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

• Decision Date: 24 July 2014
• Docket Number: No. A12–1257.,A12–1257.
• Citation: 849 N.W.2d 55
• Parties: CITIZENS STATE BANK NORWOOD YOUNG AMERICA, Respondent, v. Gordon BROWN, et al., Appellants.
• Court: Minnesota Supreme Court

849 N.W.2d 55

CITIZENS STATE BANK NORWOOD YOUNG AMERICA, Respondent,

v.Gordon BROWN, et al., Appellants.

No. A12–1257.

Supreme Court of Minnesota.

July 9, 2014.

As Corrected July 24, 2014.

Syllabus by the Court

Minnesota's Uniform Fraudulent Transfer Act applies to transfers made pursuant to an uncontested marital dissolution decree.

Alan M. Albrecht, Gavin, Winters, Twiss, Thiemann & Long, Ltd., Glencoe, MN; and John A. Halpern, John A. Halpern & Associates, Minneapolis, MN, for respondent.

Amie E. Penny Sayler, Messerli & Kramer P.A., Minneapolis, MN; and Robert M. McClay, McClay and Alton, PLLP, Saint Paul, MN, for appellants.

OPINION

WRIGHT, Justice.

Respondent Citizens State Bank Norwood Young America (Bank) seeks to set aside, under Minnesota's Uniform Fraudulent Transfer Act (MUFTA), certain transfers made between appellants Gordon ¹and Judy Brown pursuant to their uncontested marital dissolution judgment and decree. The district court granted summary judgment to the Bank, and the court of appeals affirmed. We granted the Browns' petition for further review to address whether MUFTA applies to fraudulent transfers made pursuant to an uncontested marital dissolution decree. We now conclude that MUFTA applies to such transfers and that the record supports the district court's findings that Gordon Brown made certain transfers with the intent to defraud his creditors. We, therefore, affirm the district court's judgment that sets aside the transfers and allows the Bank to levy execution on assets fraudulently transferred to the extent necessary to satisfy the Bank's claim. However, to the extent the district court's decision pertains to assets that were not transferred, we reverse.

I.

Gordon Brown guaranteed certain commercial loans that the Bank made to TCB Tool Corporation and Cool Air International. Both TCB Tool and Cool Air defaulted on their respective loans, and Gordon Brown failed to satisfy his obligations under his personal guarantee. On January 8, 2010, the Bank sued Gordon Brown to enforce the personal guarantee. Gordon Brown's wife Judy Brown was not named as a party to the lawsuit. The district court entered a default judgment against Gordon Brown on June 29, 2010. The judgment authorized the Bank to collect the remaining balance on the two loans plus interest, costs, and attorney fees.

While the Bank's lawsuit was pending, Gordon Brown petitioned to dissolve his 23–year marriage to Judy Brown. At that time, he was 93 years old and Judy Brown was 55. The Browns subsequently executed a marital termination agreement (MTA) on October 5, 2010. The district court judge in the dissolution case found the MTA to be “fair and reasonable” and incorporated its terms into a dissolution judgment and decree entered on October 13, 2010. After the divorce,² the Browns continued to live together.

Under the dissolution judgment and decree, Gordon Brown was awarded the Browns' home, valued in the dissolution judgment and decree at $421,900; his 1999 Cadillac; the rights to his 401(k) worth less than $140,000; a checking account, valued at less than $3,000; and corporate stock, valued at less than $80,000. He also accepted sole responsibility for joint debt obligations worth more than $270,000. In addition, Gordon Brown retained personal guarantee obligations of approximately $8.8 million, which he had entered into alone.

Pursuant to the dissolution judgment and decree, Gordon Brown transferred to Judy Brown an RBC Wealth Management account, valued at approximately $1.2 million, and his one-half interest in Pontoon Partnership, which owned a commercial property as its only asset. These two assets that Gordon Brown transferred to Judy Brown secured a $1.1 million Minnesota Bank and Trust (MB & T) loan. Judy Brown retained her MB & T savings account valued at $84,000.

The Bank was unable to collect from Gordon Brown on the original judgment and brought this action under MUFTA, Minn.Stat. §§ 513.41–.51 (2012), to levy execution on the assets Gordon Brown transferred to Judy Brown. The Bank alleged that the transfers were made with the intent to defraud the Bank because the transfers exhibited six of the eleven factors enumerated in Minn.Stat. § 513.44(b). The Browns responded separately, denying the allegations in the complaint.

The Bank moved for summary judgment, which the district court granted based on the conclusion that the Browns “engaged in actual fraud as shown by the existence of a number of [badges of fraud].” The district court specifically found that Gordon Brown transferred assets to an insider, concealed the transfers from the Bank, transferred substantially all of his assets, did not receive reasonably equivalent value for the transfers, became insolvent after the transfers, and transferred the assets shortly after his debt to the Bank became delinquent. The district court rejected the Browns' argument that the transfers were not fraudulent because they were made pursuant to a marital dissolution decree, observing that the decree was entered pursuant to the Browns' voluntary MTA. Accordingly, the district court determined that the transfers were voidable under MUFTA.

The Browns appealed. The court of appeals affirmed the decision of the district court. Citizens State Bank Norwood Young Am. v. Brown, 829 N.W.2d 634, 642 (Minn.App.2013). After concluding that MUFTA applies to transfers made pursuant to an uncontested marital dissolution decree, the court of appeals applied the common law presumption that transfers made between spouses are fraudulent, id. at 639–40, and determined that the undisputed facts “support[ ] a singular conclusion that the Browns had actual intent to defraud” the Bank, id. at 638.

We granted the Browns' petition for review.

II.

Laws allowing creditors to void fraudulent transfers trace their origins to the Statute of 13 Elizabeth, adopted in England in 1571. 1571, 13 Eliz., c. 5; BFP v. Resolution Trust Corp., 511 U.S. 531, 540, 114 S.Ct. 1757, 128 L.Ed.2d 556 (1994). See generally Unif. Fraudulent Transfer Act prefatory note, 7A U.L.A. pt. 2, at 4 (2006). The statute allowed creditors to void transfers designed “to delay, hinder or defraud creditors and others.” 13 Eliz., c. 5. English courts relied on “badges of fraud”—certain suspicious circumstances that frequently accompanied fraudulent transfers—to determine whether a transfer was fraudulent. See BFP, 511 U.S. at 540–41, 114 S.Ct. 1757; Twyne's Case, (1601) 76 Eng. Rep. 809 (Star Chamber) 812–14; 3 Co. Rep. 80b, 81a. These badges of fraud included that the debtor retained possession of the property after the transfer, made the transfer in secret, or made the transfer after being sued. Twyne's Case, 76 Eng. Rep. at 812–14; 3 Co. Rep. at 81a.

American states later embraced fraudulent transfer law. See, e.g., Va. Rev. Code, ch. 101, ¶ 2 (1819); see also Isaac A. McBeth & Landon C. Davis III, Bulls, Bears, and Pigs: Revisiting the Legal Minefield of Virginia Fraudulent Transfer Law, 46 U. Rich. L. Rev. 273, 277 (2011). And Minnesota's territorial legislature enacted Minnesota's first such law in 1851.³ Minn. Rev. Terr. Stat., ch. 64 (1851). This territorial law provided that “[e]very conveyance ... made with the intent to hinder, delay or defraud creditors ... shall be void.” Id., § 1.

Seeking to standardize these laws, the Conference of Commissioners on Uniform State Laws promulgated the Uniform Fraudulent Conveyance Act in 1918. Unif. Fraudulent Transfer Act prefatory note, 7A U.L.A. pt. 2, at 4. Minnesota adopted the Uniform Fraudulent Conveyance Act in 1921. Act of Apr. 20, 1921, ch. 415, 1921 Minn. Laws 642. The Uniform Laws Commission updated the uniform law in 1984 with the Uniform Fraudulent Transfer Act, which Minnesota adopted in 1987. Unif. Fraudulent Transfer Act prefatory note, 7A U.L.A. pt. 2, at 5–7; see also Act of Apr. 7, 1987, ch. 19, 1987 Minn. Laws 28.⁴ MUFTA's purpose is aligned with that of Minnesota's predecessor laws—to prevent debtors from placing property that is otherwise available for the payment of their debts out of the reach of their creditors. Kummet v. Thielen, 210 Minn. 302, 306, 298 N.W. 245, 247 (1941).

To that end, MUFTA includes both actual and constructive fraud provisions. SeeMinn.Stat. §§ 513.44, .45.⁵ The actual fraud provision, at issue in this case, requires the fact-finder to conclude that the debtor made a transfer “with actual intent to hinder, delay, or defraud any creditor.” Minn.Stat. § 513.44(a)(1). Because the intent to defraud creditors is rarely susceptible of direct proof, courts continue to rely on “badges of fraud” to determine whether a transfer is fraudulent. Shields v. Goldetsky ( In re Butler ), 552 N.W.2d 226, 231 (Minn.1996) (citing Unif. Fraudulent Transfer Act prefatory note, 7A U.L.A. 639 (1985)). Badges of fraud in MUFTA include a transfer made to an “insider” or transfers that comprise “substantially all the debtor's assets.” Minn.Stat. § 513.44(b)(1), (5).

III.

A threshold question that we must address is whether MUFTA applies to transfers made pursuant to an uncontested marital dissolution decree. We review this question of statutory interpretation de novo. See Clark v. Lindquist, 683 N.W.2d 784, 785 (Minn.2004). In construing MUFTA, our charge is to ascertain and effectuate the intention of the Legislature. Schatz v. Interfaith Care Ctr., 811 N.W.2d 643, 649 (Minn.2012); see alsoMinn.Stat. § 645.16 (2012). We construe nontechnical words and phrases according to their plain meanings. Staab v. Diocese of St. Cloud, 813 N.W.2d 68, 72 (Minn.2012) (citing Minn.Stat. § 645.08(1) (2012)). “[W]hen the words of a law ... are clear and free from all ambiguity, the letter of the law shall not be disregarded under the pretext of pursuing the spirit.” Haghighi v. Russ.-Am. Broad. Co., 577 N.W.2d 927, 929 (Minn.1998) (quoting Minn.Stat. § 645.16) (internal quotation marks omitted).

Minnesota Statutes § 513.44(a)(1) provides that “[a] transfer made or...