COMMUNITY & SOUTHERN BANK v. LOVELL

• Court: Supreme Court of Georgia
• Decided: October 30, 2017
• Docket: S17A0765
• Status: 200

Opinion

302 Ga. 375 FINAL COPY

S17A0765. COMMUNITY & SOUTHERN BANK v. LOVELL et al.

BLACKWELL, Justice.

In December 2011, Georgia Trust Bank secured a judgment against Virgil

Lovell for $1.2 million. The next year, Georgia Trust failed, and its assets went

into receivership with the Federal Deposit Insurance Corporation, which later

sold the judgment against Lovell to Community & Southern Bank (CSB). When

CSB was unable to collect the full amount of the judgment, it discovered a

number of recent transactions in which Lovell and his companies had conveyed

their respective interests in properties that, CSB believed, otherwise would have

been available to satisfy the judgment. In January 2015, CSB filed a lawsuit

against Lovell, his wife, and several of his companies, asserting claims under the

Uniform Fraudulent Transfers Act (UFTA)1 to set aside those conveyances as

1 See former OCGA § 18-2-70 et seq. In 2015, the General Assembly enacted the Uniform Voidable Transactions Act, which has superseded the UFTA with respect to transfers made on or after July 1, 2015. See Ga. L. 2015, p. 996, §§ 4A-1, 7-1 (d) (1). The allegedly fraudulent transfers at issue in this case, however, were made before that time, and as to those transfers, the UFTA still applies. fraudulent transfers. The trial court dismissed some of those claims on the

ground that they did not state claims upon which relief might properly be

granted, see OCGA § 9-11-12 (b) (6), and CSB appeals.2 We affirm in part,

reverse in part, vacate in part, and remand for further proceedings consistent

with this opinion.

1. CSB contends that the trial court erred when it dismissed two claims

against Focus on Design, Inc. and Ward Land Holdings, LLC.3 In connection

with these claims, CSB alleged that Lovell owns Focus on Design, that his wife

is a member of Ward Land Holdings, and that Focus on Design conveyed a

certain property in Habersham County to Ward Land Holdings with the intent

to defraud Lovell’s creditors. CSB sought to avoid and set aside that

conveyance.

2 The trial court issued a certificate of immediate review, CSB filed an application for leave to take an interlocutory appeal, and that application was granted. See OCGA § 5-6-34 (b). This Court properly has jurisdiction of this appeal because it presents a question about the constitutionality of a statute, see Ga. Const. of 1983, Art. VI, Sec. VI, Par. II (1), namely, whether a Georgia statute is preempted by federal law. See Babies Right Start, Inc. v. Georgia Dept. of Public Health, 293 Ga. 553, 554 (1) (748 SE2d 404) (2013). 3 These claims are set forth in Counts XI and XII of the complaint.

2 As the trial court recognized, however, the UFTA only permits the

avoidance of a fraudulent transfer of a debtor’s property.4 Lovell himself is

indebted by judgment to CSB, but there is no allegation that Focus on Design

is so indebted. It is settled in Georgia that a creditor generally cannot reach the

assets of a corporation to satisfy the debt of a shareholder, see Acree v.

McMahan, 276 Ga. 880, 881 (585 SE2d 873) (2003), and CSB identifies no

basis in this case for departing from that settled rule. The UFTA affords no such

basis. Cf. Merrill Ranch Props. v. Austell, 336 Ga. App. 722, 730-731 (2) (784

SE2d 125) (2016) (UFTA affords no basis for creditor to avoid transfers of

property by limited liability company of which debtor is a member). The trial

court properly dismissed the claims by which CSB sought to avoid and set aside

the conveyance from Focus on Design to Ward Land Holdings, and we affirm

the dismissal of those claims.

2. CSB also contends that the trial court erred when it dismissed two

claims involving a property in Volusia County, Florida, which Lovell conveyed

4 The UFTA authorizes the avoidance of “transfers,” see former OCGA § 18-2-77 (a), it defines a “transfer” as “disposing or parting with an asset or an interest in an asset,” former OCGA § 18-2-71 (12), and it defines an “asset” as “property of a debtor.” Former OCGA § 18-2-71 (2).

3 to his wife, allegedly with the intent to defraud his creditors.5 Although CSB

asserted those claims in its original complaint, it later filed an amended

complaint, purporting to withdraw the claims relating to the property in Florida.

CSB filed its amended complaint before the trial court entered or announced its

decision to dismiss those claims. Accordingly, CSB argues, those claims were

not properly before the trial court, and it had no authority to dismiss them for

failure to state a claim upon which relief might properly be granted. We agree.

As Lovell and his wife correctly note, OCGA § 9-11-41 (a) (1) (A) only

allows a plaintiff to voluntarily dismiss “an action” by notice of dismissal, and

it makes no provision for a plaintiff to voluntarily dismiss fewer than all of its

claims. But OCGA § 9-11-15 (a) expressly permits a plaintiff to “amend his

pleading as a matter of course and without leave of court at any time before the

entry of a pretrial order.” Here, CSB withdrew the claims relating to the Florida

property by amendment pursuant to § 9-11-15, not by a notice of dismissal

under § 9-11-41. Our Court of Appeals has recognized that an amendment under

§ 9-11-15 is the proper means for a plaintiff to voluntarily withdraw fewer than

all of its claims. See Young v. Rider, 208 Ga. App. 147, 148 (2) (430 SE2d 117)

5 These claims are set forth in Counts I and II of the complaint.

4 (1993) (“Where less than all of a plaintiff’s claims are added or dropped, the

additions and deletions are not dismissals and renewals governed by OCGA §[

] 9-11-41 (a) . . . but simply amendments governed by the liberal amendment

rules of OCGA § 9-11-15 (a) . . . .”). In cases interpreting and applying Rules

15 and 41 of the Federal Rules of Civil Procedure,6 the federal courts likewise

have held that a plaintiff may withdraw fewer than all of its claims by way of

Rule 15. See Klay v. United Healthgroup, 376 F3d 1092, 1106 (III) (11th Cir.

2004) (“A plaintiff wishing to eliminate particular claims or issues from the

action should amend the complaint under Rule 15 (a) rather than dismiss under

Rule 41 (a) . . . .”(citation and punctuation omitted)). Because CSB effectively

withdrew the claims about the Florida property prior to the entry or

announcement of any decision to dismiss those claims, the trial court had no

authority to pass on the legal sufficiency of the claims. We vacate the dismissal

of the claims relating to the Florida property.

6 OCGA §§ 9-11-15 (a) and 9-11-41 (a) are modeled after Rules 15 (a) and 41 (a), and although there are some differences between the state and federal provisions, those differences are not material to the question presented here. We may, therefore, look for guidance in decisions of the federal courts interpreting and applying Rules 15 (a) and 41 (a). See Ambler v. Archer, 230 Ga. 281, 287-288 (1) (196 SE2d 858) (1973).

5 3. CSB contends that the trial court erred when it dismissed a claim under

the UFTA against Lovell, his wife, and Ankony Land, LLC, relating to another

property in Habersham County.7 According to the complaint, Ankony Land is

affiliated with Lovell, and Lovell and Ankony Land both held interests in the

property. In January 2010, Lovell and Ankony Land conveyed their interests to

Lovell’s wife, allegedly with the intent to defraud Lovell’s creditors. CSB

sought to avoid the conveyance pursuant to former OCGA § 18-2-74 (a) (1).

Lovell, his wife, and Ankony Land moved to dismiss this claim upon three

grounds. First, they said, the UFTA claim is time barred under former OCGA

§ 18-2-79 (1), which provides in pertinent part:

A cause of action with respect to a fraudulent transfer . . . under [the UFTA] is extinguished unless action is brought . . . [u]nder [OCGA § 18-2-74 (a) (1)] within four years after the transfer was made . . . or, if later, within one year after the transfer . . . was or could reasonably have been discovered by the claimant[.]

Second, they argued, the UFTA claim arose prior to any assignment of Georgia

Trust assets to CSB, and under OCGA § 44-12-24, “[a] right of action for . . .

injuries arising from fraud to the assignor may not be assigned.” Third, CSB had

7 This claim is set forth in Count III of the complaint. By the way, the property at issue in Count III and the Habersham property discussed in Division 1 of this opinion are different properties.

6 actual or constructive notice of the allegedly fraudulent transfer when it acquired

the assets of Georgia Trust from the FDIC, they said, and for that reason, the

UFTA claim fails as a matter of law.

In response, CSB relied in significant part on the Financial Institutions

Reform, Recovery, and Enforcement Act of 1989 (FIRREA), noting that CSB

asserted its UFTA claims as the successor by assignment of the FDIC in its

capacity as receiver of a failed bank. As for the timeliness of its UFTA claim,

CSB argued that FIRREA preempts former OCGA § 18-2-79 (1), and its

assertion of the UFTA claim was timely under FIRREA. As for whether a UFTA

claim can be assigned, CSB urged that a UFTA claim is not “[a] right of action

. . . for injuries arising from fraud,” and OCGA § 44-12-24 does not apply at all

to UFTA claims. If it does apply, CSB added, it too is preempted by federal law.

Finally, as for actual or constructive notice of the allegedly fraudulent transfer,

CSB argued that such notice would not defeat its UFTA claim in any event.

The trial court rested its dismissal of the claim upon the time bar of former

OCGA § 18-2-79 (1), and it did not consider the other grounds asserted by

Lovell, his wife, and Ankony Land for dismissing the claim. The trial court

reasoned that former OCGA § 18-2-79 (1) is a statute of repose, not a statute of

7 limitation, and FIRREA does not, it concluded, preempt statutes of repose. On

appeal, CSB contends that this conclusion was in error, and with that contention,

we agree.

To begin, we note some uncertainty about the extent to which the relevant

provision of FIRREA, 12 USC § 1821 (d) (14), applies at all in this case.

Commonly known as the “FDIC Extender Statute,” Section 1821 (d) (14) (A)

(ii) provides that “the applicable statute of limitations with regard to any action

brought by the [FDIC] as conservator or receiver shall be . . . in the case of any

tort claim . . . the longer of . . . the 3-year period beginning on the date the claim

accrues[ ] or . . . the period applicable under State law.” For purposes of the

FDIC Extender Statute, a tort claim accrues on “the later of . . . the date of the

appointment of the [FDIC] as conservator or receiver[ ] or . . . the date on which

the cause of action accrues.” 12 USC § 1821 (d) (14) (B). If the FDIC Extender

Statute applies, and if it preempts former OCGA § 18-2-79 (1), CSB timely

asserted the UFTA claim in question, inasmuch as it asserted that claim within

three years of the date that the FDIC was appointed as the receiver for Georgia

Trust.

8 But as we noted, it is not clear that the FDIC Extender Statute applies at

all. For it to apply, CSB would have to stand as the successor by assignment to

the FDIC. We hold today in RES-GA McDonough, LLC v. Taylor English

Duma LLP, 302 Ga. 444 (807 SE2d 381) (2017), that the Georgia bar against

the assignment of fraud claims applies to claims under the UFTA, raising a

question in this case about whether federal law preempts that bar as to direct

assignees of the FDIC.8 If CSB stands, in fact, as the successor by assignment

to the FDIC, questions would arise about the extent to which the FDIC Extender

Statute extends to assignees of the FDIC, whether as a matter of FIRREA itself,

federal common law, or Georgia law generally governing the rights of

assignees.9 Before this Court passes upon the constitutionality of a statute, we

usually try to resolve the case on other grounds, especially when, as here, it is

not entirely clear that the case squarely presents the constitutional question

resolved by the trial court. See Deal v. Coleman, 294 Ga. 170, 171 (1), n.7 (751

8 In a number of cases, “[f]ederal courts have upheld the FDIC’s assignment of assets pursuant to FIRREA that would have otherwise been barred by state law anti-assignment statutes.” First State Bank of NW Ark. v. McClelland Qualified Personal Residence Trust, No. 5:14-CV-130, 2014 WL 6801803 at *5 (M.D. Ga. 2014) (citing cases). 9 See generally Federal Fin. Co. v. Hall, 108 F3d 46 (4th Cir. 1997) (considering whether federal or state law governs the extent to which the FDIC Extender Statute applies to claims asserted by assignees of FDIC).

9 SE2d 337) (2013). But resolving the predicate questions in this case about the

applicability of the FDIC Extender Statute could lead only to questions about

the constitutionality of another Georgia statute (OCGA § 44-12-24), as well as

other difficult issues of both state and federal law. None of those other issues

was resolved by the trial court, and none has been fully briefed by both parties

on appeal. Accordingly, we will address the question resolved by the trial court,

and we will confine our analysis to that question.

The trial court concluded, and Lovell, his wife, and Ankony Land argue

on appeal, that a federal extender statute (like the FDIC Extender Statute) does

not preempt state statutes of repose. However, “[e]very circuit that has heard this

argument has disagreed and held that it does.” FDIC v. RBS Securities, 798 F3d

244, 250 (II) (5th Cir. 2015). See also Nat. Credit Union Admin. Bd. v. Nomura

Home Equity Loan, Inc., 764 F3d 1199 (10th Cir. 2014); Fed. Housing Fin.

Agency v. UBS Ams. Inc., 712 F3d 136, 142-144 (2nd Cir. 2013). In concluding

otherwise, the trial court relied on CTS Corp. v. Waldburger, ___ U. S. ___ (134

SCt 2175, 189 LE2d 62) (2014), a case in which the United States Supreme

Court held that the limitations provision of the Comprehensive Environmental

Response, Compensation, and Liability Act (CERCLA) does not preempt state

10 statutes of repose. But the federal circuit courts have examined at length the

reach of the FDIC Extender Statute and other extender statutes like it in light of

CTS, and they have concluded that the extender statutes are materially unlike the

CERCLA limitations provision at issue in CTS and displace conflicting statutes

of repose. See RBS Securities, 798 F3d at 254-262 (IV). See also Nat. Credit

Union Admin. Bd. v. RBS Securities, 833 F3d 1125, 1133-1135 (I) (a) (3) (9th

Cir. 2016); Nomura, 764 F3d at 1208-1217 (II). We find these decisions of the

federal circuit courts persuasive, and “[w]e join all appellate courts to have

considered the question of whether an extender statute like the one in FIRREA

applies to both statutes of limitations and statutes of repose and find that it

does.” RBS Securities, 833 F3d at 1130 (I) (a).

Even if former OCGA § 18-2-79 (1) is a statute of repose, the trial court

was wrong to conclude that the FDIC Extender Statute could not possibly

preempt a statute of repose. Whether the FDIC Extender Statute applies at all in

this case, and whether it actually preempts former OCGA § 18-2-79 (1), are

matters that we leave for the trial court to resolve on remand. The dismissal of

the UFTA claim relating to the conveyance from Lovell and Ankony Land to his

wife is reversed, and this case is remanded for the trial court to reconsider

11 whether CSB states a claim with respect to that conveyance upon which relief

might properly be granted.

4. The trial court also dismissed derivative claims for attorney fees under

OCGA § 13-6-11 and punitive damages, reasoning that it had dismissed all of

the substantive claims upon which the derivative claims depended. But the trial

court was mistaken — it did not dismiss all of the substantive claims. Moreover,

in Division 3 above, we explained that the trial court erred when it dismissed the

UFTA claim against Lovell, his wife, and Ankony Land relating to a property

in Habersham County. As things stand now, substantive claims remain pursuant

to which attorney fees and punitive damages may be available. See In the Matter

of Southern Home and Ranch Supply, 561 BR 810, 818-819 (B) (N.D. Ga.

2016). We therefore reverse the dismissal of the derivative claims.

Judgment affirmed in part, reversed in part, and vacated in part, and case

remanded with direction. All the Justices concur, except Peterson, J., not

participating.

Decided October 30, 2017.

12 Fraudulent transfers; constitutional question. Habersham Superior Court.

Before Judge Smith.

Thompson, O’Brien, Kemp & Nasuti, Bret T. Thrasher; Jones Walker,

William J. Shaughnessy; Barnes & Thornburg, Sarah H. Newman, for appellant.

Schreeder, Wheeler & Flint, John A. Christy, Andrew J. Lavoie; The Carr

Law Group, James H. Cox, for appellees.