Citizens State Bank Norwood Young America v. Gordon Brown
2014 Minn. LEXIS 320
| Minn. | 2014Background
- Gordon Brown guaranteed large commercial loans (≈ $8.8M in guarantees); the Bank obtained a default judgment against him on June 29, 2010, after borrower defaults and Gordon failed to pay.
- While the Bank’s suit was pending, Gordon petitioned for dissolution; the Browns executed a marital termination agreement (MTA) and the court entered an uncontested dissolution decree on October 13, 2010.
- Under the decree Gordon was assigned the marital home (largely exempt), a 401(k) (exempt), and certain small assets; he transferred to Judy an RBC account (~$1.2M) and his one-half interest in Pontoon Partnership (net ≈ $300k), which together secured an MB&T loan.
- The Bank sued under Minnesota’s Uniform Fraudulent Transfer Act (MUFTA), alleging the transfers were fraudulent (multiple badges of fraud); district court granted summary judgment for the Bank, the court of appeals affirmed, and the Minnesota Supreme Court granted review.
- The Supreme Court held MUFTA applies to transfers made pursuant to an uncontested dissolution decree, found multiple badges of fraud supporting actual intent to defraud, affirmed setting aside the transferred assets (RBC and Pontoon interest), but reversed as to levy on an account that was never transferred (MB&T savings account).
Issues
| Issue | Plaintiff's Argument (Bank) | Defendant's Argument (Brown) | Held |
|---|---|---|---|
| Does MUFTA apply to transfers made pursuant to an uncontested marital dissolution decree? | MUFTA defines “transfer” broadly; dissolution transfers are disposals of assets and are subject to MUFTA. | Transfers pursuant to a court-ordered dissolution are not subject to MUFTA (or are immune). | MUFTA applies to transfers made pursuant to an uncontested dissolution decree. |
| Were the transfers fraudulent (actual intent to hinder, delay, or defraud creditors)? | Transfers showed multiple MUFTA "badges of fraud" (insider, substantially all assets, lack of reasonably equivalent value, insolvency after transfer, transfers timed with suit/debt). | Transfers were part of a fair, uncontested dissolution decree and not intended to defraud creditors. | Multiple badges (six of eleven) established an inference of actual intent; Browns failed to rebut it — transfers were fraudulent. |
| Was Judy an “insider” under MUFTA at the time of transfer? | Judy was effectively an insider because of close relationship and continued cohabitation; transfer therefore to an insider. | The spouses were divorced when the decree effectuated the transfers, so not spouses/insiders. | Although the Browns were divorced when the transfer was perfected, Judy qualified as an insider (relative/former spouse who continued to live with debtor). |
| Are all remedies ordered by the district court proper (levy on accounts retained by Judy)? | The Bank may levy on assets fraudulently transferred to satisfy its claim. | Some accounts (e.g., MB&T savings) were never transferred and therefore not subject to levy. | Court affirmed levy on assets that were transferred (RBC, Pontoon interest) but reversed levy on MB&T savings account because it was not transferred. |
Key Cases Cited
- BFP v. Resolution Trust Corp., 511 U.S. 531 (discusses historical origins and badges of fraud under fraudulent transfer law)
- Shields v. Goldetsky (In re Butler), 552 N.W.2d 226 (Minn. 1996) (endorses use of badges of fraud under MUFTA)
- Mejia v. Reed, 31 Cal.4th 657 (Cal. 2003) (UFTA applies to property settlement agreements in divorce)
- Estes v. Titus, 481 Mich. 573 (Mich. 2008) (UFTA applies to transfers under divorce property settlement incorporated in judgment)
- Canty v. Otto, 304 Conn. 546 (Conn. 2012) (former spouse who continued to reside with debtor can be an insider)
- Patterson v. Shumate, 504 U.S. 753 (addresses exemption of retirement accounts from creditors)