Maloney v. Alliance Dev. Group, L.L.C.

Maloney v. Alliance Dev. Group, L.L.C., 2006 NCBC 11

NORTH CAROLINA IN THE GENERAL COURT OF JUSTICE
SUPERIOR COURT DIVISION
COUNTY OF MECKLENBURG 06 CVS 6776

ROBERT BRIAN MALONEY

Plaintiff,

v.
ORDER
ALLIANCE DEVELOPMENT GROUP, LLC,
ALLIANCE D. HOLDINGS, LLC, and
WILLIAM BURK, individually,

Defendants.

Rayburn, Cooper & Durham, P.A. by C. Richard Rayburn, Jr., G. Kirkland Hardymon, and Tasha
Winebarger for Plaintiff Robert Brian Maloney.

DeVore, Acton & Stafford, P.A. by Fred W. DeVore, III, for Defendants Alliance Development
Group, LLC, Alliance D. Holdings, LLC, and William Burk.

Diaz, Judge.

{1} The Court heard this matter on 4 August 2006 on the Motion of Plaintiff Robert Brian Maloney

(“Maloney”) for Issuance of a Preliminary Injunction and Appointment of a Receiver. For the reasons set
forth below, and after considering the Court file, the written Motion, and counsels’ memoranda and oral

arguments, the Court DENIES the Motion on the grounds that Maloney has failed to show a likelihood of
success on the merits of his Uniform Fraudulent Transfer Act (“UFTA”) claim.
I.

PROCEDURAL BACKGROUND

{2} Plaintiffs Maloney and Trinity Road Restaurants, LLC (“Trinity”) filed a Verified Complaint on 5

April 2006 in Mecklenburg County Superior Court. The case was transferred to the North Carolina
Business Court and assigned to me as a mandatory complex business case by order of the Chief Justice of

the North Carolina Supreme Court dated 8 May 2006.

{3} On 25 May 2006, Plaintiffs filed a Motion for Issuance of a Preliminary Injunction and
Appointment of a Receiver.

{4} Defendants Alliance Development Group, LLC (“Alliance Development”) and William Burk

(“Burk”) filed an Answer, Motion to Dismiss, and a Motion to Strike on 6 June 2006.
Alliance Development and Burk also filed a Memorandum Opposing Issuance of a Preliminary Injunction
and Appointment of a Receiver on 7 June 2006.

{5} On 8 June 2006, Plaintiffs filed a Motion to Amend the complaint to add Alliance D. Holdings,

LLC (“Alliance Holdings”) as a party defendant. Plaintiffs’ Motion to Amend was granted by order of
this Court dated 9 June 2006.

{6} On 13 June 2006, Trinity filed a Voluntary Dismissal without Prejudice as to its claims.

{7} Maloney filed his Second Verified Amended Complaint on 14 June 2006.

{8} On 28 July 2006, Maloney filed a Supplemental Memorandum in Support of Plaintiff’s Motion for
Issuance of a Preliminary Injunction and Appointment of a Receiver. Defendants Alliance Development,

Alliance Holdings, and Burk filed their Response on 1 August 2006. Maloney filed an Addendum to

Supplemental Memorandum in Support of Plaintiff’s Motion for Issuance of a Preliminary Injunction and

Appointment of a Receiver on 2 August 2006.

{9} On 4 August 2006, this Court heard oral arguments on the Motion for Issuance of a Preliminary
Injunction and Appointment of a Receiver.

{10} Defendants Alliance Development, Alliance Holdings, and Burk filed an Answer to Maloney’s

Second Verified Amended Complaint on 15 August 2006.

II.

FACTUAL BACKGROUND

A.

THE PARTIES

{11} Plaintiff Maloney is a citizen and resident of the state of Pennsylvania. (Second Verified Am.

Compl. ¶ 1.) Maloney is a franchisee of Damon’s International, Inc. (“Damon’s”). (Second Verified Am.

Compl. ¶ 20.)
{12} Defendant Alliance Development is a limited liability company organized under the laws of the

state of Delaware with its principal place of business in Mecklenburg County, North Carolina. (Second

Verified Am. Compl. ¶ 2.)

{13} Defendant Alliance Holdings is a limited liability company organized under the laws of the state of

Delaware with its principal place of business in Mecklenburg County, North Carolina. (Second Verified

Am. Compl. ¶ 3.)

{14} Defendant Burk is a citizen and resident of the state of North Carolina. (Second Verified Am.
Compl. ¶ 5; Burk Aff. ¶ 1.) Burk is the president of Alliance Development, managing member of Alliance

Holdings, and chairman of the board and chief operating officer of Damon’s. (Burk Aff. ¶¶ 2-5.)
B.

OVERVIEW OF THE FACTS

{15} Maloney’s Motion for Issuance of a Preliminary Injunction and Appointment of a Receiver arises

out of alleged violations of the UFTA. (Pl.’s Mot. for Appointment of a Receiver and Issuance of a
Prelim. Inj. ¶¶ 1-9.) The UFTA, N.C.G.S. §§ 39-23.1 to -23.12 (2006), prohibits a debtor from

transferring its assets if the transfer is made with the intent to hinder, delay, or defraud a creditor.

N.C.G.S. § 38-23.4(a)(1). The UFTA also prohibits a debtor from transferring its assets if the debtor does

not receive “reasonably equivalent value” in exchange for the transfer and the transfer either rendered the

debtor insolvent or was made at a time when the debtor was already insolvent. N.C.G.S. §§ 39-23.4(b),

39-23.5.

{16} In August 2003, Maloney and Damon’s became involved in litigation in which Maloney alleged
territorial violations in response to Damon’s allegations that Maloney was in default of his franchisee

obligations. (Second Verified Am. Compl. ¶ 35; Defs.’ Answer to Second Verified Am. Compl. ¶ 35.)

{17} Maloney alleges that, on 4 August 2005, he and third-parties John M. Self (“Self”) and Larry C.

Fox (“Fox”) entered into an agreement with Alliance Development to form a Delaware limited liability

company, Alliance Damon’s Acquisition, LLC (“Alliance Acquisition”), for the purpose of acquiring the

stock and business operations of Damon’s (“the 4 August 2005 Agreement”). (Second Verified Am.
Compl. ¶¶ 29-31; Second Verified Am. Compl. Ex. F.)

{18} After Alliance Acquisition closed on the purchase of Damon’s, Maloney, under the 4 August 2005
Agreement, was to receive reimbursement of legal fees incurred in his action against Damon’s, a litigation

settlement fee of $1,000,000, and financing from the sale and leaseback of three Damon’s restaurants.
(Second Verified Am. Compl. Ex. F ¶ 4; Second Verified Am. Compl. ¶ 36; Defs.’ Answer to Second
Verified Am. Compl. ¶ 36.)

{19} Paragraph 9 of the 4 August 2005 Agreement provides that “if a fully executed Stock Purchase
Agreement with all the shareholders of Damon’s is not executed within 30 days of [4 August 2005], this

Agreement shall be null and void.” (Second Verified Am. Compl. Ex. F ¶ 9.) Paragraph 9 of the 4 August
2005 Agreement also provides that “each party to this Agreement agrees that he or it will not enter into

any type of transaction with Damon’s unless such a party first obtains the written consent signed by all the
parties hereto.” (Second Verified Am. Compl. Ex. F ¶ 9.)
{20} Maloney alleges that he had an original financing plan to rehabilitate Damon’s and that this plan,

coupled with his business expertise, constituted his contribution to Alliance Acquisition. (See Second
Verified Am. Compl. ¶¶ 33, 42, 48-49.)

{21} Alliance Acquisition was organized as a Delaware limited liability company on 8 August 2005.
(Second Verified Am Compl. ¶ 32; Defs.’ Answer to Second Verified Am. Compl. ¶ 32.)

{22} On 13 September 2005 (more than 30 days after the execution of 4 August 2005 Agreement),
Alliance Acquisition entered into a stock purchase agreement with the shareholders of Damon’s (“the 13
September 2005 Stock Purchase Agreement”). (Second Verified Am. Compl. Ex. G.) Originally, closing

was to occur eighty days after the effective date of the Stock Purchase Agreement. (Second Verified Am.
Compl. Ex. G § 2.3.) Later, the deadline for closing was extended to 15 February 2006. (Burk Aff. ¶ 17;

Burk Aff. Ex. D.)
{23} Maloney alleges that he negotiated a debt reduction of approximately $3,000,000 with Damon’s

creditors in November 2005. (Second Verified Am. Compl. ¶ 41.)
{24} Defendants allege that Maloney attempted to purchase the stock of Damon’s surreptitiously and in
violation of the alleged 4 August 2005 Agreement in early February 2006. (Defs.’ Answer to Second

Verified Am. Compl. Countercl. ¶¶ 9-16, 21-24; Burk Aff. ¶¶ 18-22; see Burk Aff. Ex. E; see also Burk
Aff. Ex F.)

{25} Maloney alleges that, on 10 February 2006, the shareholders of Damon’s consented to an
assignment of all rights under the 13 September 2005 Stock Purchase Agreement from Alliance

Acquisition to Alliance Development. (Addendum to Supplemental Mem. in Supp. of Pl.’s Mot. for
Issuance of a Prelim. Inj. and Appointment of a Receiver Ex. 3.)
{26} Alliance Acquisition did not acquire Damon’s. (See Second Verified Am. Compl. ¶ 45; see also

Defs.’ Answer to Second Verified Am. Compl. ¶ 36.)
{27} In March 2006, the stockholders of Damon’s and Alliance Holdings entered into a new stock

purchase agreement. (Burk Aff. ¶ 24.) This transaction closed on 7 April 2006. (Burk Aff. ¶ 26; Second
Verified Am. Compl. ¶ 48; Defs.’ Answer to Second Verified Am. Compl. ¶ 48.)

{28} Maloney alleges that Alliance Development transferred all of Alliance Acquisition’s assets to itself
in violation of the UFTA. (Second Verified Am. Compl. ¶ 49.) These assets include: (1) Alliance
Acquisition’s rights under the 13 September 2005 Stock Purchase Agreement; (2) Maloney’s financing

plan for rehabilitating Damon’s; and (3) any discount in debt that Maloney negotiated on behalf of
Damon’s. (Second Verified Am. Compl. ¶ 49.)

{29} Maloney is seeking the appointment of a receiver under N.C.G.S. § 1-502 (2006) and N.C.G.S. §
39-23.7(a)(3)(b) to “take all actions necessary to preserve [Damon’s] assets and to carry on the business of

[Damon’s] in a manner consistent in [sic] the best interests of the creditors, stockholders, and franchisees
of [Damon’s].” (Pl.’s Mot. for Appointment of a Receiver and Issuance of a Prelim. Inj. Prayer for Relief
¶ B.)

{30} Maloney is also seeking the issuance of a preliminary injunction under N.C.G.S. § 1-285 (2006)
and N.C.G.S. § 39-23.7(a)(3)(a) restraining the Defendants from both “transferring, liening, or in any way

diminishing the value of the property transferred from [Alliance Acquisition],” (Pl.’s Mot. for
Appointment of a Receiver and Issuance of a Prelim. Inj. Prayer for Relief ¶ C.), and “undertaking actions

outside the ordinary course of business or permitting or causing [Damon’s] to take such actions” (Pl.’s
Mot. for Appointment of a Receiver and Issuance of a Prelim. Inj. Prayer for Relief ¶ D).
III.

CONCLUSIONS OF LAW

A.

THE UFTA

{31} The UFTA is enacted in North Carolina at N.C.G.S. §§ 39-23.1 to -23.12. Under the UFTA:
A transfer [of property] or obligation incurred by a debtor is fraudulent as to a creditor . . .
if the debtor made the transfer or incurred the obligation:

(1) With intent to hinder delay, or defraud any creditor of the debtor; or

(2) Without receiving a reasonably equivalent value in exchange for the transfer or
obligation; and the debtor:
a. Was engaged or was about to engage in a business or a transaction for which the
remaining assets of the debtor were unreasonably small in relation to the business or
transaction; or
b. Intended to incur, or believed the debtor would incur debts beyond the debtor’s
ability to pay as they became due.

N.C.G.S. § 39-23.4(a).

{32} Further, the UFTA provides that:

A transfer made . . . by a debtor is fraudulent as to a creditor whose claim arose before the
transfer was made or obligation incurred if the debtor made the transfer or incurred the
obligation without receiving a reasonably equivalent value in exchange for the transfer or
obligation, and the debtor was insolvent at that time or the debtor became insolvent as a
result of the transfer or obligation.

N.C.G.S. § 39-23.5(a).

{33} In an action for relief under the UFTA:
[A] creditor . . . may obtain . . . [s]ubject to the applicable principles of equity and in
accordance with the applicable rules of civil procedure . . . [a]n injunction against further
disposition by the debtor or a transferee, or both, of the asset transferred or other property;
[or] . . . [a]ppointment of a receiver to take charge of the asset transferred or of other
property of the transferee.

N.C.G.S. § 39-23.7(a).

B.

EQUITABLE RELIEF UNDER THE UFTA

{34} Equitable relief under the UFTA is issued “subject to the applicable principles of equity and in

accordance with the applicable rules of civil procedure.” N.C.G.S. § 39-23.7(a). North Carolina courts
appoint receivers pursuant to N.C.G.S § 1-502, and they issue preliminary injunctions pursuant to
N.C.G.S. § 1-485.
{35} Under N.C.G.S. § 1-502, a court may appoint a receiver before judgment “when [a party]

establishes an apparent right to property which is the subject of the action and in the possession of an
adverse party, and the property or its rents and profits are in danger of being lost, or materially injured or
impaired.” N.C.G.S. § 1-502.
{36} Under N.C.G.S. § 1-485, a court may issue a preliminary injunction in three situations: (1) when it
appears the plaintiff is entitled to the relief demanded, and the relief consists of restraining the

commission or continuance of some act which would produce injury to the plaintiff; (2) when it appears
that a party to litigation is doing, threatening, or about to do some act in violation of the rights of another
party to the litigation and tending to render any judgment entered in the litigation ineffectual; and (3)
when it appears the defendant threatens or is about to remove or dispose of his property with the intent to
defraud the plaintiff. N.C.G.S. § 1-485.

{37} North Carolina courts have long-recognized both the appointment of a receiver and the issuance of
a preliminary injunction as extraordinary remedies. E.g., Neighbors v. Evans, 210 N.C. 550, 554, 187
S.E.796, 798 (1936) (“The courts look with jealousy on the application for the appointment of a receiver.
It is ordinarily a harsh remedy.”); A.E.P. Indus., Inc. v. McClure, 308 N.C. 393, 401, 302 S.E.2d 754, 759

(1983) (“A preliminary injunction is an extraordinary measure taken by a court to preserve the status quo
of the parties during litigation.”).
{38} Accordingly, North Carolina courts will neither appoint a receiver nor issue a preliminary
injunction unless the movant can show a likelihood of success on the merits of his claims. N.C.G.S. § 1-
502 (“A receiver may be appointed . . . [b]efore judgment, on the application of either party, when he

establishes an apparent right to property which is the subject of the action.”) (emphasis added);
Neighbors, 210 N.C. at 554, 187 S.E. at 798 (“The right to relief must be clearly shown and also the fact
that there is no other safe and expedient remedy.”) (emphasis added); Witz, Biedler & Co. v. Gray, 116
N.C. 48, 55, 20 S.E. 1019, 1020 (1895) (“[P]laintiffs are not entitled to have [the] ancillary relief [of a
receiver] unless they are entitled to the main relief demanded in their complaint.”); e.g., A.E.P., 308 N.C.

at 401, 302 S.E.2d at 759 (“[A preliminary injunction] will be issued only . . . if a plaintiff is able to show
likelihood of success on the merits of his case.”) (emphasis added).
C.

LIKELIHOOD OF SUCCESS ON THE MERITS

{39} Maloney has failed to show a likelihood of success on the merits of his UFTA claim because he
has not shown (1) that he is, or has ever been, a creditor of Alliance Acquisition; and (2) the existence of a
fraudulent transfer.
1.

CREDITOR STATUS

{40} Relief under the UFTA is predicated on the plaintiff’s status as a creditor of the defendant. See
N.C.G.S. § 39-23.4(a) (“A transfer . . . by a debtor is fraudulent as to a creditor . . . if the debtor made the
transfer . . . [w]ith intent to hinder delay, or defraud any creditor . . . or . . . [w]ithout receiving a
reasonably equivalent value in exchange.”) (emphasis added); see also N.C.G.S. § 39-23.5(a) (“A transfer
made . . . is fraudulent as to a creditor whose claim arose before the transfer was made or obligation

incurred if the debtor made the transfer or incurred the obligation without receiving a reasonably
equivalent value in exchange for the transfer or obligation.”) (emphasis added); see also N.C.G.S. § 39-
23.7(a) (“[A] creditor . . . may obtain . . . [a]n injunction against further disposition by the debtor . . . of
the asset transferred or other property; [or] . . . [a]ppointment of a receiver to take charge of the asset
transferred or of other property.”) (emphasis added).

{41} The UFTA defines a creditor as any person who has a “right to payment.” N.C.G.S. §§ 39-23.1(3)
to 39-23.1(4).
{42} Maloney argues that he has a “right to payment” from Alliance Acquisition on three different
grounds. First, Maloney argues that he has a right to payment from Alliance Acquisition based on

paragraph 4 of the 4 August 2005 Agreement. (Second Verified Am. Compl. ¶¶ 36-38, 50; Mem. in Supp.
of Pl.’s Mot. for Issuance of a Prelim. Inj. and Appointment of a Receiver 4:10-14.) Second, Maloney
argues that he has a right to payment from Alliance Acquisition based on the investment of his business
expertise and original financing and rehabilitation plan. (See Second Verified Am. Compl. ¶¶ 33, 42, 48-
49.) Third, Maloney argues that he has a right to payment from Alliance Acquisition based on his

renegotiation of Damon’s debt. (See Second Verified Am. Compl. ¶ 41, 48-49.)
{43} Maloney first argues that he has a right to payment from Alliance Acquisition based on paragraph 4
of the 4 August 2005 Agreement. (Second Verified Am. Compl. ¶¶ 36-38, 50; Mem. in Supp. of Pl.’s
Mot. for Issuance of a Prelim. Inj. and Appointment of a Receiver 4:10-14.) However, the 4 August 2005
Agreement terminated by its own terms on 3 September 2005, 30 days after it was executed, and, even if

the contract had not terminated by its own terms, the condition triggering any right to payment Maloney
might have had under paragraph 4 of the 4 August 2005 Agreement never occurred.
{44} Paragraph 9 of the 4 August 2005 Agreement states:

The parties will make an offer to purchase Damon’s stock within 10 days of the date hereof
and attempt to close the transaction within 120 days. If a fully executed Stock Purchase
Agreement with all shareholders of Damon’s is not executed within 30 days of the date
hereof, this Agreement shall be null and void; provided, however, each party to this
Agreement agrees that he or it will not enter into any type of transaction with Damon’s
unless such party first obtains the written consent signed by all the parties hereto.

(Second Verified Am. Compl. Ex. F ¶ 9 (emphasis added).)

{45} It is uncontested that Alliance Acquisition and Damon’s shareholders did not enter into a stock
purchase agreement until 13 September 2005 (Second Verified Am. Compl. Ex. G.), 10 days after the 3
September 2005 deadline established by paragraph 9 of the 4 August 2005 Agreement. Further, there is

no indication in the record that the 4 August 2005 Agreement was extended, and the available evidence
tends to show that it was not. (See Self Dep. 59:19-61:7.)
{46} Since Alliance Acquisition did not enter into a stock purchase agreement before the 3 September
2005 deadline, the 4 August 2005 Agreement, and any rights Maloney had under it, became null and void.

Consequently, Maloney has no right to payment from Alliance Acquisition under the 4 August 2005
Agreement.
{47} Further, even if the agreement had not terminated by its own terms, the condition triggering any
right to payment Maloney might have had never occurred.
{48} Paragraph 4 of the 4 August 2005 Agreement states:

Following the closing of the purchase of Damon’s stock, [Alliance Acquisition] will cause
Maloney to receive the following:

(a) Reimbursement of legal fees in an amount agreed upon by Parties incurred
by Maloney in connection with the lawsuit with Damon’s;

(b) A litigation settlement fee of $1,000,000; and
(c) Financing from the sale and leaseback of three Damon’s Restaurants . . .
upon such terms to be agreed upon by the Parties.

(Second Verified Am. Compl. Ex. F ¶ 4 (emphasis added).)

{49} It is uncontested that Alliance Acquisition never closed the purchase of Damon’s stock. (Second
Verified Am. Compl. ¶¶ 45, 48; Defs.’ Answer to Second Verified Am. Compl. ¶ 48.) Since Alliance
Acquisition never closed the purchase of Damon’s stock, the condition precedent to any right to payment
Maloney had under the 4 August 2005 Agreement was not satisfied. Thus, even if the contract had not

terminated by its own terms on 3 September 2005, Maloney would still not have a right to payment under
it.
{50} Next, Maloney argues that he has a right to payment from Alliance Acquisition based on the
investment of his business expertise and original financing and rehabilitation plan. (See Second Verified

Am. Compl. ¶¶ 33, 42, 48-49.) There is nothing in the 4 August 2005 Agreement or anywhere else in the
record, however, which explains how Maloney’s alleged contribution of human capital to Alliance
Acquisition transformed him into a creditor.
{51} It is uncontested that Maloney invested no money in Alliance Acquisition. (Defs.’ Answer to
Second Verified Am. Compl. ¶ 34; see Second Verified Am. Compl. ¶ 34; see also Second Verified Am.

Compl. Ex. F 1:12-1:14.) Yet, he apparently owned a 25% interest in the company. (Second Verified
Am. Compl. Ex. F ¶ 1.) To the extent Maloney suggests that his equity interest makes him a creditor for
the purposes of the UFTA, the Court concludes otherwise.
{52} My research has not revealed any North Carolina cases deciding whether an equity interest
constitutes a “claim” for the purposes of the UFTA. However, the United States Bankruptcy Code

(“Bankruptcy Code”) defines the terms “claim” and “creditor” in substantially the same manner as the
UFTA. See N.C.G.S. § 39-23.1 cmt. 3 (2006). Compare 11 U.S.C.S. § 101(5) (2006) with N.C.G.S. §
39-23.1(3); compare 11 U.S.C.S. § 101(10) (2006) with N.C.G.S. § 39-23.1(4). Further, cases under the
Bankruptcy Code hold that an equity interest is not a claim against a debtor for which the equity holder

may seek to avoid a preferential transfer or file a proof of claim. See In re Riverside-Linden Inv. Co., 925
F.2d 320, 323 (9th Cir. 1991); In re Corporate Jet Aviation, 27 B.R. 870, 871 (Bankr. N.D. Ga. 1983); In
re Pine Lake Village Apartment Co., 21 B.R. 478, 480 (Bankr. S.D.N.Y. 1982).
{53} I find the reasoning of these cases persuasive. Equity investments neither trigger a right to
payment nor transform capitalists into creditors. Consequently, Maloney’s alleged equity interest in

Alliance Acquisition does not constitute a claim for the purposes of the UFTA, and Maloney cannot claim
creditor status on its account.
{54} Finally, Maloney argues that he has a right to payment from Alliance Acquisition based on his
renegotiation of Damon’s debt with its primary creditor, General Electric (“GE”). (See Second Verified
Am. Compl. ¶¶ 41, 48-49.) Again, Maloney fails to explain how these efforts make him a creditor of

Alliance Acquisition.
{55} In any event, the evidence that Maloney actually renegotiated Damon’s debt is underwhelming. In
support of his allegations, Maloney attaches a string of emails which show nothing more than his efforts at
renegotiating Damon’s debt with GE; he puts forward no evidence of a commitment. (See Maloney Aff.

Ex. A-I, July 27, 2006.) Further, the Defendants effectively rebut Maloney’s allegations with a letter from
GE’s counsel, dated 6 July 2006, which states that there is no agreement for the sale of various notes
between GE and Damon’s. (Defs.’ Supplemental Mem. in Opp’n to Pl.’s Mot. for Prelim. Inj. and
Appointment of Receiver Ex. D.)
{56} Since Maloney has not shown that he has a right to payment based on the 4 August 2005

Agreement, the investment of his human capital, or the renegotiation of Damon’s debt, Maloney has not
shown that he is a creditor of Alliance Acquisition. Without a showing of creditor status, Maloney cannot
show a likelihood of success on the merits of his UFTA claim, the prerequisite to equitable relief under
N.C.G.S. § 39-23.7(a). Accordingly, Maloney is entitled to neither the issuance of a preliminary
injunction nor the appointment of a receiver.
2.

EXISTENCE OF A FRAUDULENT TRANSFER

{57} Even if Maloney could show that he is a creditor of Alliance Acquisition, he would still fail to
show a likelihood of success on the merits of his UFTA claim because he has not shown the existence of a
fraudulent transfer.
{58} Under the UFTA, a transfer is fraudulent if it is made with the intent to hinder, delay, or defraud a
creditor. N.C.G.S. § 38-23.4(a)(1). Likewise, a transfer is fraudulent if it is made without receiving

“reasonably equivalent value” in exchange for the transfer and the debtor is either insolvent at the time of
the transfer or rendered insolvent by the transfer. N.C.G.S. §§ 39-23.4(b), 39-23.5.
{59} Maloney alleges that Alliance Acquisition transferred (1) its rights under the 13 September 2005
Stock Purchase Agreement; (2) Maloney’s original financing and rehabilitation plan; and (3) any discount
in debt that Maloney negotiated on behalf of Damon’s to Alliance Development. (Second Verified Am.

Compl. ¶ 49.)
{60} The evidence in this case tends to show that Burk, through Alliance Development, may have
breached his duty as a member of Alliance Acquisition to obtain financing for the closing of the 13
September 2005 Stock Purchase Agreement. It also tends to show that Burk may have convinced Self, a
Damon’s shareholder, to breach the 13 September 2005 Stock Purchase Agreement by selling his
Damon’s stock to Alliance Development. (See Addendum to Supplemental Mem. in Supp. of Pl.’s Mot.
for Issuance of a Prelim. Inj. and Appointment of a Receiver Ex. 2.) In addition, the evidence tends to

show that Burk, in violation of his duties under the 4 August 2005 Agreement, may have attempted to
“squeeze" Maloney out of the Stock Purchase Agreement by negotiating a consent to assignment of the 13
September 2005 Stock Purchase Agreement with the remaining Damon’s shareholders on or about 10
[1]
February 2006. (See Addendum to Supplemental Mem. in Supp. of Pl.’s Mot. for Issuance of a Prelim.
Inj. and Appointment of a Receiver Ex. 3.)
{61} What the evidence does not show, however, is a transfer of property made with the intent to hinder,
delay, or defraud; an exchange without receiving reasonably equivalent value; or an insolvent debtor.

Without any of these showings, the existence of a fraudulent transfer cannot be established; and, without
the existence of a fraudulent transfer, there is no likelihood of success on the merits of a claim under the

UFTA.
{62} With regard to the transfer of rights under the 13 September 2005 Stock Purchase Agreement,

Maloney presents evidence of Burk’s attempt to negotiate a consent to assignment (see Addendum to
Supplemental Mem. in Supp. of Pl.’s Mot. for Issuance of a Prelim. Inj. and Appointment of a Receiver

Ex. 3), but he presents no substantial evidence that this assignment, as required by its terms, was ratified

by Damon’s shareholders or that a transfer of rights under the 13 September 2005 Stock Purchase
Agreement occurred before the expiration of the extended closing date.

{63} Just as there is no substantial evidence of a transfer of rights under the 13 September 2005 Stock
Purchase Agreement, there is no substantial evidence that Alliance Acquisition transferred either

Maloney’s financing and rehabilitation plan or any discount in debt that Maloney negotiated on behalf of

Damon’s. Coupling Maloney’s allegations of a transfer with evidence that Alliance Holdings closed the
purchase of Damon’s stock shortly after Alliance Acquisition’s failure simply does not carry Maloney’s

burden on these issues.
{64} Further, even if Alliance Acquisition transferred these assets, Maloney presents no evidence of

their value and, therefore, does not show that the transfer of assets was made without receiving reasonably

[2]
equivalent value.
{65} Finally, Maloney alleges that Alliance Acquisition is insolvent, but he presents no evidence of
Alliance Acquisition’s financial state either immediately before or after the alleged transfer. It is

Maloney’s burden to show that Alliance Acquisition is insolvent, and without evidence of Alliance
Acquisition’s financial status, Maloney cannot carry this burden.

{66} Since Maloney has not shown a transfer made with the intent to hinder, delay, or defraud; an

exchange without receiving reasonably equivalent value; or an insolvent debtor, he has not shown the
existence of a fraudulent transfer. Regardless of his status as a creditor of Alliance Acquisition, Maloney

cannot show a likelihood of success on the merits of his UFTA claim, the prerequisite to equitable relief
under N.C.G.S. § 39-23.7(a), without a showing of a fraudulent transfer. Accordingly, Maloney is entitled

to neither the issuance of a preliminary injunction nor the appointment of a receiver.
CONCLUSION

{67} Based on the foregoing, it is hereby ORDERED, ADJUDGED, and DECREED that Plaintiff’s

Motion for Issuance of a Preliminary Injunction and Appointment of a Receiver is DENIED.

This the 18th day of September, 2006.

[1]
There is also evidence that Maloney was the first party that attempted to circumvent the 4 August 2005 Agreement; Maloney
and Self removed Burk as the sole agent authorized to negotiate financing for the 13 September 2005 Stock Purchase Agreement
and attempted to close the Stock Purchase Agreement without him. (See Defs.’ Supplemental Mem. in Opp’n to Pl.’s Mot. for
Prelim. Inj. and Appointment of Receiver Ex. B.)
[2]
The evidence of record indicates that the “assets” Maloney alleges Alliance Acquisition transferred to Alliance Development
were valueless. The evidence indicates that the 13 September 2005 Stock Purchase Agreement expired by it own terms, and any
rights under that agreement terminated as a result. (Laws Dep. 117:24-118:4; Self Dep. 59:19-61:7.) Further, the evidence
indicates that Maloney’s plan for rehabilitating Damon’s was not particularly original. (Self Dep. 55:12-56:25, 62:2-62:8.)
Finally, the evidence that Maloney actually renegotiated Damon’s debt is very weak s( ee Defs.’ Supplemental Mem. in Opp’n to
Pl.’s Mot. for Prelim. Inj. and Appointment of Receiver Ex. D), and even if Maloney did renegotiate Damon’s debt, it is difficult to
conceive of this renegotiation as the property of Alliance Acquisition, an entity both parties concede never owned a single share of
Damon’s stock. (See Second Verified Am. Compl. ¶ 45; see also Defs.’ Answer to Second Verified Am. Compl. ¶ 36.) Since
these “assets” apparently had no value, their gratuitous transfer is not “a transfer without receiving a reasonably equivalent value in
exchange.”