Srb Inv. Serv. v. Banking

• Decision Date: 25 March 2011
• Docket Number: No. S10A2078.,S10A2078.
• Citation: 289 Ga. 1,11 FCDR 921,709 S.E.2d 267
• Parties: SRB INVESTMENT SERVICES, LLLP et al.v.BRANCH BANKING AND TRUST COMPANY et al.
• Court: Georgia Supreme Court

289 Ga. 1

709 S.E.2d 267

11 FCDR 921

SRB INVESTMENT SERVICES, LLLP et al.

v.BRANCH BANKING AND TRUST COMPANY et al.

No. S10A2078.

Supreme Court of Georgia.

March 25, 2011.

Eugenia Wooten Iredale, Steven Marc Kushner, Fellows LaBriola LLP, Stephanie A. Everett, Brian Fenton McEvoy, John Durand Dalbey, Chilivis, Cochran, Larkins & Bever, LLP, Kevin Allen Maxim, Simon Howard Bloom, Atlanta, for appellant.

Jennifer Brown Moore, Mark G. Trigg, Lee Bennett Hart, Greenberg Traurig, LLP, Atlanta, for appellee.NAHMIAS, Justice.

The appellants challenge an interlocutory injunction entered to preserve the status quo pending adjudication of the merits of appellee Branch Bank and Trust Company's (“BB&T”) breach of contract and fraudulent transfer claims. We conclude that the trial court did not abuse its discretion in entering the interlocutory injunction, and so we affirm.

1. This case involves 16 loans that BB & T and its predecessors made between 2005 and 2007 to two companies, which were guaranteed by two other companies. ¹ All four of those companies were controlled by father and son residential housing developers Stephen R. Been and Stephen S. Been. The loans were due to mature between March and May 2009. In mid–2007, the liquid assets securing the loans were transferred to two other companies controlled by the Beens, SRB Investment Services, LLLP (“SRB”) and SFB Investment, LP (“SFB”). BB & T required SRB, SFB, and another company controlled by the Beens to sign as additional guarantors for the loans.² As part of the restructuring, SRB, SFB, and the three other guarantors signed liquidity covenants requiring them to maintain an aggregate of $35 million in cash and cash equivalents.

In mid–2008, as the U.S. housing market was suffering a historic collapse, the Beens authorized enormous “partnership distributions” from SRB and SFB. SRB and SFB's third and fourth quarter 2008 financial statements show that from June 30 to December 31, 2008, their collective assets shrank by $191 million or nearly 90%, from $216 million to $25 million. This left the guarantors in violation of the liquidity covenants, given the very limited assets of the other three guarantors. However, SRB and SFB withheld those financial statements from BB & T until January 7, 2009. By January 16, 2009, BB & T prepared a renewal package for the 16 loans that were scheduled to mature over the next few months, which would have required an immediate infusion of cash to increase the balances of SRB and SFB to the required $35 million in liquidity, but the Beens refused.

Negotiations between BB & T and the Beens continued over the next few months, as the financial situation of the Beens and their companies continued to worsen. On January 23, 2009, another lender filed suit to recover $22 million from the Beens, SRB and SFB, the borrowers and other guarantors on the 16 BB & T loans, two limited liability companies created by the Beens (SRB Management Company, LLC and SFB Investment Management, LLC), and three related entities. Despite the entry of a temporary restraining order, the defendants in that action continued to transfer away assets. On February 2, 2009, BB & T sent notices of default to SRB and SFB and the borrowers and other guarantors on the BB & T loans due to the violation of the liquidity covenants, although later that month BB & T briefly extended the maturity dates on ten of the sixteen loans. On February 19, 2009, a third lender, Bank of America, accelerated all of its loans to SRB, SFB, one of the two borrowers on the BB & T loans, the other three guarantors, and eleven affiliated entities; Bank of America later filed suit against them for $4.3 million. In addition, in May 2009, Stephen F. Been settled his divorce for $35 million.

On June 22, 2009, BB & T filed suit against SRB and SFB, the Beens, the original borrowers and guarantors on the 16 loans, the other additional guarantor added in 2007, and the two limited liability companies controlled by the Beens that were named in the other lender's lawsuit. BB & T sought to recover more than $19 million in principal and interest then outstanding on the loans. In addition to breach of contract, BB & T raised claims under the Uniform Fraudulent Transfers Act, OCGA §§ 18–2–70 to 18–2–80 (Georgia UFTA).

Discovery commenced, but the Beens and their affiliates were not forthcoming. In March 2010, as a result of third-party subpoenas, BB & T learned that the Beens had created eight new limited liability companies between June 2008 and August 2009—including four created on March 6, 2009, just before the BB & T loans were scheduled to begin maturing—and that the guarantors had transferred over $330 million to these and other unidentified entities and accounts, much of it between August 2008 and March 2009.³ On April 26, 2010, BB & T filed a motion to amend the complaint to add the eight new LLCs as defendants and a motion for an interlocutory injunction freezing SRB and SFB's recently transferred assets.

The injunction hearing took place on May 27, 2010. By that time, the combined assets of SRB and SFB had fallen from $216 million in June 2008 to $25 million in January 2009, shortly before the BB & T loans would become due, to just $25 thousand in May 2010. The parties stipulated to certain facts, including the sharp decline in SRB and SFB's assets, and documentary evidence was introduced. On June 20, 2010, the trial court issued an interlocutory injunction naming the Beens, SRB and SFB, the two LLCs that had been sued by the other lender and that were named in the original complaint, and the eight recently created LLCs (collectively, “the enjoined parties”).⁴

The injunction froze $24 million in assets originating from SRB and SFB in the possession, custody, or control of the enjoined parties and anyone with notice in active concert or participation with them. The order excepted payments made in the ordinary course of business or financial affairs or pursuant to a valid court order. In addition, the order explained that the enjoined parties could avoid the asset freeze by depositing $25 million into the registry of the court or obtaining a $25 million irrevocable standby letter of credit. The enjoined parties did neither. Instead, they appealed.⁵

2. The enjoined parties do not seriously dispute that the stipulations and documentary evidence presented to the trial court were sufficient, at the interlocutory injunction stage, to support a finding that numerous badges of fraud exist with respect to the transfers at issue here. Because actual intent to defraud is difficult to prove, the Georgia UFTA lists 11 nonexclusive factors (sometimes called “badges of fraud”) that can be considered in determining whether funds were transferred with the actual intent to defraud a creditor. See OCGA § 18–2–74(b)(1)–(11); Bishop v. Patton, 288 Ga. 600, 607, 706 S.E.2d 634 (2011).

At least seven statutory badges of fraud are implicated here: (1) all of the transfers BB & T could trace went to entities the Beens control; (2) the Beens remained in possession or control of the transferred assets after those transfers; (3) the transfers were executed covertly and the Beens and their affiliates refused to provide details when BB & T asked about them and then resisted formal discovery; (4) during and shortly after the transfers, two creditors, as well as BB & T, threatened and then initiated lawsuits against SRB, SFB, and affiliated entities; (5) by the time of the interlocutory injunction hearing, the transfers included substantially all of the assets of SRB and SFB, the entities responsible for holding the vast majority of the liquid assets securing the 16 loans; (6) the transfers rendered SRB and SFB insolvent; and (7) during and shortly after the transfers, many of the Beens' and their affiliates' obligations were demanded or matured, exposing them to a substantial amount of imminently payable debt. See OCGA § 18–2–74(b)(1), (2), (3), (4), (5), (9), (10). BB & T also presented evidence, as a nonstatutory badge of fraud, of SRB and SFB's pattern of maintaining just enough funds in certain accounts to satisfy their financial covenants at the end of each quarter and then transferring the funds away shortly thereafter. See Bishop v. Patton, 288 Ga. at 609, 706 S.E.2d 634 (noting that “[t]he factors enumerated in the statute are not exclusive”). Thus, the evidence presented to the trial court showed the existence of multiple badges of fraud, which the Georgia UFTA treats as “ ‘relevant evidence as to the debtor's actual intent,’ from which the finder of fact may draw an inference of actual intent to defraud.” Id. at 608, 706 S.E.2d 634. ⁶

“Fraudulent transfer cases are especially amenable to interlocutory injunctive relief.” Bishop v. Patton, 288 Ga. at 605, 706 S.E.2d 634. Accordingly, “[s]ubject to applicable principles of equity and ... civil procedure,” the trial court was authorized to enter an interlocutory injunction “against further disposition by the debtor or a transferee, or both, of the asset transferred or of other property.” OCGA § 18–2–77(a)(3)(A).

3. The appellants contend that even if the evidence was sufficient to show that the challenged transfers were made with “actual intent to hinder, delay, or defraud any creditor of the debtor,” OCGA § 18–2–74(a)(1), the trial court nevertheless erred in entering the interlocutory injunction. The appellants claim that we must reverse the grant of the interlocutory injunction for three reasons: (a) BB & T had an adequate remedy at law in the form of an action for damages; (b) BB & T was guilty of laches; and (c) the status quo was not in danger or in need of preservation.

In deciding whether to issue an interlocutory injunction, the trial court should consider whether:

(1) there is a substantial threat that the moving party will suffer irreparable injury if the injunction is not granted; (2) the threatened injury to the moving party...