Tolle v. Fenley

2006 UT App 78, 132 P.3d 63, 546 Utah Adv. Rep. 35, 2006 Utah App. LEXIS 22, 2006 WL 488606

• Court: Court of Appeals of Utah
• Decided: March 2, 2006
• Docket: 20041045-CA
• Status: Published

Opinions

OPINION

BENCH, Presiding Judge:

¶ 1 Appellants Mary Dagmar Fenley and John Fenley (collectively, the Fenleys) assert that the trial court erroneously voided the transfer of real properties from Robert Tolle under the Utah Uniform Fraudulent Transfer Act (UFTA). See Utah Code Ann. §§ 25-6-1 to -13 (1998). We affirm.

BACKGROUND

¶ 2 Appellee Jeanne Tolle was born in Ohio in 1958 to Robert and Wilma Tolle. Approximately one year later, the family moved to Florida. During Jeanne’s childhood and adolescence, Robert raped and abused her on numerous occasions. Later, Robert and Wilma divorced. Jeanne reported the rape incidents to the Florida police in 1973, and Robert returned to Ohio. From 1973 to 2001, Jeanne was unable to locate Robert because his exact whereabouts were unknown to her.

¶ 3 In 1987, Robert married Mary Dagmar Fenley in Utah. The couple amicably divorced in 2001. Later that year, Jeanne’s cousin gave her Robert’s phone number and told her that Robert had been living in Utah for the previous fourteen years. In the process of discovering her father’s address, Jeanne contacted Ralph Tolle, Robert’s brother, and Mary, Robert’s ex-wife. Jeanne told them both about her past abuse and rape incidents and informed them that she had three goals: first, to make sure no other children were hurt by Robert; second, to make sure Robert went to prison for raping and abusing her; and third, to take away Robert’s possessions for what he did to her. Jeanne then contacted a Florida police detective. The detective instructed her to telephone Robert to see if he would acknowledge the rape incidents and asked her to record the conversation.

¶ 4 In October 2001, Jeanne called Robert. During the conversation, Robert acknowledged that he had raped her on several occasions. He told her that he was sorry. Robert also told Jeanne that he owned a two-hundred acre ranch and a five-bedroom house in Utah and invited her to come to visit him.¹ Jeanne accepted the invitation to visit and came to Utah in November 2001. During the visit, Robert put Jeanne’s name on several of his bank accounts. After the Thanksgiving holiday, she returned to Florida.

¶ 5 On November 30, 2001, Robert was arrested in Utah. At the time of his arrest, Robert telephoned Jeanne and “told her that he was being arrested and that he knew she was responsible” for his arrest. The next day Jeanne flew to Utah. While in Utah, Jeanne withdrew all of the money in the joint bank accounts. Jeanne also met with Juan and Sherry Hernandez, Robert’s friends and caretakers, and told them her three goals.

¶ 6 Following Robert’s incarceration, several of the Defendants wrote letters to Robert “indicating an interest in protecting [his] property from Jeanne.”² Five days after his arrest, Robert asked Ralph to “pick[ ] up quit-claim deeds on the way” to the jail “for Robert’s signature.” Robert signed and deeded all of his real properties to Ralph and Mary, as joint tenants. The trial court later found that this “made [Robert] insolvent by virtue of the transfer.”

¶ 7 Robert was extradited from Utah and indicted in Florida. In February 2002, Jeanne filed a civil action against Robert in Florida, which ultimately resulted in a default judgment in the amount of $1,704,610.75, plus interest. While awaiting his criminal trial, Robert died in Florida in June 2002.

¶ 8 Ralph later signed a quit-claim deed to Juan and Sherry Hernandez, as joint tenants, for part of his interests in the properties previously deeded to him by Robert. The Hernandezes paid Ralph nothing for the deed. Mary also signed a quit-claim deed to establish joint ownership with her son, John Fenley, for all of her interests in the properties previously deeded to her by Robert. John paid nothing to Mary for this transfer.

¶ 9 In March 2003, Jeanne filed a complaint against all of the Defendants seeking to void the alleged fraudulent transfer of properties from Robert to the Defendants, pursuant to the UFTA. See Utah Code Ann. § 25-6-1 to -13. The trial court found that Jeanne’s “right to payment” or claim “arose before any transfer of the land from Robert Tolle.” The court specifically found that although “Plaintiff, Jeanne Tolle, did not file civil suit until February, 2002 in Florida and procure a judgment until September 24, 2004, the Plaintiff made her intentions clear to Robert Tolle and the other defendants prior to any transfers.” Additionally, the trial court found that the Defendants did not give any consideration for the transfers and concluded that “[t]he transfer of all the ... property was a fraudulent transfer made with the intent to keep the property from the reach of the Plaintiff, Jeanne Tolle’s judgment” and is “therefore void.” The Fenleys now appeal.

ISSUES AND STANDARDS OF REVIEW

¶ 10 The Fenleys present several issues on appeal. First, the Fenleys assert that the trial court erroneously concluded that Jeanne was a “creditor” and that she had a “claim” to the transferred properties under the UFTA. Second, the Fenleys assert that the trial court erroneously concluded that Robert had “actual intent” to fraudulently transfer the properties under Utah Code section 25-6-5(1)(a) of the UFTA. Utah Code Ann. § 25-6-5(1)(a). Third, the Fenleys assert that the trial court erroneously concluded that Robert was “insolvent” under the UFTA at the time the properties were transferred. Id. §§ 25-6-3, -6(2).

¶ 11 These issues present mixed questions of fact and law. We review factual questions under the clearly erroneous standard and legal questions under the correctness standard. See Jeffs v. Stubbs, 970 P.2d 1234, 1244 (Utah 1998). Although questions of law are reviewed for correctness, we “may still grant a trial court discretion in its application of the law to a given fact situation.” Id. Questions of statutory interpretation are questions of law that are reviewed for correctness and no deference is given to the trial court’s determination. See Department of Pub. Safety v. Robot Aided Mfg. Ctr., Inc., 2005 UT App 199, ¶ 6, 113 P.3d 1014.

ANALYSIS

I. “Creditor” under the UFTA

¶ 12 The Fenleys first argue that the trial court erred by incorrectly classifying Jeanne as a creditor under the UFTA because she initially only threatened civil action and did not obtain a judgment until after Robert transferred his properties to Mary and Ralph. See Utah Code Ann. § 25-6-2(3), (4).

¶ 13 For the UFTA to apply, the statute requires a “creditor-debtor relationship.” Bradford v. Bradford, 1999 UT App 373, ¶ 14, 993 P.2d 887. The UFTA provides a remedy against debtors who seek to “defraud a creditor or avoid a debt.” Id. “[Transfers of property designed to place a debtor’s assets beyond the reach of the debt- or’s creditors are void as to the creditors.” National Loan Investors, L.P. v. Givens, 952 P.2d 1067, 1069 (Utah 1998) (citation and quotations omitted). Because the UFTA “is remedial in nature,” the Utah Supreme Court has held that the statute “should be liberally construed.” Id. The UFTA “broadly defines the word ‘creditor’ to mean any person who has a claim.” Id. (citing Utah Code Ann. § 25-6-2(4)). A “claim” is also broadly defined under the UFTA as 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.” Utah Code Ann. § 25-6-2(3).

¶ 14 Based on the broad definition of a claim under the UFTA and the direction from our supreme court to construe the statute liberally, we hold that Jeanne was “indeed, a creditor of [Robert], given that [her] claim to the [properties] — although not reduced to judgment [at the time] — had arisen through recent threats [of civil action].” Bradford, 1999 UT App 373 at ¶ 16, 993 P.2d 887. Jeanne’s numerous threats of suit and Robert’s awareness of probable legal action against him amount to a “claim” for purposes of the UFTA. See United States v. Green, 201 F.3d 251, 257 (3d Cir.2000) (citing Baker v. Geist, 457 Pa. 73, 321 A.2d 634 (1974), for the holding that mere “awareness of a probable legal action against a debtor amounts to a debt” for purposes of the Pennsylvania Uniform Fraudulent Conveyances Act); Bradford, 1999 UT App 373 at ¶ 16, 993 P.2d 887; 37 Am.Jur.2d Fraudulent Conveyances and Transfers § 3 (2001) (“The existence of a debt is a requirement for bringing a fraudulent conveyance action and generally speaking, the awareness of probable legal action against a debtor amounts to a ‘debt.’ ” (footnotes omitted)). The trial court found that “[w]hile the Plaintiff, Jeanne Tolle, did not file civil suit until February, 2002 in Florida and procure a judgment until September 24, 2004, the Plaintiff made her intentions clear to Robert Tolle and the other defendants prior to any transfers.” For purposes of the UFTA, Jeanne is therefore a creditor whose claim arose before Robert transferred the properties.

¶ 15 The Fenleys also argue that Jeanne’s Florida judgment does not qualify as a claim under the UFTA because it allegedly was sought in violation of Florida’s statute of limitations and obtained through the collusion of her half-sister.³ These arguments constitute collateral attacks on the Florida judgment. “The general rule of law is that a judgment may not be drawn in question in a collateral proceeding and an attack upon a judgment is regarded as collateral if made when the judgment is offered as the basis of a claim in a subsequent proceeding.” Olsen v. Board of Educ., 571 P.2d 1336, 1338 (Utah 1977). As a result, we do not consider these collateral attacks.

¶ 16 In his separate concurring opinion in this matter, Judge Thorne argues that, as a matter of uniformity, we should adopt Arizona’s approach. See Hullett v. Cousin, 204 Ariz. 292, 63 P.3d 1029 (2003). The concurring opinion cites Hullett for the proposition that a statute of limitations argument should not be considered a collateral attack on a previously entered judgment for purposes of the UFTA because “solvency is determined at the time of the transfer,” not at the time of the judgment. Id. at 1034.

¶ 17 We cannot adopt the Arizona approach in our case because the Full Faith and Credit Clause of the United States Constitution prevents us from reviewing the judgments of foreign states with proper adjudicatory authority, even if a foreign state has misinterpreted its own law. See U.S. Const. art. IV, § 1.⁴ Controlling precedent from the United States Supreme Court has differentiated between “the credit owed to laws (legislative measures and common law) and [the credit' owed] to judgments.” Baker v. GMC, 522 U.S. 222, 232, 118 S.Ct. 657, 139 L.Ed.2d 580 (1998). “Regarding judgments, however, the full faith and credit obligation is exacting. A final judgment in one State ... qualifies for recognition throughout the land.... [I]n other words, the judgment of the rendering State gains nationwide force.” Id. at 233, 118 S.Ct. 657 (emphasis added). The Supreme Court has stated that it is “ ‘aware of [no] considerations of local policy or law which could rightly be deemed to impair the force and effect which the full faith and credit clause and the Act of Congress require to be given to [a money] judgment outside the state of its rendition.’ ” Id. at 234, 118 S.Ct. 657 (alterations in original) (quoting Magnolia Petroleum Co. v. Hunt, 320 U.S. 430, 438, 64 S.Ct. 208, 88 L.Ed. 149 (1943)).

¶ 18 Whether a statute of limitations has run is a legal conclusion. See Estes v. Tibbs, 1999 UT 52, ¶ 4, 979 P.2d 823. In challenging such a determination, the challenging party’s “only recourse is to assert these legal arguments on direct review ...; it cannot raise these contentions in a collateral attack on the judgment.” Underwriters Nat'l Assurance Co. v. North Carolina Life & Accident & Health Ins. Guar. Ass’n, 455 U.S. 691, 710 n. 16, 102 S.Ct. 1357, 71 L.Ed.2d 558 (1982) (emphasis added). It is therefore not within the purview of the Utah courts to review the final judgment of a sister state.

¶ 19 It is important to note that Hullett is an Arizona case that addresses the viability of an Arizona default judgment. After setting forth its rationale, the Arizona Supreme Court remanded the case to the Arizona trial court to ascertain when the underlying claim accrued. See Hullett, 63 P.3d at 1035. Conversely, in our case, we are dealing with a Florida judgment. Not only does the Full Faith and Credit Clause require us to recognize the judgment, but we have no option in our case to remand the case to Florida for further proceedings. As a result, although the Arizona Supreme Court in Hullett was able to delve into and attack a default judgment entered in its own lower court, we are not at liberty to do so in this matter. Therefore, we cannot adopt the concurring opinion’s approach here.

II. Fraudulent Transfer

¶ 20 Under the UFTA, there are two distinct avenues under which a claim for a fraudulent transfer may be asserted: (1) if the creditor’s claim arose before or after the transfer, pursuant to Utah Code section 25-6-5, or (2) if the creditor’s claim arose before the transfer, pursuant to Utah Code section 25-6-6. See Utah Code Arm. §§ 25-6-5, -6. Section 25-6-5 provides that the debtor’s actual intent may be determinative in establishing whether a transfer is fraudulent under the UFTA. See id. § 25-6-5. Under section 25-6-6, the debtor’s actual intent is irrelevant and the focus is on whether the debtor received “reasonably equivalent value” for the transferred properties and whether the debtor is “insolvent at the time or became insolvent as a result of the transfer.” Id. § 25-6-6.

¶ 21 The trial court discussed the elements of both avenues and found that Robert had actual intent to fraudulently transfer properties pursuant to section 25-6-5. See id. § 25-6-5. The court also found that “[ejven without considering Robert Tolle’s intent, the transfer of the ... property was fraudulent” pursuant to section 25-6-6 because it rendered Robert insolvent and he did not receive reasonably equivalent value for the properties. See id. § 25-6-6.

A. Utah Code section 25-6-6

¶ 22 The debtor’s insolvency and evidence that reasonably equivalent value was not exchanged for the properties are necessary to establish a fraudulent transfer under section 25-6-6. Utah Code Ann. § 25-6-6. Under this section, Robert’s actual intent is not relevant to the question of fraudulent transfer, which the Fenleys concede in them brief. Section 25-6-6 states:

(1) 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:

(a) the debtor made the transfer or incurred the obligation without receiving a reasonably equivalent value in exchange for the transfer or obligation; and

(b) the debtor was insolvent at the time or became insolvent as a result of the transfer or obligation.

(2) A transfer made by a debtor is fraudulent as to a creditor whose claim arose before the transfer was made if the transfer was made to an insider for an antecedent debt, the debtor was insolvent at the time, and the insider had reasonable cause to believe that the debtor was insolvent.

Id.

¶ 23 A finding of “insolvency” is necessary before a fraudulent transfer can be established under section 25 — 6—6(1)(b) of the UFTA. Id. § 25 — 6—6(1)(b). A transfer by the debtor is fraudulent if, inter alia, “the debtor was insolvent at the time or became insolvent as a result of the transfer or obligation.” Id. The Fenleys argue that “[t]he fact that [Robert] had no assets did not, in itself[,] make him insolvent ... because [Robert] needed no assets in his circumstances.... He had no creditors nor obligations and his physical needs were being met, if meagerly, by the facility in which he was incarcerated.” The Fenleys, therefore, argue that Robert was solvent and that the UFTA does not apply. We disagree.

¶ 24 Under the UFTA, “[t]he level of insolvency necessary to meet the statute requirement is not insolvency in the bankruptcy sense but merely a showing that the party’s assets are not sufficient to meet liabilities as they become due.” Meyer v. General Am. Corp., 569 P.2d 1094, 1096 (Utah 1977) (emphasis added). In order to prove insolvency, a “balancing of assets and liabilities must be accomplished” and “[o]nly a showing that the debtor’s entire nonexempt property and assets are insufficient to pay his debts rises to the level of insolvency.” Furniture Mfrs. Sales, Inc. v. Deamer, 680 P.2d 398, 400 (Utah 1984) (footnotes omitted).

¶ 25 The trial court properly made this determination. As Robert transferred “all the property ... held in [his] name” and as “the transfer consisted of all or substantially all of [Robert’s] assets,” any moderate debt or liability would result in Robert’s insolvency. Jeanne’s civil action in Florida resulted in an actual judgment of $1,704,610.75, plus interest. This debt alone, although not reduced to judgment until later, is a claim under section 25-6-2(3) that rendered Robert insolvent for purposes of section 25-6-6(1)(b) of the UFTA. See Utah Code Ann. §§ 25-6-2(3), —6(1)(b). As a result of the properties transferred to Mary and Ralph, Robert was rendered an insolvent debtor.

¶ 26 Therefore, as no reasonably equivalent value was exchanged for the properties and Robert was insolvent, the court’s finding that Robert fraudulently transferred properties under section 25-6-6 is dispositive.

B. Utah Code section 25-6-5

¶ 27 Even if it could be said that Jeanne’s claim arose after Robert’s transfer of properties, the transfer would still constitute a fraudulent transfer under section 25-6-5. See Utah Code Ann. § 25-6-5. This section establishes that a fraudulent transfer exists whether “the creditor’s claim arose before or after the transfer was made or the obligation was incurred,” Id. (emphasis added). Section 25-6-5 provides that a transfer is fraudulent “if the debtor made the transfer or incurred the obligation ... with actual intent to hinder, delay, or defraud any creditor of the debtor.” Id. (emphasis added). Insolvency of the debtor, under this section, is not determinative and is only one of many factors for establishing actual intent. Section 25-6-5(2) further states that:

To determine “actual intent” ..., consideration may be given, among other factors, to whether:

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

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

[[Image here]]

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

(e) the transfer was of substantially all the debtor’s assets;

[[Image here]]

(h) 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;

(i) the debtor was insolvent or became insolvent shortly after the transfer was made or the obligation was incurred; [and]

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

Id. § 25-6-5(2). Furthermore, actual fraudulent intent may be “inferred [by] the presence of certain indicia of fraud or ‘badges of fraud.’” Dahnken, Inc. v. Wilmarth, 726 P.2d 420, 423 (Utah 1986) (citation omitted). These “badges of fraud” from which actual intent may be inferred, include, inter alia, a debtor “(1) continuing in possession and evidencing the perquisites of property ownership after having formally conveyed all his interest in the property, (2) making a conveyance in anticipation of litigation, and (3) making a conveyance to a family member without receiving fair consideration.” Id

¶ 28 The Fenleys argue that the evidence is insufficient for a finding of actual fraudulent intent under section 25-6-5. We disagree. The trial court found that Robert’s transfers included all of the badges of fraud indicated above and that the transfers constituted several of the factors for determining actual fraudulent intent under section 25-6-5(2).⁵ The trial court specifically found that:

Actual intent could be inferred from the facts that the transfer was to insiders under the statute, [that] Robert retained control over the property after the transfer, [that] Robert had been threatened with suit prior to the transfer, [that] the transfer consisted of all or substantially all of [his] assets, and [that] there was no consideration [given or received] for the transfer.

¶ 29 In reviewing the record, we agree with the trial court’s determination that Robert had actual fraudulent intent to transfer properties. Thus, regardless of whether Jeanne’s claim arose “before or after the transfer was made,” Robert’s transfer of properties also constitutes a fraudulent conveyance under section 25-6-5 of the UFTA. Id. § 25-6-5.

CONCLUSION

¶ 30 For purposes of the UFTA, Jeanne was a creditor who had a claim to the properties Robert transferred to Mary and Ralph. Robert’s transfer of properties constitutes a fraudulent transfer under both Utah Code sections 25-6-5 and 25-6-6. See Utah Code Ann. §§ 25-6-5, -6. As a result, the trial court properly voided the transfers.

¶ 31 Accordingly, we affirm.

¶ 32 I CONCUR: CAROLYN B. McHUGH, Judge.

1 . In fact, Robert owned several properties in Utah.

2 . Ralph wrote a letter to Robert advising him about the "best way to keep Jeanne from having access to [Robert’s] assets.” Sherry wrote to Robert, urging him to write her a letter giving her permission to keep Robert's most valuable items "so Jeanne could not get them." Mary wrote a letter to Robert, informing him that she felt that Jeanne was trying to "get Robert's money and property.”

3 . The Florida judgment was entered by default. Jeanne's half-sister served as the personal representative of Robert’s estate. No appeal was taken from that judgment and it is now final.

4 . Although the Florida default judgment was entered after the transfer, it precludes further speculation by this court about the validity of a hypothetical statute of limitations defense.

5 . The Fenleys argue that they are not "insiders” as set forth in section 25-6-5(2)(a), see Utah Code Ann. § 25-6-5(2)(a), because they are not relatives of Robert. As this is only one of several factors for determining actual fraudulent intent, even if the Fenleys are not "insiders," the evidence was sufficient for the trial court to find actual fraudulent intent.