Opinion ID: 2311050
Heading Depth: 2
Heading Rank: 2

Heading: Fraudulent Conveyance Claim

Text: Levitt argues that the Nisenzons simply failed to prove a fraudulent transfer and that the trial justice misconceived the dearth of evidence supporting his findings that the conveyances from Sadowski to Levitt and from Levitt to Park City were fraudulent. Specifically, Levitt claims that there was no evidence that Sadowski was insolvent at the time of his transfer of the property to Levitt or that Sadowski was rendered insolvent by that transfer. Moreover, Levitt claims that the evidence was insufficient to support a finding of inadequate consideration for the transfer from Sadowski to Levitt and that, therefore, the Nisenzons failed to prove their fraudulent-conveyance claims. The Nisenzons respond by arguing that the trial justice's findings were amply supported by the evidence and by his assessment of the witnesses' credibility. In pertinent part the Uniform Fraudulent Transfer Act, G.L.1956 § 6-16-5(a), as adopted in Rhode Island, provides as follows: A transfer made    by a debtor is fraudulent as to a creditor whose claim arose before the transfer was made    if the debtor made the transfer    without receiving a reasonably equivalent value in exchange for the transfer    and the debtor was insolvent at that time, or the debtor became insolvent as a result of the transfer   . See, e.g., Rhode Island Depositors' Economic Protection Corp. v. Mollicone, 677 A.2d 1337, 1339 (R.I.1996) ([u]nder the act a conveyance is fraudulent in regard to creditors, without regard to the transferor's actual intent, if the conveyance was made without fair consideration and the debtor was either insolvent at that time or was thereby rendered insolvent). Here, there were two transfers [7] that the Superior Court justice found to be fraudulent: the initial transfer of the property from Sadowski to Levitt in September 1988 and the later transfer from Levitt to Park City in August 1989. We consider each in turn.
There are two issues concerning the September 1988 transfer of the property from Sadowski to Levitt: (1) whether Sadowski received reasonably equivalent value [8] for the transfer and (2) whether he was insolvent [9] at the time of the transfer or became insolvent as a result of the transfer. The trial justice noted that the transfer deed recited that the consideration was such that no revenue stamps need be affixed. See Halpern v. Pick, 522 A.2d 197, 198 (R.I. 1987) (the lack of revenue stamps on a deed does not conclusively indicate the absence of consideration, but it may be considered by the trier of fact with all the other evidence concerning the nature of the transaction). He then found that Levitt's testimony concerning the consideration he allegedly gave to Sadowski for the transfer (a purported undocumented $17,000 loan) was unbelievable. Levitt also testified that Park City appraised the property at $90,000 before it submitted a mortgage application to Chariho in April 1990. Finally, the trial justice considered the fact that after the transfer from Sadowski to Levitt and from Levitt to Park City, two mortgages were granted on the property amounting to $315,000. Relying on this evidence, the lack of revenue stamps and any documentation to support the alleged consideration, and his negative assessment of Levitt's credibility, the trial justice concluded that the transfer was made without Sadowski's receiving reasonably equivalent value in exchange for the property. This finding does not appear to us to be clearly erroneous, especially given the evidentiary contradictions concerning exactly what consideration, if any, passed from Levitt to Sadowski upon the transfer of this property. The trial justice also concluded that Sadowski was or became insolvent as a result of the September 1988 transfer to Levitt. In so concluding, the trial justice looked to the May 1, 1989 letter from Barry to DeVito. That letter represented that Sadowski is not financially able to pay any interest on the loan, that he could not provide any security for his promise to pay back the loan, and that he chose not to declare insolvency in 1988. By this last representation, Levitt's firm was indicating to the Nisenzons' lawyer that Sadowski was in fact insolvent in 1988. Moreover, the letter also reflects that in 1988 Sadowski was not paying his debts as they became due, thereby giving rise to a presumption of insolvency pursuant to § 6-16-2(b). We cannot say the trial justice committed reversible error when he inferred from this evidence that Sadowski was already insolvent or became insolvent when he transferred the property to Levitt on September 27, 1988. For these reasons, we do not believe that the trial justice was clearly erroneous in his finding that the transfer of the property from Sadowski to Levitt was fraudulent. The trial justice then had to fashion a remedy. Sections 6-16-7(a)(1) and 6-16-7(a)(3) provide that, subject to specified limitations, a creditor may obtain avoidance of the transfer to the extent necessary to satisfy the creditor's claim or, subject to principles of equity, may be awarded any other relief that the circumstances may require. Section 6-16-8(b) provides that to the extent a transfer is voidable in an action by a creditor under § 6-16-7(a)(1), the creditor may recover judgment for the value of the asset transferred    or the amount necessary to satisfy the creditor's claim, whichever is less. The judgment may be entered against:
(2) Any subsequent transferee other than a good faith transferee who took for value or from any subsequent transferee. Moreover, a money judgment may enter pursuant to a complaint for fraudulent conveyance as against a transferee, where such transferee has disposed of or dealt with property wrongfully conveyed in such fashion that a return of the property is impossible   . Spaziano v. Spaziano, 122 R.I. 518, 521, 410 A.2d 113, 115 (1980). Levitt, the first transferee of the property, argues that the extent of a transferee's liability for a transferor's fraudulent transfer was left open in Spaziano and that in this case there was no evidence of the value of the property when conveyed. Therefore, the imposition of money damages as a result of the transfer was unsupported by any evidence. Although Levitt is correct that there was no direct testimony regarding the value of the property in September 1988 when it was fraudulently conveyed to him, it appears that the trial justice fixed the damages award against Levitt and Park City by the amount of the Nisenzons' claim against Sadowski rather than by the value of the property when it was transferred. See § 6-16-8; see also Spaziano, 122 R.I. at 522, 410 A.2d at 115 (`equity will not allow itself to be frustrated but will adapt its relief to the exigencies of the case and will enter a money judgment if this will achieve an equitable result'). Here, the trial justice imposed a money judgment upon Levitt and Park City in the amount of the money given by the Nisenzons to Sadowski. Most of this money was supposed to have been invested in the property that was then fraudulently transferred by Sadowski to Levitt and then by Levitt to Park City. The defendants knew of the Nisenzons' claim to the property. They also knew that because of Sadowski's parlous financial condition, any transfer of the property from Sadowski to others would at least hinder or delay creditors like the Nisenzons, if not frustrate them altogether, in their attempt to obtain repayment from him. We therefore cannot say this result was clearly erroneous or inequitable in the circumstances of this case.
The defendants argue that [s]ince the transaction to Levitt was not fraudulent, it follows that the subsequent transfer to Park City    and encumbrances by mortgage were likewise not fraudulent. They claim error in the trial justice's conclusion that Levitt's transfer to Park City was fraudulent even though it occurred five months after Levitt became aware that the Nisenzons  had an interest in the property. They argue that this finding assumes that Levitt acknowledged and agreed that the Nisenzons had a continuing interest in the property itself rather than just a claim [10] against Sadowski. However, we conclude that the trial justice was correct in finding that this transfer was fraudulent. Pursuant to § 6-16-4(a)(1), [a] transfer made    by a debtor is fraudulent as to a creditor, whether the creditor's claim arose before or after the transfer was made    if the debtor made the transfer    [w]ith actual intent to hinder, delay, or defraud any creditor of the debtor. See also Warwick Municipal Employees Credit Union v. Higham, 106 R.I. 363, 368-69, 259 A.2d 852, 855 (1969) (the decisive question    with regard to fraudulent intent is    whether    a conveyance had the effect of depriving plaintiff of a right which would have been legally effective had the conveyance not been made). Here, because of his status as the first transferee in the property's initial fraudulent transfer, Levitt was a debtor vis-à-vis the Nisenzons when he transferred the property to Park City and encumbered it with mortgages. The trial justice found Levitt's testimony that he was not aware of plaintiff's interest in the property until March of 1989    [to be] unsupported and determined it to be clear that Levitt was aware of plaintiff's interest [in the property] when these actions [the transfers and the granting of mortgages] were schemed. Affording this credibility and factual determination the deference it is due, we conclude that the trial justice was not clearly wrong in finding that Levitt acquired the property for inadequate consideration in the initial transfer from Sadowski when he was insolvent or became insolvent in connection with the transfer. Pursuant to 6-16-8(b), a money judgment may enter against such a transferee. Thus, the Nisenzons had a claim against Levitt from the time of Sadowski's initial transfer of the property to him in September 1988. Moreover, as noted by the trial justice, even if Levitt had not been aware of the Nisenzons' claims until March 1989, he still transferred the property to Park City in August 1989 when he was concededly aware of their claims and of Sadowski's dire financial straits. Notwithstanding this knowledge, he then proceeded to encumber the property with mortgages that were more than three times his own valuation of the property's worth. For these reasons the trial justice was not clearly wrong in concluding that the Levitt-to-Park-City transfer was fraudulent because the evidence supports the conclusion that when Levitt transferred the property to Park City he was acting with actual intent to hinder, to delay, or to defraud the Nisenzons in their effort to collect the money that was owed to them.