Furlow v. Macdonald

MICHAEL FURLOW and CATHY FURLOW, Appellants, v. BRIAN J. MACDONALD, Appellee.

No. 2:20-cv-3820-DCN

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF SOUTH CAROLINA CHARLESTON DIVISION

July 15, 2021

ORDER

This matter comes before the court on appellants Michael Furlow ("Mr. Furlow") and Cathy Furlow's ("Mrs. Furlow") (collectively "the Furlows") appeal from the United States Bankruptcy Court's ("Bankruptcy Court") order and judgment in In re Macdonald, No. 19-06512-JW (Bankr. D.S.C. 2019). ECF No. 1 at 4-41. For the reasons set forth below, the court affirms the judgment of the Bankruptcy Court.

I. BACKGROUND

This appeal from the Bankruptcy Court arises out of the Furlows' partition action against appellee Brian J. Macdonald ("Mr. Macdonald"), concerning their jointly owned property, 5718 Captain Kidd Road in Hollywood, South Carolina (the "Charleston Property"). At the time of the Charleston Property's purchase, Mr. Macdonald was the Furlows' son-in-law by virtue of his marriage to their daughter, Leigh Macdonald ("Mrs. Macdonald") (together with Mr. Macdonald, "the Macdonalds"), who died in February 2020. The Bankruptcy Court held a fact-finding trial on August 24, 2020 and consequently issued an order resolving the instant dispute on September 15, 2020. ECF No. 1 at 4-27 (the "Bankruptcy Court Order"). The Furlows do not dispute any facts found by the Bankruptcy Court as stated in the Bankruptcy Court Order. See ECF No. 10 at 7 (seeking review of the bankruptcy court's "legal conclusions"). Accordingly, the court considers the facts undisputed.

The Bankruptcy Court found that the Furlows "have significant means and have generously benefitted their children and their families through trust funds, the payment of educational expenses and housing costs." Bankruptcy Court Order at 2. For example, in 2004 the Furlows assisted the Macdonalds in purchasing a home in Miami, Florida (the "Florida Property"). Mr. Furlow contributed half of the purchase price in exchange for a one-half interest in the property, and the Macdonalds contributed the remainder of the purchase price from their savings and by taking out a mortgage loan, for which they received the remaining one-half interest. Mr. Furlow and the Macdonalds memorialized this agreement in a contract. Shortly thereafter, Mrs. Macdonald began developing serious issues with substance abuse. Motivated by Mrs. Macdonald's desire to escape the Miami lifestyle and a new job opportunity for Mr. Macdonald, the Macdonalds relocated to Virginia in 2008. Again, Mr. Furlow assisted the Macdonalds in purchasing their new home (the "Virginia Property"). This time, Mr. Furlow contributed one half of the purchase price for a 55% interest in the Virginia Property, and the Macdonalds contributed the remainder of the purchase price for the remaining interest, using funds from the sale the Florida Property.

In Virginia, Mrs. Macdonald's substance abuse issues regrettably escalated, and Mr. Macdonald suffered a work-related injury, limiting his family's income to that which he received from retirement disability benefits—approximately $30,000 per year. Consequently, the Furlows urged the Macdonalds to move to Charleston, South Carolinaso that the Furlows could more easily provide support for the Macdonalds and their children. The Bankruptcy Court found that the Furlows "enticed" the Macdonalds by offering to purchase the Charleston Property, a "dream house with deep water accessibility [worth] approximately $1.2 million[.]" Bankruptcy Court Order at 4. On August 26, 2015, the Furlows paid the entire purchase price of $1,224,455 for the Charleston Property, and the grantor issued a deed to the Furlows and the Macdonalds as tenants-in-common (the "Deed"). As the Bankruptcy Court noted, "The Deed provides no further information regarding the co-tenants' share of the Charleston Property, and there was no separate written agreement addressing its purchase and the parties' respective interests." Id. The Bankruptcy Court found that the Furlows "had no intention to occupy, use, live in or benefit by the Charleston Property and that the intention upon its purchase was for the property to provide a home for the Macdonalds and their children." Id. at 6. One year later, the Virginia Property sold, and the Macdonalds paid the Furlows the net proceeds of the sale, $77,589, approximately 6.35% of the Charleston Property purchase price. For the next year and a half, the Macdonalds and their children lived in the Charleston Property as their primary residence.

In early 2018, the South Carolina Department of Social Services required Mrs. Macdonald to leave the Charleston Property, and she moved in with the Furlows as a result. On February 21, 2018, Mrs. Macdonald filed for divorce and, during the resulting proceedings, agreed to permit Mr. Macdonald to retain custody of their children and to exclusively use and occupy the Charleston Property. Less than one month later, on March 19, 2018, the Furlows filed an action against the Macdonalds in the Charleston County Court of Common Pleas seeking to recover their interest in the CharlestonProperty by way of court-ordered partition (the "Partition Action"). ECF No. 4-1 at 4-8. The Furlows subsequently amended their complaint, adding a claim for unjust enrichment. On April 11, 2018, while in the care and support of the Furlows, Mrs. Macdonald executed a quitclaim deed, transferring her interest in the Charleston Property to the Furlows for $38,794.50—an amount equal to half of the proceeds the Macdonalds received from the sale of the Virginia Property and transferred to the Furlows in August 2016. One year later, the Furlows dismissed Mrs. Macdonald from the Partition Action. On December 19, 2019, shortly before a trial was set to commence in the Partition Action, Mr. Macdonald filed a petition for relief in the Bankruptcy Court under Chapter 13 of the Bankruptcy Code. Accordingly, the Partition Action was stayed. In February 2020, Mrs. Macdonald died. On March 16, 2020, the parties, by consent, removed the Partition Action to the Bankruptcy Court as an adversary proceeding to Mr. Macdonald's bankruptcy action, pursuant to 28 U.S.C. § 1452.

After resolving pretrial motions, the Bankruptcy Court held a fact-finding bench trial to resolve the Partition Action and the unjust enrichment claim. On September 15, 2020, Bankruptcy Judge John E. Waites issued an order, the Bankruptcy Court Order, and consequent judgment, ECF No. 1 at 26-27. Judge Waites held that, at the time of the Charleston Property's conveyance, the Macdonalds and the Furlows took the property as tenants-in-common, triggering a presumption of ownership in equal shares. After considering the testimony and other evidence the Bankruptcy Court received at the bench trial, Judge Waites found that the Furlows failed to overcome that presumption. Therefore, the Bankruptcy Court concluded, "[The Furlows] hold a 75% interest (based upon their initial 50% interest and the 25% they acquired from Mrs. Macdonald)[,] and[Mr. Macdonald] holds a 25% interest in the Charleston Property." Bankruptcy Court Order at 17. Further, the Bankruptcy Court concluded that the Furlows intended the Macdonalds' 50% interest in the Charleston Property to be a gift. Id. at 17 n.11. Finally, the Bankruptcy Court determined that neither party is entitled to attorneys' fees. Id. at 19-20. Thereafter, the Furlows filed a motion to reconsider, which the Bankruptcy Court denied on October 15, 2020. ECF No. 1 at 29-41.

On October 30, 2020, the Furlows filed a notice of appeal with this court pursuant to 28 U.S.C. § 158(a) and Fed. R. Bankr. P. 8003. Id. at 1-2. On February 3, 2021, the Furlows filed an appellate brief. ECF No. 10. On April 2, 2021, Mr. Macdonald filed a response brief, ECF No. 14, and on April 16, 2021, the Furlows filed a reply brief, ECF No. 16. Pursuant to Fed. R. Bankr. P. 8013(c), the court has determined that oral argument would not aid its resolution of this appeal. Thus, the matter is now ripe for the court's review.

II. STANDARD

District courts have jurisdiction over appeals from final judgments and orders of the bankruptcy courts. 28 U.S.C. § 158(a); see e.g., In re Kirkland, 600 F.3d 310, 314 (4th Cir. 2010). Upon review, the court "may affirm, modify, or reverse a bankruptcy judge's judgment, order, or decree or remand with instructions for further proceedings." In re Infinity Bus. Grp., Inc., 628 B.R. 213, 226 (D.S.C. 2021) (quoting Williams v. Colonial Penniman, LLC, 582 B.R. 391, 396 (E.D. Va. 2018)). "The standard of review of a bankruptcy appeal by a district court is the same as when a court of appeals reviews a district court proceeding." Id. (citing 28 U.S.C. § 158(c)(2)). Consequently, a district court reviews the bankruptcy court's findings of fact for clear error, In re Kirkland, 600F.3d at 314, and its legal conclusion de novo, In re White, 487 F.3d 199 (4th Cir. 2007). A finding of fact is clearly erroneous when "the entire record demonstrates convincingly to the reviewing court that a mistake has been committed." Infinity Bus. Grp., 628 B.R. at 226 (quoting United States v. Hall, 664 F.3d 456, 462 (4th Cir. 2012)). Further, the court reviews mixed findings of law and fact "under a hybrid standard, applying to the factual portion of each inquiry the same standard applied to questions of pure fact and examining de novo the legal conclusions derived from those facts." Id. (quoting Gilbane Bldg. Co. v. Fed. Reserve Bank of Richmond, Charlotte Branch, 80 F.3d 895, 905 (4th Cir. 1996)) (internal quotation marks omitted).

III. DISCUSSION

The Furlows appeal the Bankruptcy Court Order on three grounds. First, the Furlows argue that the Bankruptcy Court erred in holding that they failed to rebut the presumption of ownership in equal shares. Second, the Furlows contend that the Bankruptcy Court erroneously found that they intended Mr. Macdonald's share of the Charleston Property as a gift. Finally, the...