Arnold v. Dirrim, 3-1077A260

Citation398 N.E.2d 442
Decision Date20 December 1979
Docket NumberNo. 3-1077A260,3-1077A260
PartiesEsta G. ARNOLD, Opal Arnold, Charles Larry Arnold and E. G. Arnold Oil & Parts Co., Inc., Defendants-Appellants, Fort Wayne National Bank, Non-Appealing Defendant, v. Kenneth DIRRIM, Wynell Dirrim, Individually and as Representatives of a Class, Plaintiffs-Appellees.
CourtCourt of Appeals of Indiana

Vincent J. Heiny, Snouffer, Haller & Colvin, Fort Wayne, John Whiteleather, Jr., Whiteleather & Whiteleather, Columbia City, for defendants-appellants.

Martin T. Fletcher, Rothberg, Gallmeyer, Fruechtenicht & Logan, Fort Wayne, for plaintiffs-appellees.


On January 10, 1977 judgment in a class action suit was rendered against defendant-appellant Esta G. Arnold (Esta) and other persons not parties here in the sum of $553,439.36. The instant case arises out of efforts by plaintiffs to enforce collection of that judgment through a proceedings supplemental action. In the proceedings supplemental, the trial court found that certain property transfers by Esta to defendants-appellants Opal Arnold (Opal), Charles Larry Arnold (Charles) and E. G. Arnold Oil & Parts Co., Inc. (Parts Co.) were fraudulent conveyances and void as to plaintiffs.

Defendants have posited the following issues on appeal:

(1) whether the trial court erred in finding the property transfers to be fraudulent;

(2) whether the trial court erred in failing to joint the remaindermen of a spendthrift trust as parties;

(3) whether the trial court erred in granting discovery sanctions against Esta;

(4) whether the trial court erred in setting the trial date of this cause (5) whether the trial court erred in denying defendants' motions for change of venue; and

(6) whether the trial court erred in sustaining objections to four questions propounded to Esta and Opal during their direct examinations.

Reviewing the entire record discloses this sequence of events: On July 21, 1972 plaintiffs commenced a lawsuit alleging violations of the Indiana Securities Act. Thereafter Esta was joined as a party defendant and the suit was certified as a class action. The trial was held from May 12-19, 1976 and judgment was subsequently decreed for plaintiffs. On April 23, 1976 Esta transferred by warranty deed the only piece of real estate held in his sole name to the Parts Co., a corporation whose shareholders consisted of Esta, Opal, his wife, and their sons. The consideration for this conveyance was an unsecured promissory note from the Parts Co. for $15,000 even though the fair market value of the property was $25,000. Significantly, no payments of principal or interest were ever made by the Parts Co. on its note.

On May 7, 1976 Esta transferred securities having an aggregate value of $168,000 to an irrevocable spendthrift trust created on the same date. These securities represented all stock owned by Esta in his name only except for some stock pledged to Farmers Loan & Trust Company of Columbia City (Farmers). Under this trust agreement Esta reserved a joint right to the income of the corpus for life. However Esta instructed the trustee to place this net income into a joint checking account in the names of Opal and Charles. Although Opal was also a settlor of the trust, no assets in her name were ever transferred to the trust.

On January 14, 1977, four days after judgment was rendered against Esta in the class action suit, a writ of execution was issued to the Sheriff of Whitley County and he was instructed by plaintiffs to levy upon Esta's Central Soya and NIPSCO stock which had been pledged as collateral for a loan at Farmers. When the Sheriff went to Farmers on January 19 in order to levy upon the stock, he discovered that the bank no longer had possession of it.

It was revealed at trial that on the previous day, January 18, Esta and Opal had engaged in a series of transactions beginning at Citizens National Bank of Whitley County (Citizens) which had as its object the withdrawal of the pledged securities from Farmers. At Citizens Esta drew a check on the Parts Co. account for $15,000 payable to Opal. Although the Parts Co. had printed checks bearing its corporate name, this particular check was not of that form. Opal also wrote a check for $10,000 which was drawn on a joint checking account she held with Charles at the Fort Wayne National Bank (National). This was the same checking account that Esta had directed the trustee to deposit the income of the spendthrift trust. Opal then withdrew $3,000 from a joint savings account she maintained with Charles at Citizens. The sum of these transactions totaled $28,000 and Opal used this money to purchase a cashier's check from Citizens payable to herself in that amount.

Later that morning Opal and Esta proceeded to Farmers and informed the bank officials that they wished to pay off Esta's $28,000 note with the bank and wanted the Central Soya and NIPSCO stock released from the pledge. Curiously Opal could not explain why they suddenly decided to settle this obligation even though Esta testified that it was done because Opal was harassing him to pay it. Opal endorsed the cashier's check to Farmers and the securities were returned to them.

The couple then went to the trust department of National where they met with Thomas Quirk, a trust officer. Quirk was instructed by Esta to sell the Central Soya and NIPSCO stock at once. Esta directed Quirk to disburse $28,000 worth of the proceeds as follows: $15,000 to the Parts Co.; $3,000 to Charles and $10,000 to Opal. Quirk understood that the balance of the proceeds was to become part of the spendthrift trust. The stock was sold the same day as this meeting and generated $47,000.

On January 19 John Truesdell, another trust officer from the bank, notified Esta that his instructions had been carried out. Esta, however, claimed that he had only intended for $28,000 worth of the stock to be sold. On January 25 National received the proceeds of the stock sale and disbursed $28,000 pursuant to Esta's original instructions. These disbursements were reflected as a distribution of principal from the spendthrift trust. The checks to Opal and Charles were deposited in their joint savings account at Citizens. Truesdell used the balance of the proceeds from the stock sale to repurchase shares of Central Soya and NIPSCO. He also deposited $6,343.83 in a savings account for the benefit of the trust.

Esta and Opal returned to the trust department on February 1. At that time Esta stated that he had never intended for the repurchased stock to become an asset of the spendthrift trust and that his intentions from the start were to sell all the original shares and distribute the proceeds to his wife. In the course of this conversation, Esta asked the bank to falsify its records so that there would not be any reference to the Central Soya or NIPSCO stock being part of the trust. Esta told the bank to sell the repurchased shares immediately and to deposit the proceeds in his wife's checking account along with the $6,343.83 from the trust savings account. The bank sold the stock and disbursed the proceeds of $17,720.91 along with the trust savings account pursuant to Esta's directions.

On February 14 Opal returned to National and closed the checking account there by drawing a check for $20,451.15 payable to herself. With this money she purchased two cashier's checks one of which was payable to her in the sum of $10,451.15. She cashed this check later that day. The other check was written to Sherrill Colvin, one of defendants' attorneys in this cause.

On this same day Charles went to Citizens and withdrew $14,312 from the joint savings account, which he then delivered to Opal. At Esta's behest Opal spent $10,000 of this money to lease a 1977 Cadillac. This lease was unusual in that it required an initial lease payment of $10,000 and a second payment of $100 in three years. As a result of these various transactions Esta retained no assets in his name with which to satisfy plaintiffs' judgment.

The principal question raised by defendants is whether the trial court erred in finding these transactions to be fraudulent: 1) the real estate conveyance; 2) the transfers of securities to the trust; and 3) the disposition of the proceeds from the sale of the Central Soya and NIPSCO stock. On appeal of claims which have been tried to the court without a jury, the judgment will not be disturbed unless clearly erroneous and due regard shall be given to the opportunity of the trial court to judge the credibility of the witnesses. Ind. Rules of Procedure, Trial Rule 52(A). The findings or judgment will be found clearly erroneous only when on the entire record the reviewing court is left with the definite and firm conviction that a mistake has been committed. University Casework Systems, Inc. v. Bahre (1977), Ind.App., 362 N.E.2d 155.

In analyzing the evidentiary underpinnings of these findings of fact, it is important to note that the determination of the character of a conveyance as fraudulent or otherwise involves the consideration of various elements and factors. Moreover, there are certain circumstances which so frequently attend transfers to defraud creditors that they are recognized as indicia or badges of fraud. These badges form important links in the chain of evidence that fixes the character of the challenged transactions. Consequently, where there is a concurrence of several such badges of fraud, an inference of fraudulent intent may be warranted. Kane v. Drake (1866), 27 Ind. 29.

The seminal case of Milburn v. Phillips et al. (1894), 136 Ind. 680, 34 N.E. 983, 36 N.E. 360, mentions numerous badges of fraud and is especially valuable in the consideration of the issues involved here. Among the most common indicia of fraud is the transfer of property by a debtor during the pendency of a suit against him, especially where the transfer renders the debtor insolvent or greatly reduces his estate. See also: ...

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    • January 25, 1993 frequently indicate transfers to defraud creditors that they are recognized as indicia or "badges of fraud". Arnold v. Dirrim, 398 N.E.2d 442 (Ind.App.1979); Cook v. Ball, 144 F.2d 423 (7th Cir.), cert. denied, 323 U.S. 761 (1944). "Badges of fraud" from which fraudulent intent may be in......
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