PROPOSED FINDINGS OF FACT
AND CONCLUSIONS OF LAW ON
This adversary proceeding was initiated in this Court pursuant to 28 U.S.C. §§ 157(a) and 1334 and Local Civil Rule 83.IX.01, D.S.C.1 The plaintiff, Chapter 7 Trustee Michelle Vierra ("Plaintiff" or "Trustee") filed, on August 9, 2013, a motion for partial summary judgment pursuant to Fed R. Civ. P. 56, as made applicable to this adversary proceeding by Fed. R. Bankr. P. 7056 ("Motion").2 Plaintiff seeks summary judgment with respect to her first cause of action (Sale Proceeds Transfer—Constructive Fraud), eighth cause of action (Rent Assignment—Constructive Fraud), and eleventh cause of action (Turnover). The defendant, Penny L. Clutts ("Defendant"), filed an Objection to Plaintiff's Motion, and Plaintiff submitted a reply.3 A hearing on Plaintiff's Motion was held on October 8, 2013.
Plaintiff's counsel indicated at the hearing that she did not intend to pursue the other nine causes of action asserted in the complaint if she is successful in seeking summary judgment on the three causes of action for which she has sought summary judgment.
After consideration of the record, applicable law, and arguments of counsel, the Court proposes Plaintiff's Motion be granted. These proposed findings of fact and conclusions of law are submitted to the United States District Court for the District of South Carolina ("District Court") for review because entry of a final order or judgment in this adversary proceeding would not be consistent with Article III of the United States Constitution and the parties have not expressly consented to this Bankruptcy Court entering a final order or judgment. In re Standing Order Concerning Title 11 Proceedings Referred Under Local Civil Rule 83.IX.01, Referral to Bankruptcy Judges, Misc. No. 3:13-mc-00471-TLW (D.S.C. Dec. 5, 2013); see Stern v. Marshall, -- U.S. --, 131 S. Ct. 2594, 2609 (2011) ("When a suit is made of the stuff of the traditional actions at common law tried by the courts at Westminster in 1789 and is brought within the bounds of federal jurisdiction, the responsibility for deciding that suit rests with Article III judges in Article III courts." (internal quotation marks and citation omitted)). Granfinanciera v. Nordberg, 492 U.S. 33, 46-47 (1989) ("We therefore conclude that respondent would have had to bring his action to recover an alleged fraudulent conveyance of a determinate sum of money at law in 18th-century England, and that a court of equity would not have adjudicated it."); see also Official Comm. of Unsecured Creditors v. Nat'l Patent Dev. Corp. (In re TMG Liquidation Co.), C/A No. 7:12-629-TMC, 2012 WL 1986526, at *2 (D.S.C. June 4, 2012); Lain v. Erickson (In re Erickson Ret. Cmty, LLC), Bankruptcy No. 09-37010-sg11, Civil No. WDQ-11-3736, 2012 WL 1999493, at *3 (D. Md. June 1, 2012); McCarthy v. Wells Fargo Bank, N.A (In re El-Atari)., No. 1:11cv1090 (LMB/IDD), 2011 WL 5828013, at *2-*4 (E.D. Va. Nov. 18, 2011).
The debtor, James Harold Clutts ("Debtor"), filed a petition for relief under Chapter 7 of the Bankruptcy Code on January 9, 2013. On April 19, 2013, during the pendency of the bankruptcy case, Debtor passed away. Defendant is the spouse and widow of the Debtor. The Trustee initiated this adversary proceeding on May 9, 2013, to avoid and recover allegedly fraudulent transfers pursuant to 11 U.S.C. §§ 544 and 548 and South Carolina Code Annotated § 27-23-10.4 The Trustee also seeks relief under 11 U.S.C. §§ 542 and 550. Defendant filed an Answer in response to Trustee's Complaint.5 The initial Complaint6 contained twelve causes of action, however, the Trustee now seeks summary judgment only as to three causes of action. Defendant filed an Objection in response alleging valuable consideration was exchanged and setting forth the statute of limitations and laches as defenses to summary judgment.
The facts surrounding this adversary are essentially not in dispute. Between 2008 and 2010, Debtor made two monetary transfers following the sale of a business (collectively, the "Sale Proceeds Transfer") and an assignment of rent7 ("Rent Assignment") to Defendant. The Trustee seeks to avoid these transfers as constructively fraudulent.
The Sale Proceeds Transfer
1. On July 1, 2008, Debtor sold his interest in Vanex, Inc. and realized sale proceeds of approximately $1,842,796.81.
2. Later in July of 2008, Debtor transferred $1,000,000.00 in proceeds from that sale to Defendant. The funds were deposited into Defendant's Wells Fargo bond account.
3. On March 3, 2009, Debtor transferred an additional $250,000.00 to Defendant.
4. The two transfers of $1,000,000.00 and $250,000.00 are collectively referred to hereafter as the "Sale Proceeds Transfer."
5. On December 4, 2009, Debtor "borrowed" $200,000.00 from Defendant. The funds were a portion of the Sale Proceeds Transfer previously made from Debtor to Defendant. The Debtor and Defendant executed a promissory note and Defendant collected the $200,000.00 from Debtor on April 28, 2011.
6. Defendant testified in a state court supplemental proceeding on June 28, 2012, that the Sale Proceeds Transfer was intended to provide financial security to her in light of Debtor's health issues. During her testimony Defendant stated that Debtor "gifted" the proceeds from the sale of his business to her. Pl.'s ex. D, p. 11, 30.
7. Similarly, during Debtor's 11 U.S.C. § 341 meeting on February 28, 2013, Debtor testified that he "gave" the money at issue to Defendant. Pl.'s ex. A, pp. 4, 21-22.
8. In a letter from Debtor to the Trustee dated March 1, 2013, Debtor referred to the Sale Proceeds Transfer as a "monetary gift to my wife." The letter explained that the "gift" was made due to Debtor's poor health. Pl.'s ex. C. During the course of Debtor and Defendant's marriage, Defendant did not work outside of the home.
9. Defendant testified at the preliminary injunction hearing held in this Court on May 22, 2013, in response to a question of whether she provided the Debtor anything in exchange for the Sale Proceeds Transfer as follows: "No, I did not. It was consideration for my welfare." Pl.'s ex. B, pp. 76-77.
10. On October 8, 2013, the day of the hearing on Plaintiff's motion for partial summary judgment, Defendant submitted an affidavit, filed late, that alleged the Sale Proceeds Transfer was "made in consideration of [her] demand to be made an equal partner in . . .[the] marriage." Portions of the information contained in the affidavit contradict Defendant's previous sworn testimony. Def.'s ex. 1.
The Rent Assignment
11. Debtor was the owner of a one half interest in a commercial office building located at 914 West Main, Carbondale, Illinois (the "Carbondale Property"). The remaining one-half interest is held by Debtor's ex-wife.
12. On July 1, 2010, Debtor assigned his one-half interest in rents from the Carbondale Property to Defendant (the "Rent Assignment"). In Defendant's Answer she admits that there was an absolute assignment of rents in July of 2010.
13. Debtor testified at the section 341 meeting on February 28, 2013 that he assigned his interest in the Carbondale Property to Defendant and disclosed the assignment in his schedules.
14. Defendant testified at the preliminary injunction hearing held in this Court on May 22, 2013, in response to a question of whether she provided the Debtor anything in exchange for the Rent Assignment as follows: "No, I did not. It was consideration for my welfare." Pl.'s ex. B, pp. 76-77.
15. Since the assignment, Defendant has received one half of the net rental proceeds from the Carbondale Property of at least $1,500.00 per month ("Rent Proceeds"). The estimated total amount received by Defendant to date is $54,000.00.
16. The affidavit submitted by Defendant on October 8, 2013, also alleged that the Rent Assignment was "made in furtherance of [her] demand to be an equal partner in the marriage." Def.'s ex. 1.
Creditors
17. The following creditors have filed proofs of claim in the Debtor's bankruptcy case: (1) SunTrust Mortgage, Inc.8 (2) SunTrust Bank;9 (3) SCBT, as Successor by Merger with The Savannah Bank ("SCBT");10 (4) RL REGI Financial, LLC ("RL REGI");11 (5) PNC Bank, N.A., as Successor by Merger to RBC Bank (USA) f/k/a RBC Centura Bank ("PNC");12 and (6) Bank of the Ozarks, as Successor in Interest to Woodlands Bank.13
18. SunTrust Mortgage extended a loan to Debtor on March 19, 2004. Pl.'s. ex. Y. Subsequently, on September 12, 2005, SunTrust Bank extended a loan to Debtor. Pl.'s ex. X. As of the date of Debtor's bankruptcy petition, both of these loans were current. During the pendency of the bankruptcy case, Debtor defaulted on both loans. Pl.'s ex. X, Y. The affidavit submitted by Defendant on October 8, 2013, attached a refinance application between Debtor and either SunTrust Bank or SunTrust Mortgage executed on November 4, 2008. Def.'s ex. 1.
19. On March 15, 2006, Debtor guaranteed the payment of a loan made by SCBT to Big Beach, LLC. There was a default in payment on December 1, 2010, and SCBT instituted litigation in the state court against Debtor on June 20, 2011. Plaintiff provided an affidavit from SCBT in which SCBT stated that it did not receive notice of the transfers at issue in this case until April 18, 2013. Pl.'s ex. O.
20. On March 7, 2007, Debtor guaranteed a loan made by RL REGI to MC Properties of Hilton Head, LLC. RL REGI declared the loan in default on December 1, 2010. RLREGI instituted an action against Debtor on February 4, 2011. Summary judgment was granted in RL REGI's favor on October 7, 2011. RL REGI indicated in its affidavit that it was not aware of the transfers to Defendant until April 17, 2013. Pl.'s ex. Q, R, S,
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