Gulf Insurance Co. v. Clark

• Decision Date: 20 March 2001
• Docket Number: No. 00-597.,00-597.
• Citation: 2001 MT 45,304 Mont. 264,20 P.3d 780
• Parties: GULF INSURANCE COMPANY, a Missouri Corporation; and Security Insurance of Hartford, a Connecticut Corporation, Plaintiffs and Appellants, v. Donald E. CLARK, a.k.a. Don Everett Clark; and Clark and Associates, Inc., a Montana Corporation, Defendants and Respondents.
• Court: Montana Supreme Court

20 P.3d 780

2001 MT 45

304 Mont. 264

GULF INSURANCE COMPANY, a Missouri Corporation; and Security Insurance of Hartford, a Connecticut Corporation, Plaintiffs and Appellants, v. Donald E. CLARK, a.k.a. Don Everett Clark; and Clark and Associates, Inc., a Montana Corporation, Defendants and Respondents.

No. 00-597.

Supreme Court of Montana.

Submitted on Briefs February 8, 2001.

Decided March 20, 2001.

Debra C. Parker, Connell Law Firm, Missoula, MT, For Appellants.

James C. Bartlett, Kalispell, MT, For Respondents.

Justice JAMES C. NELSON delivered the Opinion of the Court.

¶ 1 Gulf Insurance Company (Gulf) and Security Insurance of Hartford (Security) appeal the summary judgment entered by the Twentieth Judicial District Court, Lake County, in favor of the Defendants, Donald Clark and Clark and Associates, Inc. (Clark). Gulf and Security contend that the District Court erred as a matter of law by applying the wrong statute of limitations to their claim brought under Montana's Uniform Fraudulent Transfer Act.

¶ 2 We affirm.

FACTUAL AND PROCEDURAL BACKGROUND

¶ 3 This controversy commenced in April of 1995, when Gulf and Security brought an action in federal district court in California against Clark and other parties. The action resulted from indemnity bond agreements concerning government construction contracts that had been breached by Clark and the other parties. Gulf and Security performed under the agreements—meaning they completed performance under the contracts subsequent to Clark's and the other parties' default—and then demanded reimbursement pursuant to the underlying indemnity contract.

¶ 4 Gulf and Security eventually prevailed after the defendants failed to appear, and were awarded default judgments on August 25, 1997—approximately $573,000 in favor of Gulf and approximately $56,000 in favor of Security.

¶ 5 Meanwhile, it is undisputed that in May and June of 1995, Clark recorded five deeds conveying tracts of real property in Lake County from himself to Clark and Associates, Inc., a Montana corporation. Clark's son is the sole shareholder of this corporation. Gulf and Security alleged that these transfers were made with the actual intent to prevent Gulf and Security from executing judgment against Clark, individually, and were made without Clark receiving the reasonably equivalent value as consideration. They further alleged that the transfers were made to an "insular transferee" and that Clark, individually, retained possession and control of the properties after the transfers were completed.

¶ 6 On July 21, 1999, Gulf and Security docketed their federal court judgment in federal district court in Montana. At that time, Gulf and Security also filed a verified complaint in state district court, seeking to have Clark's alleged fraudulent conveyances deemed void under Montana's Uniform Fraudulent Transfer Act (hereinafter UFTA). This action was filed within two years of the federal judgment being entered in their favor.

¶ 7 Clark moved for summary judgment on June 7, 2000, asserting, in part, that the applicable statute of limitations under UFTA extinguished the fraudulent transfer claim.

¶ 8 The District Court agreed with Clark and entered judgment in his favor on August 4, 2000. The court reasoned that under the clear mandate of § 31-2-341, MCA, under UFTA, a cause of action with respect to a fraudulent transfer must be brought within two years of the transfer itself, or, alternatively, within one year of the reasonable discovery of the transfer by the claimant.

¶ 9 Numerous affidavits before the court indicated that Gulf and Security were aware that Clark resided in Flathead County at the time the original indemnity agreements were entered in 1993, and then, in 1995 and 1996, the two parties used the services of several private investigators in collecting information on Clark's whereabouts in Flathead County for the purpose of establishing proper service so that the default judgment could be entered. In light of these uncontested facts, the court determined that Gulf and Security's claims missed the two-year-of-transfer deadline, and the five deeds conveyed by Clark in 1995 could reasonably have been discovered by Gulf and Security "at anytime following the date of recording...."

¶ 10 Gulf and Security appeal the judgment of the District Court.

DISCUSSION

¶ 11 The lone issue on appeal is whether the District Court erred when it ruled in its order granting summary judgment in favor of Clark that Gulf and Security's fraudulent conveyance claim was time-barred by the statute of limitations under Montana's Uniform Fraudulent Transfer Act, §§ 31-2-326 through -342, MCA (hereinafter UFTA). We note that another underlying issue in this matter—whether the default judgment was valid—was not addressed by the District Court and is therefore not before this Court on appeal.

¶ 12 This Court reviews an order granting summary judgment de novo, using the same Rule 56, M.R.Civ.P., criteria applied by the district court. See Spinler v. Allen, 1999 MT 160, ¶ 14, 295 Mont. 139,

¶ 14, 983 P.2d 348, ¶ 14.

¶ 13 Ordinarily, this Court looks to the pleadings, depositions, answers to interrogatories, admissions on file, and affidavits to determine the existence or nonexistence of a genuine issue of material fact. See Erker v. Kester, 1999 MT 231, ¶ 17, 296 Mont. 123,

¶ 17, 988 P.2d 1221, ¶ 17. Here, Gulf and Security concede that no material facts remain at issue; rather this appeal focuses squarely on a question of law concerning the applicable statute of limitations. The standard of review for questions of law is whether they are correct. See Albright v. Department of Revenue (1997), 281 Mont. 196, 205, 933 P.2d 815, 821.

¶ 14 The question of law here involves an ancillary remedy, one that offers a creditor with a claim against a debtor the legal means to preserve its right to compensatory redress. Generally, UFTA addresses transfers of property that have already occurred. Under § 31-2-339, MCA, for example, an ancillary action may be brought by a creditor that (1) voids a previous transfer by the debtor, or (2) places an attachment on a transferred asset or other property in the hands of a transferee; or (3) enjoins either the debtor or transferee from further disposition of the transferred asset or other property. The statute also permits the appointment of a receiver and "any other relief the circumstances may require." See § 31-2-339(1)(a) through (c), MCA. Finally, if the creditor has attained a judgment against the debtor, the creditor may levy execution on the transferred asset or its proceeds. See § 31-2-339(2), MCA.

¶ 15 Here, it is undisputed that Gulf and Security's "claim" or right to payment arose before the transfers were made. Although the record is not clear on precisely when the breach occurred—apparently some time in 1993—the action in California commenced on April 25, 1995, and the transfers in question occurred in May and June of 1995. Reading §§ 31-2-333 and -334, MCA together, the following may establish the liability of a debtor as to a creditor, whose "claim" arose before the transfer was made, if one of the following occur:

(1) the debtor made the transfer with actual intent to hinder, delay, or defraud any creditor of the debtor. See § 31-2-333(1)(a), MCA.

(2) the debtor made the transfer without receiving a reasonably equivalent value in exchange for the transfer 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 he would incur, debts beyond his ability to pay as they became due. See § 33[31]-2-333(1)(b), MCA.

(3) the debtor made the transfer without receiving a reasonably equivalent value in exchange for the transfer and the debtor was insolvent at that time or the debtor became insolvent as a result of the transfer. See § 31-2-334(1), MCA.

(4) the transfer was made to an "insider" for an antecedent debt, the debtor was insolvent at that time, and the insider had reasonable cause to believe that the debtor was insolvent. See § 31-2-334(2), MCA.

¶ 16 The foregoing actions are subject to an explicit statute of limitations, however, under § 31-2-341, MCA, which bars a creditor's right to bring an UFTA claim unless the action is commenced:

(1) within two years after the transfer was made, or, if later, within one year after the transfer was or could reasonably have been discovered by the claimant, for transfers subject to § 31-2-333(1)(a), MCA.

(2) within 2 years after the transfer was made for transfers subject to §§ 31-2-333(1)(b) or 31-2-334(1), MCA.

(3) within 1 year after the transfer was made for transfers subject to § 31-2-334(2), MCA.

Here, the claim asserted by Gulf and Security—that Clark transferred the assets with the intent to "hinder, delay, or defraud"—is afforded the most lenient statute of limitations, under § 31-2-341(1), MCA, which means they had either two years after the transfers were made, or one year after the transfers were or could have reasonably been discovered by Gulf and Security, to file suit.

¶ 17 Gulf and Security correctly point out that the statute of limitations under UFTA has not been fertile ground for the development of case law in Montana. Thus, in assisting our analysis here and in the future, our application of § 31-2-341(1), MCA, can be broken down into a three-step inquiry as follows:

(1) first, did the creditor bring his UFTA claim within one year of "discovering," i.e., acquiring actual knowledge, of the transfer?

Contrary to the general focus of the parties' arguments, under UFTA, discovery of the transfer—not the date of the transfer itself— is the gravamen of the statute of limitations under § 31-2-341(1), MCA. If the answer to this first inquiry is an uncontested yes, then the creditor's claim...