Opinion ID: 200761
Heading Depth: 1
Heading Rank: 6

Heading: the creation and funding of the limited partnerships

Text: 38 Federal cross-appeals from the district court's determination that the creation of the limited partnerships and the subsequent transfers to them of the nursing home properties did not constitute fraudulent conveyances under the UFCA. In Federal's estimation, these transactions were both constructively and actually fraudulent. Before analyzing Federal's contentions, we pause to clarify the standard of review.
39 A party who challenges a district court's findings of fact, arrived at after a bench trial, faces a steep uphill climb. When a district court finds the facts without the intervention of a jury, the court of appeals is not at liberty to start afresh. See Cumpiano v. Banco Santander, 902 F.2d 148, 152 (1st Cir.1990); Keyes v. Sec'y of Navy, 853 F.2d 1016, 1019 (1st Cir.1988); see also Fed.R.Civ.P. 52(a). The trial judge sees and hears the witnesses at first hand and comes to appreciate the nuances of the litigation in a way [that] appellate courts cannot hope to replicate. Cumpiano, 902 F.2d at 152. Consequently, [i]f the district court's account of the evidence is plausible ... the court of appeals may not reverse it even though convinced that had it been sitting as the trier of fact, it would have weighed the evidence differently. Anderson v. City of Bessemer City, 470 U.S. 564, 573-74, 105 S.Ct. 1504, 84 L.Ed.2d 518 (1985). In the last analysis, factual findings or conclusions drawn therefrom may only be set aside if, after a searching review of the entire record, the court of appeals form[s] a strong, unyielding belief that a mistake has been made. Cumpiano, 902 F.2d at 152. 40 Federal strives to free itself from this inhospitable standard of review by arguing that the trial court merely determined the legal effect of uncontroverted facts. Thus, Federal's thesis runs, the court's decision should be reviewed de novo. We reject this thesis for two reasons. 41 In the first place, Federal's characterization of the material facts as uncontroverted is wishful thinking. Factual disputes sprout throughout the record like weeds in an untended garden. Although Federal classifies such things as the protagonists' motives in restructuring the nursing home operations and the rationale for naming Klock, rather than Romano, as the limited partner, as questions of law, that taxonomy is unrealistic. We consistently have refused to permit parties to advantage themselves by couching questions of fact as questions of law, see, e.g., Reliance Steel Prods. Co. v. Nat'l Fire Ins. Co., 880 F.2d 575, 577 (1st Cir.1989), and we see no reason to abandon that salutary practice today. The clearly erroneous standard of review cannot be evaded by the simple expedient of creative relabeling. Id. 42 In the second place, even if the facts were uncontroverted, that circumstance alone would not alter the standard of review. When the trier's findings depend upon its choice of competing inferences drawn from undisputed facts, the clearly erroneous standard continues to apply. See Jackson v. United States, 156 F.3d 230, 233 (1st Cir.1998); Dedham Water Co. v. Cumberland Farms Dairy, Inc., 972 F.2d 453, 457 (1st Cir.1992). To the extent that the raw facts are undisputed, this is such a case. 43 We also reject Federal's intimation that mixed questions of fact and law invariably demand de novo review. The scope of review for mixed questions varies. The more fact-intensive the inquiry, the more likely we are to apply clear error review; the more law-dominated the inquiry, the more likely we are to undertake de novo review. Sierra Fria Corp. v. Evans, 127 F.3d 175, 181 (1st Cir.1997); United States v. Howard ( In re Extrad. of Howard ), 996 F.2d 1320, 1327-28 (1st Cir.1993). Probing the existence of a fraudulent conveyance customarily is a factbound inquiry, subjecting the court's findings to clear error review. See, e.g., Beal Bank v. Pittorino, 177 F.3d 65, 69 (1st Cir.1999); Barrett v. Cont'l Ill. Nat'l Bank & Trust Co., 882 F.2d 1, 3-4 (1st Cir.1989). This result commends itself with particular force where, as here, a claim turns on elusive issues of motive or intent. See Crellin Techs., Inc. v. Equipmentlease Corp., 18 F.3d 1, 7 (1st Cir.1994); see also Cumpiano, 902 F.2d at 152 (counseling that [f]indings concerning an actor's intent fit neatly within the integument of the `clearly erroneous' rule). We are satisfied, therefore, that the standard of review applicable to the lower court's disposition of counts II through IV is clear error.
44 We turn now to the trial court's findings. Setting aside a conveyance for constructive fraud under UFCA § 4 requires both a finding that the transferor was insolvent at the time of the transfer (or was rendered insolvent thereby) and a finding that the conveyance was made without fair consideration. Implicit in this analytic framework is the assumption that the factfinder first must identify the relevant transferor. See Boston Trading Group, 835 F.2d at 1509. Here, the district court concluded that the corporations were the relevant transferors: 45 [T]aking all the evidence and the reasonable inferences therefrom, the court is not persuaded that at the time of that restructuring the corporations, who were actually the ones who were making the conveyance of their stock, were thereby rendered insolvent. (Emphasis supplied.) 46 Federal mounts two attacks on the district court's finding. First, it pounces on a mistake embedded in the court's articulation and labors to persuade us that this bevue discredits the court's conclusion. Second, it posits that the finding is clearly erroneous. Neither attack succeeds. 47 To be sure, the district court misspoke at one point in its bench decision: there was no conveyance of stock involved in the creation and funding of the limited partnerships. Rather, the shareholders of the parent company (Essex) voted to create the limited partnerships, and each subsidiary corporation then transferred its real estate to its newly formed limited partnership. 48 From all indications, the court's passing mention of a stock transfer amounts to a slip of the tongue, substituting stock for real estate. The record as a whole makes it crystal clear that the court squarely decided the identity question. At the start of the trial, the court put its finger on the problem, asking Federal's counsel, [w]ho ... caused [the limited partnerships] to be set up? Counsel's response framed the two possible answers to this query — either (i) Essex and the subsidiary corporations (as the donors of the real estate), or (ii) Romano (whom Federal endeavored to depict as the actual transferor). Trial of the limited partnership claims focused on which of these proposed answers was correct (i.e., who should be deemed the transferor). The court proceeded to resolve this question. 49 We have held before that a reasoned decision should not be vacated merely because a lapsus linguae occurred. See, e.g., Lenn v. Portland Sch. Comm., 998 F.2d 1083, 1088 (1st Cir.1993); Clauson v. Smith, 823 F.2d 660, 663 n. 3 (1st Cir.1987). So it is here: taken in context, the district court's infelicitous choice of words does not undermine the cogency of its determination. 50 Moving to the next plateau, we perceive no clear error in the court's conclusion that the corporations, not the individual defendants, were the relevant transferors. It is undisputed that Essex and its subsidiaries formed the limited partnerships and deeded the real estate to them. Although Romano apparently voted his shares (or, more precisely, the shares standing in the name of the B & T Trust) in favor of the restructuring, there is no direct evidence to support a finding that he was the driving force behind the decision. Romano was not the majority shareholder, and he testified that he was not in a position to either block or approve what took place. While we may regard Romano's assertion as suspect, weighing the evidence and assessing the witnesses' credibility is uniquely the province of the district court. Here, there were two permissible views of the evidence. In such a circumstance, the factfinder's choice between those competing views cannot be clearly erroneous. Anderson, 470 U.S. at 574, 105 S.Ct. 1504; Keyes, 853 F.2d at 1020. 51 That ends this phase of our inquiry. Given the court's supportable finding as to the identity of the transferors, Federal's claim of constructive fraud must fail. Viewing the corporations as the transferors, there is no evidence that they were insolvent either at the time of the transfers or immediately thereafter.
52 This leaves Federal's claim under UFCA § 7. Our analysis of this claim is straightforward. Setting aside a conveyance for actual fraud requires, at a bare minimum, a finding of actual intent... to hinder, delay or defraud either present or future creditors. Palmer v. Murphy, 42 Mass.App.Ct. 334, 677 N.E.2d 247, 254-55 & n. 15 (1997) (construing UFCA § 7). The court below found as a matter of fact that the limited partnerships were created and funded for a legitimate business purpose rather than to hinder, delay, or defraud creditors. This finding is not clearly erroneous. 53 Klock testified that the reason for the restructuring was to obtain HUD financing to rehabilitate the nursing homes. According to Klock, HUD required, as a condition of each loan, that the real estate be separated from the operating entity. The limited partnerships provided the vehicles for that separation. Despite countervailing evidence suggesting that the purpose behind the restructuring was to dilute the value of Romano's stock, the trial court was free to choose between the two versions of the truth and draw appropriate inferences. See Anderson, 470 U.S. at 574, 105 S.Ct. 1504; Keyes, 853 F.2d at 1020. Consequently, we uphold the court's rejection of the actual fraud claim.