Jonathan Kohn v. McGuire Woods, et al.

Summarized by Ferve Ozturk , BakerHostetler
12 years 6 months ago

Citation:

Slip Op. No. 12-3028 (Aug. 16, 2013)

Tag(s):

Ruling:

NOTE TO READER: READ “FACTS” FIRST - Holding: Affirming the district court. - The Trustee had argued that its breach-of-contract claim against Haymount, although unrecorded, was superior to HMezz’s recorded mortgage. The Trustee relied on Virginia’s recording statute, which provided that certain unrecorded instruments including claims relating to “contracts in writing” have priority over a recorded mortgage if the mortgagee had notice of the unrecorded claim. The court rejected this argument, finding that the agreement between IBG and Haymount did not fit within the definition of a “contract in writing” under the Virginia recording statue, which covered only contracts made in consideration of marriage or for the “conveyance or sale of real estate.” The court found that the finder’s fee agreement was related to a real-estate venture, but that the connection was too attenuated to bring the agreement within the scope of the definition of “contract in writing” in the recording statute. - The Trustee also argued that there was no evidence that the $5 million payment from Haymount to HMezz was a fraudulent conveyance because HMezz was an insider and there was insufficient evidence showing that HMezz ever lent funds to Haymount. The court rejected this argument as well. It recognized that under Virginia state law, an insider transaction is not per se fraudulent but rather, that insider transactions must be closely scrutinized to see if they are fair and honest and not “mere contrivances.” The court also found that there was sufficient evidence that HMezz lent funds to Haymount.

Procedural context:

On appeal from district court's grant of summary judgment.

Facts:

- In 2004, prepetition, Debtor International Benefits Group (IBG) entered into a contract to help family-owned real-estate company Haymount Limited Partnership (Haymount) secure funding to develop land owned by Haymount in Virginia. - Haymount received funding, including $5 million in mezzanine financing from Haymount Mezz LLC (HMezz). HMezz recorded a mortgage against Haymount. - Haymount refused to pay the finder’s fee to IBG. IBG subsequently filed for bankruptcy, and IBG’s bankruptcy trustee (the Trustee) brought an adversary proceeding against Haymount for breach of contract. - While the adversary proceeding was pending, Haymount had $5 million paid to HMezz to satisfy the principal on Haymount’s debt. - The Trustee then brought another adversary proceeding against Haymount and others under inter alia Virginia state fraudulent conveyance law, alleging that Haymount’s payment of $5 million was a fraudulent conveyance.

Judge(s):

Scirica, Jordan, Roth

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