Opinion
HHDCV126031292S.
12-17-2012
PEOPLE'S UNITED BANK v. Matthew D. LILLY et al.
UNPUBLISHED OPINION
ROBERT F. VACCHELLI, Judge.
This case is an action by the plaintiff, People's United Bank (People's), pursuant to the Connecticut Uniform Fraudulent Transfer Act, General Statutes § 52-552 et seq., seeking avoidance of the transfers of certain assets between a husband and wife allegedly made by the husband " with the actual intent of hindering, delaying or defrauding People's, and/or without receiving reasonable considerable value from defendant-transferee in exchange for the transfers." Revised Complaint, para. 21. The defendants are Matthew D. Lilly, the debtor, and his wife, Annette Lilly. The plaintiff has moved for summary judgment and requests a court order requiring Annette Lilly to transfer all of the subject assets back to Matthew Lilly. For the following reasons, the court grants the motion, in part, and enters summary judgment in favor of the plaintiff and against the defendants, in part, and enters specific orders as to the defendant, Annette Lilly, at the conclusion of this opinion.
The plaintiff also requested an order in the nature of an injunction prohibiting the future transfer of any assets between the husband and wife while the judgment debt remains unsatisfied. Inasmuch as that relief was not requested in the operative Revised Complaint, it cannot be considered. " [T]he right of a plaintiff to recover is limited to the allegations of his complaint ... A judgment upon an issue not pleaded would not merely be erroneous, but it would be void." (Citations omitted; internal quotation marks omitted.) Saye v. Howe, 92 Conn.App. 638, 642, 886 A.2d 1239 (2005).
I
The law governing summary judgment is well settled. As our Appellate Court has summarized:
Practice Book § [17-49] requires that judgment shall be rendered forthwith if the pleadings, affidavits and any other proof submitted show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law. A material fact is a fact that will make a difference in the result of the case ... The facts at issue are those alleged in the pleadings. (Citation omitted; internal quotation marks omitted.) Gohel v. Allstate Ins. Co., 61 Conn.App. 806, 809, 768 A.2d 950 (2001).
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In seeking summary judgment, it is the movant who has the burden of showing the nonexistence of any issue of fact. The courts are in entire agreement that the moving party for summary judgment has the burden of showing the absence of any genuine issue as to all the material facts, which, under applicable principles of substantive law, entitle him to a judgment as a matter of law. The courts hold the movant to a strict standard. To satisfy his burden the movant must make a showing that it is quite clear what the truth is, and that excludes any real doubt as to the existence of any genuine issue of material fact ... As the burden of proof is on the movant, the evidence must be viewed in the light most favorable to the opponent. (Citations omitted; internal quotation marks omitted.) Allstate Ins. Co. v. Barron, 269 Conn. 394, 405, 848 A.2d 1165 (2004).
It is frequently stated in Connecticut's case law that, pursuant to Practice Book §§ 17-45 and 17-46, a party opposing a summary judgment motion " must provide an evidentiary foundation to demonstrate the existence of a genuine issue of material fact." Harvey v. Boehringer Ingelheim Corp., 52 Conn.App. 1, 4, 724 A.2d 1143 (1999). As noted by the trial court in this case, typically " [d]emonstrating a genuine issue requires a showing of evidentiary facts or substantial evidence outside the pleadings from which material facts alleged in the pleadings can be warrantably inferred." (Internal quotation marks omitted.) New Milford Savings Bank v. Roina, 38 Conn.App. 240, 244, 659 A.2d 1226, cert. denied, 235 Conn. 915, 665 A.2d 609 (1995). Moreover, " [t]o establish the existence of a material fact, it is not enough for the party opposing summary judgment merely to assert the existence of a disputed issue ... Such assertions are insufficient regardless of whether they are contained in a complaint or a brief ... Further, unadmitted allegations in the pleadings do not constitute proof of the existence of a genuine issue as to any material fact." (Citations omitted; internal quotation marks omitted.) Id., at 244-45.Rockwell v. Quintner, 96 Conn.App. 221, 227-29, 899 A.2d 738, cert. denied, 280 Conn. 917, 908 A.2d 538 (2006).
The Practice Book further mandates that " [a]ny adverse party shall at least five days before the date the motion is to be considered on short calendar file opposing affidavits and other available documentary evidence. Affidavits, and other documentary proof not already part of the file, shall be filed and served as are pleadings." Practice Book § 17-45. " Supporting and opposing affidavits shall be made on personal knowledge, shall set forth such facts as would be admissible in evidence, and shall show affirmatively that the affiant is competent to testify to the matters stated therein. Sworn or certified copies of all papers or parts thereof referred to in an affidavit shall be attached thereto." Practice Book § 17-46.
II
Based on a review of the plaintiff's affidavits with exhibits and deposition transcript excerpts; and the defendant Matthew Lilly's affidavit with exhibit, the court finds that the following material facts are not in genuine dispute: On July 23, 2008, New Park 151, LLC (New Park) executed a promissory note payable to the Bank of Western Massachusetts (BWM) in the principal amount of $3, 020, 000.00 together with interest payable at a fixed rate per annum of 6.86 per cent. The defendant, Matthew D. Lilly, was, and he still is, the sole owner and managing member of New Park, and he signed the note for the company. The note provided that New Park was obligated to pay BWM 119 regular monthly payments commencing on August 23, 2008, with a final, additional payment due to BWM on July 23, 2018. It further provided that a failure to make any payment when due would be an event of default, and that New Park would agree to pay all costs of collection, including reasonable attorneys fees incurred in collecting on the note.
On July 23, 2008, Matthew Lilly also signed a commercial guaranty whereby he personally guaranteed payment of the indebtedness owed by New Park to BWM under and pursuant to the note. The terms of the guaranty provided that Lilly guaranty and promise to pay BWM all indebtedness of New Park, including all principal, interest, late charges, attorneys fees, collection costs and expenses.
The plaintiff, People's, subsequently merged with BWM and it is now the owner and holder of the note.
Since May 2011, New Park has failed to make payments under the note.
On or about June 14, 2011, Matthew Lilly transferred various assets (subject assets) to his wife, the defendant, Annette Lilly. Specifically, he transferred land with a cottage on a lake that he owned, located on 21 Chestnut Lane, Otis, Massachusetts, to her by quitclaim deed for the stated consideration of " less than $100.00." Annette Lilly was not represented separately in that transaction. In that same time frame, he also transferred the assets of his Genworth Mutual Fund account to his wife. Also, he transferred all or some of his assets in his Vanguard Mutual Fund Account to his wife's Vanguard Mutual Fund Account. Finally, he transferred 49 per cent of his ownership interest in Electec, Inc. to his wife. No actual financial consideration was given for any of those transactions. As Annette Lilly explained, " I believe, in a marriage, my money is his money and his money is mine. You don't pay."
At or around the time of those transfers, Matthew Lilly understood that New Park was in default and that he was personally obligated, under the guaranty, to pay the debt. He also knew that, at that time, he was " in the red, " i.e., that he was " insolvent." That is his current financial status.
On August 15, 2011, People's notified both New Park and Lilly that demand was being made under the note and guaranty for immediate payment in full of the entire unpaid balance of the note, together with unpaid interest, late charges and costs of collection. On September 7, 2011, People's filed suit against Matthew Lilly for breach of guaranty. Judgment entered against Lilly, on July 9, 2012, in the amount of $3, 156, 682.95. Despite demand, New Park and Lilly have failed to pay People's the amount owed.
The fair market value of the Otis property, as of the spring of 2012, was approximately $600, 000.00 to $650, 000.00. It is encumbered by a first mortgage held by the plaintiff bank with a balance of $787, 220.62 as of the October 2012, billing statement.
Despite those financial circumstances, the defendant, Michael Lilly, avers that he effectuated the transfers of the subject assets for unspecified personal financial planning reasons. He denies any fraudulent intent or purpose to prevent the plaintiff from collecting its debt.
III
Plaintiff's action is pursuant to the Connecticut Uniform Fraudulent Transfer Act. In particular, plaintiff asks the court to order that the subject assets be transferred back to the defendant debtor because the transfers were accomplished in violation of General Statutes §§ 52-552e(a)(1) and 552f(a) of the Act. General Statutes § 52-552e provides, in pertinent part, as follows:
(a) A transfer made or obligation incurred by a debtor is fraudulent as to a creditor, if the creditor's claim arose before the transfer was made or the obligation was incurred and if the debtor made the transfer or incurred the obligation: (1) With actual intent to hinder, delay or defraud any creditor of the debtor ...
(b) In determining actual intent under subdivision (1) of subsection (a) of this section, consideration may be given, among other factors, to whether: (1) The transfer or obligation was to an insider, (2) the debtor retained possession or control of the property transferred after the transfer, (3) the transfer or obligation was disclosed or concealed, (4) before the transfer was made or obligation was incurred, the debtor had been sued or threatened with suit, (5) the transfer was of substantially all the debtor's assets, (6) the debtor absconded, (7) the debtor removed or concealed assets, (8) the value of the consideration received by the debtor was reasonably equivalent to the value of the asset transferred or the amount of the obligation incurred, (9) the debtor was insolvent or became insolvent shortly after the transfer was made or the obligation was incurred, (10) the transfer occurred shortly before or shortly after a substantial debt was incurred, and (11) the debtor transferred the essential assets of the business to a lienor who transferred the assets to an insider of the debtor.General Statutes § 52-552e .
General Statutes § 52-552f(a) provides as follows:
(a) A transfer made or obligation incurred by a debtor is fraudulent as to a creditor whose claim arose before the transfer was made or the obligation was incurred if the debtor made the transfer or incurred the obligation without receiving a reasonably equivalent value in exchange for the transfer or obligation and the debtor was insolvent at that time or the debtor became insolvent as a result of the transfer or obligation.General Statutes 52-552f(a).
Our Appellate Court recently summarized the elements for plaintiff's cause of action as follows:
" A party alleging a fraudulent transfer or conveyance under the common law bears the burden of proving either: (1) that the conveyance was made without substantial consideration and rendered the transferor unable to meet his obligations or (2) that the conveyance was made with a fraudulent intent in which the grantee participated ... The party seeking to set aside a fraudulent conveyance need not satisfy both of these tests ... These are also elements of an action brought pursuant to General Statutes §§ 52-552e(a) and 52-552f(a)." (Citations omitted; internal quotation marks omitted.) Certain Underwriters at Lloyd's, London v. Cooperman, 289 Conn. 383, 394-95, 957 A.2d 836 (2008); see also Wieselman v. Hoeniger, 103 Conn.App. 591, 596, 930 A.2d 768, cert. denied, 284 Conn. 930, 934 A.2d 245 (2007); Litchfield Asset Management Corp. v. Howell, 70 Conn.App. 133, 140-41, 799 A.2d 298, cert. denied, 261 Conn. 911, 806 A.2d 49 (2002); see generally M. Taylor & D. Krisch, supra, at pp. 20, 112-13.
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At this point, we address the differences between the common-law cause of action for a fraudulent transfer and the statutory action under § 52-552e. In Robinson v. Coughlin, 266 Conn. 1, 9, 830 A.2d 1114 (2003), our Supreme Court noted that although the statute is largely an adoption and clarification of the standards of the common law of fraudulent conveyances, it is not a wholesale codification. See also Hamrah v. Emerson, Superior Court, judicial district of Fairfield, Docket No. CV-05-4012872 (August 20, 2009) (noting subtle differences in remedies between statutory and common-law actions).
In Wieselman v. Hoeniger, supra, 103 Conn.App. at 591, this court identified a distinction between the statutory and common-law cause of action for fraudulent conveyance significant to this appeal. ‘ [Section] 52-552e(a) provides in relevant part that [a] transfer made or obligation incurred by a debtor is fraudulent as to a creditor ... if the debtor made the transfer or incurred the obligation: (1) With actual intent to hinder, delay or defraud any creditor of the debtor ... Prior to the adoption of the act, the plaintiff had to prove (1) that the transferor had intent to defraud the creditor and (2) that the transferee shared in the transferor's fraudulent intent ... The plain language in § 52-552e addresses the fraudulent intent of the debtor and makes no mention of the fraudulent intent of the transferee. ’ (Citation omitted; emphasis added; internal quotation marks omitted.) Id., at 598-99.Kosiorek v. Smigelski, 138 Conn.App. 695, 725-26 (2012).
" [T]he determination of the question of fraudulent intent is clearly an issue of fact which must often be inferred from the surrounding circumstances ... Such a fact is, then, not ordinarily proven by direct evidence, but rather, by inference from other facts proven— the indicia or badges of fraud." (Citations omitted; internal quotation marks omitted.) Dietter v. Dietter, 54 Conn.App. 481, 487, 737 A.2d 481 cert. denied, 252 Conn. 906, 743 A.2d 617 (1999). " A party who seeks to set aside a transfer as fraudulent bears the burden of proving fraudulent intent by clear and convincing evidence." Id. at 488. " Fraudulent intent must be proved, if at all, by clear, precise and unequivocal evidence ... This standard of proof applies to intrafamilial conveyances." (Citations omitted, internal quotation marks omitted .) Watson v. Watson, 221 Conn. 698, 707, 607 A.2d 383 (1992).
A
Plaintiff argues that the transfers were fraudulent under General Statutes § 52-552e(a)(1) because the facts demonstrate that the claim against the defendant-debtor arose before the transfer of the subject assets in June 2011, because New Park defaulted in May 2011. Furthermore, the defendant's transfer was (1) to his wife, an insider, (2) for no consideration, (3) after default, (4) when the defendant-debtor was insolvent, (5) shortly before payment was demanded and suit was filed. The court finds that the material facts clearly and convincingly support its allegations on those points.
" Insider" includes: " (A) If the debtor is an individual, (i) a relative of the debtor ..." General Statutes § 52-552b(7). " Relative" means: " ... a spouse ..." General Statutes § 52-552b(11).
A transfer is fraudulent if it was not made for reasonably equivalent value under the Act. General Statutes §§ 52-552e(b)(8), 552f(a). The Act further defines value as follows:
" (a) A debtor is insolvent if the sum of the debtor's debts is greater than all of the debtor's assets at a fair valuation. (b) A debtor who is generally not paying his debts as they become due is presumed to be insolvent." General Statutes § 52-552c.
The defendants, nevertheless, argue that summary judgment should be denied because there are genuine issues of material fact with respect to whether the plaintiff can prove that the transfers were fraudulent under the Act. Specifically, they argue that the plaintiff can only prove one of the " badges of fraud" codified in the Act. i.e., transfer to an insider. General Statutes § 52-552e(b)(1). They argue that the court should require the demonstration of more than a singular badge before finding fraud.
The legal argument has merit, but the facts do not help the defendants. The statute specifies that in determining actual intent, " consideration may be given, among other factors, to [eleven factors listed]." General Statutes § 52-552e(b). " The principles that govern statutory construction are well established. When construing a statute, [o]ur fundamental objective is to ascertain and give effect to the apparent intent of the legislature ... In other words, we seek to determine, in a reasoned manner, the meaning of the statutory language as applied to the facts of [the] case, including the question of whether the language actually does apply ... In seeking to determine that meaning, General Statutes § 1-2z directs us first to consider the text of the statute itself and its relationship to other statutes. If after examining such text and considering such relationship, the meaning of such text is plain and unambiguous and does not yield absurd or unworkable results, extratextual evidence of the meaning of the statute shall not be considered ... When a statute is not plain and unambiguous, we also look for interpretive guidance to the legislative history and circumstances surrounding its enactment, to the legislative policy it was designed to implement, and to its relationship to existing legislation and common law principles governing the same general subject matter ..." (Citations omitted; internal quotation marks omitted.) Grady v. Somers, 294 Conn. 324, 333, 984 A.2d 684 (2009). The subject statute in this case is not ambiguous. By its plain language, it does not require that multiple factors be found by the court before fraudulent intent can be found. It does not prohibit the consideration of other factors. Nor does it codify any single factor as sufficient evidence of fraud. But that is not the intent of the statute. Rather, it is a non exclusive listing of appropriate considerations:
Subsection (b) is a non exclusive catalogue of factors appropriate for consideration by the court in determining whether the debtor had an actual intent to hinder, delay or defraud one or more creditors. Proof of the existence of any one or more of the factors enumerated in subsection (b) may be relevant evidence as to the debtor's actual intent but does not create a presumption that the debtor has made a fraudulent transfer ... The fact that a transfer has been made to a relative ... has not been regarded as a badge of fraud sufficient to warrant avoidance when unaccompanied by any other evidence of fraud ... The courts have uniformly recognized, however, that a transfer to a closely related person warrants close scrutiny of the other circumstances, including the nature and extent of the consideration exchanged.Comment 5 to Sec 4, Uniform Fraudulent Transfer Act, 7A Uniform Laws Annotated, Pt. II, pp. 59-60, cited with approval in Bank of Boston v. Lecuyer, Superior Court, judicial district of Waterbury, Doc. No. CV 019617 (November 23, 1994, Vertefeuille, J.).
Thus, a transfer to a spouse is one of the factors, and it has been observed that this statute is an example of the special scrutiny required in cases of suspicious transactions involving spouses. Cf. 418 Meadow Street Associates, LLC v. Clean Air Partners, LLC, 304 Conn. 820, 833 (2012).
In the instant case, the court finds that fraudulent intent is indicated by reason of the transfer to an insider— the defendant's wife— because there are several other badges of fraud present in this case. The material facts not in dispute signal fraudulent intent under the factors identified in General Statutes §§ 52-552e(b)(2), (4), (7), (8) and (9) as well as under category (1). It is based on this combination that the court finds fraudulent intent.
Defendants also argue that summary judgment should be denied because the plaintiff has failed to introduce any evidence demonstrating Annette's knowledge of the debt owed to plaintiff by Matthew, or that the subject transfers were made to hinder, delay or defraud Matthew's creditors. The argument is not relevant. As noted above, it was held recently that, under the Act, " there is no requirement for fraudulent intent with respect to the transferees." See Kosiorek v. Smigelski, supra, 138 Conn.App. at 727.
Accordingly, the court finds that the plaintiff has demonstrated that the material facts are not in dispute and that the plaintiff is entitled to a judgment as a matter of law as to its claim under General Statutes § 52-552e(a)(1). The transfers were made with the intention to place the property in question beyond the reach of the plaintiff-creditor. The property was transferred after the plaintiff's claim arose, and with actual intent to hinder, delay or defraud the plaintiff. This was demonstrated by clear and convincing evidence.
B
Plaintiff argues that the same nucleus of facts proves its claim under General Statutes § 52-552f(a). Plaintiff argues that the transfers were fraudulent under that section because People's claim arose before the transfer of the subject assets in June 2011. Second, the transfers were not made for reasonably equivalent value. Finally, it argues that the defendant debtor was insolvent at that time by his own admission and by evidence of the fact that he did not pay on his guaranty. The court finds that the material facts clearly and convincingly support plaintiff's allegations on those points.
Defendants, nevertheless, argue that the plaintiff has not demonstrated that Matthew Lilly was insolvent at the time that the subject transfers were made. They argue that his answers to certain questions during his deposition on point do not show admission, but show that he misunderstood the question. The court does not agree. At his deposition, the defendant testified as follows:
Q. And so when New Park 151, LLC was in default in May of 2011, you knew that you were obligated under your guaranty to make payment to the bank; correct?
A. Yes.
Q. And then, do you know what it means to be solvent or insolvent? Does that make sense to you?
A. Yeah.
Q. What does it mean to be solvent?
A. Solvent means you are in the black, so to speak. Insolvent would say you are in the red, to me.
Q. So sitting here today, would you say that you personally are solvent or insolvent? Are you in the black or in the red?
A. I'm in the red.
Q. And that's in large part because of the guaranty obligation to People's, correct?
A. Yes.
Q. It's somewhere north of $2 million now?
A. Yes.
Q. 2.5, say. Do you know the exact amount?
A. No, I don't. But it sounds right.
Q. As so you are insolvent or in the red because of that obligation that we are here on today; correct?
A. Correct
Q. And you were also in the red in June of 2011, correct? Because the default occurred in May.
A. Okay.
Q. Yes or no?
A. Yes.
Q. You would agree with it?
A. Okay.
Deposition of Matthew D. Lilly, February 7, 2012, pp. 59-60.
The witness's evaluation of his financial circumstance was candid and clear. He admitted he was in the red. He admitted he was insolvent.
The word " red" in this context means: " The condition of being in debt or operating at a loss: The firm has been in the red all year." The American Heritage Dictionary (5th Ed.2011).
Accordingly, the court finds that the plaintiff has demonstrated that the material facts are not in dispute and that the plaintiff is entitled to a judgment as a matter of law as to its claim under General Statutes § 52-552f(a). The transfers were made with the intention to place the property in question beyond the reach of the plaintiff-creditor. The property was transferred by the defendant after the plaintiff's claim arose, and without receiving a reasonably equivalent value in exchange for the transfers, and the debtor was insolvent at that time. This was demonstrated by clear and convincing evidence.
C
Finally, the defendants argue that the motion should be denied because there are genuine issues of material fact as to whether the subject assets come within the purview of the Act. Defendants correctly point out that in order for a property transfer to be deemed fraudulent under the Act, the property must be considered an asset of the debtor. Under General Statutes § 52-552b(2), an " asset" is defined as " property of a debtor, but the term does not include: (A) Property to the extent it is encumbered by a valid lien ..." A " valid lien" is define as " a lien that is effective against the holder of a judicial lien subsequently obtained by legal or equitable process or proceedings." General Statutes § 52-552b(13). " Thus, a transfer cannot be considered fraudulent if, at the time of the transfer, the transferred property is encumbered by valid liens exceeding the property's value because the property would no longer be considered an asset under § 52-552(b)(2), and only assets may be transferred fraudulently." (Citation omitted.) National Loan Investors, L.P. v. World Properties, LLC, 79 Conn.App. 725, 732, 830 A.2d 1178 (2003), cert. denied, 267 Conn. 910, 840 A.2d 1173 (2004). Whether there was equity in the property to permit it to be classified as an asset subject to the Act is measured at the time of the transfer of the subject property. Id. at 733. In the instant case, the defendants do not supply financial information of the value of the equity in the Otis property as of June 14, 2011, but they have supplied sufficient current information to raise a genuine issue of material fact as to whether there was equity in the property at that prior time. Therefore, the court denies the plaintiff's motion with respect to the Otis property. Defendants present no information to doubt the applicability of the Act as to the other subject assets.
IV
For all of the foregoing reasons, the court grants the plaintiff's motion for summary judgment, in part, and enters judgment in favor of the plaintiff as to all of the subject assets, except the Otis, Massachusetts real estate. The defendant, Annette Lilly, is ordered to transfer back to the defendant, Matthew Lilly, the remaining subject assets to the extent necessary to satisfy the creditor's claim. As to all other requests and claims, the plaintiff's motion is denied.
Value. (a) Value is given for a transfer or an obligation if, in exchange for the transfer or obligation, property is transferred or an antecedent debt is secured or satisfied, but value does not include an unperformed promise made otherwise than in the ordinary course of the promisor's business to furnish support to the debtor or another person.
(b) For the purposes of subdivision (2) of subsection (a) of section 52-552e and section 52-552f, a person gives a reasonably equivalent value if the person acquires an interest of the debtor in an asset pursuant to a regularly conducted, noncollusive foreclosure sale or execution of a power of sale for the acquisition or disposition of the interest of the debtor upon default under a mortgage, deed of trust or security agreement.
(c) A transfer is made for present value if the exchange between the debtor and the transferee is intended by them to be contemporaneous and is in fact substantially contemporaneous.General Statutes § 52-552d.