ("Debtor") filed a Chapter 7 bankruptcy after three of his creditors, Zurich American Insurance Company, American Zurich Insurance Company, and/or The Zurich Services Corporation (the "Defendants"), obtained a judgment against him and initiated a suit to avoid the transfer of his home to his wife, Linda Hardin ("Hardin"). Cathy L. Scarver ("Plaintiff"), the Chapter 7 trustee of Debtor's estate (the "Estate") filed a complaint ("Complaint") seeking a determination of the validity or extent of a lien asserted by the Defendants. Plaintiff has filed a Motion for Partial Summary Judgment (Doc. 17, the "Motion"), seeking judgment as to Count I of the Complaint in the form of an order declaring that Defendants have no valid lien on any property of the Estate and/or that any lien or interest that Defendants may have on property of the Estate is inferior to Plaintiff's interest. On November 13, 2020, the Court held a hearing (the "Hearing") on the Motion and then took the matter under advisement. Subsequently, it appears that Plaintiff settled the Estate's avoidance causes of action against Hardin in exchange for $897, 500 (the "Settlement Proceeds"). See Case Number 18-70395-LRC (the "Bankruptcy Case"), Doc 191.
This matter constitutes a core proceeding, over which this Court has subject matter jurisdiction. See 28 U.S.C § 157(b)(2)(K); § 1334. For the reasons stated below, the Court agrees with Defendants that, with the exception of certain assets, Plaintiff is not entitled to summary judgment.[1]
Defendants provided workers compensation insurance to Professional Management Services Group, Inc. ("PMSG"), a Florida corporation owned by the Debtor between 2008 and 2012. (Plaintiff's SUMF, ¶ 4; Defendants' SUMF Response, ¶ 4). PMSG defaulted on its obligations to Defendants. (Plaintiff's SUMF, ¶ 5; Defendants' SUMF Response, ¶ 5). On May 2, 2013, Defendants commenced an arbitration against PMSG and other affiliated companies before the American Arbitration Association (Case Nos. 51 20 1300 0514 and/or 51195 514 13) to resolve disputes arising under the parties' workers compensation insurance program. (Defendants' SUMF, ¶ 3; Plaintiff's SUMF Response, ¶ 3). On May 7, 2015, the arbitrators entered a final award in favor of Defendants and against PMSG (the "Final Award"). (Defendants' SUMF, ¶ 4; Plaintiff's SUMF Response, ¶ 4). The Final Award and related judgment require PMSG to (a) pay Defendants $16 307, 224 in principal and interest, and (b) post with Defendants an additional $1, 355, 480 in collateral. (Defendants' SUMF, ¶ 4; Plaintiff's SUMF Response, ¶ 4).
On June 28, 2016, Defendants filed a complaint against the Debtor in the United States District Court for the Northern District of Georgia (Case No. 1:16-cv-02312-MLB) seeking a determination that the Debtor was responsible for PMSG's debt to Defendants (the "Alter Ego Action"). (Plaintiff's SUMF, ¶ 11; Defendants' SUMF Response, ¶ 11). On June 8, 2018, a jury entered a verdict in the Alter Ego Case, and the United States District Court for the Northern District of Georgia entered a judgment on the jury verdict against Debtor and in favor of Defendants in the amount of $18, 102, 582. (Plaintiff's SUMF, ¶¶ 14-15; Defendants' SUMF Response, ¶¶ 14-15) (the "Judgment").
Defendants recorded the Judgment and obtained a writ of fieri facias (the "Fi Fa") from the Superior Court of Gwinnett County, Georgia on July 6, 2018. (Plaintiff's SUMF, ¶ 16; Defendants' SUMF Response, ¶ 16). At no time have Defendants filed a writ of fieri facias in any county in Georgia other than Gwinnett County. (Plaintiff's SUMF, ¶ 17; Defendants' SUMF Response, ¶ 17). To date, Defendants have recovered $575, 370 from Debtor towards the Judgment through post-judgment collection. (Defendants' SUMF, ¶ 18; Plaintiff's SUMF Response, ¶ 18). Debtor currently owes Defendants a total of $17, 527, 212 in principal, plus post-judgment interest. (Defendants' SUMF, ¶ 19; Plaintiff's SUMF Response, ¶ 19). On July 18, 2018, Defendants filed a judgment lien certificate with the Florida Department of State as to Debtor. (Plaintiff's SUMF, ¶ 57; Defendants' SUMF Response, ¶ 57).
In 1998, Debtor purchased his residence located at 3245 Town Manor Circle, Dacula, Gwinnett County, Georgia (the "Home"). (Plaintiff's SUMF, ¶ 1; Defendants' SUMF Response, ¶ 1). On October 11, 2017, Debtor transferred his one-half interest in the Home to Hardin. (Plaintiff's SUMF, ¶ 13; Defendants' SUMF Response, ¶ 13).
On August 1, 2015, Hardin entered a two-year option to purchase real property located at 1947 Tapawingo Drive, Gainesville, Hall County, Georgia (the "Lake House"). (Plaintiff's SUMF, ¶ 6; Defendants' SUMF Response, ¶ 6). Between July 2015 and December 2016, monthly checks were drawn from either the Debtor and Hardin's joint bank account or the Debtor's bank account to purchase the Lake House. (Plaintiff's SUMF, ¶ 7; Defendants' SUMF Response, ¶ 7). The parties dispute whether the Lake House checks were drawn from just the joint bank account or the joint bank account and the Debtor's own bank account, but Plaintiff contends that this distinction is irrelevant and immaterial. (Defendants' SUMF, ¶ 31; Plaintiff's Supplemental SUMF, ¶ 7). In August 2017, Hardin purchased the Lake House. (Plaintiff's SUMF, ¶ 12; Defendants' SUMF Response, ¶ 12). Hardin sold the Lake House in November 2019. (Defendants' SUMF, ¶ 33; Plaintiff's SUMF Response, ¶ 33).
In 2003, the Debtor purchased real property located at 7527 Highway 326, Lavonia, Franklin County, Georgia (the "Farmhouse"). (Plaintiff's SUMF, ¶ 2; Defendants' SUMF Response, ¶ 2). On December 15, 2011, Debtor transferred his interest in the Farmhouse to Hardin. (Plaintiff's SUMF, ¶ 3; Defendants' SUMF Response, ¶ 3).
In December 2015, Restorative Health of North Georgia LLC ("Restorative Health") was formed in Georgia. (Plaintiff's SUMF, ¶ 8; Defendants' SUMF Response, ¶ 8). Between June 13, 2016, and January 2017, checks were issued from the Debtor and Hardin's joint bank account to purchase an interest in Restorative Health (the "RH Interest"). (Plaintiff's SUMF, ¶ 9; Defendants' SUMF Response, ¶ 9). Defendants did not apply to a court for a charging lien on the RH Interest. (Plaintiff's SUMF, ¶ 10; Defendants' SUMF Response, ¶ 10). Debtor and Hardin contend that Hardin alone owns the RH Interest. (Defendants' SUMF, ¶ 44; Plaintiff's SUMF Response, ¶ 44).
On the Petition Date, Debtor owned 80% of Executive Management Group, Inc. ("Executive"). (Defendants' SUMF, ¶ 46; Plaintiff's SUMF Response, ¶ 46). A purchase and sale agreement was entered into for Executive's office building on November 23, 2018. (Defendants' SUMF, ¶ 48; Plaintiff's SUMF Response, ¶ 48). Defendants did not obtain a charging order for Debtor's stock in Executive (the "Executive Stock"). (Plaintiff's SUMF, ¶ 62; Defendants' SUMF Response, ¶ 62).
In July 2018, Defendants filed a fraudulent conveyance complaint against Debtor and Hardin with regard to the Home in the United States District Court for the Northern District of Georgia (Case No. 18-03319) (the "Fraudulent Transfer Case").[2] (Defendants' SUMF, ¶ 20; Plaintiff's SUMF Response, ¶ 20). On September 25, 2018, Defendants filed their lis pendens in Gwinnett County as to the Home. (Plaintiff's SUMF, ¶ 29; Defendants' SUMF Response, ¶ 29). Defendants did not file a lis pendens as to the Fraudulent Transfer Case in any Georgia county other than Gwinnett County. (Plaintiff's SUMF, ¶ 30; Defendants' SUMF Response, ¶ 30). On October 1, 2018, Zurich filed a Motion for Leave to File First Amended Complaint in the Fraudulent Transfer Case (the "Motion for Leave to Amend"), seeking to add claims to avoid additional transfers from the Debtor to Hardin, including Debtor's transfer of cash, the Farmhouse, the Lake House, and the interest in Restorative Health. Answer, ¶ 23; Defendants' SUMF, ¶ 31; Plaintiff's SUMF, ¶ 31. The District Court had not granted the Motion for Leave to Amend as of the Petition Date. Answer, ¶ 25; Defendants' SUMF ¶ 35; Plaintiff's SUMF ¶ 35.
Debtor filed a voluntary petition under Chapter 7 of the Bankruptcy Code on the Petition Date, and Plaintiff was appointed as the Chapter 7 trustee of the Estate. On December 30, 2020, Plaintiff filed in the Bankruptcy Case a Motion to Approve Settlement Agreement, which included a copy of Plaintiff's agreement with Hardin (the "Settlement Agreement") detailing Hardin's payment of the Settlement Proceeds in satisfaction of all claims (apart from those relating to tax refunds) Plaintiff had or might have had against her. (Bankruptcy Case, Doc. 191). There were no objections to the motion to approve the settlement, and the Court approved it. The Settlement Agreement specifically notes that upon payment, Plaintiff would "cause the [Fraudulent Transfer Case] to be dismissed with prejudice." Id. at Exh. A. ¶ 6. On April 8, 2021, the Fraudulent Transfer Case was dismissed. (Dist. Ct. Case No. 18-03319, Doc. 42).
In the Motion, Plaintiff contends that Defendants have no lien on any assets that could be considered property of the Estate or could become property of the Estate. Specifically, Plaintiff argues that, because Debtor did not own the Home at the time ...
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