Windward Campus Owner, LLC v. Good Night Med. of Ohio, LLC

• Decision Date: 10 March 2022
• Docket Number: A21A1192
• Parties: WINDWARD CAMPUS OWNER, LLC v. GOOD NIGHT MEDICAL OF OHIO, LLC et al.
• Court: Georgia Court of Appeals

363 Ga.App. 177

871 S.E.2d 36

WINDWARD CAMPUS OWNER, LLC

v.GOOD NIGHT MEDICAL OF OHIO, LLC et al.

A21A1192

Court of Appeals of Georgia.

March 10, 2022

David R. Dolinsky, Michael Brett Weinstein, Atlanta, for Appellant.

Donald Paul Boyle Jr., G. Frank Nason IV, John Joseph Richard, Atlanta, for Appellee.

Reese, Judge.

In this voidable-transaction action, Windward Campus Owner, LLC (the "Landlord") appeals from the trial court's grant of summary judgment in favor of Good Night Medical, LLC, Good Night Medical of Ohio, LLC, Sleep Health Diagnostics, LLC (collectively, the "LLC Defendants"), Scott Hunter, and John Cates. On appeal, the Landlord argues that the trial court erred in finding that: (1) the transfers to the LLC Defendants were for reasonably equivalent value; (2) the transfers were not made with an intent to defraud the Landlord; (3) the LLC Defendants did not assume liability on the lease to the Landlord; and (4) the Landlord's claims for conspiracy and aiding and abetting the voidable transfer were without merit. For the reasons set forth infra, we affirm.

Construed in the light most favorable to the Landlord, as the nonmoving party below,¹ the record shows the following. Defendants Hunter and Cates were the owners of Complete Health Diagnostics, Inc., and its subsidiary, Complete Health Technologies, Inc. (collectively, "Complete Health"). Complete Health conducted sleep studies and dispensed medical equipment such as CPAP (continuous positive airway pressure) machines and take-home sleep tests to patients. Complete Health had several sleep lab locations in Georgia and South Carolina.

In 2014, Complete Health entered into a 65-month lease with the Landlord for Complete Health's corporate headquarters in Alpharetta. About 10 to 15 employees worked in the office, consisting mostly of administrative staff. Complete Health conducted the actual clinical sleep studies at its sleep labs throughout Georgia and South Carolina.

In 2016, Complete Health was, according to Hunter, "going to have to close its doors and go bankrupt[.]" Thus, Complete Health hired a broker to seek financial or restructuring parties to provide capital and assist in paying operating expenses. Around this time, the LLC Defendants retained a separate broker to look for sleep lab companies that were interested in selling some of their medical equipment or other assets. The LLC Defendants were based in Ohio and were also in the sleep lab business, with locations in Arkansas, California, Georgia, Massachusetts, North Carolina, Ohio, South Carolina, and Texas. The LLC Defendants’ broker identified Complete Health as a potential target for an asset purchase or other transaction. The parties began negotiating in April 2016. Prior to this negotiation, the LLC Defendants and Complete Health had no relationship with each other and had not conducted business together in any way.

The LLC Defendants considered, but rejected, a complete acquisition of Complete Health. The LLC Defendants did not believe that Complete Health's performance "justified taking on all of their liabilities." Chief among these liabilities were secured equipment leases to VGM Financial ("VGM") and Phillips Medical Capital ("Phillips"). These leases were secured by all of the assets of Complete Health. By September 2016, VGM informed Complete Health that it was in default and owed past due amounts of over $130,000.

In November 2016, Complete Health and the LLC Defendants entered into two principal agreements: (1) an Asset Purchase Agreement ("APA"); and (2) a Transition Services Agreement ("TSA"). Under the APA, the LLC Defendants agreed to purchase most of Complete Health's assets and medical equipment. Other than the medical equipment, chief among these assets were patient records and all tangible personal property. The APA excluded Complete Health's cash on hand and accounts receivable. The LLC Defendants also agreed to assume some of Complete Health's liabilities.

Contemporaneously with the APA, in order to protect its newly acquired interest in Complete Health's assets and medical equipment, the LLC Defendants purchased from VGM its lease and secured interest in the medical equipment for $430,000. The outstanding debt on the VGM lease was approximately $539,000. The LLC Defendants filed Uniform Commercial Code ("UCC") financing statements to reflect this assignment from VGM. After execution of the APA, Phillips sued Complete Health, Cates, and Hunter for breach of contract under its medical equipment lease. In order to protects its assets, the LLC Defendants purchased from Phillips its lease and secured interest in the medical equipment. The LLC Defendants filed UCC financing statements to reflect this assignment from Phillips.

Under the TSA, the LLC Defendants agreed to provide certain transition services to Complete Health, including staffing, patient scheduling, inventory control, billing, administration, and payment of equipment vendors and physicians. In exchange, Complete Health agreed to pay the LLC Defendants 98 percent of its collected revenues going forward. In its appellate brief, the LLC Defendants view this exchange as a "contractually guaranteed 2 percent profit" to Complete Health.

Following the transaction, Hunter became an executive of the LLC Defendants. Cates signed a consulting agreement with the LLC Defendants, but never performed under the agreement. Neither Hunter nor Cates acquired an ownership interest in the LLC Defendants.

In December 2016 and January 2017, Cates made two rent payments to the Landlord from the Complete Health account. Complete Health occupied the property until March 2017. In August 2017, the Landlord sued Complete Health for unpaid rental payments, and received a default judgement. By November 2017, Complete Health stopped receiving patient funds.

Between December 2016 and July 2017, Complete Health transferred approximately $382,000 to the LLC Defendants. The LLC Defendants contend these transfers represented 98 percent of Complete Health's revenues under the TSA and payments on the debt that VGM assigned to the LLC Defendants.

The LLC Defendants also received $3,289,117.30 directly from insurers, Medicare, and Medicaid for services that the LLC Defendants provided to patients under Complete Health's provider numbers. According to the LLC Defendants, it never received full compensation from Complete Health for the cost of the transition services and the VGM and Phillips debt. The LLC Defendants contend that it had a shortfall of $610,037.

In its third amended complaint, the Landlord asserted claims of, inter alia, violations of the Uniform Voidable Transactions Act ("UVTA"),² successor liability, and breach of contract. The LLC Defendants, Hunter, and Cates filed motions for summary judgment, which the trial court granted. This appeal followed.

"We review a grant of summary judgment de novo, construing the evidence in the light most favorable to the nonmovants and drawing every reasonable inference in their favor."³

A defendant may prevail by showing the court that the documents, affidavits, depositions and other evidence in the record reveal that there is no evidence sufficient to create a jury issue on at least one essential element of plaintiff's case.... A defendant who will not bear the burden of proof at trial need not affirmatively disprove the nonmoving party's case; instead, the burden on the moving party may be discharged by pointing out by reference to the affidavits, depositions and other documents in the record that there is an absence of evidence to support the nonmoving party's case. If the moving party discharges this burden, the nonmoving party cannot rest on its pleadings, but rather must point to specific evidence giving rise to a triable issue.⁴

With these guiding principles in mind, we now turn to the Landlord's claims of error.

1. The Landlord argues that there was an issue of material fact as to whether the transfers from Complete Health to the LLC Defendants were for reasonably equivalent value.

Voidable transfers under the UVTA are broadly separated into two classifications: constructive voidable transfers and actual voidable transfers.⁵ Under OCGA § 18-2-75 (a), the code section for a constructive voidable transfer,

[a] transfer made or obligation incurred by a debtor is voidable as to a creditor whose claim arose before the transfer was made or the obligation was incurred if the debtor made the transfer or incurred the obligation without receiving a reasonably equivalent value in exchange for the transfer or obligation and the debtor was insolvent at that time or the debtor became insolvent as a result of the transfer or obligation.⁶

Similarly, under OCGA § 18-2-74 (a) (2), a transfer is voidable as to a creditor if the debtor made the transfer

[w]ithout receiving a reasonably equivalent value in exchange for the transfer or obligation, and the debtor:

(A) [w]as engaged or was about to engage in a business or a transaction for which the remaining assets of the debtor were unreasonably small in relation to the business or transaction; or

(B) [i]ntended to incur, or believed or reasonably should have believed that he or she would incur, debts beyond his or her ability to pay as they became due.⁷

A showing of actual intent to hinder, delay, or defraud a creditor is not a necessary element to assert a claim of a constructive voidable transfer.⁸ Rather, the essential elements of a constructive voidable transfer include showing (1) that the transfer was not for reasonably equivalent value, and (2) that the debtor was or became insolvent as a result of the transaction.⁹ A creditor seeking to make a claim for a constructive voidable transfer under OCGA § 18-2-75 (a) must prove the elements of the claim by a preponderance of the evidence.¹⁰

As an initial matter, under the UVTA, " ‘[a]sset’ means property of a debtor, but the term does not include [p]roperty to the extent it is encumbered by a valid lien[.]"¹¹ And a "[...