Opinion ID: 2974066
Heading Depth: 2
Heading Rank: 2

Heading: Funds Returned to Steve Morriss’s Companies

Text: The district court did not err by holding the defendants liable for the money that was later transferred back into various companies owned by Steve Morriss because the defendants failed to satisfy their burden of proving that any of the money benefitted Tareco. The district court found the defendants liable for the total amount fraudulently conveyed to the Amy Morriss account because the defendants were transferees of the fraudulently conveyed money and Karen Morriss and David Lowry were conspirators with Steve Morriss. The defendants, however, argue that the “evidence is insufficient” to support the judgment for the $273,700 that they later transferred to Steve Morriss’s companies because that money “was not placed in [the Amy Morriss] account for the personal benefit of the Defendants.” This argument fails as a matter of law. The district court was not required to find that the money was transferred for the personal benefit of the defendants. Instead, it was sufficient for the court to find that the defendants were transferees, see § 66-3- 309(b)(1), and with respect to Karen Morriss and David Lowry, in the alternative, that they were conspirators with Steve Morriss, see Dale v. Thomas H. Temple Co., 208 S.W.2d 344, 353 (Tenn. 1948). The defendants were therefore liable for the full amount that Steve Morriss fraudulently conveyed to the Amy Morriss account. -7- Nos. 04-6334/6335 Tareco Props. v. Morriss Although the district court had the discretion to reduce the defendants’ liability as it found equitable, the defendants failed to meet their burden of proving that a reduction was warranted. The Uniform Act provides that judgments based upon the value of the asset transferred “must be for an amount equal to the value of the asset at the time of the transfer, subject to adjustment as equities may require.” § 66-3-309(c) (emphasis added). Thus, if the defendants proved that they transferred the $273,700 back into the companies, and that Tareco received that money when it later obtained those companies pursuant to the July 2000 order, the court could have reduced their liability accordingly to avoid conferring a windfall upon Tareco. A similar result was reached in Dahar v. Jackson (In re Jackson), 318 B.R. 5, 27 (Bankr. D.N.H. 2004). In Dahar, a transferee used some of the proceeds from her sale of fraudulently conveyed property to pay the transferor’s business and family expenses. Id. at 28. The court found that, under the damages provision of the New Hampshire fraudulent conveyance statute, which was identical to § 66-3-309(c), the transferee was entitled to an equitable reduction of her liability for her payments of the transferor’s expenses. Id. at 26-28. Without a reduction, the plaintiff would have received a windfall because he essentially would have recovered twice for some of the money fraudulently conveyed: the money the plaintiff paid pursuant to the judgment for the fraudulent conveyance and the additional money in the transferor’s estate that resulted from the transferee paying the transferor’s expenses. Id. at 27-28. But even assuming that Tennessee courts would equitably reduce a transferee’s liability under circumstances similar to those in Dahar, the defendants are not entitled to such a reduction -8- Nos. 04-6334/6335 Tareco Props. v. Morriss because they failed to prove that Tareco actually received the $273,700. The defendants conceded at oral argument that they had the burden of proving that a reduction in damages was warranted. See also Tennessee ex rel. Chapdelaine v. Torrence, 532 S.W.2d 542, 550 (Tenn. 1975) (stating that defendants have the burden to prove the mitigation of damages). They did not meet this burden. The defendants provided evidence that they paid $273,700 to several of Steve Morriss’s companies, J.A. at 293, and that those companies and others were later transferred to Tareco, J.A. at 199-202. They never proved, however, that Tareco actually received the $273,700 that they transferred to the companies. For example, there was no evidence that the money stayed within the companies until the companies were transferred to Tareco. On the contrary, the evidence shows that Tareco did not receive a substantial portion of the money because the combined value of all the companies, including those that were paid the $273,700, was only $100,000 at the time they were transferred to Tareco. J.A. at 197. The defendants thus failed to fulfill their burden of proving the extent to which their transfer benefitted Tareco, and the district court properly declined to reduce their liability.