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RDS Real Estate, LLC v. Abrams Group Construction, LLC

United States District Court, S.D. Mississippi, Southern Division

January 20, 2017

RDS REAL ESTATE, LLC PLAINTIFF
v.
ABRAMS GROUP CONSTRUCTION, LLC, et al. DEFENDANTS

          ORDER DENYING MOTION FOR PARTIAL SUMMARY JUDGMENT AND DENYING MOTION TO STRIKE

          LOUIS GUIROLA, JR. CHIEF U.S. DISTRICT JUDGE

         BEFORE THE COURT is the [135] Motion for Partial Summary Judgment filed by Plaintiff RDS Real Estate, LLC, against all Defendants, and the [150] Motion to Strike Plaintiff's Claim for Fraudulent Transfer filed by Defendant Abrams Group Construction, LLC. Having considered the parties' submissions and the relevant law, the Court is of the opinion that both Motions should be denied.

         Background

         According to the [107] Amended Complaint, in 2009, Plaintiff RDS Real Estate contracted with another entity, S&S Construction, LLC, “to construct a building in Ocean Springs, Jackson County, Mississippi, that would be used for medical office space . . . .” (Id. at 4 (¶26)). RDS alleges that soon after it “accepted occupancy of the building, ” it began experiencing problems, including roof leaks, as a result of unworkmanlike construction. (See Id. at 5 (¶¶ 35-36)).

         RDS claims that, unbeknownst to it, “[i]n the time frame around December 2010 through April 2011, S&S Construction, LLC sold all its assets to Abrams Group Construction, LLC.” (Id. at 6 (¶42)). It further contends that it eventually incurred approximately $214, 000.00 in costs “to correct the construction defects caused by S&S.” (See Id. at 8-9 (¶¶ 64-70)). RDS then filed a lawsuit in this district against S&S and Abrams, but later dismissed Abrams without prejudice and proceeded to arbitration with S&S. The arbitration resulted in “an award in favor of RDS in the amount of $240, 898.14[, ]” which the district court affirmed and on which its entered a final judgment. (See Id. at 9-10 (¶¶ 82-86)). RDS alleges that “[t]he judgment has not been paid[, and that] S&S has made representations that is has no money to pay the . . . judgment.” (See Id. at 10 (¶¶ 86-87)).

         As a result, in October 2015, RDS instituted this action against Abrams; George Spellmeyer, Norma Spellmeyer, and Michael Spellmeyer (collectively, “the Spellmeyer defendants”), who RDS claims “are, or were, members of S&S” (see Id. at 13(¶123)); and, by later amendment in 2016, Tusitala, Inc., which RDS alleges is owned by one or more of the Spellmeyer defendants. RDS seeks to pierce S&S's corporate veil and hold the Spellmeyer defendants individually liable for the judgment it obtained against S&S. It also argues that S&S made fraudulent transfers to the Spellmeyer defendants and to S&S Seafood, which it claims is a d/b/a of Defendant Tusitala. Additionally, RDS “requests a declaratory judgment that the judgment RDS obtained against S&S also applies to Abrams, as they are the same entity.”[1] (See Id. at 11 (¶100); see also Id. at 13 (¶120)).

         In its Motion for Partial Summary Judgment, RDS contends that the Defendants “have transferred assets in an effort to avoid and/or delay their payment obligations to RDS. Through a series of transfers and transactions, the Defendants have stripped S&S Construction, LLC of its assets and have made S&S Construction judgment proof.” (RDS Mot. 1 (¶3), ECF No. 135). It “seeks a partial summary judgment declaring that the transfers were fraudulent under the Uniform Fraudulent Transfer Act.” (Id. at 2 (¶4)). It “also seeks partial summary judgment that the veil of S&S Construction, LLC should be pierced and that the Spellmeyers should be jointly and severally liable.” (Id.)

         Defendants have opposed the Motion, and RDS has filed Rebuttals. Defendant Abrams has also filed a Motion to Strike. Abrams argues that RDS “did not allege a sufficient basis in its Amended Complaint for a judgment against this Defendant based upon a fraudulent transfer.” (Abrams Mem. In Support of Mot. To Strike 2, ECF No. 151). Abrams also challenges the legal sufficiency of any fraudulent transfer claim against it.

         Discussion

         A summary judgment motion shall be granted “if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(a). If the movant “fails to meet [its] initial burden, the motion must be denied, regardless of the nonmovant's response.” Little v. Liquid Air Corp., 37 F.3d 1069, 1075 (5th Cir. 1994). If the movant carries its burden of demonstrating the absence of a genuine issue of material fact, the burden shifts to the non-movant to show that summary judgment should not be granted. Celotex Corp. v. Catrett, 477 U.S. 317, 323-25 (1986). “[T]he court must view the facts in the light most favorable to the non-moving party and draw all reasonable inferences in its favor.” Deville v. Marcantel, 567 F.3d 156, 164 (5th Cir. 2009). “In reviewing the evidence, the court must ‘refrain from making credibility determinations or weighing the evidence.'” Id. (citation omitted).

         This is a diversity case and the parties dispute whether Alabama or Mississippi state law applies. Therefore, in determining whether RDS is entitled to judgment as a matter of law, the Court first determines what law applies to the claims at issue. It then discusses RDS's summary judgment arguments of fraudulent transfers, including Abrams' Motion to Strike related to the same. Finally, the Court addresses RDS's contention that S&S's corporate veil should be pierced and that the Spellmeyer defendants should be found individually liable for RDS's judgment against S&S.

         Choice of Law

         The Court finds that for purposes of RDS's arguments for partial summary judgment based on fraudulent transfers, there is no true conflict between Alabama and Mississippi law. Both states have adopted the Uniform Fraudulent Transfer Act (UFTA). See Miss. Code § 15-3-119 (“This article shall be applied and construed to effectuate its general purpose to make uniform the law with respect to the subject of this article among states enacting it.”). While there are slight differences in the constructive fraud provisions of each state's UFTA, discussed below, the Court finds that those differences do not affect the summary judgment analysis, and, thus, a choice of law analysis at this stage is unnecessary. See, e.g., Tupelo Mfg. Co. v. Cope Indus., Inc., No. 1:05CV114-B-D, 2006 WL 1313809, at *1 n.1 (N.D. Miss. May 11, 2006); Accordingly, the Court will apply Mississippi law to the fraudulent transfer claims. See, e.g., Fireman's Fund Ins. Co. v. Ill. Nat'l Ins. Co., No. 3:12-CV-657-CWR-FKB, 2015 WL 1198079, at *4 (S.D.Miss. Mar. 13, 2015) (“[I]f the laws of the states do not conflict, then no choice-of-law analysis is necessary, and the law of the forum state will apply.”) (citations, quotation marks, and brackets omitted).

         RDS contends that Alabama law applies to its attempt to pierce S&S's corporate veil, and the Spellmeyer defendants argue that Mississippi law applies. Mississippi's Limited Liability Act, Miss. Code §§ 79-29-1001, et seq. provides in pertinent part that “the laws of the state . . . under which a foreign limited liability company is organized govern . . . the liability of its members . . . .” Miss. Code § 79-29-1001.

         This Court agrees with other federal courts in Mississippi who have interpreted this provision to mean that when a party attempts to pierce the corporate veil of the LLC, the law of the state under which the LLC exists applies. See Robinson v. Denbury Onshore, LLC, No. 4:11CV18-DPJ-LRA, 2012 WL 1883594, at *2 n.1 (S.D.Miss. May 22, 2012); Benson v. City Fin. Co., No. 1:02CV242-D-D, 2003 WL 21517998, at *2 (N.D. Miss. May 16, 2003); Andrews v. Kerr McGee Corp., No. 1:00CV158-D-A, 2001 WL 1704144, at *2 (N.D. Miss. Dec. 5, 2001); In re Huffman, No. 12-00177-NPO, 2013 WL 2481529, at *5 (Bankr. S.D.Miss. June 10, 2013). Because S&S is an Alabama LLC, Alabama law applies to the allegations that the Spellmeyer defendants should be personally liable for the judgment obtained against S&S.

         Fraudulent Transfers

         Under Mississippi's UFTA, “[a] transfer made . . . by a debtor is fraudulent as to a creditor, whether the creditor's claim[2] arose before or after the transfer was made . . ., if the debtor made the transfer . . . with actual intent to hinder, delay or defraud any creditor of the debtor.” Miss. Code § 15-3-107(1). Here, there is no real issue of fact that S&S is a debtor and that RDS is a creditor under the statute, but the parties dispute in great length whether there was actual intent to hinder, delay, or defraud.

         Courts generally consider eleven “badges of fraud” in determining whether a transfer was made with actual intent to hinder, delay, or defraud. While this list is not exhaustive, consideration may be given, among other factors, to whether:

(a) The transfer . . . was to an insider;
(b) The debtor retained possession or control of the property transferred ...

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