United States District Court, D. South Carolina, Charleston Division
August 21, 2015
Amended by September 23, 2015.
[Copyrighted Material Omitted]
[Copyrighted Material Omitted]
PCS Nitrogen Inc, Plaintiff: Kirby D Shealy, III, LEAD
ATTORNEY, Adams and Reese, Columbia, SC; John Buchanan
Williams, PRO HAC VICE, Williams Lopatto, Washington, DC;
Sandra Kaczmarczyk, PRO HAC VICE, Alton Associates,
Ross Development Corporation, T Heyward Carter, Jr, Grayson G
Hanahan, William O Hanahan, III, Katharyne H Rike, Mikell R
Scarborough, C Cotesworth Pinckney, as Co Trustee of the
Trust of William O Hanahan Jr on behalf of William O Hanahan,
Jr, T Heyward Carter, as Co Trustee of the Trust of William O
Hanahan Jr on behalf of William O Hanahan, Jr, Ann Hanahan
Blessing, Donald Buhrmaster, III, Eleanor W Carter, Margaret
H Carter, Elizabeth H Clark, Buist L Hanahan, Elizabeth A
Hanahan, Frances G Hanahan, Mary Ross Hanahan, Muriel R
Hanahan, Roger Parke Hanahan, Jr, Grayson C Jackson, Oriana H
Kirby, Jeanne Deforest Smith Hanahan, Defendants: Daniel S
McQueeney, Jr, George Trenholm Walker, Kathleen Fowler Monoc,
LEAD ATTORNEYS, John Phillips Linton, Jr, Pratt-Thomas
Walker, Charleston, SC.
FINDINGS OF FACT AND CONCLUSIONS OF LAW
B. Seymour, Senior United States District Judge.
matter is before the court after trial for final disposition
of Plaintiff PCS Nitrogen, Inc.'s (" PCS" )
cause of action for fraudulent conveyance. The claims in this
case arise out of litigation that resolved liability under
the Comprehensive Environmental Response Compensation and
Liability Act (" CERCLA" ) for the remediation of
the Columbia Nitrogen Superfund Site (" Site" ) in
Charleston, South Carolina. Ashley II of Charleston, LLC
v. PCS Nitrogen, Inc., Case No. 2:05-cv-02782-MBS
(D.S.C.) (hereinafter Ashley II ). Both PCS and
Defendant Ross Development Corporation (" Ross" )
are former owners and operators of the Site that were parties
to the Ashley II action and were found liable for
response costs at the Site. PCS brought this action on
December 8, 2009, to recover funds from Ross, T. Heyward
Carter, Jr. (" Carter" ); Grayson G. Hanahan;
William O. Hanahan, III (" Hanahan" ); Katharyne H.
Rike (" Rike" ); Mikell R. Scarborough ("
Scarborough" ); and the Estate of G.L. Buist Rivers
(collectively the " Ross Directors" ); as well as
Cotesworth Pinckney and T. Heyward Carter as co-trustees of
the Trust of William O. Hanahan, Jr.; Anne Hanahan Blessing;
Donald Buhrmaster, III; Eleanor W. Carter; Margaret H.
Carter; Elizabeth H. Clark; Maria Grayson-Metaxas; Buist L.
Hanahan; Elizabeth A. Hanahan; Mary Ross Hanahan; Muriel R.
Hanahan; Roger Parke Hanahan, Jr.; Grayson C. Jackson;
Orianna H. Kirby; and Jeanne Deforest Smith Hanahan
(collectively the " Ross Shareholders"
). ECF No. 1. PCS dismissed its claim
against the Estate of G.L. Buist Rivers on June 10, 2011 (ECF
No. 91) and against Maria Grayson-Metaxas on July 17, 2014
(ECF No. 294).
proceeded to trial on three of the causes of action in its
Amended Complaint: (1) an action under the Statute of
Elizabeth (S.C. Code Ann. § 27-23-10(A)) to set aside
alleged fraudulent conveyances brought against Ross, the Ross
Directors, and the Ross Shareholders; (2) an action for an
alleged civil conspiracy brought against the Ross Directors;
and (3) a direct claim for alleged breach of fiduciary duty
brought against the Ross Directors. ECF No. 34. The parties
tried the equitable claim for fraudulent conveyance to the
court at the same time as they tried the two legal claims to
the jury. At the conclusion of the trial on July 31, 2014,
the jury returned a verdict for the Ross Directors on the
civil conspiracy claim and a verdict for PCS in the amount of
$5,555,158.00 against the Ross Directors on the breach of
fiduciary duty claim. ECF No. 319. According to the joint
stipulations submitted to the jury, $5,555,158.00 is the
exact amount of all distributions to all the shareholders of
Ross from 1999 to 2006, when Ross dissolved. ECF No. 312. The
jury declined to award PCS punitive damages. ECF No. 319.
August 19, 2014 hearing, Defendants moved for judgment as a
matter of law on the fraudulent conveyance claim. ECF No.
325. The court ordered the parties to prepare briefs
addressing whether the jury's verdict provided PCS with
an adequate remedy at law that precluded its recovery of
equitable relief. Id. Those briefs were submitted to
the court by September 12, 2014. ECF Nos. 326, 327, 328, and
329. On October 29, 2014, this court determined that the
jury's verdict does not preclude the court from awarding
PCS relief under its fraudulent conveyance claim. ECF No.
344. The court did, however, dismiss PCS's claim without
prejudice to the extent that it was also brought against the
Ross Directors--Carter, Grayson Hanahan, Hanahan, Rike, and
Scarborough--because the breach of fiduciary duty claim tried
to the jury provided an adequate remedy at law precluding
equitable relief as to those Defendants. Id. at 8.
The court permitted PCS's claim to proceed against the
Ross Shareholders. Id. In the order on the
post-trial motions accompanying this Amended Findings of Fact
and Conclusions of Law, the court vacated in part its order
of October 29, 2014, to the extent that order dismissed
without prejudice PCS's fraudulent conveyance claim
against the Ross Directors. ECF No. 344. The Ross Directors
remain defendants to PCS's fraudulent conveyance claim.
fraudulent conveyance claim alleges that the Ross Directors
knew of contamination at the Site and that Ross could be
liable for such contamination when they approved all the
distributions to themselves and to the Ross Shareholders from
1992 through 2006. ECF No. 34. PCS's amended complaint
asserts that from 1992 to 2006, " with knowledge of a
future tort claim and with actual intent to evade liability
for the Site and defraud Ross creditors, both existing and
subsequent, including PCS," the Ross Directors
voluntarily distributed all of Ross's assets to all the
shareholders of Ross; and that such " distributions made
Ross insolvent and unable to pay its creditors, including
PCS." ECF No. 34, ¶ ¶ 69-71. In its fraudulent
conveyance claim, PCS challenges only the distributions from
1998 to 2006. Summ. J. Hr'g Tr. 22:23-23:6 (ECF No. 343).
November 4, 2014, the parties submitted proposed findings of
fact and conclusions of law to the court pursuant to Rule
52(a) of the Federal Rules of Civil Procedure. Rule 52(a)
directs that " [i]n an action tried on the facts without
a jury or with an advisory jury, the court must find the
facts specially and state its conclusions of law
separately." Fed.R.Civ.P. 52(a).
carefully considered the testimony, exhibits, deposition
excerpts, trial briefs, and proposed findings of fact and
conclusions of law, the court makes the following findings.
FINDINGS OF FACT
Background: The Ashley II Litigation
is a dissolved South Carolina corporation that was formed
more than 100 years ago as Planters Fertilizer and Phosphate
Company (" Planters" ). From 1906 to 1966, Planters
operated a fertilizer plant at the Site. Trial Tr. 69:5-14.
Planters sold the Site and its fertilizer plant operations to
PCS's predecessor, Columbia Nitrogen Corporation ("
CNC" ), in 1966. Trial Tr. 69:21-23.
sale of the Site was governed by a letter of agreement
containing an indemnification clause in which Planters agreed
to indemnify CNC " in respect to any acts, suits,
demands, assessments, proceedings and costs and expenses
resulting from any acts of [Planter's] occurring prior to
the closing date . . . ." Pl.'s Ex. 3; Trial Tr.
After the sale, Planters changed its name first to Ross
Industrial Products and subsequently to Ross Development
Corporation. Trial Tr. 65:22-66:2.
property that Planters and CNC owned and operated is
contaminated with lead and arsenic and must be remediated.
Trial Tr. 69:15-20. Ross contributed lead and arsenic to the
Site in significant quantities. Id.
2005, the EPA estimated that the total remedy costs would be
roughly $7.882 million. Trial Tr. 304:10-16; Pl.'s Ex.
Ashley II of Charleston, LLC (" Ashley" ), bought
the Site in 2003. Initially, Ashley planned to remediate the
Site. In 2005, Ashley sued PCS under CERCLA to recover its
remediation costs. See Ashley II. PCS brought
counterclaims against Ashley and claims against other former
and current owners of the Site, who likewise filed their own
cross-claims. Ashley II, ECF No. 627 at 1. These
third-party defendants included
Ross; James H. Holcombe, J. Holcombe Enterprises, L.P., J.
Henry Fair, Jr. (Collectively " Holcombe and Fair"
); Allwaste Tank Cleaning, Inc. (" Allwaste" );
Robin Hood Container Express (" RHCE" ); and the
City of Charleston.
After Ross was added as a third party defendant in the CERCLA
case, and following a bench trial, the court determined,
among other things, that PCS was jointly and severally liable
to Ashley II for the response costs it had incurred. PCS
Nitrogen Inc. v. Ashley II of Charleston LLC, 714 F.3d
161, 167 (4th Cir.), cert. denied, 134 S.Ct. 514,
187 L.Ed.2d 366 (2013). As to the counterclaim and
third-party claims, the court equitably allocated liability
for the past and future response costs as follows: forty-five
percent to Ross; thirty percent to PCS; sixteen percent to
Holcombe and Fair; five percent to Ashley; three percent to
Allwaste; one percent to RHCE; and zero percent to the City
of Charleston. Id. at 185; Ashley II of
Charleston, LLC v. PCS Nitrogen, Inc., 746 F.Supp.2d
692, 754 (D.S.C. 2010); Trial Tr. 131:10-132:2.
court entered judgment for Ashley II against PCS for
$147,617.02 plus interest and judgment for PCS against Ross
for $87,404.82 plus interest. Ashley II, ECF No.
628. The court also held that " PCS cannot collect upon
its judgments against contributing tortfeasors until it has
paid more than its share of judgment entered in favor of
Ashley in this case." Ashley II, ECF No. 660 at
4. The Fourth Circuit affirmed these rulings. PCS
Nitrogen, 714 F.3d 161, 186 n.11 (4th Cir. 2013),
cert. denied, 134 S.Ct. 514, 187 L.Ed.2d 366 (2013).
the time, litigation was pending against Ross's insurers,
shareholders, and directors to restore assets to Ross so that
it could pay its share of response costs. Ashley II,
ECF No. 627 at 93. The court held that if this litigation was
unsuccessful, Ross's forty-five percent share of costs
would be deemed to be an orphan share that would have to be
borne by other solvent, liable parties. Id. at
Through its fraudulent conveyance claim, PCS seeks to recover
funds that can be used to pay response costs. Specifically,
PCS seeks to void distributions made by the Ross Directors to
the Ross Shareholders during the period 1998 to 2006.
Ross and The Hanahan Family
Ross was founded by J. Ross Hanahan and was for the duration
of its existence a privately-held corporation. Ross's
shares did not trade publically. At the time of dissolution
in 2006, Ross had 36,640 shares outstanding and 71
shareholders. Defs.' Ex. 6, Pl.'s Ex. 108 at 1-9. The
shares were not traded; rather, they were largely inherited
or gifted within families descended from J. Ross Hanahan.
Trial Tr. 715:11-18.
During the period from 1998 to 2006, the Hanahan family
controlled the Ross board of directors. The
directors--Carter; Scarborough; Rike; Hanahan; and Grayson
Hanahan--were all descendants of J. Ross Hanahan. Trial Tr.
745:2-4; see generally ECF Nos. 166-5, 166-23
Defendants to requests for admission). With the exception of
Buist Rivers, each director represented the lineal
descendants of the children of J. Ross Hanahan. Trial Tr.
directors were " selected" by members of their
branch of the family line for service on the
corporation's board. Trial Tr. 165:20-166:1; 166:12-16;
739:16-21. In at least one instance, a seat on the board was
passed from father to son. Trial Tr. 972:24-25.
Although some of the seventy-one shareholders at the time of
dissolution were not individuals related to J. Ross Hanahan
(e.g., G.L. Buist Rivers, Jr.), all of the Ross Shareholders
remaining in this action are members of the Hanahan family.
See ECF Nos. 166-5, 166-23; Trial Tr. 49:12-15
(statement of Ross's counsel during opening statement:
" One thing [defendants] all have in common is that they
are Hanahans by blood or marriage, descended from Ross
Hanahan, and they were shareholders of Ross Development
Ross Shareholders include sisters, brothers, wives, children,
aunts, uncles, and cousins of the Ross Directors. ECF Nos.
166-5, 166-23; Trial Tr. 66:16-18, 101:4-14, 145:17-146:3;
Except for Carter, who transferred his shares to his wife and
children, all of the Ross Directors were also Ross
shareholders. Trial Tr. 66:14-18. Thus, when the Ross
Directors approved distributions, they were approving
distributions, in large part, to themselves and to their
Hanahan family board members controlled when and whether
distributions were made to Ross shareholders, who were also
mostly Hanahan family members. As the board sold Ross's
real property, Hanahan family members were in close touch
with the Ross Directors to ensure that they would promptly
receive distributions from the sale proceeds. Trial Tr.
Ross Directors knew the Site had been used as a fertilizer
plant, but none had ever been to the Site. Trial Tr.
200:10-16. None of the Ross Shareholders had ever been to the
Site. ECF Nos. 166-5, 166-23.
Being a director of Ross involved attending board meetings
and signing documents on occasion. Trial Tr. 744:16-19. Rike
testified that her role on the Board of Directors took ten to
fifteen hours a year. Trial Tr. 744:20-23. It was a
volunteer, non-salary position that came with no training.
Trial Tr. 164:21-166:1; 744:24-745:1.
Ross Directors relied on Ted Daniell (" Daniell" )
for financial and accounting matters, John Warren ("
Warren" ) for corporate legal matters, and Jimmy Bailey
(" Bailey" ) for land and development matters.
Trial Tr. 745:9-20. Daniell also provided audited financial
statements. Trial Tr. 426:15-18.
the time the shareholders adopted the plan of liquidation (
see infra Part I.C.), Ross's primary asset was a
large tract of land of 550 acres known as the Dotterer Tract
in the West Ashley area of Charleston near Bees Ferry Road.
Defs.' Ex. 57 at 27, 89; Trial Tr. 148:9-150:4,
797:14-798:15. The company's intent was to subdivide it
and sell development parcels.
Trial Tr. 160:2-5; Defs.' Ex. 57 at 103-106. Because the
company was liquidating and could no longer actively sell its
own real estate, the board resolved that James Bailey of
Bailey & Associates, Inc. would manage, list, and sell the
Dotterer Tract. Defs.' Ex. 57 at 92, 12. Bailey handled
the marketing and limited development steps necessary to sell
the development parcels. Trial Tr. 160:17-161:12,
noted in the minutes of the special meeting of the board of
directors on January 27, 1984, the plan of liquidation
centered around the Dotterer tract and was always " to
encourage access to the property by way of an extension of
the Highway 61 Expressway and to sell the property in large
blocks as rapidly thereafter as possible." Defs.'
Ex. 57 at 96.
sales of tracts went slowly for reasons that included lack of
ready vehicular access and extensive wetlands that diminished
the developable acreage from 300 to 100 acres. Trial Tr.
825:10-23, 161:24-162:14, 802:24-802:5. Sales picked up
considerably around 1995 upon the completion of the Glenn
McConnell Expressway that bisected the Dotterer tract and
provided access to it by a major highway as well as frontage
on that highway. Trial Tr. 806:6-23, 814:10-16,
162:19-163:11; see also Defs.' Ex. 57 at
During this period, the primary business of the company was
the development and sale of parcels from the Dotterer Tract.
Trial Tr. 739:22-740:8.
Ross Directors met at Carter's law office on Church
Street to discuss old and new business, primarily regarding
the Dotterer Tract. Trial Tr. 740:14-19. In the early years,
the Directors met four or five times a year until sales at
the Dotterer Tract increased when they would meet more
frequently to review contracts of sale procured by Bailey.
Trial Tr. 739:22-740:8. The Ross Directors were not involved
with the day to day business of the company.
their meetings, Carter kept accurate minutes. Trial Tr.
743:24-744:15. Rike testified that there was never an
instance where the board specifically and purposefully asked
for something to be omitted from the minutes. Trial Tr.
Ross shareholders met annually on the fourth Thursday in
February. Trial Tr. 740:9-10.
Ross maintained its own bank accounts, separate and distinct
from those of its officers, directors, and shareholders.
See Trial Tr. 254:20-255:6; 753:2-8; Defs.' Ex.
From 1992 through 2006, the Ross Directors authorized the
following gross amounts of distributions to all of Ross's
a. January-February, 1992 - $73,269.00
b. September, 1997 - $334,751.00
c. March 1999 - $739,268.00
d. June, 1999 - $292,123.00
e. January-March, 2000 - $164,882.00
f. May, 2002 - $916,153.00
g. October, 2004 - $1,831,732.00
h. August, 2005 - $916,010.00
i. July, 2006 - $659,552.19
j. December, 2006 - $35,429.61
No. 312 (Joint Stipulations); see also Appendix A.
compilation of the details of shareholder distributions from
1998 to 2006 to the Ross Directors and the Ross Shareholders
according to the Joint Stipulation of the parties (ECF No.
312) is found in Appendix A.
1992, Ross retained Warren as its corporate attorney to
perform legal work associated with Ross's contracts to
sell real estate. Trial Tr. 225:14-22. Warren testified that
he is not an environmental lawyer but that he has dealt with
environmental issues in terms of allocation of risk in
business transactions. Trial Tr. 221:23-225:17.
his role as corporate attorney, Warren annually received
accounting audit letters from Ross's accountant, Daniell,
requesting disclosure of certain items, including threatened
claims and unasserted claims and contingencies. Trial Tr.
268:18-269:6. In response to these requests from 1998 to
2006, Warren sent attorney audit letters to Daniell that
stated that he was not aware of any pending or threatened
litigation or contingent liabilities. See
Defs.' Ex . 15.
Ross's Plan of Liquidation
1982, the then directors and shareholders of Ross adopted a
plan of liquidation to be accomplished over the course of one
year. Trial Tr. 152:10-15, 154:5-16; Pl.'s Ex. 4. The
plan called for the company to sell all of its assets, pay
its creditors, distribute whatever remained to the
shareholders, and terminate the existence of the corporation
during this time. Trial Tr. 153:1-7; Pl.'s Ex. 4. Due to
various circumstances, Ross was unable to accomplish its
liquidation within the allotted year. Trial Tr.
shareholders then adopted an amended plan of liquidation in
September of 1983. Defs.' Ex. 57 at 88-91; Trial Tr.
158:9-159:12. The amended liquidation plan provided that Ross
would refrain from the active operation of a business and
would continue to attempt to dispose of all of its remaining
assets in an orderly manner at a price and on terms
acceptable to its officers and directors. Defs.' Ex. 57
amended liquidation plan further provided " [t]hat the
net proceeds of the sale of its assets which may be available
from time to time for distribution to its Shareholders, after
maintenance of a reasonable reserve for payment of debts and
expenses as determined by its Directors, be distributed by
the Company to its Shareholders in liquidation in return for
the surrender by such Shareholders of a portion of their
stock in the Company." Defs.' Ex. 57 at 90; Trial
December 19, 1983, Ross filed its intent to dissolve with the
South Carolina Secretary of State. Defs.' Ex. 5; Trial
Tr. 156:7-13. The company also published notice of its intent
to dissolve in Charleston's daily newspaper, The Post
and Courier. Defs.' Ex. 5A; Trial Tr. 156:14-19. The
company ceased all
active operations, closed its office, and no longer had
employees. Trial Tr. 160:6-16.
During the liquidation of the company that started in 1982,
the Ross Directors typically authorized distributions after
the sale of each property if there were excess funds, keeping
in reserve amounts to pay taxes, other expenses, and any
unknown future liabilities. Ross " tried to keep a
minimum of $200,000.00 in the accounts just in case something
came up that we didn't know about." Trial Tr.
Minutes from a special board meeting held December 4, 1986,
state that $200,000.00 was the amount " previously set
by the Directors as an optimum amount, to retain by the
Company for known or unknown contingencies." Defs.'
Ex. 57 at 120. At that meeting, the board further discussed
" the continued advisability of retaining approximately
$200,000 in funds of the Company to meet expenses and other
contingencies of the Company during the process of
liquidation of the assets of the Company." Defs.'
Ex. 57 at 120.
Carter testified that from time to time, $200,000 was the
number the directors decided on. Trial Tr. 199:8-10. The
$200,000 contingency reserve is discussed in the minutes of
the December 17, 1987 meeting; the February 23, 1989 meeting;
and the March 15, 2000 meeting. Defs.' Ex. 57 at 128,
Daniell, Ross's accountant of many years, testified if
there was no revenue from land sales, there were no
distributions made to shareholders. Trial Tr. 471:20-23,
Ross sold its last parcel in 2005. Trial Tr. 823:15-22.
Ross's First Notice of Potential Environmental
Contamination at the Site - 1992
1992, the board first learned that the adjoining Koppers
property was contaminated with creosote and that it was
possible some of the creosote migrated to the property where
Ross had formerly manufactured fertilizer. At the time, Ross
had been in dissolution for ten years and was in the process
of liquidating Ross's real property holdings.
See Pl.'s Ex. 4.
January 24, 1992, an unknown law firm published a notice in
The Post and Courier seeking information about the
operations of companies in the Neck Area of Charleston, South
Carolina, including both Planters and CNC. Pl.'s Ex. 6;
Trial Tr. 72:14-25. The notice appeared to be related to
litigation over contamination at the Koppers Superfund Site,
which is located to the south of the property where Planters
formerly manufactured fertilizer. Trial Tr. 867:1-17.
day that the article was published, Carter spoke to Warren,
his friend and counsel to the Ross board of directors, about
the article. Pl.'s Ex. 7; Pl.'s Ex. 10; Trial Tr.
228:13-18. Carter forwarded the notice to Warren by fax.
Trial Tr. ...