Opinion ID: 1318287
Heading Depth: 3
Heading Rank: 1

Heading: The Trial Court Erred by Refusing to Grant Laurence a Continuance

Text: Laurence claims that the trial court abused its discretion by not granting the continuance on June 28, 1985. He admits that he did not raise the issue in his points on appeal. Nevertheless, he argues it as an alternative to a due process challenge he included in the points on appeal. [1] Under Mullen v. Christiansen, 642 P.2d 1345, 1350 (Alaska 1982), this court may review an issue raised at trial and adequately briefed on appeal even if not mentioned in the points on appeal as long as opposing counsel are sufficiently apprised of the issue. Laurence asked Judge Carlson for a continuance. Both his brief and Joan's brief argue the issue. We will review his challenge. [2] Laurence's counsel contended that he needed time to contact Laurence in order to respond to the new allegations in Joan's motion to strike. He claims that the trial court erred by finding a fraudulent conveyance and a violation of the October 17th judgment without a trial or evidentiary hearing on the allegations. Denial of a continuance is within the trial court's discretion. Siggelkow v. Siggelkow, 643 P.2d 985, 986 (Alaska 1982). A party demonstrates an abuse of discretion when `deprived of a substantial right or seriously prejudiced.' Id. (quoting Barrett v. Gagnon, 516 P.2d 1202, 1203 (Alaska 1973)). Each case turns on its own circumstances. Siggelkow, 643 P.2d at 987. The trial court must balance the needs for due promptness with the rights to fair presentation of the case. Id. In granting Joan's motion to strike without holding a further evidentiary hearing, Judge Carlson effectively treated her motion as one for summary judgment. He implicitly ruled that the record then before him conclusively demonstrated both a violation of the October orders and a fraudulent conveyance. We disagree. Although the circumstances surrounding the execution and recording of the mortgage invite skepticism of Laurence's claims, the record before Judge Carlson at the June 28th hearing does not conclusively establish an improper conveyance. [3] The failure to allow Laurence time to prepare and present a case at a full evidentiary hearing severely prejudiced his ability to defend the charges raised in Joan's motion to strike. Laurence deserves an opportunity to present a defense. The record does not conclusively demonstrate a violation of the October orders not to permit the recording of additional encumbrances on the Lahaina property. Laurence executed the mortgage on October 11th, one day prior to the order not to encumber or permit an encumbrance. Someone recorded the mortgage on October 18th. Laurence claims that the record does not demonstrate that he had the mortgage recorded in violation of the court's order. Indeed, nothing on the face of the recorded documents demonstrates Laurence's connection to their recording. Joan claims, however, that Laurence must have permitted the mortgage's recording through his position as president and one of only two directors, shareholders and incorporators of the mortgagee, FFFC. The circumstances strongly implicate Laurence in the recording. Nevertheless, the record contains no direct evidence that Laurence permitted the mortgage's recording. Although the record demonstrates Laurence's importance to FFFC, it does not document the business relationship between Laurence and FFFC's other shareholder-director. Nothing in the record describes the authority each shareholder-director exercised over this transaction. If FFFC's other shareholder-director ordered the mortgage recorded over Laurence's objections, Laurence could not be held in contempt for permitting the mortgage's recording in violation of the October orders. We conclude that material facts remain disputed over the mortgage's recording. In addition to finding a violation of the October orders, Judge Carlson apparently believed that sufficient indicia of fraud existed in the record to find a fraudulent conveyance as a matter of law. He therefore did not continue the case to allow an evidentiary hearing. Again, however, we disagree with his conclusion. The law of the situs of real property governs the determination of a fraudulent conveyance. 37 Am.Jur.2d Fraudulent Conveyances § 110, at 791-92 (1968); 37 C.J.S. Fraudulent Conveyances § 3, at 852-53 (1945). Thus, here, the Hawaii law of fraudulent conveyances governs. No Hawaii court has examined the badges of a fraudulent conveyance since territorial days. Below, Joan cited a territorial court's decision discussing the traditional badges of fraud. [4] Achiles v. Cajigal, 39 Hawaii 493 (Hawaii 1952) (cited in 37 Am.Jur.2d Fraudulent Conveyances § 11, at 702 n. 16). The Hawaii territorial court recognized eight badges of fraud: 1. The transferor is indebted or insolvent; 2. The conveyance in general, i.e., that the debtor's entire estate is diminished, thereby leaving him insolvent; 3. Consideration for the conveyance is absent; 4. The conveyance is secret and concealed; 5. The conveyance is made to a family member or to one of close relationship; 6. The conveyance is made while a suit against the debtor is pending or threatened; 7. The transferee takes the property in trust for the debtor; 8. The debtor remains in possession, reserves the use and benefit, and deals with the property as his own. Id. at 497. These badges represent common law distillations of factors frequently present in fraudulent conveyances. See 37 Am.Jur.2d Fraudulent Conveyances § 10, at 701. Courts commonly recognize these factors. See id., §§ 10-14, at 701-04. [5] There is no reason to believe that Hawaii would not still recognize such factors. The mere presence of badges of fraud, however, will not invalidate a transaction. Badges of fraud must be viewed within the context of each particular case, and where their presence is satisfactorily accounted for, or where their existence is not inconsistent with a construction of the transaction as a valid one, they deserve to be accorded little weight. Blumenstein v. Phillips Insurance Center, 490 P.2d 1213, 1223 (Alaska 1971) (footnote omitted). Thus, even if the record conclusively established the badges of fraud, we would not invalidate the conveyance merely because Laurence preferred to pay FFFC rather than Joan. An insolvent debtor may legally prefer one creditor over others. Id. at 1221-22. To invalidate the transfer as a fraud, the record should demonstrate that FFFC is not a bona fide creditor. See generally id. at 1220-22 (discharge of valid underlying debt formed consideration sufficient to rebut any presumption of fraud in preference of one creditor over plaintiff). Here, the record before the trial court neither conclusively eliminated FFFC as a bona fide creditor nor demonstrated the badges of fraud. We will not presume that FFFC was a sham creditor merely because Laurence is half owner, president and co-director. As outlined above, the record contains no evidence about either FFFC's business affairs or the relationship between Laurence and his co-director. We cannot presume that FFFC did not properly loan Laurence the funds in 1981 or seek the mortgage in 1984. The record also fails to establish conclusively most of the badges of fraud. First, although Laurence's counsel admitted that Laurence was in dire financial straits, this establishes only that he was in trouble, not insolvent. Second, the record does not conclusively establish that the Lahaina mortgage left Laurence insolvent; the only evidence on the record is Laurence's counsel's belief that the Lahaina property was Laurence's only remaining asset. Third, the mortgage itself recites the antecedent note as consideration. [6] An antecedent debt is sufficient consideration for a subsequent mortgage. See Mohar v. McLelland Lumber, 95 Idaho 38, 501 P.2d 722, 725 (1972). Fourth, the conveyance was not secret since recorded within a week of execution. Fifth, the transferee did not take in trust. Sixth, mortgagors properly remain in possession of mortgaged premises. Only two badges recognized by Hawaii are unequivocally present. First, Laurence executed the mortgage to a corporation he half-owned, and served as incorporator, co-director and president. FFFC was thus closely related to Laurence. Yet, as outlined above, the record does not contain sufficient evidence of FFFC's business affairs to determine conclusively that FFFC was Laurence's alter ego. Laurence's co-owner and director may have legitimized this transaction. Second, the conveyance occurred in the midst of litigation over the very parcel conveyed. By themselves, however, these two badges of fraud do not establish conclusively that the conveyance to FFFC was a sham intended to defraud Joan's rights. Joan urges that the trial court properly acted quickly to prevent further fraud. We recognize that a trial court must have the authority to prevent and correct abusive requests for continuances. The record before Judge Carlson demonstrated Laurence's repeated delays and disobedience of judicial orders. Indeed, Judge Carlson specifically denied Laurence's June request because during the October 12th to 16th continuance, Laurence was engineering the very mortgage challenged by Joan. In a proper case, a trial court may act quickly where necessary to prevent further fraud. But such haste was unnecessary here. The execution and recording of the mortgage was fait accompli. There was no evidence of irreparable harm to Joan to wait for a short continuance and evidentiary hearing. Moreover, the trial court could protect its authority equally well by holding Laurence in contempt after Joan demonstrated in a full hearing any violation of the October orders. We stress that we base our decision on the trial court's implicit conclusion that the record demonstrated fraud and violations of orders as a matter of law. The trial court ruled only four days after Joan filed her motion to strike. Laurence's counsel had no opportunity to contact his client, much less prepare a defense at a full evidentiary hearing. The unique posture of this case, tantamount to a grant of summary judgment to Joan without any chance for Laurence's opposition, requires us to draw all reasonable inferences in Laurence's favor. [7] Fraud ordinarily presents questions for the trier of fact. See, e.g., First National Bank of Fairbanks v. Enzler, 537 P.2d 517, 521-22 (Alaska 1975). Here, Judge Carlson implicitly ruled that no material questions of fact remained for a trial. We believe, however, that material questions remain involving FFFC's status as a bona fide creditor. Thus, we must reverse and remand. To avoid further disputes on remand over two issues raised on appeal, we wish to instruct the trial court on joinder and jurisdiction. Upon remand, the court should join FFFC as a necessary party under Civil Rule 19(a). [8] As an Alaska corporation, FFFC is subject to service of process in the superior court. Both longstanding common law and cases arising under comparable versions of Civil Rule 19 hold a grantee of an alleged fraudulent conveyance indispensable to a proceeding to strike the transfer. See, e.g., Dameron v. Deer, 88 F.R.D. 577, 582-83 (N.D.Ga. 1980) (Fed. R.Civ.P. 19(a)); Wood v. Elling Corp., 20 Cal.3d 353, 142 Cal. Rptr. 696, 698 n. 2, 572 P.2d 755, 757 n. 2 (Cal. 1977); Johnson v. Johnson, 572 P.2d 925, 926-27 (Nev. 1977) (decided under identical Nev.R.Civ.P. 19(a)); 7 C. Wright & A. Miller, Federal Practice and Procedure: Civil § 1621, at 213 (1972); 3A J. Moore & J. Lucas, Moore's Federal Practice ¶¶ 19.09[5] & [6], at 19-186 to 19-192 (2d ed. 1985) (federal rule) (hereafter cited as Moore's); 37 Am.Jur.2d Fraudulent Conveyances § 202, at 861; 37 C.J.S. Fraudulent Conveyances § 345 at 1176; see generally Annot., 24 A.L.R.2d 395, 422-24 (1952). [9] Thus, the trial court should join FFFC. [10] The joinder of FFFC will obviate any practical problems concerning the trial court's jurisdiction to affect title to Hawaiian property. Both parties correctly assert that an Alaska court lacks subject jurisdiction to change or directly affect title to property situated in another state. Peter Pan Seafoods v. Stepanoff, 650 P.2d 375, 377 (Alaska 1982). Nevertheless, a court may indirectly affect title to property located in another state through its power over individuals under the court's jurisdiction. Fall v. Eastin, 215 U.S. 1, 8-12, 30 S.Ct. 3, 6-8, 54 L.Ed. 65, 69-71 (1909). In its June 28, 1985 order, the trial court concluded: 19. The recordation of the purported Mortgage as Land court Document No. 1263069 on October 18, 1984 in the Land Court of the State of Hawaii in which the Mortgage purported to encumber the Lahaina Property is null and void, and said mortgage shall be removed as an encumbrance from Transfer Certificate of Title No. 234,416. (Emphasis added). As Joan admits, the conclusion that the mortgage is null and void directly purports to try title to Hawaiian property. Moreover, the order to remove the encumbrance is vague; it fails to specify who must remove the encumbrance. The trial court may indirectly affect title to foreign land by properly ordering a party before it to execute or cancel a conveyance to such land. Fall v. Eastin, 215 U.S. at 8-12, 30 S.Ct. at 6-8, 54 L.Ed. at 69-71. If upon remand the court again concludes that the mortgage defrauded Joan, it should merely order FFFC to reconvey the mortgage to Laurence and to record the reconveyance. We REVERSE and REMAND and instruct the trial court to join FFFC as a defendant to any further proceedings involving the Lahaina mortgage.