Post-Confirmation Comm. for Small Loans, Inc. v. Martin, CASE NO.: 1:13-CV-195 (WLS)

POST-CONFIRMATION COMMITTEE FOR SMALL LOANS, INC., et al., Plaintiff, v. W. DEREK MARTIN, as Executor of the Estate of Vance R. Martin, et al., Defendants.

CASE NO.: 1:13-CV-195 (WLS)

UNITED STATES DISTRICT COURT FOR THE MIDDLE DISTRICT OF GEORGIA ALBANY DIVISION

March 31, 2016

ORDER

Present before the Court is Defendants W. Derek Martin, as Executor of the Estate of Vance R. Martin, W. Derek Martin, Martin Family Group, LLLP, Martin Sublease, LLC, W. Derek Martin, as Trustee for the Vance R. Martin GST Exempt Family Trust F/B/O W. Derek Martin, and Jefferey V. Martin's Motion for Summary Judgment. (Doc. 162.) For the reasons stated herein, the Martin Defendants' Motion for Summary Judgment is DENIED.

PROCEDURAL HISTORY

The Post-Confirmation Committee for Small Loans, Inc., et al. ("the Committee") filed suit against the above-captioned Defendants on December 14, 2013 (Doc. 1) and amended their Complaint on November 7, 2014. (Doc. 113.) Among the Defendants are W. Derek Martin, as Executor of the Estate of Vance R. Martin, W. Derek Martin, Martin Family Group, LLLP, Martin Sublease, LLC, W. Derek Martin, as Trustee for the Vance R. Martin GST Exempt Family Trust F/B/O W. Derek Martin, and Jefferey V. Martin ("the Martin Defendants"). The Martin Defendants answered the initial Complaint on January 29, 2014 (Docs. 38, 40) and answered the amended Complaint on November 21, 2014. (Docs. 119, 121.)

On May 15, 2015, the Martin Defendants filed the instant motion for summary judgment as to Counts VI, VII, IX, XIII, and XIX of the Amended Complaint. (Doc. 162.) After receiving an extension of time to respond (see Doc. 187), the Committee timely responded on June 12, 2015. (Doc. 198.) The Martin Defendants timely replied thereto on June 26, 2015. (Doc. 203.) As the movants for summary judgment, the Martin Defendants have complied with M.D. Ga. L.R. 56 by attaching separate and concise statements of material fact to their motion (see Doc. 162-7), and the Committee has complied as well by responding to each statement of material fact. (See Doc. 198-1.) As such, the Court finds that the Martin Defendants' Motion for Summary Judgment (Doc. 162) is ripe for review.

FACTUAL HISTORY

I. Introduction

The following facts are derived from the Complaint (Doc. 1), as amended (Doc. 113), the Amended Answers (Docs. 119, 121), the Martin Defendants' Statement of Undisputed Material Facts (Doc. 162-7), and the Committee's Response to the Martin Defendants' Statement of Undisputed Material Facts and Statement of Undisputed Facts (Doc. 198-1), all of which were submitted in compliance with M.D. Ga. L.R. 56, and the record in this case. Where relevant, the factual summary also contains undisputed and disputed facts derived from the pleadings, the discovery and disclosure materials on file, and any affidavits submitted, all of which are construed in a light most favorable to the nonmoving party. See Fed. R. Civ. P. 56; Celotex Corp. v. Catrett, 477 U.S. 317, 322-23 (1986).

II. Relevant Facts

The Money Tree of Georgia, Inc. ("TMG"), Small Loans, Inc. ("SLI"), The Money Tree, Inc. ("TMT"), The Money Tree of Florida, Inc. ("TMF"), and The Money Tree of Louisiana, Inc. ("TML," collectively "the Debtors"), were engaged in the consumer finance business in Georgia, Alabama, Florida, and Louisiana, respectively. (Doc. 113 at ¶ 17.) TMT is the corporate parent of each of these remaining Debtors. (Id.) The Debtors filed voluntary petitions for reorganization under Chapter 11 of the Bankruptcy Code on December 16, 2011, in the United States Bankruptcy Court for the Middle District of Alabama.¹ (Id. at ¶ 9.)

Throughout their existence, the Debtors were led by various officers, directors, and/or other principals, including Vance "Rudy" Martin, Derek Martin, and Jeff Martin. (Id. at ¶¶ 1, 27, 29, 51.) The Committee alleges that the Debtors' corporate-level employees received inflated salaries while Debtors continued to lose profits each year. (Id. at ¶¶ 100-106.) The Debtors also engaged in subleasing arrangements with Martin Family Group, LLLP and Martin Sublease, LLC ("MFG" and "MSL," respectively). (Id. at ¶¶ 66-78.) Like the compensation payments, the Committee also alleges this inflated arrangement was in fact a covert scheme to usurp the corporate opportunities of the Debtors while paying disguised dividends to interest-owning members of the Martin Family. (Id. at ¶¶ 67, 68, 77.)

The Martin Defendants contend that all this information, specifically Debtors' lease payments and compensation payments made to Debtors' insiders, was publically disclosed in their yearly filings with the Securities and Exchange Commission ("SEC"). (See Doc. 162-7.) Regarding Debtors' lease payments, the Martin Defendants point specifically to the language found in Debtors' February 4, 2005 Form S-1, Registration Statement:

As of the date of this prospectus, we lease all 97 of our branch office locations, the three used car lots and our corporate headquarters in Bainbridge, Georgia. Vance R. Martin, our President and sole director, owns and leases to us the real estate for 12 of these branch office locations, the three used car lots and our corporate headquarters. In addition, Mr. Martin leases from the owners, and subleases to us, 49 of these branch office locations.

* * *

Mr. Martin owns the real estate for 12 of our branch office locations, the three used car lots and our principal executive offices. We have entered into lease agreements with Mr. Martin whereby rent is paid monthly for use of these locations. In addition, Mr. Martin leases from the owners, and then subleases to us, another 49 branch office locations for a greater amount than he pays under the underlying leases. Some of this spread covers costs for leasehold improvements and property operating costs paid directly by Mr. Martin. Management believes that these leases are at rates which are comparable to those obtainable from independent third parties. During fiscal year ended September 25, 2004, we paid total lease payments of $1.7 million to Mr. Martin.

(Doc. 162-1 at 45, 49 (emphasis added)). Similar information appears in Debtors' annual Form 10-K filings for the years 2006 through 2009. (See Docs. 162-2 at 16, 78; 162-3 at 15, 69; 162-4 at 16, 70; 162-5 at 16, 59; 162-6 at 18, 58.) Regarding executive compensation, the Martin Defendants similarly point to the Debtors' securities filings. In their February 4,2005 Form S-1, the executive annual compensation of Rudy Martin, Derek Martin, and Bradley Bellville were disclosed. (Doc. 162-1 at 48.) Similarly, executive annual compensation was disclosed for all executive officers in their Forms S-1 and 10-K, with exception to Jeff Martin. (Docs. 162-7 at 48; 162-2 at 77; 162-3 at 68; 162-4 at 67-69; 162-5 at 69-71; 162-6 at 68-71.)

Under Counts VI and VII of the Amended Complaint, the Committee seeks to avoid and recover these compensations from Rudy Martin's Estate (Count VI only), Bradley Bellville, Derek Martin, and Jeff Martin under theories of actual and constructive fraudulent transfers, pursuant to 11 U.S.C. § 544 and Georgia's Uniform Fraudulent Transfers Act ("GUFTA"), O.C.G.A. §§ 18-2-70 et seq.² (Doc. 113 at 128-131, 135-137.) Similarly, in Count IX, the Committee seeks to avoid compensations payments paid by Best Buy Autos of Bainbridge, Inc. to Bradley Bellville, which the Committee alleges was in turn substantially all paid to the Derek Martin Trust. (Id. at ¶¶ 143-150.) The Committee seeks to recover these compensations under theories of actual and constructive fraud under GUFTA. (Id.)

Count XIII alleges that the Debtors made transfers to MFG, Derek Martin and Jeff Martin with actual intent to hinder, delay, or defraud creditors in violation of GUFTA. (Id. at ¶¶ 174-177.) Lastly, Count XIX alleges that the Debtors made fraudulent transfers or incurred fraudulent obligations for the benefit of the Rudy Martin Estate, MFG, and MSL. (Id. at ¶¶ 203-207.) The Committee seeks to recover over four years of lease payments under 11 U.S.C. § 544 and GUFTA. (Id.) In each count, with exception to Count IX, the Committee cites O.C.G.A. § 18-2-79(1) and alleges that it is entitled to avoid all transfers made to the Martin Defendants in excess of four years "because the transfers could not reasonably have been discovered by creditors until the Debtors' bankruptcy filing." (Id. at ¶¶ 129 n.11, 139 n.12, 175 n.13, 204 n.15.)

To establish their contention that the transfers could not have reasonably been discovered, the Committee submits the Schedules of Assets and Liabilities and amendments thereto, as well as the proof of claims, filed in the Debtors' bankruptcy cases. (Doc. 198-1 at¶ 1.) The Debtors had non-investor creditors, such as landlords, taxing authorities, and trade creditors. (Doc. 198-1 at ¶ 1) The Committee offers the sworn testimony of Behzad Ghazvini of Ghazvini Partners, Ltd. (See Doc. 198-2.) Mr. Ghazvini leased commercial real estate to TMF prior to their December 16, 2011 bankruptcy filing. (Id. at ¶ 2.) He presently holds an allowed claim in the bankruptcy cases of TMF and its affiliates in the amount of $7,189.26 relating to unpaid rent. (Id. at ¶ 3.) Mr. Ghazvini maintains that he had no knowledge that the Debtors were selling debt securities to the public. (Id. at ¶ 4.) He also avers that he had no knowledge that the Debtors were registrants with the SEC or that their securities filings and prospectuses contained information relating to the Debtors' operations and affairs. (Id. at ¶ 5.)

The Committee also submits the affidavit of Harold Blount, an investor in TMT prior to their bankruptcy filing. (See Doc. 198-3.) At the time of his investment, Mr. Blount states he was provided a prospectus by TMT.³ (Id. at ¶ 3.) The prospectus contained language substantially similar to the language found in Debtors' public filings with the SEC, as noted above. (Id. at ¶ 4.) Mr. Blount avers that, upon review of the prospectus, he had no reason to question...