Citizens State Bank Norwood Young Am. v. Brown, A12–1257.

• Decision Date: 16 July 2013
• Docket Number: No. A12–1257.,A12–1257.
• Citation: 829 N.W.2d 634
• Parties: CITIZENS STATE BANK NORWOOD YOUNG AMERICA, Respondent, v. Gordon BROWN, et al., Appellants.
• Court: Minnesota Court of Appeals

829 N.W.2d 634

CITIZENS STATE BANK NORWOOD YOUNG AMERICA, Respondent,

v.Gordon BROWN, et al., Appellants.

No. A12–1257.

Court of Appeals of Minnesota.

April 29, 2013.

Review Granted July 16, 2013.

Syllabus by the Court

Under the Uniform Fraudulent Transfer Act (UFTA), Minn.Stat. § 513.44(b) (2012), spouses are insiders, and transfers between spouses are presumptively fraudulent as to existing creditors. This presumption of fraud may be rebutted only by clear and convincing evidence.

Alan M. Albrecht, Gavin, Winters, Twiss, Thiemann & Long, Ltd., Glencoe, MN, for respondent.

Eric J. Magnuson, Amie E. Penny Sayler, Briggs and Morgan, P.A., Minneapolis, MN; and Robert M. McClay, McClay and Alton, PLLP, St. Paul, MN, for appellants.

Considered and decided by WORKE, Presiding Judge; SCHELLHAS, Judge; and CRIPPEN, Judge.^*

OPINION

SCHELLHAS, Judge.

In this fraudulent-conveyance dispute, appellants argue that the district court erred by granting summary judgment to respondent on its claim that appellants engaged in fraudulent transfers of assets to prevent respondent from levying on those assets to enforce its money judgment. We affirm.

FACTS

The facts are derived from the parties' submissions to the district court in connection with the summary-judgment motion of respondent Citizens State Bank Norwood Young America (bank) and are undisputed. In support of its summary-judgment motion, the bank submitted a memorandum of law and its counsel's affidavit with attached exhibits. In opposition to summary judgment, appellants Gordon Brown and Judy Brown submitted two memoranda of law and their counsel's affidavit with attached exhibits. Those exhibits included a copy of the Browns' marriage-dissolution judgment and decree.

The Browns were married on January 10, 1987. During the marriage, Gordon Brown guaranteed debt in excess of $8,800,000, including principal indebtedness to the bank in the amount of $227,040. The borrower defaulted on this debt, and the bank sued Gordon Brown and others and obtained a judgment for more than $290,000 against Gordon Brown on June 29, 2010. The bank attempted unsuccessfullyto satisfy its judgment against Gordon Brown.

In March 2010, with the assistance of counsel who is the Browns' co-counsel in this appeal, Gordon Brown petitioned for marital dissolution from Judy Brown. Judy Brown was unrepresented and interposed no answer to the petition. The Browns executed a marital-termination agreement (MTA), and the district court incorporated its terms in a marriage-dissolution judgment and decree, entering judgment on October 8, 2010. At the time of the dissolution, Gordon Brown was age 94, Judy Brown was age 55, and their respective monthly incomes were approximately $4,000 from social security and $500 from part-time employment. Neither party was awarded spousal maintenance. The judgment and decree distributed the Browns' marital property as follows, the amounts approximated according to the judgment and decree:

To Judy Brown

$1,200,000 RBC Wealth Management account

$26,000 RBC IRA account

$84,000 Minnesota Bank & Trust account

$600,000 Pontoon Partnership interest (net value)

$125,000 Northport Corporation accounts receivable

$51,000 Charles Schwab account

$11,000 approximately in various checking and savings accounts

2002 Chevrolet Pickup, unencumbered

1993 Jaguar, unencumbered

1985 Rolls Royce, unencumbered

To Gordon Brown

$421,900 ¹ marital homestead, unencumbered

$140,000 Clearwater Marine International 401K retirement account

$80,000 stock in Clearwater Marine, Inc.

$3,000 checking account

1999 Cadillac, unencumbered.

In the judgment and decree, the district court assigned to Gordon Brown indebtedness in excess of $271,850 and ordered that he hold harmless and indemnify Judy Brown against liability on the debts. The court also ordered Gordon Brown to hold harmless and indemnify Judy Brown against liability for Gordon Brown's personal guarantees in the amount of $8,807,040.

The bank commenced a fraudulent-conveyance action against the Browns soon after their marriage dissolution, alleging that Gordon Brown fraudulently transferred “substantially all” of his assets to Judy Brown and “retain[ed] possession and control” of the assets “shortly after the substantial debt owed to [the bank] became a judgment.” ² The bank sought to levy execution on the assets transferred by Gordon Brown to Judy Brown through the Browns' marriage dissolution and moved for summary judgment.

Based on the distribution of assets in the marital dissolution, and in recognition of the fact that Gordon Brown had pledged some of the assets awarded to Judy Brown to secure his personal guarantees, the district court noted that “Judy Brown was awarded approximately $2,000,000.00 in assets and ... Gordon Brown was left with a negative net worth of approximately $8,500,000.00.” The court ruled that the transfers of assets accomplished through the marital dissolution constituted actual fraud under Minn.Stat. § 513.44 (2012).

This appeal follows.

ISSUE

Did the district court err by granting summary judgment in favor of the bank because the Browns did not rebut by clear and convincing evidence the statutory presumption that the transfers of assets from Gordon Brown to Judy Brown were fraudulent?

ANALYSIS

A district court must grant summary judgment “if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, ... show that there is no genuine issue as to any material fact and that either party is entitled to a judgment as a matter of law.” Minn. R. Civ. P. 56.03. An appellate court reviews a “district court's legal decisions on summary judgment under a de novo standard, and view[s] the evidence in the light most favorable to the party against whom judgment was granted.” RAM Mut. Ins. Co. v. Rohde, 820 N.W.2d 1, 6 (Minn.2012) (quotations omitted).

Actual Fraud

“Statutes invalidating fraudulent conveyances are designed to prevent debtors from putting property which is available for the payment of their debts beyond the reach of their creditors. If the property transferred is not subject to the claims of creditors, the rules as to fraudulent conveyances do not apply.” Kummet v. Thielen, 210 Minn. 302, 306 298 N.W. 245, 247 (1941). “The Uniform Fraudulent Transfer Act (UFTA) prohibits a debtor from transferring property with the intent to hinder, delay, or defraud any creditors.” New Horizon Enters., Inc. v. Contemporary Closet Design, Inc., 570 N.W.2d 12, 14 (Minn.App.1997) (citing Minn.Stat. §§ 513.41–513.51 (1996)); seeMinn.Stat. § 513.51 (“Sections 513.41 to 513.51 may be cited as the ‘Uniform Fraudulent Transfers Act.’ ”). “Under the UFTA, liability can be imposed for transfers of property with actual or constructive intent to defraud a creditor.” New Horizon, 570 N.W.2d at 15.

A creditor may bring an action for relief from a fraudulent transfer to “avoid[ ] ... the transfer or obligation to the extent necessary to satisfy the creditor's claim,” Minn.Stat. § 513.47(a)(1)(2012),³ among other types of relief. Eleven “ ‘badges of fraud’ ” are enumerated in section 513.44(b) and establish circumstantial evidence of intent to defraud, which is “seldom susceptible of direct proof.” In re Butler, 552 N.W.2d 226, 231 (Minn.1996); see United States v. Leggett, 292 F.2d 423, 426 (6th Cir.1961) (“The issue of fraud is commonly determined by certain recognized indicia, denominated ‘badges of fraud,’ which are circumstances so frequently attending fraudulent transfers that an inference of fraud arises from them.”). The Uniform Fraudulent Transfer Act (UFTA) prohibits fraudulent transfers by debtors, stating:

(a) A transfer made or obligation incurred by a debtor is fraudulent as to a creditor, whether the creditor's claim arose before or after the transfer was made or the obligation was incurred, if the debtor made the transfer or incurred the obligation:

(1) with actual intent to hinder, delay, or defraud any creditor of the debtor; or

(2) without receiving a reasonably equivalent value in exchange for the transfer or obligation, and the debtor:

(i) was engaged or was about to engage in a business or a transaction for which the remaining assets of the debtor were unreasonably small in relation to the business or transaction; or

(ii) intended to incur, or believed or reasonably should have believed that the debtor would incur, debts beyond the debtor's ability to pay as they became due.

(b) In determining actual intent under subsection (a)(1), consideration may be given, among other factors, to whether:

(1) the transfer or obligation was to an insider;

(2) the debtor retained possession or control of the property transferred after the transfer;

(3) the transfer or obligation was disclosed or concealed;

(4) before the transfer was made or obligation was incurred, the debtor had been sued or threatened with suit;

(5) the transfer was of substantially all the debtor's assets;

(6) the debtor absconded;

(7) the debtor removed or concealed assets;

(8) the value of the consideration received by the debtor was reasonably equivalent to the value of the asset transferred or the amount of the obligation incurred;

(9) the debtor was insolvent or became insolvent shortly after the transfer was made or the obligation was incurred;

(10) the transfer occurred shortly before or shortly after a substantial debt was incurred; and

(11) the debtor transferred the essential assets of the business to a lienor who transferred the assets to an insider of the debtor.

Minn.Stat. § 513.44 (2012).

Here, for the purpose of determining actual fraud under section 513.44(b), we conclude that the Browns are “insider[s]” within the meaning of section 513.44(b)(11).⁴See In re Coffey's Case, 157 N.H. 156, 949 A.2d 102, 120 (2008) (discussing “ ‘badges of fraud’ ” in New Hampshire Fraudulent Transfer Act and stating that spouses are “ ‘insiders' ”). We also conclude that application of the factors underlying the ...