Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-almd-2_07-cv-00620/USCOURTS-almd-2_07-cv-00620-1/pdf.json

Nature of Suit Code: 422
Nature of Suit: Bankruptcy Appeals Rule 28 USC 158
Cause of Action: 28:0158 Notice of Appeal re Bankruptcy Matter (BA

---

IN THE UNITED STATES DISTRICT COURT

FOR THE MIDDLE DISTRICT OF ALABAMA

NORTHERN DIVISION

IN RE: )

)

TERRY MANUFACTURING ) CASE NO. 03-32063-WRS

 COMPANY, INC., )

) CHAPTER 7

Debtor. )

 

IN RE: )

) CASE NO. 03-32213-WRS

TERRY UNIFORM )

 COMPANY, LLC, ) CHAPTER 7

)

Debtor. )

 

J. LESTER ALEXANDER, III, )

TRUSTEE OF TERRY )

MANUFACTURING COMPANY, INC. )

AND TERRY UNIFORM )

COMPANY, LLC, )

) CASE NO. 2:07-CV-620-WKW

Cross-Appellant/Appellee, )

)

v. )

)

DELONG, CALDWELL, NOVOTNY, )

& BRIDGERS, L.L.C., DELONG )

CALDWELL LOGUE & WISEBRAM, )

DELONG & CALDWELL, L.L.C. )

AND EARNEST H. DELONG, JR., )

)

Appellants/Cross-Appellees )

MEMORANDUM OPINION AND ORDER

This cause is before the court on appeal from the United States Bankruptcy Court for

the Middle District of Alabama in an adversary proceeding brought by J. Lester Alexander,

Case 2:07-cv-00620-WKW Document 27 Filed 09/30/08 Page 1 of 33
 In a related non-core proceeding, the Bankruptcy Court has filed a recommendation with this court 1

finding that DeLong did not commit malpractice in his representation of TMC in the Georgia litigation. See

Alexander v. DeLong, Caldwell, Novotny, & Bridgers, L.L.C., No. 2:07-cv-00585-WKW (M.D. Ala). 

2

III, Trustee (“Trustee”) of Terry Manufacturing Company, Inc. (“TMC”), against attorney

Earnest H. DeLong, Jr. (“DeLong”) and his predecessor law firms. The Trustee sought to

have DeLong disgorge $476,233.67 in legal fees paid by TMC to DeLong for legal services

he rendered in a Georgia civil case litigated prior to TMC’s bankruptcy. DeLong appeals

the Bankruptcy Court’s judgment finding the attorney’s fees in full to be avoidable transfers

under Georgia law. The Trustee cross-appeals the Bankruptcy Court’s finding that only

DeLong individually is liable to disgorge the fees. This is a core proceeding over which

appellate jurisdiction is exercised pursuant to 28 U.S.C. § 158(a)(1).1

I. FACTUAL BACKGROUND

TMC was an Alabama corporation with facilities in Alabama, Arkansas, and Georgia.

For decades, it was in the business of making uniforms and sportswear. Brothers Roy and

Rudolph Terry were the company’s sole officers, sole directors, and sole voting shareholders.

Roy Terry was the president and owned fifty-one percent of the outstanding shares. Rudolph

Terry was the company’s vice-president and chief financial officer and owned forty-nine

percent of the outstanding shares. Rudolph Terry was primarily responsible for the operation

of TMC’s Atlanta facility.

From outward appearances, TMC was successful and well positioned to compete for

lucrative contracts to supply uniforms to large industrial purchasers. Customers included

Case 2:07-cv-00620-WKW Document 27 Filed 09/30/08 Page 2 of 33
 Pouncey was later indicted with Rudolph Terry in the Northern District of Georgia for conduct 2

arising out of these transactions. See United States v. Pouncey, No. 1:03-cr-55-CC (N.D. Ga.). Both

Pouncey and Rudolph Terry plead guilty.

In this factoring arrangement, Floodgates sold products to TMC on credit, creating an account 3

receivable from TMC in favor of Floodgates. Floodgates discounted the account receivable to Commercial

Factors, receiving instant, but discounted, payment. Commercial Factors expected payment of the full

account receivable from TMC.

3

McDonald’s and the United States Department of Defense. At some time prior to the 1996

Atlanta Olympic Games, TMC began purchasing T-shirts from Floodgates, Ltd.

(“Floodgates”), which was owned and operated by Jon L. Pouncey (“Pouncey”). Floodgates 2

began factoring TMC invoices with Commercial Factors of Atlanta, Inc. (“Commercial

Factors”) prior to the 1996 Olympics. 

3

Several years later, Pouncey and Rudolph Terry entered into a factoring scheme on

behalf of their respective companies, Floodgates and TMC. This scheme worked as follows:

Floodgates would submit to Commercial Factors invoices indicating that it had shipped Tshirts to TMC, and Commercial Factors would make paymentsto Floodgates on the invoices.

In fact, those T-shirt deliveries did not exist and the invoices were bogus. Rudolph Terry and

TMC cooperated in the scheme, and Rudolph later testified that he considered this

arrangement a “loan” to Floodgates, admitting that TMC dollars were used to pay invoices

for product it never received. 

Over eleven million dollars in accounts were factored in this manner, with over ten

million dollars paid back to Commercial Factors. In September 1999, Floodgates issued

multiple invoices to TMC representing 2.3 million dollars of product. Rudolph Terry had

Case 2:07-cv-00620-WKW Document 27 Filed 09/30/08 Page 3 of 33
 Case number 99-A-10650-5. 4

4

signed a document from Commercial Factors on September 10, 1999, acknowledging

delivery of the product, stating that “[t]he above signed acknowledges receipt and acceptance

of the goods reflected in the invoices attached. I am aware that Commercial Factors of

Atlanta is relying on my verification to advance [funds to] Floodgates Ltd . . . .” (Pl. Trial

Ex. # 18.) By the fourth quarter of 1999, TMC was seriously delinquent on its obligation to

Commercial Factors. Commercial Factors contacted TMC and Rudolph Terry to demand

payment. Having confirmed in writing the validity of the invoices to Commercial Factors,

Rudolph Terry caused TMC to make payments on those invoices while he attempted to

negotiate a settlement. Commercial Factors was holding TMC invoices reflecting unpaid

balances totaling over 3.3 million dollars. TMC, through Rudolph Terry, its vice president

and chief financial officer, admitted that it owed approximately 2.1 million dollars for Tshirts Rudolph Terry knew did not exist. Rudolph was negotiating for payment terms, which

he expected Pouncey and Floodgates to fund.

Rudolph Terry’s attempt to resolve the Commercial Factors’ claim in the fourth

quarter of 1999 failed. During those negotiations, which were conducted by Rudolph Terry

without the assistance of counsel, Commercial Factors filed suit against TMC, Floodgates,

and Pouncey in the Superior Court of Gwinnett County, Georgia (“the Georgia litigation”).4

At that point, it was a routine commercial collection case.

When TMC was served with the complaint in the Georgia litigation, the Terry brothers

Case 2:07-cv-00620-WKW Document 27 Filed 09/30/08 Page 4 of 33
5

contacted attorney Jerry Thomas (“Thomas”) for litigation assistance. Thomas, in turn,

introduced the Terrys to DeLong, who is an Atlanta commercial litigator. DeLong had never

heard of the Terrys or TMC before he was engaged to work on the Georgia litigation, and he

had no prior business dealings with them whatsoever. In early January 2000, DeLong issued

an engagement letter on the letterhead of DeLong & Caldwell, L.L.C., to Rudolph Terry that

referenced the Georgia litigation, confirming the following engagement: 

This letter is intended to memorialize the understanding we have reached.

Jerry Thomas and I [DeLong] have been engaged to represent the interests of

Terry Manufacturing Company, Inc., its officers, directors and shareholders in

the defense of the above-referenced matter.

(Pl. Trial Ex. # 10.) DeLong and Thomas continued to represent TMC in the Georgia

litigation until TMC’s Chapter 11 filing on July 7, 2003, a period of more than forty-two

months. 

At the time of its initial complaint in December 1999, Commercial Factors was not

aware of the factoring fraud scheme. There is no evidence that DeLong or Thomas was

aware of the scheme either. On instructions of Rudolph Terry, there was an early attempt by

DeLong to settle the case. TMC and DeLong thought the case was settled in August 2000,

when in fact it was not, and DeLong attempted but failed to enforce the purported settlement

in court. The complexion of the case changed when Rudolph Terry testified during his

deposition on October 31, 2000, that he had been advancing and loaning TMC’s money to

Pouncey and Floodgates, in effect, using TMC’s money in the factoring arrangement.

Rudolph Terry claimed the dealings with Pouncey and Floodgates were “something [he] did

Case 2:07-cv-00620-WKW Document 27 Filed 09/30/08 Page 5 of 33
6

personally. And so it had nothing to do with the company.” (Pl. Trial Ex. # 47, 466:15-21.)

“[He] was loaning Jon Pouncey Terry Manufacturing Company dollars . . . .” (Pl. Trial Ex.

# 47, 486:7-15.) Not surprisingly, in December 2000, the complaint was amended to include

Rudolph Terry individually as a defendant with allegations against all defendants for

conspiracy to defraud, fraud and deceit, and conversion, claims that Commercial Factors had

previously asserted only against TMC, Floodgates, and Pouncey. 

On February 20, 2002, Commercial Factors amended its complaint again to assert a

claim under Georgia’s RICO statute against Floodgates, Pouncey, TMC, and Rudolph Terry.

The newly amended complaint specifically alleged theft by deception, theft by conversion,

theft by receiving stolen property, “and the use of the United States postal system to

perpetuate and continue the fraudulent scheme to obtain money from Plaintiff under false

pretenses.” (Def. DeLong, Caldwell, Novotny, & Bridgers, L.L.C. Ex. # 6 ¶ 58). The RICO

claims sought treble damages and punitive damages. Defenses asserted by DeLong included:

(1) TMC was not indebted to Commercial Factors in any amount; (2) TMC was not a party

to the creation of the invoices that Floodgates sold to Commercial Factors; (3) TMC did not

generally purchase goods from Floodgates after the 1996 Olympics; (4) TMC did not

purchase goods as reflected in the invoices at issue in the litigation; (5) the acts alleged

against Rudolph Terry, if they occurred, were not acts committed within the scope of

Rudolph Terry’s employment at TMC; and (6) the acts alleged against Rudolph Terry were

ultra vires with regard to TMC. Before the Georgia case could be tried, TMC filed for

Case 2:07-cv-00620-WKW Document 27 Filed 09/30/08 Page 6 of 33
 Commercial Factors did subsequently file a proof of claim with the Bankruptcy Court.

5

7

Chapter 11 protection in bankruptcy on July 7, 2003, and Chapter 7 protection in bankruptcy

on May 13, 2004. Meanwhile, the Terry brothers pleaded guilty to various federal criminal

offenses in Georgia and Alabama and went to prison, and according to counsel, the Georgia

litigation was eventually dismissed with Commercial Factors receiving no recovery.5

During the course of the Georgia litigation, DeLong billed and was timely paid a total

of $476,233.67 as legal fees at a rate of $250 per hour. His undisputed testimony is that he

paid one third of the fees to Thomas, who fully participated in the litigation. There is no

dispute that the hourly rate of $250 was reasonable, nor did the Bankruptcy Court find that

the work claimed to have been done by DeLong was not actually done.

II. PROCEDURAL BACKGROUND

The Trustee brought suit against DeLong and his predecessor firms seeking to avoid

as fraudulent conveyances all the legal fees paid by TMC in the Georgia litigation. The

theory of recovery was that those payments constituted fraudulent conveyances under the

relevant fraudulent transfer statutes of Alabama and, in the alternative, Georgia, as well as

under the bankruptcy code. The Trustee also sought damages arising out of the legal

malpractice allegedly committed by DeLong and for breach of the legal duties owed to TMC

by DeLong’s simultaneous representation of TMC and Rudolph Terry when their interests

were in direct conflict. Because the legal malpractice claim was not a core proceeding, the

Bankruptcy Court entered proposed findings of fact and conclusions of law, which are

Case 2:07-cv-00620-WKW Document 27 Filed 09/30/08 Page 7 of 33
8

currently pending before the court as a recommendation in another case, finding no

malpractice on DeLong’s part. Only the Trustee’s fraudulent transfer claims are at issue in

this appeal. 

The Bankruptcy Court conducted a four and one-half day trial and entered an

memorandum decision on May 29, 2007. The court entered judgment in favor of the Trustee

and against DeLong individually in the amount of $476,233.67, representing all of the legal

fees incurred by TMC in the Georgia litigation. The Bankruptcy Court found that TMC did

not receive valuable consideration or reasonably equivalent value in exchange for the

attorney’s fees that it paid DeLong. 

The findings of the Bankruptcy Court rested significantly on what it perceived as a

simple defense for TMC to the civil action: 

Terry Manufacturing filed a pleading in court to the effect that it owed

$2.1 million, when in fact it had never received the first tee shirt, and for

that reason owed nothing. As Terry Manufacturing in fact owed nothing

on the invoices, the defense of the civil action should have been a

relatively straightforward matter. 

. . . .

. . . Terry Manufacturing never received the first tee shirt. This

fact could have been easily established with a modest amount of effort.

However, this fact could not be proven without also establishing that

Rudolph Terry had lied to Commercial Factors about the Floodgates

invoices. Thus, the thrust of DeLong’s efforts was not to defend Terry

Manufacturing in the Commercial Factors civil action. Rather, it was to

shield Rudolph Terry from criminal liability, using Terry Manufacturing

to fund the effort and refusing to produce Terry Manufacturing documents

which would have gotten it off the hook, while placing Rudolph Terry in

jeopardy of a criminal indictment.

Case 2:07-cv-00620-WKW Document 27 Filed 09/30/08 Page 8 of 33
9

. . . .

. . . Terry Manufacturing did not benefit from DeLong’s services

in the Commercial Factors litigation. As Terry Manufacturing did not

receive the tee shirts represented by the Commercial Factors invoices, it

had a simple, straight-forward defense, which DeLong could not raise

without also establishing that Rudolph Terry falsely certified the

Commercial Factors invoices.

. . . .

. . . Terry Manufacturing did not receive adequate consideration

for the cash transfers in suit, and therefore, this Court finds that the

transfers are voidable as constructively fraudulent. 

In re Terry Mfg. Co., No. 03-32063, 2007 WL 1560087, at *2, *7 & *8-9 (Bankr. M.D.

Ala. May 29, 2007).

Having determined that the transfers in issue were avoidable as fraudulent transfers

under Georgia law, the Bankruptcy Court found that the transfers were also fraudulent

conveyances under 11 U.S.C. § 548, but then stated the court need not reach the § 548 issue

because it found the transfers fraudulent under Georgia law. In re Terry Mfg. Co., 2007 WL

1560087, at *9. The Bankruptcy Court also refused to find the attorney’s fees voidable

preferences within the meaning of 11 U.S.C. § 547(b) because it found the transfers “were

made in the ordinary course of business.” Id. at *11.

III. ISSUE ON APPEAL

The issue on appeal is whether the Bankruptcy Court abused its discretion in finding

that the Trustee met his burden of proving that the transfers from TMC to DeLong for his

legal services were constructively fraudulent under Georgia law. Resolution of this issue

Case 2:07-cv-00620-WKW Document 27 Filed 09/30/08 Page 9 of 33
10

turns on the narrower question of whether the Bankruptcy Court abused its discretion in

finding that TMC did not receive valuable consideration or reasonably equivalent value for

any of DeLong’s legal services in the Georgia litigation. For the reasons set forth in this

memorandum opinion and order, the court finds that the Bankruptcy Court’s factual findings

are clearly erroneous and that its legal conclusions are de novo wrong. The court finds the

Bankruptcy Court’s premise for deciding the case was faulty as a matter of law, resulting in

an analysis of the facts that led to a clearly erroneous finding of fact. 

IV. STANDARD OF REVIEW

A reviewing court reverses a bankruptcy court’s decision only if it was an abuse of

discretion. In re Mandalay Shores Coop. Hous. Ass’n, 21 F.3d 380, 383 (11th Cir. 1994).

A court abuses its discretion when it applies an “improper” legal standard or bases its

decision on factual findings “that are clearly erroneous.” Id. Both the federal district and

appellate courts reviewing bankruptcy appeals use the “clearly erroneous” and de novo

standards of review for factual and legal findings respectively. In re Club Assocs., 951 F.2d

1223, 1228 (11th Cir. 1992). 

 The “clearly erroneous” standard of review for factual findings is “limited and

deferential.” Id.; see also Fed. R. Bankr. P. 8013 (stating that for bankruptcy appeals,

“[f]indings of fact, whether based on oral or documentary evidence, shall not be set aside

unless clearly erroneous, and due regard shall be given to the opportunity of the bankruptcy

court to judge the credibility of the witnesses”). “[The] deference to the [trial] court is not

Case 2:07-cv-00620-WKW Document 27 Filed 09/30/08 Page 10 of 33
 DeLong has also appealed the Bankruptcy Court’s finding that he was not acting as a conduit

6

for the payments TMC made to Thomas (Appellant Br. 13), and as already noted, TMC cross-appealed

the Bankruptcy Court’s finding that no other defendants were liable (Cross-Appellant Br. 3 (Doc. # 21)). 

Because the court finds DeLong is not liable, the court need not, and declines to, decide those issues.

11

unlimited, however, and [reviewing courts] will hold a finding of fact clearly erroneous if

the record lacks substantial evidence to support it.” Lincoln v. Bd. of Regents, 697 F.2d 928,

939 (11th Cir. 1983) (emphasis added). A finding is clearly erroneous if the reviewing court

“on the entire evidence is left with the definite and firm conviction that a mistake has been

committed.” United States v. U.S. Gypsum Co., 333 U.S. 364, 395 (1948). The district

court’s review of a bankruptcy court’s legal conclusions, on the other hand, is de novo, In re

Club Assocs., 951 F.2d at 1228; the court must “independently examine the law and draw its

own conclusions after applying the law to the facts,” In re Norris, 239 B.R. 247, 249 (M.D.

Ala. 1999) (internal quotation marks omitted).

V. DISCUSSION

DeLong is appealing the Bankruptcy Court’s finding that TMC’s payments for legal

services he rendered during the Commercial Factors litigation were fraudulent conveyances

under § 18-2-22(3) (repealed 2002) of the Georgia Code for payments made prior to its

repeal, and § 18-2-74(a)(2) of the Georgia Code for payments made after the repeal.6

(Appellant Br. 12 (Doc. # 13).) Under both the former and current fraudulent conveyance

statutes, payments are considered fraudulent if they were made by a debtor with insufficient

assets in exchange for insufficient value as defined by each statute respectively, and the

burden is on the plaintiff, here the Trustee, to make this showing. Central to this appeal,

Case 2:07-cv-00620-WKW Document 27 Filed 09/30/08 Page 11 of 33
See Chepstow Ltd. v. Hunt, 381 F.3d 1077, 1081 (11th Cir. 2004) (“[W]e do not agree with the 7

district court that the repeal [of this statute] extinguished causes of action that had arisen under the

repealed section but had not yet made it to final judgment.”). 

12

therefore, is the Bankruptcy Court’s determination that TMC received insufficient value for

DeLong’s legal services. The court holds that the Bankruptcy Court’s finding that TMC

received insufficient value for DeLong’s legal services was an abuse of discretion, and that

TMC’s payments were not fraudulent conveyances under Georgia law.

The Former and Current Georgia Statutes on Fraudulent Conveyances

TMC’s payments to DeLong prior to July 1, 2002, fall under Georgia’s repealed

statute on fraudulent conveyances, § 18-2-22, which defines three types of fraudulent

transfers. The third type of fraudulent transfer is relevant here and is defined as a “voluntary 7

deed or conveyance, not for a valuable consideration, made by a debtor who is insolvent at

the time of the conveyance.” § 18-2-22(3). A plaintiff must prove the indebtedness, the

debtor’s insolvency, and that the conveyance was voluntary; when those facts are proven,

“the law conclusively presumes a fraudulent intent and declares the instrument void” with

respect to creditors that had demands at the time of the conveyance. Chambers v. Citizens

& S. Nat’l Bank, 249 S.E.2d 214, 217 (Ga. 1978) (describing elements); Stokes v. McRae,

278 S.E.2d 393, 395 (Ga. 1981) (establishing burden of proof). 

“[A] voluntary conveyance . . . is one without any valuable consideration,” which the

Georgia Supreme Court has defined as a conveyance not “founded on money, or something

convertible into money, or having a value in money.” Stokes v. McRae, 278 S.E.2d at 395

Case 2:07-cv-00620-WKW Document 27 Filed 09/30/08 Page 12 of 33
13

(citations omitted). The performance of services can qualify as consideration. Lionheart

Legend, Inc. v. Norwest Bank Minn. Nat’l Ass’n, 560 S.E.2d 120, 124 (Ga. App. 2002)

(citing Avary v. Avary, 41 S.E.2d 314, 322-23 (Ga. 1947)). Whether a conveyance is

voluntary “depends upon the intention of the parties,” Pharr v. Pharr, 57 S.E.2d 177, 180

(Ga. 1950), but intention goes to whether the conveyance was for valuable consideration, and

not to whether the purpose of the transfer was to defraud creditors; in other words, proof of

fraudulent intent is not required, Mercantile Nat’l Bank v. Aldridge, 210 S.E.2d 791, 793

(Ga. 1974). 

A conveyance for valuable consideration on its face is valid unless rebutted by

sufficient evidence that the conveyance was without any valuable consideration. Pharr, 57

S.E.2d at 180. Georgia courts have found that if the consideration involves any money or

has any value in money, the transfer is facially valid. In Pharr, a deed was voluntary because

the claimants had not offered enough evidence to sufficiently rebut a facially valid transfer

for a consideration of $5 and love and affection. Id. (citing Lifsey v. Mims, 20 S.E.2d 32, 33

(Ga. 1942), a case finding $1 and love and affection a voluntary conveyance on its face)).

Indeed, in a case before the Southern District of Georgia, the court stated that if a transferee

“received any money, even a dollar, the conveyances would not be facially invalid.” United

States v. Reid, 127 F. Supp. 2d 1361, 1369 (S.D. Ga. 2000) (noting that an example of a

facially invalid conveyance is one only for love and affection); see also In re Holmes, 296

B.R. 567, 573 (Bankr. M.D. Ga. 2003) (that a party paid a high price for land does not mean

Case 2:07-cv-00620-WKW Document 27 Filed 09/30/08 Page 13 of 33
14

that the party did not receive “something of value”); Stokes, 278 S.E.2d at 395 (affirming a

directed verdict for finding no fraudulent deed when at least part of the consideration was

for money or the value of money); McDonald v. Taylor, 37 S.E.2d 336, 338 (Ga. 1946) (“A

voluntary conveyance is a conveyance without any valuable consideration.” (emphasis

added)). With respect to the sufficiency of evidence to overcome a presumption of validity,

if a party opposing liability fails to show additional consideration, that absence does not itself

eliminate the presumption that the consideration was valuable. See Pharr, 57 S.E.2d at 358.

And if the evidence offered by a party burdened with overcoming the presumption attempts

only to show that the value of the property was higher than the monetary consideration

exchanged between the parties, that showing is not enough to overcome the presumption of

voluntariness. See id. at 357-58. Thus, under Georgia’s former fraudulent transfer law, a

transfer for some value is not fraudulent unless the prosecuting party proves that the parties

did not intend valuable consideration. 

Effective July 1, 2002, Georgia repealed § 18-2-22, and adopted the Uniform

Fraudulent Transfer Act (“UFTA”), see § 18-2-70, and codified the new fraudulent transfer

law as § 18-2-74. Under the new law, a transfer is fraudulent if the debtor “made the transfer

or incurred the obligation . . . (2) [w]ithout receiving a reasonably equivalent value in

exchange for the transfer or obligation” regardless of when the creditors’ claims arose, but

with certain conditions with respect to the debtor’s near insolvency or intention to be

Case 2:07-cv-00620-WKW Document 27 Filed 09/30/08 Page 14 of 33
 In one sense, “intention” remains a part of the analysis. If the transfer was without “reasonably 8

equivalent value,” and the debtor “[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’ . . . . [or] intended to incur, or

believed or reasonably should have believed that he or should would incur, debts beyond his or her

ability to pay as they became due,” the transfer was fraudulent. § 18-2-74(a)(2) (emphasis added). The

“intention,” however, describes the debtor’s scienter with respect to the status of insolvency and not to

the value of the transfer. Additionally informative of the role of intention under the current law is § 18-

2-78 of the Georgia Code, which provides for a good faith defense (requiring good faith and the

exchange of reasonably equivalent value) but only for defendants subject to § 18-2-74(a)(1) – the

provision for transfers that are actually fraudulent, see infra note 9 (describing § 18-2-74(a)(1)). If a

transferee acted in good faith but the value was not reasonably equivalent, the transferee is protected to

the extent of value that was given by a reduction in the amount of liability at judgment, but that

determination is irrespective of the voidability of the transfer. § 18-2-78(d)(3). 

A transfer also can be fraudulent because the debtor “made the transfer or incurred the 9

obligation (1) [w]ith actual intent to hinder, delay, or defraud any creditor of the debtor.” Ga. Code Ann.

§ 18-2-74(a)(1). 

Georgia law does define “reasonably equivalent value” with respect to receiving an interest in 10

the debtor’s asset through sales, Ga. Code Ann. § 18-2-73(b), but that provision does not cover the

circumstances in this case. 

 Section 548 states, in relevant part, that a “Trustee may avoid any transfer . . . if the debtor 11

voluntarily or involuntarily . . . (B)(I) received less than a reasonably equivalent value in exchange for

such transfer or obligation.” 

15

insolvent. § 18-2-74(a)(2). That a bona fide creditor existed at the time of the transfer and 8 9

that the debtor’s insolvency requirements are met are undisputed in this case. In re Terry

Mfg. Co., 2007 WL 1560087, at *7. The disputed element is whether the legal services were

of “reasonably equivalent value” to TMC’s payments. 

No court has interpreted the language “[w]ithout receiving a reasonably equivalent

value,” § 18-2-74(a)(2), as it appears in this Georgia statute. Courts in other jurisdictions, 10

however, have interpreted the UFTA’s language. Courts have also held that the UFTA’s

“reasonably equivalent value” language was derived from the Bankruptcy Code’s similar

provision 11 U.S.C. § 548(a)(1)(B)(I), and have appropriated glosses on § 548 for 11

Case 2:07-cv-00620-WKW Document 27 Filed 09/30/08 Page 15 of 33
16

interpretations of the UFTA. See, e.g., VFB LLC v. Campbell Soup Co., 482 F.3d 624, 630-

31 (3d Cir. 2007) (using the same definition of “reasonably equivalent value” as used under

§ 548 for interpreting the UFTA provision when there was no state law on the language); In

re Image Worldwide, Ltd., 139 F.3d 574, 577 (7th Cir. 1998) (stating that “the UFTA is a

uniform act, and it derived the phrase ‘reasonably equivalent value’ from 11 U.S.C.

§ 548(a)(2)” and for that reason, looking to interpretations of § 548 when state law provided

no interpretation of the UFTA in the context of transfers that benefitted third parties). The

Fifth Circuit has recently stated that “[t]he primary consideration in analyzing the exchange

of value for any transfer is the degree to which the transferor’s net worth is preserved.” Secs.

Exch. Comm’n v. Res. Dev. Int’l, LLC, 487 F.3d 295, 301 (5th Cir. 2007) (internal quotation

marks omitted) (noting additionally that commentary from the UFTA states that “value is to

be determined in light of the act’s purpose, in order to protect the creditors.” (internal

quotation marks omitted)). In Resource Development International, the court found no

reasonably equivalent value when the debtor transferred money to fund the legal defense of

a “major organizer” of the fraud scheme, citing case law that payments made solely for thirdparty benefits are not for reasonably equivalent value. Id. The Third Circuit has applied a

“common sense” approach – that “a party receives reasonably equivalent value for what it

gives up if it gets ‘roughly the same value it gave,’” VFB LLC, 482 F.3d at 631 (citation

omitted). See also Creditor’s Comm. of Jumer’s Castle Lodge v. Jumer, 472 F.3d 943, 947

(7th Cir. 2007) (“determin[ing] the value of what was transferred and [] compar[ing] it to

Case 2:07-cv-00620-WKW Document 27 Filed 09/30/08 Page 16 of 33
In Bonner v. City of Prichard, 661 F.2d 1206, 1209 (11th Cir. 1981) (en banc), the Eleventh 12

Circuit adopted as binding precedent all decisions handed down by the former Fifth Circuit prior to

October 1, 1981.

 Section 18-2-78(d) states specifically: 13

 

Notwithstanding voidability of a transfer or an obligation under this article, a good faith 

transferee or obligee is entitled, to the extent of the value given the debtor for the transfer

or obligation, to:

17

what was received”) (internal quotation marks omitted). And the Ninth Circuit has made the

point that “reasonably equivalent value” is determined from the perspective of the debtor and

not the giver. In re Lucas Dallas, Inc., 185 B.R. 801, 807 (B.A.P. 9th Cir. 1995). 

Assuming that § 548 doesshed light on the meaning of “reasonably equivalent value,”

the court turns to the Eleventh Circuit’s interpretation of “reasonably equivalent value” under

§ 548. The Eleventh Circuit has incorporated into its interpretation of § 548 case law

interpreting the phrase “fair consideration” from an earlier version of the Bankruptcy Code.

In re Chase & Sanborn Corp., 904 F.2d 588, 593 n.11 (11th Cir. 1990). “Fair consideration”

requires “(1) a fair equivalent, and (2) good faith on the part of the transferee.” In re S. Land

Title Corp., 474 F.2d 1033, 1036 (5th Cir. 1973). Thus, under § 548, a trustee can avoid 12

transfers that were not “fair equivalents” and were not received in good faith by the

transferee. 

The UFTA’s language, however, is slightly different, in that under the UFTA, good

faith alone will not prevent a transfer from being constructively fraudulent. A good faith

transferee is instead protected up to the amount of value it transferred, notwithstanding the

fact that the amount of value was not of “reasonably equivalent value.” A “good faith” 13

Case 2:07-cv-00620-WKW Document 27 Filed 09/30/08 Page 17 of 33
(1) A lien on or a right to retain any interest in the asset transferred;

(2) Enforcement of any obligation incurred; or

(3) A reduction in the amount of the liability on the judgment.

18

defense, on the other hand, requires both good faith and reasonably equivalent value to

render a transfer not voidable, and thus applies only to actual fraud cases. See § 18-2-78.

Therefore, a transfer is voidable under the constructive fraudulent provision under Georgia

law regardless of whether the transferee has good faith, but good faith will afford the

transferee protection on the amount that was given in transfer. That procedural step of

determining voidability before the transferee’s judgment matters in this way: The part of the

definition from “fair consideration” that requires “good faith” can enter the analysis of

“reasonably equivalent value” under the UFTA only after a transfer is considered fraudulent.

See United States v. Estate of Kime, 950 F. Supp. 950, 955 n.6 (D. Neb. 1996) (noting that

the “[n]otwithstanding voidability” language “is not a defense to a judgment” but only

diminishes the judgment); In re Brun, 360 B.R. 669, 673 (Bankr. C.D. Cal. 2007) (describing

fraud and a good faith inquiry, in summarizing another case, as a two-step process of

determining a fraudulent transfer and determining an amount in liability). This distinction

will factor into the court’s analysis of the facts.

In In re Rodriguez, 895 F.2d 725 (11th Cir. 1990), the Eleventh Circuit defined § 548

on constructively fraudulent transfers slightly differently as a provision that does “not

authorize voiding a transfer ‘which confers an economic benefit upon the debtor,’ either

directly or indirectly.” Id. at 727 (quoting the Second Circuit). The court linked its

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19

construction of § 548 to the statute’s specific purpose, which is to protect creditors. Id. The

UFTA’s purpose mirrors that of § 548, see supra p. 16. And in a later, more recent case, In

re Friedman’s Inc., No. 407CV041, 2008 WL 1758815 (S.D. Ga. Apr. 16, 2008), the district

court defined “reasonably equivalent value” as receiving “‘roughly the value that [a party]

gave.’” Id. at *2 (quoting Bankr. Service L.Ed. § 34:260 (Feb. 2008)). These alternative

interpretations of § 548 – “an economic benefit” and “roughly the value” – are not as

stringent for the party facing liability as the “fair equivalent” definition; an economic benefit

can be less than a fair equivalent, as can a rough approximate of the value. Thus, if the court

finds a “reasonably equivalent value” under the “fair equivalent” definition, the court

necessarily finds it under those others. 

The consideration at issue under both the former and current laws is DeLong’s legal

services. Other courts have addressed the value of legal services in just this context though

none of the cases is directly on point or binding. One case that is illuminating, however, is

In re Armstrong, 234 B.R. 899 (Bankr. E.D. Ark. 1999), where the court examined whether

payments to criminal defense attorneys were constructively fraudulent transfers under § 548.

“In determining reasonably equivalent value,” the court stated, “the [c]ourt looks not only

to the hours performed by the attorney, but to the contract as a whole.” Id. at 904 (referring

to a retainer). The court emphasized that a determination of reasonably equivalent value

must be based on the value of the transfer at that time; “subsequent appreciation or

depreciation in the value does not transform [a transfer] with reasonably equivalent value into

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20

a fraudulent transfer.” Id. at 905. In determining whether the fee was reasonable, albeit a

retainer fee, the court considered “the subjective factors of securing a particular attorney, that

attorney’s time, the importance and/or prominence enjoyed by the attorney, the importance

and/or notoriety of the client, and the mere fact that the client’s freedom may be at stake [in

that criminal case].” Id. “[T]he fact that neither [the attorney] nor the trustee [could] add up

[the attorney’s] hours to equal [the amount paid in the retainer] [did] not alone negate

reasonably equivalent value.” Id. The court refused to conclude that the attorney’s work did

not contribute to the case’s outcome. Id. The court was clearly deferential to the subjective

factors that shape the character of the particular legal representation.

Standard of Review for the Fraudulent Transfer Claims 

The questions of valuable consideration and reasonably equivalent value are largely

questions of fact. In re Chase & Sanborn Corp., 904 F.2d at 593 (“It has long been

established that ‘[w]hether fair consideration has been given for a transfer is ‘largely a

question of fact, as to which considerable latitude must be allowed to the trier of the facts.’”

(quoting Mayo v. Pioneer Bank & Trust Co., 270 F.2d 823, 829-30 (5th Cir. 1959)) (applying

the standard of review to findings of “reasonably equivalent value” under § 548). The

Bankruptcy Court’s findings must be “clearly erroneous.” In re Bardwell, 610 F.2d 228, 230

(5th Cir. 1980). 

In this case, the court reverses the Bankruptcy Court’s findings on whether valuable

consideration or legal services of reasonably equivalent value were exchanged between TMC

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21

and DeLong. The review of the Bankruptcy Court’s findings of fact is more complicated

than merely a review of the record because the findings of facts were framed by what this

court finds were erroneous assumptions of law. More precisely, the Bankruptcy Court’s

findings of fact relied on its interpretation of TMC’s legal exposure at various points in the

litigation – an interpretation based on incorrect assumptions of law. The Bankruptcy Court’s

critical finding was that the “thrust of DeLong’s efforts was not to defend [TMC] in the

Commercial Factors civil action [but] [r]ather, . . . to shield Rudolph Terry from criminal

liability,” 2007 WL 1560087, at *7, and the basis for that claim was that TMC had “a simple,

straight-forward defense” – that TMC never received any T-shirts – a defense “DeLong

could not [have] raise[d] without establishing that Rudolph Terry falsely certified the

Commercial Factors invoices,” id. at *8. To assert TMC’s defense was mutually exclusive

of Rudolph Terry’s is not so much an over-simplification but rather a failure to apprehend

the legal liability hovering over TMC before DeLong ever commenced the representation.

That misapprehension shaped how the Bankruptcy Court determined the value of DeLong’s

legal services to TMC.

TMC’s Legal Exposure During the Georgia Litigation

 What matters for determining the value of DeLong’s legal services is not TMC’s actual

liability but its potential liability. An ex ante perspective of TMC’s potential and developing

liability during the Georgia litigation must shape the analysis. TMC’s legal exposure during

the Commercial Factors litigation was considerable even prior to DeLong’s representation.

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22

When Commercial Factors pressed TMC to pay the bogus invoices, TMC through Rudolph

Terry confirmed the invoices and caused TMC to make payments on them. See supra pp. 3-

4. When DeLong began the representation, the facts before him included invoices with

TMC’s approval, payments on the invoices, and the representation of the Terry brothers

implicating corporate liability. For DeLong to conclude that TMC had no liability based on

those facts would have been imprudent. Even if, assuming arguendo, DeLong were aware

of the fraudulent scheme (and there is no evidence or allegation that he was), TMC’s defense

was not a simple contract argument. The determination of whether Rudolph Terry’s actions

were unauthorized and not imputed to the principal, TMC, involved a hairy question of law

dependent on as yet undiscovered facts. DeLong’s explanation of this predicament in his

trial testimony is illustrative. When asked why he waited until 2003 to assert a defense on

behalf of TMC that Rudolph Terry’s actions were outside the scope of employment, DeLong

answered that asserting the defense earlier would have been “a very bad idea,” and he added:

You don’t file summary judgments or motions for summary judgment

until discovery has been completed. The facts that had come out, the evidence

that Commercial Factors had presented, just the bare fact that there were

invoices that Commercial Factors had purchased that were Terry

Manufacturing Company invoices, that were signed by Rudolph Terry, meant

that there were an awful lot of things going against the company. And I had

to develop a basis to go to the court and say to the court, look, this is very

likely a situation where Terry Manufacturing has no involvement.

And so what I had to do is develop the theory very carefully and, when

it was too late for Commercial Factors to come back and do the things that it

might otherwise do to get around it was the right time to file the motion.

Case 2:07-cv-00620-WKW Document 27 Filed 09/30/08 Page 22 of 33
23

(Trial Tr. vol. 1, 196:9-25 (emphasis added).) DeLong needed a basis for presenting a case

for why TMC was not liable on theories of outright fraud and ratification. 

TMC would have been liable for fraud if TMC had been complicit in the scheme all

along, as the acknowledged invoices could have initially suggested. Whether TMC was, at

any point, liable on a ratification theory is not necessary for this court to decide. The relevant

question is instead whether TMC could have faced liability based on a ratification theory and

what issues remained for DeLong to reach that determination. At the very least, the question

is whether TMC’s legal exposure extended beyond that which would exist under a mere

contract claim. 

Under Georgia law, a corporation can be liable under the agency principle of

ratification. See, e.g., Potts-Thompson Liquor Co. v. Potts, 69 S.E. 734 (Ga. 1910); Ely &

Walker v. Dux-Mixture Hardware Co., 582 F. Supp. 285, 292 (N.D. Ga. 1982).

“[R]atification is the confirmation by one of an act performed by another without authority.”

Griggs v. Dodson, 154 S.E.2d 252, 256 (Ga. 1967). Under Georgia’s statute on ratification,

the ratification will relate back to the ratified act. Ga. Code Ann. § 10-6-52. Ratification

also requires knowledge on the part of the ratifying principal of the material facts of the

agent’s actions. Computel, Inc. v. Emery Air Freight Corp., 919 F.2d 678, 683 (11th Cir.

1990). That TMC acknowledged the invoices for the T-shirts at least raised the possibility

of liability because TMC arguably ratified the financial arrangement by that

acknowledgment. Furthermore, if TMC was on notice of the fraud, by reason of the fact that

Case 2:07-cv-00620-WKW Document 27 Filed 09/30/08 Page 23 of 33
24

it certified invoices for merchandise it never received, liability for Rudolph Terry’s tort

would have also factored into TMC’s legal exposure. Ga. Code Ann. § 51-1-12 (“By

ratification of a tort committed for his own benefit, the ratifier becomes as liable as if he had

commanded that it be committed.”); Hobbs v. Principal Fin. Group, 497 S.E.2d 243, 244

(Ga. App. 1998) (“Generally, an employer may be held responsible for the tortious act of an

employee where the act was . . . ratified (by the employer) after its commission . . . .”). (See

Appellant Br. 19 (“TMC knew when it acknowledged the invoices, when it paid on the

invoices, and when it attempted to settle [Commercial Factors’] claim that it had received no

tee shirts[,] [and] [u]nder Georgia law this was strong evidence that TMC had ratified

Rudolph Terry’s conduct.”).) For liability to attach to the principal, the tort must have been

committed for the ratifier’s benefit. § 51-1-12; e.g., Travis Pruitt & Assocs., P.C. v. Hooper,

625 S.E.2d 445, 449 (Ga. App. 2005). But at the time DeLong was handling the case, it was

not clear whether Rudolph Terry participated in the Floodgates scheme in order for it to inure

to the benefit of TMC, for Rudolph Terry’s sole benefit, or for the benefit of both. 

The determination of liability by ratification was thus wrapped up with a series of

fact-bound legal determinations, including if, how, and when the principal “ratified” the

officer’s actions, whether and when the principal had knowledge of the material facts, the

legal and practical effect of the fact that the ratifying officer was one of the only two officers

and directors of the principal and that they were brothers, and other details relevant to

whether the ratification would prevent TMC from arguing that it owed no money. To distill

Case 2:07-cv-00620-WKW Document 27 Filed 09/30/08 Page 24 of 33
25

TMC’s position at the beginning of the litigation to that of an innocent contract party – and

to fault DeLong with not recognizing that – fails to take into account the fact that TMC

appeared to have confirmed the invoices, DeLong was outside counsel and unfamiliar with

the company, the officers were also the sole shareholders and directors, and the potential

monetary damage from TMC’s apparent liability was significant. 

Even aside from the question of ratification, DeLong had undertaken a collection case,

and his task included sifting through invoices to ensure the amount of money owed. It seems

naive to assume that DeLong should have initially suspected massive fraud as the primary

reason for why the invoices were unpaid. Furthermore, the unraveling of fraud requires time

and carefully considered investigative work to discover the truth while preserving the

viability and reputation of the company. It also seems naive to assume that TMC would have

had success in asserting from the beginning a defense that it owed nothing. Commercial

Factors was interested in retrieving the alleged millions of dollars it lost and TMC by all

appearances had the money to pay that back. Absent from the Bankruptcy Court’s analysis

is an appreciation for Commercial Factors’ pragmatic interest – to get paid. 

As the litigation progressed, TMC faced liability counts on conspiracy, fraud,

conversion, and RICO. TMC’s liability remained tied to Rudolph Terry’s unless and until

TMC could prove that it was disconnected from the fraud, or that Rudolph Terry acted

outside the scope of employment and that TMC’s acknowledgments were not a ratification

of Terry’s actions. A recitation of the entire record – and all of the steps DeLong took to

Case 2:07-cv-00620-WKW Document 27 Filed 09/30/08 Page 25 of 33
26

protect TMC in litigation – is not necessary. The burden of proof is on the Trustee, Stokes,

278 S.E.2d at 395, and as explained below, the Trustee has failed to show that DeLong’s

legal services were not for valuable consideration or reasonably equivalent value. 

Value of DeLong’s Legal Services

Because the Bankruptcy Court inaccurately assessed TMC’s legal exposure during the

Commercial Factors litigation, the finding derived from that error – that TMC received no

benefit from the defense – was clearly erroneous. The Bankruptcy Court approached the

evaluation of DeLong’s legal services from the standpoint that TMC’s clear defense was to

argue TMC owed nothing. If TMC could have successfully weathered the Commercial

Factors litigation with that defense, DeLong’s legal strategy would have been, at the very

least, perplexing. The court’s understanding of TMC’s legal predicament, however, yields

a different finding of fact. Because TMC’s legal exposure was complex, serious, unclear,

and unsettled during DeLong’s representation, particularly at the beginning, the court finds

the Bankruptcy Court abused its discretion in finding the legal services were of insufficient

value to TMC. 

Under the former Georgia law, TMC received “valuable consideration.” The transfer

was clearly facially valid. TMC received at least some value in the form of legal services

from DeLong. For one, DeLong filed an Answer when Commercial Factors sued TMC; that

protected TMC from a default judgment. The pleadings DeLong filed for TMC asserted a

number of arguments that comported with a plausible understanding of the facts. DeLong

Case 2:07-cv-00620-WKW Document 27 Filed 09/30/08 Page 26 of 33
27

also attempted, on instructions from his client, to settle the case for TMC. The argument that

TMC derived no benefit from these negotiations underestimates the realities of litigation.

Even if TMC was innocent, TMC had little choice at that stage in the litigation. Through its

officer, TMC had acknowledged prior to DeLong’s representation that it owed Commercial

Factors money. TMC could fight or settle the claims. The sun does not stand still when a

company faces a strategic decision of this nature. Settlement is not synonymous with liability

– a company can have perfectly rational and valuable reasons to settle a case in the face of

uncertain liability. 

The Bankruptcy Court adjudged DeLong’s legal fees “astonishing,” 2007 WL

1560087, at *7, but a finding that the transfer should have been valued lower does not rebut

a facially valid transfer under prior Georgia law, see supra p. 13. The Trustee failed to rebut

the facially valid transfer with sufficient evidence. Perhaps from the starting point of the

Bankruptcy Court’s understanding of TMC’s legal predicament, TMC’s payments could have

circumstantially suggested that the parties intended not to benefit TMC but to benefit

Rudolph Terry. Starting from this court’s position that TMC faced real liability, however,

DeLong protected TMC from potential and eventual claims of fraud, which benefitted TMC.

Given TMC’s potential liability, the nature of the payments no longer supports a conclusion

implicit in the Bankruptcy Court’s findings that TMC intended to receive less than valuable

consideration. 

Case 2:07-cv-00620-WKW Document 27 Filed 09/30/08 Page 27 of 33
 A case from the Southern District of Florida touches upon this point. The court found 14

reasonably equivalent value in legal services provided by an attorney even though the attorney’s

representation was for parties in a litigation matter involving the debtor but not for the debtor. In re

Trauger, 105 B.R. 120 (Bankr. S.D. Fla. 1989). Counsel was engaged and paid by the debtor, id. at 121-

22, 123, and represented two employees, their spouses, and two companies in a litigation matter

involving the debtor, these, and other parties, id. at 122. The court decided, given the conflicting

evidence, that the debtor’s decision to engage and pay for counsel for others “was not a gratuitous

selfless act of generosity.” Id. at 123. Based on the record in that case, the court concluded that “a

benefit to these litigants represented a benefit to the debtor’s position in that trial.” Id. 

28

There is also insufficient direct evidence of DeLong’s intent to render insufficient

legal services to TMC, or that TMC’s payments were intended to benefit Rudolph Terry

instead of TMC. Neither is the consideration insufficient because Rudolph Terry benefitted

from the TMC-paid representation in his individual capacity. In fact, because the question

of fraud for both defendants remained interrelated until DeLong could sift the facts and

formulate a strategy, any benefit to Rudolph Terry was an indirect benefit to TMC until

TMC’s liability could be analytically severed from Rudolph Terry’s. Only under the 14

Bankruptcy Court’s assumption that TMC had one simple defense do the legal services

DeLong rendered to TMC fail to confer valuable consideration to TMC.

Under the current Georgia law, the legal services were also of reasonably equivalent

value to TMC’s payments. Only the payments after July 1, 2002, fall under this standard.

The Bankruptcy Court’s rationale for finding the legal services were not reasonably

equivalent under the current law depended entirely on its findings of fact under the former

Georgia law. 2007 WL 1560087, at *9. The Bankruptcy Court did not attempt to analyze

the payments after 2002 to determine if, beginning at that point, the legal services were of

reasonably equivalent value. In all likelihood, the Bankruptcy Court would have detailed

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29

how the payments were not reasonably equivalent based on its position that from the

beginning, TMC’s defense should have pursued an entirely separate trajectory from Rudolph

Terry’s. This court, again, has based its findings of fact on a different assumption about

TMC’s legal exposure, and for that reason, the Bankruptcy Court’s finding of fact on whether

DeLong’s legal services were “reasonably equivalent” was clearly erroneous.

The Trustee has failed to prove that the legal services after July 2002 were not

reasonably equivalent to TMC’s payments, i.e., not for fair consideration, see supra pp. 17-

19. The evidence is voluminous and, at best, conflicting. As discussed above, see supra pp.

17-18, “good faith” is not a consideration in determining whether a conveyance is

constructively fraudulent. Under Georgia’s current law, “good faith” factors into only the

liability amount of the transferee should the conveyance be found fraudulent. Thus, any

evidence concerning DeLong’s alleged knowledge after July 2002 of Rudolph Terry’s and

TMC’s conflicting defenses that supports a scienter argument is not directly relevant.

The evidence clearly does not weigh in favor of finding that DeLong failed to provide

fair consideration. By July 1, 2002, TMC was facing several serious counts which were

stated in terms of the collective behavior on the part of Defendants. The record demonstrates

substantive and voluminous work performed on behalf of TMC after 2002 in an effort to

protect it from liability. Those efforts are evidenced in the billing records (see Pl. Trial Ex.

# 13), in the partial summary judgment (Def. Trial Ex. # 15), in the pleading in which TMC

argued that Rudolph Terry’s actions were unauthorized and not in furtherance of TMC’s

Case 2:07-cv-00620-WKW Document 27 Filed 09/30/08 Page 29 of 33
30

business based on an affidavit submitted by Roy Terry (Def. Trial Ex. # 27), and the amicus

brief filed in the interlocutory appeal of a trial court’s order compelling TMC’s accountant’s

testimony (Pl. Ex. # 129). This work was beneficial to TMC if the baseline assumption is

that TMC in some way could be on the hook for Rudolph Terry’s actions. The Bankruptcy

Court points to Roy Terry’s affidavit as evidence that TMC and Rudolph Terry’s defenses

were necessarily inconsistent, 2007 WL 1560087, at *8, but the affidavit was dated in June

2003 (Defs. Trial Ex. # 27). The Court seems to discount the possibility that Roy Terry’s

position on TMC’s knowledge or ratification was not clear, discoverable, or admitted to

DeLong until later in the case. 

In fact, the entire discussion regarding DeLong’s strategy in representing TMC loses

sight of a principle at the root of this court’s determination. For various and well-honed

policy reasons, courts have refused in other areas of law to microscopically dissect the

strategic professional decisions made by attorneys in their representation. Part of the court’s

reluctance to recreate hypothetical routes TMC’s representation could have taken is

influenced by this chief concern: that courts should afford attorneys a certain degree of

deference when it comes to their representation of clients. Attorneys representing a company

like TMC, a closely-held corporation facing tremendous liability and, as it later turned out,

criminal liability for its officers’ conduct, not to mention bankruptcy, need as much flexibility

and discretion as attorneys in other cases. Though allowing professional discretion in the

context of ineffective assistance of counsel claims, for example, is in part distinguishable as

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31

based on a primary concern for the accuracy of the adversarial process, see White v.

Singletary, 972 F.2d 1218, 1221 (11th Cir. 1992), the underlying principle runs beyond that

concern. When courts play Monday morning quarterback with respect to litigation strategy,

they are risking not only reaching the wrong outcome but also affecting the behavior of

lawyers anticipating that review. The subsequent chilling effect on future representation is

undesirable. “We [the courts] are not interested in grading lawyers’ performances,” id., and

the courts “should always avoid second guessing with the benefit of hindsight,” id. at 1220,

and instead “allow lawyers broad discretion to represent their clients by pursuing their own

strategy,” id. at 1221. 

The insulation afforded lawyers reverberates in the area of malpractice claims as well.

“[T]he tactical decisions made during the course of litigation require, by their nature, that the

attorney be given a great deal of discretion.” Hudson v. Windholz, 416 S.E.2d 120, 124 (Ga.

Ct. App. 1992) (explaining the doctrine of “judgmental immunity,” which Georgia and other

jurisdictions have adopted). One of the policy justifications for protecting lawyer’s strategic

decisions from malpractice liability is because “[o]therwise every losing litigant would be

able to sue his attorney if he could find another attorney who was willing to second guess the

decisions of the first attorney with the advantage of hindsight,” Paul v. Smith, Gambrell &

Russell, 599 S.E.2d 206, 208 (Ga. Ct. App. 2004). 

Even more fundamentally, “[t]he honest exercise of professional judgment is

dependent upon the reasonable exercise of discretion free from outside influence.” Paul, 599

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32

S.E.2d at 209. The court recognizes that legal malpractice review involves a lower threshold

for evaluating an attorney’s decisions – that of satisfying minimum duties – than ascertaining

whether legal services are sufficiently valuable for fraudulent conveyance purposes. But

particularly in the determination of constructive fraud – where the assessment depends not

on fraudulent intent but on the objective evaluation of value to the debtor – an evaluation of

value should focus on whether the fees match up to the amount of work accomplished, and

not on how the representation could have been conducted differently, as was the Bankruptcy

Court’s focus, see, e.g., 2007 WL 1560087, at *8 (“The proper comparison is not DeLong’s

services with no services, but rather the services rendered by DeLong with those of an

attorney not encumbered with the defense of Rudolph Terry.”).

It is not an exoneration of the Terry brothers to conclude that the Bankruptcy Court

abused its discretion in finding that DeLong’s legal services were of insufficient value and

that TMC’s payments to DeLong were constructively fraudulent. Nor isthe court expressing

approval of Delong’s representation outside of this context. The court recognizes that the

Bankruptcy Court’s assessment of the circumstances surrounding the Commercial Factors

litigation should be deferentially credited not only because of the standard of review, but also

because of the unique circumstances of the Terry proceedings. As the Bankruptcy Court

rightly pointed out in another of the many related proceedings arising out of the July 2003

bankruptcy of TMC,

[t]he Terry Manufacturing bankruptcy proceedings have been of unusual

complexity. The Court has struggled with the bankruptcy case and dozens of

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33

adversary proceedings . . . spun off in all directions for more than three years.

If one thing can be said with any certainty at all, it is that nothing in this case

is as it [at] first glance seems.

In re Terry Mfg. Co., 345 B.R. 377, 381-82 (Bankr. M.D. Ala. 2006). Not uncommon in the

bankruptcy proceedings were creditors victimized by the criminal activities of the Terry

brothers, creditors who “screamed long and loud about fraud perpetrated by Roy and

Rudolph Terry, check kiting, destruction of records, and the rest of a now familiar litany of

depredations.” Id. at 382. Certainly the record in the case sub judice is replete with proof

of perfidy on the part of the Terry brothers in their dealings with creditors. The difficulty is

separating, if indeed they should be separated, the actions and motives of the Terry brothers

from those of other players in the drama, in particular, their attorneys in certain prebankruptcy civil litigation in Georgia. That is this case. Despite so massive an underlying

fraudulent scheme, DeLong must be separated from that scheme. TMC’s payments to

DeLong for his legal services were not fraudulent under Georgia law. 

VI. CONCLUSION

For the foregoing reasons, it is ORDERED that the Bankruptcy Court’s May 29, 2007

Judgment is VACATED, and the case is REMANDED. The Bankruptcy Court is

INSTRUCTED to enter Judgment in favor of Defendants. 

DONE this 30th day of September, 2008.

 /s/ W. Keith Watkins 

UNITED STATES DISTRICT JUDGE

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