Farmers Plant Aid, Inc. v. Fedder, 97-542.
| Decision Date | 11 April 2000 |
| Docket Number | No. 97-542.,97-542. |
| Parties | FARMERS PLANT AID, INC., a Montana corporation, and Casey Smith, Plaintiffs and Respondents, v. Connie L. FEDDER, Defendant and Appellant. |
| Court | Montana Supreme Court |
Steven T. Potts, Thompson, Jacobsen & Potts, Great Falls, Montana, For Appellant.
John E. Bohyer, Fred Simpson, Philips & Bohyer, Missoula, Montana, For Respondents.
¶ 1 Connie Fedder appeals a judgment of the Twenty-First Judicial District Court, Ravalli County, which set aside as fraudulent a property transfer to her. We affirm.
¶ 2 We restate the issues raised and discussed in Fedder's briefs as follows:
¶ 3 1. Did the District Court err by permitting Farmers Plant Aid, Inc., and Casey Smith to prosecute this fraudulent conveyance action after transferor John Foss filed a bankruptcy petition?
¶ 4 2. Was it necessary that the plaintiffs establish that they had a lien or security interest in the property before they brought this action for fraudulent conveyance?
¶ 5 3. Did the court err in finding that Fedder knew Foss was indebted to Farmers Plant Aid, Inc., and Smith on November 29, 1989, when Foss transferred his interest in their joint property to her? ¶ 6 4. Are certain other findings of fact supported by substantial evidence?
¶ 7 5. Did the court err by concluding that a fraudulent conveyance had occurred as opposed to a preference?
¶ 8 6. Did the court err by concluding that a fraudulent conveyance had occurred even though there was no proof of the value of the property transferred?
¶ 9 7. Did the court err in entering certain other conclusions of law?
¶ 10 Casey Smith and Farmers Plant Aid, Inc., lease mineral rights to real property in Ravalli County, Montana, for purposes of extracting peat from that land. They have an outstanding October 1993 default judgment against John Foss for $118,343.59 plus interest and costs for Foss's intentional interference with their access to the peat resources and his assault upon Smith with a rifle on September 25, 1989.
¶ 11 Smith and Plant Aid brought this action pursuant to the Uniform Fraudulent Conveyance Act, §§ 31-2-301 through -325, MCA (1989), to collect on their judgment against Foss. They allege that Foss fraudulently conveyed his forty-four percent interest in certain Ravalli County real property to his then-wife Connie Fedder in November of 1989, for consideration of $1. Following the conveyance, Fedder held an eighty-eight percent interest in the property and Foss's children from a previous marriage held a twelve percent interest. The marriage of Foss and Fedder was dissolved in 1990.
¶ 12 Smith and Plant Aid originally named both Foss and Fedder as defendants in this action. However, Foss filed for bankruptcy in September 1994, listing numerous creditors and no assets. He was eventually dropped as a defendant in this action. By stipulation, the parties submitted the case to the District Court based upon their briefs and the deposition testimony and exhibits filed. The court entered judgment in favor of Plant Aid and Smith, voiding the conveyance from Foss to Fedder and granting Plant Aid and Smith the right to levy execution upon the property.
¶ 13 Did the District Court err by permitting Farmers Plant Aid, Inc., and Casey Smith to prosecute this fraudulent conveyance action after transferor John Foss filed a bankruptcy petition?
¶ 14 Fedder asserts that upon Foss's filing of a bankruptcy petition in September 1994, Foss's bankruptcy trustee acquired the right to avoid his pre-petition fraudulent conveyances. She asserts that fraudulent conveyance claims thus passed from individual creditors such as Smith and Plant Aid to Foss's bankruptcy trustee, and that Smith and Plant Aid thus lost their standing and right to pursue a fraudulent conveyance claim. Fedder cites cases to support her argument, but all of those cases deal with the loss of creditors' rights to pursue such proceedings during the pendency of the bankruptcy. That is not the situation presented in the present case. Here, the judgment was obtained after the completion of Foss's bankruptcy.
¶ 16 The record of Foss's bankruptcy case, a copy of which was filed with the District Court following this Court's remand for that purpose, establishes that Foss's bankruptcy trustee was appointed after this action was filed, on September 6, 1994. Fedder removed this action to federal court on grounds that it was related to the bankruptcy case. Upon motion of Smith and Plant Aid, however, the federal court remanded the case to state district court. The bankruptcy court and the trustee clearly had notice of this action during its pendency. An order releasing Foss from all dischargeable debts was entered on January 31, 1995, and the trustee was discharged and the bankruptcy case finally closed on November 27, 1996. Judgment was not entered in the present case until several months later.
¶ 17 We hold that the District Court did not err by granting judgment in this action after Foss's bankruptcy proceeding had been concluded.
¶ 18 Was it necessary that the plaintiffs establish that they had a lien or security interest in the property before they brought this action for fraudulent conveyance?
¶ 19 Fedder states that in order for a person to recover in a fraudulent conveyance action, that person must be a creditor. She asserts that neither Smith nor Plant Aid were creditors when they obtained the underlying judgment in this action. They were not creditors of Foss, who had received a bankruptcy discharge; they were not creditors of the bankrupt estate, with which they did not file a claim; and they were not her creditors.
¶ 20 Fedder's argument is based upon the faulty premise that this action is in essence a claim against Foss's bankruptcy estate. This is simply incorrect. There is no requirement in either state fraudulent conveyance law or the bankruptcy code which mandates that plaintiffs file a proof of claim in bankruptcy court to preserve their right to pursue a fraudulent conveyance action against a third-party transferee like Fedder. Fedder was not the bankrupt party and the plaintiffs are not attempting to share in a distribution of Foss's bankruptcy estate.
¶ 21 This Court's holding in Cahill-Mooney Const. Co. v. Ayres (1962), 140 Mont. 464, 373 P.2d 703, compels the conclusion that a party need not obtain a lien or security interest prior to filing a claim for fraudulent conveyance under the Uniform Fraudulent Conveyance Act. In Ayres, the plaintiff creditor brought suit for collection on a debt and joined with it a claim to set aside fraudulent conveyances made by the debtor defendant to other co-defendants. The Court quoted with approval Chief Justice Cardozo of the New York Supreme Court, "We think the effect of these provisions [of the Uniform Fraudulent Conveyance Act] is to abrogate the ancient rule whereby a judgment and a lien were essential preliminaries to equitable relief against a fraudulent conveyance," and held that a creditor could join his action on a debt with an action to set aside a conveyance under the Uniform Fraudulent Conveyance Act. Ayres, 140 Mont. at 468 and 475, 373 P.2d at 705 and 709.
¶ 22 Thus, the holding of Ayres specifically relieved creditors of the burden of obtaining a lien prior to bringing a Fraudulent Conveyance Act claim. In the present case, the plaintiffs had obtained their judgment against Foss in October 1993. We hold that they were under no obligation to take any further steps prior to the filing of this suit.
¶ 23 Did the court err in finding that Connie Fedder knew Foss was indebted to Farmers Plant Aid, Inc., and Smith on November 29, 1989, when Foss transferred his interest in their joint property to her?
¶ 24 Our standard of review of findings of fact, as discussed under this issue and under Issue 4 below, is whether the District Court's findings are clearly erroneous. A district court's findings are clearly erroneous if they are not supported by substantial credible evidence, if the trial court has misapprehended the effect of the evidence, or if a review of the record leaves this Court with the definite and firm conviction that a mistake has been committed. Whalen v. Taylor (1996), 278 Mont. 293, 299, 925 P.2d 462, 465.
¶ 25 The above statement of this issue represents Fedder's restatement of portions of several of the court's findings; the court did not actually find that Fedder knew that Foss was indebted to Plant Aid and Smith when he transferred his property right to her. The relevant findings, which Fedder also challenges as not supported by substantial evidence, were:
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