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Morin, et al. v. Dubois et al.
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MAINE SUPREME JUDICIAL COURT Reporter of Decisions
Decision: 1998 ME 160
Docket: Aro-97-11
Submitted
on Briefs: December 23, 1997
Decided: June 25, 1998
Panel: WATHEN, C.J., and ROBERTS, CLIFFORD, RUDMAN, DANA, LIPEZ, and SAUFLEY, JJ.
Majority: CLIFFORD, and RUDMAN, DANA, LIPEZ, and SAUFLEY, JJ.
Dissenting: WATHEN, C.J., and ROBERTS, J.
ADRIEN MORIN et al.
v.
DANA M. DUBOIS et al.
DANA, J.
[¶1] Adrien Morin appeals from the judgment entered in the Superior
Court (Aroostook County, Archibald, A.R.J.) denying his request for relief
pursuant to the Maine Uniform Fraudulent Transfer Act, 14 M.R.S.A.
§§ 3571-3582 (Supp. 1997). On appeal he contends that the court erred in
finding that Paul Dubois, Dana's father, did not make certain transfers with
the actual intent to hinder, delay, or defraud his creditors and that the
transfers were not fraudulent pursuant to 14 M.R.S.A. § 3575(1)(B)(2) and
§ 3576(1). We agree and vacate the judgment.
[¶2] The following facts are undisputed. Between 1982 and 1990
Paul Dubois, an accountant and owner of a hearing aid business, accepted
hundreds of thousands of dollars from his clients after falsely representing
that he would invest the money for them. In 1989, after learning that he
had serious health problems, he began to divest himself of his assets. In
September of that year he conveyed four parcels of real estate to his son,
Dana, in exchange for Dana's promise to pay to Beulah Dubois, Paul's wife
and Dana's mother, twelve percent of the gross income of the accounting
and hearing aid businesses that Paul, not Dana, then owned. Fifteen months
later for the same consideration Paul conveyed to Dana the two businesses.
Paul and Dana signed documents that valued the real estate and the
businesses at $230,000. Paul admitted that these transfers left him with no
assets. Within a few months Paul filed for personal bankruptcy listing
liabilities exceeding $882,000 and was indicted for multiple counts of theft
by deception. Paul entered a guilty plea but died before sentencing. Morin
and ten others,{1} victims of Paul's investment scheme, filed a complaint
against Dana and Richard Dubois{2} in 1992 requesting that the court set
aside and void the transfers to Dana and award damages pursuant to
14 M.R.S.A. § 3578 (Supp. 1997).{3} After a non-jury trial the court found
that the conveyances were not made with the actual intent to hinder, delay,
or defraud Paul's creditors and ruled in the Dubois' favor. This appeal
followed.
[¶3] One who challenges the validity of a transfer must prove that the
conveyance was fraudulent by clear and convincing evidence. Federal
Deposit Ins. Corp. v. Proia, 663 A.2d 1252, 1254 n.2 (Me. 1995). Whether a
conveyance is fraudulent under the Act is a question of fact, and we will not
overturn the trial court's findings of fact unless they are clearly erroneous.
Id. at 1254. We will not overturn a finding for the defendant unless the
evidence also compels a finding in the plaintiff's favor. Findings are clearly
erroneous when no competent evidence supporting the finding exists in the
record; the factfinder clearly misapprehended the meaning of the evidence;
or the force and effect of the evidence, taken as a whole, rationally
persuades us to a certainty that the finding is so against the great
preponderance of the believable evidence that it does not represent the
truth and right of the case. Glidden v. Belden, 684 A.2d 1306, 1316-17
(Me. 1996).
[¶4] A transfer by a debtor is fraudulent if it is made with "actual
intent to hinder, delay or defraud any creditor of the debtor . . . ."
14 M.R.S.A. § 3575(1)(A) (Supp. 1997). Although the court failed to clearly
articulate its consideration of the factors that are used to analyze the fraud
issue, we are convinced that it clearly misapprehended the meaning of the
evidence and that the evidence compels a finding for the plaintiffs. Paul
admitted by deposition that his motivation for putting "all my property in
my son's name . . . (was) for the simple reason that I . . . did not want to have
anything in case of high medical bills." Although the court concluded that
Paul's transfers were motivated by the desire to provide for his wife and
mother, it is often the case that a transfer considered fraudulent pursuant to
the Act has the underlying purpose of retaining resources to provide for
oneself or one's family rather than have those resources available to
creditors.
[¶5] Precisely because a transferor's stated reasons for transferring
assets will rarely include an explicit admission of intent to defraud
creditors, the statute provides a comprehensive, although not exclusive, list
of factors to be examined when considering whether a transfer was made
with the actual intent to hinder, delay, or defraud a creditor. Pursuant to
the statute, a factfinder is instructed to consider the following factors when
determining whether a conveyance is fraudulent within the meaning of
14 M.R.S.A. § 3575(1)(A):
A. The transfer or obligation was to an insider;
B. The debtor retained possession or control of the property
transferred after the transfer;
C. The transfer or obligation was disclosed or concealed;
D. Before the transfer was made or obligation was incurred, the
debtor sued or [was] threatened with suit;
E. The transfer was of substantially all the debtor's assets;
F. The debtor absconded;
G. The debtor removed or concealed assets;
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;
J. The transfer occurred shortly before or shortly after a
substantial debt was incurred; and
K. The debtor transferred the essential assets of the business to
a lienor who had transferred the assets to an insider to the
debtor.
14 M.R.S.A. § 3575(2)(A)-(K) (Supp. 1997). The number of these factors
present given the undisputed facts in this case compels the inexorable
conclusion that the conveyances at issue were fraudulent within the meaning
of the Act.
[¶6] Paul's conveyances to Dana were transfers to an insider, see
Hatheway v. Hanson, 297 N.W. 824 (Iowa 1941) (transfer from a parent to a
child requires a critical examination of the surrounding circumstances); Paul
admitted that he had no assets after he transferred the properties to Dana;
Paul received grossly inadequate consideration for the transfers--indeed, the
initial transfers of the four parcels of real estate involved no consideration
given that Paul retained ownership of the businesses from which the
consideration was to be paid, see Michaud v. Michaud, 129 Me. 282, 151
A. 559 (Me. 1930) (conveyance of a debtor's entire property in
consideration of his own future support or that of members of his family is
prima facie voidable as a fraudulent transfer); Paul filed for bankruptcy in
1991, demonstrating his insolvency shortly after the transfers; and the
transfers occurred shortly before Paul expected to incur substantial medical
expenses.
[¶7] There is no suggestion in the court's judgment that it considered
the factors relevant to determining when a transfer was made with the
actual intent to hinder, delay, or defraud creditors. In light of the presence
of so many of the factors indicating an actual intent on the part of Paul to
avoid his creditors, the court's finding that the plaintiffs had not established
by clear and convincing evidence the elements of a fraudulent transfer
pursuant to 14 M.R.S.A. § 3575(1)(A) is clearly erroneous and cannot stand.
If one steals in order to provide for one's family, it is no less a theft. In the
same way, if one transfers assets while insolvent in order to provide for
one's family, it is no less a fraudulent transfer.
[¶8] Furthermore, the court did not address the plaintiffs' claim that
Paul also violated section 3575(1)(B)(2) despite the plaintiffs' incorporation
of the section's language in their complaint, their argument for its
application in their post-trial brief, and their further reference to the
section in their motion to amend the findings. Section 3575(1)(B)(2)
provides in pertinent part:
1. Fraudulent transfer. A transfer made . . . by a debtor is
fraudulent as to a creditor . . . if the debtor made the transfer . . .
B. Without receiving a reasonably equivalent value in
exchange for the transfer . . . and the debtor:
(2) Intended to incur, or believed or reasonably
should have believed that he would incur, debts
beyond his ability to pay as the debts became due.
At a time when he owed others in excess of $800,000, Paul transferred
assets he valued at $230,000 when he was anticipating additional medical
bills as a result of his physical condition. Paul admitted that he transferred
all his assets to his son because he was afraid that his final illness would
consume all of his resources. Paul's conduct is a textbook example of a
fraudulent conveyance in violation of section 3575(1)(B)(2).
The entry is:
Judgment vacated. Remanded to the
Superior Court with instructions to enter
a judgment for the plaintiffs and for a
determination of the appropriate relief
pursuant to 14 M.R.S.A. § 3578-79.
To the dissenting opinion.
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