Court Opinion

ID: 4115483
Source: CourtListenerOpinion
Date Created: 2017-01-12 20:12:18.954959+00
Date Added: 2024-06-11T07:46:15.071063
License: Public Domain

J-A20001-16

                                2017 Pa. Super. 6

CHARLES A. KNOLL                                    IN THE SUPERIOR COURT OF
                                                          PENNSYLVANIA
                         Appellant

                    v.

EUSTACE O. UKU, YALE DEVELOPMENT &
CONTRACTING, INC. AND EXICO, INC.

                         Appellee                      No. 1181 WDA 2015

                Appeal from the Order Entered July 2, 2015
            In the Court of Common Pleas of Allegheny County
                  Civil Division at No(s): G.D. 12-007435

BEFORE: BOWES, STABILE AND MUSMANNO, JJ.

OPINION BY BOWES, J.:                                FILED JANUARY 12, 2017

      Charles A. Knoll, Jr. appeals from the July 2, 2015 order denying his

petition for supplementary relief in aid of execution. We reverse.

      The   following    pertinent   facts   were   contained   in   this   Court’s

memorandum addressing the direct appeal in this litigation:

            In 2004, Uku and Knoll created Yale, a construction
      company, which worked on various projects, including The
      Meadows Racetrack and Casino ("Meadows"), the Carpenter's
      Training Facility, and the Consol Energy Center. Uku was the
      president of Yale, and Knoll was the vice president of Yale.
      Pursuant to an agreement, Knoll and Uku split the profits of Yale,
      with Knoll receiving 49% and Uku receiving 51%.               The
      agreement also stated that Uku and Knoll could only receive
      funds from Yale as a distribution of profit. Between 2008 and
      2012, Uku withdrew or received $59,983.00 from Yale's various
      accounts. Between 2008 and 2012, Exico, a corporation of which
      Uku is the president and sole shareholder, withdrew
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       $228,565.35 from Yale's various accounts.           Knoll received no
       payments during this period.

              On April 27, 2012, Knoll filed a Complaint against Yale and
       Uku, alleging that Knoll was due his share of profits from Yale.
       Yale and Uku filed an Answer, denying Knoll's allegations. On
       June 10, 2013, Knoll filed an Amended Complaint against the
       Appellants, alleging that profits from Yale were improperly
       diverted to Uku and Exico. [Yale and Uku] filed an Answer and
       New Matter to the Amended Complaint. Following a non-jury
       trial and the filing of proposed findings of fact and conclusions of
       law by both parties, the trial court issued a verdict in favor of
       Knoll. [Yale and Uku] filed a Motion for Post-Trial Relief, which
       the trial court denied. Subsequently, a Judgment in the amount
       of $175,882.09 was entered in favor of Knoll and against [Yale
       and Uku].

Knoll v. Uku, 136 A.3d 1033 (Pa.Super. 2016) (unpublished memorandum

at 1-2). This Court affirmed the judgment in Knoll’s favor.

       Knoll thereafter instituted garnishment proceedings in order to collect

his judgment, and Shelley Fant, Uku’s wife, was named as a garnishee. On

December 18, 2014, Knoll filed a petition for supplementary relief in aid of

execution under Pa.R.C.P. 3118.1           Therein, Knoll sought to void under the

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1
    That rule states in relevant part:

       (a) On petition of the plaintiff, after notice and hearing, the court
       in which a judgment has been entered may, before or after the
       issuance of a writ of execution, enter an order against any party
       or person

              ....

              (5) directing that property of the defendant which
              has been removed from the county or concealed for
(Footnote Continued Next Page)

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Pennsylvania Uniform Fraudulent Transfer Act, 12 Pa.C.S. §§ 5101-5110

(“PUFTA”), Uku’s transfer of three parcels of real estate that he owned

individually into the names of himself and Fant.

      The transfers in question occurred on February 9, 2010, and

concerned these properties then owned by Uku: 1) 241 Fourth Avenue,

Pittsburgh; 2) a one-story rental home located at 8260 Chaske Street,

Verona; and 3) 214 Farmington Road, Pittsburgh, a residential dwelling.

During discovery, it was established that the Fourth Avenue property had

been sold. Simultaneously with those transfers by Uku, Fant placed three

properties, which she solely owned, in her and Uku’s names as tenancies by

the entireties. The properties that Fant transferred from her name and into

joint names included a residence on 821 Old Mill Road, Pittsburgh, and two

rental homes located on Third Street and Ninth Street, respectively, in

Clairton.   Each of the six parcels of real estate was transferred without

consideration.

                       _______________________
(Footnote Continued)

             the purpose of avoiding execution shall be delivered
             to the sheriff or made available for execution; and

             (6) granting such other relief as may be deemed
             necessary and appropriate.

Pa.R.C.P. 3118

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      Uku and Fant filed answers to Knoll’s petition in aid of execution, and

both were subsequently deposed. During her deposition, Fant testified that

the property transfers were for the purpose of estate planning.              She also

reported that she remained in complete charge of the three properties that

previously belonged to her while Uku remained in total control of the Chaske

Street and Farmingham Road real estate. Fant acknowledged that she had

not executed and thus was not financially responsible under the mortgages

for the Chaske Street and Farmington Road properties.

      Uku refused to answer any probative questions during his deposition

and instead exercised his right against self-incrimination under the Fifth

Amendment.         At the time, Uku was facing criminal charges related to his

businesses. Not only did Uku refuse to answer questions regarding the three

property transfers, but he declined to respond to any inquiries about his

finances.

      On    July    2,   2015,   the   trial   court   denied   Knoll’s   petition   for

supplementary relief in aid of execution. Thereafter, Knoll filed this timely

appeal, wherein he raises the following issues for our review:

      A.    Did Uku conduct fraudulent transfers when, after stealing
      $137,010.35, Uku then transferred all of his individually owned
      real property into his wife’s name for no consideration, rendering
      himself insolvent and unable to repay the amounts he stole,
      while Uku continued to control those properties after the
      transfers   and    then     continued   stealing   an    additional
      $151,538.00?

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      B.   Did the lower court abuse its discretion when it refused to
      render an adverse inference against Appellees despite the fact
      that Uku refused to provide any testimony or produce any
      documents regarding the property transfers at issue?

Appellant’s Brief at 3.

      Knoll first claims that the trial court abused its discretion and

erroneously applied PUFTA when it decided that the transfers in question

were not fraudulent. The following standard of review applies:

          In prior matters involving review of alleged fraudulent
      conveyances, we have stated that our standard of review of a
      decree in equity is particularly limited and that such a decree will
      not be disturbed unless it is unsupported by the evidence or
      demonstrably capricious. The findings of the [judge] will not be
      reversed unless it appears the [judge] clearly abused the court's
      discretion or committed an error of law. The test is not whether
      we would have reached the same result on the evidence
      presented, but whether the [judge’s] conclusion can reasonably
      be drawn from the evidence.

Fell v. 340 Assocs., LLC, 125 A.3d 75, 81 (Pa.Super. 2015) (citation

omitted).

      Herein, Knoll argues that the transfers are invalid under PUFTA on

three bases: they were made with actual fraud, as outlined in 12 Pa.C.S. §

5104(a)(1); they were constructively fraudulent, as set forth in 12 Pa.C.S. §

5104(2); and they must automatically be set aside since the language of 12

Pa.C.S. § 5105 applies to the transfers.     We first examine § 5104, which

states:

      (a) General rule.—A transfer made or obligation incurred by a
      debtor is fraudulent as to a creditor, whether the creditor's claim
      arose before or after the transfer was made or the obligation

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     was incurred, if the debtor made the transfer or incurred the
     obligation:

       (1) with actual intent to hinder, delay or defraud any
       creditor of the debtor; or

        (2) without receiving a reasonably equivalent value in
       exchange for the transfer or obligation, and the debtor:

          (i) was engaged or was about to engage in a
          business or a transaction for which the
          remaining    assets  of   the    debtor  were
          unreasonably small in relation to the business
          or transaction; or

          (ii) intended to incur, or believed or reasonably
          should have believed that the debtor would
          incur, debts beyond the debtor’s ability to pay
          as they became due.

     (b) Certain factors.—In determining actual intent under
     subsection (a)(1), consideration may be given, among other
     factors, to whether:

       (1) the transfer or obligation was to an insider;

       (2) the debtor retained possession or control of the
       property transferred after the transfer;

       (3) the transfer or obligation was disclosed or concealed;

       (4) before the transfer was made or obligation was
       incurred, the debtor had been sued or threatened with
       suit;

       (5) the transfer was of substantially all the debtor's assets;

       (6) the debtor absconded;

       (7) the debtor removed or concealed assets;

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         (8) the value of the consideration received by the debtor
         was reasonably equivalent to the value of the asset
         transferred or the amount of the obligation incurred;

         (9) the debtor was insolvent or became insolvent shortly
         after the transfer was made or the obligation was incurred;

         (10) the transfer occurred shortly before or shortly after a
         substantial debt was incurred; and

         (11) the debtor transferred the essential assets of the
         business to a lienor who transferred the assets to an
         insider of the debtor.

12 Pa.C.S. § 5104. Section 5104(a)(1) nullifies a transfer committed with

actual fraud. Section 5104(b) “identifies factors—‘badges of fraud’—that a

court may consider in ascertaining whether the debtor executed a voidable

transfer” based upon the existence of actual intent to defraud a creditor.

Fell, supra at 82. The § 5104(b) fraud factors are reviewed qualitatively

rather than quantitatively. Id.

      A transfer is set aside as fraudulent under § 5105 under the following

circumstances:

         A transfer made or obligation incurred by a debtor is
         fraudulent as to a creditor whose claim arose before the
         transfer was made or the obligation was incurred if the
         debtor made the transfer or incurred the obligation without
         receiving a reasonably equivalent value in exchange for
         the transfer or obligation and the debtor was insolvent at
         that time or the debtor became insolvent as a result of the
         transfer or obligation.

12 Pa.C.S. § 5105.    Thus, § 5105 applies if (1) the creditor’s claim arose

before the transfer, (2) the debtor made the transfer without receiving a

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reasonably equivalent value in exchange for the transfer, and (3) the debtor

became insolvent as a result of the transfer. See Gallaher v. Riddle, 850
A.2d 748 (Pa.Super. 2004).

      While Knoll invokes § 5104(a), § 5104(b), and § 5105, we conclude

that the record herein establishes that § 5105 applies and invalidate the

transfers herein on that basis. Initially, we observe that the trial court found

that Uku became insolvent as a result of the transfers. It did not consider §

5105 since it also concluded that, even though Uku became insolvent as a

result of the transfers, Uku’s three properties were exchanged for items of

reasonably equivalent value, i.e., Fant’s three properties.   We first examine

the issue of insolvency, as that decision was in Knoll’s favor and is not

disputed by Uku on appeal.

      (a) General rule.— A debtor is insolvent if, at fair valuations,
      the sum of the debtor’s debts is greater than all of the debtor’s
      assets.

      (b) Presumption of insolvency.— A debtor who is generally
      not paying the debtor’s debts as they become due is presumed
      to be insolvent. This presumption shall impose on the party
      against whom the presumption is directed the burden of proving
      that the nonexistence of insolvency is more probable than its
      existence.

12 Pa.C.S. § 5102.

      We conclude that the record evidence supported the trial court’s

finding that Uku became insolvent within the meaning of § 5102 after he

deeded his three individually owned properties from his name and into those

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of himself and Fant. While Uku refused to answer any questions about his

finances, Fant was frank about Uku’s situation.       Fant admitted that her

husband had no assets in his sole name.        Specifically, Fant was asked a

series of questions as to the assets Uku owned, including bank accounts,

stocks bonds, real estate or retirement funds.        She reported, “He has

nothing.” Deposition of Shelley Fant, 1/12/15, at 70. She stated that Uku

had some tangible personal property of nominal value.

      The PUFTA defines an “asset” as, “[p]roperty of a debtor,” but also

specifically excludes “an interest in property held in tenancy by the entireties

to the extent it is not subject to process by a creditor holding a claim against

only one tenant.” 12 Pa.C.S. § 5101(b). Thus, prior to the transfers, Uku

had three assets, 241 Fourth Avenue, Pittsburgh, 8260 Chaske Street,

Verona; and 3214 Farmington Road. On February 9, 2010, he placed them

into entireties property and thereafter, he owned no assets, as defined by

PUFTA.       The three properties transferred by Fant to Uku were likewise

entireties property and were not assets of Uku under PUTFA.        Hence, Uku

became insolvent as a result of the transfers in question.

      We now ascertain if Knoll was a creditor whose claim arose prior to the

transfers.    A creditor means a “person who has a claim,” and a “claim” is

“[a] right to payment, whether or not the right is reduced to judgment,

liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed,

undisputed, legal, equitable, secured or unsecured.” 12 Pa.C.S. § 5101(b).

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Even though Uku had not yet been sued by Knoll, Uku began to siphon

money from Yale, 49% of which he owed to Knoll, beginning in 2008 and

continuing until 2012.   By 2010, when the transfers in question occurred,

Uku owed Knoll money due to his improper allocation of money from Yale to

himself without giving Knoll his share. Thus, Knoll was a creditor as he had

a claim in the form of a right to payment of funds from Uku prior to the

February 9, 2010 transfers.      Uku was fully aware of this fact when he

deeded his property over to Fant and himself, rendering it immune from

execution as to any debtor to whom Uku alone owed money.

      Finally, we examine whether the value of the consideration received by

Uku was reasonably equivalent to the value of the asset transferred. In this

connection, the trial court opined that Uku received consideration in the form

of the three properties Fant transferred to her and Uku as tenancies by the

entireties. We concur with Knoll that the trial court committed legal error in

this respect. The definition of “value” is as follows:

      (a) General rule.—Value is given for a transfer or an obligation
      if, in exchange for the transfer or obligation, property is
      transferred or an antecedent debt is secured or satisfied, but
      value does not include an unperformed promise made otherwise
      than in the ordinary course of the promisor's business to furnish
      support to the debtor or another person.

12 Pa.C.S. § 5103(a). However,

      The definition in subsection (a) is not exclusive. “Value” is to be
      determined in light of the purpose of this chapter to protect a
      debtor's estate from being depleted to the prejudice of the
      debtor's unsecured creditors. Consideration having no utility

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     from a creditor's viewpoint does not satisfy the statutory
     definition.

Fell, supra at 82 (citing 12 Pa.C.S. § 5103 comment 2 (emphasis added).

A transfer of property from Fant to Uku and herself as entireties property

had not a scintilla of value to any creditor of Uku. On the other hand, Uku

immunized his real estate from execution for his debts by placing his wife’s

name on the deeds.

     Equally important is the fact that, at her deposition, Fant admitted that

the three properties that she transferred into Uku’s name had absolutely no

value.   As noted, Fant transferred property on Third Street, Ninth Street,

and Old Mill Road into entireties property in exchange for the three

properties then separately owned by Uku. At her deposition, Fant was asked

whether she knew “the approximate value of the Third Street property?”

Deposition of Shelley Fant, 1/12/15, at 78. She responded, “I think it might

be about $8,000. There's a mortgage on there for more than that.” Id. As

to the Ninth Street property, Fant also admitted that it was worth about

$8,000 but had a mortgage on it for more than its worth.          Id.   When

questioned about the Old Mill Road real estate, Fant replied, “The Old Mill

Road property is probably worth $700,000, and there are two mortgages,

and it also secures a PNC commercial loan that I have, and there's also an

IRS lien on it, so that pretty much takes up the $700,000.” Id. Fant thus

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admitted that she transferred three properties with no monetary value

whatsoever to Uku on February 9, 2010.

      We find decisions rendered under the prior Fraudulent Conveyances

Act particular instructive herein. We first note that § 5105 is “derived from

§ 4 of the Uniform Fraudulent Conveyance Act,” which is the enactment that

PUFTA supplanted. 12 Pa.C.S. § 5105, comment 1. Section four of Uniform

Fraudulent Conveyance Act stated, “Every conveyance made and every

obligation incurred by a person who is or will be thereby rendered insolvent,

is fraudulent as to creditors, without regard to his actual intent, if the

conveyance    is   made   or   the   obligation   is   incurred   without   a   fair

consideration.” 39 Pa.S. § 354 (repealed).

      Under the present iteration of the same concept in § 5105, there is the

additional requirement that the creditor’s claim must have arisen prior to the

transfer.    Although it may be present, the intent to defraud is not a

necessary aspect of the operability of § 5105.          In Gallaher, supra, we

applied the provisions of § 5105 after the tripartite test set forth therein was

satisfied, and we did not examine the debtor’s intent behind making the

transfer in question.   Under section 4 of the prior Fraudulent Conveyance

Act, a spouse’s conveyance of his or her separate property into entireties

property could be set aside. We observed in Garden State Standardbred

Sales Co. v. Seese, 611 A.2d 1239, 1243 (Pa.Super. 1992), that it was

settled that in Pennsylvania, “entireties property is unavailable to satisfy the

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claims of the creditor of only one of the tenants,” but that “when a spouse

conveys individual property to a tenancy by the entireties in fraud of

creditors, the creditor may nevertheless execute against the property so

conveyed.”

      In First National Bank of Marietta v. Hoffines, 239 A.2d 458 (Pa.

1968), the Court invalidated under section 4 of the former Fraudulent

Conveyance Act two conveyances of realty by a debtor who had owned the

properties in his individual name and placed them into the names of himself

and his wife as tenants by the entireties.    It noted that the conveyances

rendered the debtor insolvent and that they were made for a stated

consideration of only one dollar. See also Stinner v. Stinner, 446 A.2d 651

(Pa.Super. 1982) (former wife owed money could garnish husband’s wages

placed in entireties account with his new wife).

      Also instructive is In re Wettach, 811 F.3d 99 (3rd Cir. 2016),

wherein the Third Circuit Court of Appeals affirmed an award to a bankruptcy

trustee of various transfers made by the debtor of his separate earnings into

an entireties account.   In 2000, Mr. Wettach was found personally liable for

unpaid rent under a lease that his partnership, which had been dissolved,

made with the owner of the partnership’s office space. Mr. Wettach joined

another law firm and placed his earnings from that firm into a checking

account that he owned with his wife. He claimed that the checking account

held by the entireties with his wife was exempt property under federal

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bankruptcy law and applicable Pennsylvania state law, both of which provide

that property in which the debtor holds an interest as a tenant by the

entirety cannot be executed upon by his debtors.

       After Wettach declared bankruptcy, the trustee in bankruptcy initiated

adversarial proceedings claiming that the deposits were recoverable and

could be placed in the bankruptcy estate as fraudulent transfers.            The

trustee took the position that the wage transfers were fraudulent since they

effectively prevented the debtor’s wages from being used to satisfy his debts

by converting the wages into entireties property.          Therein, the trustee

claimed that the wage deposits were fraudulent under 12 Pa.C.S. §

5104(a)(2) and § 5105.          The bankruptcy court awarded the trustee

approximately $430,000 plus interest from the entireties bank account. The

Wettachs appealed to the district court, which affirmed.       The Third Circuit

likewise upheld the bankruptcy court’s ruling.

       The Bankruptcy Code grants the bankruptcy trustee the power to

“avoid any transfer of an interest of the debtor in property or any obligation

incurred by the debtor that is voidable under applicable law by a creditor

holding an unsecured claim.” 11 U.S.C. § 544(b)(1).        As noted the trustee

took   the   position   that   the   transfers   were   voidable   under   PUTFA

§§5104(a)(2)(ii) and 5105. The Wettachs did not contest either that he was

insolvent or that the bankruptcy claim arose prior to the transfers. They did

maintain that the transfers were for reasonably equivalent value and thereby

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not fraudulent since the funds in the entireties account were used to pay for

reasonable and necessary household expenses.

        The Wettach Court held that, once the person challenging the transfer

demonstrates by a preponderance of the evidence that the statutory

elements for application of §§ 5104(a)(2)(ii) and 5105 are met, the burden

shifts to the debtor to produce countervailing proof of the absence of those

factors. Since the Wettachs did not provide documentary proof, which was

within their possession, that the money in the entireties account was spent

on reasonable and necessary household expenses, the Third Circuit rejected

their argument on appeal. The Court thus ruled that a direct deposit of a

debtor’s individual wages into an entireties account can constitute a

fraudulent transfer of assets under the PUFTA.

        The record establishes that all three conditions for application of §

5105 are present herein.         Thus, Uku’s transfers of the properties from his

name into entireties property were fraudulent under § 5105.2 We therefore

direct the trial court to void the February 9, 2010 transfers by Uku of 8260

Chaske Street, Verona, and 214 Farmington Road, Pittsburgh.

        Order reversed. Case remanded. Jurisdiction relinquished.

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2
    We thus need not address Knoll’s second averment on appeal.

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Judgment Entered.

Joseph D. Seletyn, Esq.
Prothonotary

Date: 1/12/2017

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