United States v. Preston ( 2015 )

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
UNITED STATES OF AMERICA, :
:
Plaintiff, : Civil Action No.: 13-00265 (RC)
:
v. : Re Document Nos.: 46, 47
:
JAMES W. PRESTON, et al., :
:
Defendants. :
MEMORANDUM OPINION
DENYING PLAINTIFF’S MOTION FOR SUMMARY JUDGMENT AND
DENYING DEFENDANT JAMES W. PRESTON’S MOTION FOR SUMMARY JUDGMENT
I. INTRODUCTION
The United States of America (the “Government”) filed this civil action against
Defendants James W. Preston and his wife, Nancy Preston, seeking to avoid certain transfers of
property as fraudulent pursuant to the Federal Debt Collection Procedures Act (“FDCPA”), 28
U.S.C. §§ 3301 et seq.
From approximately 1992 until September 2011, Nancy Preston was the Corporate
Controller for Clyde’s Restaurant Group (“Clyde’s”). See Statement of the Offense at 1, United
States v. Preston, No. 12-cr-00189 (RC) (D.D.C. Sept. 26, 2012) (“Crim.”), ECF No. 6. In 2012,
Ms. Preston was convicted of mail fraud in violation of 18 U.S.C. § 1841 in this Court, and, as
part of her sentence, this Court ordered Ms. Preston to pay restitution in the amount of $239,069
and a fine of $62,000 to the United States. See Judgment, Crim. ECF No. 25. Prior to her
conviction and entry of the money judgment, Ms. Preston transferred her interest in real property
that was jointly owned by herself and her husband, as well as certain cash and securities that she
held, to Mr. Preston. The Government filed this civil action against Mr. and Ms. Preston seeking
to avoid those transfers as fraudulent. During this litigation, the transferred cash and securities
were also the subject of an ancillary forfeiture proceeding in Ms. Preston’s criminal case, which
this Court resolved in favor of the Government. See Order, Crim. ECF No. 74; Order, Crim ECF
No. 77.
Now before the Court are cross-motions for summary judgment filed by the Government
and Mr. Preston. See Def.’s Mot. Summ. J., ECF No. 46; Pl.’s Mot. Summ. J., ECF No. 47. Ms.
Preston, proceeding pro se in this case, has not moved for summary judgment and has not filed
any response to the present cross-motions for summary judgment. For the reasons explained
below, the Court will deny both parties’ motions.
II. FACTUAL BACKGROUND
Upon consideration of the evidentiary record submitted by the parties, the Court finds
that the following relevant facts have been established or are not in dispute, except where noted
as a party’s claim or a disputed fact.
A. Mr. Preston’s Acquisition of the Windover Property and Conveyance in 2008
In August 1984, Mr. Preston purchased real property located at 295 Windover Avenue
N.W., Vienna, Virginia 22180 (the “Windover Property”). See Def.’s Stmt. Undisputed Material
Facts (“Def.’s SOF”) ¶ 14, Def.’s Mem. Supp. Mot. Summ. J., ECF No. 46-1. 1
Mr. and Ms. Preston married over 20 years later, on December 30, 2004. See Pl.’s Stmt.
Material Facts Not in Genuine Dispute (“Pl.’s SOF”) ¶ 2, ECF No. 47-2. Nearly four years later,
on November 25, 2008, Mr. Preston executed a Deed of Gift conveying the Windover Property
1
Mr. Preston included his Statement of Undisputed Material Facts as a section of his
memorandum in support of his motion for summary judgment. See Def.’s Mem. Supp. at 3–6.
The Court’s references to “Def.’s SOF” refer to this section by paragraph.
2
to Ms. Preston and himself as tenants by the entirety. See Def.’s Mot. Summ. J. Ex. 13 (the
“2008 Deed of Gift”), ECF No. 46-14. The text of the 2008 Deed of Gift states that the property
was conveyed “without consideration” and, near the top of the document, it states that
consideration is “None.” Id. It also states that the conveyance is “Exempt from Recordation Tax
under § 58.1-811.D of the Code of Virginia,” which concerns deeds of gift without
consideration. Id. It also states that the property’s assessment was $789,270.00. Id. The parties
sharply dispute the terms and circumstances of this conveyance.
Mr. and Ms. Preston submit sworn affidavits claiming that, despite the language in the
2008 Deed of Gift, the conveyance was part of an agreement between them that Ms. Preston
would, at some future point in time, pay Mr. Preston for her joint interest. 2 See Aff. James
Preston (Feb. 19, 2015), Def.’s Mot. Summ. J. Ex. 2 (“Mr. Preston’s Feb. 2015 Aff.”) ¶¶ 19–20,
ECF No. 46-3; Aff. Nancy Preston (Feb. 19, 2015), Def.’s Mot. Summ. J. Ex. 12 (“Ms. Preston’s
Feb. 2015 Aff.”) ¶¶ 18–19, ECF No. 46-13. Mr. Preston states:
Nancy Preston and I agreed that in exchange for placing Nancy
Preston’s name on the title to the [Windover] Property, Nancy
Preston would pay me the value of her Clyde’s stock (which was
seized by the Government) and the funds from the sale of a property
in Falls Church, Virginia, which sums were held in her Merrill
Lynch accounts. She would pay this amount at the time that we
combined our finances, which never occurred.
2
The Prestons’ present description of their 2008 agreement is somewhat different from
how Ms. Preston described the agreement in a sworn declaration that she filed in her criminal
case (though captioned for this case) nearly two years earlier, in which she stated that Mr.
Preston conveyed the Windover Property “conditioned upon my payment to Mr. Preston of ½ the
value” of the Windover Property. See Decl. Nancy A. Preston (Mar. 28, 2013), Pl.’s Mot.
Summ. J. Ex. G ¶ 6, ECF No. 48-7. Here, the Prestons do not claim that the conveyance was
conditional upon Ms. Preston’s payment.
3
Mr. Preston’s Feb. 2015 Aff. ¶ 19. He further states that he conveyed his interest to himself and
Ms. Preston “with the understanding that she would pay me for that interest in accordance with
our agreement.” Id. ¶ 20. Similarly, Ms. Preston states:
James Preston and I agreed that in exchange for placing my name
on the title to the [Windover Property], I would pay James Preston
the value of my Clyde’s stock (which was seized by the
Government) and the net proceeds from the sale of a property I
separately owned in Falls Church, Virginia that I acquired before
my marriage to Mr. Preston, which sums were held in my Merrill
Lynch accounts. I intended to pay these amounts at the time that we
combined our finances, which never occurred. In fact, James
Preston and I still have not combined our finances.
Ms. Preston’s Feb. 2015 Aff. ¶ 18. The Prestons claim that they kept (and still keep) their
finances separate, although they had planned to combine them. See Mr. Preston’s Feb. 2015 Aff.
¶ 19; Ms. Preston’s Feb. 2015 Aff. ¶ 18. Neither Mr. Preston nor Ms. Preston claim that they
had agreed upon any specific amount that Ms. Preston would pay or any consequences in the
event that Ms. Preston did not or could not pay. They do not provide the Court with any
contemporaneous evidence of their agreement or statements from any third party witnesses with
knowledge of the agreement. They also do not provide any explanation as to why the deed was
recorded as a deed of gift or why it consistently refers to the conveyance as being without
consideration.
The Government disputes the Prestons’ factual claim, largely relying on the 2008 Deed of
Gift’s statement that there was no consideration for the conveyance. See Pl.’s Mem. Supp. Mot.
Summ. J. at 18–19, ECF No. 47-1. The Government also points to the deposition testimony of
Victoria Griffith, a former co-worker of Ms. Preston who was terminated in connection with
Clyde’s investigation into Ms. Preston’s criminal conduct. See Victoria Griffith Dep. Tr. (Jan.
4
23, 2015) at 13:6–18, Pl.’s Mot. Summ. J. Ex. E (“Griffith Dep.”), ECF No. 48-5. 3 Ms. Griffith
testified that she had at least one conversation with Ms. Preston in which Ms. Preston discussed
plans to refinance the Windover Property in order to construct an additional garage and an
apartment on the property and she estimated that those conversations took place around late
2008. See id. at 27:18–28:9. Ms. Griffith also testified that the Prestons’ decision to place Ms.
Preston’s name on the title to the Windover Property occurred around the same time. See, e.g.,
id. at 28:11–15. When asked what Ms. Preston told her about this decision, Ms. Griffith testified
that Ms. Preston said, “We refinanced the house, and it’s done, and we’re moving forward on the
construction,” and that Ms. Preston “elaborate[d] to me that it was – you know, she was happy
that her – she was a part of the house now.” Id. at 33:18–33:25. Ms. Griffith does not appear to
have given testimony concerning the purpose of the conveyance or whether there was any
consideration or other agreement. The Prestons dispute Ms. Griffith’s testimony, both stating
that they never discussed the Windover Property with her at any time. See Aff. Nancy Preston
(Apr. 17, 2015) ¶ 5, Def.’s Opp. Pl.’s Mot. Summ. J. Ex. 4 (“Ms. Preston’s Apr. 2015 Aff.”),
ECF No. 50-5; Aff. James Preston (Apr. 17, 2015) ¶ 10, Def.’s Opp. Pl.’s Mot. Summ. J. Ex. 3
(“Mr. Preston’s Apr. 2015 Aff.”), ECF No. 50-4.
B. Confession and Transfers of Cash and Securities in Early 2012
On January 9, 2012, Ms. Preston confessed to agents of the Federal Bureau of
Investigation (“FBI”) that she had embezzled more than $600,000 from Clyde’s, and this
interview began a process that led to Ms. Preston retaining a criminal defense attorney to
represent her, meeting with the U.S. Attorney’s Office, and ultimately pleading guilty to mail
3
For ease of reference, the Court’s citations to deposition transcripts are to the page and
line numbers of the transcripts, rather than the page numbers of the exhibits.
5
fraud. See Stip. Regarding Testimony SA Mark Stanley, Def.’s Mot. Summ. J. Ex. 14, ECF No.
46-15.
Eleven days later, on January 20, 2012, Ms. Preston made two cash transfers from an
account she held at Merrill Lynch, one transfer of $6,000 and another transfer of $5,500 (the
“Cash”), to a Merrill Lynch account held by Mr. Preston. See Def.’s SOF ¶ 3. Three days after
that, on January 23, 2012, Ms. Preston transferred certain securities valued at $190,529.27 (the
“Securities”) from her same Merrill Lynch account to a different Merrill Lynch account held by
Mr. Preston. See id. ¶ 4.
Ms. Preston claims that she made these transfers because two Merrill Lynch
representatives told her that she “would no longer be able to maintain accounts at Merrill Lynch”
and claims that she had no “intent to hinder, delay or defraud the Government.” Ms. Preston’s
Feb. 2015 Aff. ¶¶ 4–5. Mr. Preston supports her claim. See Mr. Preston’s Feb. 2015 Aff. ¶ 5.
The Prestons also claim that, in making the transfers to Mr. Preston, Ms. Preston “instructed [Mr.
Preston] to use the transferred funds to satisfy her personal financial obligations, including her
restitution obligations to the Government arising from her plea agreement.” Id. ¶ 9. See also
Ms. Preston’s Feb. 2015 Aff. ¶ 8. The Government challenges these claims, providing a sworn
declaration by an in-house counsel to Merrill Lynch stating that “[a]t no time did Merrill Lynch
ask Mrs. Preston to close” her account and that Merrill Lynch continued to maintain Ms.
Preston’s account for over two-and-a-half years until it was “purged from the Merrill Lynch
system following thirteen months of inactivity” on August 30, 2014. Decl. Greg Rose ¶ 1, Pl.’s
Mem. Opp. Def.’s Mot. Summ. J. Ex. B (“Rose Decl.”), ECF No. 51-4. Neither party provides
6
any testimony from the Merrill Lynch representatives that actually met with Ms. Preston. 4 It is
clear, however, that Ms. Preston’s account continued to remain open and active for at least nine
months following the transfers, as Mr. Preston paid Ms. Preston’s attorneys on her behalf from
Ms. Preston’s account in March 2012 and as late as October 5, 2012. See Mr. Preston’s Feb.
2015 Aff. ¶¶ 11–14.
On February 7, 2012, the Securities, along with other securities held in Mr. Preston’s
account, were transferred to a separate Merrill Lynch account held by the James W. Preston
Trust (the “Trust”). See Def.’s SOF ¶ 4; Decl. Mary McAllister, Pl.’s Mot. Summ. J. Ex. A
(“McAllister Decl.”) at 22–28, ECF No. 48-1. The Prestons do not provide any explanation for
this transfer. 5 Documents indicate that the Trust was formed by an agreement dated January 20,
2012, the same day that Ms. Preston transferred the Cash to Mr. Preston’s account, and that Mr.
Preston is the grantor of the Trust and its sole trustee. See McAllister Decl. ¶ 9; id. at 29–30.
C. Transfer of the Windover Property in April 2012
On April 4, 2012, Mr. and Ms. Preston executed a Deed of Gift conveying their joint
interest in the Windover Property to Mr. Preston “for his sole and equitable estate,” removing
Ms. Preston’s name from the title. See Deed of Gift dated April 4, 2012 (“2012 Deed of Gift”),
Pl.’s Mot. Summ. J. Ex. F (“Title Report”) at 6–8, ECF No. 48-6. The text of the 2012 Deed of
Gift states that the property was conveyed “in consideration of the sum of Ten Dollars ($10.00),”
4
Mr. Preston’s counsel states in reply that Merrill Lynch’s in-house counsel would not
permit her to interview the representative referenced in his declaration. See Aff. Mariam W.
Tadros, Def.’s Reply Pl.’s Opp. Def.’s Mot. Summ. J. Ex. 2, ECF No. 52-2. But it is unclear
why neither party deposed her during the discovery period.
5
The Prestons’ affidavits state that the reason for “these transfers,” seemingly including
the transfer to the Trust Account, was that Merrill Lynch representatives told Ms. Preston that
she needed to close her account. See Ms. Preston’s Feb. 2015 Aff. ¶ 4; Mr. Preston’s Feb. 2015
Aff. ¶ 4. But this fails to explain why the Securities were transferred from Mr. Preston’s account
to the Trust’s account weeks later.
7
but, near the top of the document, it states that consideration is “None.” Id. at 6–7. It states that
the Windover Property’s assessment was $934,370.00. See id. at 6. It also states that the
conveyance is exempt from Virginia’s recordation tax “as a transfer pursuant to a written
incident to a divorce,” id., but the Prestons have stated that this “appears to be a typo or mistake
by the closing agent.” Answer of James Preston at 2 ¶ 8, ECF No. 24; Answer of Nancy Preston
at 2 ¶ 8, ECF No. 25. The Prestons remained married, and Ms. Preston continued to reside at the
Windover Property. See Nancy Preston Dep. Tr. (Jan. 10, 2013) at 6:4–10, Pl.’s Mot. Summ. J.
Ex. I (“Nancy Preston Dep.”), ECF No. 48-9.
The Prestons claim that Ms. Preston transferred her interest in the Windover Property
back to Mr. Preston because she did not fulfill her part of the original agreement in 2008 to pay
Mr. Preston for her interest. 6 Ms. Preston states that she and Mr. Preston never combined their
finances as they originally intended and that, rather than pay Mr. Preston for her interest, she
“instead opt[ed] to use the sums in my Merrill Lynch accounts and my Clyde’s stock to pay the
Government and my attorneys.” Ms. Preston’s Feb. 2015 Aff. ¶¶ 18–20. She further states:
“When I realized that I would not be able to pay for the interest in the [Windover] Property,
James Preston and I decided to remove my name from the title to the [Windover] Property.” Id.
¶ 21. Mr. Preston supports his wife’s claim. See Mr. Preston’s Feb. 2015 Aff. ¶¶ 21–23. The
Prestons do not provide the Court with any contemporaneous evidence or statements from any
third party witnesses regarding Ms. Preston’s reason for making the transfer or the consideration
Ms. Preston received for the transfer or explain why the deed was recorded as a deed of gift.
6
Ms. Preston gave a slightly different explanation two years ago in her declaration in the
criminal case, attributing the transfer not only to her inability to pay for her interest but also to “a
result of a refinance of the mortgage and credit line on [the Windover] Property to take
advantage of record low interest rates.” Ms. Preston’s 2013 Decl. ¶ 8. The Prestons do not offer
the latter explanation here.
8
As support for the claim that they kept their finances separate, the Prestons claim that,
during the time that she held joint title and after the transfer in April 2012, Ms. Preston never
made any payments to the mortgage on the Windover Property or made any capital
improvements to the property and instead paid Mr. Preston $2,500 per month for various
“household expenses including food, clothing, utilities, gasoline, personal property taxes, and
travel expenses.” Mr. Preston’s Feb. 2015 Aff. ¶¶ 23–25; Ms. Preston’s Feb. 2015 Aff. ¶¶ 23–
24. See also Ms. Preston’s 2013 Decl. ¶ 9. In support, Mr. Preston provides copies of checks for
$2,500 each for each month from April 2011 through November 2012 (except February 2012)
signed by Ms. Preston made to and endorsed by Mr. Preston. See Def.’s Mot. Summ. J. Ex. 16,
ECF No. 46-17.
The Government challenges the Prestons’ explanation for the transfer, pointing towards
the language of the 2008 Deed of Gift, which states that there was no consideration, and the
language of the 2012 Deed of Gift, which references only nominal, if any, consideration. The
Government also challenges the Prestons’ claims regarding the separation of their finances,
providing evidence that many of Ms. Preston’s bank accounts, including the Bank of America
account she used to pay Mr. Preston each month, were joint accounts in both of their names. See
Decl. Charles Ross, Pl.’s Mem. Opp. Ex. A (“Ross Decl.”), ECF No. 51-3. The Government
also argues that the timing between the monthly payments from Ms. Preston to Mr. Preston and
Mr. Preston’s monthly payment of the mortgage suggests that Ms. Preston’s checks could have
been intended for the mortgage payments. See Pl.’s Mem. Supp. at 7; Pl.’s Opp. at 16–17.
D. Conviction and Partial Restitution Payment in Late 2012
On August 29, 2012, the Government filed a Criminal Information against Ms. Preston in
this Court, and on September 26, 2012, Ms. Preston pleaded guilty to mail fraud in violation of
9
18 U.S.C. § 1341. See Information, Crim. ECF No. 1; Crim. Minute Entry (Sept. 26, 2012). On
September 26, 2012, the Court entered a Consent Order of Forfeiture forfeiting $389,069 to the
United States in the form of a money judgment. See Consent Order of Forfeiture, Crim. ECF
No. 9.
In November 2012, securities held by the Trust were liquidated and, from the proceeds of
the liquidation, $150,000 was paid from the Trust Account and ultimately to the Government in a
pre-judgment partial payment of Ms. Preston’s restitution obligation. See Def.’s SOF ¶ 5; Pl.’s
Response Def.’s SOF ¶ 5; Am. Compl. ¶ 12, ECF No. 23. On December 3, 2012, the
Government filed a consent motion seeking to reduce the forfeiture money judgment amount by
$150,000 to account for “a partial payment to the victim as compensation for its loss.” Consent
Motion for Final Order of Forfeiture, Crim. ECF No. 17. On December 12, 2012, the Court
granted the consent motion, entering a Final Order of Forfeiture forfeiting $239,069 to the
United States in the form of a money judgment pursuant to 18 U.S.C. § 981(a)(1)(C) and 28
U.S.C. § 2461(c). See Final Order of Forfeiture, Crim. ECF No. 22.
E. Procedural History and Ancillary Criminal Forfeiture Proceeding
On February 28, 2013, the Government commenced the present action under the FDCPA,
which seeks to avoid the transfers of the Cash, Securities, and the Windover Property as
fraudulent. During the litigation of this case, the Government also sought and obtained an
amendment to the Order of Forfeiture in the criminal case against Ms. Preston which included
the Cash and the Securities as substitute property subject to forfeiture pursuant to 21 U.S.C. §
853(p). 7 See Fourth Amended Order of Forfeiture, Crim. ECF No. 43. Mr. Preston filed a
7
Weeks before commencing the present action under the FDCPA, the Government filed a
motion in the criminal case to amend the Order of Forfeiture to include the Windover Property.
See Gov’t’s 2d Mot. Amend Order Forfeiture, Crim. ECF No. 33. That motion remains pending.
10
petition asserting his interest in both the Cash and the Securities, and his daughter, Laura
Preston, filed a petition asserting her interest in the Securities, commencing an ancillary
proceeding in the criminal case pursuant to 21 U.S.C. § 853(n). The Court dismissed those
petitions. See Order, Crim. ECF No. 74; Order, Crim ECF No. 77. The Government and Mr.
Preston filed their motions for summary judgment in this case prior to the Court’s dismissal of
the petitions in the criminal case.
III. ANALYSIS
The Government’s Amended Complaint in this action seeks, with respect to the
Windover Property, an order either avoiding the transfer of Ms. Preston’s interest in the
Windover Property in 2012 and restoring title to the property as it was held prior to April 2012 or
directing Mr. Preston to “execute a deed sufficient to restore the joint tenancy of both Defendants
in the Windover Property” pursuant to the FDCPA. Am. Compl. at 5 ¶ 2. The Government also
seeks a surcharge in accordance with 28 U.S.C. § 3011. 8 See id. at 5 ¶ 5. The Government
argues that it is entitled to summary judgment because, in making the transfer, Ms. Preston had
actual intent to hinder, delay, or defraud under 28 U.S.C. § 3304(b)(1)(A), or, in the alternative,
because the transfer was constructively fraudulent under 28 U.S.C. § 3304(b)(1)(B). See Pl.’s
Mem. Supp. at 14. Mr. Preston argues that he is entitled to summary judgment because the
8
The statute provides that “[i]n an action or proceeding under subchapter B or C [of the
FDCPA], and subject to subsection (b), the United States is entitled to recover a surcharge of 10
percent of the amount of the debt in connection with the recovery of the debt, to cover the cost of
processing and handling the litigation and enforcement under this chapter of the claim for such
debt.” 28 U.S.C. § 3011(a). The Amended Complaint states that the Government brings this
action pursuant to 28 U.S.C. § 3301 et seq. concerning fraudulent transfers involving debts,
which is subchapter D of the FDCPA. It appears, therefore, that the surcharge provision may be
inapplicable here. Neither the Government nor Mr. Preston address the surcharge provision in
their motions or oppositions.
11
Government cannot prove either theory and because, even if the Government were successful,
Ms. Preston would not have any equitable interest in the Windover Property under Virginia law. 9
See Def.’s Mem. Supp. at 1–3. The Court addresses these theories below.
As a preliminary matter, however, the Court addresses the Government’s requests for
relief as to the Cash and the Securities. The Government’s Amended Complaint seeks, pursuant
to the FDCPA, an order either avoiding “the transfer of Nancy Preston’s interest” in her Merrill
Lynch account and restoring title to the account as it was prior to January 2012 or directing Mr.
Preston to execute a transfer from the Trust Account “sufficient to restore commensurate value”
to Ms. Preston’s Merrill Lynch account prior to the January 2012 transfers of the Cash and the
Securities. Am. Compl. at 5 ¶ 4. As a result of the Court’s order dismissing Mr. Preston’s and
Laura Preston’s petitions in the criminal case’s ancillary proceeding, however, the Government
now has “clear title” to the Cash and the Securities. 21 U.S.C. § 853(n)(7). Therefore, the
Government’s requests for relief with respect to the Cash and the Securities are moot and the
Court considers only the Government’s claim as it concerns the Windover Property. 10
A. Legal Standard for Summary Judgment
A court must grant summary judgment 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.
9
The FDCPA also provides that “[a] transfer or obligation is not voidable under section
3304(b) with respect to a person who took in good faith and for a reasonably equivalent value or
against any transferee or obligee subsequent to such person.” 28 U.S.C. § 3307(a). Mr. Preston
does not argue—either in opposition to the Government’s motion for summary judgment or his
motion for summary judgment—that this exception is applicable here.
10
The circumstances concerning the transfers of the Cash and the Securities may
nonetheless be relevant to the issue of whether Ms. Preston had actual intent to hinder, delay, or
defraud a creditor when she transferred her interest in the Windover Property. See 28 U.S.C. §
3304(b)(2)(G) (providing that, in determining actual intent, a court may consider whether “the
debtor removed or concealed assets”).
12
R. Civ. P. 56(a). A “material” fact is one capable of affecting the substantive outcome of the
litigation. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). A dispute is
“genuine” if there is enough evidence for a reasonable jury to return a verdict for the non-
movant. See Scott v. Harris, 550 U.S. 372, 380 (2007). The inquiry under Rule 56 is essentially
“whether the evidence presents a sufficient disagreement to require submission to a jury or
whether it is so one-sided that one party must prevail as a matter of law.” Anderson, 477 U.S. at251–52.
The principal purpose of summary judgment is to streamline litigation by disposing of
factually unsupported claims or defenses and determining whether there is a genuine need for
trial. See Celotex Corp. v. Catrett, 477 U.S. 317, 323–24 (1986). The movant bears the initial
burden of identifying portions of the record that demonstrate the absence of any genuine issue of
material fact. See id. at 323. In response, the non-movant must point to specific facts in the
record that reveal a genuine issue that is suitable for trial. See id. at 324. In considering a
motion for summary judgment, a court must “eschew making credibility determinations or
weighing the evidence,” Czekalski v. Peters, 475 F.3d 360, 363 (D.C. Cir. 2007), and all
underlying facts and inferences must be analyzed in the light most favorable to the non-movant.
See Anderson, 477 U.S. at 255. Nevertheless, conclusory assertions offered without any
evidentiary support do not establish a genuine issue for trial. See Greene v. Dalton, 164 F.3d
671, 675 (D.C. Cir. 1999).
B. “Actual Intent” under Section 3304(b)(1)(A)
Section 3304(b)(1)(A) of the FDCPA provides, in relevant part, that a transfer made by a
debtor is fraudulent as to a debt to the United States if the debtor makes the transfer “with actual
intent to hinder, delay, or defraud a creditor.” 28 U.S.C. § 3304(b)(1)(A). It is undisputed that
13
Ms. Preston is a debtor to the United States and that she transferred her interest in the Windover
Property in April 2012. For purposes of summary judgment, therefore, the Court must determine
whether there is a dispute of material fact as to whether Ms. Preston had “actual intent to hinder,
delay, or defraud” the United States or another of her creditors in making that transfer.
The statute provides a non-exhaustive list of factors that the Court may consider in
determining whether Ms. Preston had actual intent, including whether: the transfer was to an
“insider”; the debtor retained possession or control of the property after the transfer; the debtor
had been threatened with suit prior to the transfer; the transfer occurred shortly before or shortly
after a substantial debt was incurred; the transfer was of substantially all of the debtor’s assets;
and the value of the consideration received by the debtor was reasonably equivalent to the value
of the property transferred. See 28 U.S.C. § 3304(b)(2).
The Government argues that the circumstances of Ms. Preston’s transfer of her interest in
the Windover Property satisfy most of the key factors, pointing to the facts and circumstances of
United States v. Sherrill, 626 F. Supp. 2d 1267 (M.D. Ga. 2009), a case involving a debtor who
transferred his interest in various real estate he jointly owned with his wife to his wife while he
was under investigation by the Securities and Exchange Commission, as “strikingly similar.”
Pl.’s Mem. Opp. at 9–15. See also Pl.’s Mem. Supp. at 15–21. Mr. Preston does not specifically
address the statutory factors in his motion and in his opposition to the Government’s motion.
Instead, he largely focuses on the Prestons’ explanations for the 2008 and 2012 transfers, which
are relevant to multiple factors. The Court addresses each of the relevant factors in order to
determine whether there is a genuine dispute of material fact as to whether Ms. Preston had
actual intent.
14
1. Transfer to an “Insider”
Ms. Preston’s transfer of the Windover Property was undisputedly to an insider. The
statute defines “insider” to include a relative of the debtor and defines a spouse to be a relative.
See 28 U.S.C. § 3301(5)(A)(i); id. § 3301(5). 11 Mr. and Ms. Preston were married at the time of
the transfer and they continue to be married. This factor weighs in favor of a finding that Ms.
Preston had actual intent, though it is far from sufficient.
2. Possession or Control of the Property
Mr. Preston does not contest that Ms. Preston maintained her possession of the Windover
Property after the transfer in 2012 by continuing to live there. With respect to control of a
property, courts have considered whether the debtor contributed towards the mortgage payments
on the property. See, e.g., Sherrill, 626 F. Supp. 2d at 1273 (concluding that the debtor “retained
a sufficient degree of possession and control” of the real properties because he continued to
contribute towards the mortgage payments on the properties and continued to live at one of the
properties). In this case, there is a genuine dispute as to whether Ms. Preston’s monthly
payments to Mr. Preston of $2,500 from one joint account to another joint account were
contributions towards the mortgage on the Windover Property. Control is not, of course, solely
determined by equity. For example, a renter without equity may nevertheless have some degree
of control of the property. The Prestons claim that Ms. Preston’s monthly payments of $2,500,
which continued after she transferred the property in April 2012, were intended to cover, among
other things, utilities and personal property taxes. See Mr. Preston’s Feb. 2015 Aff. ¶¶ 23–25;
Ms. Preston’s Feb. 2015 Aff. ¶¶ 23–24. It appears, therefore, that Ms. Preston maintained some
11
The statute erroneously contains two subsections numbered (5), the first defining
“insider” and the second defining “relative.”
15
degree of control, in addition to possession, over the Windover Property following the April
2012 transfer. This factor, on the undisputed facts before the Court, also weighs towards a
finding of actual intent, though it is insufficient.
3. Threat of Suit and Proximity in Time to Incurrence of a Substantial Debt
At the time that Ms. Preston transferred her interest in the Windover Property, the
Government had not yet formally brought any legal action against her concerning her
embezzlement from Clyde’s. It is undisputed, however, that she had confessed to the FBI that
she had embezzled more than $600,000 from her employer three months before the transfer and
that she retained a criminal defense attorney following her confession. See Stip. Regarding
Testimony SA Mark Stanley. Ms. Preston was clearly aware of a “threat of suit” at the time of
the transfer. See Sherrill, 626 F. Supp. 2d at 1273 (finding that the debtor was aware of a threat
of suit in part because he “knew he was being investigated by the SEC”). The threat of suit
against Ms. Preston was realized shortly after she transferred her interest in the Windover
Property when the Government filed a Criminal Information against her in August 2012. See
Information, Crim. ECF No. 1. Less than six months after the transfer, this Court entered a
Consent Order of Forfeiture forfeiting $389,069 to the United States in the form of a money
judgment. See Consent Order of Forfeiture, Crim. ECF No. 9.
Unlike the debtor in Sherrill, however, Ms. Preston’s own factual account indicates that
the proximity in timing was not coincidental. She claims that she transferred her interest because
it became clear that, as a result of her impending criminal charges and restitution obligations, she
would be unable to pay Mr. Preston for her interest in the Windover Property. See Ms. Preston’s
Feb. 2015 Aff. ¶ 21. As discussed, infra, with respect to consideration, there is a genuine dispute
as to whether the reason for transferring her interest concerned the Prestons’ purported
16
agreement in 2008. Of course, even assuming the veracity of Ms. Preston’s explanation, there
remains an open question as to why she felt it was necessary to transfer title when she realized
that she would be unable to pay Mr. Preston, as she had not paid him in the three years prior and
does not claim that, under their agreement, she was obligated to pay him within a certain time
frame or return the title to him in the event that she could not pay. Nevertheless, the weight to be
afforded to this factor largely depends on a genuine dispute and is therefore of little use at
summary judgment.
4. Substantially All of Debtor’s Assets
The Government asserts that Ms. Preston’s transfers of the Windover Property, the Cash,
and the Securities constituted substantially all of her assets but does not articulate whether Ms.
Preston’s transfer of the Windover Property by itself constituted substantially all of her assets.
See Pl.’s Mem. Supp. at 21; Pl.’s Opp. at 12. As support for its argument, the Government cites
Ms. Preston’s deposition testimony in January 2013 in which she discussed her bank accounts,
jewelry, and cars. See Nancy Preston Dep. Mr. Preston does not address this factor, let alone
dispute the Government’s assertions. It is unclear, however, whether Ms. Preston’s testimony
concerned the value of her assets at the time she transferred the Windover Property in April
2012. Ms. Preston’s title to the Windover Property appears to have been a major asset and
possibly her largest asset. In her deposition, Ms. Preston estimated that the value of the property
was $1 million, which Mr. Preston does not challenge. See id. at 11:23–25. Ms. Preston did not
discuss any similarly valuable assets. Therefore, while the Court cannot find that Ms. Preston’s
transfer of title in the Windover Property constituted substantially all of her assets, the significant
value of her title in the property further weighs in favor of a finding of actual intent.
17
5. Value of the Consideration
Whether the consideration that Ms. Preston received for her transfer of title in 2012 was
reasonably equivalent to the value of the interest she transferred is the most important factor in
the Court’s analysis of whether Ms. Preston had actual intent, because the resolution of this issue
turns on the viability of the Prestons’ entire explanation for the transfer.
As discussed, the Prestons claim that, in exchange for Mr. Preston’s conveyance of the
Windover Property to himself and Ms. Preston as tenants by the entirety in November 2008, Ms.
Preston agreed to pay him for her joint interest when they combined their finances, which never
occurred. See Mr. Preston’s Feb. 2015 Aff. ¶¶ 19–20; Ms. Preston’s Feb. 2015 Aff. ¶¶ 18–19.
They also claim that Ms. Preston transferred her joint interest back to Mr. Preston in April 2012
when it became clear to her that she would not be able to pay him for her interest as they had
agreed in 2008. See Ms. Preston’s Feb. 2015 Aff. ¶¶ 20–22; Mr. Preston’s Feb. 2015 Aff. ¶¶ 21–
23. By making these claims, the Prestons are effectively claiming that the consideration that Ms.
Preston received in exchange for transferring her interest in 2012 was the release of Mr.
Preston’s potential claim against Ms. Preston for the value of the interest in connection with the
transfer in 2008. See 28 U.S.C. § 3303(a) (providing that “value” may be satisfaction of an
antecedent debt). Therefore, the Court must determine whether there is a genuine dispute as to
whether Ms. Preston received that consideration.
The Government urges the Court to apply Virginia’s “plain meaning” rule for interpreting
deeds conveying interests in real property. Under that rule, “[w]hen the language in a deed is
clear, unambiguous, and explicit, a court called upon to construe such language should look no
further than the four corners of the deed itself.” Forster v. Hall, 576 S.E.2d 746, 750 (Va. 2003)
(citation omitted). See also Richmond, Fredericksburg & Potomac R.R. Co. v. United States, 75
18
F.3d 648, 655 (Fed. Cir. 1996) (“Once a court determines that a ‘deed [is] clear and
unambiguous, it [is] required to focus upon the language of the deed and from that source alone,
construe its meaning.’” (quoting Trailsend Land Co. v. Va. Holding Corp., 321 S.E.2d 667, 670–
71 (Va. 1984)). Courts most commonly use the plain meaning rule to interpret a deed’s
description of the property being conveyed and the meaning of a deed’s restrictive covenants and
easements. See, e.g., Forster, 576 S.E.2d 746 (determining whether landowners were in
violation of a restrictive covenant regarding mobile homes); Irby v. Roberts, 504 S.E.2d 841 (Va.
1998) (determining how the language of an easement applied to the construction of a pier);
Richmond, 75 F.3d at 655 (determining the duration of a restrictive covenant).
The plain meaning rule is inapplicable here, because the Court is not called upon to
construe the meaning of the language of the 2008 Deed of Gift or the 2012 Deed of Gift. Rather,
Mr. Preston argues that the deeds do not reflect the actual consideration received, as permitted by
Virginia law. As he notes, Virginia’s Form of Deed provides that deeds may describe “nominal”
consideration, rather than the “actual” consideration:
Every deed . . . may be made in the following form, or to the same
effect: ‘This deed, made the …….. day of …….., in the year
………., between (here insert names of parties as grantors or
grantees), witnesseth: that in consideration of (here state the
consideration, nominal or actual) . . . .
Va. Code. Ann. § 55-48 (emphasis added). Indeed, over a century ago, the Supreme Court of
Appeals of Virginia stated that it was “settled law that the consideration actually paid, or
promised, can be shown to have been other than that recited in the instrument” and that “the deed
need not contain all the stipulations of the parties,” such as “agreements as to the consideration.”
Trout v. Norfolk & W. Ry. Co., 59 S.E. 394, 397 (Va. 1907) (internal quotation omitted). The
Court distinguished this from the parol evidence rule, which it said bars the use of parol evidence
“to alter or contradict the legal import of a deed,” explaining that a deed “purports to be the deed
19
of but one of the parties” and “purport[s] to contain the covenants of the grantor in respect to the
property conveyed.” Id. (internal quotation omitted). Trout essentially stands for the well-
settled, general rule that “the true, real, or actual consideration of a deed of conveyance may be
inquired into, and shown by, parol or extrinsic evidence . . . . even though the true or actual
consideration may be other than, or different from, that recited in the deed.” 32A C.J.S.
Evidence § 1494 (2015). See also 32A C.J.S. Evidence § 1495 (2015) (“It is ordinarily
permissible to introduce evidence to show that the consideration for a deed was greater than that
expressed in the instrument, such as where the consideration specified was purely nominal . . . .
It has also been stated that the recital of a consideration in a deed does not preclude either party
from showing an additional consideration, even if such consideration was orally made.”).
Accordingly, the Court is not limited to the language of the deeds to determine whether Ms.
Preston received consideration of a reasonably equivalent value.
The 2012 Deed of Gift reflects only nominal consideration, if any at all, in connection
with the conveyance. It states in its text that the conveyance was “for and in consideration of the
sum of Ten Dollars ($10.00), receipt whereof is hereby acknowledged,” but the accuracy of that
statement is questionable, as it separately states near the top of the document that consideration is
“None.” 2012 Deed of Gift. The text of the 2008 Deed of Gift states that the property was
conveyed “without consideration” and, near the top of the document, it states that consideration
is “None.” 2008 Deed of Gift. It also states that the conveyance is “Exempt from Recordation
Tax under § 58.1-811.D of the Code of Virginia,” which concerns deeds of gift without
consideration. Id. In support of their factual claims that neither deed reflected the actual
consideration for the conveyances, Mr. and Ms. Preston submit sworn affidavits. As discussed,
the Prestons do not submit any contemporaneous evidence of this purported consideration or any
20
statements from third party witnesses supporting their claim. They also do not explain why the
deeds were recorded as deeds of gift. As support for the related claim that the Prestons
continued to maintain separate finances, however, Mr. Preston does submit copies of monthly
checks for $2,500 signed by Ms. Preston from a Bank of America account jointly held by Mr.
and Ms. Preston made to and endorsed by Mr. Preston. See Def.’s Mot. Summ. J. Ex. 16, ECF
No. 46-17.
The Government, for its part, provides little evidence to counter the Prestons’ factual
claims apart from its reliance on the language of the deeds. The Government cites the deposition
testimony of Victoria Griffith, who claimed to have had at least one conversation with Ms.
Preston concerning the Prestons’ decision to put Ms. Preston’s name on the title to the Windover
Property in 2008. See Pl.’s Mem. Supp. at 7. But Ms. Griffith only testified that she understood
from Ms. Preston that, around the same time that the Prestons decided to refinance the Windover
Property to construct an additional garage and an apartment, Ms. Preston’s name would be put
on the title. See, e.g., Griffith Dep. at 28:11–15. The Government cites no testimony from Ms.
Griffith or any other witness claiming to have knowledge as to whether the Prestons agreed that
Ms. Preston would pay Mr. Preston in exchange for him putting her name on the title or claiming
to have any knowledge concerning Ms. Preston’s conveyance in 2012, the transfer that is
primarily at issue in this case. The Prestons dispute Ms. Griffith’s testimony, both stating that
they never discussed the Windover Property with her at any time. See Ms. Preston’s Apr. 2015
Aff. ¶ 5; Mr. Preston’s Apr. 2015 Aff. ¶ 10.
To challenge the Prestons’ factual claims regarding the separation of their finances, the
Government provides evidence that many of Ms. Preston’s bank accounts, including the Bank of
America account she used to pay Mr. Preston each month, were joint accounts in both of their
21
names. See Ross Decl. The Government also argues that the timing between the monthly
payments from Ms. Preston to Mr. Preston and Mr. Preston’s monthly payment of the mortgage
suggests that Ms. Preston’s checks could have been intended for the mortgage payments. See
Pl.’s Mem. Supp. at 7; Pl.’s Opp. at 16–17. But the Government’s argument is pure conjecture;
it is equally possible that the payments, which appear to have been in an amount that was more
than half of the monthly mortgage payments, 12 were for monthly expenses, as the Prestons claim,
that were due around the same time as the mortgage payments. Even Ms. Griffith, who testified
that Ms. Preston told her that “she was generally responsible for helping to finance and pay for
the house” and that Mr. Preston was dependent on her to “pay for things for the house,” also
testified that she did not know if Ms. Preston contributed towards the mortgage on the Windover
Property. Griffith Dep. at 34:20–35:1.
The evidence before the Court is not “so one-sided that one party must prevail as a matter
of law.” Anderson, 477 U.S. at 251–52. A reasonable factfinder could find that, in 2008, Ms.
Preston agreed to pay her husband for a joint interest in the Windover Property upon the
consolidation of their finances and that, in 2012, Ms. Preston realized that she would be unable
to consolidate her finances or pay Mr. Preston for her interest due to her impending criminal
charges and restitution obligations and therefore transferred her interest back to Mr. Preston in
exchange for releasing his potential claim against her for the amount she owed. In making those
findings of fact, the factfinder might view the Prestons’ testimony as credible, by considering
that, among other things: the Prestons had individual careers prior to and during their marriage;
Mr. Preston owned the Windover Property for more than 20 years before he married Ms. Preston
12
A schedule listing the monthly payments of $2,500 and the mortgage payments prepared
by the Government indicates that the mortgage payments ranged from $3,263.32 to $3,755.51
between January 2011 and January 2013. See Ross Decl. at 48–50.
22
and waited nearly four years after their marriage before conveying a joint interest; and Ms.
Preston wrote a check to her husband for $2,500 each month. Another reasonable factfinder,
however, could find that Mr. Preston added his wife’s name to his property as a gift in 2008 and
that when it became clear in 2012 that Ms. Preston’s assets would soon be subject to forfeiture
due to her criminal activity, she gave the interest back without receiving any value in exchange.
In making those findings of fact, the factfinder might view the Prestons’ testimony as unreliable,
by considering that, among other things: the deeds in 2008 and 2012 were filed as deeds of gift
describing only nominal, if any, consideration; the Prestons failed to present any supporting
contemporaneous evidence or testimony from third party witnesses; the Prestons appear to have
held joint back accounts; and Ms. Preston transferred her interest, possibly her most valuable
asset, to her husband within months of confessing to embezzlement.
These are genuine disputes of fact that are crucial to the question of whether Ms. Preston
had actual intent to hinder, delay, or defraud when she transferred her interest in the Windover
Property to Mr. Preston in April 2012. Accordingly, neither the Government nor Mr. Preston are
entitled to summary judgment as to the transfer of the Windover Property under 28 U.S.C. §
3304(b)(1)(A).
C. “Constructive Fraud” under Section 3304(b)(1)(B)
The Government argues in the alternative that Ms. Preston’s transfer of her interest in the
Windover Property in April 2012 is avoidable under Section 3304(b)(1)(B), which provides that
a transfer by a debtor is fraudulent as to a debt to the United States if, regardless of whether the
debtor had actual intent to hinder, delay, or defraud, the debtor did not receive a reasonably
equivalent value in exchange for the transfer and, in relevant part, “intended to incur, or believed
or reasonably should have believed that he would incur, debts beyond his ability to pay as they
23
became due.” 28 U.S.C. § 3304(b)(1)(B). Some courts have referred to this provision as
addressing cases of “constructive fraud.” E.g., United States v. Schippers, 982 F. Supp. 2d 948,
964 (C.D. Iowa 2013).
As discussed with respect to actual intent, there is a genuine dispute as to the factual
question of whether Ms. Preston received a reasonably equivalent value in exchange for the
transfer of her interest in the Windover Property to Mr. Preston in April 2012—the first required
element of a claim under Section 3304(b)(1)(B). With this factual element in genuine dispute,
neither party is entitled to summary judgment.
D. Virginia’s Law Governing the Equitable Distribution of Property Upon Divorce
Finally, the Court addresses Mr. Preston’s meritless argument that he is entitled to
summary judgment, because, even if the Government is successful in this case in avoiding the
April 2012 transfer of the Windover Property, Ms. Preston would have no equitable interest in
the property due to her alleged failure to contribute to the mortgage on the property from her
separate funds “during her brief period of ownership.” Def.’s Mem. Supp. at 2–3. See also id. at
12–13.
As the sole support for his legal argument, Mr. Preston cites Hart v. Hart, 497 S.E.2d 496(Va. Ct. App. 1998). See Def.’s Mem. Supp. at 12–13. Mr. Preston neglects to mention,
however, that Hart concerned the interpretation of Virginia’s divorce laws governing the
equitable distribution of “hybrid property” (i.e., property that is part separate and part marital)
following a divorce. See Hart, 497 S.E.2d at 504–06. How a Virginia court might equitably
determine to distribute the Windover Property between the Prestons in a hypothetical divorce—a
highly fact-specific determination based on a variety of factors not relevant to this case—has no
bearing as to whether Ms. Preston’s transfer of her interest in the property to Mr. Preston is
24
avoidable pursuant to the FDCPA. Mr. Preston provides no legal authority suggesting that
Virginia’s laws governing the equitable distribution of property upon a divorce are applicable
here. Indeed, the relevant Virginia statute appears to be limited by its own terms to divorce
proceedings. See Va. Code Ann. § 20-107.3(A) (stating that the court shall classify property as
separate, marital, or hybrid “[u]pon decreeing the dissolution of a marriage, and also upon
decreeing a divorce from the bond of matrimony, or upon the filing with the court . . . of a
certified copy of a final divorce decree”).
Moreover, even if Virginia’s divorce laws were applicable, Mr. Preston does not argue
that the Windover Property would be classified as hybrid property, which appears to turn on
whether Mr. Preston’s conveyance to Ms. Preston in 2008 was a gift, one of the central issues of
fact in genuine dispute in this case. See Va. Code. Ann. § 20-107.3(A)(3)(f) (“When separate
property is retitled in the joint names of the parties, the retitled property shall be deemed
transmuted to martial property. However, to the extent that the property is retraceable by a
preponderance of the evidence and was not a gift, the retitled property shall retain its original
classification.”). Finally, the Court notes that even if Virginia’s laws concerning the equitable
distribution of hybrid property upon divorce were applicable, the issue of whether Ms. Preston
made any payments towards the mortgage of the Windover Property or made any capital
improvements to the property also remains in genuine dispute.
Mr. Preston is not entitled to summary judgment on this basis.
IV. CONCLUSION
For the foregoing reasons, the Court will deny both the Government’s Motion for
Summary Judgment (ECF No. 47) and Defendant James W. Preston’s Motion for Summary
25
Judgment (ECF No. 46). An order consistent with this Memorandum Opinion is separately and
contemporaneously issued.
Dated: August 24, 2015 RUDOLPH CONTRERAS
United States District Judge
26