Developer’s tricky financing results in $1.3M award

Margaret and Grady Trantham were in their 80s when they met real estate developer Michael Martin. They’d bought their 100-acre farm in Pickens County, S.C., some years before, following Grady’s retirement from his job at Champion Paper Mill in Canton, N.C., and were content to spend their retirement years working the land as they’d done while growing up in western North Carolina.

Together they raised cattle and hogs, did some farming and hoped that, when they passed on, they’d have something to leave to their family. By the late 1990s, though, the years caught up with them and they put the farm on the market.

Martin saw an ad for the property in a North Carolina newspaper and came to the Tranthams with a deal: He’d buy the farm if they’d finance the sale by taking back a mortgage on the property.

In 2000, Martin did just that, dividing the farm up into parcels and structuring the transaction so that two of his companies – Michael L. Martin n/k/a Equity Management Inc. and Roanoke Land Co. – signed several mortgage notes to the Tranthams for the parcels. He planned to develop the property.

Over time Martin paid off some of the notes but fell into arrears on others, and in 2004 he asked the Tranthams to consider a new deal. He persuaded them that if they released the remaining mortgages, he could sell those parcels free and clear.Then he’d be able to pay off his notes. In exchange, the Tranthams could have a second mortgage on a commercial warehouse in Henderson County, N.C.

Land sold, money gone

The couple had little experience with real estate – neither had finished high school – and they’d come to trust Martin, so they accepted the deal.

By the end of 2005 Martin had sold the remaining parcels. But in February 2007, he came back to the Tranthams and told them that the warehouse was in trouble and that he was going to try to stop the foreclosure and secure their position, but he was unsuccessful. When the first lien on the warehouse foreclosed, the Tranthams lien was wiped out, leaving them with nothing but hundreds of thousands of dollars in unpaid notes.

In 2009 they sued Martin individually and his companies for breach of contract, fraud, constructive fraud, unfair trade practices and negligent misrepresentation.

And, last month, a Henderson County jury awarded them $426,927, which the judge then trebled because of the verdict on the unfair trade practices claim, for a total verdict of $1.28 million.

“Here you had folks who were uneducated people, but who had been hardworking – Grady worked for 30 years in a paper mill – and at the end of their lives they had developed this asset that was worth almost $400,000,” said their attorney James Johnson of the Van Winkle Law Firm in Asheville. “Had this deal worked out the way they had intended, they would have sold the farm, made $400,000 and would have had money to leave their family. It would have been a nice achievement at the end of their lives.That didn’t happen, and they were taken advantage of. I thought the jury recognized that.”

Collateral agreement

At trial, the defense argued that all of the notes were nonrecourse, so that the Tranthams could only recover from the collateral. Also, only the companies, not Martin himself, had signed the notes.

That was by design, Johnson said.

“He had structured this pretty complicated transaction,” he said. “At the end of the day, he set it up so that he could walk away. If he didn’t pay the notes, all they could get back was the property, and if the property was gone, well, they got nothing.”

It was important to get a judgment from Martin individually – outside of the notes, Johnson said.

“We were able to do that in two ways. First, we argued that the 2004 substitution of collateral agreement (which was in writing and signed by Martin individually), constituted a separate agreement which obligated Martin individually to bring the notes current and thereafter resume the payments,” Johnson said. “Second, we argued that a confidential relationship existed between Martin and the Tranthams which gave rise to a fiduciary duty.”

Martin visited the couple regularly from the time he closed the deal in 2000 until November 2004, Johnson said.  And each year he would provide them with an accounting of how much he’d paid.

“They relied on him for that,” Johnson added. “It was complicated because there were six or seven different notes, and he’d made some payments on this one in one year, some on that one another year. He kind of kept with the paperwork.”

Martin also had sent the couple a letter after the warehouse was in trouble, according to Johnson, in which he said, “I just want to thank you for the trust and confidence you have had in me. I hope we can see this all through.”

“Under North Carolina law, you don’t have to show a formal relationship of trust. You just have to show that between the parties there was a relationship of trust,” Johnson said. “Given those factors and given that letter, the judge was persuaded that the issue could go to the jury.”

‘We trusted him’

Only two witnesses testified at trial: Michael Martin and Margaret Trantham. Her husband of 72 years, Grady Trantham, had died earlier in the year at the age of 95.

The difference in their testimony could not have been more striking, Johnson said.

Margaret Trantham, 92 at the time, testified twice.

“She was very stoic. She sat up straight and told her story,” Johnson said.

She was asked repeatedly on the stand,  “Why did you do this? Why did you give up the first lien on the farm?”  he added. “And she said ‘Michael Martin said that we’d get paid if we did that, and we trusted him.’”

Martin, on the other hand, cried and said he’d basically lost all his money in the transactions, even though it was eventually revealed that he ended up selling the parcels for $850,000, Johnson said.

“At the end of the day, the constructive fraud and negligent representation theories gave the jury the tools they needed to say, ‘Look, you know what, you are responsible for this,’” Johnson added.

“Here it is, 12 years since the Tranthams sold the property, and three years since they filed the lawsuit. It took a toll on the last several years of their lives.”

“And when the jury verdict finally came in, Margaret said, ‘This is for Grady too.’”

James Lee, of Hogan & Brewer in Hendersonville, N.C., who represented Martin in this matter, declined to comment.

MCCLOSKEY writes for North Carolina Lawyers Weekly, a sister publication to The Mecklenburg Times.