Holmes v. Karkau

MARTIN HOLMES ET AL. v. DAVID KARKAU ET AL.

No. M2021-00696-COA-R3-CV

Court of Appeals of Tennessee, Nashville

April 27, 2022

Session March 2, 2022.

Appeal from the Chancery Court for Williamson County No 20-CV-49782W James G. Martin, III, Judge

This is an action to set aside a change of beneficiary on a term life insurance policy under Tennessee's Uniform Fraudulent Transfer Act ("the TUFTA"), Tennessee Code Annotated §§ 66-3-301 to -314. The challenged event was the change of beneficiary from the wife of the insured/owner to two of their adult children, the form for which was executed by the wife as the attorney-in-fact for the insured/owner and transmitted to the insurance company the day before the insured/owner died. In pertinent part, the complaint alleged that the defendants-the wife and two adult children of the deceased insured/owner of the insurance policy-"devised and orchestrated" a "fraudulent scheme . . . to eliminate assets owned by [the insured's wife] in the event that Plaintiffs obtain a judgment against her" in a separate civil action. The complaint further alleged that "[t]he transfer of the beneficiary interest in the . . . insurance policy was a fraudulent transfer under T.C.A. § 66-3-305(a)(1) because it was made with the intent to hinder, delay or defraud Plaintiffs as creditors defined under the Act." The trial court dismissed the action under Tennessee Rule of Civil Procedure 12.02(6) for failure to state a claim for which relief could be granted under the TUFTA. We affirm.

Tenn R. App. P. 3 Appeal as of Right; Judgment of the Chancery Court Affirmed

Martin D. Holmes, Nashville, Tennessee, pro se and for the appellant, Patricia Holmes.

G Rhea Bucy and Linda W. Knight, Nashville, Tennessee, and Lauren Wynn Moss, Franklin, Tennessee, for the appellee, Wendy Karkau.

John O. Belcher and Katherine Garro McCain, Brentwood, Tennessee, for the appellees, David Karkau and Shaya Karkau Baird.

Frank G. Clement Jr., P.J., M.S., delivered the opinion of the Court, in which Andy D. Bennett and W. Neal McBrayer, JJ joined.

OPINION

FRANK G. CLEMENT JR., P.J., M.S.

Facts and Procedural History

The genesis of the claims at issue occurred in 2013 when Martin and Patricia Holmes ("Plaintiffs") bought a house from Kenneth and Wendy Karkau in Brentwood, Tennessee. After moving in, Plaintiffs allegedly discovered several undisclosed defects. One year later, Plaintiffs sued Kenneth and Wendy Karkau for breach of contract, fraudulent misrepresentation, and violation of the Tennessee Consumer Protection Act. Plaintiffs sought various remedies, including compensatory and punitive damages.

In 2015, while the underlying action was pending, Kenneth Karkau died from complications of Alzheimer's Disease. After Kenneth's death, Plaintiffs continued with their suit against Wendy. That action is still ongoing in the Williamson County Circuit Court.

Plaintiffs commenced this action in September 2020 by filing a complaint against Wendy Karkau and two of Wendy and Kenneth's adult children, David Karkau and Shaya Karkau Baird (individually "Wendy," "David," and "Ms Baird"; collectively, "Defendants").^[1] Plaintiffs alleged that Defendants conspired to change the beneficiary on Kenneth's life insurance policy before he died in 2015 to protect the proceeds from any potential judgment Plaintiffs might obtain against Wendy in the pending real estate action. According to Plaintiffs, Wendy used a power of attorney to name David and Ms. Baird as the titular beneficiaries of Kenneth's policy in place of Wendy with the understanding that the proceeds would be used for Wendy's benefit. Plaintiffs alleged that Wendy then directed the proceeds to purchase a condominium in David's name, in which Wendy now lives. Plaintiffs asserted that the change of beneficiary constituted a fraudulent transfer under § 305(a)(1) of the TUFTA. The most pertinent allegations in the complaint read as follows:

7. This lawsuit arises out of fraudulent transfers, including the beneficiary interest in a life insurance policy insuring the life of Kenneth Karkau (the "Beneficiary Interest"), who was the husband of Defendant Wendy Karkau and the father of Defendants David Karkau and Shaya Karkau Baird prior to Kenneth Karkau's death on December 9, 2015.

...

18. On or about June 21, 2003, Kenneth Karkau applied for a life insurance policy from West Coast Life Insurance Company ("West Coast Life") in the amount of $500, 000.

19. On or about September 18, 2003, West Coast Life issued a policy with a face amount of $500, 000 insuring the life of Kenneth Karkau. In the policy, Wendy Karkau was named as the beneficiary of the $500, 000 life insurance proceeds in the event of Kenneth Karkau's death.

20. On December 9, 2015, approximately 22 months into the pendency of the Action brought by Martin and Patricia Holmes against Kenneth and Wendy Karkau, Mr. Karkau died due to complications from Alzheimer's Disease.

21. On or about December 2, 2015, Wendy Karkau contacted West Coast Life to request change of beneficiary and transfer of ownership forms, which were sent to her by West Coast Life on or about December 2, 2015 and December 3, 2015.

22. Thereafter, on or about December 8, 2015, Wendy Karkau (utilizing a Power of Attorney purportedly signed and executed by Kenneth Karkau), submitted a Change of Beneficiary form to West Coast Life, requesting that she be removed as the beneficiary of the $500, 000 life insurance policy and that David Karkau and Shaya Karkau Baird be substituted as beneficiaries, each to receive 50% of the life insurance proceeds upon the death of Kenneth Karkau. . . .

23. The Change of Beneficiary form and related documents were sent to West Coast Life from David Karkau . . . via Federal Express on December 8, 2015 or December 9, 2015. . . .

24. On December 10, 2015, West Coast Life sent an Acknowledgement of Policy Change, acknowledging the change of beneficiary from Wendy Karkau to David Karkau and Shaya Karkau Baird.

25. On or about January 4, 2016, Wendy Karkau reported the death of Kenneth Karkau to West Coast Life. On or about March 11, 2016, West Coast Life approved death benefit proceeds payable to David Karkau and Shaya Karkau Baird, each in the amount of $251, 726.04.

...

27. On October 28, 2016, David Karkau purchased a condominium located at 1842 Brentwood Pointe Drive in Franklin, Tennessee (hereinafter "the Condominium"). . . .

...

29. Payment for the Condominium was made, either directly or indirectly, from proceeds of the West Coast Life insurance policy which were disbursed to Defendants David Karkau and Shaya Karkau Baird as beneficiaries. . . .

30. David Karkau was the purchaser of the Condominium in name only. In reality, the true purchaser of the Condominium was Wendy Karkau, utilizing the life insurance proceeds which were unlawfully diverted to her two children, David Karkau and Shaya [Karkau Baird]. . . .

31. As further evidence that Wendy Karkau was the actual purchaser and owner of the Condominium, since moving into the Condominium on or shortly after October 28, 2016, Wendy Karkau has paid no rent, but has paid annual property taxes and insurance for the Condominium based on her bank account records subpoenaed by Plaintiffs. . . .

...

63. In Tennessee, the Uniform Fraudulent Transfer Act (the "Act") is codified at T.C.A. § 66-3-301 to T.C.A. § 66-3-313.

64. The Act prohibits transfers based on actual fraud, as codified at T.C.A. § 66-3-305(a)(1). Under T.C.A. §§ 66-3-305(a)(1), a transfer made by a debtor is fraudulent as to a creditor, whether a creditor's claim arose before or after the transfer was made, if the debtor made the transfer with the actual intent to hinder, delay, or defraud any creditor of the debtor.

65. Plaintiffs are "creditors" under the Act because they have a "claim" as defined by T.C.A. § 36-3-302(3).

66. Wendy Karkau and/or the Estate of Kenneth Karkau is/are a "debtor" who/which has a "debt" with Plaintiffs under the Act as defined by T.C.A. §§ 66-3-302(5) & (6). ...

68. The transfer of the beneficiary interest in the West Coast Life insurance policy was a transfer as defined by T.C.A. § 66-3-302(12).

69. The transfer of the beneficiary interest in the West Coast Life insurance policy was a fraudulent transfer under T.C.A. § 66-3-305(a)(1) because it was made with the intent to hinder, delay or defraud Plaintiffs as creditors defined under the Act. . . .

Defendants moved to dismiss the complaint under Tennessee Rule of Civil Procedure 12.02(6). They argued that the beneficiary change was not a "transfer" of an "asset" or "property" under the TUFTA because Wendy had a "mere expectancy" and no vested interest in the policy. In the alternative, Defendants argued that the cause of action was barred by the TUFTA's limitation period, which requires actions under § 305(a)(1) to be brought within four years of the alleged transfer or within one year after it could have reasonably been discovered. See Tenn. Code Ann. § 66-3-310(1).

In its Memorandum and Order of May 25, 2021, the trial court declined to dismiss the action under the TUFTA's statute of limitations upon the finding that material facts were in dispute. The court reasoned that the complaint alleged sufficient facts to establish that Plaintiffs did not discover the beneficiary change until September 2019. The trial court also rejected Defendants contention that a "mere expectancy" could not be subject to the TUFTA:

The Court finds that, in general, a party can bring a cause of action under the TUFTA as a result of a transfer of a beneficiary interest. Under the plain terms of the statute, a beneficiary interest qualifies as an "interest in an asset." The "asset" is the life insurance policy because it is

...