Court Opinion

ID: 4410246
Source: CourtListenerOpinion
Date Created: 2019-06-26 15:04:37.078027+00
Date Added: 2024-06-11T12:31:56.433459
License: Public Domain

FILED
                                                                       Jun 26 2019, 8:42 am

                                                                               CLERK
                                                                           Indiana Supreme Court
                                                                              Court of Appeals
                                                                                and Tax Court

ATTORNEYS FOR APPELLANT
Curtis T. Hill, Jr.
Attorney General of Indiana

Abigail R. Recker
Deputy Attorney General
Indianapolis, Indiana

                                             IN THE
    COURT OF APPEALS OF INDIANA

State of Indiana ex rel. Curtis T.                         June 26, 2019
Hill, Jr., Attorney General of                             Court of Appeals Case No.
Indiana,                                                   18A-PL-2760
Appellant-Plaintiff,                                       Appeal from the Owen Circuit
                                                           Court
        v.                                                 The Honorable Erik C. Allen,
                                                           Special Judge
Larry Lawson,                                              Trial Court Cause No.
Appellee-Defendant,                                        60C02-1502-PL-54

Angela M. Lawson aka Angie M.
Lawson,

Appellee-Judgment-Defendant.

Najam, Judge.

Court of Appeals of Indiana | Opinion 18A-PL-2760 | June 26, 2019                                  Page 1 of 9
                                         Statement of the Case
[1]   In April 2017, the trial court entered a default judgment against Angela Lawson

      on the State of Indiana’s complaint to recover public funds stolen by Angela

      during her tenure as Owen County Auditor. In its complaint, the State alleged

      that, when her theft was about to be discovered, Angela had fraudulently

      conveyed to her husband, Larry Lawson, her interest in certain real estate. The

      State named Larry as a defendant and sought to void the allegedly fraudulent

      transfer. Following a bench trial on the State’s claim against Larry, the trial

      court found that the conveyance was fraudulent, but the court ordered that

      Larry was entitled to one-half of the proceeds from a sale of the real estate for

      his “equitable interest in the Property.” On appeal, the State presents a single

      dispositive issue for our review, namely, whether the trial court misinterpreted

      Indiana’s Uniform Fraudulent Transfer Act when it awarded the State only

      one-half of the proceeds from the sale of Larry’s interest in the property.

[2]   We reverse and remand with instructions.

                                  Facts and Procedural History
[3]   In 1995, Larry and Don Germain bought seven acres of undeveloped real estate

      in Owen County for approximately $21,000 (“the property”). The two men

      made improvements to the property over the next few years, including

      excavating the land and installing a septic system, and they each spent

      approximately $7,500 on the improvements. Eventually, Larry and Don each

      built a home on the property.

      Court of Appeals of Indiana | Opinion 18A-PL-2760 | June 26, 2019             Page 2 of 9
[4]   In 2001, Larry married Angela. Also that year, because someone was

      threatening to “harass [Larry] legally about [the] property,” he transferred his

      one-half interest in the property to Angela’s daughter. Tr. at 48. But Larry and

      Angela continued to live in their house on the property. In 2004, Angela told

      Larry that, “in order to run for Auditor she had to own property in Owen

      County,” and Angela’s daughter transferred her interest in the property to

      Angela. Id. at 49. Angela became the Owen County Auditor in 2005.

[5]   At some point, the State Board of Accounts (“SBOA”) investigated Angela on

      suspicion of misappropriation of public funds. Angela became aware of the

      SBOA’s investigation and, on August 6, 2014, Angela quitclaimed her one-half

      interest in the property to Larry. A few days later, the Indiana State Police

      executed a search warrant for the Auditor’s office, and Angela’s employment

      was terminated. The SBOA investigation revealed that, between June 2009 and

      July 2014, Angela had spent approximately $346,000 on personal items using

      “numerous credit cards issued in the name of [Owen] County.” State’s Ex. 2 at

      4.

[6]   The State filed a complaint against Angela to recover public funds, which it

      later amended to name both Angela and Larry as defendants. In relevant part,

      the State alleged that Angela had quitclaimed her interest in the property to

      Larry “with actual intent to hinder, delay, or defraud the State.” Appellant’s

      App. Vol. 2 at 52. In February 2017, by agreement of the parties, Germain

      bought Larry’s interest in the property for $15,000, and that money was

      “deposited with the court.” Appellee’s Br. at 6. On April 17, the trial court

      Court of Appeals of Indiana | Opinion 18A-PL-2760 | June 26, 2019         Page 3 of 9
      entered a default judgment against Angela and awarded the State

      $1,159,228.32, which included treble damages.

[7]   Following a bench trial on the State’s claim against Larry, the trial court

      entered thorough findings and conclusions. The trial court found that Angela

      had fraudulently conveyed the property to Larry. The court then concluded as

      follows: “Considering the totality of the circumstances and evidence, the Court

      determines it is equitable to award $7,500.00 of the proceeds [of the sale of the

      property] to [the State] and to release $7,500.00 to [Larry] . . . for his equitable

      interest in the Property.” Appellant’s App. Vol. 2 at 118. This appeal ensued.

                                      Discussion and Decision
[8]   Initially, we note that Larry has not filed an appellee’s brief.

              When an appellee fails to file a brief, we apply a less stringent
              standard of review. We are under no obligation to undertake the
              burden of developing an argument for the appellee. We may,
              therefore, reverse the trial court if the appellant establishes prima
              facie error. “Prima facie” is defined as “at first sight, on first
              appearance, or on the face of it.”

      Deckard v. Deckard, 841 N.E.2d 194, 199 (Ind. Ct. App. 2006) (citations

      omitted).

[9]   The State contends that the trial court misinterpreted Indiana Code Section 32-

      18-2-18 (2018) of the Uniform Fraudulent Transfer Act (“the Act”) when it

      ordered that Larry would receive $7,500 of the proceeds from the sale of the

      property “for his equitable interest in the property.” Appellant’s App. Vol. 2 at

      Court of Appeals of Indiana | Opinion 18A-PL-2760 | June 26, 2019               Page 4 of 9
       118. “Matters of statutory interpretation, which inherently present pure

       questions of law, are reviewed de novo.” Paquette v. State, 101 N.E.3d 234, 237

       (Ind. 2018). As this Court has recently stated, “[t]he primary purpose of

       statutory interpretation is to ascertain and give effect to the intent of the

       legislature. The best evidence of legislative intent is the statutory language

       itself, and we strive to give the words in a statute their plan and ordinary

       meaning.” 21st Amendment, Inc. v. Ind. Alcohol & Tobacco Comm’n, 84 N.E.3d
691, 696 (Ind. Ct. App. 2017) (citations and quotations marks omitted).

[10]   Under the Act, a creditor may bring a claim to set aside a fraudulent

       conveyance made by a debtor. Ind. Code § 32-18-2-17. As relevant here, a

       conveyance is fraudulent and voidable if the debtor made the transfer or

       incurred the obligation with actual intent to hinder, delay, or defraud a creditor

       of the debtor. I.C. § 32-18-2-14. Indiana Code Section 32-18-2-18 provides in

       relevant part:

                (b) To the extent that a transfer is avoidable in an action by a
                creditor under section 17(a)(1)[ 1] of this chapter, the following
                rules apply:

                         (1) Except as otherwise provided in this chapter, the
                         creditor may recover judgment for the value of the
                         asset transferred, as adjusted under subsection (c), or

       1
         That provision states that, in an action for relief against a transfer under the Act, a creditor, subject to the
       limitations in Section 18 of the Act, may obtain avoidance of the transfer to the extent necessary to satisfy the
       creditor’s claim. I.C. § 32-18-2-17(a)(1).

       Court of Appeals of Indiana | Opinion 18A-PL-2760 | June 26, 2019                                     Page 5 of 9
                        the amount necessary to satisfy the creditor’s claim,
                        whichever is less. . . .

                                                         ***

               (c) If the judgment under subsection (b) is based upon the value
               of the asset transferred, the judgment must be for an amount
               equal to the value of the asset at the time of the transfer, subject to
               adjustment as the equities may require.

       (Emphasis added).

[11]   The State points out that, since the Act was enacted in 1994, “neither this Court

       nor the Indiana Supreme Court ha[s] interpreted the meaning of ‘subject to

       adjustments as [the] equities may require.’” Appellant’s Br. at 16. The State

       maintains that the trial court

               misinterpreted “subject to adjustment as the equities may
               require” to mean that it could grant [Larry] half of the value of
               the Property for his “equitable interest” despite not finding that
               granting the State the full value of the Property would be an
               inequitable windfall. This approach contravenes the plain
               language of the statute and the intent of the legislature, which is
               that the creditor should obtain the full value of the property at the
               time of the transfer. “Subject to adjustment as the equities may
               require” is only to prevent the creditor or the transferee from
               gaining a windfall, i.e., more than the value of the property at the
               time of the transfer.

       Id. at 14 (emphasis original).

[12]   The corresponding section of the federal Uniform Fraudulent Transfer Act

       (“UFTA”), upon which the Indiana Legislature based Indiana Code Section 32-

       Court of Appeals of Indiana | Opinion 18A-PL-2760 | June 26, 2019                 Page 6 of 9
       18-2-18(c), is Section 8(c). The drafters of the 1984 version of the UFTA set

       forth the following Comment to Section 8(c):

               Subsection (c) is new. The measure of the recovery of a
               defrauded creditor against a fraudulent transferee is usually
               limited to the value of the asset transferred at the time of the transfer.
               The premise of § 8(c) is that changes in value of the asset
               transferred that occur after the transfer should ordinarily not
               affect the amount of the creditor’s recovery. Circumstances may
               require a departure from that measure of the recovery, however,
               as the cases decided under the Uniform Fraudulent Conveyance
               Act and other laws derived from the Statute of 13 Elizabeth
               illustrate. Thus, if the value of the asset at the time of levy and sale to
               enforce the judgment of the creditor has been enhanced by improvements
               of the asset transferred or discharge of liens on the property, a good faith
               transferee should be reimbursed for the outlay for such a purpose to the
               extent the sale proceeds were increased thereby. . . .

       Unif. Fraudulent Transfer Act § 8 cmt. (1984) (emphases added, citations

       omitted).

[13]   Our Supreme Court has held that the comments to a uniform act are indicative

       of our Legislature’s intent in enacting a statute based on the uniform act.

       Basileh v. Alghusain, 912 N.E.2d 814, 821 (Ind. 2009). Given that the 1984

       version of Section 8(c) of the UFTA and Indiana Code Section 32-18-2-18(c)

       are identical, we consider the language of the Comment to be a strong indicator

       of the legislative intent underlying the statute. Accordingly, we must agree with

       the State that, under Indiana Code Section 32-18-2-18, a defrauded creditor is

       entitled to the full value of the fraudulently transferred property at the time of

       the transfer, and an “equitable adjustment is permitted only when an

       Court of Appeals of Indiana | Opinion 18A-PL-2760 | June 26, 2019                      Page 7 of 9
       inequitable windfall would result by granting the creditor the full value of the

       property.” Appellant’s Br. at 19.

[14]   Here, Larry testified at the factfinding hearing that he had spent thousands of

       dollars on improvements to the property after he had purchased it in 1995. But

       those improvements were made long before the fraudulent transfer in August

       2014, and he himself had transferred the property to Angela’s daughter after he

       had made those improvements and well before Angela’s daughter had

       transferred the property to Angela. The only evidence of improvements made

       to the property after Angela’s fraudulent transfer back to Larry was the

       following testimony by Larry on redirect examination:

               Q: Have you done any improvements on the property since the
               transfer back to you?

               A: I do gardening every year, I’m in the process of doing
               landscaping, gardening now, I’m always doing repair and
               maintenance on the buildings.

               Q: Any additional building?

               A: No.

       Tr. at 62.

[15]   Again, “[t]he measure of the recovery of a defrauded creditor against a

       fraudulent transferee is usually limited to the value of the asset transferred at the

       Court of Appeals of Indiana | Opinion 18A-PL-2760 | June 26, 2019           Page 8 of 9
       time of the transfer.” 2 Unif. Fraudulent Transfer Act § 8 cmt. The only

       exception that might have been relevant here is that “a good faith transferee

       should be reimbursed for the outlay” for improvements made to fraudulently

       conveyed property after the transfer “to the extent the sale proceeds were

       increased thereby.” Id. Because there is no evidence that Larry’s gardening,

       landscaping, repair work, or maintenance done after the fraudulent transfer

       increased the value of the property or the sale proceeds, we conclude that the

       equities did not require that Larry be reimbursed. We therefore hold that the

       State is entitled to recover the entire $15,000 from the sale of Larry’s one-half

       interest in the property. Thus, we reverse and remand with instructions for the

       trial court to enter judgment in favor of the State in the amount of $15,000.

[16]   Reversed and remanded with instructions.

       Baker, J., and Robb, J., concur.

       2
         The evidence at trial was undisputed, and the trial court found, that the fair market value of Larry’s one-
       half interest in the property subject to the State’s claim was $15,000 at the time of the fraudulent transfer.

       Court of Appeals of Indiana | Opinion 18A-PL-2760 | June 26, 2019                                    Page 9 of 9