Case Title: Fox Rest Assocs., L.P. v. Little

Citation: 

Docket Number: 100434

State: virginia

Court: Virginia Supreme Court

Date: 2011-09-16T00:00:00Z

Document:
PRESENT: Kinser, C.J., Lemons, Goodwyn, Millette, and Mims, JJ. 
 
FOX REST ASSOCIATES, L.P. 
 
 
 
 
 
 
 
 
OPINION BY 
v.  Record No. 100434 
 
JUSTICE LEROY F. MILLETTE, JR. 
 
 
 
 
 
 
 
 September 16, 2011 
ANNE B. LITTLE, ET AL. 
 
FROM THE CIRCUIT COURT OF HENRICO COUNTY 
Gary A. Hicks, Judge 
 
 
In this appeal, we consider whether Fox Rest Associates, 
L.P. (Fox Rest) presented sufficient evidence in its case in 
chief to establish a prima facie case for its claims of 
fraudulent conveyance and voluntary conveyance under Code 
§§ 55-80 and 55-81, respectively.  We hold that, except for a 
portion of the claims relating to the sale of certain 
equipment, Fox Rest did so and therefore reverse the circuit 
court's judgment granting the defendants' motion to strike. 
I.  BACKGROUND 
 
Fox Rest was formed in 1981 to purchase Fox Rest 
Apartments (the Apartments) as an investment.  George B. Little 
(Mr. Little) served as trustee of Fox Rest's general partner, 
and served as Fox Rest's legal counsel through his law firm, 
George B. Little and Associates (GBL&A).  In 2002, a dispute 
arose between Mr. Little and Fox Rest's limited partners, and 
the limited partners asked Mr. Little to step down as general 
partner.  Instead of stepping down, he sought a buyer for the 
Apartments without the limited partners' knowledge.  Only after 
2 
 
he entered into an agreement to sell the Apartments did Mr. 
Little inform the limited partners about the sale.  The 
Apartments were sold on January 30, 2003, and the proceeds were 
deposited into GBL&A's escrow account. 
 
On February 4, 2003, after receiving complaints from the 
limited partners concerning the sale, Mr. Little informed them 
by letter that he was withholding a portion of the proceeds 
from the sale in anticipation of litigation against him.  Mr. 
Little transferred $358,750, his commission from the sale (the 
Fox Rest Commission), from the GBL&A escrow account into an 
existing joint account at SunTrust Bank (the SunTrust Account) 
that he held with his wife, Anne B. Little (Mrs. Little).  
 
In May 2003, the limited partners retained counsel and 
told Mr. Little that they intended to pursue legal action 
against him for his alleged mismanagement of Fox Rest.  In the 
summer of 2003, Mr. Little sold Wilton Farm, a property that he 
owned in his name alone, and transferred the proceeds from the 
sale, which totaled $938,877.79 (the Wilton Farm Proceeds), 
into the SunTrust Account.  In addition, between January 2004 
and September 2006, Mr. Little deposited more than 60 wage 
checks totaling $446,413.42 into the SunTrust Account from 
GBL&A's account (the Wage Transfers). 
 
On October 2, 2006, after receiving advice from her 
counsel, Mrs. Little entered into an agreement with Mr. Little 
3 
 
to purchase GBL&A's office equipment at its appraised value 
(the Equipment Sale).  The agreement also called for Mrs. 
Little to lease the equipment back to the firm through the end 
of 2006, when Mr. Little planned to close the firm.  Mrs. 
Little understood the Equipment Sale would prevent Mr. Little's 
creditors from taking the equipment and therefore would allow 
the firm to close in an orderly manner. 
 
Meanwhile, the limited partners filed a derivative action 
against Fox Rest seeking damages for malpractice, double 
billing, excess commission, and additional taxes that they were 
forced to pay as a result of the sale of the Apartments.  On 
September 11, 2006, the circuit court found Mr. Little and 
GBL&A jointly and severally liable to Fox Rest in the 
derivative action.  We overturned a portion of the damages 
award on appeal.  Little v. Cooke, 274 Va. 697, 652 S.E.2d 129 
(2007).  The parties ultimately settled the case, and 
approximately $865,400 of the judgment remains uncollected.  
 
Unable to satisfy the judgment, Fox Rest filed this action 
against Mr. Little, Mrs. Little, and GBL&A (the defendants), 
seeking to void various transactions by Mr. Little as 
fraudulent conveyances and voluntary conveyances under Code 
§§ 55-80 and 55-81.  Specifically, Fox Rest sought to void the 
following transactions:  the transfers into the SunTrust 
4 
 
Account from the Fox Rest Commission, the Wilton Farm Proceeds, 
the Wage Transfers, and the Equipment Sale. 
 
At trial, Fox Rest presented expert testimony from Matthew 
O. McDonald, a certified public accountant and fraud examiner.  
McDonald testified about Mr. Little's solvency, the use of the 
approximately $1.7 million in transferred funds, and whether 
the Equipment Sale was a fair market value transaction.  
McDonald opined that Mr. Little was insolvent from February 
2003 through September 2006.  In assessing Mr. Little's assets, 
McDonald stated that he credited Mr. Little with 100% ownership 
of assets held in his name alone, 50% ownership of assets held 
jointly with Mrs. Little, and no ownership credit for assets 
held as tenants by the entirety.  On cross-examination, 
however, McDonald stated that if Mr. Little had been credited 
the assets held as tenants by the entirety, then he would have 
been solvent. 
 
McDonald opined that Mrs. Little received a "minimum 
benefit" of $940,000 from the approximately $1.7 million in 
transfers that were challenged by Fox Rest.  He concluded that 
$940,000 was used by Mrs. Little for tax payments, charitable 
giving, mortgage payments and expenses for various real estate 
holdings, and the purchase of a $21,000 rug.  McDonald also 
opined that the Equipment Sale was not a "fair-market-value 
transaction," which he defined as an "arm's length," orderly 
5 
 
transaction, not hurried or forced, between unrelated parties.  
But he did not contest the equipment's appraised value.  
 
Portions of Mr. and Mrs. Little's depositions were read 
into evidence.  Mrs. Little testified that she was not aware of 
any specific deposits that were made into the SunTrust Account 
from January 2003 until the end of 2008, and that Mr. Little 
handled all of the couple's financial matters.  According to 
Mrs. Little, Mr. Little and his firm managed the SunTrust 
Account.  She stated that she would indicate how much money she 
needed for household expenditures for the week, and funds that 
she presumed came from the SunTrust Account would be deposited 
into her personal account.  Although she had checks on the 
SunTrust Account, she did not use them unless instructed to by 
Mr. Little.  
 
Mrs. Little admitted that she was aware of the problems 
between Mr. Little and the limited partners, and that she knew 
about the derivative action by early 2004.  She testified that 
she agreed to the Equipment Sale on the advice of counsel to 
allow Mr. Little to close his law practice in an orderly 
manner.  
 
In his deposition, Mr. Little said that the SunTrust 
Account was a joint account, but he acknowledged that he had 
"goofed" previously when he said that the account was held as 
tenants by the entirety.  When asked whether Mrs. Little 
6 
 
provided valuable consideration for the challenged transfers, 
Mr. Little stated that "[h]er presence" with him throughout 
their marriage constituted valuable consideration. 
 
At the close of Fox Rest's evidence, the defendants moved 
to strike.  They argued that the evidence presented was not 
sufficient to establish a prima facie case for fraudulent 
conveyance or voluntary conveyance.  They noted that the 
SunTrust Account was a joint account and was therefore 
reachable by Mr. Little's creditors.  They contended that the 
deposits made into that account were not made with the intent 
to delay, hinder, or defraud Fox Rest from collecting its 
judgment.  They also argued that the evidence did not establish 
a prima facie case for a voluntary conveyance because the 
transfers were supported by valuable consideration — Mrs. 
Little's services as a wife and homemaker throughout the 
couple's 50-year marriage.  Additionally, Mrs. Little asserted 
that there was no evidence that she had notice of Mr. Little's 
alleged fraudulent intent regarding the transfers. 
 
The circuit court granted the defendants' motion to 
strike.  The court stated that there was no evidence that Mr. 
Little had any fraudulent intent or that Mrs. Little knew of 
any alleged fraudulent intent.  It noted that the deposits were 
made to a joint account that was reachable by creditors and in 
existence prior to the transfers.  The court concluded that 
7 
 
"there was not a case of hiding assets in this matter" and that 
"[t]here was nothing that changed."  We awarded Fox Rest this 
appeal.∗ 
II.  ANALYSIS 
 
In reviewing a circuit court's judgment granting a 
defendant's motion to strike, we apply the following standard: 
When ruling on a motion to strike a plaintiff's 
evidence, a trial court is required to accept as true 
all evidence favorable to a plaintiff and any 
reasonable inferences that may be drawn from such 
evidence.  The trial court is not to judge the weight 
and credibility of the evidence, and may not reject 
any inference from the evidence favorable to the 
plaintiff unless it would defy logic and common 
sense.  On appeal, when this Court reviews a trial 
court's decision to strike a plaintiff's evidence, we 
likewise view the evidence in the light most 
favorable to the plaintiff. 
 
TB Venture, LLC v. Arlington County, 280 Va. 558, 562-63, 701 
S.E.2d 791, 793 (2010) (internal quotation marks and citations 
omitted). 
A.  Fraudulent Conveyance 
 
We first consider Fox Rest's contention that the circuit 
court erred in striking its evidence in support of its 
fraudulent conveyance claim.  Fox Rest argues that its 
evidence, which must be viewed in the light most favorable to 
it, establishes a prima facie case for fraudulent conveyance.  
                                                 
 
∗ Mr. Little died after the trial.  Although counsel for 
Mr. Little and GBL&A filed a brief in opposition to the 
petition for appeal, he did not file a brief on the merits 
because he withdrew as counsel after Mr. Little's death. 
8 
 
For this reason, Fox Rest asserts that the circuit court erred 
in granting the defendants' motion to strike.  We agree with 
Fox Rest. 
 
Code § 55-80, which addresses fraudulent conveyances, 
states: 
 
Every gift, conveyance, assignment or transfer 
of, or charge upon, any estate, real or personal, 
every suit commenced or decree, judgment or execution 
suffered or obtained and every bond or other writing 
given with intent to delay, hinder or defraud 
creditors, purchasers or other persons of or from 
what they are or may be lawfully entitled to shall, 
as to such creditors, purchasers or other persons, 
their representatives or assigns, be void.  This 
section shall not affect the title of a purchaser for 
valuable consideration, unless it appear that he had 
notice of the fraudulent intent of his immediate 
grantor or of the fraud rendering void the title of 
such grantor. 
 
 
In a suit to set aside a fraudulent conveyance, proof of 
the fraudulent intent must be "clear, cogent and convincing."  
Hutcheson v. Savings Bank of Richmond, 129 Va. 281, 289, 105 
S.E. 677, 680 (1921).  Fraud may be proved not only by direct 
evidence, but also by circumstantial evidence.  Id.  In fact, 
"[b]ecause of the difficulty of establishing 'actual intent,' 
evidence of fraud may be, and generally must be, 
circumstantial."  In re: Porter, 37 B.R. 56, 63 (E.D. Va. 
1984).   
 
Virginia courts have consequently relied upon presumptions 
of fraud, known as "badges of fraud," which consist of facts 
9 
 
and circumstances that establish a prima facie case of 
fraudulent conveyance.  See, e.g., Hutcheson, 129 Va. at 291, 
105 S.E. at 681.  The badges of fraud include: 
(1) retention of an interest in the transferred 
property by the transferor; (2) transfer between 
family members for allegedly antecedent debt; (3) 
pursuit of the transferor or threat of litigation by 
his creditors at the time of the transfer; (4) lack 
of or gross inadequacy of consideration for the 
conveyance; (5) retention or possession of the 
property by transferor; and (6) fraudulent incurrence 
of indebtedness after the conveyance. 
 
In re: Porter, 37 B.R. at 63 (citing Hutcheson, 129 Va. at 291, 
105 S.E. at 681). 
 
Once a party has introduced evidence to establish a badge 
of fraud, a prima facie case of fraudulent conveyance is 
established.  Temple v. Jones, Son & Co., 179 Va. 286, 298, 19 
S.E.2d 57, 62 (1942).  Once this is done, "the burden shifts, 
and the defendant must establish the bona fides of the 
transaction."  First National Bank of Bluefield v. Pressley, 
176 Va. 25, 28, 10 S.E.2d 526, 527 (1940). 
 
Notably, a familial relationship between the transferor 
and the transferee is not itself a badge of fraud.  Fowlkes v. 
Tucker, 164 Va. 507, 514, 180 S.E. 302, 305 (1935).  But 
"transactions between husband and wife must be closely 
scrutinized, to see that they are fair and honest and not mere 
contrivances resorted to for the purpose of placing the 
husband's property beyond the reach of his creditors."  Id. at 
10 
 
511, 180 S.E. at 303 (emphasis added).  In such cases, "only 
slight evidence is required to shift the burden of showing its 
bona fides."  Id. at 514, 180 S.E. at 305 (emphasis added). 
 
Finally, in Hutcheson, we stated: 
 
In order to avoid a conveyance, it is not 
necessary to prove that the grantee had positive 
knowledge of the grantor's fraudulent intent.  It is 
sufficient to prove that the grantee had knowledge of 
facts and circumstances which were naturally and 
justly calculated to excite suspicion in the mind of 
persons of ordinary care and prudence, and which 
would naturally prompt him to pause and inquire 
before consummating the transaction, and that such 
inquiry would have necessarily led to a discovery of 
the facts from which the law imputes fraud to the 
grantor. 
 
Id. at 291, 105 S.E. at 680-81. 
 
In this case, Fox Rest's evidence established a prima 
facie case of fraud against Mr. Little by demonstrating several 
badges of fraud, which shifted the burden of proof to the 
defendants.  First, Mr. Little retained an interest in the 
funds that he deposited into the SunTrust Account because the 
account was held jointly with Mrs. Little, giving each the 
right to access the funds.  Second, all of the transfers were 
made after Mr. Little was aware of the limited partners' 
dissatisfaction with his management of Fox Rest, which led to 
the derivative action.  Third, Mr. Little retained possession 
of GBL&A's office equipment after the Equipment Sale. 
11 
 
 
Additionally, Fox Rest's evidence need not show that Mrs. 
Little knew of Mr. Little's fraudulent intent.  As stated 
above, to impute Mr. Little's fraudulent intent to Mrs. Little, 
the evidence need only show that she " had knowledge of facts 
and circumstances which were naturally and justly calculated to 
excite suspicion in the mind of persons of ordinary care and 
prudence."  Id. 
 
Mrs. Little stated that she knew about the problems 
between the limited partners and Mr. Little.  She also 
testified that she knew about the derivative action.  Further, 
it was during this time period that approximately $1.7 million 
was deposited into the SunTrust Account, which Mrs. Little held 
jointly with Mr. Little.  Despite Mrs. Little's testimony that 
her primary benefit from the joint account was for household 
expenses, McDonald opined that Mrs. Little received a "minimum 
benefit" of $940,000 from the challenged transfers.  Viewing 
these facts in the light most favorable to Fox Rest, Fox Rest's 
evidence was sufficient to impute Mr. Little's fraudulent 
intent to Mrs. Little. 
 
In sum, Fox Rest's evidence was sufficient to establish a 
prima facie case for fraudulent conveyance.  This shifted the 
burden of proof to the defendants to establish the bona fides 
of the transactions.  The circuit court therefore erred in 
granting the defendants' motion to strike Fox Rest's fraudulent 
12 
 
conveyance claim with respect to the Fox Rest Commission, 
Wilton Farm Proceeds, and Wage Transfers, all of which were 
deposited into the SunTrust Account. 
 
Because the circuit court granted the defendants' motion 
to strike at the conclusion of Fox Rest's evidence, the 
defendants did not have an opportunity to rebut the prima facie 
case of fraud as to the alleged fraudulent conveyances.  But 
Fox Rest's own evidence, including the cross-examination of its 
expert, McDonald, established that the Equipment Sale was not 
made with fraudulent intent, but rather was a bona fide 
transaction.  Fox Rest does not dispute that the office 
equipment was sold at fair market value or that the proceeds 
from the sale went into GBL&A's operating account and were not 
later transferred to the SunTrust Account.  Although the sale 
of the equipment and subsequent lease back were accomplished to 
hinder or prevent Mr. Little's creditors from seizing the 
equipment prior to an orderly closure of the firm, the transfer 
did not constitute a fraudulent conveyance because the sale was 
at fair market value.  The circuit court accordingly did not 
err in striking Fox Rest's fraudulent conveyance claim with 
respect to the Equipment Sale. 
B.  Voluntary Conveyance 
 
We now consider Fox Rest's argument that the circuit court 
erred in granting the defendants' motion to strike regarding 
13 
 
its voluntary conveyance claim.  Fox Rest asserts that the 
circuit court erred by failing to address whether Mr. Little 
was insolvent when he made the alleged voluntary conveyances or 
whether he became insolvent upon making the conveyances.  
According to Fox Rest, the evidence proved that Mr. Little was 
insolvent when all of the challenged transfers were made.  For 
this reason, Fox Rest asserts that the circuit court erred in 
granting the defendants' motion to strike. 
 
Code § 55-81, addressing voluntary conveyance, states: 
 
Every gift, conveyance, assignment, transfer or 
charge which is not upon consideration deemed 
valuable in law, or which is upon consideration of 
marriage, by an insolvent transferor, or by a 
transferor who is thereby rendered insolvent, shall 
be void as to creditors whose debts shall have been 
contracted at the time it was made, but shall not, on 
that account merely, be void as to creditors whose 
debts shall have been contracted or as to purchasers 
who shall have purchased after it was made.  Even 
though it is decreed to be void as to a prior 
creditor, because voluntary or upon consideration of 
marriage, it shall not, for that cause, be decreed to 
be void as to subsequent creditors or purchasers. 
 
Unlike Code § 55-80, § 55-81 does not require a finding that 
the transferor acted with fraudulent intent.  In re: Porter, 37 
B.R. at 65.  Rather, it provides that if a transferor is 
insolvent at the time a transfer is made, without valuable 
consideration, then the transfer shall be voidable by prior 
creditors.  Id. 
14 
 
 
The circuit court's ruling did not address whether Mr. 
Little was insolvent when the conveyances were made or whether 
the conveyances were made for valuable consideration.  Aside 
from the court's statement that it "looked at the standard[]" 
under Code § 55-81, the court did not discuss the elements of 
voluntary conveyance at all.  Instead, the court focused its 
ruling on Fox Rest's fraudulent conveyance claim. 
 
Considering the evidence presented in the light most 
favorable to Fox Rest, it established a prima facie case for 
Fox Rest's voluntary conveyance claim.  As previously stated, 
McDonald opined that Mr. Little was insolvent from February 
2003 through September 2006.  All of the challenged transfers 
occurred during that period of time.  McDonald described the 
method that he used in analyzing Mr. Little's solvency.  When 
the defendants cross-examined McDonald regarding his method, he 
admitted that if he had credited Mr. Little with ownership of 
assets Mr. Little owned with Mrs. Little as tenants by the 
entirety, he would have concluded that Mr. Little was solvent 
in 2003.  But McDonald did not state whether the transfers - 
approximately $1.7 million - would have rendered Mr. Little 
insolvent if he had credited Mr. Little with the assets held as 
tenants by the entirety.  Viewing this evidence in the light 
most favorable to Fox Rest, we cannot conclude as a matter of 
law that Mr. Little was solvent when the transfers were made.  
15 
 
The circuit court thus erred in granting the defendants' motion 
to strike Fox Rest's voluntary conveyance claim. 
III.  CONCLUSION 
 
For the foregoing reasons, the judgment of the circuit 
court granting the defendants' motion to strike is affirmed in 
part and reversed in part, and the case is remanded for further 
proceedings consistent with this opinion. 
Affirmed in part, 
reversed in part, 
and remanded.