Bird v. McCauley (In re McCauley)
| Decision Date | 30 September 2014 |
| Docket Number | Adversary No. 12–2313.,Bankruptcy No. 10–30907. |
| Citation | 520 B.R. 874 |
| Court | U.S. Bankruptcy Court — District of Utah |
| Parties | In re Eugene V. McCAULEY, Jr., Debtor. J. Kevin Bird, Trustee, Plaintiff, v. Michael McCauley, an individual; Susan Knorr, an individual; Nancy Gallegos, an individual; Elizabeth McCauley, an individual; and RE McCauley LLC, a dissolved Utah Limited Liability Company, Defendants. |
Adam S. Affleck, Prince Yeates & Geldzahler, Salt Lake City, UT, for Plaintiff.
Randy B. Birch, Heber City, UT, for Defendants.
FINDINGS OF FACT AND CONCLUSIONS OF LAW
On March 19, 2014, the Court commenced the trial in this adversary proceeding. The trial continued through March 20, 2014, and on March 21, 2014, the Court made its ruling from the bench. The following findings of fact and conclusions of law augment any findings and conclusions stated by the Court during the hearing of March 21, 2014.
The Court did not find any of the Defendants' testimony particularly credible. They all failed to remember facts and events of significance, except in those instances where their testimony supported facts or events that may be helpful to their case. Notwithstanding the lack of witness credibility, the following facts are clearly established by the record.
Ruth E. McCauley had four children, Eugene V. McCauley, Jr. (Debtor), Michael G. McCauley, Susan K. Knorr and Nancy L. Gallegos. On June 1, 2000, the Debtor was incarcerated. At the time of his incarceration, the Debtor was married to Elizabeth McCauley.
Four days after Eugene was incarcerated, Ruth created the Ruth E. McCauley Revocable Trust (Trust). Ruth was the sole beneficiary under the Trust and she appointed herself and Susan co-trustees. The Trust directed that upon Ruth's death, after paying certain Trust obligations, the “Trust Estate shall then be distributed ... with the children of Ruth E. McCauley, to wit, Eugene V. McCauley, Jr., Michael G. McCauley, Susan K. Knorr and Nancy L. Gallegos, each receiving equal shares.”1 On the same day Ruth created the Trust she also executed a separate will bequeathing all of her property to the Trust. Sometime after the formation of the Trust, Ruth quitclaimed property she owned in Lehi, Utah to the Trust.
In November 2002, while Eugene was incarcerated, Yukon Excavation, LLC obtained a judgment against him in the principal amount of $92,754.03. In December 2003, the Trust sold its interest in the Lehi property to Wentworth Development LLC. As part of the transaction, Ruth received a quitclaim deed to some of the real property the Trust had sold to Wentworth. The quitclaim deed conveyed proposed lots 1 and 2 of the Bull River Ridge subdivision to Ruth. In connection with the sale of the Lehi property, the Trust also entered into a 1031 tax exchange with Everet and Janet West whereby the Trust was to receive real property in Uinta County, Utah (Ballard Property). The Ballard Property consisted of a 60–acre tract of ranch land with a residence, a 120–acre tract of ranch land, and Dry Gulch Irrigation water shares.
On January 23, 2004, Ruth formed RE McCauley, LLC (REM) with herself as the sole member and manager. The Trust's 1031 exchange for the Ballard Property was completed in March 2004. In June 2004 the Trust conveyed the Ballard Property to REM. Susan testified that Ruth transferred the Ballard property to REM to avoid liability for any potential personal injury claims. REM never engaged in any business activities, maintained any business records, or filed any tax returns. REM maintained a bank account at Mountain America Credit Union (REM Account) in May 2005.2 Ruth updated REM's records filed with the Division of Corporations and Commercial Code of the Utah Department of Commerce (Utah Department of Commerce) to add Susan as a member. Susan held her REM membership interest in her capacity as Ruth's personal representative and trustee of the Trust.3
In February 2004 Susan formed EMSN, LLC. Susan was EMSN's only member and manager but Susan testified that EMSN was formed at Ruth's request. In April of that same year, Ruth conveyed lots 1 and 2 of the Bull River Ridge subdivision to EMSN. There was a home on lot 2, but lot 1 was raw land. Susan testified that lot 2 was transferred to EMSN to hold for Nancy but she didn't know what was going to happen to lot 1. There were also water shares associated with the Lehi property that were transferred to EMSN.
Ruth died on July 22, 2006, and Susan became the sole trustee of the Trust. Under the terms of the separate will, all of Ruth's non-Trust assets were to “pour over” and become assets of the Trust upon her death. Susan also served as executor of Ruth's will. Susan failed to maintain any accounting, informal or otherwise, with respect to Ruth's assets or the Trust assets. The evidence before the Court is, at the time of Ruth's death, the Trust had bank accounts at Mountain America Credit Union, a home in Roosevelt, Utah, and a membership interest in REM, but there is no evidence as to the value of the assets. The Court was not provided with a comprehensive list of the assets or an accounting of the assets that were to be distributed pursuant to the terms of the Trust or the will.
The Defendants offered no accounting of the Trust assets. The Trustee did introduce into evidence selected statements and checks for one of the Trust's bank accounts. The statements and checks are clearly only a small portion of the total statements and checks, and the Trustee did not attempt to create a complete picture with respect to the disposition of Trust assets. The statements show that the Trust's combined accounts totaled over $225,000 in July and August of 2005. By February and March 2007 the Trust's accounts totaled just under $60,000. At the beginning of November 2007 the accounts totaled just over $90,000. By the end of November, Susan had transferred approximately $40,000 to herself and $50,000 to the REM Account. The funds transferred to the REM Account can be traced to a savings account designated “EVM,” originally opened while Ruth was alive. All of the Trust's accounts were apparently closed near the end of November 2007. The selected checks drawn on the Trust's accounts establish that Michael received just over $58,000 from the Trust in 2006. There were also some selected statements and checks from the REM Account introduced into evidence. Again, these records are incomplete, but the checks show that Nancy or her designees received over $18,000 from REM in 2006.
In January 2007 Nancy was added as a member of EMSN. In September 2007 Susan sold the water shares owned by EMSN for $90,000. The sale proceeds were distributed to Susan and Nancy. In December of that year, Susan, as the managing member of EMSN, conveyed lot 1 in the Bull River Ridge subdivision to Michael.
By May 2008 Susan had distributed substantially all of the cash assets of the Trust. The evidence shows that Michael received over $58,000 from the Trust's accounts, Susan received approximately $40,000, and approximately $50,000 was transferred to REM. The balance of the Trust's cash assets in excess of $125,000 is unaccounted for. In May 2008 the home that was Trust property and the Trust's interest in REM, including the REM Account, remained in the Trust.
Eugene was released from prison on May 20, 2008, and about that time Susan arranged for Eugene and Elizabeth to move into and live at the Ballard Property. Within three weeks of Eugene's release, Susan also arranged to make him a signatory on the REM Account. On the signatory application prepared under Susan's direction, the Debtor was identified as an “authorized signer/manager” for REM, his address was listed as REM's address, his phone number was listed as REM's phone number, and his e-mail address was listed as REM's e-mail address. When Susan made Eugene a signatory, there was $49,303.20 in the REM Account. After becoming a signatory on the REM Account, the Debtor was the only party who wrote checks against the account.
After moving into the Ballard Property, the Debtor paid no rent; was responsible for all maintenance and repairs; paid for utilities, water, and taxes; identified himself as the owner and loss payee in an application for homeowner's insurance; and signed a recorded easement in favor of Moon Lake Electric. Susan disputes that the Debtor had authority to execute the easement.
On March 5, 2009, Susan updated REM's filings with the Utah Department of Commerce to reflect that Elizabeth had become a member and that Susan's status had changed from member to manager. In April 2009, Susan, as the managing member of EMSN, conveyed lot 2 of the Bull River Ridge subdivision to Nancy.
On July 22, 2010, just before its 2002 judgment was to expire, Yukon obtained a writ of garnishment directed to Susan as trustee for the Trust. On August 2, 2010 the writ of garnishment was personally served on Susan. On August 4, 2010 Susan conveyed the home owned by the Trust to herself and her daughters, Sonja Gregersen and Chandra Tucker. On August 11, 2010 the Debtor paid a $200 overdraft charge and closed the REM Account. The following day, on August 12, 2010, the Debtor filed a petition commencing his chapter 7 bankruptcy. In his schedules filed on August 26, 2010, the Debtor identified Yukon as the only creditor having a significant claim against him.
On August 30, 2010 Susan (signing as manager of REM) conveyed the Ballard Property to Michael, Nancy, and herself. Notwithstanding this transfer of the Ballard Property, the Debtor continues to reside there rent-free. On September 9, 2010 Susan filed articles of dissolution for REM stating that the reason for the dissolution was to “PUT THE PROPERTY IN OUR INDIVIDUAL NAMES [and] DISSOLVE [ ] THE LLC.” In the articles of dissolution Susan stated that the effective date of REM's dissolution was May 20, 2009.
No information was provided at trial with respect to the value of any of the...
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