Summers v. Hagen

• Decision Date: 28 May 1993
• Docket Number: Nos. S-3589,S-3617,s. S-3589
• Citation: 852 P.2d 1165
• Parties: Donald L. SUMMERS, Appellant/Cross-Appellee, v. William E. HAGEN, Appellee/Cross-Appellant.
• Court: Alaska Supreme Court

Page 1165

852 P.2d 1165

Donald L. SUMMERS, Appellant/Cross-Appellee, v. William E. HAGEN, Appellee/Cross-Appellant.

Nos. S-3589, S-3617.

Supreme Court of Alaska.

May 28, 1993.

Jeri L. Bidinger and Susan D. Mack, James T. Stanley Corp., P.C., Anchorage, for appellant/cross-appellee.

Woody Brooks, Bradbury, Bliss & Riordan, Fairbanks, and A. Michael Zahare and Maryanne Boreen, Bradbury, Bliss & Riordan, Anchorage, for appellee/cross-appellant.

Before MOORE, C.J., and RABINOWITZ, BURKE, MATTHEWS and COMPTON, JJ.

OPINION

MOORE, Chief Justice.

This dispute arises from an action brought by William E. Hagen against Donald L. Summers, alleging that Summers participated in a fraudulent conveyance scheme with Jerald C. Briske, a debtor of Hagen's. After Summers consented to entry of judgment on four fraudulent conveyance counts, both parties moved for partial summary judgment on the remaining count, conspiracy to fraudulently convey property, a novel theory of liability in Alaska. The superior court ruled in favor of Hagen and held a trial on the issue of damages.

Summers appeals the grant of partial summary judgment on two grounds. First, he argues that no cause of action exists for participating in a scheme to fraudulently convey property. Next, Summers argues that even if the cause of action exists, the superior court should not have construed his consent to entry of judgment on the fraudulent conveyance counts as a stipulation to the factual assertions therein. Hagen cross-appeals on the issues of damages and attorney fees. We reverse, holding that a cause of action exists but that Summers' consent to entry of judgment did not bind him to the factual assertions in Hagen's complaint.

I. FACTS AND PROCEEDINGS

In 1984 Hagen sold Briske a parcel of real property located in Fairbanks. In exchange for the property, Briske gave Hagen a deed of trust note to secure the principal amount of $200,000. Briske defaulted on the note in November 1986. Shortly before defaulting on his obligation to Hagen, Briske executed fourteen quitclaim deeds conveying seventeen parcels of real property. ¹ The grantees included members of Briske's family and Summers, Briske's long-time business partner. Briske made each of the conveyances in consideration of ten dollars. Summers alleges the conveyances to him were made for valuable consideration.

In early 1987, Hagen brought an action against Briske to reduce the note to judgment and to foreclose the deed of trust. ² In May 1987, Hagen obtained a default judgment against Briske for $182,014.84.

In August 1987, Hagen brought this action in superior court against Briske, the other nominal grantors and Summers. Hagen asked the court to: (1) set aside Briske's conveyances to Summers as fraudulent conveyances under the Alaska Fraudulent Conveyance Act, AS 34.40.010 et seq.; (2) enter a decree against the properties attaching Hagen's judgment lien against Briske; and (3) award damages against Summers for conspiring in the fraudulent conveyance. Hagen identified four parcels of land that Briske allegedly had fraudulently conveyed to Summers. Hagen alleged Briske made these conveyances to defraud Hagen and other creditors by making Briske insolvent. Hagen based his claim for damages caused by the fraudulent conveyances on a civil conspiracy theory.

In January 1988, during the pendency of the lawsuit, Briske filed for protection under Chapter 11 of the Bankruptcy Code. The superior court promptly stayed Hagen's action as to Briske as required under 11 U.S.C. § 362(a). The court allowed the case against Summers to continue.

On April 13, 1988, Hagen instituted an adversary proceeding against Briske and Summers in the bankruptcy case. In the complaint, Hagen asked the court to declare the conveyances of the four parcels void and to find that Briske's debt to Hagen was secured by those parcels. ³

Before the superior court, Summers offered to quitclaim all properties he received in September 1986 to the respective grantors, conceding the superior court probably would find that Briske's transfers of property to him were fraudulent conveyances. Summers noted this was "not an admission of wrongdoing on [his] part." At the pretrial conference, Summers reiterated his intent to reconvey the four parcels to the grantors to moot the issues raised by the fraudulent conveyance counts of Hagen's complaint.

Hagen moved to enjoin Summers from reconveying the property to the grantors, presumably to keep them out of the bankruptcy proceeding. Briske's lawyer then advised the court that the unsecured creditors committee had moved for reconveyance of the four parcels in the bankruptcy proceeding, thus creating "a collision regarding federal and state law if [Hagen's] motion would be granted prohibiting [Summers] from conveying those properties back."

After a discussion between the superior court and the parties concerning the effect of such an action, Summers stipulated to entry of judgment on the four fraudulent conveyance counts. The court entered final judgment in favor of Hagen on those counts. The court ruled that the purported transfers of the four parcels were "fraudulent conveyance[s]" and "void against Plaintiff William E. Hagen" and that the parcels are "held by Defendant Donald L. Summers subject to the lien of the Default Judgment entered in favor of Plaintiff William E. Hagen."

Summers then moved for partial summary judgment on the remaining count of the complaint, the conspiracy claim, on the ground that Hagen's remedy was limited to voiding the transfer. Hagen opposed the motion and requested that summary judgment be entered against Summers as to liability on the conspiracy claim on the basis of his stipulation to judgment on the fraudulent conveyance counts of the complaint. The court denied Summers' motion and granted partial summary judgment in favor of Hagen. The court limited Hagen's damages to the lesser of the value of one of the parcels, Parcel IV, or the uncollected balance of the debt. Apparently, the parties stipulated at oral argument on the summary judgment motion that the property value of one of the land parcels (Parcel IV) exceeded the balance of the debt.

The sole issue at trial was the amount of the uncollected balance of Hagen's default judgment against Briske in light of Hagen's earlier settlement with the bank. The court determined that the uncollected balance, and thus the amount of damages Hagen was entitled to recover, was $73,178.73. This calculation is not challenged on appeal.

II. STANDARD OF REVIEW

In reviewing a grant of summary judgment, we must determine whether a genuine issue of material fact exists and, if not, whether the moving party is entitled to judgment as a matter of law. Zeman v. Lufthansa German Airlines, 699 P.2d 1274, 1280 (Alaska 1985). In reviewing the trial court's findings of fact based upon a non-testimonial record, we are free to reach an independent conclusion based on the same record of undisputed facts presented below. Yukon Equip., Inc. v. Fireman's Fund Ins. Co., 585 P.2d 1206, 1210 (Alaska 1978). When reviewing questions of law, we are not bound by the lower court's view; in such cases, we may apply our independent judgment. See 22,757 Sq. Ft., More or Less v. State, 799 P.2d 777, 778 (Alaska 1990). Our duty is to adopt the rule of law which is most persuasive in light of precedent, policy and reason. Guin v. Ha, 591 P.2d 1281, 1284 n. 6 (Alaska 1979).

III. DISCUSSION

A. Participation in a Fraudulent Conveyance Scheme

Summers argues the superior court's grant of partial summary judgment in favor of Hagen on the issue of liability should be reversed as a matter of law. He argues that a creditor has no cause of action against a grantee of the debtor's property for participation in a fraudulent conveyance scheme. He also argues that creditors' rights should be strictly limited to the remedy provided for by the Fraudulent Conveyances Act, AS 34.40.010. Alaska Statute 34.40.010 reads in part, a "conveyance ... made with the intent to hinder, delay, or defraud creditors ... is void."

Although Summers' position is the majority rule, ⁴ Milton Roberts, Annotation, Right of Creditor to Recover Damages for Conspiracy to Defraud Him of Claim, 11 A.L.R.4th 345, 350, 359-81 (1982), we find the minority rule better reasoned. It allows one who has been legally harmed to recover damages from the party causing the harm where the existing equitable remedy of voiding the transfer is inadequate.

The Arizona Court of Appeals articulated the minority rule in McElhanon v. Hing, 151 Ariz. 386, 728 P.2d 256 (App.1985), vacated in part on other grounds, 151 Ariz. 403, 728 P.2d 273 (1986), cert. denied, 481 U.S. 1030, 107 S.Ct. 1956, 95 L.Ed.2d 529 (1987). In McElhanon, the court relied on the public policy behind the Uniform Fraudulent Conveyance Act to hold that "a lien is not necessary before there is an actionable wrong." Id. 728 P.2d at 263. McElhanon expressly relied on Dalton v. Meister, 71 Wis.2d 504, 239 N.W.2d 9, 17-19 (1976), which held that because the Uniform Fraudulent Conveyance Act made fraudulent conveyances of the debtor's property to the grantee a definite legal wrong, that wrong could be the subject of a civil conspiracy. ⁵ McElhanon, 728 P.2d at 263.

We hold that to prove liability for participation in a fraudulent conveyance scheme, a plaintiff must establish:

(1) An unlawful agreement;

(2) The specific intent of each participant in the scheme to hinder, delay and defraud a creditor of one who participated in the scheme (3) Acts committed pursuant to the unlawful agreement;

(4) Damages caused by the acts committed pursuant to the unlawful agreement.

See McElhanon, 728 P.2d at 266.

The party against whom damages are claimed must be guilty of actual fraud, as opposed to constructive fraud. That is, [the party against whom damages are claimed] must know that the transfer will leave the debtor insolvent, that the transfer is...