Court Opinion

ID: 2738206
Source: CourtListenerOpinion
Date Created: 2014-09-30 15:05:42.514573+00
Date Added: 2024-06-11T12:59:32.115328
License: Public Domain

and thus obtain the benefit of "closing out all past liabilities," and
                  "washing out all the bad history of these kinds of situations." True to his
                  plan, Hastings sold Safety's assets at auction to the sole bidder, the
                  appellant Lionel Hastings Trust (the Trust), of which Hastings was the
                  lone trustee, for $2,500 (1.5 percent of their book value). The Trust then
                  transferred the assets to the appellant Driver Education Systems (DES)—
                  a corporation that Hastings had organized two days prior that conducted
                  the same business, in the same building, with the same three-person staff;
                  using the same post office box, phone number, and web address, and which
                  manufactured, shipped, and advertised the same products, in the same
                  packaging and catalogs as Safety previously had—and loaned DES
                  $125,000 in exchange for 100% of DES's shares.
                              Perkins filed a traversing affidavit against Safety, DES, and
                  the Trust under NRS 31.330, alleging that DES had obtained Safety's
                  assets in violation of Nevada's Uniform Fraudulent Transfer Act
                  (NUFTA), NRS Chapter 112, as a constructive fraudulent transfer.' To
                  succeed on his claim, Perkins needed to demonstrate that Safety
                  transferred its assets without receiving a "reasonably equivalent value" for
                  them. NRS 112.180(1)(b); NRS 112.190(1). The district court determined
                  that Safety had not received such value and that the transfer was
                  therefore constructively fraudulent, and awarded Perkins a judgment for
                  $200,000 and attorney fees of $78,500. Safety, DES, and the Trust appeal
                  the court's determination, its rejection of their equitable defenses, and its
                  award of attorney fees.

                        'In the court below, Perkins also argued this was an actual
                  fraudulent transfer, an argument the district court rejected and that is not
                  raised again on appeal.

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                               When deposed, Hastings admitted that he was prepared to
                pay at least $7,500 for the assets in question, so even under the most
                conservative estimation Safety received only one-third of the market value
                of its assets. And in an email to Perkins, Hastings indicated that Safety's
                assets actually had a book value of $200,000, 80 times what the Trust
                paid. An independent economist valued the property sold at auction even
                higher, at $300,000. Moreover, a 'reasonable" valuation should be an
                impartial one, Black's Law Dictionary 1265, 595 (6th ed. 1990) (defining
                "   reasonable " as "[flair . .. under the circumstances," and "fair" as "[Waving
                the qualities of impartiality and honesty; free from .. . self-interest"), but
                the Trust was the lone bidder on the assets, and was directed and funded
                by the owner of those assets, seeming to preclude this possibility.       See In
                re Murphy, 331 B.R. 107, 120 (Bankr. S.D.N.Y. 2005) (questioning
                whether value can be "reasonably equivalent" when there are "no market
                forces at work at all").
                               Further, though the appellants argue that BFP v. Resolution
                Trust Corp., 511 U.S. 531 (1994)—wherein the United States Supreme
                Court said that "a reasonably equivalent value, for foreclosed property, is
                the price in fact received at the foreclosure sale, so long as all the
                requirements of the State's foreclosure law have been complied with," id.
                at 545 (internal quotation marks omitted)—controls the outcome, it is not
                clear that BFP should apply outside the foreclosure context at all.
                Moreover, though BFP has been extended to apply to land sale contract
                forfeitures, see In re Vermillion, 176 B.R. 563, 569 (Bankr. D. Or. 1994);
                McCanna v. Burke,          197 B.R. 333, 339-40 (D.N.M. 1996), and tax
                foreclosures, see In re Grandote Country Club Co., Ltd., 252 F.3d 1146,
                1152 (10th Cir. 2001); In re Fisher, 355 B.R. 20, 22-23 (Bankr. W.D. Mich.

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                 2006), these circumstances, unlike the auction in question here and like
                 foreclosure sales, involve: (1) the forced sale of real property; (2) sales
                 conducted pursuant to legislative controls; (3) competitive bidding; and (4)
                 sellers motivated to obtain the highest price. Thus even if we might, given
                 some hypothetical set of facts, extend BFP to situations other than
                 foreclosure sales, this case—where an indebted owner who had previously
                 touted the economic benefits of fraudulent transfer conducted (1) an
                 unforced sale of personal corporate property; (2) in the absence of
                 legislative controls; (3) to the sole bidder at auction; and (4) where any
                 proceeds of which would only go to satisfy a "a crock of bull" judgment that
                 he felt, "[m]orally," no obligation to pay—does not present them.
                             Thus the district court did not clearly err by finding that
                 $2,500 was not "reasonably equivalent" to the value of Safety's property
                 sold at the auction (whether that value was $7,500, $200,000, or
                 $300,000), or by determining that equity could not offer the appellants
                 relief. See Herup v. First Bos. Fin., LLC, 123 Nev. 228, 237, 162 P.3d 870,
                 876 (2007) (noting that the determination of reasonably equivalent value
                 is a factual finding); Mahban v. MGM Grand Hotels, Inc., 100 Nev. 593,
                 596, 691 P.2d 421, 424 (1984) (noting that a determination of the
                 availability of equitable relief due to waiver is a factual finding). One who
                 seeks equity cannot do so with unclean hands, Las Vegas Fetish & Fantasy
                 Halloween Ball, Inc. v. Ahern Rentals, Inc., 124 Nev. 272, 276, 182 P.3d
764, 767 (2008), and by arguing that they disclosed their intent to
                 fraudulently transfer assets to Perkins (and that through his
                 "acquiescence" to their plan he thus estopped or waived his claims), the
                 appellants also admit their misconduct. Also, the equitable defenses
                 asserted do not defeat the constructive fraud claims asserted.            Cf.

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                Monastra v. Konica Bus. Machs., U.S.A., Inc., 51 Cal. Rptr. 2d 528, 534
                (Ct. App. 1996) ("It simply does not comport with this court's sense of
                justice or sound public policy to say that if A gives notice that he is about
                to cheat B, he then has a license to do so.").
                             Only the appellants' attorney fees challenge remains.
                According to the appellants, attorney fees for work performed prior to the
                filing of the traversing affidavit were awarded in error because NRS
                31.340 only permits the award of attorney fees for post-filing work. But
                there is nothing in the plain language of the statute that would so limit
                attorney fee awards:
                             New matter in the affidavit replying to the answer
                             of the garnishee . . . shall be tried in the same
                             manner as other issues of like nature ... ; but if
                             the verdict or finding is as favorable to the
                             garnishee as the garnishee's answer, the
                             garnishee shall recover costs of the proceeding
                             against the plaintiff, together with a reasonable
                             attorney's fee, otherwise the plaintiff shall recover
                             costs against the garnishee, together with a
                             reasonable attorney's fee.
                NRS 31.340 (emphasis added). And the appellants strained reading to the
                contrary—that the statute says "be tried"; a "trial" is an "action"; an
                "action" is commenced upon filing of the formal complaint; a traversing
                affidavit is a de facto complaint; and that therefore attorney fees can be
                awarded only for the period after the traversing affidavit is filed—is
                unavailing because "be tried" refers only to the procedure for deciding the
                pleadings, and does not in any way limit or modify the phrase "reasonable
                attorney's fees." The appellants' argument that the phrase "of the
                proceeding" temporally limits the award to the period after this de facto
                complaint was filed likewise fails because "of the proceeding" modifies
                costs to the garnishee, not fees to the plaintiff   Thus "[wile think the better
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                 view is that [pre-affidavit] investigation and evaluation of the potential
                 claim is part of the process and expense of litigation," First Nat. Bank of
                 Arizona v. Cont'l Bank, 673 P.2d 938, 944 (Ariz. Ct. App. 1983), and so
                 that the district court's award of attorney fees was proper.
                             We therefore AFFIRM.

                                                                                  J.
                                                     Parraguirre

                                                                                  J.
                                                     Saitta

                 cc:   Hon. Allan R. Earl, District Judge
                       Michael H. Singer, Settlement Judge
                       Marquis Aurbach Coffing
                       Lewis Roca Rothgerber LLP/Las Vegas
                       Eighth District Court Clerk

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