Court Opinion

ID: 8294852
Source: CourtListenerOpinion
Date Created: 2022-10-17 11:00:58.602803+00
Date Added: 2024-06-11T16:43:59.822147
License: Public Domain

Justice HEARN.
Respectfully, I concur in part and dissent in part. While I ultimately agree with the majority that the Statute of Elizabeth cannot be invoked to set aside this assignment, I believe the majority adopts too narrow a view of the statute in the process. Furthermore, I disagree with the majority’s conclusion that Robert Oskin, Glenn Small, and Freddie Kanos (collectively, Appellants), have not shown that J. Conner, LLC was the alter-ego of Michael Brown. I would therefore hold that J. Conner’s payment to South Carolina Bank and Trust (SCB & T) satisfied the note and mortgage.
*403I
I first turn to the facts and structure of the transaction under review. Appellants are various holders of judgments against Stephen Mark Johnson. Before Appellants reduced their claims to judgments, Johnson purchased oceanfront property in Myrtle Beach, South Carolina, for $3.5 million. Because Johnson was unable to obtain the necessary financing to purchase the property on his own, Brown, who is Johnson’s uncle, agreed to co-sign a note from SCB & T and purchase the property jointly. The term of the note was two years, and the note provided for interest-only payments for the first twenty-three months followed by a final balloon payment. In connection with the note, Brown and Johnson granted SCB & T a first mortgage.12
Shortly before the final balloon payment became due, Brown approached SCB & T to inquire about assigning the note and mortgage to him. SCB & T informed Brown that such a transaction was not possible because it would amount to a payoff of the note and nothing would remain to assign. SCB & T also refused to extend the note’s term. Out of options, Brown’s wife, Joan Conner Brown, formed J. Conner, a limited liability company of which she is the only member, for the sole purpose of acquiring and holding SCB & T’s note and mortgage. To accomplish this, J. Conner obtained a $3.5 million loan from Wachovia Bank and used the proceeds to purchase the note and mortgage from SCB & T; title to the property remained in Johnson and Brown. By virtue of this transaction, J. Conner stepped into the shoes of SCB & T and assumed its superior priority position with respect to the property.
By the time Appellants obtained judgments against Johnson, he was insolvent save for this property. However, so long as J. Conner has priority over Appellants, they effectively are precluded from forcing a judicial sale of the property to satisfy their judgments.13 Seeking a set-aside of the assign*404ment, or a finding that J. Conner was Brown’s alter-ego and J. Conner’s payment to SCB & T therefore satisfied the note and mortgage, Appellants filed the instant declaratory judgment action against Brown, Joan Conner Brown, Johnson, and J. Conner (collectively, Respondents).
II
In my opinion, the majority errs by holding we can look only to the intent of a grantor when determining whether the Statute of Elizabeth would set aside a conveyance. While I agree that the vast majority of cases will involve an unscrupulous grantor, I do not believe that we are required to only examine his intent. Instead, I would review the transaction as a whole for whether it was designed to defraud another. Nevertheless, even under this standard I do not believe Appellants have met their burden.
As a threshold matter, I will quickly dispense with Respondents’ first argument that the Statute of Elizabeth is inapplicable because it only concerns those in a debtor-creditor relationship. Our codification of the Statute of Elizabeth provides, in pertinent part:
Every gift, grant, alienation, bargain, transfer, and conveyance of lands ... or other profit or charge14 out of the same ... which may be had or made to or for any intent or purpose to delay, hinder, or defraud creditors and others of their just and lawful ... debts ... must be deemed and taken ... to be clearly and utterly void, frustrate and of no effect, any pretense, color, feigned consideration, expressing of use, or any other matter or thing to the contrary notwithstanding.
S.C.Code Ann. § 27-23-10 (2007) (footnote and emphasis added). In Lebovitz v. Mudd, 293 S.C. 49, 358 S.E.2d 698 (1987), *405we expressly held that a debtor-creditor relationship is not necessary to trigger the statute based on the language that it applies to “creditors [and] others.” Id. at 52, 358 S.E.2d at 700. Although I acknowledge that some of our other cases have referred to a debtor-creditor relationship, they are unremarkable because they actually did involve a debtor and a creditor. Nothing in our jurisprudence undermines the validity of Lebovitz, and the plain statutory language underpinning that decision has not changed. Respondents’ argument therefore is meritless.
The majority holds that the applicability of the Statute of Elizabeth turns on the grantor’s intent and not the general intent behind the transaction. This holding, however, suffers from the same flaws as Respondents’ first argument. First, the statute contains no such limitation. Instead, it only refers to the intent of the transaction itself, not the specific intent of the grantor. See S.C.Code Ann. § 27-23-10 (“Every gift, grant, alienation, bargain, transfer, and conveyance of lands ... or other profit or charge out of the same ... which may be had or made to or for any intent or purpose to delay, hinder, or defraud creditors and others of their just and lawful ... debts.... ”). Second, just as with Lebovitz, the fact that some of our cases discuss the intent of the grantor does not mean his intent controls. Those cases merely demonstrate that the grantor’s intent was an issue in them. Instead, it is the language of the statute which controls.
I am wary of judicially engrafting a limitation onto a statute rather than according the statute its plain meaning, especially when doing so has the very real potential to thwart its purpose. See Gay v. Ariail, 381 S.C. 341, 344, 673 S.E.2d 418, 420 (2009) (“In interpreting statutes, the Court looks to the plain meaning of the statute and the intent of the Legislature.”). It has long been the rule that “[t]he statute 13th of Elizabeth,15 protecting creditors and others from fraudulent conveyances, is to be construed liberally in favor of the class of persons designed to be protected from fraud.” Gibson v. Love, 4 Fla. 217, 217 (1851) (emphasis removed, footnote added); see also Duncan v. Freeman, 152 Ga. 332, 110 S.E. 5, *4066 (1921) (“Although the statute is strict, and even penal, the courts have given a liberal construction to its provisions.”). Under the majority’s interpretation, an individual can goad an innocent grantor into conveying an interest in property to defraud another with impunity. Despite being the sort of transaction the Statute of Elizabeth was designed to remedy, the majority sanctions it simply because the person perpetrating the fraud was not the grantor. I can see no defensible reason why the very ill sought to be prevented by the Statute of Elizabeth should be perpetuated by virtue of such an unsupported technicality.
I am also not persuaded by Respondents’ assertion that Appellants’ claim is not viable because the assignment in question was accomplished by legal means and is a common business practice. The facial legality of the conveyance should have no bearing on whether it was intended to defraud another. Suggesting otherwise ignores the reality that entities can use perfectly legal transactions to achieve nefarious ends. Indeed, we have already rejected this very argument:
If the elements necessary to set aside a transfer for fraud are shown, the legality in other respects of the means by which the design is accomplished affords no defence [sic]. It is the fraudulent purpose and the injurious result, not the form of the transaction nor the illegality or irregularity of the instrument, or the means used for its accomplishment, which render such transactions voidable at the instance of a person injured thereby.
Matthews v. Montgomery, 193 S.C. 118, 131, 7 S.E.2d 841, 847 (1940). I accordingly would place no weight on the fact that, on its face, the assignment may have been common business practice and legal.
As to whether Brown actually intended to defraud Appellants or hinder the collection of their judgments, I agree with the majority that Appellants have not met their burden. The heart of Appellants’ contention is that Respondents structured the transaction in such a way that a $3.5 million lien with priority over Appellants’ judgments would remain on the property. If this result was accomplished, Appellants would, for all intents and purposes, be precluded from collecting. Conversely, if this lien was extinguished and Appellants forced *407a sale of the property, Brown would lose most of his investment in a multi-million dollar asset. Thus, the only way Brown could secure his own interest in the property was to ensure Appellants could not execute.
Respondents counter by contending the assignment was done to secure J. Conner’s “[b]ona fide claims ... as purchaser of the $8.5 million note and mortgage from SCB & T.” This position is untenable, however, because J. Conner only obtained its interest in the note and mortgage through the allegedly fraudulent assignment. In other words, J. Conner had no interest to protect until the assignment took place. Respondents’ reliance on McDaniel v. Allen, 265 S.C. 237, 217 S.E.2d 773 (1975), to support their contention therefore is unavailing. In McDaniel, we found the conveyance of property from husband to wife was not done to defraud the husband’s creditors but instead to protect the wife’s bona fide interest in the subject property because she already had one. See id. at 241-44, 217 S.E.2d at 775-76. J. Conner, in contrast, had no interest it could protect prior to the assignment.
Yet there is evidence that the note and mortgage were assigned to J. Conner in order to protect Brown’s investment in the face of a slumping real estate market, not to defraud Appellants. The thrust of the argument is that it is not fiscally responsible to make the SCB & T balloon payment of approximately $3.5 million for an asset worth $2.5-$2.6 million, particularly when Brown would have to suffer further losses when liquidating the assets necessary to complete the payoff. Thus, extending the term of the note by assigning it to a holder simply insulates Brown from the drop in the property’s value precipitated by the general decline in the real estate market. However, the transaction undeniably had the concomitant effect of preventing Appellants from collecting on their judgments, and the distinction between protecting one’s interest in property in a down market and insulating it from a judgment is tenuous and fraught with precarious implications for judgment holders like Appellants. Still, while I am troubled by many aspects of the assignment, I cannot conclude that Appellants have shown the requisite intent by clear and *408convincing evidence.16 I therefore concur in the result reached by the majority on this issue.
Ill
However, I do not join in the majority’s conclusion that J. Conner was not Brown’s alter-ego.17 An alter-ego claim “requires a showing of total domination and control of one entity by another.” Colleton Cnty. Taxpayers Ass’n v. Sch. Dist. of Colleton Cnty., 371 S.C. 224, 237, 638 S.E.2d 685, 692 (2006). “Control may be shown where the subservient entity manifests no separate interest of its own and functions solely to achieve the goals of the dominant entity.” Id. Regardless, “this theory does not apply in the absence of fraud or misuse of control by the dominant entity which results in some injustice.” Id.; see also Baker v. Equitable Leasing Corp., 275 S.C. 359, 367-68, 271 S.E.2d 596, 600 (1980) (holding that the alter-ego theory should be used only when retaining separate “personalities would promote fraud, wrong, or injustice or contravene public policy”).
Turning to the first part of the analysis, J. Conner’s operating agreement expressly states its purpose is “to acquire that certain note and mortgage currently held by South Carolina Bank and Trust, N.A. from Michael D[J Brown and Stephen *409Mark Johnson and secured by that certain mortgage of the same date.” True to this purpose, the note and mortgage are the only assets of J. Conner. Moreover, Brown testified that J. Conner never would have been organized but for the need to assign the note away from SCB & T. In fact, J. Conner was created right after SCB & T rebuffed Brown’s attempt to assign the note to himself. J. Conner therefore exists solely to do what Brown himself could not do: hold the note.18
As to whether this arrangement would promote fraud or injustice, the fact that Appellants may have failed to prove intent to defraud or hinder by clear and convincing evidence has no bearing on whether they have shown fraud or injustice by a preponderance of the evidence, as required here. See Mid-S. Mgmt. Co. v. Sherwood Dev. Corp., 374 S.C. 588, 596, 649 S.E.2d 135, 140 (Ct.App.2007) (applying preponderance of the evidence standard to veil piercing claim). Although the evidence may not be clear and convincing, I believe the preponderance of the evidence shows J. Conner was formed to ensure a $3.5 million lien retained first priority on the property. This would keep Appellants from forcing a sale of it and thereby prevent Brown from losing his investment. This orchestrated effort to prevent the collection of valid judgments is a clear injustice. Moreover, as explained above, Appellants’ priority was affected by the assignment and it is of no moment that the means used were facially legal or a common business practice.
For those reasons, I would hold that J. Conner was the alter-ego of Brown. Thus, J. Conner’s payment to SCB & T was, in actuality, a payment by Brown. As a co-obligor of the note, this payment should have satisfied it. See S.C.Code Ann. § 36-3-602(b) (Supp.2011). There still remains a question, however, of whether Brown also would have been able to satisfy the mortgage due to a future advances clause in it. *410The mortgage Brown and Johnson granted SCB & T provides, “The lien of this Security Instrument shall secure the existing indebtedness under the Note and any future advances made under this Security Instrument.” Relying on our decision in Central Production Credit Ass’n v. Page, 268 S.C. 1, 231 S.E.2d 210 (1977), Respondents argue the mere presence of a future advances clause precludes a finding that the mortgage is satisfied and prevents Appellants from collecting on their debts. I do not believe the future advances clause has any bearing on this case.
In Central Production, we held that a future advances clause meant “the mortgage did not die” once the initial debt was discharged, and thus it remains “dormant but viable.” Id. at 8, 231 S.E.2d at 214. Accordingly, the mortgage in question was able to secure funds loaned after the debtor paid off the original debt in full. Id. Here, SCB & T has made no future advances. Hence, at this point in time, there is nothing for the future advances clause to secure. Unless and until SCB & T loans additional funds, the clause simply has no practical effect even though the mortgage technically is not satisfied. This is so because while SCB & T may have first priority, it is entitled to no money and therefore just steps out of Appellants’ way if they foreclose on their judgment liens. A future advances clause can only reduce the amount available for other creditors when a lender actually loans money under the clause and there is an outstanding balance at the time of sale. Because that has yet to happen here, any failure to satisfy the mortgage due to the future advances clause has no bearing on the present case.
Although the majority professes to not reach this question, it strenuously disagrees that such a mortgage has no effect. The majority’s theme is that my conclusion is contrary to Central Production and the statute specifically permitting these clauses, Section 29-3-50 of the South Carolina Code (2007). However, in my opinion, Central Production was correctly decided and remains good law, and these clauses are an essential tool for many business and individuals. However, that does not change the fact that a dormant-yet-viable mortgage which secures nothing has no practical effect when the property is sold. Nothing in either Central Production or section 29-3-50 says otherwise. By giving the clause efficacy *411in these situations, a debtor can maintain a zero-balance mortgage with a future advances clause on property in order to completely prevent junior lienholders from ever collecting.19 In my view, the absurdity of concluding a dormant mortgage which secures no debt reduces the amount available for junior creditors is obvious. I cannot in good conscience join in such a result, especially under our equity jurisdiction.
In any event, the majority erroneously overlooks the fact that the future advances clause cannot apply here due to the terms of the agreement. SCB & T’s mortgage secures “the existing indebtedness under the Note and any future advances made under this Security Instrument.” The agreement further provides, however, that “[u]pon payment of all sums secured by this Security Instrument, this Security Instrument shall become null and void. Lender shall release this Security Instrument.” The parties therefore have contractually limited the scope of the future advances clause, and it is not the open-ended agreement examined in Central Production. See id. at 6, 231 S.E.2d at 212-13 (reciting mortgage provisions examined). Because J. Conner was Brown’s alter-ego, Brown paid the existing indebtedness in full. Additionally, no evidence exists of any future advances made under the mortgage by SCB & T. Thus, all sums secured by the mortgage have been paid and the mortgage by its terms has been satisfied.
IV
For the foregoing reasons, although I disagree "with the majority’s limitation on the Statute of Elizabeth, I agree that we should not set aside the assignment because Appellants have not shown intent to defraud or hinder by clear and convincing evidence. However, I would find J. Conner was the alter-ego of Brown, and therefore J. Conner’s payment to *412SCB & T satisfied the note and the mortgage. I accordingly would affirm as modified in part and reverse in part.
Justice KITTREDGE.
I join section II of Justice Hearn’s part concurrence, part dissent. I otherwise join the majority opinion, including the result.

. The property was later encumbered by a $500,000 second mortgage in favor of Ameris Bank, which also attached prior to Appellants’ judgments. This debt remained outstanding at the time of trial.

. This is a matter of simple mathematics. At the time of the assignment, the property’s value was between $2.5 and $2.6 million. The *404principal on the note, however, was approximately $3.5 million when it was assigned to J. Conner, and Brown and Johnson have made no payments on it. Thus, even assuming the property fetched its full market value at a judgment sale, every penny of the proceeds would go towards paying off this note and a deficiency would still remain. Nothing would be left for Appellants.

. A "charge” in this context means “[a]n encumbrance, lien, or claim." Black’s Law Dictionary 97 (3d pocket ed.2006).

. This particular Statute of Elizabeth is commonly referred to as the Statute of 13 (or 13th) Elizabeth because it was enacted during the thirteenth year of Queen Elizabeth I’s reign. 13 Eliz. 1, c 5.

. The majority indicates that even if the conveyance was set aside under the Statute of Elizabeth, the error would be harmless because Appellants' priority would not change. I respectfully disagree because while SCB & T would now be the holder of the note, the majority ignores Brown’s unequivocal testimony that foreclosure "was never an option” and he was "going to make sure [SCB & T] got paid.” Hence, Brown would not suffer foreclosure and the SCB & T note would be paid off in full. With the $3.5 million lien with first priority out of the picture, Appellants would be in a position to realistically recover. Thus, any error in our decision cannot possibly be harmless beyond a reasonable doubt. See Wells v. Halyard, 341 S.C. 234, 237, 533 S.E.2d 341, 343 (Ct.App.2000) ("An alleged error is harmless if the appellate court determines beyond a reasonable doubt that the alleged error did not contribute to the verdict.”).

. The alter-ego theory is a means of piercing the corporate veil. Drury Dev. Corp. v. Found. Ins. Co., 380 S.C. 97, 101 n. 1, 668 S.E.2d 798, 800 n. 1 (2008). Piercing the corporate veil of an LLC has not yet been recognized in this State, however. Nevertheless, because neither the majority, the parties, nor the master raise this question, I will discuss Appellants' alter-ego claim assuming arguendo it applies.

. Respondents also argue Appellants’ alter-ego claim fails because J. Conner’s only member is Brown’s wife and, incredibly, she is “an independent woman.” Respondents’ ascription of relevance to any independence Joan Conner Brown may have had is specious. Even if she did have the financial and personal wherewithal to be independent, that is irrelevant because J. Conner was formed solely to protect one of Brown’s assets, not one of hers. Moreover, it completely ignores the fact that a wife, irrespective of her own assets, has an interest in her husband’s financial well-being.

. For example, take the majority’s illustration of an unused line of credit, presumably secured by a first lien on certain property. If the debtor owes no money under it and it sits unused, then there is nothing to collect. Heretofore, upon foreclosure of a junior lien this secured party would step up to the plate, take nothing (because that is what he is owed), and then move aside for the other creditors. Beginning today, however, that same secured party who is entitled to absolutely nothing can stand in the way of everyone else. An astute debtor therefore can simply take out a line of credit, never draw on it, and shut out all junior lienors.