Prairie Lakes Health Care System, Inc. v. Wookey

CourtSupreme Court of South Dakota
Citation1998 SD 99,583 N.W.2d 405
Docket NumberNos. 20172,20173,s. 20172
PartiesPRAIRIE LAKES HEALTH CARE SYSTEM, INC., Plaintiff and Appellee, v. Dwight R. WOOKEY, Defendant and Appellant, and Harold K. Wookey and Merna L. Wookey, Defendants.
Decision Date19 August 1998

Page 405

583 N.W.2d 405
1998 SD 99
Dwight R. WOOKEY, Defendant and Appellant,
Harold K. Wookey and Merna L. Wookey, Defendants.
Nos. 20172, 20173.
Supreme Court of South Dakota.
Argued March 23, 1998.
Decided Aug. 19, 1998.

Thomas J. Linngren of Green, Schulz, Roby, Oviatt, Cummings & Linngren, Watertown, for plaintiff and appellee.

Curt R. Ewinger of Rice and Ewinger, Aberdeen, for defendants and appellants.


¶1 After incurring a large hospital bill, the patient and his wife deeded all their real estate to their adult son. The Hospital sought to void the transfer as fraudulent, but despite the presence of several "badges of fraud," the circuit court found in favor of the patient, as the conveyance was in exchange for reasonably equivalent value. Although this finding was not clearly erroneous, we reverse the decision because a separate statute, not considered by the court, dealing with transfers to insiders, makes the conveyance fraudulent as a matter of law. On the other hand, we uphold the court's finding that the son may be held responsible for his father's medical care. Thus we affirm in part, reverse in part, and remand.


¶2 Harold Wookey incurred substantial bills while a patient at Prairie Lakes Hospital in Watertown, South Dakota, from November 21 to December 19, 1993. At the time, he and his wife, Merna, owned approximately 1360 acres in Clark and Day counties. A large portion of this farmland was encumbered by mortgages in the Conservation Reserve Enhancement Program (CREP). Harold and the Hospital tried to work out payment terms, but to no avail. Eventually, the Hospital threatened to bring suit. With assistance of counsel, on September 21, 1994, Harold and Merna deeded their home and all their acreage to their son, Dwight Wookey, who agreed they would be allowed to live in the home rent free for the rest of their lives. The consideration exchanged for the transfer to Dwight included his assumption of the outstanding CREP debt, his promissory note and mortgage for $58,000 payable to Harold and Merna over twenty-five years with seven percent interest, his earlier payments on Harold and Merna's farm debts including real estate taxes, and his prior lump sum payment to the CREP as an early buyout for his parents.

¶3 Following Harold's second hospitalization in the fall of 1994, and his continued failure to pay his medical bills, the Hospital brought suit against both Harold and Merna in March 1995. The couple never responded, and a default judgment was entered against them on May 19, 1995 for $76,537, including prejudgment interest. The Hospital discovered the transfer of the farm the following summer, when it attempted to collect on its judgment. It sued Harold, Merna and Dwight in September 1995, to set aside the sale. A year later, the Hospital moved to amend its original complaint to include an additional cause of action against Dwight under SDCL 25-7-27 (making financially able adult children responsible for their parents' medical care). While reserving its ruling on the Hospital's motion to amend, the court heard the action to void the transfer. In October 1996, the trial court issued a memorandum decision denying the avoidance, concluding that the farmland was exchanged for reasonably equivalent value. The court found the property transferred was worth $332,560, and the consideration paid, both before and after the sale, totaled $355,360. The consideration included $148,360 on the assumption of the CREP debt, $149,000 for payments on antecedent debt, and $58,000 in the form of a promissory note. 1 Lastly, the court allowed the Hospital to amend its complaint to allege a cause of action for parental support and later granted its motion for summary judgment against Dwight for $70,091.

¶4 Dwight Wookey appeals. By notice of review, the Hospital also appeals contending the trial court erred in holding the transfer

Page 410

from Harold and Merna to Dwight was not avoidable. Because we conclude the conveyance to Dwight was a fraudulent transfer as a matter of law, we will rearrange the customary sequence of issues and discuss the fraudulent transaction problem first, as it will affect the parental support judgment against Dwight. Next, we will analyze Dwight's arguments that the court erred, in granting the Hospital's motion to amend its complaint to allege a cause of action pursuant to SDCL 25-7-27; in upholding as timely under that statute the notice given to Dwight nearly three years after medical services were provided to his father; in concluding Dwight had the financial ability to pay his father's medical expenses within the period of the applicable statute of limitations; in holding an adult child liable for medical services provided to a parent when the parent has the financial ability to pay at least part of the amount owed; and, in relying on SDCL 25-7-27, a statute purportedly so vague and indefinite in its application that it results in a denial of due process. Lastly, we will review the Hospital's assertion that it was improper for the trial court to award prejudgment interest on the parental support judgment against Dwight only from the time the Hospital served him with the motion to amend its complaint.

1. Legitimacy of the Transfer Under the UFTA

A. Fraudulent Transfer Under SDCL 54-8A-4(a)

¶5 After a bench trial, the circuit court ruled that Harold and Merna's transfer of their property to Dwight was not voidable under the Uniform Fraudulent Transfer Act (UFTA). SDCL ch. 54-8A. 2 In reviewing a judge's findings in a court trial, we give no deference to conclusions of law; thus we review them under the de novo standard. S.B. Partnership v. Gogue, 1997 SD 41, p 8, 562 N.W.2d 754, 756 (citing Central Monitoring Serv., Inc. v. Zakinski, 1996 SD 116, p 17, 553 N.W.2d 513, 517). Conversely, we examine findings of fact under the more deferential clearly erroneous standard. Gogue, 1997 SD 41, p 8, 562 N.W.2d at 756 (citing Shedd v. Lamb, 1996 SD 117, p 17, 553 N.W.2d 241, 244). We will not overturn fact findings "unless we are definitely and firmly convinced a mistake has been made." Cordell v. Codington Cty., 526 N.W.2d 115, 116 (S.D.1994).

¶6 In the aftermath of sweeping changes in laws regulating corporations, commercial transactions and bankruptcy, the Conference of Commissioners on Uniform State Laws decided to revamp the old Uniform Fraudulent Conveyance Act (UFCA), first promulgated in 1918. 3 See SDCL 54-8-5 through 19 (repealed)(South Dakota's version of the UFCA enacted in 1919). The result was the UFTA, adopted in South Dakota in 1987. Like the UFCA, the purpose of the UFTA is to thwart depletion of debtors' estates to the disadvantage of unsecured creditors. UFTA § 3, cmt. (2). The Act invalidates "otherwise sanctioned transactions made with a fraudulent intent." In re Marriage of Del Giudice, 287 Ill.App.3d 215, 222 Ill.Dec. 640, 678 N.E.2d 47, 49 (1997). Even valid transfers made without fraudulent intent, however, may be susceptible to avoidance as fraudulent under certain provisions.

Page 411

See discussion infra Section B. A "determination that the transfer is fraudulent is conceptually distinct from the avoidance of the transfer, which is, in turn, separate and distinct from a recovery based upon the avoidance of a transfer." In re Cohen, 199 B.R. 709, 716 (9th Cir. BAP 1996).

¶7 The UFTA subdivides fraudulent transactions into two categories: actually fraudulent transfers (SDCL 54-8A-4(a)(1)) and constructively fraudulent transfers (SDCL 54-8A-4(a)(2) and 54-8A-5). In deciding whether a transfer was actually fraudulent, the debtor's state of mind becomes the point of inquiry. SDCL 54-8A-4 provides in relevant part:

(a) Any 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....

A debtor's subjective intent is difficult to discern; direct proof to establish an actually fraudulent transfer is not required. Courts may consider the following list of objective factors in deciding whether the transfer was made with actual intent to hinder, delay, or defraud a creditor:

(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.

SDCL 54-8A-4(b). By the plain language of this statute, these eleven factors are nonexclusive considerations. Steel Co. v. Morgan Marshall Indus., Inc., 278 Ill.App.3d 241, 214 Ill.Dec. 1029, 662 N.E.2d 595, 601 (1996). In reviewing these elements, courts should consider all relevant particulars encompassing a questioned transaction and weigh the factors negating as well as suggesting fraud. UFTA § 4, cmt. (6). "The burden of persuasion remains on the plaintiff to show actual intent by a preponderance of the evidence." Morris v. Nance, 132 Or.App. 216, 888 P.2d 571, 575-76...

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