Opinion
Case No. 15-29068-EPK Adv. Proc. No. 18-01215-EPK
2019-08-07
IN RE: William B. MILLS, Debtor. Deborah Menotte, as Court Appointed Receiver for Real Estate & Management Group, LLC, Plaintiff, v. Vero Beach Country Club, Inc., Defendant/Third-Party Plaintiff, v. William B. Mills and Mary Jane Mills, Third-Party Defendants.
Kenneth B Robinson, Esq., Ft. Lauderdale, FL, for Plaintiff. G Steven Fender, Ft. Lauderdale, FL, for Defendant. Clive N. Morgan, Busch Slipakoff Mills & Slomka LLC, Jacksonville, FL, for Third-Party Defendants.
Kenneth B Robinson, Esq., Ft. Lauderdale, FL, for Plaintiff.
G Steven Fender, Ft. Lauderdale, FL, for Defendant.
Clive N. Morgan, Busch Slipakoff Mills & Slomka LLC, Jacksonville, FL, for Third-Party Defendants.
ORDER ON THIRD-PARTY PLAINTIFF'S MOTION FOR SUMMARY JUDGMENT ON COUNT II OF THE THIRD-PARTY COMPLAINT AND ON THE THIRD-PARTY DEFENDANTS' COUNTERCLAIM
Erik P. Kimball, Judge
This matter came before the Court upon Vero Beach Country Club, Inc.'s Motion for Summary Judgment on Count II of Its Third- Party Complaint and on the Millses' Counterclaim [ECF No. 43] (the "Motion for Summary Judgment") and the Affidavit of Timothy Straley [ECF No. 46] (the "Affidavit") filed by Vero Beach Country Club, Inc. ("VBCC"), the response thereto [ECF No. 48] and the Affidavit of William B. Mills [ECF No. 49] filed by William B. Mills and Mary Jane Mills (together, the "Defendants"), and the reply thereto [ECF No. 60] filed by VBCC.
Facts
VBCC owns and operates a private golf country club. In May 2003, the Defendants applied for membership at VBCC. Exh. A, ECF No. 46. That same month, VBCC accepted and executed the Defendant's membership application. Id . The Defendants have been members since that time.
As members of VBCC, the Defendants are governed by the VBCC Bylaws, Exh. B, ECF No. 46, and the VBCC Policies, Procedures, and Rules, Exh. C, ECF No. 46 (the "PPR"). Pursuant to the PPR, the VBCC board of directors has the right to suspend (up to one year) or expel any member for the member's failure to satisfy indebtedness to VBCC or for the member's misconduct. PPR, § C.1.
By signing the membership application, the Defendants "agree[d] to be bound by all of the terms and conditions stated in the [VBCC] Bylaws[.]" Exh. A, ECF No. 46. The Bylaws provide that all members are bound by the PPR. § 2.2, Exh. B, ECF No. 46.
The Defendants are obligated to pay to VBCC annual membership dues and "[a]ll fees and charges," such as sums due for golf, meals, and beverages. PPR, § C.2.a. Regarding overdue indebtedness, the PPR provides:
b. Overdue Indebtedness. As early as possible each month, the Treasurer shall mail to each member a statement showing the member's indebtedness through the last day of the previous month. If such indebtedness or part thereof remains unpaid when the member's statement for the succeeding month is prepared, it shall be included therein as well as any late fee charges as may be determined by the Board. If still unpaid after 45 days from the original statement date, the member shall be notified of the amount in arrears, and said member shall be denied any further credit until the amount in arrears has been satisfied. Should payment of the amount in question still not be made within 60 days of the original statement date, the name of the delinquent member shall be posted on the club bulletin board. If the total amount in arrears has not been satisfied within 30 days after posting of the member's name, the member shall be suspended. Further, unless full payments of the amounts in question is made in the interim, the member shall be expelled at the next regular meeting of the Board of Directors. In such cases, a record of all financial obligations will be turned over to a collection agency and a copy will be sent to the credit authorities, for inclusion in the expelled member's credit history.
The expelled member shall not be eligible to utilize any of the Club's facilities (golf course or Clubhouse) neither as a guest of a member or another guest until said indebtedness has been paid in full.
PPR, § C.2.
The PPR defines "misconduct" as a member's violation of the Bylaws or the PPR or "conduct injurious to the good order, peace, interest or welfare of [VBCC], its members and staff." PPR, § C.3.a. The VBCC board of directors may initiate an investigation of possible misconduct on its own volition. Id . The PPR provides the following enforcement mechanism for a member's alleged misconduct:
b. Hearing. The Secretary shall inform the member concerned of the substance of the complaint and his right to submit a written answer or to appear in person before the Board at a specific date and time. He may present evidence in his behalf, but will not be given access to any written complaint nor will the identity of the writer be disclosed. If the complaint involves a husband or wife or both, either or both may appear.
c. Decision. At the conclusion of its investigation the Board may dismiss the complaint as unfounded, issue an appropriate warning, or by a two-thirds vote, suspend or expel the member(s) concerned. The Board shall be the sole judge of the validity of such complaints and its judgment shall be final.
PPR, § C.3.b-c.
The Defendants jointly own Real Estate & Management Group, LLC ("REMG"). Schedule B, ECF No. 1, Case No. 15-29068-EPK. Mr. Mills is the president of REMG. Exh. A, ECF No. 46. The Defendants caused REMG to pay to VBCC the Defendants' annual membership dues and their fees and charges. Exh. D, ECF No. 46.
On October 28, 2015, Mr. Mills filed a voluntary chapter 7 bankruptcy petition. ECF No. 1, Case No. 15-29068-EPK. Michael R. Bakst was appointed as the chapter 7 trustee (the "Trustee"). At that time, the Defendants were current with all monetary obligations owed to VBCC. ¶ 7, ECF No. 46. VBCC was not involved in Mr. Mills' chapter 7 case. On September 14, 2017, Mr. Mills received a discharge. ECF No. 138, Case No. 15-29068-EPK.
On September 21, 2017, the Trustee filed an adversary proceeding against REMG for judicial dissolution and for the appointment of a receiver. ECF No. 1, Adv. Proc. No. 17-01366-EPK. The Court granted the Trustee's request to appoint a receiver and, pursuant to Fla. Stat. § 605.0704, appointed Deborah C. Menotte as receiver of REMG (the "Receiver"). ECF No. 24, Adv. Proc. No. 17-01366-EPK. The Court authorized the Receiver to take control of REMG, to wind down and liquidate its assets, and, among other things, "to investigate and sue to avoid fraudulent or other improper transfers." Id.
On March 30, 2018, the Receiver sent a letter to VBCC demanding repayment of four years of sums that the Defendants caused REMG to pay to VBCC for annual membership dues, fees, and charges. Exh. D, ECF No. 46. The Receiver threatened legal action if VBCC failed to comply with the demand. Id. According to Tim Straley, general manager and chief operating officer of VBCC, VBCC was "greatly concerned" about the Receiver's demand because "[a]t this time, VBCC was also in the middle of a construction protect with financing where contingent liabilities had to be disclosed to VBCC's lender which would affect VBCC's debt ratio." ¶ 8, ECF No. 46.
On April 13, 2018, VBCC sent a letter to the Defendants demanding, among other things, that the Defendants defend or protect VBCC from the Receiver's demand. Exh. E, ECF No. 46. This letter warned the Defendants that failure to defend or protect VBCC may result in expulsion from VBCC and/or legal action for damages incurred by VBCC. Id. Shortly after VBCC sent this letter, the president of VBCC and Mr. Straley met in person with Mr. Mills and again demanded that the Defendants defend or protect VBCC from the Receiver's demand. ¶ 10, ECF No, 46. A few days later, VBCC sent the Defendants a draft written agreement requiring the Defendants to fully defend, indemnify and hold harmless VBCC from any and all claims brought by the Receiver against VBCC. Exh. F, ECF No. 46.
On May 4, 2018, the Defendants notified VBCC that the Defendants would neither defend or protect VBCC nor sign the proposed written agreement. ¶ 12, ECF No. 46.
On May 11, 2018, the Receiver filed the instant adversary proceeding against VBCC, seeking to avoid and recover $55,338.21, representing the sum of four years of transfers from REMG to VBCC on behalf of the Defendants. ECF No. 1. The Receiver's claims against VBCC were brought solely under the Florida Uniform Fraudulent Transfer Act, Fla. Stats. §§ 726.105(1)(b) and 726.106(1). Id .
On May 22, 2018, by letter entitled "Notice of Hearing," and pursuant to section C of the PPR, the secretary of the VBCC board of directors demanded that the Defendants "appear in person or provide written defenses as to why [the Defendants] should not immediately resolve all issues contained within [the adversary proceeding filed by the Receiver against VBCC] and if not, be suspended and/or expelled until the [adversary proceeding] is resolved without [VBCC] incurring any damages, expenses or attorneys' fees of any kind whatsoever." Exh. G, ECF No. 46. The letter scheduled a disciplinary hearing before the board of directors on June 5, 2018 at 3:30 p.m. Id .
On May 24, 2018, prior to the disciplinary hearing, counsel for VBCC sent a letter to counsel for the Defendants indicating that "VBCC's board of directors voted to suspend [the Defendants'] VBCC membership and all associated benefits until this matter is fully resolved." Exh. H, ECF No. 46. The letter indicated that VBCC was negotiating with the Receiver to pay a sum less than the amount requested in the Receiver's complaint against VBCC. Id . The letter stated that payment by the Defendants to VBCC, in the full amount ultimately paid by VBCC to the Receiver, may restore the Defendants' membership rights. Id . According to Mr. Straley, "[w]hile VBCC board members approved this letter before it was sent, the [letter] erroneously states that [the Defendants'] membership was considered suspended, when in fact, that suspension would not potentially become effective until the June 5, 2018 meeting when a vote of the board was taken." ¶ 15, ECF No. 46.
On May 31, 2018, the Defendants, with the assistance of counsel, responded in writing to the VBCC notice of hearing. Exh. I, ECF No. 46. The Defendants indicated that they chose to respond in writing since the Defendants became informed that the board of directors had already voted to suspend the Defendants' membership. Id. The Defendants expressed their concern that the board of directors wrongfully suspended their membership prior to the June 5, 2018 hearing. Id . The Defendants stated that they may assert their legal rights in light of the wrongful suspension. Id .
The Defendants also refused to indemnify VBCC for any sums paid by VBCC to the Receiver. Id . The Defendants stated that neither the membership application, the Bylaws, nor the PPR require the Defendants to indemnify VBCC. Id . The Defendants disputed that the monies paid from REMG to VBCC were "fraudulent." Id . The Defendants claimed that REMG paid the membership dues, fees, and charges in lieu of paying Mr. Mills a salary. Id . The Defendants claimed that Mr. Mills used VBCC for business purposes, meeting and entertaining prospective business clients at the country club. Id . The Defendants claimed that REMG was never insolvent. Id . The Defendants also claimed that the Defendants received reasonably equivalent value for REMG's payments to VBCC. Id .
Thereafter, VBCC and the Defendants, each through counsel, exchanged communications via email. Exh. J, ECF No. 46. VBCC requested that the Defendants assist VBCC in defending against the Receiver's claims by providing VBCC with proof that REMG paid the dues, fees, and costs for a business purpose or in lieu of Mr. Mills' salary. Id . The Defendants continued to assert, without proof, that the payments from REMG to VBCC were proper business expenses. Exhs. J, L, and O, ECF No. 46. Ultimately, the Defendants refused to assist VBCC. Exh. P, ECF No. 46.
On June 5, 2018, pursuant to the notice of hearing, the VBCC board of directors convened to consider disciplinary actions against the Defendants. Because the Defendants elected to respond in writing to the notice of hearing, the Defendants did not attend the June 5, 2018 meeting. The board considered the Defendants' May 31, 2018 letter. The board unanimously voted to suspend the Defendants' membership. According to Mr. Straley, the board unanimously determined that the Defendants' refusal to indemnify or defend VBCC amounted to "misconduct under [section C.3. of the PPR] because it endangered the welfare of VBCC." ¶ 19, ECF No. 46. According to Mr. Straley, to the extent that VBCC would be required to pay any monies to the Receiver in repayment of sums received from REMG, this would create an indebtedness that the Defendants would be obligated to pay. Id . As such, Mr. Straley also cited indebtedness as further cause to suspend the Defendants' membership. Id .
That same day, VBCC memorialized the Defendants' membership suspension in a letter to the Defendants. Exh. K, ECF No. 46. The letter stated that the Defendants' membership is suspended "until all issues in the suit are resolved in [VBCC's] favor." Id . Despite the reasons provided by Mr. Straley, the letter did not explain that the suspension was for "misconduct" pursuant to section C.3. of the PPR or for "indebtedness" pursuant to section C.2. of the PPR. Id . As of the entry of this order, the Defendants' membership remains suspended and they are not permitted to frequent the country club.
As noted above, the Receiver filed this adversary proceeding against VBCC, seeking to avoid and recover $55,338.21, representing the sum of four years of transfers from REMG on behalf of the Defendants to VBCC. ECF No. 1. Despite VBCC's requests, the Defendants refused to indemnify or defend VBCC. On June 16, 2018, VBCC filed its third-party complaint against the Defendants, seeking contractual and common law indemnification from the Defendants for VBCC's liability to the Receiver. ECF No. 7. The Defendants answered the third-party complaint and filed a counterclaim against VBCC for breach of contract, claiming that VBCC wrongfully suspended the Defendants' membership rights. ECF No. 19. VBCC filed an answer and affirmative defenses to the Defendants' counterclaim. ECF No. 23.
On August 14, 2018, the Receiver filed a motion to approve a settlement agreement between the Receiver and VBCC. ECF No. 25. VBCC agreed to pay the Receiver $25,000.00 in full settlement of the Receiver's claims against VBCC. Id . The Defendants received notice of the proposed settlement agreement. Id . The Court set a hearing on September 26, 2018 to consider approval of the settlement agreement. ECF No. 28. The Defendants received notice of the September 26, 2018 hearing. ECF No. 29. The Defendants did not appear at the September 26, 2018 hearing. The Defendants did not otherwise object to approval of the settlement agreement. On October 1, 2018, the Court entered an order approving the settlement agreement. ECF No. 36. By that order, the Court approved the $25,000.00 payment from VBCC to the Receiver and dismissed with prejudice the Receiver's claims against VBCC. Id . The Court explicitly retained jurisdiction to adjudicate VBCC's third-party complaint against the Defendants and the Defendants' counterclaim against VBCC. Id .
On March 15, 2019, the Court determined that, pursuant to 28 U.S.C. § 1334(b), the Court has subject matter jurisdiction over VBCC's third-party complaint and the Defendants' counterclaim. ECF No. 84.
In the third-party complaint, VBCC sues the Defendants on two counts: contractual indemnification and common law indemnification. ECF No. 7. Specifically, in light of the settlement, VBCC seeks contractual or common law indemnification from non-debtor Mrs. Mills for the entire $25,000.00 settlement paid by VBCC to the Receiver plus all attorney's fees and costs incurred by VBCC in defending this action. Because Mr. Mills filed bankruptcy and received a discharge of pre-petition obligations, VBCC seeks contractual or common law indemnification from Mr. Mills "for all sums the Court may award to the Receiver from VBCC for any charges incurred after the date of his bankruptcy filing" plus all attorney's fees and costs incurred by VBCC in defending this action. In the counterclaim, the Defendants sue VBCC for wrongful suspension of their membership rights.
In the Motion for Summary Judgment, VBCC asks that the Defendants be held jointly and severally liable for the $25,000.00 settlement payment plus all attorney's fees and costs. VBCC argues that such a judgment will not violate Mr. Mills' discharge because the $25,000.00 settlement amount is less than the amount of post-petition transfers that the Receiver sought from VBCC.
VBCC now seeks summary judgment on count II of its third-party complaint for common law indemnification, and summary judgment on the Defendants' counterclaim for wrongful suspension. VBCC does not seek summary judgment on count I of its third-party complaint for contractual indemnification.
Summary Judgment Standard
Federal Rule of Civil Procedure 56, made applicable to this matter by Federal Rule of Bankruptcy Procedure 7056, provides that summary judgment is appropriate if the Court determines that the "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). The moving party supports its assertion that a fact cannot be disputed by citing to the record, "including depositions, documents, electronically stored information, affidavits or declarations, stipulations (including those made for purposes of the motion only), admissions, interrogatory answers, or other materials." Fed. R. Civ. P. 56(c) ; see also Celotex Corp. v. Catrett , 477 U.S. 317, 323, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986) ; Anderson v. Liberty Lobby, Inc. , 477 U.S. 242, 247-48, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). The moving party bears the burden of meeting this standard. Imaging Bus. Machs., LLC v. BancTec, Inc. , 459 F.3d 1186, 1192 (11th Cir. 2006). "An issue of fact is ‘material’ if it is a legal element of the claim under the applicable substantive law which might affect the outcome of the case." Allen v. Tyson Foods, Inc. , 121 F.3d 642, 646 (11th Cir. 1997). In considering a motion for summary judgment, the Court must construe all facts and draw all reasonable inferences in the light most favorable to the non-moving party. In re Pony Express Delivery Services, Inc. , 440 F.3d 1296, 1300 (11th Cir. 2006).
Common Law Indemnification
VBCC seeks summary judgment on count II of its third-party complaint for common law indemnification. VBCC argues that it is wholly without fault for receiving payments from REMG and that it is only vicariously, constructively, derivatively, or technically liable to the Receiver due to the wrongful acts of the Defendants.
Under Florida law, common law indemnity allows an innocent party, who is nonetheless liable to another, to "[shift] the entire loss from one who, although without active negligence or fault, has been obligated to pay, because of some vicarious, constructive, derivative, or technical liability, to another who should bear the costs because it was the latter's wrongdoing for which the former is held liable." Houdaille Indus., Inc. v. Edwards , 374 So. 2d 490, 493 (Fla. 1979) (citations omitted). To prevail on a claim of common law indemnity, the moving party must prove the following elements: "1) that he is wholly without fault; 2) that the party from whom he is seeking indemnity is at fault; and 3) that he is liable to the injured party only because he is vicariously, constructively, derivatively, or technically liable for the wrongful acts of the party from whom he is seeking indemnity." Fla. Peninsula Ins. Co. v. Ken Mullen Plumbing, Inc ., 171 So. 3d 194, 196 (Fla. 5th DCA 2015) (citations omitted); accord Dade County Sch. Bd. v. Radio Station WQBA , 731 So. 2d 638, 642 (Fla. 1999).
Florida law applies because the Receiver's complaint against VBCC was based on the Florida Uniform Fraudulent Transfer Act.
The Florida courts have created some confusion around the elements of common law indemnity by requiring the moving party to also prove the existence of a "special relationship" between the indemnitor and the indemnitee. However, as the Fourth District Court of Appeal explained in Diplomat Props., L.P. v. Tecnoglass, LLC , 114 So. 3d 357, 362 (Fla. 4th DCA 2013) : "The term ‘special relationship’ merely describes a relationship which makes a faultless party ‘only vicariously, constructively, derivatively, or technically liable for the wrongful acts’ of the party at fault." (quoting Houdaille , 374 So. 2d at 492 ). This Court agrees. The requirement of proving a "special relationship" is not a separate and distinct element of Florida common law indemnity, but rather is inherent in the element that the moving party "is liable to the injured party only because he is vicariously, constructively, derivatively, or technically liable for the wrongful acts of the party from whom he is seeking indemnity." Fla. Peninsula Ins. Co. , 171 So. 3d at 196 ; accord Dunn v. Mercantile Commercebank, N.A. (In re GPC Miami Inc.) , 582 B.R. 534, 537 (Bankr. S.D. Fla. 2018).
Florida common law indemnity applies only to personal injury tort claims, see, e.g. , Radio Station WQBA , 731 So. 2d 638, and certain breach of contract claims in the context of products liability. See, e.g. , Diplomat Props., L.P. , 114 So. 3d 357 ; Hiller Group, Inc. v. Redwing Carriers, Inc. , 779 So. 2d 602 (Fla. 2nd DCA 2001) ; K-Mart Corp. v. Chairs, Inc. , 506 So. 2d 7 (Fla. 5th DCA 1987) ; Auto-Owners Ins. Co. v. Ace Elec. Serv., Inc. , 648 F. Supp. 2d 1371 (Dist. Ct. M.D. Fla. 2009) ; Mortg. Contr. Servs., LLC v. J & S Prop. Servs. LLC , 2018 U.S. Dist. LEXIS 109967 (Dist. Ct. M.D. Fla 2018). Florida courts have not applied common law indemnity to a fraudulent transfer claim brought under the Florida Uniform Fraudulent Transfer Act. Such a claim is neither a personal injury tort claim nor a breach of contract claim in the context of products liability. Other jurisdictions have precluded the application of a common law indemnity theory of recovery against a third party for liability on a state law fraudulent transfer claim. Nicolaci v. Anapol , 387 F.3d 21, 27 (1st Cir. 2004) (Analyzing Massachusetts common law indemnity and holding that "[i]n the absence of authority supporting a common law right to indemnity in fraudulent transfer cases, we find no basis for the [appellants'] claim."). Because Florida common law indemnity is not applicable to fraudulent transfer claims brought under the Florida Uniform Fraudulent Transfer Act, the Court will deny VBCC's request for summary judgment on count II of VBCC's third-party complaint.
In its reply at ECF No. 60, VBCC cites only Dunn v. Mercantile Commerce Bank NA (In re GPC Miami, Inc.) , 582 B.R. 534 (Bankr. S.D. Fla. 2018) in support of its contention that Florida common law indemnity applies to a fraudulent transfer claim under the Florida Uniform Fraudulent Transfer Act. That case did in fact involve a cross-claim based in common law indemnity for liability on an alleged fraudulent transfer claim brought under the Florida Uniform Fraudulent Transfer Act. In re GPC Miami, Inc. , 582 B.R. at 535-36. As in the present matter, the parties to that case disputed whether a common law indemnity claim applies in the context of fraudulent transfer claims. Id . However, in that case, the bankruptcy court explicitly stated that it did not need to decide whether Florida law would allow common law indemnity arising from a fraudulent transfer action. Id . at 540. The court found that the cross-claim sought direct and not derivative liability for the alleged fraudulent transfer and so did not rely on common law indemnity for recovery. Id . Though the court stated, in dicta in a footnote, that it might be possible for a valid common law indemnity claim to arise from facts where the primary liability was based in fraudulent transfer, id . at 540, n.12, the case can hardly be cited for the proposition that Florida common law indemnity applies where the underlying liability results from a fraudulent transfer claim brought under the Florida Uniform Fraudulent Transfer Act.
Wrongful Suspension
VBCC seeks summary judgment on the Defendants' counterclaim for wrongful suspension of the Defendants' membership rights. VBCC alleges that the board of directors properly suspended the Defendants' membership rights. In the Motion for Summary Judgment, VBCC cites both "misconduct" and "indebtedness" as cause for the suspension. The Defendants do not, in turn, seek summary judgment in their favor on their counterclaim; they simply request that the Court deny VBCC's Motion for Summary Judgment.
Pursuant to the PPR, the board of directors has the right to suspend any member for misconduct or for failure to satisfy an indebtedness to the country club. Misconduct is defined as a member's violation of the Bylaws or the PPR or "conduct injurious to the good order, peace, interest or welfare of [VBCC], its members and staff." PPR, § C.3.a. Though not explicitly defined in the governing documents, indebtedness results from a member's failure to pay VBCC annual membership dues or any fees and costs incurred at the country club. PPR, §§ C.2.a-b.
From the pre-suspension communications between VBCC and the Defendants, it is apparent that VBCC was considering suspension based on the Defendants' refusal to indemnify VBCC for any liability incurred as a result of the Receiver's claims and also based on the Defendants' failure to assist VBCC in defending against the Receiver's claims.
The Receiver's claims against REMG, which were based in constructive fraud under the Florida Uniform Fraudulent Transfer Act, were facially strong. A potential sticking point in the Receiver's claims was whether REMG obtained reasonably equivalent value in exchange for payment of the Defendants' membership dues, fees, and costs.
Pursuant to Fla. Stat. § 726.105(1)(b), a transfer made within four years before the filing of a bankruptcy petition is avoidable if the debtor [in this case, REMG] made such transfer and the debtor failed to receive reasonably equivalent value for the transfer and either "[w]as engaged or was about to engage in a business or a transaction for which the remaining assets of the debtor were unreasonably small" or "intended to incur, or believed or reasonably should have believed that he or she would incur, debts beyond his or her ability to pay as they became due." Pursuant to Fla. Stat. § 726.106(1), "[a] transfer made ... by a debtor is fraudulent as to a creditor whose claim arose before the transfer was made ... if the debtor made the transfer ... without receiving a reasonably equivalent value in exchange for the transfer ... and the debtor was insolvent at that time or the debtor became insolvent as a result of the transfer ..."
The Defendants initially asserted that Mr. Mills used VBCC for business purposes by meeting and entertaining prospective business clients at the country club. The Defendants initially stated that they would provide VBCC an affidavit listing the names of business clients that REMG gained through the Defendants' membership at VBCC. If Mr. Mills had in fact used the VBCC membership for REMG business then there would be some benefit to REMG, which could constitute reasonably equivalent value to REMG. But the Defendants ultimately provided no evidence of such business use and later confirmed there was none. See Deposition of Mr. Mills , ECF No. 44, 34:14-17. As such, REMG paid VBCC and received nothing in return. The Defendants not only failed to assist VBCC in defending against the Receiver's claims, but the Defendants strung VBCC along with allegations that REMG gained valid business through the Defendants' membership when in truth REMG gained no such business.
The Defendants also claimed that the payments from REMG to VBCC on behalf of the Defendants were in lieu of salary owed to Mr. Mills. But the Defendants provided no proof of this. Nor did the Defendants assist VBCC with any evidence to negate the Receiver's assertion that REMG was insolvent at the time of the transfers. The Receiver presented a prima facie case to recover constructively fraudulent transfers from VBCC.
After the Defendants refused to indemnify VBCC or assist VBCC in defending against the Receiver's claims, it became clear that VBCC had legal liability to the Receiver. VBCC appropriately settled for an amount less than half of the Receiver's claims. The Defendants' failure to indemnify VBCC or assist VBCC in defending against the Receiver's claims surely amounted to "conduct injurious to the good order, peace, interest or welfare of [VBCC]...." PPR, § C.3.a. VBCC properly suspended the Defendants' membership rights based on misconduct.
The Court also finds that VBCC complied with the notice and hearing requirements of section C.3.b. of the PPR.
The Defendants argue that they cannot be guilty of misconduct under the PPR because the governing documents do not contain any indemnity provision, and so their refusal to indemnify VBCC cannot amount to a violation of the governing documents. But the definition of "misconduct" itself states that misconduct includes "conduct injurious to the good order, peace, interest or welfare of [VBCC] ...." PPR, § C.3.a.
VBCC also cites "indebtedness" as cause for suspension of the Defendants' membership. VBCC alleges that the $25,000.00 payment it made to the Receiver in settlement of the fraudulent transfer claims left the Defendants' obligations to VBCC unpaid to the same extent, resulting in an indebtedness that the Defendants are required to pay. The $25,000.00 settlement payment by VBCC to the Receiver undoubtedly resulted in an indebtedness on the part of the Defendants to VBCC, but that indebtedness did not arise until after the board of directors voted to suspend the Defendants' membership rights. VBCC cannot rely on such indebtedness as cause for the suspension VBCC determined prior to payment of the $25,000.00.
In the Motion for Summary Judgment, VBCC also argues that it is entitled to summary judgment on the Defendants' counterclaim for wrongful suspension because the Defendants did not articulate specific damages for the alleged wrongful suspension. In light of the Court's ruling that VBCC properly suspended the Defendants' membership rights as a result of misconduct, the Court need not address this argument.
Order
For the foregoing reasons, the Court ORDERS and ADJUDGES as follows:
1. The Motion for Summary Judgment [ECF No. 43] is GRANTED IN PART and DENIED IN PART as provided herein.
2. Vero Beach Country Club, Inc.'s motion for summary judgment on count II of the third-party complaint, ECF No. 7, is DENIED. At the close of this proceeding, William B. Mills and Mary Jane Mills shall have
judgment in their favor on count II of the third-party complaint.
3. Vero Beach Country Club, Inc.'s motion for summary judgment on the third-party defendants' counterclaim, ECF No. 19, is GRANTED. At the close of this proceeding, Vero Beach Country Club, Inc. shall have judgment in its favor on the third-party defendants' counterclaim.