Court Opinion

ID: 4503251
Source: CourtListenerOpinion
Date Created: 2020-01-31 07:06:36.736193+00
Date Added: 2024-06-11T08:01:01.187044
License: Public Domain

Nebraska Supreme Court Online Library
www.nebraska.gov/apps-courts-epub/
01/31/2020 01:06 AM CST

                                                        - 450 -
                               Nebraska Supreme Court Advance Sheets
                                        304 Nebraska Reports
                                                  KORTH v. LUTHER
                                                  Cite as 304 Neb. 450

                       Gerald C. Korth, appellee and cross-appellant,
                           v. Laura Luther and Michael Luther,
                           appellees and cross-appellees, Atelier
                              Partners, intervenor-appellee and
                              cross-appellant, David J. Koukol,
                               appellant, and Kathryn J. Derr,
                                appellee and cross-appellant.
                          Gerald C. Korth and Atelier Partners,
                          appellee and cross-appellants, v. Laura
                           Luther and Michael Luther, appellees
                            and cross-appellees, David J. Koukol,
                               appellant, and Kathryn J. Derr,
                                appellee and cross-appellant.
                                                    ___ N.W.2d ___

                                   Filed November 15, 2019.   Nos. S-18-670, S-18-671.

                 1. Conveyances: Fraud: Equity: Appeal and Error. An action under the
                    Uniform Fraudulent Transfer Act is equitable in nature, and an appeal of
                    a district court’s determination that transfers of assets were in violation
                    of the act is equitable in nature.
                 2. Equity: Appeal and Error. In an appeal of an equity action, an appel-
                    late court tries factual questions de novo on the record, reaching a con-
                    clusion independent of the findings of the trial court, provided, however,
                    that where credible evidence is in conflict on a material issue of fact, the
                    appellate court considers and may give weight to the fact that the trial
                    judge heard and observed the witnesses and accepted one version of the
                    facts rather than another.
                 3. Judgments: Appeal and Error. When reviewing questions of law,
                    an appellate court resolves the questions independently of the lower
                    court’s conclusions.
                                    - 451 -
           Nebraska Supreme Court Advance Sheets
                    304 Nebraska Reports
                             KORTH v. LUTHER
                             Cite as 304 Neb. 450

 4. Judgments: Pleadings. A motion for judgment on the pleadings is prop-
    erly granted when it appears from the pleadings that only questions of
    law are presented.
 5. Attorney Fees: Appeal and Error. On appeal, an appellate court
    will uphold a lower court’s decision allowing or disallowing attorney
    fees for frivolous or bad faith litigation in the absence of an abuse
    of discretion.
 6. Conveyances: Fraud: Debtors and Creditors: Proof. In an action to
    set aside an actually fraudulent transfer or obligation under Neb. Rev.
    Stat. § 36-705(a)(1) (Reissue 2016) of the Uniform Fraudulent Transfer
    Act, it is the plaintiff’s burden to prove by clear and convincing evi-
    dence that (1) the debtor made a transfer or incurred an obligation, (2)
    the plaintiff was a creditor of the debtor, and (3) the debtor made the
    transfer or incurred the obligation with actual intent to hinder, delay, or
    defraud any creditor of the debtor.
 7. Conveyances: Fraud: Words and Phrases. It is fundamental that
    before there can be a “fraudulent transfer” under the Uniform Fraudulent
    Transfer Act, there must be a “transfer.”
 8. Actions: Parties: Appeal and Error. An appellate court reviews a case
    on the theories pursued by the parties, not on a theory that the parties
    might have raised.
 9. Conveyances: Fraud: Property: Words and Phrases. There are limits
    to how abstract an interest may be and still constitute “property” under
    the Uniform Fraudulent Transfer Act.
10. ____: ____: ____: ____. Whether under the Uniform Fraudulent
    Transfer Act there is a “subject of ownership” constituting “property”
    that can be an “asset” depends on a legitimate and identifiable claim
    of entitlement.
11. Conveyances: Fraud: Debtors and Creditors. A security agreement by
    the debtor in favor of an alleged transferee is the vehicle for disposing
    of or parting with an asset or an interest in an asset; for purposes of the
    Uniform Fraudulent Transfer Act, it is not the asset itself.
12. Conveyances: Fraud: Property: Debtors and Creditors: Estates:
    Liens: Words and Phrases. Only equity in property in excess of the
    amount of encumbering liens thereon is an “asset” reachable by credi-
    tors as a fraudulent transfer; encumbered property is not considered part
    of the debtor’s estate.
13. Conveyances: Fraud: Debtors and Creditors. A blanket security
    agreement does not convey an asset under the Uniform Fraudulent
    Transfer Act if everything subject to ownership that is described as
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             Nebraska Supreme Court Advance Sheets
                      304 Nebraska Reports
                               KORTH v. LUTHER
                               Cite as 304 Neb. 450

      collateral therein is fully encumbered by other creditors with superior
      claims at the time of the alleged transfer.
14.   Judges: Words and Phrases. A judicial abuse of discretion exists when
      the reasons or rulings of a trial judge are clearly untenable, unfairly
      depriving a litigant of a substantial right and denying just results in mat-
      ters submitted for disposition.
15.   Actions: Attorney Fees: Words and Phrases. Frivolous for the pur-
      poses of Neb. Rev. Stat. § 25-824 (Reissue 2016) is defined as being
      a legal position wholly without merit, that is, without rational argu-
      ment based on law and evidence to support a litigant’s position in
      the lawsuit.
16.   ____: ____: ____. Frivolous for purposes of Neb. Rev. Stat. § 25-824
      (Reissue 2016) connotes an improper motive or legal position so wholly
      without merit as to be ridiculous.
17.   Actions. Any doubt whether a legal position is frivolous or taken in
      bad faith should be resolved in favor of the one whose legal position is
      in question.

 Appeals from the District Court for Douglas County: W.
Mark Ashford, Judge. Affirmed in part, and in part reversed.
   Mark C. Laughlin and Jacqueline M. DeLuca, of Fraser
Stryker, P.C., L.L.O., for appellant.
  Lisa M. Meyer, of Pansing, Hogan, Ernst & Bachman,
L.L.P., for appellee Gerald C. Korth.
   Kathryn J. Derr,              of   Berkshire       &     Burmeister,       for
intervenor-appellee.
  Richard L. Anderson and David J. Skalka, of Croker, Huck,
Kasher, DeWitt, Anderson & Gonderinger, L.L.C., for appellee
Laura Luther.
  Maynard H. Weinberg, of Weinberg & Weinberg, P.C., for
appellee Michael Luther.
  Julie Jorgensen, of Morrow, Willnauer & Church, L.L.C., for
appellee Kathryn J. Derr.
  Heavican, C.J., Miller-Lerman, Cassel, Stacy, Funke,
Papik, and Freudenberg, JJ.
                                    - 453 -
            Nebraska Supreme Court Advance Sheets
                     304 Nebraska Reports
                             KORTH v. LUTHER
                             Cite as 304 Neb. 450

    Freudenberg, J.
                     I. NATURE OF CASE
   This consolidated appeal involves two actions brought under
Nebraska’s Uniform Fraudulent Transfer Act (UFTA)1 by two
creditors. The creditors alleged in both actions that a blan-
ket security agreement guaranteeing repayment of a loan by
a wife to her husband was a fraudulent transfer under the
UFTA. The amount loaned to the husband was paid directly
to the Internal Revenue Service (IRS) to satisfy a settlement
agreement between the husband and the IRS relating to the
husband’s unpaid taxes. When the husband signed the blanket
security agreement, the IRS liens were still outstanding and the
husband made ownership claims to little other than contingent
expectancy interests in past and future business ventures. After
receipt of the funds, the IRS extinguished the liens and dis-
missed the lawsuit, which sought to foreclose against the mari-
tal home that was titled solely in the wife’s name. Following
a trial in one of the actions, the district court determined that
there was no actual intent to hinder, delay, or defraud any
creditor under the UFTA and, in any event, that the wife had
proved good faith. The court ultimately granted the wife attor-
ney fees as sanctions against the creditors and their attorneys
on the grounds that both actions were frivolous. We affirm in
part and in part reverse.
                     II. BACKGROUND
         1. Prior Judgments in Favor of Creditors
   In July 2001, Gerald C. Korth was awarded a judgment
against Michael Luther and a company then owned by Michael,
Aden Enterprises, Inc., in the amount of $1,392,328.50. The
judgment was entered as a sanction for discovery violations.
Korth subsequently sought orders in aid of execution, but was
unsuccessful in securing any assets. On October 4, 2016, the

1
    Neb. Rev. Stat. §§ 36-701 to 36-712 (Reissue 2016) (subsequently repealed
    and replaced by Uniform Voidable Transactions Act, 2019 Neb. Laws,
    L.B. 70).
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         Nebraska Supreme Court Advance Sheets
                  304 Nebraska Reports
                        KORTH v. LUTHER
                        Cite as 304 Neb. 450

district court released Terra Nova Carbon Energy Company,
LLC (Terra Nova); Terra Nova’s chief executive officer; and
other entities on the grounds that they had proved they pos-
sessed no money, property, or credits of Michael at the time
garnishee interrogatories were served and should accordingly
be discharged of any garnishee liability.
   In an unrelated action in June 2007, Atelier Partners (Atelier)
obtained a money judgment against Michael in the amount of
$152,898. Atelier was unable to execute on its judgment to any
degree until May 2013, when Michael’s stock interests in sev-
eral business entities, including Luther Capital Management,
L.L.C. (Luther Capital), and Luther Corporation, were auc-
tioned off at a sheriff’s sale following public notice. Atelier
purchased the interests for $1,000.
           2. Other Lawsuits by Atelier or Korth
   A prior action by Atelier (the 2012 Atelier action) against
Laura Luther and Michael, her husband, had sought to set
aside a $2 million cash conveyance to Laura from Michael
and the acquisition of the marital home in Laura’s name. The
action was dismissed with prejudice as barred by the statute
of limitations.
            3. IRS Action to Enforce Tax Liens
   Between 2007 and 2009, the IRS filed with the Nebraska
Secretary of State notices of a federal tax lien against Michael
in a total amount of approximately $1 million. On February
12, 2012, the IRS sued Laura and Michael for the collection
of unpaid taxes owed by Michael (the IRS action). The IRS
sought a judgment against Michael in the total amount of
$1,266,227.20 for federal personal income taxes and penalties
for the years 2004 through 2007 and trust fund recovery penal-
ties for 2001 and 2002.
   The IRS named Laura in the suit because it sought to fore-
close its tax liens against the home that Laura and Michael
lived in, which was titled only in Laura’s name. The IRS
alleged that Michael provided money to Laura to purchase
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         Nebraska Supreme Court Advance Sheets
                  304 Nebraska Reports
                       KORTH v. LUTHER
                       Cite as 304 Neb. 450

the home and that Michael had retained beneficial use and
equitable ownership of the home. The IRS joined, as persons
that may claim an interest in the property, Atelier, Korth, and
several other creditors of Michael.
   Michael reached a settlement agreement with the IRS in
which he agreed to pay the IRS $450,000 to satisfy the tax
debts owed by him as of March 24, 2014. In exchange, the IRS
agreed to dismiss the case with prejudice as against Laura and
Michael and not take further collection action against the home
or certain transfers of property between Laura and Michael.
The IRS also agreed to terminate the tax liens after receipt of
the $450,000.
            4. $450,000 Loan and Corresponding
                      Security Agreement
   Laura agreed to loan Michael $450,000 in order to pay
the settlement, because Michael lacked the funds to do so.
On March 20, 2014, Michael signed a security agreement to
secure payment of the loan, which was reflected by a demand
note also dated March 20, 2014, in the original face amount
of $450,000.
   The security agreement described that it was to secure
payment of the “Obligations,” which were defined as the
March 20, 2014, demand note in the original face amount of
$450,000. The security agreement then described the collateral
for such obligations as follows:
         “Collateral” means the following personal property,
      assets, and rights, wherever located, whether now owned
      or hereafter acquired or arising, in which [Michael] now
      has or hereafter acquires an interest and all proceeds
      and products thereof: all personal and fixture property
      of every kind and nature including without limitation all
      goods (including inventory, equipment and any accessions
      thereto), instruments (including promissory notes), docu-
      ments, accounts (including health-care-insurance receiv-
      ables), chattel paper (whether tangible or electronic),
      deposit accounts, letter-of-credit rights (whether or not
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         Nebraska Supreme Court Advance Sheets
                  304 Nebraska Reports
                        KORTH v. LUTHER
                        Cite as 304 Neb. 450

     the letter of credit is evidenced by a writing), commercial
     tort claims, securities and all other investment property,
     supporting obligations, any other contract rights or rights
     to the payment of money, insurance claims and proceeds,
     and all general intangibles (including all payment intan-
     gibles). [Laura] acknowledges that the attachment of [her]
     security interest in any additional commercial tort claim
     as original collateral is subject to [Michael’s] compli-
     ance with this agreement with respect to commercial
     tort claims.
        The Collateral shall also include, as applicable, all (i)
     products of the Collateral; (ii) substitutions and replace-
     ments for the Collateral; (iii) proceeds from the sale or
     disposition of the Collateral, including insurance proceeds
     and any rights of subrogation resulting from the damage
     or destruction of the Collateral; and (iv) for Collateral that
     is tangible, all additions, increases, improvements, acces-
     sories, attachments, parts, equipment and repairs now or
     in the future attached to or used in connection with such
     Collateral, and any warehouse receipts, bills of lading or
     other documents of title now or in the future evidencing
     [Michael’s] ownership of the Collateral.
                    5. First UCC Filing
   On March 20, 2014, a Uniform Commercial Code (UCC)
financing statement was filed with the Secretary of State,
describing Michael, at his mailing address, as the debtor and
Laura as the secured party. It described the collateral in the
same terms as those set forth in the security agreement.
        6. Payment of IRS and Dismissal of Claims
   The $450,000 was transferred from Laura’s brokerage
account to her attorney’s trust account, from where it was trans-
ferred directly to the IRS on March 24, 2014. Subsequently,
the IRS terminated the tax liens and the court dismissed with
prejudice the IRS action as against Laura and Michael. The
court thereafter dismissed any and all claims against the United
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         Nebraska Supreme Court Advance Sheets
                  304 Nebraska Reports
                        KORTH v. LUTHER
                        Cite as 304 Neb. 450

States with prejudice and any and all pending claims asserted
by any defendant against any coparty without prejudice.
              7. Collateral Control Agreement
   On March 19, 2014, a collateral control agreement was
signed by Michael, Laura, and Koch as chief executive officer
of the “account debtor,” Terra Nova. The agreement described
that Terra Nova “may now or in the future hold accounts,
general intangibles, or other elements of the Collateral for
[Michael], and acknowledges [Laura’s] security interest in the
Collateral.” Terra Nova further “acknowledges, without imme-
diate verification, that it is not aware of and has not been given
notice of any other security interest existing on the Collateral.”
Terra Nova subordinated in favor of Laura “any security inter-
est or lien [Terra Nova] may have, now or in the future, against
the Collateral, except that [Terra Nova] will retain its right of
setoff in the account.”
       8. Korth Filed Complaint Alleging Security
           Agreement Was Fraudulent Transfer
   On January 14, 2015, Korth, represented by attorney David
Koukol, filed a complaint against Laura and Michael alleging
that the security agreement and the financing statement that
recorded that agreement reflected a fraudulent transfer. The
complaint did not seek to void the collateral control agree-
ment. Korth’s complaint was filed under case No. CI 15-299
(CI 15-299).
              9. Laura’s and Michael’s Answers
                  to Complaint in CI 15-299
   Laura and Michael, in their answers to the complaint, denied
that Korth had a lien on Michael’s personal property at the time
of the collateral agreement, elaborating that he had not suc-
cessfully seized in execution any of Michael’s property pursu-
ant to Neb. Rev. Stat. § 25-1504 (Reissue 2016). Further, they
denied any intent to hinder, delay, or defraud. They alleged
that a lien in favor of Laura in the sum of $450,000 replaced
liens filed by the IRS against Michael’s assets in the amount
                             - 458 -
         Nebraska Supreme Court Advance Sheets
                  304 Nebraska Reports
                       KORTH v. LUTHER
                       Cite as 304 Neb. 450

of $1,266,227.20 plus interest and penalties and that the IRS
liens were superior to Korth’s interest in Michael’s assets and
would have had to have been satisfied before Korth could
have executed upon Michael’s assets. Thus, Laura and Michael
argued, the loan and corresponding security agreement being
challenged by Korth had placed Korth in a better position to
collect against Michael’s assets than Korth had been in before
the loan transaction. Laura and Michael asserted that even
without the security agreement and UCC financing statement
that allegedly represented the fraudulent transfer, under the
doctrine of equitable subrogation, Laura’s interest in Michael’s
assets in the amount owed under the loan would still be supe-
rior to Korth’s creditor interest.
   Laura and Michael asserted that Korth’s claims against them
were frivolous and asked that sanctions be awarded pursuant
to Neb. Rev. Stat. § 25-824 (Reissue 2016). Michael’s attorney
filed an affidavit stating that he had notified Koukol of his
intent to enforce sanctions under § 25-824 against both Korth
and his attorneys.
       10. Cross-Motions for Summary Judgment or
          Partial Summary Judgment in CI 15-299
   Laura and Michael both moved for summary judgment in
CI 15-299, asking that Korth’s complaint be dismissed with
prejudice. They asserted that no fraudulent transfer had been
pled or could be proved. Korth filed a motion for partial
summary judgment asking the court to declare that the UCC
financing statement was ineffective as a matter of law, because
the description in the agreement of the collateral was too broad
and the filing failed to reflect Michael’s middle initial, which
is present on his driver’s license.
   At the hearing on the motions, the court received Laura’s
and Michael’s deposition testimony.
                  (a) Michael’s Deposition
  Michael described that his work involves providing cor-
porate finance services either individually or through Luther
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         Nebraska Supreme Court Advance Sheets
                  304 Nebraska Reports
                        KORTH v. LUTHER
                        Cite as 304 Neb. 450

Capital. Michael indicated that he was generally paid for his
services by a percentage of project revenues, if they material-
ized, on a kind of contingency or equity ownership basis. He
described that his equity and stock interests in several compa-
nies he had worked with had been subjected to execution.
   Michael explained that at the time of the loan, he had
anticipated receiving a payment from Terra Nova. Michael
elaborated that he had a loose oral agreement with Terra Nova
to receive approximately $100,000 for past services performed
on a particular project, if and when Terra Nova realized suf-
ficient profits. He had intended to give that payment to Laura
as partial repayment of the loan. Michael testified that both at
the time of the security agreement and as of the time of the
deposition, he owned no real property and possessed personal
property of only nominal value.
   Michael admitted, over his counsel’s objection, that he had
given Laura $2 million in 1999 or 2000. This transfer was
the subject of the 2012 Atelier action which was dismissed as
barred by the statute of limitations. Michael did not know what
Laura had done with the money or whether, approximately
14 years later, she used that money to effectuate the loan that
enabled him to pay the IRS settlement.
   Michael could not recall if he had made any interest pay-
ments to Laura on the loan. The evidence was undisputed that
at the time of the summary judgment hearing, Michael had
made no payments toward the principal. Michael described
that Laura orally demanded payment on the note “every day.”
Michael testified that he owed Laura the money lent to him
as reflected in the security agreement and that he intended to
repay her.
                     (b) Laura’s Deposition
   In her deposition, Laura testified that she was the sole titled
owner of the residence where she and Michael lived, which had
been paid for in cash by Michael in 2000. Most of Laura’s tes-
timony concerned whether Michael had any assets. There were
none that she could identify.
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            Nebraska Supreme Court Advance Sheets
                     304 Nebraska Reports
                             KORTH v. LUTHER
                             Cite as 304 Neb. 450

                       (c) Other Evidence
   Korth submitted evidence that Michael had numerous unsat-
isfied judgments in favor of various entities against either
Michael personally or Luther Capital in a total amount of
approximately $9 million.
   Other evidence demonstrated that on May 5, 2015, a sec-
ond UCC financing statement was filed reflecting the col-
lateral pledged to Laura under the security agreement—this
time with Michael’s middle initial. Evidence was submitted,
and it was later stipulated, that the standard search logic used
by the Secretary of State’s office to search filings under the
UCC changed on May 4, 2015. Before May 4, a search for
“‘Michael S. Luther,’” the name on Michael’s driver’s license,
would not retrieve the financing statement reflecting the secu-
rity agreement that was with “‘Michael Luther.’” After May 4,
it would.
          11. Order Denying Motions for Summary
                    Judgment in CI 15-299
   On July 6, 2015, the court denied Korth’s motion for partial
summary judgment on the ground that he was making a prema-
ture claim for declaratory relief. The court explained that Korth
was seeking through his motion a declaration of lien priority
when there were no assets or funds that the parties were iden-
tifying as being subject to a lien priority contest. Further, the
court reasoned that it would not rule on a motion for summary
judgment dealing with lien priority and perfection issues when
those issues were not presented in Korth’s complaint.
   Despite this conclusion that there were no assets that the
parties were fighting over, the court also denied Laura’s and
Michael’s motions for summary judgment. Citing Matter of
Holloway,2 the court first explained that it was rejecting any
argument that the UFTA does not apply to the grant of secu-
rity interests. The court did not otherwise address whether it
mattered that the only identified interests transferred by the

2
    Matter of Holloway, 955 F.2d 1008 (5th Cir. 1992).
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         Nebraska Supreme Court Advance Sheets
                  304 Nebraska Reports
                        KORTH v. LUTHER
                        Cite as 304 Neb. 450

security agreement were future contingent expectancy interests.
Nor did the court address whether there could be a “transfer”
under the act if the debtor’s assets at the time the security
agreement was executed were subject to a lien superior to the
creditor’s rights.
   Instead, the court focused on Laura and Michael’s argument
that because there was no genuine issue that the grant of the
security interest was for a reasonably equivalent value and that
Laura took the security interest in good faith, she had a com-
plete defense as a matter of law under § 36-709(a). The court
found there was no genuine issue that a reasonably equivalent
value was exchanged for the assets transferred through the
security agreement. However, the court found a genuine issue
of material fact as to whether the transfer was made in good
faith. For that reason, the court denied Laura’s and Michael’s
motions for summary judgment.
                 12. Intervention in CI 15-299
   Atelier filed a complaint in intervention in April 2015 as
another creditor seeking to set aside the alleged transfer effec-
tuated by the security agreement and UCC filing. Atelier was
represented by Kathryn Derr. Michael opposed intervention
on the ground that Atelier’s claim was already litigated and
decided in the 2012 Atelier action. The court allowed the inter-
vention after it ruled on the motions for summary judgment. In
his answer to the complaint in intervention, Michael pled that
the Atelier action operated as claim preclusion.
        13. Denial of Leave to Amend in CI 15-299
   On May 2, 2016, the court denied Korth’s motion for
leave to file an amended complaint. The court explained that
the motion was substantively identical to a prior motion for
leave to file an amended complaint in May 2015, which
had been denied because it was made in response to Laura’s
and Michael’s motions for summary judgment. In addition to
repeating the allegations of fraudulent transfer, the proposed
amended complaint asked the court to declare that the UCC
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         Nebraska Supreme Court Advance Sheets
                  304 Nebraska Reports
                       KORTH v. LUTHER
                       Cite as 304 Neb. 450

financing statement reflecting the collateral agreement between
Laura and Michael was ineffective as a matter of law and thus
not perfected and not entitled to priority over Korth’s lien.
                 14. New Action, CI 16-3789,
                    Filed and Transferred
   Two days after the court denied Korth leave to amend,
Atelier and Korth filed a new complaint in district court. The
complaint was similar to the prior proposed amended complaint
in CI 15-299, but added that another UCC financing statement
had been filed on or about May 5, 2015. This complaint was
filed as No. CI 16-3789 (CI 16-3789). Pursuant to an agree-
ment, the case was ultimately transferred to the judge assigned
to CI 15-299. The court ultimately determined the cases should
be tried separately.
   In their answers to the joint complaint in CI 16-3789, Laura
and Michael denied most of the allegations, including the
premise that any “asset” was or has since been transferred
by the security agreement or that any UCC filing can grant
a security interest. Laura and Michael affirmatively alleged,
among other things, that the claims were frivolous and made in
bad faith. They also alleged law of the case, issue preclusion,
and claim preclusion based on the orders of dismissal in the
IRS action and the 2012 Atelier action, as well as the district
court’s prior orders in CI 15-299 denying summary judgment
and leave to amend.
                15. Motions for Judgment on
                   Pleadings in CI 16-3789
   Laura and Michael moved for judgment on the pleadings in
CI 16-3789 on the grounds that the complaint failed to allege
there was an “[a]sset” as defined by § 36-702(2), which, pur-
suant to § 36-707(4), was required for there to be a transfer
subjecting the transaction to the UFTA. Laura pointed out that
Atelier and Korth had not alleged that either of them had ever
seized in execution any of Michael’s personal property; thus,
she alleged they had no lien pursuant to § 25-1504.
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         Nebraska Supreme Court Advance Sheets
                  304 Nebraska Reports
                        KORTH v. LUTHER
                        Cite as 304 Neb. 450

    At the hearing on the motions for judgment on the plead-
ings, Koukol’s cocounsel, Michael Milone, described that since
the court had already decided in its prior order on summary
judgment that the transaction was for a reasonably equivalent
value, Korth considered the remaining issue before the court
in both cases to be good faith. Milone explained, “[T]he issues
[in the complaint in CI 16-3789] are almost identical” to those
of the complaint in CI 15-299 “except for that in the second
complaint we’re alleging that the second UCC financing state-
ment really should be treated and analyzed by the Court in the
same way as in the first.” Milone stated of Korth, “[W]e’re . . .
not attempting to expand the pleadings beyond what we deter-
mined before you last May in summary judgment.” Beyond
there being a “separate transfer” by virtue of the second UCC
filing, Milone asserted, “the issues are substantively identical
between the two cases.”
    The court stayed proceedings on CI 16-3789 pending the
outcome in CI 15-299 and explained that it was also postpon-
ing ruling on the motions for judgment on the pleadings until
after the outcome in CI 15-299.
          16. Motion to Compel Identification of
             “Assets” and Property Subject to
                  Superior Liens and Notice
   After a motion to compel Atelier and Korth to identify
what assets were at issue under the UFTA, Korth identified
$8.11 garnished from a brokerage account. Laura responded
that the garnishment was of Luther Capital’s assets and not
of Michael’s assets. And Luther Capital had been owned by
Atelier since 2013. Laura disclaimed any interest in the gar-
nished assets.
   Atelier and Korth conceded at a hearing that beyond such
funds, there were really no concrete interests they had knowl-
edge of that had been transferred to Laura. Instead, it was their
assertion that “the giving of the security interest, not convey-
ance of specific assets,” was the fraudulent “transfer” under
the UFTA.
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                  304 Nebraska Reports
                        KORTH v. LUTHER
                        Cite as 304 Neb. 450

                17. Bench Trial in CI 15-299
   A 3-day bench trial was held on CI 15-299. Before trial,
Laura and Michael argued that as a threshold matter, there
was no “transfer” of any “asset” under the UFTA due to the
superior lien by the IRS in the assets described by the security
agreement. They also argued that Michael lacked actual intent
to defraud, and Laura argued that she received the security
agreement in good faith.
                       (a) Stipulated Facts
   For purposes of the trial, the parties stipulated as to the
five notices of federal tax liens between September 19, 2007,
and June 12, 2009, and to the details of the IRS action claim-
ing Michael owed a total of $1,266,227.20 as of January 15,
2012, for amounts assessed between September 20, 2003, and
September 25, 2008. They stipulated to the details of the settle-
ment between Michael and the IRS for $450,000. The parties
also stipulated that on September 20, 2013, the IRS filed a
notice of a federal tax lien against Michael in the amount of
$234,064.71 for tax years 2008 through 2012, which was not
the subject of the settlement and remained outstanding.
   The parties stipulated that other than the disputed gar-
nishment of $8.11 from the brokerage account in the name
of Luther Capital, Korth has never seized in execution on
the Korth judgment. They stipulated that Atelier had neither
seized in execution on its judgment at the time the notice
of the federal tax lien for $545,472.96 was filed nor pos-
sessed any personal property of Michael that it had seized in
execution as of March 20, 2014. Between March 20, 2014,
and May 4, 2015, neither Atelier nor Korth had success-
fully seized any assets of Michael or garnished any rights
to payment of Michael in execution on the Atelier or Korth
judgments.
                (b) Testimony of Mitchell Murphy
    Mitchell Murphy, a finance and accounting professional, tes-
tified at trial as Atelier’s and Korth’s expert witness. Murphy
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had reviewed financial documents pertaining to Laura and
Michael for the period of 2011 through 2017.
   Murphy testified that he did not see evidence of any wages,
salary, or personal disbursement earnings for Michael. He
observed only what appeared to be business income flowing
into and between Michael’s business and personal accounts.
Murphy observed that while over the years, the level of busi-
ness income had risen, there was no corresponding increase in
business revenue. In other words, there did not appear to be
any retention of any funds from the increased level of business
and the account balances remained zero. Murphy summarized
that a combination of commingling accounts, frequent and
systematic transfers of funds, a practice of authorizing debits
that could not be honored, and withdrawal and deposits of
cash did not “look like what [he] see[s] in normal business
activity.” Murphy admitted on cross-examination, however,
that he could not determine from the information he had
reviewed whether any of the inflows or outflows were actu-
ally improper.
   Murphy found nothing noteworthy in his review of Laura’s
accounts. He testified on cross-examination that he did not
find it unusual that a blanket security agreement would be
given in exchange for a $450,000 loan. Also, Murphy could
find no evidence that in March 2014, Michael had transferred
any actual property or assets to Laura.
                     (c) Laura’s Testimony
   Laura testified largely consistently with her prior deposi-
tion testimony. She elaborated on matters surrounding the loan
and security agreement. She testified that at the time of the
loan and corresponding security agreement, she did not know
anything about Michael’s liabilities other than that Atelier and
Korth were creditors joined in the IRS action. She did not
discuss with anyone or even contemplate how the loan transac-
tion would affect Atelier’s or Korth’s ability to collect. Laura
explained that “there was no consideration of anything else
except for myself and Michael and the IRS.” Laura stated that
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her only intention was to be paid back. The verbiage of the
security agreement was crafted by her legal counsel.
                    (d) Michael’s Testimony
   Michael testified that he had entered into the loan transac-
tion with Laura because he did not have the funds to pay the
settlement with the IRS. At the time of the security agree-
ment, Michael had few assets. Mirroring his prior deposition
testimony, Michael described that he had only some personal
possessions and small sums in bank accounts. Michael testi-
fied that it was not his idea to create a security agreement, but
that he signed the agreement crafted by Laura’s legal counsel
because Laura asked him to as a requirement for the loan.
Michael testified that he did not enter into the loan transaction
and its accompanying security agreement in order to make it
more difficult for creditors to collect from him.
            18. Judgment of Dismissal of CI 15-299
   The court issued an order in CI 15-299 on September 1,
2017, finding that the case lacked merit and accordingly dis-
missing it with prejudice. The court rejected Michael’s argu-
ment that the IRS was a necessary party to the action.
   The court considered whether Atelier and Korth had proved
by clear and convincing evidence that there was a fraudulent
transfer under § 36-705(a), explaining that under that statute,
there is a fraudulent transfer only if either the debtor had actual
intent to hinder, delay, or defraud any creditor or the transfer
was made without a reasonably equivalent value in exchange
for the transfer and the debtor thereby dissipated assets or
intended to incur or reasonably should have believed he or
she would incur debts beyond the ability to pay. The court
explained that since it had already determined there was a rea-
sonably equivalent value exchanged in the loan transaction, the
transfer was fraudulent under § 36-705(a)(1) only if there was
an actual intent to hinder, delay, or defraud a creditor.
   The court considered the factors set forth by § 36-705(b),
which, among other factors, may be given consideration when
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determining whether there was actual intent to hinder, delay,
or defraud. The court found that Michael did not have an
actual intent to hinder, delay, or defraud a creditor. The court
elaborated that “[w]hile there are some ‘badges of fraud’ pres-
ent in the current case, the majority of the evidence indicate[s]
the absence of fraud in the challenged transaction.” The court
recognized as indicia of fraud that the transfer was to an
insider, Laura, and that Michael had the Atelier and Korth
judgments outstanding against him before the transfer was
made. However, the court found supportive of an absence
of fraud that the judgments were obtained a number of
years before the security agreement, only interests in personal
property were transferred, the obligation was not concealed,
Michael did not abscond, none of the assets were removed or
concealed, and there was an equivalent value. The court also
found that “there can be no intent to hinder where the estate
was improved in position rather than diminished.” The court
explained that the loan was intended and used to pay a settle-
ment that extinguished IRS liens of higher priority than either
the Atelier or the Korth judgment. This settlement “exchanged
over $1.2 million in debt for $450,000 in debt, improving
[Michael’s] estate by more than $750,000 and putting Korth
and Atelier that much closer to collecting on their judgment
leins [sic].”
   Further, as to the claim against Laura, the court found merit
to Laura’s affirmative defense of good faith under § 36-709(a).
The court stated that it was “clear from the evidence that there
was no intent on the part of Laura to defraud the creditors of
Michael.” The court found that there was “absolutely no evi-
dence of intent to defraud on the part of Laura and that the
good faith defense would be applicable.” The court did not spe-
cifically discuss whether it was utilizing a subjective or objec-
tive standard of intent in determining whether Laura received
the transfer in good faith.
   The court found no merit to the conspiracy claim because
Laura and Michael did not engage in the underlying tort, there
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was no evidence of agreement between Laura and Michael to
engage in a tort, and Laura had acted in good faith.
   The court ordered that both Korth’s and Atelier’s claims
of fraudulent transfer and conspiracy were without merit as
to both Laura and Michael, and those claims were dismissed
with prejudice. The court noted in its order that the parties had
raised the issue of attorney fees, which would be determined at
a separate hearing.
                   19. Order of Judgment on
                    Pleadings in CI 16-3789
    Laura and Michael again moved for judgment on the plead-
ings in CI 16-3789, this time based on issue and claim preclu-
sion stemming from the September 1, 2017, order in CI 15-299.
They again sought sanctions pursuant to § 25-824.
    At the hearing on the motions, Laura and Michael argued
with regard to attorney fee sanctions that from the time the
litigation was filed, Atelier and Korth both knew that they did
not have a lien interest superior to the IRS’ interest that was
extinguished by the loan. Atelier and Korth responded that
there was a sufficient factual dispute to take the case to trial.
    The court agreed with Laura and Michael. The court stated
that “during the course of the trial it became abundantly clear,
at least in [the court’s] mind, that the only truly credible wit-
ness[’ testimony] in the entire testimony of all the witnesses
was that of [Laura].” The court explained that while it perhaps
should have resolved the good faith defense by way of sum-
mary judgment, once the court heard the evidence at trial, “it
was absolutely clear to [the court] that there was no legal, pos-
sible factual, legal, a combination of the two facts of law, that
would support an inference of fraud on the part of [Laura].”
Laura engaged in the transaction to protect her interest and
nothing more. That, the court believed, should have been dis-
coverable at the time of the pleadings.
    The court expounded:
      [T]otally frivolous. Without question, it was known early
      on; there was consideration; it was a protection of her
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      interest; there was an IRS lien which would have been
      superior. I already made that clear. You people should
      have known that. You brought her to court, in my opinion,
      for no valid reason whatsoever.
   On November 3, 2017, the court issued an order granting
Laura’s and Michael’s motions for judgment on the pleadings.
The court further found that the action was frivolous as to
Laura. Although Michael had argued that one of the grounds
for judgment on the pleadings and frivolousness was issue
preclusion by virtue of Atelier’s and Korth’s failing to bring
their claims in the IRS action, the court implicitly rejected that
argument. The court’s order referred to its prior findings pro-
nounced at the hearing as the findings supporting its conclu-
sion that the lawsuit was frivolous.
   At a subsequent hearing, when Korth asserted that the court
had failed to make specific findings relating to its frivolousness
determination, the court responded that its statements in open
court were sufficient:
      I did. I based it basically on credibility. Further, I think
      my order of findings [is] very, very thorough. . . .
         ....
         I made the findings in open court based upon the credi-
      bility, and also the fact that [Laura] acted in good faith, at
      the very least. Further, there was no evidence of a fraudu-
      lent transfer. And clearly, the IRS lien, which would have
      been superior to . . . [Michael], of course was the impetus
      for reducing that IRS obligation that could have adhered
      to not only her but possibly both.
At one point, the court expressed that it “may have been too
rash” in rejecting Michael’s claim for attorney fees, but the
court did not change its mind on that issue.
   The court dismissed CI 16-3789 with prejudice subject to
fully resolving the amount of attorney fees under § 25-824.
   In a second order issued the same day, the court amended
the judgment in CI 15-299 so as to tax costs in Laura’s favor
and against Atelier and Korth jointly and severally in the
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amount of $572. The court also stated in the amended order
that CI 15-299 was frivolous as against Laura only and that she
was entitled to attorney fees under § 25-824.
                        20. Attorney Fees
   On February 2, 2018, the court issued two orders, one in
CI 15-299 and one in CI 16-3789, determining the amount of
and parties responsible for attorney fees under § 25-824. The
orders were identical and awarded attorney fees to Laura due
to the frivolous nature of the suits. The court again set forth its
reasoning that the actions as against Laura were frivolous:
      This Court found that the actions against Laura . . .
      were totally without merit and without a rational argu-
      ment based upon law and the evidence at trial. Korth
      and Atelier . . . failed to present evidence to prove their
      case against Laura . . . . Specifically: (i) there was no
      testimony from any parties contradicting [Laura’s] testi-
      mony regarding the purpose of the $450,000.00 loan and
      security agreement; (ii) there was no evidence that the
      $450,000.00 was not regarded as a loan; and (iii) there
      was no evidence showing that [Laura’s] bank accounts
      were used to hide assets from [Michael’s] creditors. It
      is clear that Laura . . . made the loan to Michael . . . in
      order to protect against an IRS lean [sic] on the marital
      home. The $450,000.00 loan facilitated a settlement with
      the IRS and extinguished an outstanding tax obligation in
      excess of $1.2 million. . . . By acquiring the loan and set-
      tling with the IRS, Michael . . . exchanged over $1.2 mil-
      lion of debt to the IRS for $450,000.00 of debt to Laura
      . . . . This improved his estate by more than $750,000.00,
      putting Korth and Atelier . . . that much closer to collect-
      ing on their respective judgment liens. Clearly, Korth’s
      and [Atelier’s] junior lien positions were benefited by
      [Laura’s] loan to Michael . . . . The $450,000.00 loan pro-
      ceeds went directly from Laura . . . to the IRS. . . . There
      is no evidence to support the allegation that [Laura’s] loan
      to Michael . . . was fraudulent or collusive.
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         Furthermore, [Laura’s] counsel (David Skalka) notified
     Korth’s counsel (. . . Koukol) as far back as January 27,
     2015, that Laura . . . considered the case to be frivolous.
     . . . Copies of the $450,000.00 loan documentation were
     included with the notice to . . . Koukol. The security
     agreement plainly states that the security interest was
     limited to the $450,000.00 loan which was used to pay
     the IRS settlement. The Court notes that Korth previously
     acknowledged receipt of the January 27, 2015, letter
     from . . . Skalka. Korth offered and this Court received a
     copy of the letter into evidence on the cross motions for
     summary judgment. . . . Despite receipt of the loan docu-
     mentation, Korth and Atelier . . . persisted in their claims
     against Laura . . . .
         Korth and Atelier . . . point to an $8.00 garnishment
     on a brokerage account during the pendency of this litiga-
     tion as evidence that an account had been executed upon
     despite the lien priority dispute. However, during the
     course of the trial it became abundantly clear that at least
     Atelier . . . had to have known that Michael . . . did not
     own said brokerage account. . . . It is also important to
     note that one of the necessary elements for the claims in
     CI 16-3789 required Korth and Atelier . . . to establish
     that a reasonable equivalent value was not given by Laura
     . . . to Michael . . . . Yet in its July 6, 2015, order on the
     cross motions for summary judgment in CI 15-299, this
     Court explicitly found that a reasonable equivalent value
     had been given. Korth and Atelier . . . maintained their
     claims against Laura . . . despite this clear signal that they
     would be unable to establish a necessary element.
The court noted that while it did not grant summary judgment,
     [t]he fact that the Court deferred to Korth’s assertions
     and did not fully see then what later became apparent
     at trial—that based on facts which were known to Korth
     and Atelier . . . there was not a meritorious claim against
     [Laura]—does not ameliorate the frivolous nature of the
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      claims and does not preclude this Court from awarding
      attorney’s fees.
   The court rejected the notion that Atelier should not share
equally in the sanction, finding that Atelier joined the suit with
full knowledge and was fully aware of the unreasonableness
of the litigation. And the court determined it was appropriate
to award sanctions against Koukol and Derr as individuals in
order to deter them and other members of the legal profession
from future similarly frivolous actions.
   The court awarded Laura a judgment of attorney fees in
CI 15-299 in the amount of $75,000 and in CI 16-3789 in the
amount of $7,000. The court ordered that one-third of the judg-
ments ($27,333) was to be against Korth, one-third ($27,333)
against Atelier, and the remaining one-third against Koukol and
Derr to be split equally (each liable for $13,667).
                21. Motion to Alter or Amend
                    and Notices of Appeal
   Koukol timely moved to alter or amend the judgment in
CI 16-3789 as against him.3 Koukol’s attorney argued that
Laura was a necessary party to Korth’s action and that there-
fore, it could not be frivolous as against Laura when it was not
frivolous as against Michael. Koukol’s attorney also argued
that the court’s reliance on $1.2 million in superior liens by
the IRS was misplaced, because the validity of those liens was
contested by Michael in the IRS action. Further, according to
Koukol’s attorney, the transfer at issue did not include what
Michael did with the money, i.e., pay the IRS. How Michael
spent the money should not have been relevant to whether
the transfer was fraudulent; rather, what was relevant was the
fact that Laura loaned Michael the money in exchange for a
promissory note that she knew or should have known would
not be honored, given Michael’s substantial outstanding debt
obligations and history of avoiding them. Koukol’s attorney
also found it unnecessarily convoluted that Laura would loan

3
    See Neb. Rev. Stat. § 25-1329 (Reissue 2016).
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the settlement money to Michael rather than simply pay the
IRS directly, as she was also a defendant in the IRS action
and the only person who was at risk in the lawsuit given that
Michael was “judgment proof.” Koukol’s attorney argued that
all of this, at a minimum, created issues of fact that rendered
the lawsuits not frivolous.
   Korth filed a motion styled as a motion to alter or amend
in CI 16-3789 more than 10 days after the February 2, 2018,
judgment, joining in Koukol’s motion.
   On June 15, 2018, the court denied the motions to alter or
amend. The court did so on the merits and also, in the case of
Korth’s motion, because it was untimely.
   Koukol filed his notice of appeal on July 6, 2018. Atelier,
Derr, and Korth filed timely notices of appeal thereafter.

                III. ASSIGNMENTS OF ERROR
   Atelier and Korth assign as error, summarized, that the dis-
trict court erred when it dismissed Korth’s fraudulent transfer
claim upon finding that Michael did not act with actual intent
to hinder, delay, or defraud his creditors and that Laura acted
in good faith.
   Atelier, Korth, Koukol, and Derr all assign as error, sum-
marized, that the district court erred by (1) finding that the
fraudulent transfer claims were frivolous and that frivolous
pleading sanctions, including attorney fees, were appropriate
and (2) receiving in evidence allegedly altered summaries of
Laura’s attorney fees, which failed to fulfill the requirements
of Neb. Rev. Stat. § 27-1006 (Reissue 2016).
   Koukol additionally assigns that the court erred in overrul-
ing his motion to alter or amend.
   Atelier and Derr additionally assign that the court erred by
assessing the same percentage of attorney fee sanctions against
them as it did against Korth and Koukol, when Atelier entered
the case almost a year after it was commenced and Atelier and
Derr were not part of the case when a large number of the fees
were incurred.
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                  IV. STANDARD OF REVIEW
   [1,2] An action under the UFTA is equitable in nature, and
an appeal of a district court’s determination that transfers of
assets were in violation of the UFTA is equitable in nature.4 In
an appeal of an equity action, an appellate court tries factual
questions de novo on the record, reaching a conclusion inde-
pendent of the findings of the trial court, provided, however,
that where credible evidence is in conflict on a material issue
of fact, the appellate court considers and may give weight to
the fact that the trial judge heard and observed the witnesses
and accepted one version of the facts rather than another.5
   [3] When reviewing questions of law, an appellate court
resolves the questions independently of the lower court’s
conclusions.6
   [4] A motion for judgment on the pleadings is properly
granted when it appears from the pleadings that only questions
of law are presented.7
   [5] On appeal, an appellate court will uphold a lower court’s
decision allowing or disallowing attorney fees for frivolous or
bad faith litigation in the absence of an abuse of discretion.8
                        V. ANALYSIS
   These appeals involve the merits of Atelier’s and Korth’s
challenges under the UFTA to the security agreement. Atelier
and Korth do not assign or argue that the district court erred
in concluding that a lien priority contest under the UCC was
premature, and they no longer assert that either UCC financ-
ing statement was a “transfer” under the UFTA. Atelier and

4
    Janice M. Hinrichsen, Inc. v. Messersmith Ventures, 296 Neb. 712, 895
N.W.2d 683 (2017).
5
    Id.
6
    Maloley v. Central Neb. Pub. Power & Irr. Dist., 303 Neb. 743, 931
N.W.2d 139 (2019).
7
    Foundation One Bank v. Svoboda, 303 Neb. 624, 931 N.W.2d 431 (2019).
8
    Chicago Lumber Co. of Omaha v. Selvera, 282 Neb. 12, 809 N.W.2d 469
    (2011).
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Korth argue the district court erred in finding that they had
failed to prove the security agreement was a fraudulent trans-
fer under § 36-705(a)(1), that Laura had proved a good faith
defense, and that their fraudulent transfer actions as against
Laura were frivolous. Atelier additionally argues that the
court erred in assessing the same amount of sanctions against
it as it did against Korth, while Koukol and Derr argue that
the court should not have assessed any of the sanctions
against them personally. We affirm the district court’s judg-
ment dismissing Atelier’s and Korth’s claims in CI 15-299
and CI 16-3789, but we reverse its determination that the
claims were frivolous.

          1. Merits of Dismissals of UFTA Claims
   We first address the underlying merits of Atelier’s and
Korth’s fraudulent transfer claims. An action under the UFTA
is equitable in nature, and an appeal of a district court’s deter-
mination that transfers of assets were in violation of the UFTA
is equitable in nature.9 In an appeal of an equity action, an
appellate court tries factual questions de novo on the record,
reaching a conclusion independent of the findings of the trial
court, provided, however, that where credible evidence is in
conflict on a material issue of fact, the appellate court consid-
ers and may give weight to the fact that the trial judge heard
and observed the witnesses and accepted one version of the
facts rather than another.
   [6] Under the UFTA, a creditor may reach assets transferred
by a debtor if the transfer was fraudulent.10 Atelier and Korth
assign that the court erred in failing to find a fraudulent trans-
fer under § 36-705(a)(1). In an action to set aside an actually
fraudulent transfer or obligation under § 36-705(a)(1) of the
UFTA, it is the plaintiff’s burden to prove by clear and con-
vincing evidence that (1) the debtor made a transfer or incurred

 9
     See Janice M. Hinrichsen, Inc. v. Messersmith Ventures, supra note 4.
10
     See §§ 36-705, 36-706, and 36-708.
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an obligation, (2) the plaintiff was a creditor of the debtor,
and (3) the debtor made the transfer or incurred the obligation
with actual intent to hinder, delay, or defraud any creditor of
the debtor.11
   [7] Our analysis focuses on the first element. “It is funda-
mental that before there can be a ‘fraudulent transfer’ under
the UFTA, there must be a ‘transfer.’”12 A “[t]ransfer” “means
every mode, direct or indirect, absolute or conditional, volun-
tary or involuntary, of disposing of or parting with an asset
or an interest in an asset, and includes . . . release . . . and
creation of a lien or other encumbrance.”13 An “[a]sset” is
defined by the UFTA as “property of a debtor,” but the UFTA
specifically excludes as an “[a]sset” “property to the extent it
is encumbered by a valid lien.”14 “Property” under the UFTA is
“anything that may be the subject of ownership.”15
   Section 36-707(1) describes when such a “transfer” of an
“asset” occurs. It states that with respect to an “asset” that is
not real property, a transfer is made “when the transfer is so far
perfected that a creditor on a simple contract cannot acquire
a judicial lien otherwise than under the act that is superior to
the interest of the transferee.”16 If applicable law permits the
“transfer” to be perfected, and it was not, then it “is deemed
made immediately before the commencement of the action.”17
Finally, if applicable law does not permit the “transfer” to
be perfected, it is made “when it becomes effective between
the debtor and the transferee.”18 In all these circumstances,

11
     See, Janice M. Hinrichsen, Inc. v. Messersmith Ventures, supra note 4; 55
     Causes of Action 2d 467, § 4 (2012).
12
     Essen v. Gilmore, 259 Neb. 55, 60, 607 N.W.2d 829, 834 (2000).
13
     § 36-702(12).
14
     § 36-702(2).
15
     § 36-702(10).
16
     § 36-707(1)(ii).
17
     See § 36-707(2).
18
     See § 36-707(3).
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h­ owever, there is no “transfer” “made until the debtor has
 acquired rights in the asset transferred.”19 Creditors are not
 entitled to avoid as fraudulent a conveyance of property to
 which the debtor had no title at all or no such title as they
 could have subjected to payment of their claims.20
    [8] The district court never explicitly determined the thresh-
 old question of whether there was a “transfer” of any “asset”
 by virtue of the security agreement, but that does not preclude
 this court from doing so under the record presented.21 In our
 de novo review, we find under the facts and the theories pre-
 sented below that Atelier and Korth failed as a matter of law
 to prove there was any “asset” parted with through the security
 agreement. They thus failed to prove there was a “transfer” as
 defined by the UFTA. Atelier and Korth did not argue below or
 on appeal that the security agreement was an “obligation . . .
 incurred,” and an appellate court reviews a case on the theories
 pursued by the parties, not on a theory that the parties might
 have raised.22
    Throughout the litigation, Atelier and Korth asserted that
 the security agreement was the “asset” fraudulently trans-
 ferred, while Laura and Michael insisted that Atelier and
 Korth identify with more specificity what “assets” Atelier
 and Korth believed were fraudulently transferred through the
 agreement. At trial, Murphy testified that he could find no
 evidence that Michael had transferred any actual property
 or assets to Laura, and the parties stipulated that they had
 not successfully seized in execution on their judgments or
 garnished any rights to payment. Atelier and Korth only ever
 identified the $8.11 garnished from the brokerage account in
 the name of Luther Capital as any more particular “asset” at

19
     See § 36-707(4).
20
     37 C.J.S. Fraudulent Conveyances § 9 (2017).
21
     See In re Interest of Jordan B., 300 Neb. 355, 913 N.W.2d 477 (2018).
22
     See § 36-705(a). Accord Linda N. v. William N., 289 Neb. 607, 856
N.W.2d 436 (2014).
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issue. The district court concluded the money did not belong
to Michael, and Atelier and Korth do not challenge that find-
ing on appeal.
   Atelier and Korth concede on appeal that there has yet to
be any identifiable property parted with via the security agree-
ment. They continue to assert that the security agreement itself
was the “asset.”
   Successful fraudulent transfer claims have been made in
cases involving security agreements, but the courts in those
cases have not held that the security agreements themselves
were the “property” constituting the “asset” disposed of
or parted with.23 Instead, there were specifically identified
“assets” that the creditors were attempting to reach, interests
which had been disposed of or parted with through the security
agreements.24 In Matter of Holloway,25 for example, the court
referred to the transfer of a security “interest,” not of the secu-
rity agreement. Further, that security interest was in something.
At issue in that case was the debtor’s assignment of a substan-
tial judgment, the funds from which had been deposited into
the registry of the court.
   In arguing that the security agreement was a “transfer,”
Atelier and Korth rely on the fact that under § 36-702(12), a
“[t]ransfer” “includes . . . creation of a lien or other encum-
brance.” They fail, though, to suggest an object of the lien or
encumbrance effectuated by the security agreement. Liens and
encumbrances do not exist independently of the interests they
attach to, and this reference to liens or other encumbrances
does not modify the express requirement of the UFTA that
there be an “asset” before there can be a “transfer.”

23
     See, In re Fair Finance Co., 834 F.3d 651 (6th Cir. 2016); Matter of
     Holloway, supra note 2; Webster Industries, Inc. v. Northwood Doors, Inc.,
     320 F. Supp. 2d 821 (N.D. Iowa 2004); In re Afonica, 174 B.R. 242 (N.D.
     Ohio 1994).
24
     See id.
25
     Matter of Holloway, supra note 2, 955 F.2d at 1015.
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   Intangible interests are not necessarily excluded from the
UFTA, of course. The drafters of the model Uniform Fraudulent
Transfer Act intended the definition of property to include
“real and personal property, whether tangible or intangible,
and any interest in property, whether legal or equitable.”26
They envisioned, for instance, that an “‘asset’” could include
“an unliquidated claim for damages resulting from personal
injury or a contingent claim of a surety.”27
   [9] But there are limits to how abstract an interest may be
and still constitute “property.” Usually, inchoate interests do
not satisfy the requirements of a legitimate legal claim consti-
tuting “property” and, thus, of an “asset” that the debtor has
“acquired rights in”28—though few cases explore this realm.
The court in State ex rel. ICA v. Wright 29 held that the debtor’s
future wages were not too “speculative or ephemeral” to be
“‘property’” under Arizona’s version of the model Uniform
Fraudulent Transfer Act, reasoning that the right to wages was
choate while only the amount of the debtor’s future income
was speculative. In contrast, the court in In re Morehead held
that there can be no rights to future wages, and thus there is
no “transfer,” until wages are actually earned.30 In AirFlow
Houston, Inc. v. Theriot, the court held that a company logo,
name, telephone number, and business records constituting

26
     Uniform Fraudulent Transfer Act § 1, comment (10), 7A (part II) U.L.A.
     257, 260-61 (2017).
27
     Id., comment (2), 7A (part II) U.L.A. at 259.
28
     See, Wornick v. Gaffney, 544 F.3d 486 (2d Cir. 2008); McGahee v.
     McGahee, 204 Ga. 91, 48 S.E.2d 675 (1948); First Wisconsin Nat. Bank
     v. Roehling, 224 Wis. 316, 269 N.W. 677 (1936). See, also, Allegaert v.
     Chemical Bank, 418 F. Supp. 690 (E.D.N.Y. 1976); Essen v. Gilmore, 259
Neb. 55, 607 N.W.2d 829 (2000); Robert M. Zinman et al., Fraudulent
     Transfers According to Alden, Gross and Borowitz: A Tale of Two Circuits,
     39 Bus. Law. 977 (1984).
29
     State ex rel. ICA v. Wright, 202 Ariz. 255, 258, 43 P.3d 203, 206 (Ariz.
     App. 2002).
30
     In re Morehead, 249 F.3d 445, 449 (6th Cir. 2001).
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corporate goodwill met the definition of “property” that could
constitute “assets” under Texas’ version of the model Uniform
Fraudulent Transfer Act, because the lower court had found
as a matter of fact that such goodwill existed.31 In contrast,
the court in In re Bob Nicholas Enterprise, Inc.,32 rejected the
contention that purchase orders and goodwill were property
interests capable of being fraudulently transferred, where the
creditor had failed to prove the business was reasonably profit-
able. The court explained that “[a] property interest consists
of more than a unilateral expectation or abstract need[;] there
must be a legitimate claim of entitlement.33
   [10,11] We agree with the court in In re Bob Nicholas
Enterprise, Inc. Whether under the UFTA there is a “‘sub-
ject of ownership’” constituting “‘property’” that can be an
“‘“[a]sset”’” depends on a legitimate and identifiable claim
of entitlement.34 Further, where the focus of a fraudulent
transfer action is a security agreement by the debtor in favor
of the alleged transferee, the question is what identifiable
and legitimate claim of entitlement the debtor had, which the
debtor transferred an interest in via the security agreement. A
security agreement by the debtor in favor of an alleged trans-
feree is the vehicle for “disposing of or parting with an asset
or an interest in an asset.”35 For purposes of the UFTA, a secu-
rity agreement by the debtor in favor of an alleged transferee
is not the “asset” itself. It could not be otherwise, because
whether there is an “asset” under the UFTA requires a spe-
cific inquiry into numerous statutory factors, such as whether
the “property” was encumbered by a valid lien, whether
the “property” was generally exempt under nonbankruptcy

31
     AirFlow Houston, Inc. v. Theriot, 849 S.W.2d 928, 933 (Tex. App. 1993).
     See, also, In re Fair Finance Co., supra note 23.
32
     In re Bob Nicholas Enterprise, Inc., 358 B.R. 693 (S.D. Tex. 2007).
33
     Id. at 701-02.
34
     Id. at 701.
35
     See § 36-702(12).
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law,36 and when the debtor acquired rights in the “asset.”37 A
blanket security agreement without any reference to particu-
lar “property” that the agreement granted the transferee an
interest in is not amenable to such inquiries.
   [12] Atelier and Korth do not propose anything other than
the security agreement as the “property” at issue in CI 15-299
and CI 16-3789. Further, whatever “property” could have been
disposed of or parted with by the security agreement, it would
have been fully encumbered by “valid lien[s]”38 when the
alleged “transfer” occurred. Only equity in property in excess
of the amount of encumbering liens thereon is an “‘asset’”
reachable by creditors as a fraudulent transfer; encumbered
property is not considered part of the debtor’s estate.39
   Though stated in relation to the predecessor of the UFTA,
Nebraska’s Uniform Fraudulent Conveyance Act,40 we still find
applicable our statement in Holthaus v. Parsons 41 that an action
to set aside a conveyance cannot be maintained unless the con-
veyance put beyond the creditor’s reach property that would
have been subject to the payment of the debt. While “damages”
are not an express element of a claim under the UFTA, the
various provisions of the UFTA together operate to require that
creditors show in a concrete way that they were injured by the
transaction they are seeking to set aside. A transfer of property
in which the debtor has no equity cannot be the subject of a
fraudulent transfer action because the creditors cannot show

36
     See § 36-702(2). Accord § 36-709.
37
     See § 36-707(4). Accord § 36-709.
38
     See § 36-702(2)(i).
39
     See In re McFarland, 170 B.R. 613, 622 (S.D. Ohio 1994). Accord,
     Preferred Funding, Inc. v. Jackson, 185 Or. App. 693, 61 P.3d 939
     (2003); Rich v. Rich, 185 W. Va. 148, 405 S.E.2d 858 (1991); National
     Loan Investors v. World Properties, 79 Conn. App. 725, 830 A.2d 1178
     (2003).
40
     Neb. Rev. Stat. §§ 36-601 to 36-613 (Reissue 1988) (repealed 1989).
41
     Holthaus v. Parsons, 238 Neb. 223, 469 N.W.2d 536 (1991).
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they would have received anything by avoiding the transfer and
were injured thereby.42
   [13] A blanket security agreement does not convey an
“‘asset’” under the UFTA if everything subject to ownership
that is described as collateral therein is fully encumbered by
other creditors with superior claims at the time of the alleged
“‘transfer[].’”43 As the district court repeatedly observed in the
context of actual intent, “there was an IRS lien which would
have been superior” to other creditors’ claims.
   Valid liens are defined under the UFTA as liens “effective
against the holder of a judicial lien subsequently obtained
by legal or equitable process or proceedings.”44 It was undis-
puted that Atelier and Korth never perfected choate liens, i.e.,
liens that identified with specificity the identity of the lienor,
the property subject to the lien, and the amount of the lien.45
There was no evidence that any other creditor had either. In
order to defeat an IRS lien, a creditor must both be prior in
time and have a perfected, choate lien.46 An IRS lien is upon
“all property and rights to property”47 of the debtor, and the
moment a prior inchoate interest of the debtor becomes choate,
a prior perfected IRS lien in all the taxpayer’s property imme-
diately attaches.48
   The total amount of the security pledged in the security
agreement was not more than Michael was obligated to pay
under the demand note in the principal amount of $450,000.
The IRS action was ultimately settled when the IRS and

42
     See 37 C.J.S., supra note 20.
43
     See In re SMTC Mfg. of Texas, 421 B.R. 251, 295 (W.D. Tex. 2009).
44
     See § 36-702(13). See, also, § 36-702(2)(i).
45
     See United States v. New Britain, 347 U.S. 81, 74 S. Ct. 367, 98 L. Ed.
520 (1954).
46
     See id.
47
     26 U.S.C. § 6321 (2012).
48
     See Citizens Nat. Trust & S. Bank of Los Angeles v. U.S., 135 F.2d 527
     (9th Cir. 1943).
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Michael agreed the lien could be satisfied by payment of
$450,000. At that time, the IRS’ claims under the lien were
in a total amount of $1.2 million. Even if we were to give
credence to Atelier and Korth’s argument that Michael’s estate
was not at the time of the security agreement encumbered in
the amount of $1.2 million, because Michael “disputed” the
IRS’ claims, the settlement determined that “valid lien[s]”49
encumbering Michael’s property were at a minimum equal
to the value of the property parted with through the security
agreement. Accordingly, if any property or interest in property
were parted with through the security agreement, such property
was fully encumbered and thus excluded as an “asset” under
the UFTA.50
   We acknowledge that the facts of this case may be unique
inasmuch as the IRS liens were extinguished shortly after the
agreement was made—although we note there are still IRS
liens outstanding in the principal amount of $234,064.71. This
case is also unique because the security agreement was an
indirect part of the settlement transaction. We have not found
a case addressing a similar factual scenario under the UFTA,
let alone one that addresses within such context whether
“valid liens” continue to exist through the doctrine of equi-
table subrogation.
   But, again, we must review this case based on the theories
presented below. Consistent with their theory that the security
agreement itself was the “asset,” Atelier and Korth asserted
below that the “transfer” occurred at the time the security
agreement was executed. Certainly, at no point did Atelier
and Korth argue that the challenged “transfer” occurred after
the IRS released its liens. Nor did Atelier and Korth seek to
amend their pleadings to identify something other than the
abstract security agreement as the “asset,” the transfer of which
they sought avoidance to the extent necessary to satisfy their

49
     See § 36-702(2)(i).
50
     § 36-702(2)(i).
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claims.51 Even if we consider Atelier and Korth’s oral argument
that under § 36-707(2), there had been a “transfer” immedi-
ately before the commencement of the action, they have never
identified what interest was sufficiently choate to be “property”
“immediately before the commencement of the action,” how
it was capable under applicable law of perfection, or when
Michael had “acquired rights in the asset transferred.”52
   In sum, Atelier and Korth failed to identify and prove there
was any “property” at issue in these cases, let alone that any
“property” transferred in relation to the security agreement was
not excluded under § 36-702(2)(i) as a possible “asset” by vir-
tue of the IRS liens. Atelier and Korth thus failed to prove by
clear and convincing evidence that there was a “transfer” under
the UFTA, which is a necessary hurdle to any fraudulent trans-
fer claim. Because we conclude that Atelier and Korth failed to
prove the threshold element of their fraudulent transfer claims
that there was a “transfer,” we do not address whether Michael
committed actual fraud under § 36-705(a)(1) in making said
“transfer” or Laura’s good faith defense.
   We agree with the district court’s ultimate conclusion that
Atelier’s and Korth’s fraudulent transfer actions lacked merit.
Atelier and Korth do not assert on appeal that their claim in
CI 16-3789 was meaningfully different from their claim in
CI 15-299, and we agree with the district court that its judg-
ment on the merits in CI 15-299 rendered judgment as a matter
of law appropriate on the fraudulent transfer claim made in
CI 16-3789. We affirm the orders of dismissal.

        2. Merits of Frivolousness Determination
   [14] We turn next to the merits of the district court’s find-
ing that the claims were frivolous and attorney fees were
appropriate under § 25-824(2). On appeal, we will uphold a
lower court’s decision allowing or disallowing attorney fees for

51
     See § 36-709(a).
52
     See § 36-707(4).
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frivolous or bad faith litigation in the absence of an abuse of
discretion.53 A judicial abuse of discretion exists when the rea-
sons or rulings of a trial judge are clearly untenable, unfairly
depriving a litigant of a substantial right and denying just
results in matters submitted for disposition.54
   Section 25-824(2) provides that the court shall award rea-
sonable attorney fees and costs against any attorney or party
who has brought or defended a civil action that alleged a claim
or defense which a court determines is frivolous or made in
bad faith. Section 25-824(5) elaborates:
      No attorney’s fees or costs shall be assessed if a claim or
      defense was asserted by an attorney or party in a good
      faith attempt to establish a new theory of law in this state
      or if, after filing suit, a voluntary dismissal is filed as to
      any claim or action within a reasonable time after the
      attorney or party filing the dismissal knew or reasonably
      should have known that he or she would not prevail on
      such claim or action.
   [15-17] Frivolous for the purposes of § 25-824 is defined
as being a legal position wholly without merit, that is, without
rational argument based on law and evidence to support a liti-
gant’s position in the lawsuit.55 It connotes an improper motive
or legal position so wholly without merit as to be ridiculous.56
Any doubt whether a legal position is frivolous or taken in bad
faith should be resolved in favor of the one whose legal posi-
tion is in question.57
   We conclude that the district court’s reasons and rulings on
frivolousness were untenable. In finding the actions frivolous,
the court reasoned that it should have been discoverable at the

53
     Chicago Lumber Co. of Omaha v. Selvera, supra note 8.
54
     State v. Ettleman, 303 Neb. 581, 930 N.W.2d 538 (2019).
55
     Lincoln Lumber Co. v. Fowler, 248 Neb. 221, 533 N.W.2d 898 (1995).
56
     See White v. Kohout, 286 Neb. 700, 839 N.W.2d 252 (2013).
57
     Sports Courts of Omaha v. Meginnis, 242 Neb. 768, 497 N.W.2d 38
     (1993).
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time of the pleadings that there was no “possible factual, legal,
a combination of the two” that would have led to any conclu-
sion other than that Laura received the security agreement in
good faith “to protect her interest.” The court seemed to articu-
late a similar conclusion with regard to whether Michael had
acted with actual intent to hinder, delay, or defraud any credi-
tor or whether he had received a reasonably equivalent value
in exchange for the security agreement. In concluding that
Atelier and Korth should have known they would be unable
to prove Michael acted with actual intent, or prove construc-
tive fraud under a theory that Michael did not receive reason-
ably equivalent value for the transfer, the court indicated that
Atelier and Korth should have known there could be no fraud
when there was a superior IRS lien that was the impetus for the
loan transaction.
   We agree with Atelier, Korth, Koukol, and Derr that claims
of actual intent are dependent upon credibility and, as such,
would in only the rarest of circumstances be so wholly without
merit as to be ridiculous. Likewise, even if we were to impose
an objective standard on the good faith defense, an issue we
do not decide here, it would have been difficult to predict with
certainty what a reasonable person would think regarding the
transaction at issue in this case. Further, it is not at all clear
that an action can be frivolous under § 25-824 for the reason
that a plaintiff should have predicted a defendant would prove
an affirmative defense. While there is some logic to the district
court’s implicit position that as a matter of law, there can be
no bad faith or actual fraudulent intent when the position of
the debtor’s creditors is improved by virtue of the transaction,
there is no case law that squares with the facts of this case and
directly supports that legal conclusion.
   We have concluded that there was no “[a]sset,” “[t]rans­
fer[red]” by the security agreement, primarily because there
was no “[p]roperty.”58 But to the extent it could be appropriate

58
     See § 36-702. See, also, § 36-707.
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to affirm the court’s discretionary finding of frivolousness as a
right result reached for the wrong reason,59 we cannot say that
it was ridiculous or with improper motive for Atelier and Korth
to try the case under the theory that the “property” was the
agreement itself. As already illustrated, there is little case law
exploring inchoate interests in the context of proving the exis-
tence of “property” that was an “asset” “transferred.” And we
have not found a case where a court has explicitly addressed
whether a security agreement, abstracted from any identified
“property,” is an “asset.”
   While Atelier’s and Korth’s legal positions were “perhaps
strained and farfetched,” that alone does not make them frivo-
lous.60 Again, all doubts as to whether a legal position is frivo-
lous or taken in bad faith should be resolved in favor of the
one whose legal position is in question.61 This case presented a
unique factual scenario implicating questions of law that have
never before been addressed by this court. The court abused
its discretion in finding the actions frivolous under § 25-824.
We find no merit to any suggestion that we should affirm the
court’s sanctions award under its inherent powers instead.
                     VI. CONCLUSION
   We reverse the awards of sanctions but otherwise affirm the
judgments of dismissal.
                  Affirmed in part, and in part reversed.

59
     See In re Interest of Jordan B., supra note 21.
60
     White v. Kohout, supra note 56, 286 Neb. at 710, 839 N.W.2d at 261.
61
     Sports Courts of Omaha v. Meginnis, supra note 57.