You can
search the entire site.
or go to the recent opinions, or the chronological or subject indices.
D. Summers v. W. Hagen (5/28/93), 852 P 2d 1165
<![CDATA[
Notice: This is subject to formal
correction before publication in the Pacific
Reporter. Readers are requested to bring
typographical or other formal errors to the
attention of the Clerk of the Appellate
Courts, 303 K Street, Anchorage, Alaska
99501, in order that corrections may be made
prior to permanent publication.
THE SUPREME COURT OF THE STATE OF ALASKA
DONALD L. SUMMERS, )
) Supreme Court File Nos.
) S-3589/S-3617
Appellant/ ) Superior Court File No.
Cross-Appellee, ) 4FA-87-1476 Civil
)
v. ) O P I N I O N
)
WILLIAM E. HAGEN, )
) [No. 3961 - May 28, 1993]
Appellee/ )
Cross-Appellant. )
______________________________)
Appeal from the Superior Court of the
State of Alaska, Fourth Judicial District,
Fairbanks, Richard D. Savell, Judge.
Appearances: Jeri L. Bidinger and Susan
D. Mack, James T. Stanley Corporation, P.C.,
Anchorage, for Appellant/Cross-Appellee.
Woody Brooks, Bradbury, Bliss & Riordan,
Fairbanks, and A. Michael Zahare and Maryanne
Boreen, Bradbury, Bliss & Riordan, Anchorage,
for Appellee/Cross-Appellant.
Before: Moore, Chief Justice,
Rabinowitz, Burke, Matthews, and Compton,
Justices.
MOORE, Chief Justice.
This dispute arises from an action brought by William
E. Hagen against Donald L. Summers, alleging that Summers
participated in a fraudulent conveyance scheme with Jerald C.
Briske, a debtor of Hagen's. After Summers consented to entry of
judgment on four fraudulent conveyance counts, both parties moved
for partial summary judgment on the remaining count, conspiracy
to fraudulently convey property, a novel theory of liability in
Alaska. The superior court ruled in favor of Hagen and held a
trial on the issue of damages.
Summers appeals the grant of partial summary judgment
on two grounds. First, he argues that no cause of action exists
for participating in a scheme to fraudulently convey property.
Next, Summers argues that even if the cause of action exists, the
superior court should not have construed his consent to entry of
judgment on the fraudulent conveyance counts as a stipulation to
the factual assertions therein. Hagen cross-appeals on the
issues of damages and attorney fees. We reverse, holding that a
cause of action exists but that Summers' consent to entry of
judgment did not bind him to the factual assertions in Hagen's
complaint.
I. FACTS AND PROCEEDINGS
In 1984 Hagen sold Briske a parcel of real property
located in Fairbanks. In exchange for the property, Briske gave
Hagen a deed of trust note to secure the principal amount of
$200,000. Briske defaulted on the note in November 1986.
Shortly before defaulting on his obligation to Hagen, Briske
executed fourteen quitclaim deeds conveying seventeen parcels of
real property.1 The grantees included members of Briske's family
and Summers, Briske's long-time business partner. Briske made
each of the conveyances in consideration of ten dollars. Summers
alleges the conveyances to him were made for valuable
consideration.
In early 1987, Hagen brought an action against Briske
to reduce the note to judgment and to foreclose the deed of
trust.2 In May 1987, Hagen obtained a default judgment against
Briske for $182,014.84.
In August 1987, Hagen brought this action in superior
court against Briske, the other nominal grantors and Summers.
Hagen asked the court to: (1) set aside Briske's conveyances to
Summers as fraudulent conveyances under the Alaska Fraudulent
Conveyance Act, AS 34.40.010; (2) enter a decree against the
properties attaching Hagen's judgment lien against Briske; and
(3) award damages against Summers for conspiring in the
fraudulent conveyance. Hagen identified four parcels of land
that Briske allegedly had fraudulently conveyed to Summers.
Hagen alleged Briske made these conveyances to defraud Hagen and
other creditors by making Briske insolvent. Hagen based his
claim for damages caused by the fraudulent conveyances on a civil
conspiracy theory.
In January 1988, during the pendency of the lawsuit,
Briske filed for protection under Chapter 11 of the Bankruptcy
Code. The superior court promptly stayed Hagen's action as to
Briske as required under 11 U.S.C. 362(a). The court allowed
the case against Summers to continue.
On April 13, 1988, Hagen instituted an adversary
proceeding against Briske and Summers in the bankruptcy case. In
the complaint, Hagen asked the court to declare the conveyances
of the four parcels void and to find that Briske's debt to Hagen
was secured by those parcels.3
Before the superior court, Summers offered to quitclaim
all properties he received in September 1986 to the respective
grantors, conceding the superior court probably would find that
Briske's transfers of property to him were fraudulent
conveyances. Summers noted this was "not an admission of
wrongdoing on [his] part." At the pretrial conference, Summers
reiterated his intent to reconvey the four parcels to the
grantors to moot the issues raised by the fraudulent conveyance
counts of Hagen's complaint.
Hagen moved to enjoin Summers from reconveying the
property to the grantors, presumably to keep them out of the
bankruptcy proceeding. Briske's lawyer then advised the court
that the unsecured creditors committee had moved for reconveyance
of the four parcels in the bankruptcy proceeding, thus creating
"a collision regarding federal and state law if [Hagen's] motion
would be granted prohibiting [Summers] from conveying those
properties back."
After a discussion between the superior court and the
parties concerning the effect of such an action, Summers
stipulated to entry of judgment on the four fraudulent conveyance
counts. The court entered final judgment in favor of Hagen on
those counts. The court ruled that the purported transfers of
the four parcels were "fraudulent conveyance[s]" and "void
against Plaintiff William E. Hagen"and that the parcels are
"held by Defendant Donald L. Summers subject to the lien of the
Default Judgment entered in favor of Plaintiff William E. Hagen."
Summers then moved for partial summary judgment on the
remaining count of the complaint, the conspiracy claim, on the
ground that Hagen's remedy was limited to voiding the transfer.
Hagen opposed the motion and requested that summary judgment be
entered against Summers as to liability on the conspiracy claim
on the basis of his stipulation to judgment on the fraudulent
conveyance counts of the complaint. The court denied Summers'
motion and granted partial summary judgment in favor of Hagen.
The court limited Hagen's damages to the lesser of the value of
one of the parcels, Parcel IV, or the uncollected balance of the
debt. Apparently, the parties stipulated at oral argument on the
summary judgment motion that the property value of one of the
land parcels (Parcel IV) exceeded the balance of the debt.
The sole issue at trial was the amount of the
uncollected balance of Hagen's default judgment against Briske in
light of Hagen's earlier settlement with the bank. The court
determined that the uncollected balance, and thus the amount of
damages Hagen was entitled to recover, was $73,178.73. This
calculation is not challenged on appeal.
II. STANDARD OF REVIEW
In reviewing a grant of summary judgment, we
must determine whether a genuine issue of material fact
exists and, if not, whether the moving party is entitled to
judgment as a matter of law. Zeman v. Lufthansa German
Airlines, 699 P.2d 1274, 1280 (Alaska 1985). In reviewing
the trial court's findings of fact based upon a non-
testimonial record, we are free to reach an independent
conclusion based on the same record of undisputed facts
presented below. Yukon Equip., Inc. v. Fireman's Fund Ins.
Co., 585 P.2d 1206, 1210 (Alaska 1978). When reviewing
questions of law, we are not bound by the lower court's
view; in such cases, we may apply our independent judgment.
See 22,757 Sq. Ft., More or Less v. State, 799 P.2d 777, 778
(Alaska 1990). Our duty is to adopt the rule of law which
is most persuasive in light of precedent, policy and reason.
Guin v. Ha, 591 P.2d 1281, 1284 n.6 (Alaska 1979).
III. DISCUSSION
A. Participation in a Fraudulent Conveyance Scheme
Summers argues the superior court's grant of partial
summary judgment in favor of Hagen on the issue of liability
should be reversed as a matter of law. He argues that a creditor
has no cause of action against a grantee of the debtor's property
for participation in a fraudulent conveyance scheme. He also
argues that creditors' rights should be strictly limited to the
remedy provided for by the Fraudulent Conveyances Act, AS
34.40.010. Alaska Statute 34.40.010 reads in part, a "conveyance
. . . made with the intent to hinder, delay, or defraud creditors
. . . is void."
Although Summers' position is the majority rule,4
Milton Roberts, Annotation, Right of Creditor to Recover Damages
for Conspiracy to Defraud Him of Claim, 11 A.L.R.4th 345, 350,
359-81 (1982), we find the minority rule better reasoned. It
allows one who has been legally harmed to recover damages from
the party causing the harm where the existing equitable remedy of
voiding the transfer is inadequate.
The Arizona Court of Appeals articulated the minority
rule in McElhanon v. Hing, 728 P.2d 256 (Ariz. App. 1985),
vacated in part on other grounds, 728 P.2d 273 (Ariz. 1986),
cert. denied, 481 U.S. 1030 (1987). In McElhanon, the court
relied on the public policy behind the Uniform Fraudulent
Conveyance Act to hold that "a lien is not necessary before there
is an actionable wrong." Id. at 263. McElhanon expressly relied
on Dalton v. Meister, 239 N.W.2d 9, 17-19 (Wis. 1976), which held
that because the Uniform Fraudulent Conveyance Act made
fraudulent conveyances of the debtor's property to the grantee a
definite legal wrong, that wrong could be the subject of a civil
conspiracy.5 McElhanon, 728 P.2d at 263.
We hold that to prove liability for participation in a
fraudulent conveyance scheme, a plaintiff must establish:
(1) An unlawful agreement;
(2) The specific intent of each
participant in the scheme to hinder,
delay and defraud a creditor of one who
participated in the scheme;
(3) Acts committed pursuant to the
unlawful agreement;
(4) Damages caused by the acts
committed pursuant to the unlawful
agreement.
See McElhanon, 728 P.2d at 266.
The party against whom damages are
claimed must be guilty of actual fraud, as
opposed to constructive fraud. That is, [the
party against whom damages are claimed] must
know that the transfer will leave the debtor
insolvent, that the transfer is for less than
fair value, and that the purpose of the
transfer is to hinder, delay, or defraud the
. . . creditor-plaintiff.6
McElhanon, 728 P.2d at 273.
B. Damages
The superior court limited Hagen's damages to the
lesser of the value of Parcel IV at the time of the fraudulent
conveyance or the uncollected balance of the 1987 default
judgment against Briske. Hagen argues this limitation was error.
He argues his damages include the incidental costs of tracking
down the property and attempting to set aside the fraudulent
conveyance and the portion of the original debt which the
fraudulent conveyance has made uncollectible. These expenses
included interest on a loan from a "high-risk loan company,"
attorney fees, damages for emotional distress and exemplary
damages.
In McElhanon v. Hing, the Arizona Court of Appeals
discussed the appropriate damage award for participating in a
fraudulent conveyance scheme. 728 P.2d at 263. The court noted
that damages should only be used where Uniform Fraudulent
Conveyance Act remedies are inadequate.7 Id. The court held:
the common law action for damages
against a conspirator in a fraudulent
conveyance is the value of the property
fraudulently transferred or the amount of the
debt, whichever is less. Our formulation of
damages is similar to the result reached by
the courts exercising their powers in equity
to award money damages against a fraudulent
transferee.
Id. at 264.
We agree with the McElhanon rule. If the fraudulent
conveyance remedy, i.e., voiding the transfer as to the creditor,
is adequate, the plaintiff is not entitled to damages. If
voiding the transfer is inadequate, however, the plaintiff is
entitled to damages equalling the lesser of the value of the
property fraudulently transferred or the amount of the debt. The
value of the fraudulently transferred property should be
determined as of the time of the fraudulent transfer or when the
creditor reduces the debt to judgment, whichever occurs later.
Because the underlying debt sounds in contract, not in
tort, exemplary damages and damages for emotional distress are
not authorized. Interest and attorney fees are allowable to the
extent authorized under Alaska Civil Rules 78(e) and 82.
Additional awards for interest and attorney fees are not
allowable, as they would constitute double-dipping.
C. Consequences of Stipulation to Entry of Judgment on the
Fraudulent Conveyance Counts.
Summers argues that, even if a cause of action exists
for participating in a fraudulent conveyance scheme, the court
erred in holding him liable on this count. According to Summers,
the superior court improperly treated his consent to entry of
judgment for Hagen on the fraudulent conveyance counts as a
stipulation to the factual allegations therein.8 We agree with
Summers, and reverse.
In his pretrial memorandum, Summers
concluded that it is more likely than
not that the Court would find the conveyances
of [the four parcels] to him were in
violation of AS 34.40.010 et seq. and thus
that Briske would not prevail on these issues
in either this case (and the companion
adversary proceeding) or the adversary
proceeding with Briske's unsecured creditors.
. . .
This is not an admission of
wrongdoing on Summers' part. Among other
things, he gave valuable consideration for
these parcels.
Summers originally did not wish to consent to entry of judgment
on the fraudulent conveyance counts. Rather, he wanted to moot
the counts by reconveying the properties in question back to
their original grantors (Briske, Briske and Mrs. Briske, or the
Peanut Farm).
Hagen moved to enjoin Summers from reconveying the
properties to the original grantors. He hoped to keep the
properties out of the Briskes' bankruptcy estates. As a
compromise, Summers consented to entry of judgment on the
fraudulent conveyance counts.
Given these circumstances, we hold that Summers
consented only to the entry of judgment for Hagen on the
fraudulent conveyance counts, not to the factual allegations
therein. The superior court's subsequent reliance on the
allegations in granting partial summary judgment in favor of
Hagen on the issue of liability on the conspiracy count was
error. See Shlakman v. Board of Higher Educ., 161 N.Y.S.2d 529,
534 (N.Y. Sup. Ct. 1957) ("Consent to entry of judgment implies
that the terms and conditions have been agreed on and consent
thereto given in open court or by stipulation, and the court has
no power to supply terms, provisions, or essential details not
previously agreed to by the parties." (quoting 49 C.J.S.
Judgments 173)).
D. Attorney Fees
Hagen argues the superior court's attorney
fee award of $9,817.87 was too low because the superior
court did not consider the four fraudulent conveyance
counts in its calculation. Because we reverse on other
grounds, we need not address this issue.
REVERSED and REMANDED. The attorney fee award is
VACATED.
_______________________________
1. The actual grantors were Briske alone, Briske and Mrs.
Briske, or the Peanut Farm, Inc. (a now dissolved Alaska
corporation).
2. The foreclosure action was dismissed as a result of a
settlement between Hagen and Alaska Mutual Bank (which later
became Alliance Bank), another lienholder on the property. Hagen
disputed the validity of a subordination agreement purporting to
subordinate his deed of trust to Alaska Mutual Bank's deed of
trust. In the settlement, Hagen sold his deed of trust to Alaska
Mutual Bank for $150,000.
3. In October 1990 we stayed the present appeal pending
completion of the bankruptcy proceedings (In re Jerald C. Briske,
No. A88-00011 (Bankr. D. Alaska, filed January 4, 1988)). On
September 18, 1992, the bankruptcy court authorized Hagen to
proceed in state court against Summers and his property, noting
that "no . . . bankruptcy stay exists with respect to Mr. Summers
or his property." Based on the bankruptcy order, we ordered the
stay of this appeal lifted on October 9, 1992.
4. The majority rule is
a general creditor, without a lien, has
no legal right or interest in the debtor's
property and cannot be legally injured by any
action by way of conspiracy on the part of
the debtor and others to dispose of his
property in order to evade payment of his
general obligations. Unless the creditor
possesses a lien at the time of the wrongful
act, he (or she) has no legal right in the
property affected, and cannot be said to have
suffered the "actual legal damage"[required
to maintain a civil conspiracy claim].
. . .
[T]he law sets out definite guidelines
as to how and when the debtor's property
ceases to be subject to his control and
direction, and becomes, instead, subject to
the rights of his creditor. . . . [A]
creditor obtains a vested interest in the
form of a lien against the debtor's realty at
the time of judgment. Until that time, the
common law rule is that the creditor has no
legally vested interest in the property in
question.
Van Royen v. Lacey, 277 A.2d 13, 15-16 (Md. 1971).
5. Alaska has not adopted the Uniform Fraudulent
Conveyance Act. Arizona and Wisconsin have repealed it and
adopted the more recent Uniform Fraudulent Transfer Act. 7A
U.L.A. 136-37, 165 (Supp. 1992).
For the purposes of this analysis, the differences
between the Uniform Fraudulent Conveyance Act and AS 34.40.010-
.130 are irrelevant. Both treat fraudulent conveyances as legal
wrongs, allowing them to be set aside.
6. In McElhanon, the court recognized the cause of action
for judgment creditors, applying the Uniform Fraudulent
Conveyance Act. McElhanon, 728 P.2d at 263, 266. We recognize
the cause of action for those who are general creditors at the
time of the fraudulent conveyance as well. General creditors,
however, must reduce their claims to judgment before asserting
this cause of action. Prior to judgment, general creditors have
no legal right to the property fraudulently conveyed.
7. The remedies under the Uniform Fraudulent Conveyance
Act are:
(1) The creditor may have the conveyance set
aside, or
(2) The creditor may disregard the
conveyance and execute on or garnish the property
in the hands of the fraudulent transferee.
McElhanon, 728 P.2d at 263.
8. Different judges presided over the pretrial conference
(Judge Steinkruger) and the partial grant of summary judgment
(Judge Savell).
]]>
