Citizens Bank of Clearwater v. Hunt

• Decision Date: 11 March 1991
• Docket Number: No. 915,D,915
• Citation: 927 F.2d 707
• Parties: CITIZENS BANK OF CLEARWATER, Appellant, v. Warren W. HUNT, Edward E. Hunt, and Sylvia C. Hunt, Defendants, Edward E. Hunt and Sylvia C. Hunt, Appellees. ocket 90-7817.
• Court: U.S. Court of Appeals — Second Circuit

Page 707

927 F.2d 707

CITIZENS BANK OF CLEARWATER, Appellant, v. Warren W. HUNT, Edward E. Hunt, and Sylvia C. Hunt, Defendants Edward E. Hunt and Sylvia C. Hunt, Appellees.

No. 915, Docket 90-7817.

United States Court of Appeals Second Circuit.

Argued Jan. 28, 1991.

Decided March 11, 1991.

Sylvia M. Ho, Hartford, Conn. (Thomas F. Parker, and Sorokin, Sorokin, Gross, Hyde & Williams, Hartford, Conn., on the brief) for appellant Citizens Bank of Clearwater.

Houston P. Lowry, Farmington, Conn. (Tarlow, Levy & Droney, Farmington, Conn., on the brief) for appellees Edward E. Hunt and Sylvia C. Hunt.

Before TIMBERS, MESKILL and CARDAMONE, Circuit Judges.

TIMBERS, Circuit Judge:

Appellant Citizens Bank of Clearwater (Citizens) appeals from a summary judgment entered September 5, 1990, in the District of Connecticut, Alan H. Nevas, District Judge, in favor of appellees Edward E. Hunt and Sylvia C. Hunt (collectively, the Hunts) in an action commenced by Citizens seeking to have the conveyance of certain real property to the Hunts set aside as fraudulent.

On September 22, 1989, Citizens commenced this action seeking to collect on a promissory note that Warren W. Hunt had guaranteed. Approximately three months prior to the commencement of the action, Warren Hunt had conveyed his residence to his parents, Edward E. Hunt and Sylvia C. Hunt. The proceeds of that conveyance ultimately were remitted to Edward Hunt. Citizens' complaint included a count seeking to have the conveyance of the Hunt residence set aside as fraudulent. The district court granted the Hunts' motion for summary judgment on the fraudulent conveyance count and entered judgment dismissing that count.

On appeal, Citizens contends that (1) there was a genuine issue of material fact as to the intentions of the parties that precluded a grant of summary judgment on the fraudulent conveyance count; and (2) the district court applied an improper standard by placing the burden on Citizens to produce evidence that Warren Hunt was insolvent.

For the reasons that follow, we reverse the judgment of the district court and remand for trial on the issue of actual fraud only.

I.

We shall summarize only those facts and prior proceedings believed necessary to an understanding of the issues raised on appeal.

In November 1988, Systems Technology Corporation (Systems) executed a promissory note to Citizens in the amount of $250,000. Warren Hunt, the president of Systems, was allegedly a guarantor on that note. The note required Systems to make quarterly interest payments, and gave Citizens the right to demand payment of the outstanding principal at any time.

In June 1989, Warren Hunt and his wife, Kathleen Hunt, were having trouble satisfying their first mortgage payments on their residence at 42 Eastview Terrace in Tolland, Connecticut (the property). Warren Hunt turned to his parents, appellees Edward E. Hunt and Sylvia C. Hunt, for financial assistance. The Hunts were unwilling to provide that assistance unless they received an equity interest in the property. Accordingly, Warren Hunt agreed to sell the property to his parents.

On June 8, 1989, Anne Miller, a licensed Connecticut real estate broker, appraised the fair market value of the property at $190,000. Edward Hunt paid $150 for the appraisal. Soon thereafter, appellees signed a contract to purchase the property for $179,250. Since Warren Hunt did not require a real estate broker to locate a buyer, the sale price reflected the fair market value minus six percent, the usual broker's commission in Connecticut.

The closing took place on June 16, 1989 at the office of the Hunts' attorney, Paul G. Skripol. After settlement adjustments were made, the final purchase price was agreed upon at $180,000.06. Edward Hunt delivered to Skripol two bank checks totalling $180,000, and six cents in cash. Warren and Kathleen Hunt delivered to the Hunts a deed to the property. Skripol issued a certificate of title to the property in the names of the Hunts. In addition, Skripol prepared a report for the Internal Revenue Service stating that Warren and Kathleen Hunt received the gross sum of $179,250 as a result of the sale of the property. He also delivered a check in the amount of $114,219.48 payable to Warren and Kathleen Hunt. That amount represented the sale proceeds after subtracting the first mortgage, which was paid in full, and other settlement costs.

Warren and Kathleen Hunt never deposited that check. Instead, they endorsed it and turned it over to Edward Hunt, who invested it in a certificate of deposit payable to himself and Kathleen Hunt. When the certificate of deposit matured, Edward Hunt obtained control of the proceeds. Warren and Kathleen Hunt continued to reside at the property after the sale. They do not pay rent to the Hunts, but are responsible for the costs of maintaining the property. Warren and Edward Hunt both testified, at their depositions, that Warren was indebted to Edward in an amount exceeding $114,219.48 at the time of the closing. This indebtedness was due to financial assistance that Edward had provided to Warren in the past. Warren Hunt also testified that he was not insolvent at the time of the conveyance, but became insolvent in September 1989.

In September 1989, Systems defaulted on the quarterly interest payment on the Citizens note. Accordingly, Citizens demanded payment of the principal of the promissory note. When Systems was not able to satisfy the demand, Citizens sought satisfaction from Warren Hunt, a guarantor. He also was unable to satisfy the demand.

Subsequently, on September 22, 1989, Citizens commenced the instant action against Warren Hunt, Edward Hunt, and Sylvia Hunt, seeking to collect the unpaid balance of the promissory note. Count three of the complaint, the only count involved on the instant appeal, alleges that the transfer of the property was a fraudulent conveyance. Citizens seeks to have the property reconveyed to Warren Hunt so that it may be available to satisfy his debt to Citizens. At the time of the commencement of the instant action, Citizens obtained a prejudgment order authorizing attachment of Warren Hunt's interest in the property.

On November 9, 1989, the Hunts moved for summary judgment on the fraudulent conveyance claim. On December 26, 1989, Citizens filed a memorandum of law in opposition to the Hunts' motion for summary judgment. That memorandum did not include a statement of facts in dispute as required by Local Rule 9(c)(2). Such a statement was not filed by Citizens until January 30, 1990, when it filed its responsive papers. On December 29, 1989, the Hunts' motion for summary judgment was referred to a magistrate.

On February 12, 1990, the magistrate recommended to the district court that the Hunts' motion be granted. He concluded that Citizens had failed to produce evidence that Warren Hunt had any creditors that the Hunts could have intended to defraud, and that Citizens had failed to produce evidence regarding Warren Hunt's insolvency. Citizens filed objections to the magistrate's recommendation on February 23. Citizens also filed motions in the district court for leave to engage in further discovery, for leave to amend its statement of facts in dispute required by Local Rule 9(c)(2), and for consideration of additional evidence. On March 19, the district court denied the pending motions and adopted the magistrate's recommendation.

On June 9, the Hunts filed a motion to void the prejudgment attachment that Citizens had obtained. On June 11, the Hunts moved for final judgment on count three. The district court granted both motions on September 4, and entered final judgment dismissing count three on September 5. The district court on September 25 stayed enforcement of the judgment pending appeal.

This appeal followed.

II.

Initially, we set forth our standard of review. We review de novo the district court's determination to grant summary judgment. EAD Metallurgical, Inc. v. Aetna Casualty & Sur. Co., 905 F.2d 8, 10 (2 Cir.1990); Delaware & Hudson Ry. Co. v. Consolidated Rail Corp., 902 F.2d 174, 177 (2 Cir.1990), petition for cert. filed, 59 U.S.L.W. 3168 (U.S. Sep. 4, 1990). Summary judgment is appropriate when "the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c). In reviewing that determination, the facts and the inferences to be drawn from them are considered in the light most favorable to the non-moving party. EAD Metallurgical, supra, 905 F.2d at 10; Delaware & Hudson Ry., supra, 902 F.2d at 177. The moving party has the initial burden of demonstrating that there is no genuine issue of material fact for trial. Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 586, 106 S.Ct. 1348, 1355, 89 L.Ed.2d 538 (1986). That burden may be satisfied by pointing out the absence of evidence to support the non-movant's claims. Celotex Corp. v. Catrett, 477 U.S. 317, 325, 106 S.Ct. 2548, 2553, 91 L.Ed.2d 265 (1986). The non-movant then bears the burden of establishing the existence of elements essential to its case, which it would have to prove at trial. Id. at 322, 106 S.Ct. at 2552; Delaware & Hudson Ry., supra, 902 F.2d at 177; Fed.R.Civ.P. 56(e). If no rational fact finder could find in the non-movant's favor, there is no genuine issue of material fact,

and summary judgment is appropriate. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 251-52, 106 S.Ct. 2505, 2511-12, 91 L.Ed.2d 202 (1986); Matsushita Elec., supra, 475 U.S. at 587, 106 S.Ct. at 1356.

III.

With the foregoing in mind, we turn to appellant's contention that summary judgment was inappropriate since there are genuine issues of material fact to be resolved at trial. We agree that summary judgment was inappropriate as to Citizens'...