Morganroth & Morganroth v. Delorean

• Citation: 213 F.3d 1301
• Parties: Page 1301 213 F.3d 1301 (10th Cir. 2000) MORGANROTH & MORGANROTH, a Michigan partnership, and MAYER MORGANROTH, Plaintiffs-Appellees. v. JOHN Z. DELOREAN, ZACHARY T. DELOREAN, KATHRYN A. DELOREAN, ZACHARY T. DELOREAN as custodian for KATHRYN A. DELOREAN, ECCLESIASTES 9:
• Decision Date: 05 June 2000
• Court: United States Courts of Appeals. United States Court of Appeals (10th Circuit)

Page 1301

213 F.3d 1301 (10th Cir. 2000)

MORGANROTH & MORGANROTH, a Michigan partnership, and MAYER MORGANROTH, Plaintiffs-Appellees v JOHN Z. DELOREAN, ZACHARY T. DELOREAN, KATHRYN A. DELOREAN, ZACHARY T. DELOREAN as custodian for KATHRYN A. DELOREAN, ECCLESIASTES 9:10-11-12, INC. (formerly known as LOGAN MANUFACTURING or LOGAN MANUFACTURING COMPANY), Defendants-Appellants.

No. 98-4125

UNITED STATES COURT OF APPEALS, TENTH CIRCUIT

June 5, 2000

APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF UTAH (D.C. No. 95-CV-75-B)

[Copyrighted Material Omitted]

[Copyrighted Material Omitted]

[Copyrighted Material Omitted] James C. Swindler, Johnson & Hatch, P.C., Salt Lake City, UT, for Plaintiffs-Appellees.

M. Dayle Jeffs, Jeffs & Jeffs, P.C., Provo, Utah, for Defendants-Appellants.

Before TACHA, HOLLOWAY, and BALDOCK, Circuit Judges.

HOLLOWAY, Circuit Judge.

Plaintiffs/appellees Mayer Morganroth and his law firm, Morganroth and Morganroth (hereafter Morganroth), filed this diversity suit to set aside a transfer of property as fraudulent. Morganroth pleaded three theories for relief, but the only one which is relevant to this appeal is the theory that the transfer of the property should be set aside under Utah Code Ann. 25-6-6(1) (1998). That statute deems a transfer fraudulent without requiring proof of actual intent to defraud when the transfer is not made for a reasonably equivalent value; the transferor is either insolvent at the time or rendered insolvent by the transfer; and the creditor's claim arose before the transfer.

The transfer of property at issue was from defendant-appellant Ecclesiastes 9:10-11-12, Inc. (Ecclesiastes) to Zachary T. DeLorean, individually and as custodian for Kathryn A. DeLorean (the DeLorean children). Defendant-appellant John Z. DeLorean (DeLorean) was the sole shareholder and director of Ecclesiastes; he is the father of the DeLorean children. Ecclesiastes and DeLorean were judgment debtors of Morganroth. Morganroth's instant suit sought to set aside Ecclesiastes' 1995 transfer of the Property to the DeLorean children so that Morganroth could then pursue the Property to satisfy Morganroth's judgment against Ecclesiastes.

The district court granted partial summary judgment to Morganroth and directed immediate entry of judgment under Fed. R. Civ. P. 54(b). Defendants filed a timely motion to amend the judgment under Fed. R. Civ. P. 59(e). The district court eventually entered an order denying the defendants' motion and granting a motion to amend the judgment which had been made orally by Morganroth. On that same date the court entered an order granting Morganroth's motion for an award of attorney's fees and directed immediate entry of judgment under Fed. R. Civ. P. 54(b). Defendants then commenced this appeal.

As explained below, we first face several procedural issues in this appeal, including Morganroth's suggestion that the appeal had been mooted by the execution sale of the subject property. We conclude that the appeal is not moot and that none of the other procedural issues precludes our resolution of the merits of this appeal. On the merits, we hold that the district court did not err in granting partial summary judgment holding the 1995 transfer to the DeLorean children of the Property by Ecclesiastes should be set aside; the consideration given by the DeLorean children was not reasonably equivalent to the value of the subject property, and the transferor was insolvent at the time of the transfer. There were no genuine questions of material fact which would have precluded summary adjudication of these fundamental issues.

We also hold that the district court did not err in amending the judgment to make clear that all claims of the DeLorean children were invalid. Finally, we address the district court's award of attorney's fees to Morganroth and conclude that the fee award against the DeLorean children must be reversed. Because Ecclesiastes did not oppose the motion for attorney's fees in the district court, and because on appeal Ecclesiastes offers neither an explanation for this default nor even a request to be relieved from it, we affirm the award of attorney's fees against it.

I

This litigation arises from the tangled affairs of DeLorean. Morganroth had performed legal services for DeLorean and affiliated entities for years, including representation in his high profile criminal and divorce cases. In February 1993, Morganroth filed suit in federal district court in Michigan against DeLorean and Ecclesiastes, seeking recovery of almost $5 million in attorney's fees and alleging that he was fraudulently induced to continue in the representation by DeLorean's promises to pay the mounting bills. After a three month trial, the jury returned a verdict for Morganroth for $5 million against DeLorean and $1.5 million against Ecclesiastes. See Morganroth v. DeLorean, 123 F.3d 374 (6th Cir. 1997). Final judgment was entered on February 6, 1995. Morganroth then obtained leave of court to register the judgment in Utah. This allegedly provided the motivation for the transfer at issue here.

The transfer was effected on April 23, 1995, about two months after Morganroth obtained the judgment in Michigan and six days after the Michigan court's order permitting Morganroth to register the Michigan judgment in Utah, but before the judgment had actually been filed in Utah. The property in question (the Property) is a twenty acre tract on which was located an active manufacturing facility. In the challenged conveyance, Ecclesiastes purported to convey the Property to the DeLorean children, for a stated price of $1.2 million.¹ Payment was by a promissory note with a number of unusual terms favorable to the makers. In apparent anticipation of this litigation, the note provided that the buyers would deduct the full cost of litigation for the "confiscatory legal attack." Only payments of interest were to be made for twenty years, and those were to begin only upon conclusion of litigation over the title. The note obviously was not negotiable and was unsecured.

Defendants claimed, inter alia, that the Property already belonged to the DeLorean children as a result of one or more earlier conveyances. More background is necessary to put some of these issues in context. The entity now known as Ecclesiastes had previously been known as Logan Manufacturing Company and apparently conducted the manufacturing business on the Property. The Property itself was owned directly by John DeLorean until January 4, 1993, when he conveyed the Property to Logan Manufacturing Company. DeLorean was the sole owner of Logan Manufacturing too, holding it through one or more layers of corporate entities of which he was the sole shareholder.

In late 1992 John DeLorean and one Wallace reached an understanding on the sale of the assets of Logan Manufacturing (other than the Property itself), a transaction which closed in early January 1993. In preparation for consummation of this deal, Wallace formed at least two corporate entities, LMC Holding and LMC Tenant. The former was the purchaser in the sale of assets, while the latter became the lessee of the Property. As part of the overall transaction, LMC Tenant entered into a lease of the Property, which included an option to buy the property for $2.5 million. The LMC entities are unrelated to DeLorean and are relevant primarily because of defendants' contentions that subsequent litigation with them over alleged breaches of the asset sale agreement and the lease diminished the value of the Property. After the asset sale, Logan Manufacturing changed its name to Ecclesiastes.

Apparently it was DeLorean's failure to pay his past bills to Morganroth out of the proceeds of this sale (and his decision to sue Morganroth for malpractice instead) which prompted Morganroth's suit against DeLorean and Ecclesiastes in Michigan, and which resulted in a judgment for Morganroth which underlies the present litigation. That Michigan suit was filed in late February 1993, about six weeks after the closing of the asset sale. See Morganroth v. DeLorean, 123 F.3d at 378.

In November 1993, while the Morganroth suit in Michigan was pending, Ecclesiastes (acting through its sole director, DeLorean) directed that all proceeds from the asset sale and all rental income from the Property were to be paid to Zachary and Kathryn. This was memorialized in a corporate minute, which also stated that the payments to the DeLorean children were to include "the proceeds of the Logan Real Estate sale, when effectuated."² II Aplt. App. 474. On the same day, DeLorean and his children purportedly reached a settlement and accounting of the family trust DeLorean had created years before. This settlement also purportedly established the right of the children to the proceeds of the asset sale and the rental income from the Property. Id. at 482-83.

Both of these documents, the Ecclesiastes corporate minute and the family trust settlement agreement, made reference to a court approved settlement agreement which had been entered in the bankruptcy proceedings of DeLorean Motor Company on May 28, 1987, by United States Bankruptcy Judge Graves of the Michigan court. Under that settlement agreement, after assets of the family trust had been sold and liabilities of DeLorean affiliates satisfied from the proceeds, any remaining proceeds were to be returned to the family trust. II Aplt. App. 453, 461-62.

II

In the instant suit, Morganroth filed a motion for partial summary judgment, supported by massive documentation. The district judge did not issue an opinion thereon. He originally ruled from the bench after argument on the motion and made some explanatory remarks which were embodied in an order of Partial Summary Judgment. The order first sets out the elements of the claim that Morganroth would have to establish to be entitled to judgment setting aside the transfer of the Property from Ecclesiastes to...