Kelly v. Armstrong
| Citation | 206 F.3d 794 |
| Decision Date | 17 November 1999 |
| Docket Number | No. 98-4081,98-4081 |
| Parties | (8th Cir. 2000) PHILLIP KELLY, TRUSTEE, APPELLANT, v. DAVID ARMSTRONG; HANNAH ARMSTRONG; OMAHA STATE BANK; DAVID N. ARMSTRONG, EXECUTOR OF THE ESTATE OF THEODORE F. ARMSTRONG, APPELLEES. Submitted: |
| Court | United States Courts of Appeals. United States Court of Appeals (8th Circuit) |
Appeal from the United States District Court for the District of Nebraska. [Copyrighted Material Omitted] Before Richard S. Arnold, Floyd R. Gibson, and Beam, Circuit Judges.
Phillip Kelly, the trustee of David and Hannah Armstrong's bankruptcy estate (the Trustee), brought this action under 11 U.S.C. § 548(a). He alleged both actual and constructive fraud and sought to set aside four pre-bankruptcy transfers. The case was tried to a jury. The jury found in favor of the defendants and the Trustee appealed. We reversed and remanded on a jury instruction issue. The case was tried again and the jury again returned a verdict in favor of the defendants on all four claims. The district court denied motions for a judgment as a matter of law and a new trial. The Trustee now appeals and we affirm.1
This is the fourth appeal in a thirteen-year-old case with a long and complex history.2 See Abbott Bank-Hemingford v. Armstrong, 931 F.2d 1233 (8th Cir. 1991) (Armstrong I); Abbott Bank v. Armstrong, 44 F.3d 665 (8th Cir. 1995) (Armstrong II); Kelly v. Armstrong, 141 F.3d 799 (8th Cir. 1998) (Armstrong III). Because the facts that gave rise to David and Hannah's bankruptcy are fully recounted in our opinion in Armstrong I, we now set forth only the facts relevant to this appeal.
In October of 1986, David and Hannah made four property transfers. These were questionable transactions. First, David sold 1800 shares and transferred the majority interest in the Maverick Land and Cattle Company (Maverick) to his father, Theodore, for $79,920. Maverick is a closely-held corporation in which David and Theodore were the sole shareholders. Second, Omaha State Bank increased Maverick's credit line from $200,000 to $600,000, in exchange for a pledge by Theodore of $780,000 in marketable securities. Maverick borrowed against this credit line to repay Theodore $157,700, in partial satisfaction of an outstanding debt. Shortly after this transaction, Theodore purchased David and Hannah's residence for that exact amount. Third, David pledged his remaining shares of Maverick to Omaha State Bank as additional security for the increased credit line. Fourth, David and Hannah pledged two vehicles to Omaha State Bank to secure the increased credit line, although Omaha State Bank neither requested nor required them to do so. Finally, with the money that David and Hannah received from the stock sale and the home sale, they purchased annuities that were exempt from execution in bankruptcy under Nebraska law. See Neb. Rev. Stat. § 44-371 (1984).
David and Hannah then filed for bankruptcy on December 31, 1986. As a result of these transactions, all of David and Hannah's previously unencumbered assets either were encumbered in favor of Omaha State Bank, to the detriment of other creditors, or were sold and the proceeds were placed in exempt annuities. Marvin Schmid, Omaha State Bank board member and eventual Chairman, was a personal friend of Theodore's, and Schmid's former law partner has represented Theodore,3 David and Hannah throughout these proceedings.
The Trustee now appeals the second jury verdict. He contends that the denial of the motions was in error. He also asserts that the district court failed to properly instruct the jury in accordance with our remand. Finally, he asserts that the district court abused its discretion in admitting irrelevant and confusing evidence.
The Trustee contends that the evidence presented at trial was insufficient to support the jury's verdict, and therefore he is entitled to either a judgment as a matter of law or a new trial. We are, however, very reluctant to set aside a jury's verdict and will not do so lightly. See Fox v. T-H Continental Ltd. Partnership, 78 F.3d 409, 413 (8th Cir. 1996).
We review de novo the district court's denial of a motion for a judgment as a matter of law. See id. In making this determination "[i]t is well settled that we will not reverse a jury's verdict for insufficient evidence unless, after viewing the evidence in the light most favorable to the verdict, we conclude that no reasonable juror could have returned a verdict for the non-moving party." Ryther v. KARE 11, 108 F.3d 832, 836 (8th Cir. 1997) (en banc); see also Fed. R. Civ. P. 50(a). In considering the evidence presented at trial, we will not weigh or evaluate it nor will we consider questions of credibility. See Fox, 78 F.3d at 413.
We review a district court's denial of a motion for new trial for an abuse of discretion. See Peerless Corp. v. United States, 185 F.3d 922, 927 (8th Cir. 1999). The district court's decision to deny a motion for new trial is "'virtually unassailable'" when the basis for the motion is insufficient evidence. Id. (citations omitted). We will only reverse if there was a clear abuse of discretion demonstrating an "'absolute absence of evidence to support the jury's verdict.'" Id. (quoting Porous Media Corp. v. Pall Corp., 173 F.3d 1109, 1123 (8th Cir. 1999)).
Although the standards for granting a motion for judgment as a matter of law and new trial are different, those differences are irrelevant to this case because we conclude that the evidence presented at trial was sufficient to support the jury's verdict under either standard.
In Armstrong III, we recognized that it is difficult for a trustee to present adequate direct evidence of fraud by the bankrupt. 141 F.3d at 802. As a result, courts look for common indicia or "badges of fraud" which include but are not limited to: "(1) actual or threatened litigation against the debtor; (2) a transfer of all or substantially all of the debtor's property; (3) insolvency on the part of the debtor; (4) a special relationship between the debtor and the transferee; and (5) retention of the property by the debtor after the transfer." Id. If there is a confluence of the "badges of fraud," then the Trustee is entitled to a presumption of fraudulent intent. See id. To overcome the presumption, a "'legitimate supervening purpose'" for the transfers must be shown by the bankrupt. Id. (quoting In re Acequia, Inc., 34 F.3d 800, 806 (9th Cir. 1994)).
The Trustee contends, with respect to each transfer, that he proved a confluence of the badges of fraud and that the defendants were unable to present a "legitimate supervening purpose" that was sufficient to meet the legal standard. We disagree.
On October 6, 1986, David and Theodore, as sole shareholders and directors of Maverick, approved the sale of 1800 shares of stock from David to Theodore. The Trustee alleges that the following badges of fraud were present: (1) the Bank of Hemingford threatened and then filed a lawsuit against David and Hannah for their outstanding debt; (2) at the time of the transfer, the Debtors were insolvent; (3) the transfer was made to a person with a special relationship to the Debtors, David's father Theodore; (4) after the transfer David continued to retain control and benefits from the stock; (5) this transfer, coupled with others made at the time, involved substantially all of David and Hannah's unencumbered assets; and (6) the transfer departed from the usual way of doing business.
David and Hannah stipulated that they were insolvent at all times relevant to this transfer, however, they presented evidence that disputed the remaining badges of fraud. They testified that they were in negotiations with the Bank of Hemingford about ways that they could reach a settlement on their debt throughout 1986. They also testified that they were not aware that the Bank of Hemingford had either threatened or filed a lawsuit against them until after the shares had been sold. Although the transfer was made to David's father, Theodore, David and Theodore were the sole shareholders in a closely-held company, making it very difficult to sell the shares to any other person. Theodore was given possession of the stock, and exercised the voting rights of the stock from that point forward. Although David and Hannah did transfer a majority of their unencumbered assets, it was less than twenty percent of their total assets. Additionally, the Bank of Hemingford made representations to David and Hannah that it had no interest in David's Maverick stock. Finally, David and Theodore testified that it was Theodore's idea that he purchase the stock. They testified that the sale came about after multiple discussions over several weeks. The price for the stock, $44.40, was set by determining the entire value of Maverick's assets and dividing that by the 10,000 shares in the company.
Even if a confluence of the badges of fraud were present, David and Theodore presented a "legitimate supervening purpose" for the sale--Theodore wanted control of the company because he had pledged significant assets as collateral for a Maverick loan. In the fall of 1986, Theodore was searching for a bank that could supply all of Maverick's lending needs. Prior to this time, Maverick had borrowed money from Southwest Bank in Omaha, and from Theodore, who took out a loan from a bank in Florida. Theodore, through his lawyer and friend, Marvin Schmid, was directed to the Omaha State Bank. Omaha State initially extended Maverick a $150,000 credit line. Theodore requested an increase in the credit line to $600,000 in October 1986, so that Maverick could consolidate its credit. In order to secure this credit line, Theodore pledged $780,000 of marketable securities. Theodore decided, that because he had made such a large personal financial commitment on...
To continue reading
Request your trial
-
Asarco LLC v. Americas Mining Corp.
...shifts to the defendant to rebut the presumption by showing a legitimate business purpose supports the transfer. Kelly v. Armstrong, 206 F.3d 794, 801 (8th Cir.2000). Thus, even though Plaintiff proved that AMC had the requisite intent, AMC may still prevail on this claim if it can prove th......
-
Stoebner v. Ritchie Capital Mgmt., L. L.C. (In re Polaroid Corp.)
...“badges of fraud” analysis to reach actual intent, well-developed in bankruptcy jurisprudence and in statute. E.g., Kelly v. Armstrong, 206 F.3d 794, 798 (8th Cir.2000); Kelly v. Armstrong, 141 F.3d at 802;In re Sherman, 67 F.3d at 1353–1354. That approach is not as easy of success as many ......
-
In re Petters Co.
...seeMinn.Stat. § 513.44(b), as well as the judicial construction of bankruptcy statutes under this circuit's precedent, Kelly v. Armstrong, 206 F.3d 794, 798 (8th Cir.2000); Kelly v. Armstrong, 141 F.3d 799, 802 (8th Cir.1998); In re Sherman, 67 F.3d at 1353–1354. The “badges” approach permi......
-
Duke & King Mo., LLC v. Nath Cos. (In re Duke & King Acquisition Corp.)
...the context of fraudulent transfer litigation brought by trustees in bankruptcy under state or federal statute. E.g., Kelly v. Armstrong, 206 F.3d 794, 798 (8th Cir.2000); Kelly v. Armstrong, 141 F.3d 799, 802 (8th Cir.1998); In re Sherman, 67 F.3d 1348, 1353–1354 (8th Cir.1995). Minnesota'......