Opinion ID: 3131287
Heading Depth: 2
Heading Rank: 1

Heading: Underlying Factual Background

Text: The factual background for this appeal is largely undisputed. Thomas and Sherry were married in 1968. Thomas was 26 years old at the time; Sherry was 19. Shortly after their marriage, the McFarlands, at Sherry’s suggestion, decided to purchase the property at issue in this appeal, which consists of three parcels of land in Chatham County, Georgia (the “Property”). The Property was located near where Sherry grew up and where her parents lived, and Sherry had always wanted 2 Case: 14-14034 Date Filed: 10/16/2015 Page: 3 of 31 to live in the area. Thomas was from California and had no other connection to the area before marrying Sherry. The Property was purchased for $15,000, financed with a $5,000 loan from Sherry’s father, taken from a fund for Sherry’s college education, and a $10,000 loan from Atlantic Savings and Trust. The McFarlands repaid the loans from a joint bank account in which they both deposited their earnings. Only Thomas’s name appears on the documentation of the purchase, including the warranty deed, security deed, and the notes. The McFarlands lived on the Property until 1970. According to the McFarlands, the absence of Sherry’s name from any of the purchase documentation reflected societal customs and practices of the era, as well as the “traditionalist” view of Sherry’s father, who loaned a portion of the purchase price and was involved in the purchase. They contend that, despite the way the documents were prepared, it was always their intention that the Property be jointly owned. Nonetheless, legal title to the Property remained solely in Thomas’s name until 2009, when Thomas executed the “Deed of Gift” at issue in his appeal. The execution of the 2009 Deed of Gift was triggered by a personal-injury lawsuit, arising from a car accident, filed against Thomas in 2008. Following an unsuccessful mediation of the lawsuit, Thomas became concerned that the plaintiff and her attorney were going to try to “ruin” him financially. In his words, he executed the 2009 Deed to prevent the personal-injury plaintiff from pursuing what 3 Case: 14-14034 Date Filed: 10/16/2015 Page: 4 of 31 he believed to be Sherry’s one-half interest in the Property. According to Thomas, the purpose of the 2009 Deed was merely to correct legal title to the Property. The McFarlands stated that they did not see a reason to correct the legal records to the Property until the 2008 lawsuit, but they had discussed doing so before 2008. The personal-injury lawsuit proceeded to a jury trial where the jury awarded the plaintiff approximately $1 million in damages against Thomas. Soon after judgment was entered against him, Thomas filed for bankruptcy protection under Chapter 7. B. Adversary Proceeding by Trustee to Set Aside the 2009 Deed of Gift After Thomas filed for bankruptcy, the bankruptcy trustee filed an adversary complaint against the McFarlands to avoid the 2009 Deed of Gift as a fraudulent transfer of property under 11 U.S.C. § 548(a)(1). The McFarlands responded to the complaint and asserted that Sherry’s one-half interest in the Property could not be included within the bankruptcy estate because the 2009 Deed of Gift did not transfer any equitable title to the Property, but rather, merely corrected legal title to reflect Sherry’s existing ownership of the Property. The bankruptcy court held a bench trial at which both Thomas and Sherry testified. Following the trial, the court granted the trustee’s action to set aside the transfer under § 548(a)(1)(A) or (B). See generally Wallace v. McFarland, (In re McFarland), No. 11-1021, 2013 WL 5442406 (Bankr. S.D. Ga. Sept. 30, 2013). 4 Case: 14-14034 Date Filed: 10/16/2015 Page: 5 of 31 The court explained that, in order to avoid the transfer, the trustee had to satisfy the burden to prove that the conveyance was made with actual intent to hinder, delay, or defraud a creditor, § 548(a)(1)(A) (“actual fraud”), or that the debtor did not receive “reasonably equivalent value” for the transfer and believed that he would incur “debts that would be beyond the debtor’s ability to pay,” § 548(a)(1)(B)(i) and (ii)(III) (“constructive fraud”). The bankruptcy court first determined the “threshold issue” that the 2009 Deed of Gift was a transfer of Thomas’s own interest in the Property, not simply a recognition of Sherry’s existing equitable interest. Looking to Georgia state law, the court concluded that the evidence did not support the McFarlands’ contention that Thomas had held a one-half interest in trust for Sherry by operation of an implied purchase money resulting trust or otherwise. Therefore, according to the court, the one-half interest deeded to Sherry in the 2009 Deed of Gift was properly considered part of Thomas’s bankruptcy estate under 11 U.S.C. § 541. Next, the bankruptcy court determined that Thomas transferred the interest in the Property with actual fraudulent intent under § 548(a)(1)(A). The trustee, according to the court, produced evidence of multiple “badges of fraud,” see, e.g., Dionne v. Keating (In re XYZ Options, Inc.), 154 F.3d 1262, 1271-72 (11th Cir. 1998), including that Thomas transferred the Property to an “insider,” his wife, that he did not receive reasonably equivalent value in exchange for the transfer, and 5 Case: 14-14034 Date Filed: 10/16/2015 Page: 6 of 31 that the timing of the transfer was suspicious in that it occurred shortly after the failed mediation of the then-pending lawsuit. The bankruptcy court went on to conclude that the trustee could also avoid the transfer as constructively fraudulent under § 548(a)(1)(B), because Thomas did not receive reasonably equivalent value, and he believed he would incur debts beyond his ability to pay. The court found that Thomas did not receive any “value” in exchange for the transfer, let alone value that would be “reasonably equivalent” to the value of a one-half interest in the Property, given that Thomas valued his one-half interest at $350,000.00 in his bankruptcy schedules. And the court determined that Thomas’s belief that he would incur debts beyond his ability to pay was demonstrated by evidence of the following: Thomas executed the 2009 Deed of Gift days after a failed mediation of a personal-injury lawsuit; he knew that the plaintiff in that suit sustained extensive damages; he believed that the plaintiff intended to “ruin” him financially; and the Deed was admittedly executed for the purpose of protecting his wife’s purported interest in the Property. Finally, the bankruptcy court rejected Sherry’s counterclaim, pursuant to 11 U.S.C. § 548(c). Sherry had argued that she should be entitled to recover half of any proceeds realized from the trustee’s sale of the Property because she was a good-faith transferee who took an interest in the Property for value. 1 1 The McFarlands do not contest the resolution of the § 548(c) claim on appeal. 6 Case: 14-14034 Date Filed: 10/16/2015 Page: 7 of 31 The McFarlands appealed to the district court pursuant to 28 U.S.C. § 158(a)(1), and the court affirmed the bankruptcy court’s order. Thomas now brings this appeal. We have jurisdiction under 28 U.S.C. § 158(d)(1).