Wheeler Bros. Inc. v. Jones

Citations: 167 F. Supp. 3d 1283; 2016 U.S. Dist. LEXIS 30215; 2016 WL 917939Docket: Civil Action No. 2:14cv1258-PGB

Court: District Court, M.D. Alabama; March 7, 2016; Federal District Court

SummaryOriginalCytator Case TreatmentBackward CitatorAnalysis

EnglishEspañolSimplified EnglishEspañol Fácil

A Motion for Partial Summary Judgment has been filed by Plaintiff Wheeler Bros. Inc. (Doc. 62). In response, multiple Defendants, including Robert L. Jones, III, Laslie Jones, Jonathan Catón Jones, Kyle Breece Jones, Lavenia A. Jones, Ann Jones, Robert L. Jones, Sr., Bobby Jones, A&B Developments, LLC, Jones Brothers Enterprises, LLC, JBE, and Best Buy Automotive, Tire, LLC (Best Buy), have filed a Motion for Summary Judgment of Less Than All Defendants (Doc. 66). Additionally, a separate Motion for Summary Judgment has been submitted by Defendant Virginia Jones (Doc. 67).

The Plaintiff has filed a Complaint alleging multiple claims: 

1. **Breach of Contract** against Advanced Fleet Services (AFS) (Count I) and Robert Jones, Jr. (Count III).
2. **Unjust Enrichment** against AFS (Count II).
3. **Fraudulent Conveyance of Assets** involving various parties, listed in multiple counts (Counts IV-XLV), including conveyances from AFS and other entities to individuals such as Robert Jones, Jr., Ann Jones, Bobby Jones, and Best Buy, among others.
4. **Piercing the Corporate Veil and/or Alter Ego Theory** against AFS, JBE, Pirates Tow, A&B Properties, A&B Developments, and Best Buy (Count XLV).

The court notes complete diversity among the parties and sufficient amount in controversy to establish diversity subject matter jurisdiction. As a result, the court intends to grant the Motion for Partial Summary Judgment, deny the Motion for Summary Judgment of Less Than All Defendants, and grant in part and deny in part the Motion for Summary Judgment by Defendant Virginia Jones.

Summary judgment is appropriate when there is no genuine issue of material fact and the moving party is entitled to judgment as a matter of law, as established in *Celotex Corp. v. Catrett*. The moving party must initially inform the court of the basis for their motion and provide evidence demonstrating the absence of genuine issues of material fact. The nonmoving party must then present evidence beyond mere pleadings to show a genuine issue for trial, supported by specific citations from the record. Acceptable materials under Rule 56(c)(1)(A) include documents, affidavits, depositions, and interrogatory answers. To avoid summary judgment, the nonmoving party must do more than express metaphysical doubts about material facts; rather, the evidence presented must be considered true, and all reasonable inferences must favor the nonmoving party. If the nonmoving party responds adequately, the court will grant summary judgment if the moving party proves there is no genuine dispute of material fact.

The facts establish that Wheeler Bros. is a Pennsylvania corporation involved in the design, manufacture, and distribution of motor vehicle parts. AFS, owned by Robert Jones, Jr., serviced the USPS and purchased parts from Wheeler Bros. AFS had multiple service centers, including in Houston, Texas. JBE, a successor LLC to AFS, was formed in 2011 and is owned by Laslie Jones, the son of Robert Jones, Jr. Pirates Tow, another successor formed in 2012, is owned by Catón Jones, another son of Robert Jones, Jr. A&B Properties, an LLC formed in 2002 and jointly owned by Bobby and Robert Jones, Jr., held real property. Bobby and Ann Jones, parents of Robert Jones, Jr., also own A&B Development, LLC, formed in 1996, and Best Buy, established in 2010, which operates from property previously owned by A&B Properties.

In October 2010, Robert Jones, Jr. signed a Parts Sale Agreement with Wheeler Bros. as President of AFS and later provided a personal guaranty for credit extended to AFS. Wheeler Bros. supplied parts on credit, which AFS sold to the USPS, but AFS began defaulting on payments in 2011, accumulating significant debt by 2012. Evidence indicates Jones was insolvent since January 2010. In August 2012, Wheeler Bros. filed a Confession of Judgment against Jones in Pennsylvania, while Jones and his wife filed for personal bankruptcy. Subsequently, Wheeler Bros. initiated an adversary proceeding against them, leading to a default judgment entered in August 2014, declaring Jones's debt as non-dischargeable.

Following the bankruptcy, new companies, Pirates Tow and JBE, were established, operating from AFS's former location and servicing its previous customers. Wheeler Bros. alleges that Jones fraudulently transferred $2.5 million in assets to family members to evade creditors. In response, the defendants argue these transfers comply with the Alabama Uniform Fraudulent Transfers Act.

Wheeler Bros. filed a Partial Motion for Summary Judgment against Jones and AFS, asserting that Jones admitted to the debt of $794,530.13 owed for parts received but unpaid. Wheeler Bros. seeks judgment for this amount plus interest and attorney fees. In opposition, Jones contends that the claim should be denied due to a previously domesticated judgment in Pennsylvania, raising a res judicata defense. Wheeler Bros. counters that Jones has contested the judgment’s finality and no other defenses have been presented, arguing for the summary judgment's approval against both Jones and AFS.

The court granted summary judgment in favor of Wheeler Bros. against Robert Jones, Jr. and AFS, determining that the judgment from Pennsylvania, now recognized in Alabama, is not final. Wheeler Bros. is awarded $794,530.13, plus interest at five percent per month and attorney fees to be determined later, based on the Parts Agreement and Personal Guaranty. 

Wheeler Bros. claims that Robert Jones, Jr. and his family transferred valuable parts of AFS to other family-owned companies before filing for personal bankruptcy, leaving over $5 million in debt, including $785,000 owed to Wheeler Bros. Specifically, companies named Pirates Tow, JBE, and Best Buy were established to take over AFS’s operations. 

Multiple defendants, including A&B Developments and several members of the Jones family, filed motions for summary judgment regarding claims under the Alabama Uniform Fraudulent Transfer Act (AUFTA). They argue that transfers made by the debtor are fraudulent if intended to hinder creditors, regardless of when the creditor's claim arose, with intent assessed through various factors such as transfers to insiders, retention of control after transfer, and the debtor's insolvency. Furthermore, a transfer is considered fraudulent if made without receiving equivalent value and the debtor was insolvent at the time or became insolvent as a result of the transfer.

Statutory defenses under Ala. Code 8-9A-8(a) include a good faith transferee provision, which protects transfers made in good faith for reasonably equivalent value from being voidable against the transferee or any subsequent transferee. A transferee involved in the fraud cannot claim good faith. A good-faith transferee, despite a transfer being voidable, may secure a lien or reduce liability based on the value given for the transfer (Ala. Code 8-9A-8(d)). The definition of "good faith transferee" is not explicitly provided in the Alabama statute but has been interpreted by the bankruptcy court in Alabama to mean a person who lacks both actual knowledge of fraud and knowledge of circumstances that would require further investigation. To establish good faith under Ala. Code 8-9A-8(d), one must show a lack of inquiry notice and that value was given for the transfer.

In this case, the Defendants assert that the transfers identified by Wheeler Bros. were made for value as per the ruling in Horton v. Alexander, which clarified that the statutory language allows for value given by a good-faith transferee to any other person as a result of the debtor’s transfer. While not conceding their motion, the Defendants focus on the good-faith defenses of Kyle Jones, who argues there was no transfer to her under Ala. Code 8-9A-5. She claims she provided labor to JBE in exchange for the funds received, thus asserting she returned reasonably equivalent value. Kyle Jones also contends that even if a transfer occurred, she qualifies as a good-faith transferee due to receiving value for her labor. However, Wheeler Bros. counters this by presenting evidence indicating she received funds from AFS without having worked for them, challenging her good faith claim.

Kyle Jones identifies her employers since 2009 as Jackson Thornton Tech, JBE, PC Income Tax, and Publicis Touchpoint. To support her claim of income from JBE, she references her tax returns. However, Wheeler Bros. challenges this, arguing a factual dispute exists regarding whether she received payment from AFS for services rendered to JBE, as she has not provided pay records or reported income from JBE on her tax returns. The court reviews the tax returns, which include an Income Worksheet listing income from Advanced Fleet Services, Grooms Engines, and P.C. Income Tax, Inc., but no W-2 forms for JBE or AFS for Kyle Jones are present. Despite Defendants asserting that payments from AFS were for services to JBE, they do not address Wheeler Bros.' evidentiary claims based on the tax returns. The court finds a factual question exists regarding payments from AFS to Kyle Jones, relevant under Alabama's fraudulent transfer laws, particularly concerning the receipt of reasonably equivalent value for transfers. Kyle Jones claims, in her reply brief, that summary judgment should favor the Defendants due to Wheeler Bros.' failure to demonstrate her intent or knowledge of any fraudulent transfer, referencing a bankruptcy case. In response, Wheeler Bros. provides evidence indicating that Kyle Jones was aware her rent was being paid by the business, suggesting she had knowledge warranting further investigation. The court concludes that due to outstanding factual disputes regarding whether Kyle Jones was a good faith transferee, she has not substantiated her entitlement to such a defense. Consequently, her Motion for Summary Judgment is denied.

Catón Jones, son of Robert Jones, Jr., is involved in a legal dispute where Wheeler Bros. alleges that transfers made to him from Pirates Tow and AFS were fraudulent. Catón does not dispute receiving these funds but seeks summary judgment, arguing that he provided labor for services in return, which he claims constitutes reasonable equivalent value under Ala. Code. § 8-9A-5(a). He asserts that even if the transfers were intended to defraud Wheeler Bros., he is protected under Ala. Code. § 8-9A-4(a) because his labor, including tasks like driving wreckers and maintenance, compensated the transfers.

In his deposition, Catón indicated he was paid approximately $600 while working at Pirates Tow and stated he worked for his father without a fixed role. He reported receiving $750 weekly for work at AFS and JBE, asserting that all income from Pirates Tow is reflected on his tax returns. Wheeler Bros. contends that their expert report identifies specific questionable transfers totaling $13,473.56, $404.43, and $3,733.59, which were made in addition to his salary and were not disclosed on his tax returns.

Wheeler Bros. argues that Catón has not provided evidence of hours worked and claims that the payments exceeding his payroll, totaling $48,000, exceed reasonable value for the services he performed. The court finds sufficient factual questions regarding whether the transfers to Catón Jones were made with an equivalent exchange of value, thus denying the summary judgment.

Catón Jones asserts that there is no evidence he had knowledge of any fraudulent intent or could have discovered any through due diligence. He argues that Wheeler Bros. improperly infers his knowledge of fraud based solely on his father's actions in organizing a company in his name. Wheeler Bros. contends that Catón Jones should have been on notice of potential fraud due to the insolvency of Robert Jones, Jr. and AFS, particularly since Robert declared bankruptcy before Pirates Tow took over the service center previously operated by AFS. There are factual disputes regarding Catón Jones's knowledge, but even lacking evidence of intent, questions surrounding the value exchanged in transfers to him are sufficient to maintain liability and negate the transferee defense, leading the court to deny summary judgment against Catón Jones.

Laslie Jones presents varying arguments for summary judgment depending on the asset transfers in question. Concerning the transfers of inventory and equipment to JBE, he claims no personal transfer was made to him. For cash transfers to him personally, he argues that even if AFS or entities controlled by Robert Jones, Jr. intended to hinder or defraud, he provided reasonably equivalent value in return. Specifically, Laslie Jones highlights that the transfers of equipment valued at $120,000 were made to JBE, not him individually, as AFS used this equipment as loan collateral. He also notes that transfers totaling $259,429.20 and $11,925.00 were to JBE, and not to him personally, asserting that recognizing these as personal transfers would disregard JBE's corporate structure. Lastly, he contends that Wheeler Bros. has not demonstrated how he can be divested of assets transferred to the entity in which he has an interest.

Wheeler Bros. asserts that JBE was an alter ego of Laslie Jones before September 2013, arguing that the corporate form of JBE should be disregarded, and asset transfers to JBE should instead be viewed as transfers to Laslie Jones. To establish liability based on the alter ego theory, the plaintiff must demonstrate: (1) complete control and dominion over the subordinate corporation’s finances, ensuring it has no separate existence; (2) misuse of that control by the dominant party; and (3) that the misuse caused the harm. Wheeler Bros. claims the first requirement is met, citing Laslie Jones’s acknowledgment of his full control over JBE’s finances and operations in his brief. Additionally, deposition testimony revealed a lack of formal corporate documentation, indicating JBE's operations were not distinct from Laslie Jones’s personal affairs. Evidence shows Laslie Jones used JBE funds for personal expenses, fulfilling the second requirement of misuse. Wheeler Bros. argues that the third requirement is satisfied as creditors of AFS were harmed by these asset transfers.

The court supports Wheeler Bros.’s position by referencing a similar case, In re World Vision Entm’t, Inc., where piercing the corporate veil was justified based on control, lack of independent corporate governance, and personal use of corporate resources. Consequently, the court finds Laslie Jones's argument against the consideration of assets transferred to JBE as his own to be unpersuasive, denying the Motion for Summary Judgment regarding these transfers.

Regarding a separate $40,000 cash transfer from AFS to Laslie Jones, he acknowledges the transaction but contends it is not fraudulent, asserting that as the sole member of JBE, he provided equivalent value through his services. He maintains that the benefit to JBE is irrelevant under the Alabama Fraudulent Transfers Act.

Laslie Jones contends that Wheeler Bros. has not presented substantial evidence that he was aware of any fraudulent intent or that he could have discovered it with due diligence. In response, Wheeler Bros. argues that Jones's assertion of receiving $40,000 in salary contradicts his previous statements, which indicate he worked for AFS until September 2011 and then for JBE, raising questions about whether he provided value for the cash transfer. Under Alabama's Uniform Fraudulent Transfer Act (AUFTA), a factual dispute exists regarding the value received by the debtor for the transfer to Jones. Wheeler Bros. claims that Jones has failed to prove he provided labor to AFS and that he cannot establish he received the transfers for reasonably equivalent value. 

Wheeler Bros. further argues that Jones does not qualify as a good-faith transferee because he should have been aware of Robert Jones, Jr.'s and AFS's insolvency at the time of the transfer. The good-faith transferee defense under Ala. Code § 8-9A-8(a) protects transfers made in good faith for equivalent value, but Jones has not demonstrated that his services to JBE were worth the amount received. The court found that factual disputes regarding the transfers preclude summary judgment, as the definition of a "good faith transferee" requires a lack of actual knowledge of fraud and an absence of circumstances that would necessitate further inquiry. 

Jones argues that his familial ties and employment with family businesses do not imply knowledge of fraudulent activities. Wheeler Bros. cites evidence indicating JBE had no inventory at the end of 2011 yet began selling parts, alongside AFS's denials of any involvement with JBE. Additionally, an email exchange shows a transition of business from AFS to JBE, suggesting Jones was aware of the inventory takeover. The case references a precedent indicating that a transferee can be placed on inquiry notice of financial difficulties based on available information.

The court finds insufficient proof regarding the value of cash transfers, resulting in questions of fact about knowledge that prevent summary judgment for Laslie Jones on his defense. In Count XLV, the Plaintiff alleges piercing the corporate veil and/or alter ego claims against several defendants, including AFS, JBE, A&B Developments, and Best Buy Automotive and Tire, LLC. The defendants seek summary judgment, claiming that the Plaintiff has failed to provide evidence necessary for piercing the corporate veil. They assert that Best Buy is jointly owned and managed by Bobby and Ann Jones, with no evidence demonstrating that Robert Jones, Jr. had complete control over its finances. Similarly, they note the membership structures of A&B and JBE do not support alter ego claims relating to Robert Jones, Jr. 

Wheeler Bros. counters that the defendants have overlooked allegations in the complaint regarding failures to follow corporate formalities and claims of fraudulent operations. They reference expert findings indicating co-mingling of funds and lack of adherence to corporate formalities. The court emphasizes that piercing the corporate veil is a factual determination made on a case-by-case basis and cites Alabama case law stating courts should not allow corporate entities to evade their obligations through their affiliates. Since the defendants have not sought summary judgment on all of Wheeler Bros.'s theories, and given the evidence presented, the court cannot grant the summary judgment requested by the defendants.

Summary judgment may be granted to the Defendants regarding the piercing of the corporate veil. The Defendants assert that judgment should also be entered concerning Count XLV and all claims linked to allegedly fraudulent transfers from JBE, Best Buy, and A&B Properties prior to September 2013, as Robert Jones, Jr. is the debtor, not these companies. They argue that even if Best Buy's corporate veil were pierced, it would not be considered an alter ego of Robert Jones, Jr., meaning transfers made by Best Buy would not qualify as voidable under the Alabama Uniform Fraudulent Transfer Act (AUFTA). The Defendants reference case law indicating that AUFTA claims target transfers by the debtor, not by third parties.

However, there is precedent suggesting that claims may exist for transfers subsequent to an initial fraudulent transfer by the debtor. In Cotton Energy Corp. v. Smith, the Alabama Court of Civil Appeals ruled that a fraudulent grantee is accountable to creditors as a trustee. Additionally, Ala. Code § 8-9A-8(b) allows creditors to recover the value of an asset transferred from the first transferee or any subsequent transferee, barring good faith transferees. Wheeler Bros. contends that JBE was not a good faith transferee and thus claims against subsequent transfers to Jones’ family and their companies are valid. 

Although there is no direct Alabama case law supporting this application of § 8-9A-8(b), other jurisdictions have interpreted similar statutes. For instance, in Eastern Savings Bank v. Bucci, the court held that creditors could pursue claims against both first and subsequent transferees, emphasizing that the debtor's fraud is central to the issue. The court further clarified that a subsequent transferee can only assert a defense if their predecessor transferee met statutory requirements, underscoring the importance of initial good faith and equivalent value in these transactions.

In the case involving Eastern Savings Bank, the first transferee did not provide consideration for the transfer, raising questions about their good faith, which precluded the defense based on subsequent transferees. The court adopted the Eastern Savings Bank rationale, finding it relevant to the Alabama statutory provisions cited by Wheeler Bros. The court rejected the Defendants' argument that piercing the corporate veil offered no relief to Wheeler Bros. due to subsequent transfers made by different entities. Instead, it determined there are factual disputes regarding whether the transfers made after the initial transfer were done in good faith and for reasonable value, necessitating a jury's decision.

Wheeler Bros. claims fraudulent transfer regarding the sale of property at 3835 Atlanta Highway to Best Buy, alleging it was sold below fair market value with Ann Jones as the beneficiary. They presented a Settlement Statement from March 29, 2012, signed by various parties, and noted that the sale occurred shortly before Robert Jones, Jr.'s bankruptcy filing in August 2012. The Defendants assert the transfer date was either May 2011 or March 2012, contending that Best Buy paid off A&B Properties’ loan due to Robert Jones, Jr.'s delinquency. They argue that payments made by Best Buy prior to March 2012 were treated as rent rather than mortgage payments.

The court, viewing evidence favorably for Wheeler Bros., finds sufficient support for the claim that the transfer occurred in March 2012. The Defendants also sought summary judgment, arguing the transfer was not an asset under the Alabama Uniform Fraudulent Transfer Act (AUFTA) because the property had a valid lien. They noted the property was appraised at $690,000.00 as of March 1, 2012, which included improvements made by Best Buy, while the loan agreement from March 2012 was for $315,500.00.

Wheeler Bros asserts that improvements made to a property should be considered part of the real property, citing the case Milford v. Tennessee River Pulp and Paper Co. Additionally, Wheeler Bros claims that the Defendants concealed a $690,000 appraisal, which they obtained through a subpoena of the lending bank, despite Bobby Jones's prior knowledge and payment for it. They argue that this appraisal, conducted shortly before a property transfer to Best Buy, reflects the true value of real estate owned by A&B Properties, while the actual consideration for the transfer was only $315,000. Wheeler Bros contends that this constitutes a fraudulent transfer of Robert Jones, Jr.'s one-half interest in A&B Properties, amounting to $189,534. The Defendants did not address these arguments in their reply brief, leading to questions of fact regarding the loan documents and appraisal that could indicate an asset transfer under the Alabama Uniform Fraudulent Transfer Act (AUFTA). Consequently, the court denies summary judgment on this claim.

Regarding Virginia Jones, Wheeler Bros.'s expert report identifies $18,645.49 in alleged fraudulent transfers to her from various sources. Virginia Jones, a homemaker, argues for summary judgment, claiming she is not involved in any Defendant businesses and relies solely on her husband for support. She contests transfers totaling $6,242.75 to Honda Finance and $12,402.74 for health insurance, asserting that the Honda payments were for her son's vehicle and that she did not benefit from these transfers. Wheeler Bros. argues that it can establish JBE as Robert Jones, Jr.'s alter ego during the relevant time, raising questions about the legitimacy of the transfers. Catón Jones’s testimony does not reference a 2012 Acura, and Virginia Jones did not provide further evidence to support her motion. As a result, questions remain regarding whether the transfers benefited Virginia Jones and the nature of JBE's relationship to Robert Jones, Jr. at the time of the transactions.

Questions of fact prevent summary judgment regarding transfers to Honda Finance. Virginia Jones seeks summary judgment for $12,402.74 in insurance premium payments made by JBE to BlueCross and BlueShield, asserting that these payments were not fraudulent transfers since they were made for her health insurance and not by a debtor. She cites Ala. Code 6-10-7, which exempts 75% of wages from levy, and provides an affidavit from Robert Jones, Jr. stating that his salary from JBE included health insurance payments for his wife. Wheeler Bros. contends these payments are not exempt, arguing they were transfers from Robert Jones, Jr. to himself, benefiting Virginia Jones, and that no services were provided to JBE in exchange for these payments. Wheeler Bros. cites Ala. Code 8-9A-1, defining "asset" and establishing that exempt property is not subject to creditor claims. The court finds no evidence contradicting Virginia Jones' claims and concludes that the funds used for insurance premiums do not qualify as assets under the AUFTA, thus avoiding any analysis of value or good faith under the statute. Consequently, the court grants summary judgment in favor of Virginia Jones regarding the insurance premiums.

In conclusion:
1. The court grants Wheeler Bros.' Motion for Partial Summary Judgment against Robert L. Jones, Jr. and Advanced Fleet Services, LLC for $794,530.13 plus interest and attorneys’ fees.
2. The court denies the Motion for Summary Judgment of Less Than All Defendants.
3. Virginia Jones' Motion for Summary Judgment is granted to the extent that insurance premiums are exempt under Alabama law, but denied in other respects. No summary judgment motions have been filed by other defendants. The court notes the complexity of document references and claims across multiple counts.