Title: Cox v. Hughes

State: alabama

Issuer: Alabama Supreme Court

Document:

781 So. 2d 197 (2000)
Matthew COX et al.
v.
Alice Gearlene Plier HUGHES et al.
1981934.

Supreme Court of Alabama.
September 22, 2000.
*198 William P. Powers III, Columbiana, for appellants.
Thomas T. Gallion III and Jamie A. Johnston of Haskell, Slaughter, Young & Gallion, L.L.C., Montgomery, for appellees.
COOK, Justice.
The opinion of June 30, 2000, is withdrawn, and the following is substituted therefor.
Ray Cox, Karen Cox, and Matthew Cox appeal from an adverse summary judgment in their action seeking to set aside conveyances they alleged to be fraudulent. We affirm in part; reverse in part; and remand.
This action involves an attempt by the Coxes to collect a $629,000 default judgment entered against Alice Gearlene Hughes in an earlier case. That judgment had been affirmed by this Court in Hughes v. Cox, 601 So. 2d 465 (Ala.1992). To aid the reader in understanding this case, we *199 shall repeat here the pertinent facts as they were set forth in Hughes:
601 So. 2d  at 466-67 (footnotes omitted). This Court affirmed that order. Id. at 473.
The Brief of Appellees offers the following additional information regarding the businesses and relationships involved in this dispute:
Brief of Appellees, at vi (citations to the record omitted).
On October 25, 1995, the Coxes filed a complaint against Alice Gearlene Hughes, individually, and Alice Gearlene Hughes d/b/a Plier-Hughes, Inc. Throughout the record and the briefs, this corporation is variously called Plier-Hughes, Inc., and Plier & Hughes, Inc. For the sake of consistency, we shall hereinafter refer to it as Plier-Hughes, Inc. Also named as defendants were Oscar B. Plier, Ollie M. Plier, and Tabitha Hughes. The complaint, which was styled as a "Petition to Set Aside Fraudulent Conveyances and Transfers and Declaratory Judgment," alleged that the Coxes are "judgment creditors of the Defendant, Gearlene Hughes d/b/a Hughes Realty and Hughes Realty of Clanton," and that "Oscar B. Plier, Ollie M. Plier and Tabitha Hughes, who are the father, mother, and daughter [respectively] of ... Gearlene Hughes, ... are the persons to who[m] the defendant, Alice Gearlene Hughes, fraudulently transferred and conveyed personal property, stock in Plier-Hughes, Inc., and real property." The complaint alleged that the transfers were "fraudulent in nature, and designed to evade creditors." It also sought a judgment "set[ting] aside" and "[holding] for naught" all such "conveyances and transfers." The Coxes also sought to pierce the corporate veil. The defendants moved for a summary judgment, which the trial court granted, and the Coxes appealed.
On appeal, the Coxes address only one transaction that they have alleged to be fraudulent. Specifically, they challenge a transaction that was evidenced by a handwritten document, dated November 7, 1984, by which Hughes purported to *201 transfer 50 shares of stock in Plier-Hughes, Inc.her entire ownership interest in the corporationto her father and mother. The Coxes allege that this transaction was fraudulent. In other words, they contend that this transaction was merely an attempt by Hughes to avoid the collection of their $629,000 judgment against her. The dispositive issue on appeal is whether the Coxes presented substantial evidence to support this contention.
In Granberry v. Johnson, 491 So. 2d 926 (Ala.1986), this Court discussed the showing necessary to void a transaction as fraudulent:
491 So. 2d  at 928-29 (emphasis added).
As Granberry teaches, the debtor-creditor relationship in this case was created *202 not on the date the Coxes filed their action, or on the date they received a default judgment, but on the date their cause of action against Hughes accrued. Based on the date the Coxes purchased their house, we conclude that their cause of action accrued in January 1986. (See Hughes, quoted above.) The first question, therefore, is whether the Coxes presented substantial evidence indicating that their debt predated the allegedly fraudulent conveyance.
The evidenceat first glanceappears to answer that question in the negative, inasmuch as the stock sale was manifested by a handwritten document dated November 7, 1984. That document stated in pertinent part:
(Emphasis in original.) Beneath the text appear the signatures of Gearlene Hughes and Oscar B. Plier and Ollie M. Plier.
The Coxes, however, presented the affidavit testimony and document analysis of Keith Nelson, a "certified forensic document examiner." He examined between 30 and 40 documents from the records of Plier-Hughes, Inc., including the handwritten, November 7, 1984, stock-sale document. His report states in pertinent part:
(Emphasis and footnote added.)
Of particular significance, when considered in connection with Nelson's conclusions, is the "personal financial statement" of Gearlene Hughes, which is dated December 16, 1986, that is, approximately two months after the Coxes filed their complaint against her in the underlying action. Hughes submitted this statement to First Alabama Bank "for the purpose of procuring, establishing and maintaining credit." "Schedule 3Non-marketable Securities," shows 100% of the shares of Plier-Hughes, Inc., valued at $580,862, "registered in the name of Gearl[ene] Hughes." Of course, this was more than two years after she had purportedly transferred all her ownership in the company to her father and mother in exchange for the cancellation of a debt owed to the corporation.
The defendants do not refuteor even addressthis evidence in their brief. They state only that "Gearlene Hughes continued as a shareholder in a company until 1984," at which time, they say, "all of her shares were transferred to Oscar Plier and Ollie Mae Plier"; consequently, they allege, the Pliers became the "sole shareholders" of the corporation. Brief of Appellees, at vi. These "facts," they insist, are "undisputed." Id. Of course, those facts are disputed, for the time and the manner in which Hughes disposed of her stock in the corporation is the core of the dispute in this case.
This evidence is sufficient to support an inference that Hughes did, in fact, own allor a large blockof the stock in the corporation in December 1986; that she subsequently prepared the handwritten stock-sale document; and that she back-dated that document to a period predating the accrual of the Coxes' cause of action to avoid the consequences of an adverse judgment. The Coxes, therefore, presented substantial evidence indicating that their "debt antedated the conveyance." Granberry, at 491 So. 2d  at 929. The evidence was sufficient to shift the burden to the defendants to show that "(1) the grantor owed a debt to the grantee; (2) the consideration for the conveyance was the extinguishment of the existing debt; and (3) the value of the property conveyed was no more than a fair equivalent for the debt amount." Id. This, the defendants failed to do.
Regarding the "debt," the defendants state only that "[t]he consideration for the transfer of shares of stock in Plier-Hughes, *205 Inc., was the forgiveness of debt in the amount of $66,800." Brief of Appellees, at vi. Evidence of this debt, however, is not apparent in the record. For example, the record contains 15 checks drawn on the account of Plier-Hughes, Inc., totaling $6,500. They are made to, and signed by, Gearlene Hughes. The record also contains a number of checks similarly made out and signed, which are drawn on the account of Plier & Hughes Contractors. These checks are dated from 1972 to 1978, and total $43,200.[2] But even if the two amounts were added, they would total only $49,700not $66,800 as the defendants allege the debt totaled.
It must also be remembered that Hughes purportedly conveyed her stock to Oscar and Ollie Plier, individually, not to the corporation, from which she borrowed at least some of the money. It goes without saying that transactions with a corporation are not legally equivalent to transactions with individuals. Moreover, there is no allegationmuch less evidencesuggesting the fair market value of the shares Hughes conveyed to her parents.
Thus, significant factual issues remain as to the exact amount of Hughes's debt, to whom it was owed, and the value of the stock she purportedly conveyed. The defendants offer no explanation for these ambiguities and omissions in the evidence. This is especially significant in view of the fact that "[c]onveyances of property between family members in the face of a pending suit against the grantor must undergo especially careful scrutiny." Granberry, 491 So. 2d  at 929 (citing Reese v. Smoker, 475 So. 2d 506 (Ala.1985)). On the state of this record, we cannot say the defendants met their burden of showing a bona fide transaction to extinguish an existing debt.
For these reasons, the summary judgment was inappropriate as to the fraudulent-transfer claim. Therefore, as it relates to that claim, the judgment is reversed. As it relates to the claim seeking to pierce the corporate veil, the judgment is affirmed. The cause is remanded for further proceedings consistent with this opinion.
APPLICATION FOR REHEARING GRANTED; OPINION OF JUNE 30, 2000, WITHDRAWN; OPINION SUBSTITUTED; AFFIRMED IN PART; REVERSED IN PART; AND REMANDED.
HOOPER, C.J., and MADDOX, HOUSTON, LYONS, JOHNSTONE, and ENGLAND, JJ., concur.
SEE, J., concurs in the result.
SEE, Justice (concurring in the result).
I agree that the judgment on the claim seeking to pierce the corporate veil should be affirmed and that the trial court erred in entering a summary judgment in favor of Hughes and the other defendants on the Coxes' fraudulent-transfer claim; I do not agree that the dispositive issue on the fraudulent-transfer claim is the question of when Hughes transferred her Plier-Hughes stock to her parents. Therefore, I concur in the result.
There is a question of fact as to when Hughes transferred her Plier-Hughes stock to her parents. The main opinion applies Ala.Code 1975, § 8-9-6, which was repealed effective January 1, 1990. If the transfer occurred after January 1, 1990, then the Alabama Uniform Fraudulent *206 Transfer Act, Ala.Code 1975, §§ 8-9A-1 through 12, applies. See Act No. 89-793, Ala. Acts 1989, § 14.[3] However, whether the transfer was made before or after the Coxes' cause of action accrued, and whether the transfer was made before or after the effective date of the Alabama Uniform Fraudulent Transfer Act, the summary judgment in favor of Hughes was improper as to the fraudulent-transfer claim because there is a question of fact as to whether Hughes transferred her stock in Plier-Hughes, Inc., to her parents with the actual intent to defraud the Coxes. If Hughes did transfer her stock with the intent to prevent the Coxes from satisfying their judgment against her, then, under either the Alabama Uniform Fraudulent Transfer Act or the prior fraudulent-transfer law, this case would be one of actual fraud, not constructive fraud, and the Coxes would be entitled to set aside the transfer regardless of whether it was made before or after their cause of action accrued. See Ala. Code 1975, § 8-9A-4(a); Granberry v. Johnson, 491 So. 2d 926, 928-29 (Ala.1986). Thus, the issue whether Hughes transferred the stock before or after the Coxes' claim arose is not dispositive.[4]
I would reverse the summary judgment in favor of Hughes on the Coxes' fraudulent-transfer claim because there is a question of fact as to whether Hughes transferred her Plier-Hughes stock to her parents with the intent to prevent the Coxes from being able to satisfy their *207 judgment against her. Therefore, I concur in the result of the main opinion.
[1]  Nelson cataloged the documents as "Q1" through "Q38." The challenged stock-sale document is either "Q15" or "Q16."
[2]  Because Plier-Hughes, Inc., was incorporated in 1974, the two companies apparently functioned simultaneously.
[3]  The Alabama Uniform Fraudulent Transfer Act carries forward the preexisting distinction between actual fraud and constructive fraud; however, in certain cases of constructive fraud, the Act eliminates the requirement that the plaintiff-creditor show that his claim arose before the alleged fraudulent transfer. Compare Ala.Code 1975, § 8-9A-4, and the comments thereto, with Granberry v. Johnson, 491 So. 2d 926, 928-29 (Ala.1986) (quoted in the main opinion). Ala.Code 1975, § 8-9A-4(a), deals with actual fraud, and it carries forward the preexisting rule that "[a] transfer made by a debtor is fraudulent as to a creditor, whether the creditor's claim arose before or after the transfer was made, if the debtor made the transfer with actual intent to hinder, delay, or defraud any creditor of the debtor." Whether the asset was transferred to a relative is a factor to consider in determining whether the transfer was made with "actual intent." See § 8-9A-4(b)(1); § 8-9A-1(8). Section 8-9A-4(c) deals with constructive fraud. Unlike the old rule stated in Granberry that, in cases of constructive fraud, the debtor must show "that his or her debt antedated the conveyance," the new law set forth in § 8-9A-4(c) provides that, in certain circumstances, a transfer is constructively fraudulent as to a creditor, "whether the creditor's claim arose before or after the transfer was made." (Emphasis added.) Section 8-9A-5 carries forward the traditional rules concerning constructive fraud and sets forth the circumstances in which a transfer is constructively "fraudulent as to a creditor whose claim arose before the transfer."
[4]  The main opinion's conclusion that the Coxes' cause of action accrued in January 1986 is, therefore, unnecessary. It also appears to be incorrect. The Coxes alleged against Hughes, among other claims, fraud and misrepresentation. See Hughes v. Cox, 601 So. 2d 465, 467 (Ala.1992). The Hughes opinion states that the Coxes did not discover until June 1986 that their house had no septic tank. See id. at 466. A fraud claim accrues at the time the plaintiff "discovers" the fact constituting the fraud. See Gray v. Liberty Nat'l Life Ins. Co., 623 So. 2d 1156, 1159 (Ala. 1993). The time of discovery is the earlier of actual discovery or actual knowledge of facts that would put a reasonable person on notice of the fraud. See Liberty Nat'l Life Ins. Co. v. Parker, 703 So. 2d 307, 308 (Ala.1997). The question of when the party discovered or should have discovered the fraud is generally one for the jury; however, it may be decided as a matter of law where the plaintiff actually knew of facts that would have put a reasonable person on notice of the fraud. See id. Thus, absent evidence of facts that would have put the Coxes on notice, one must conclude that their fraud claim did not accrue in January 1986 because they did not know until June 1986 that their home had no septic tank.