United States District Court, D. South Carolina, Anderson Division
DAVID L. GROVES, Plaintiff,
PAULA C. DAFFIN, and ROBERT C. DAFFIN, Defendants.
Bruce Howe Hendricks United States District Judge
This matter came before the Court for a bench trial on Thursday, January 14, 2016 at 9:30 a.m. Robert W. Hughes, Jr. and William E. Fields represented David Groves (“Plaintiff”). William B. Ney and Thomas J. Goodwyn represented Paula C. Daffin and Robert C. Daffin (“Defendants”). The Court hereby makes the following Findings of Fact and Conclusions of Law.
Plaintiff seeks cancellation of a quitclaim deed transferring Defendant Robert Daffin’s interest in a residence to his wife, Defendant Paula Daffin. Plaintiff asserts that this conveyance was fraudulent in violation of the Statute of Elizabeth, SC Code § 27-23-10. It is undisputed that the transfer in question occurred after Plaintiff filed an action against Defendant Robert Daffin, but several years before Plaintiff ultimately obtained a judgment against Daffin. This places Plaintiff in the position of a “subsequent creditor” and requires proof that (1) the conveyance was voluntary, that is, without consideration, and (2) made with a view to future indebtedness or an actual fraudulent intent on the part of the grantor if the conveyance is to be set aside.
FINDINGS OF FACT
Plaintiff and Defendant Robert Daffin are former business partners who owned an entity named Stone Mountain Productions, Inc. (“SMP”). (Tr. 18:2-8.) SMP produced laser light shows. (Tr. 17:16-19.) In early 2004, Defendant Robert Daffin, Plaintiff, and SMP entered into an agreement whereby SMP agreed to buy Plaintiff’s interest in SMP. (Tr. 17:23-18:8.) SMP agreed to pay Plaintiff $1, 400, 000 for his interest. (Tr. 18:9-15.) Plaintiff received a $500, 000 down-payment from SMP. (Id.) Additionally, SMP issued a promissory note (the “Note”) to Plaintiff in the amount of $900, 000. (Id.)
Under the Note, SMP was obligated to pay Plaintiff approximately $13, 000 per month for seventy-two months. (Id.) After making several monthly payments, SMP defaulted on the Note. (Tr. 18:23-19:3.) In June 2005, Plaintiff sued SMP for breach of the Note. (Tr. 19:4-6, 29:18-24.) In June 2006, Plaintiff obtained a $900, 000 judgment against SMP. (Tr. 24:13-16.)
In July 2007, Plaintiff filed a lawsuit in the Superior Court of Dekalb County, Georgia against Defendant Robert Daffin and others seeking damages of $786, 000 and alleging that Daffin and others fraudulently transferred the assets of SMP out of SMP. (Tr. 24:19-24; Def. Ex. 1, 2007 Complaint.) On September 5, 2007, Defendant Robert Daffin sold and released his one-half (1/2) undivided interest in the property located at 115 North Wynward Pointe Drive, Salem, SC 29676 (“the Property”), located on lot 116 of the Wynward Pointe Subdivision, more particularly described as:
ALL that certain piece, parcel or tract of land, together with any and all improvements located thereon, lying and being situate in the State of South Carolina, County of Oconee, being shown and designated as LOT 116 of PHASE II, WYNWARD POINTE SUBDIVISION, as shown on a Plat thereof recorded in Plat Book A-706, at Pages 5, 6, and 7, records of the Register of Deeds Office for Oconee County, Walhalla, South Carolina; having the metes and bounds, courses and distances as appear upon said Plat, being incorporated herewith and made part hereof by reference thereto
to his wife, Defendant Paula Daffin, for and in consideration of five dollars ($5.00) and love and affection. (Plf. Ex. 2, Deed.) Defendants did not actually exchange five dollars during the transfer; that number was simply chosen by the attorney who drafted the transfer documents (Tr. 45:22-24.) Ultimately, in July 2012, Plaintiff obtained a judgment against Defendant Robert Daffin in the amount of $308, 000 plus legal interest from March 2005 until paid, on the final arbitration award pertaining to the 2007 lawsuit. (Tr. 19:24-20:8; Plf. Ex. 1, Judgment; Def. Ex. 3, Arbitrator’s Award.)
In January 2007, as part of an application for a home equity line of credit, Defendants indicated that the then present value of the Property was $1, 500, 000. (Tr. 44:5-9, 45:25-46:3; Plf. Ex. 3, Bank Records.) At that time, Defendants also indicated that the balance owed on the Property’s mortgage was $283, 060.08. (Tr. 44:10-12, 46:4-6; Pl. Ex. 3.) No evidence was presented of any additional encumbrance on the Property in 2007. No evidence was presented of any different valuation of the Property in 2007. In the absence of evidence to the contrary, and given that Defendants themselves were the source of the relevant figures, the Court adopts $1, 500, 000 as the approximate market value of the Property at the time of the conveyance in question. Subtracting the only known encumbrance on the Property, the Court finds that Defendants held equity in the Property of approximately $1, 220, 000 at the time of the conveyance.
Further documentation in the form of renewal applications for the home equity line of credit reflects that Defendants have more recently indicated the market value of the Property as $940, 000 (March 2015), $950, 000 (February 2014), and $900, 000 (January 2013), and the corresponding amount of the outstanding mortgage as $235, 129 (2015), $241, 800 (2014), and $251, 445 (2013). (Pl. Ex. 3.) No evidence was presented that the fair market value of Defendant Robert Daffin’s one-half (1/2) undivided interest in the Property, after subtracting relevant encumbrances, ever approached $5.00, whether in 2007 or in the time period since. The home equity line of credit documentation also reflects that in the time period since July 2012 Defendant Robert Daffin has repeatedly represented to the lender that he has no outstanding judgments against him. (Plf. Ex. 3; T. 45:6-17.)
Defendants testified that they had a legitimate business purpose for the conveyance. Specifically, they testified that sole ownership of the property by Defendant Paula Daffin would facilitate a new business idea they were formulating in September 2007 to convert an existing real estate development LLC (“KTMG”), in which Defendant Robert Daffin was a member, into a “minority-owned business” or “woman-owned company.” (Tr. 37:14-38:9, 55:11-24.) Purportedly, Defendant Paula Daffin’s sole ownership of the Property would have allowed her to obtain loans and win favorable government real estate development contracts for KTMG. (Tr. 36:24-37:7, 38:10-12, 55:11-22.) To bolster this assertion, Defendants point to the fact that Paula Daffin was made a member of KTMG. (Tr. 40:20-25, 55:23-24.) Defendants further testified that Paula Daffin was unaware of the lawsuit pending against Robert Daffin when the Property was conveyed. (Tr. 38:22-39:2, 55:4-10.)
The Court does not, however, accept the purpose of the conveyance as asserted by Defendants. First, KTMG remained a male-owned company for two and a half years after the conveyance, and Paula Daffin was not made a member until 2010. (Tr. 47:6-11, 47:14-48:7, 57:22-58:10, 61:10-17; Def. Ex. 9, LLC Members Statement). Second, Paula Daffin never did any land development with KTMG, the Property was never used as collateral to finance any KTMG business, and Defendants produced no evidence, whether documentary or otherwise, showing that Paula Daffin was actually in the land development business in any meaningful way. ...