United Bank v. Buckingham

Decision Date09 March 2021
Docket NumberMisc. No. 1, Sept. Term, 2020
Citation472 Md. 407,247 A.3d 336
Parties UNITED BANK v. Richard BUCKINGHAM, et al.
CourtCourt of Special Appeals of Maryland

Argued by Blake W. Frieman (Jennifer A. Brust, Bean, Kinney & Korman, P.C., Arlington, VA), on brief, for Appellant.

Argued by Charles R. Claxton (Paley, Rothman, Goldstein, Rosenberg, Eig & Cooper, Chtd., Bethesda, MD; Kenneth R. West, Abrams & West, P.C., Bethesda, MD; Kenneth S. Nankin, Nankin & Verma PLLC, Bethesda, MD), on brief, for Appellees.

Argued before: Barbera, C.J.; McDonald, Watts, Hotten, Getty, Booth and Biran, JJ.

Getty, J.

Under the Maryland Uniform Certification of Questions of Law Act,1 this Court has the power to "answer a question of law certified to it by a court of the United States or by an appellate court of another state or of a tribe, if the answer may be determinative of an issue in pending litigation in the certifying court and there is no controlling appellate decision, constitutional provision, or statute of this State." CJ § 12-603.

Before us are two questions of law certified by the United States District Court for the District of Maryland ("District Court") that arise in the context of a decade-long dispute between the adult children of the Buckingham family and United Bank ("the Bank"). Through the opportune formation of various trusts, the children successfully diverted hundreds of thousands of dollars in life insurance proceeds away from the declining family business and to their personal use. In an elaborate web of procedural history, federal and state courts both have attempted to conclusively determine whether this diversion of life insurance proceeds was an appropriate use of familial resources to assist ailing parents, or instead an act undertaken by the Buckingham children to intentionally defraud the Bank.

The first question before us is whether a change of the beneficiary designation of a life insurance policy amounts to a "conveyance" under the Maryland Uniform Fraudulent Conveyance Act ("MUFCA"),2 particularly in light of § 16-111(d) of the Insurance Article3 that provides for a protective exemption for the spouse and dependents of a life insurance policy holder. After conducting a plain language analysis of the definition of "conveyance" provided for in CL § 15-201(c) and reviewing the General Assembly's intent in enacting MUFCA as evidenced by the Act's legislative history, caselaw, and related statutory provisions, we hold that a change in life insurance beneficiary constitutes a conveyance under MUFCA.

The second question is whether, under § 15-102(t) of the Estates and Trusts Article,4 a guardian of property is granted the authority to change a life insurance beneficiary on a policy of the ward. As a matter of first impression, this question relies upon an interpretation of the common law purpose of guardianship. Upon reviewing the legislative history of powers granted to guardians of property, and finding no changes to the common law, we hold that a guardian of property is not granted the authority to change a life insurance beneficiary on a policy of the ward under ET § 15-102(t).

BACKGROUND

In accordance with CJ § 12-605(a), "the court certifying a question of law" to this Court "shall issue a certification order." Pursuant to CJ § 12-606(a)(2), the certification order must contain "[t]he facts relevant to the question, showing fully the nature of the controversy out of which the question arose[.]" Under these statutory mandates, this Court accepts the facts provided by the certifying court. See, e.g. , Price v. Murdy , 462 Md. 145, 147, 198 A.3d 798 (2018). Thus, we adopt the following facts set forth in a memorandum opinion accompanying the certification order of the District Court:

This clash between the Buckingham family and the creditors of the family's deceased patriarch, John Buckingham, has now lasted more than a decade, and has played out in both state and federal court. The crux of the dispute before this Court concerns whether diversion of the proceeds from several life insurance policies, which are among the sole remaining assets of John Buckingham and the family company, Sun Control Systems ("SCS"), was done to defraud the Bank and other creditors. Although the background of this case has been repeated and reframed time and again, the Court summarizes the matter here to aid the Maryland Court of Appeals.
John Buckingham founded SCS in 1979 and acted as President and as a Director on its board until 2009. John was married to Elizabeth "Betty" Buckingham, and together they had five children: David, Susan, Thomas, Daniel, and Richard Buckingham.
In 2008, John was diagnosed with dementia and, in 2009, this diagnosis was confirmed to be both progressive and terminal. Around this time, Thomas Buckingham was designated to succeed John as President of SCS, although John stayed on as a Director and was never removed from the Board.
By January 2010, John's condition had worsened. He was sometimes found wandering his neighborhood or in his neighbors' homes eating from their refrigerators. In August 2010, Betty Buckingham filed a petition for guardianship in the Circuit Court for Montgomery County. Betty was appointed guardian of John's person, and David was appointed both temporary co-guardian of John's person and sole guardian of John's property. In December 2010, the guardianship order was amended to make David solely the guardian of the property and Betty the temporary guardian of John's person. In January 2011, the Circuit Court issued a final guardianship order that announced David and Betty as the co-guardians of John's person and maintained David's status as sole guardian of the property. This order governing the guardianship of the property states that the guardian shall have "all powers and duties set forth in Md. Code Ann., Est. & Trusts § 13-214 and § 15-102."
As John's mental health declined, so did SCS's financial health. SCS's revenues fell from $15.4 million in 2006 to $8.5 million in 2009. As of mid-2009, SCS had defaulted on loans it had secured with Virginia Commerce Bank ("VCB"), the Bank's predecessor, and owed over $5 million to VCB. John and Betty were also personally indebted to VCB as they had on occasion guaranteed loans to SCS and had also taken out loans in their personal capacity through a home equity line of credit.
In May of 2009, SCS entered into a forbearance agreement with VCB. In the forbearance agreement, VCB agreed to refrain from collection and to increase SCS's line of credit by $750,000 in exchange for SCS's commitment to meet a specified schedule of payments. SCS's financial situation did not improve, however, and by 2010, SCS had defaulted on the forbearance agreement as well. VCB, now fearful it would lose millions of dollars through its loans to SCS, began looking to SCS's remaining assets, among them the death benefits on eight life insurance policies in John's name that are the subject of this litigation.
These life insurance policies generally fall into three groups: (1) two policies from Northwestern Mutual (the "JDB policies") that John had purchased and for which he paid the premiums; (2) four policies purchased by SCS from Northwestern Mutual (the "split dollar policies") under a "split dollar" arrangement where John named the beneficiaries but SCS "owned" the policies, paid the premiums, and upon John's death stood to recoup the premiums from the death benefits, with the remainder being paid to John's designated beneficiary; and (3) two policies from John Hancock (the "John Hancock Policies") purchased and owned by SCS and operated under a similar split dollar arrangement, with SCS recouping the premiums upon John's death.
In June 2010, as John's health declined, VCB entered into a second forbearance agreement in which VCB obtained a secured interest in death benefits payable under the JDB and split dollar policies. The effect of this agreement was to give VCB a superior position to any SCS funds, including the life insurance benefits, upon John's death.
Prior to executing the second forbearance agreement, VCB had learned of John's dementia. Outside counsel advised VCB that before entering into a second forbearance agreement, John should undergo a competency evaluation. VCB did not heed this advice. Instead, VCB entered into a fully executed second forbearance agreement. It eventually came to light that some of John's signatures on this agreement were forged. VCB, for its part, denies having any knowledge about the forgeries.
David contends he first learned of the second forbearance agreement in February 2011 when, after much back and forth, VCB provided to David the underlying documentation. David realized that the second forbearance agreement was executed when John was suffering acutely from dementia. David also recognized certain of the signatures as forgeries.
The next month, in March 2011, David, in his capacity as guardian of the property, changed beneficiaries on the eight life insurance policies to the newly-created John D. Buckingham Life Insurance Trust ("JDB Trust") with David, Susan, and Richard as Co-Trustees. David contends that he created the JDB Trust to fund the care necessary for Betty once John died. David also made Betty the primary beneficiary and the Buckingham children contingent beneficiaries of the JDB Trust.
David next took steps to obtain accelerated death benefits to be paid from the John Hancock policies into another new trust, the "Osprey Trust," "to provide funds for [his] mother's support and meet the extraordinary cost of [John's] care." However, SCS still was owed the amount it had paid in premiums under the split dollar arrangement, which at the time totaled $280,000. Thus, if David were to obtain accelerated benefits, they could be subject to SCS's creditors such as VCB. David and Thomas knew as much; contemporaneous email correspondence between the brothers reflects their concern "[t]he bank or other creditors w[ould] end up with those
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