Hansen v. Teleplus Consulting, Inc.

William Hansen d/b/a W.G. Hansen & Associates, Appellant, v. Teleplus Consulting, Inc., Defendant,andWilliam G. Hansen, Appellant, v. David E. Steen, et al., Defendants,Unity Bank, Respondent.

A20-0629

STATE OF MINNESOTA IN COURT OF APPEALS

April 26, 2021

This opinion is nonprecedential except as provided by Minn. R. Civ. App. P. 136.01, subd. 1(c).

Affirmed

Jesson, Judge

Hennepin County District Court

File No. 27-CV-17-1143

Kevin S. Sandstrom, Eckberg Lammers, P.C., Stillwater, Minnesota (for appellant)

Shaun D. Redford, Olson, Redford & Wahlberg, P.A., Edina, Minnesota (for respondent)

Considered and decided by Worke, Presiding Judge; Reyes, Judge; and Jesson, Judge.

NONPRECEDENTIAL OPINION

JESSON, Judge

Appellant William Hansen, with a judgment of $624,000 against Teleplus Consulting Inc. (Teleplus) in hand, sought to recover that award from not only Teleplus and its sole owner—David Steen—but also from respondent Unity Bank. Hansen's lawsuit was based on two undisputed facts: (1) that Steen gave Unity Bank a mortgage against his home; and (2) that payments on the mortgage were made directly from Teleplus's business account at Unity Bank. Those mortgage payments, according to Hansen, were fraudulent, voidable transfers.

The district court disagreed, noting a third fact: that the payments from Teleplus were accounted for as shareholder loans or distributions to Steen. As a result, the district court granted summary judgment to Unity Bank. And when Hansen sought to amend his complaint to attach additional claims—including conspiracy between Unity Bank and Steen—the court denied the motion. Hansen appeals. Because the mortgage payments were not fraudulent as a matter of law, and because the district court did not abuse its discretion in concluding that Hansen's amended complaint was untimely, prejudicial, and could not withstand summary judgment, we affirm.

FACTS¹

Teleplus Consulting Inc., solely owned by David Steen, helped businesses negotiate their telecommunications contracts. Appellant William Hansen had worked for Teleplussince 2000. In 2014, Teleplus began to struggle financially, borrowing money and losing profits. When Hansen stopped receiving timely commission payments in late 2015, he complained, and was then fired. Believing he was wrongfully discharged, Hansen proceeded to arbitration, pursuant to his contract with Teleplus, and was awarded approximately $624,000.

When his arbitration award remained unpaid, Hansen filed this lawsuit against Teleplus to compel payment. But because Teleplus had filed a notice of intent to dissolve, Hansen could not obtain judgment against the company. As a result, Hansen filed a separate action against Steen, his son, and his other businesses to obtain payment of his award. The cases were consolidated in early 2017. Nearly a year later, Hansen filed his first amended complaint and added respondent Unity Bank as a defendant.

Among the new claims was the assertion that Teleplus made mortgage payments to Unity Bank that violated the Minnesota Uniform Voidable Transactions Act (Voidable Transactions Act or Act), Minn. Stat. §§ 513.41-.51 (2020), and, as a result, were voidable, leaving Unity Bank liable to Hansen (a creditor of Teleplus) for those payments. Steen had set up the automatic monthly mortgage payments when he refinanced his mortgage in 2014. Instead of having the money transferred from the Teleplus business account to Steen's personal account, and then to Unity Bank, Steen instructed Unity Bank to have the payments made directly from the Teleplus business account. Unity Bank knew that Steen, as the sole owner of Teleplus, had the authority to make such transfers.

Although the payments were made directly to Unity Bank from Teleplus's business account, Teleplus classified the payments as shareholder loans to Steen—not as paymentsto Unity Bank—on its 2014 and 2015 tax documents. The payments were then reclassified as shareholder distributions to Steen in 2016. In 2016 and 2017, Teleplus again reported the payments as shareholder distributions to Steen. Throughout this period, Steen's personal tax documents reflected Teleplus's accounting of the payments as shareholder loans or distributions. Between 2014 and 2017, Teleplus's payments on the mortgage, which are a focus of this appeal, totaled $73,655.94.

After nearly a year of discovery and pretrial proceedings on the claims in his first amended complaint, Hansen moved for leave to amend his complaint a second time. He sought to include claims against Unity Bank related to three additional loans the bank had provided to Steen and one of his other businesses in 2017. In part, Hansen argued that by providing the loans, Unity Bank conspired with Steen in depleting his assets, further limiting Hansen's ability to recover his arbitration award. Because Hansen claimed to have only recently obtained the information about the 2017 loans, he argued that the district court should permit amendment of his complaint. But the district court denied Hansen's motion, determining that it was untimely, prejudicial, and futile.

With only one claim against it, Unity Bank filed a motion for summary judgment. The district court granted the motion, determining that the mortgage payments were not voidable under the Act because Steen made the payments, not Teleplus. Nor were the accounting measures used by Teleplus to record the mortgage payments as income to Steen illegal or improper, the district court concluded. As a result, any issues in accounting withregard to the distribution of money between Teleplus and Steen, the district court stated, was a separate matter of piercing the corporate veil and obtaining judgment against Steen.²

Hansen appeals.

DECISION

Hansen challenges the district court's grant of Unity Bank's motion for summary judgment, arguing that genuine issues of material fact remain regarding whether the mortgage payments were voidable. Hansen further contends that the district court abused its discretion by denying his motion for leave to amend because, absent prejudice to the opposing party, leave to amend should be granted. We address each argument in turn.

I. The district court did not err by granting Unity Bank's motion for summary judgment.

We review a district court's grant of summary judgment de novo to determine whether there are any genuine issues of material fact and whether the district court misapplied the law. Montemayor v. Sebright Prods., Inc., 898 N.W.2d 623, 628 (Minn. 2017). To do so here, we begin with an overview of the Voidable Transactions Act. Minn. Stat. §§ 513.41-.51. We then turn to the application of the Act to the facts of this case. Finally, we address Hansen's argument that the affidavit of his expert—in which the expert opined that Teleplus's practice of directly paying Steen's personal mortgage goes against corporate formalities—creates a genuine issue of material fact.

The Voidable Transactions Act seeks "to prevent debtors from placing property that is otherwise available for the payment of their debts out of the reach of their creditors." Citizens State Bank Norwood Young Am. v. Brown, 849 N.W.2d 55, 60 (Minn. 2014). To do so, it permits creditors (like Hansen, here) to recover assets that have been fraudulently conveyed to others. Minn. Stat. §§ 513.47(a)(1), .48(b). And a creditor may recover the funds if the transfer either was made with actual fraudulent intent or falls into a category of transfers the law recognizes as constructively fraudulent. Minn. Stat. § 513.44(a).

Although Hansen claims that Steen had both actual and constructive fraudulent intent in transferring money from Teleplus to Unity Bank, Hansen offers no support for his claim of actual fraudulent intent. Thus, the focus of our review is whether there was constructive fraud. A transfer is constructively fraudulent if, in making the transfer, the debtor does not receive reasonably equivalent value in return, and the debtor's assets became or would have become unreasonably small in relation to the transaction, or the debtor would have incurred debts beyond their ability to pay as they came due. Id. (a)(2).

The monies at issue here are the transfers from Teleplus's business account to Unity Bank to make Steen's mortgage payments. The district court—relying on the undisputed facts that all of the transfers were characterized as either loans or distributions to Steen—held that the entity making the transfer was Steen, not Teleplus. As the district court noted, "the accounting and income taxes records accurately reflect this transaction for what it is—a payment by Teleplus to Steen who then paid Unity Bank." (Emphasis added.) The court further acknowledged that, at the time of summary judgment, Hansen failed to identifyevidence that, if believed, would establish that Steen had not provided reasonably equivalent value for the shareholder distributions.³

We agree with the district court. It is undisputed that Steen used the Teleplus account to apply his shareholder distributions to pay his mortgage. He reported those distributions on his personal income tax returns. And Unity Bank recorded the money as payments on Steen's mortgage. Further, as the district court noted, if the distributions to Steen were unlawful because Teleplus was insolvent and Steen had not provided reasonably equivalent value, that is a basis for a claim against Steen and Teleplus. Not Unity Bank.

Finally, we observe that the payments to Unity Bank were, without dispute, supported by reasonably equivalent value—the mortgage financing Steen's home. This situation involving the bank is a far cry from cases where we have deemed transfers as constructively fraudulent for lack of reasonably equivalent value. For example, in Citizens State Bank Norwood Young Am., the debtor paid his wife $1.5 million, and in exchange, received a home that was worth $271,000. 849 N.W.2d at 64. Because the debtor only received a fraction of the value of the transfer to his wife, he...