NRS Props., LLC v. Lakers

NRS PROPERTIES, L.L.C., APPELLANT, v. MARK LAKERS AND JACKIE LAKERS, APPELLEES.

No. A-19-718.

NEBRASKA COURT OF APPEALS

July 21, 2020

MEMORANDUM OPINION AND JUDGMENT ON APPEAL

(Memorandum Web Opinion)

NOTICE: THIS OPINION IS NOT DESIGNATED FOR PERMANENT PUBLICATION AND MAY NOT BE CITED EXCEPT AS PROVIDED BY NEB. CT. R. APP. P. § 2-102(E).

Appeal from the District Court for Douglas County: DUANE C. DOUGHERTY, Judge. Affirmed as modified.

Daniel W. Ryberg for appellant.

No appearance for appellees.

PIRTLE, RIEDMANN, and ARTERBURN, Judges.

RIEDMANN, Judge.

INTRODUCTION

NRS Properties, L.L.C., appeals the order of the district court for Douglas County, which declined to set aside a real estate purchase by Mark Lakers and Jackie Lakers on the ground that it was a fraudulent transfer. We modify the district court's order to award certain costs to NRS Properties. Finding no error in the court's decision on the merits of the case, however, we otherwise affirm.

BACKGROUND

NRS Properties is a creditor of Mark, having obtained a judgment against him in December 2016 for over $290,000. NRS Properties commenced the instant action against Mark and Jackie under Nebraska's Uniform Fraudulent Transfer Act (UFTA), Neb. Rev. Stat. §§ 36-701 to 36-712 (Reissue 2016) (subsequently repealed and replaced by Uniform Voidable Transactions Act, 2019 Neb. Laws, L.B. 70). The amended complaint alleges that Mark and Jackie transferred assets, specifically $317,000, to purchase a residence and placed the residence in Jackie's name only in order to secrete assets from Mark's creditors. NRS Properties asked the district court to declare the conveyance of the real property to be a fraudulent transfer, execute on the real estate, and award it attorney fees and costs.

The evidence at trial revealed that Mark and Jackie have been married for over 30 years. Mark was involved in several different businesses and managed a limited partnership called Renewable Energy Fund I, L.P. (REFI). REFI contracted with AFA Management Company, LLC, for AFA Management to provide investment and financial management services for REFI. Mark was also the manager of AFA Management.

REFI made certain investments in a company called E Energy. In May 2014, Mark, as manager of AFA Management and on behalf of REFI, asked E Energy to repay the investment to REFI. E Energy complied, making a deposit of approximately $745,000 in a bank account owned by REFI. Thereafter, Mark, acting on behalf of AFA Management and REFI, made distributions of the $745,000. He explained at trial that he used the money to pay expenses of REFI, such as legal fees and advertising fees. He directed $240,000 to a company in Arizona. Mark also paid himself management fees by writing himself a check out of REFI's account for $15,000 and transferring $21,710 to his personal checking account.

In addition to these distributions, Mark directed that approximately $317,000 be transferred to a title company for the purchase of a residence in Bennington, Nebraska. The residence was titled in Jackie's name only, and prior to the closing of the purchase, Mark and Jackie made a downpayment of $5,000 paid out of their joint bank account. Mark and Jackie both testified at trial that REFI owed the $317,000 to Jackie as repayment of a loan. They offered a promissory note into evidence, which indicated that in 2008, Jackie loaned REFI $275,000 at a rate of 7-percent interest, and that Jackie could demand repayment at any time.

In a subsequent written order, the district court found that the promissory note was fraudulent. Nevertheless, the court determined that the transfer of funds from REFI's bank account to the title company was done by Mark in his capacity as manager of AFA Management and that neither Mark nor Jackie ever had any individual ownership or possessory rights in the funds. And because a fraudulent transfer can occur only where a debtor has acquired rights in the asset that was transferred, the district court held that the transfer of money for the purchase of the residence did not violate the UFTA. However, based on its finding that the promissory note was fraudulent and that Mark and Jackie committed perjury through their testimony and presentation of the note, the court concluded that their defense was frivolous and made in bad faith. The court therefore awarded attorney fees to NRS Properties in the amount of $26,560. NRS Properties filed a motion to alter or amend, which was denied. NRS Properties appeals.

ASSIGNMENTS OF ERROR

NRS Properties assigns that the district court erred in (1) determining that the transfer of money for the purposes of purchasing the residence was not fraudulent because Mark and Jackie did not have ownership or possessory rights to the money, (2) finding that the $5,000downpayment from the joint account did not attach a legal interest in the $317,000 used to purchase the residence, and (3) failing to award costs to NRS Properties.

STANDARD OF REVIEW

An action under the UFTA is equitable in nature. See Korth v. Luther, 304 Neb. 450, 935 N.W.2d 220 (2019). In an appeal of an equity action, an appellate court tries factual questions de novo on the record, reaching a conclusion independent of the findings of the trial court, provided, however, that where credible evidence is in conflict on a material issue of fact, the appellate court considers and may give weight to the fact that the trial judge heard and observed the witnesses and accepted one version of the facts rather than another. Id.

ANALYSIS

Fraudulent Transfer.

NRS Properties argues that the district court erred in finding that no violation of the UFTA occurred because Mark and Jackie did not have ownership or possessory rights to the $317,000. We find no error in the court's decision.

Under the UFTA, a creditor may reach assets transferred by a debtor if the transfer was fraudulent. See §§ 36-705, 36-706, and 36-708. In an action to set aside an actually fraudulent transfer or obligation under § 36-705(a)(1) of the UFTA, it is the plaintiff's burden to prove by clear and convincing evidence that (1) the debtor made a transfer or incurred an obligation, (2) the plaintiff was a creditor of the debtor, and (3) the debtor made the transfer or incurred the obligation with actual intent to hinder, delay, or defraud any creditor of the debtor. Korth v. Luther, supra.

It is fundamental that before there can be a "fraudulent transfer" under the UFTA, there must be a "transfer." Id. The UFTA defines "transfer" as "every mode, direct or indirect, absolute or conditional, voluntary or involuntary, of disposing of or parting with an asset or an interest in an asset, and includes payment of money, release, lease, and creation of a lien or other encumbrance." § 36-702(12). The UFTA further provides that "a transfer is not made until the debtor has acquired rights in the asset transferred." § 36-707(4). Thus, explicit in the act of transferring property in contravention of the UFTA is the prerequisite that the transferor has acquired rights to the asset transferred. Essen v. Gilmore, 259 Neb. 55, 607 N.W.2d 829 (2000). It has been observed that under the UFTA, a person cannot transfer or otherwise dispose of something which he or she does not possess or does not yet rightfully possess. Essen v. Gilmore, supra.

The district court in the present case found no fraudulent transfer occurred because neither Mark nor Jackie had any ownership rights to the $317,000 that was transferred to purchase the residence. On appeal, NRS Properties argues that because Mark had rights to some of the $745,000, it cannot be said that he had no rights to any of the $317,000. To the extent this argument was raised to the district court, we disagree.

Mark explained at trial the various distributions that he made on behalf of AFA Management for REFI out of the $745,000. Some of the money went to Mark for management fees, and those amounts were paid to Mark by check or transfer out of REFI's bank account. Other distributions were made to pay expenses owed by REFI to various creditors such as for legal feesand advertising fees. Mark testified that he received his management fees, and "the rest" of the money was used for the operating expenses of REFI. There was no evidence presented that Mark had rights to any portion of the $745,000 other than the sums he received as management fees. Thus, the district court did not err in determining that Mark had already received the money to which he had acquired rights, and that he had no rights to the remaining $317,000 that was used to purchase the residence.

NRS Properties also asserts that "Mark Lakers IS AFA Management in 2014" and that "AFA and [Mark] are one." Brief for appellant at 8 and 14. NRS Properties claims that Mark, as AFA Management, had acquired contractual rights to some of the $745,000 by way of the agreement between AFA Management and REFI. AFA Management, a Nebraska limited liability company, is a separate legal entity, however, and Mark was its manager. A limited liability company is an entity distinct from its members. Neb. Rev. Stat. § 21-104 (Cum. Supp. 2018). See, also, Steinhausen v. HomeServices of Neb., 289 Neb. 927, 857 N.W.2d 816 (2015) (comparing limited liability...