Tindall v. H & S Homes Llc

• Decision Date: 10 January 2011
• Docket Number: Civil Action No. 5:10–cv–044(CAR).
• Citation: 757 F.Supp.2d 1339
• Parties: Terry Cartrette TINDALL, Plaintiff,v.H & S HOMES, LLC, et al., Defendants.
• Court: U.S. District Court — Middle District of Georgia

757 F.Supp.2d 1339

Terry Cartrette TINDALL, Plaintiff,

v.H & S HOMES, LLC, et al., Defendants.

Civil Action No. 5:10–cv–044(CAR).

United States District Court, M.D. Georgia, Macon Division.

Jan. 10, 2011.

F. Kennedy Hall, Hall, Bloch, Garland & Meyer, LLP, Macon, GA, Peter L. Hearn, Sr., Richard Meredith Lovelace, Jr., Conway, SC, for Plaintiff.John T. McGoldrick, Jr., Lee M. Gillis, Jr., David Jonathan Grindle, Duke R. Groover, Macon, GA, William Lawton Pratt, Atlanta, GA, for Defendants.

ORDER ON MOTION TO COMPEL

C. ASHLEY ROYAL, District Judge.

Currently before the Court is Plaintiff Terry Tindall's Motion to Compel. Plaintiff seeks to have the Court compel testimony about and the production of attorney-client communications. Plaintiff believes that these communications will demonstrate that attorneys representing Defendants provided legal advice in furtherance of fraudulent transfers, as defined in the Georgia Uniform Fraudulent Transfers Act, O.C.G.A. § 18–2–70, et seq. Defendants object, invoking the attorney-client privilege. The issue before the Court, therefore, is whether privilege attaches to the attorney-client communications at issue or is destroyed by the crime-fraud exception. For this determination to be made, Plaintiff requested that the Court consider relevant communications in camera.

Upon consideration of the evidence presented, the Court finds that Plaintiff satisfied her burden of creating a factual basis to support a reasonable, good-faith belief that review of attorney-client communications may reveal evidence that Defendants planned and made fraudulent transfers and that attorneys provided legal advice or services related to or in furtherance of those transfers. In camera review of the documents filed with the Court is thus appropriate. Having reached this conclusion and subsequently reviewed the relevant attorney-client communications, the Court further finds that the evidence presented by Plaintiff combined with the documents considered in camera establishes a prima facie case that Defendants planned and executed a fraudulent transfer and that attorney-client communications were made in furtherance of that transfer. Plaintiff's Motion to Compel is granted in part.

PLAINTIFF'S EVIDENCE

The present case arises out of Defendant H & S Homes' inability to pay a $343,100.00 judgment awarded to Plaintiff by a South Carolina court in 2003. Defendant H & S Homes is a limited liability company which was, until January 2007, the primary sales arm and a wholly-owned subsidiary of Horton Homes, Inc. (See Deposition of Dudley Horton, Oct. 21, 2009, “Horton I Dep.,” at 15) [Doc. 41]. Defendant Horton Homes is in the business of manufacturing homes and is owned by Defendant Horton Industries, Inc., a holding company owned and managed by Defendant Dudley Horton. Defendant Horton in fact owns or controls the vast majority of stock in all of the Horton companies (including Best Value Housing, Inc., Horton Homes, Inc. and its subsidiaries, H & S Homes, L.L.C. and Horton–American, L.L.C., and Triangle Homes, L.L.C.). He serves as either the chairman of the board, president, or chief operating officer of each. (Deposition of Dudley Horton, September 22, 2020, “Horton II Dep.” at 20). Defendant Steve Sinclair was the president of H & S Homes and served as vice president of Horton Homes and Horton Industries.

According to Plaintiff, Defendants conspired to evade and have evaded payment of judgments awarded against H & S Homes through fraudulent transfers of H & S assets. Plaintiff has identified three suspect transactions Defendants allegedly used or attempted to use to avoid payment of the judgments: (1) a lawsuit and default judgment, (2) a consent action declaring a transfer of real property from Horton Homes and its subsidiaries to Horton Industries, and (3) the creation of new entities to take over the business of H & S Homes. Through the motion at bar, Plaintiff further asserts that the attorneys of the law firm Chamberlain–Hrdlicka (“Chamberlain attorneys”) were involved in and furthered Defendants' efforts to avoid payment of judgments against H & S.

The first of the alleged fraudulent transfers occurred in early 2005. On December 17, 2004, an Alabama judgment against Defendant H & S Homes was affirmed by the Alabama Supreme Court. Less than three weeks later, Defendant Horton Homes, at the direction of Defendant Horton, filed a lawsuit against H & S Homes, its own subsidiary and sole retail sales business. Defendant Horton made the decision to file the suit and did not bother to advise the Board of Directors of either Horton Homes or H & S of his plan. (Horton II Dep. at 142). In fact, there are not even any documents concerning the decision to sue H & S. ( Id. at 111). Defendant Horton claims that he simply decided to sue his subsidiary in an effort re-coup funds previously lent to H & S Homes and to give notice to H & S that Horton Homes was not going to continue lending it money. ( Id. at 85–86).

H & S Homes was operating at a loss and owed substantial debt to Horton Homes. In fact, H & S Homes was always undercapitalized and could not operate without loans from Horton Homes. ( Id. at 67–68). Still, H & S Homes was able to pay back 17 million dollars of the debt owed despite the fact it had lost money from 2002 to 2005. ( Id. at 79–82). The cumulative balance owed to Horton Homes was actually less in January 2005 than at any other time between June 2000 and January 2005. ( Id.). Moreover, despite the lawsuit, Horton Homes continued to make loans to H & S, $600,000.00 in 2005 alone. ( Id. at 86–87). Defendant Horton knew that H & S Homes would not be able to pay its creditors without loaned funds from Horton Homes and that the suit would eventually result in the closure of H & S. ( Id. at 23, 69, 141).

Defendant Sinclair, the president of H & S Homes and long-time business partner of Defendant Horton, claims that he was entirely unaware of the suit against H & S until he was served with the complaint. (Deposition of Steve Sinclair, October 21, 2009, “Sinclair II Dep.,” at 83–84 [Doc. 40].) When he received notice of the suit, Sinclair contacted attorney Marty Fierman and was told to allow a default judgment. ( Id. at 86–87). Although Defendant Sinclair denies talking to anyone else about the decision to go into default, including Defendant Horton, he admits that he corresponded with attorney Sid Williams just two and half weeks before the default was entered. ( Id. at 93–94). Mr. Williams is an attorney with Chamberlain–Hrdlicka and has served as legal counsel for Defendant Horton and his companies for thirty years. (Horton II Dep. at 5). When asked about the content of these communications with Sid Williams, Defendants asserted privilege.

Defendant Sinclair never answered the complaint, and Horton Homes was awarded a default judgment of $22,003,000.00 in February of 2005. (Sinclair II Dep. at 92). As with the decision to file the lawsuit, there are no documents about the decision to allow a default judgment. (Horton II Dep. at 112). The Board of Directors for H & S Homes was never consulted about the $22,000,000.00 decision, and no effort was made to settle the significant claim. (Sinclair II Dep. at 88, 97). The judgment was only partially enforced; yet, by the time H & S ceased doing business, it had paid Horton Homes $8,288,000.00 towards its debt. (Horton II Dep. at 89). Interestingly, Plaintiff's judgment against H & S became final in March 2005, about a month after entry of the default judgment. Plaintiff then filed to have her judgment domesticated in Georgia.

Defendant Horton admits the he made a decision to close H & S Homes with the filing of this lawsuit in 2005. (Horton II Dep. at 23, 141). In fact, at that time, Defendants Horton and Sinclair were already discussing plans to do just that. (Sinclair II Dep. at 14). Defendant Horton admits that he did not want to pay the Alabama judgment against H & S Homes and thought it was unjust. (Horton II Dep. at 10, 35). During meetings of the H & S Homes Board of Directors in 2005 and 2006 Defendant Horton referenced H & S's “legal situations” and expressed concerns about the judgments against H & S, including Plaintiff's judgment. (Horton II Dep. at 8–9, 155, Ex. P–3). Defendant Horton was specifically concerned that H & S property could be seized or that its bank accounts could be levied at any time. ( Id. at 32–33, 158). He worried that this property was going to be “up for grabs,” ( id. at 33) and thought H & S assets may be put “on the square and [sold to satisfy] some of these judgments.” ( Id. at 158). Accordingly, the decision was made to begin liquidating the assets of H & S Homes. ( Id. at 69, 151–52, 158; Sinclair II Dep. at 11,14). Thereafter, there were many discussions about closing H & S; Chamberlain attorneys were included in the discussions. (Sinclair II Dep. at 13–14, 58; Horton II Dep. at 40–41).

In December 2006, Horton Homes received notices of as many as ten arbitration demands seeking to hold Horton Homes liable for money owed by H & S Homes. (Horton Dep. at 138–39). Plaintiff contends that this is when the second alleged fraudulent transfer occurred. In what Plaintiff calls a “consent action,” the Board of Directors for Horton Homes declared a dividend of all its real property, valued at just over $10,000,000.00, to its parent company, Defendant Horton Industries. (Horton II Dep. at 127). The consent action was prepared by Chamberlain attorney Sid Williams and provided that Horton Industries would acquire and manage the real estate owned by Horton Homes and its various subsidiaries. (Horton I Dep. at 14, Horton II Dep. at 120–21). In other words, Horton Homes would simply “pass” assets up to its parent company. (Horton II Dep. at 121). This transfer could include the real estate owned by H & S Homes, though Defendant Horton denies that he ever intended to transfer any assets of H & S Homes to...