Opinion ID: 2054217
Heading Depth: 3
Heading Rank: 3

Heading: Fraudulent Conveyances: the Law Applied to the Facts of This Case

Text: The trial court concluded, based on undisputed facts of record and without holding a hearing, [35] that as a matter of law (1) the conveyance was intended to hinder or defraud Smith of its right to execute on its judgment against CUIC; (2) CUG had notice of CUIC's fraudulent intent; and (3) even if CUG did not have notice of CUIC's fraudulent intent, CUG was not a purchaser for value of the building. [36] As elaborated below, the evidence in the record clearly supports the trial court's first two conclusionsthat the conveyance was intended to hinder or defraud Smith and that CUG had notice of CUIC's fraudulent intentand thus summary judgment on these two issues was appropriate. There was, however, a genuine issue of material fact as to the evidence surrounding the trial court's conclusion that CUG was not a purchaser for value of the building, and the trial court therefore erred in concluding to the contrary. [37] Nontheless, because the trial court ruled correctly on the first two issuesCUIC's intent to defraud and CUG's notice of CUIC's fraudulent intentand because those rulings together are sufficient to establish a fraudulent conveyance, the trial court's summary judgment was entirely proper. In the first place, the trial court correctly concluded that CUIC had fraudulent intent within the meaning of the statute. The question of fraudulent intent is a question of fact and not of law. D.C.Code § 28-3101; see also Snider v. Kelly, 77 U.S.App. D.C. 363, 364, 135 F.2d 817, 818 (1943), and appellate courts do not usually sustain grants of summary judgment on the issue of fraudulent intent. See Estate of Lane v. Lane, 631 P.2d 103, 106 (Alaska 1981); Credit Union of Amer. v. Myers, 234 Kan. 773, 676 P.2d 99, 106 (1984); Farmers Prod. Credit Ass'n v. Taub, 121 A.2d.2d 681, 504 N.Y.S.2d 448, 449 (1986). Summary judgment on the issue of fraudulent intent may be appropriate, however, where all the facts point[] to a finding of intent with no inference of a pure motive possible. Jones v. Central Nat'; Bank of St. Johns, 547 N.E.2d 887, 891 (Ind.Ct.App. 1989); see also AYR Composition, Inc. v. Rosenberg, 261 N.J.Super. 495, 619 A.2d 592 (App.Div.1993) (defendants' transfer of assets was fraudulent conveyance as matter of law, and summary judgment was appropriate where trial court's conclusion that defendants had fraudulent intent was based on analysis of facts in light of New Jersey statutory factors). In evaluating claims of fraudulent intent, courts often discuss the badges of fraud in the case. See Leonardo v. Leonardo, 102 U.S.App.D.C. 119, 123, 251 F.2d 22, 26 (1958) (the term `badge of fraud' means any fact tending to throw suspicion upon the questioned transaction); Estate of Lane, 631 P.2d at 106 (badges of fraud are circumstantial evidence of intent); Jones, 547 N.E.2d at 890 (facts must be taken together to determine how many badges of fraud exist and if they constitute a pattern of fraudulent intent). The following badges of fraud, among others, support the conclusion that a transferor had fraudulent intent: [L]ack of consideration for the conveyance, a close relationship between the transferor and transferee, pendency or threat of litigation, financial difficulties of the transferor, and retention of the possession, control, or benefit of the property by the transferor. Kelley v. Thomas Solvent Co., 725 F.Supp. 1446, 1457 (W.D.Mich.1988). Finally, under § 28-3101, creditors must prove fraud as a matter of fact . . . by clear and convincing evidence. District-Realty Title Ins. Corp. v. Forman, 518 A.2d 1004, 1008 (D.C.1986). Accordingly, our inquiryregarding the trial court's conclusion that, as a matter of law CUIC had fraudulent intentis whether the trial court correctly ruled that a reasonable jury could only conclude that the undisputed facts of record proved by clear and convincing evidence that CUIC had fraudulent intent in transferring its building to CUG. See Nickens v. Labor Agency of Metro. Washington, 600 A.2d at 813, 816 (D.C.1991) (A motion for summary judgment should be granted if (1) taking all reasonable inferences in the light most favorable to the nonmoving party, (2) a reasonable juror, acting reasonably, could not find for the nonmoving party, (3) under the appropriate burden of proof.). CUIC stated in its Opposition to Smith's Motion for Summary Judgmentand, as the trial court concluded, it is therefore undisputedthat CUIC had transferred its building to CUG in order to protect[] its assets from attachment by Smith. CUIC contends, however, that it did not have fraudulent intent because the transfer was the means to a non-fraudulent end: To preserve CUIC as a going concern to allow CUIC to fulfill its obligations to its policyholders and to all its creditors, including Smith. [38] We conclude, as a matter of law, that the undisputed fact that CUIC transferred its building to CUG to protect the building from Smith is clear and convincing evidence of CUIC's fraudulent intent. Although CUIC also may have had non-fraudulent motives i.e., CUIC may have wished to preserve its assets for the benefit of all its creditorsthe simple fact that it transferred the building to keep it out of Smith's reach is a sufficient ground for an unassailable conclusion that CUIC had fraudulent intent. See Kelley, 725 F.Supp. at 1455 (company's deliberate effort to put assets out of the reach of creditors meets the standard of intent to defraud); Klein v. Rossi, 251 F.Supp. 1, 2 (E.D.N.Y. 1966) (fraudulent purpose includes a solvent person's deliberate effort to stave off creditors by putting property beyond their reach even when the purpose of that is not to cheat them of ultimate payment but only to wrest from them time to restore the debtor's affairs). Next, we conclude that the trial court's second conclusionthat CUG had notice of CUIC's fraudulent intentwas supported by undisputed record evidence that, as the trial court noted, many of the people involved in the transfer of the building were officers in both CUIC and CUG. In its Opposition to Smith's Motion for Summary Judgment, CUIC did not dispute the fact that officers in both CUIC and CUG were involved in the transfer of the building. Instead, CUIC contended that [s]ince CUIC's intent was not fraudulent, CUG cannot be said to have notice of any fraudulent intent of CUIC. This response effectively conceded CUG's notice of CUIC's intent, however legally characterized. In sum, because the trial court correctly concluded as a matter of law, based on undisputed record evidence, that CUIC had fraudulent intent when it transferred its Connecticut Avenue building to CUG and, further, that CUG had notice of CUIC's fraudulent intent, we conclude that the trial court properly granted summary judgment in Smith's favor on the issue of the fraudulent conveyance. Because we sustain the fraudulent conveyance ruling, we need not address the trial court's additional ruling that Smith could pierce the corporate veil to execute on the building in CUG's hands. The transfer to CUG was invalid, and thus ineffective. Smith may execute on the building in CUIC's, the judgment debtor's, hands. See Tipp v. United Bank of Durango, Colorado, 23 Ark.App. 176, 745 S.W.2d 141, 143 (1988) (creditor of the grantor [may] elect[] to treat a fraudulent conveyance of the debtor's property as void, and institut[e] legal process to subject the property to his [or her] debt); Texas Sand Co. v. Shield, 381 S.W.2d 48, 54 (Tex.1964) ([W]hen the creditor obtains a judgment against the debtor, and properly records and indexes an abstract of such judgment, the creditor acquires a lien upon the land just as though no transfer had been made if the conveyance is found to be fraudulent). CUIC further contends, however, that the trial court erred in ruling that Smith has a valid, enforceable judgment lien upon the building, dating from November 4, 1992, because the court should have given effect to the Delaware court's Seizure and Injunction Order and invalidated Smith's lien. For the reasons already discussed regarding priority of Smith's judgment of recovery vis-a-vis CUIC's receiver, we disagree. Smith obtained its judgment lien on the building on November 4, thirteen days before the Delaware court issued the November 17 Seizure and Injunction Order. We therefore conclude, under Herman, that [t]he appointment of [CUIC's] receiver ... did not divest [Smith's judgment] lien. Herman, 190 A.2d at 652. Accordingly, as the trial court concluded, Smith may enforce or foreclose upon the . . . lien in partial satisfaction of its judgment.