Opinion ID: 676559
Heading Depth: 4
Heading Rank: 1

Heading: Fraudulent Transfer of Assets

Text: 18 Defendants argue that Grand failed to make a submissible case that Midcon is liable for the MBL Judgment under the fraudulent transfer exception to the nonliability of successors. Iowa courts have not elaborated on the elements of such a claim. Authorities suggest, however, that the fraud exception to the nonliability of successors is merely an application of the law of fraudulent conveyances. Chaveriat v. Williams Pipe Line Co., 11 F.3d 1420, 1426 (7th Cir.1993) (citing 15 Fletcher Cyclopedia of the Law of Private Corporations Secs. 7125, 7129 (1990 rev. ed.)). Moreover, the parties both cite C. Mac Chambers Co., which involved a fraudulent conveyance claim, for support on this issue. Because we find nothing to the contrary in Iowa law, we believe that the Iowa law of fraudulent conveyances applies to Grand's claim that MBL fraudulently transferred assets to Midcon. 19 A fraudulent conveyance is ... 'a transaction by means of which the owner of real or personal property has sought to place the land or goods beyond the reach of his creditors, or which operates to the prejudice of their legal or equitable rights.'  Graham v. Henry, 456 N.W.2d 364, 366 (Iowa 1990) (quoting 37 Am.Jur.2d Fraudulent Conveyances Sec. 1, at 691 (1968 & 1988 Supp.)). To recover on a fraudulent conveyance claim, a plaintiff-creditor must first show that the transferor actually owned the property that it allegedly fraudulently transferred. See 37 Am.Jur.2d Fraudulent Conveyances Secs. 100, 102, at 782, 783 (1968); see also Harvey v. Phillips, 193 Iowa 231, 186 N.W. 910, 913 (1922) (explaining that [w]here property is purchased by the husband with his wife's money, and he takes title in his own name without her consent, there is a resulting trust in her favor, and under such circumstances a subsequent conveyance to the wife is not fraudulent as to [the husband's] creditors). Moreover, the plaintiff-creditor must show that it was prejudiced by a transfer of assets. C. Mac Chambers Co., 412 N.W.2d at 596. Prejudice requires the creditor to show that [it] would have received something which has become lost to [it] by reason of the conveyance. Id. 20 We hold that the district court erred in submitting the fraudulent transfer issue to the jury because Grand did not produce sufficient evidence that MBL fraudulently transferred assets to Midcon. First, Grand relies on evidence allegedly showing that MBL transferred trade secrets, which were worth $6.5 million, to Midcon. Even assuming the evidence supports that such a transfer was made, it does not support a finding of liability under a fraudulent transfer theory because MBL did not own the trade secrets; indeed, Grand admittedly owned the trade secrets and claimed that MBL stole them. See Dist.Ct. Doc. No. 168, at 3, 12 (May 6, 1992). A transfer of property in which the transferor has neither legal nor equitable title does not work to defraud the transferor's creditors. See, e.g., Harvey, 186 N.W. at 913; 37 Am.Jur.2d Fraudulent Conveyances Sec. 102, at 783. Thus, any transfer from MBL to Midcon of Grand's trade secrets is irrelevant to the fraudulent transfer exception. 6 21 Grand's other evidence on the fraudulent transfer issue is similarly deficient. Grand cites the following evidence: Gary Buffington's testimony that when he left the company in 1982, MBL had equipment and inventory worth $500,000; Phillip Brown's deposition testimony 7 that Graham transferred some equipment that probably went to Northern Farms first and then was transferred by Northern to Midcon; Brown's deposition testimony that when Northern Farms acquired the two farm properties and building in 1984 from third parties, some inventory was on the Lamar, Missouri, property from which MBL had run its operations; Graham's deposition testimony that he received no consideration for the transfer of his own assets to Midcon; and the deposition testimony of Gerald Schlink, a Midcon employee, that when he began working for Midcon in January 1985, the company had an inventory of some [biological veterinary] products on hand. We note in addition that Pankratz, Grand's owner, summarily testified at trial that MBL transferred $250,000 worth of assets to Midcon. 22 Even assuming that the jury was entitled to find from this testimony that MBL transferred some of its own assets to Midcon for inadequate consideration, there is insufficient evidence that Grand was prejudiced by the asset transfer. Grand can cite no evidence, for example, that MBL had no other creditors, that Grand was entitled to priority over other creditors to any extent, much less to the extent of the assets allegedly transferred, or that the assets that MBL allegedly transferred were unencumbered. See C. Mac Chambers Co., 412 N.W.2d at 597 (holding that creditors with unperfected security interests were not prejudiced where corporation transferred assets subject to perfected security interest worth less than the amount of the perfected interest). In short, Grand failed to meet its burden of showing that it would have received something had MBL not transferred assets to Midcon. See id. at 596-97. Thus, we hold that the district court erred in denying defendants' posttrial motion for judgment as a matter of law on Grand's claim that Midcon is liable for the MBL Judgment under a fraudulent transfer theory. 23