Stephen W. RUPP, Trustee, Appellee, v. Angie MOFFO, Appellant.
No. 20130377.
Supreme Court of Utah.
Aug. 14, 2015.
2015 UT 71
L. Miles LeBaron, Tyler J. Jensen, Salt Lake City, for appellant.
Justice PARRISH authored the opinion of the Court, in which Chief Justice DURRANT, Justice DURHAM, and Judge TOOMEY joined.
Associate Chief Justice LEE authored an opinion concurring in the judgment.
Due to his retirement, Justice NEHRING did not participate herein; Court of Appeals Judge KATE A. TOOMEY sat.
Justice DENO G. HIMONAS became a member of the Court on February 13, 2014, after oral аrgument in this matter, and accordingly did not participate.
Justice PARRISH, opinion of the Court:
INTRODUCTION
¶ 1 Angie Moffo lived rent free for eight years in a home that belonged to her brother-in-law, Doug Rich. After Mr. Rich filed for Chapter 7 bankruptcy, the trustee, Stephen Rupp, sued Ms. Moffo for back rent under Utah‘s Uniform Fraudulent Transfer Act (the Act), sections 25-6-1 to -14 of the Utah Code. The district court, concluding that Ms. Moffo was the recipient of a fraudulent transfer, granted Mr. Rupp summary judgment and entеred a $34,200 judgment against Ms. Moffo. On appeal, Ms. Moffo argues that Mr. Rupp lacks statutory standing under the Act and, in the alternative, that Mr. Rich did not transfer an asset within the scope of the Act.1 We hold that Mr. Rupp has statutory standing because, as a bankruptcy trustee, he is a creditor of Mr. Rich. But we hold that Mr. Rich did not transfer an asset to Ms. Moffo because the home was fully encumbered by a mortgage. We therefore vacate the judgment entered against Ms. Moffo and remand the case to the district court with instructions to enter summary judgment in favor of Ms. Moffo.
BACKGROUND
¶ 2 The material facts in this matter are not in dispute. In 2003, Mr. Rich invited Ms. Moffo to move into his newly-acquired investment property. At the time, Ms. Moffo, a single mother of eight, was in serious financial trouble as the sole provider for herself and her children. Ms. Moffo and Mr. Rich agreed that she would not pay any rent, but would help out if she were able. Ms. Moffo lived in the house for eight years and never paid any rent.
¶ 3 In 2006, Mr. Rich obtained a mortgage on the home and signed a trust deed in favor of Bayrock Mortgage Company, which included a rent assignment provision. Three years later, Mr. Rich, who had suffered financial setback, became insolvent and stopped making payments on the mortgage. In October 2009, Bayrock served Mr. Rich with a notice of default, which triggеred the rent assignment to Bayrock. In 2011, Mr. Rich filed for bankruptcy. At that time, the mortgage on the home was more than double the home‘s fair market value.
¶ 4 In 2012, Mr. Rupp, the appointed Chapter 7 bankruptcy trustee, filed suit against Ms. Moffo under Utah‘s Uniform Fraudulent Transfer Act. Mr. Rupp sought $1,300 per month in back rent from Ms. Moffo, asserting that Mr. Rich had defrauded his creditors by allowing her to live in the house rent free after he became insolvent in October 2009. On сross-motions for summary judgment, the district court ruled that Ms. Moffo was the recipient of a fraudulent transfer and ordered her to pay the bankruptcy estate $34,200. Ms. Moffo appealed.
STANDARD OF REVIEW
¶ 5 This case comes to us on summary judgment. Because a district court‘s ruling on summary judgment is a question of law, we review it for correctness.2 Moreover, we give no deference to a lower court‘s determination on an issue of statutory construction.3
ANALYSIS
¶ 6 Mr. Rupp brought this suit against Ms. Moffo under Utah‘s Uniform Fraudulent Transfer Act. Section 25-6-9 of the Act provides that a creditor may recover judgment for the value of [an] asset transferred ... or the amount necessary to satisfy the creditor‘s claim, whichever is less.4
On the basis of this provision, Mr. Rupp secured a $34,200 judgment against Ms. Moffo for back rent.
¶ 7 Ms. Moffo raises two questions of statutory interprеtation on appeal. The first question is one of statutory standing—is Mr. Rupp a “creditor” entitled to file suit under the statute? The second is whether the house in which she lived constitutes an “asset.”
¶ 8 Our well-established rules of statutory interpretation dictate that, when interpreting any statute, “our primary goal is to effectuate the intent of the Legislature.”5 And the “best evidence” of that intent is the “plain language” of the provision read in cоntext with the whole statute and related sections of the Code.6 We begin with the question of standing.
I. MR. RUPP HAS STATUTORY STANDING AS A CREDITOR PURSUANT TO HIS RIGHTS AS A BANKRUPTCY TRUSTEE
¶ 9 Ms. Moffo asserts that Mr. Rupp lacks statutory standing. To resolve this issue, we must determine to what class of plaintiffs the Act grants a right to sue and whether Mr. Rupp is within that class.7 Ms. Moffo argues that only those with an actual interest in the property transferred are within the class of parties with standing. Because Bayrock held the trust deed for the home, had priority over Mr. Rupp, and because the first mortgage exceeded the home‘s value, Ms. Moffo reasons that Bayrock is the only creditor with standing to assert a claim against her under the Act. Mr. Rupp argues that the Act does not limit standing to those with an actual interest in the property transferred. Rather, he asserts that his status as a creditor of Mr. Rich pursuant to the United States Bankruptcy Code is sufficient to confer standing. We agree with Mr. Rupp.
¶ 10 A “creditor” has the right to recover judgment for the value of a fraudulently transferred asset.8 A “creditor” is “a person who has a claim.”9 And a “claim” is
Notably absent is any indication that a creditor‘s standing is contingent on any actual interest in the property at issue. Instead, the Act gives standing to anyone with a “right to payment” from thе debtor.
¶ 11 Our conclusion that all creditors have standing under the Act is buttressed by other provisions. For example, the Act provides that “[a] transfer ... is fraudulent as to a creditor ... if the debtor made the transfer ... with actual intent to hinder, delay, or defraud any creditor of the debtor.”11 The use of the word any is significant. It triggers standing for all of the debtor‘s creditors if the debtor has actual intent to defraud any single creditor.
¶ 12 Accordingly, we hold that a party has standing as a creditor under the Act if the party has a right to payment from the debtor. And a creditor has that standing regardless of whether the creditor has any actual interest in the transferred property.
¶ 13 In this case, Mr. Rupp, as the trustee for Mr. Rich‘s bankruptcy, qualifies as a creditor under the Act. Pursuant to the United States Bankruptcy Code, a “trustee ... [has], as of the commencement of the case, ... the rights and powers of ... a creditor.”12 The Bankruptcy Code defines “creditor” as an “entity that has a claim against the debtor.”13 And a “claim” is a “right to payment.”14 These definitions are strikingly similar to those provided by the Act.15 Accordingly, we hold that Mr. Rupp, as the bankruptcy trustee, has standing as a creditor under the Act.16 We therefore proceed to the second issue: What is a “transfer” under the Act?
II. MR. RICH DID NOT TRANSFER AN “ASSET” TO MS. MOFFO
¶ 14 Ms. Moffo argues that even if Mr. Rupp has standing to sue, he is not entitled to recovery because Mr. Rich‘s agreement to let Ms. Moffo reside in the home did not constitute a transfer of an
¶ 15 Under the Act, a “creditor may recover judgment for the value of [a fraudulently transferred asset] ... or the amount necessary to satisfy the creditor‘s claim, whichever is less.”17 A “transfer” is defined as еvery mode, direct or indirect, absolute or conditional, or 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.18
At the heart of this definition is the meaning of the term “asset.” The Act also defines this term. An “asset” is
property of a debtor, but does not include ... property to the extent it is encumbered by a valid lien.19
While the Act broadly defines “transfer,” it specifically excludes from that definition the transfer of property “to the extent it is encumbered by a valid lien.” Thus, the plain language of the Act dictates that property that is fully encumbered is not an “asset” within the Act‘s reach.
¶ 16 Mr. Rupp urges us to ignore this plain language, arguing that the Act cannot mean what it says. Instead, he asks us to derive a definition for the word asset from our opinion in Zuniga v. Evans, which considered the Uniform Fraudulent Conveyances Act not the Uniform Fraudulent Transfer Act.20 But Mr. Rupp makes no effort to tie his proposed definition to the current statutory text. Further, his only case citation is to a court of appeals opinion dealing with a different issue.21 Mr. Rupp‘s reasoning fails because it is unfounded in the Act‘s language or relevant case law.
¶ 17 Our conclusion that the transfer of fully-encumbеred property does not constitute a fraudulent transfer under the Act is consistent with the Act‘s purpose. The Act provides a remedy for creditors who are actually harmed when a debtor transfers property; it does not provide a remedy in cases of only theoretical harm. For example, the Act is applicable when a debtor is insolvent because a solvent debtor who transfers property doеs not harm creditors.22 Similarly, the Act applies to transfers where the debtor does not receive reasonably equivalent value in return.23 In cases where the debtor does receive reasonably equivalent value, the transfer puts one asset beyond the reach of the creditors, but replaces the asset with one of equivalent value, thus avoiding any harm to creditors.
¶ 18 The same reasoning applies in the сontext of property that is fully encumbered by a valid lien. When such property is transferred, there is no harm done to either the creditor holding the lien—the secured creditor—or any other unsecured creditor of the debtor. The secured creditor is not harmed because it retains the right to proceed against the property by foreclosing its
¶ 19 Mr. Rupp also tries to avoid the clear language of the Act by asserting that the possessory interest that Ms. Moffo enjоyed was distinct from the rents that were admittedly encumbered by the mortgage and were assigned to Bayrock. But this reasoning is a nonstarter because it is unmoored from the basic principles of property law.25 Mr. Rupp seeks the economic value of Ms. Moffo‘s use of the house; that is rent.26 Labeling rent as a “possessory interest” does not change its character. Were we to hold otherwise, we would vitiate Bayrock‘s secured interest in that rent by creating an exception whereby an unsecured party could extract rent-like payments from the collateral of a secured creditor before the secured creditor‘s claim is satisfied. We accordingly reject this alternative argument.
¶ 20 In this case, at all relevant times, the home in which Ms. Moffo resided was fully encumbered by Bayrock‘s mortgage and any rents that may have been owed were never property of the bankruptcy estate, but were payable to Bayrock. Indeed, Mr. Rupp has not asserted the contrary. Accordingly, we hold that Mr. Rich did not make a transfer to Ms. Moffo under the Act because the house was not an “asset” falling within its reach.
CONCLUSION
¶ 21 Mr. Rupp has standing to sue Ms. Moffo under Utah‘s Uniform Fraudulent Transfer Act because he is a creditor pursuant to the rights granted to him as a bankruptcy trustee. But nо “asset” was transferred from Mr. Rich pursuant to the Act‘s definition of that term. The house in which Ms. Moffo lived was fully encumbered by a mortgage and any rents were the property not of Mr. Rich, but of Bayrock. Accordingly, we reverse the ruling of the district court and remand with instructions to enter summary judgment in favor of Ms. Moffo.
Associate Chief Justice LEE, concurring in the result:
¶ 22 I concur in the judgment reversing the summary judgment entered by the district court in favor of bankruptcy trustee Stephen Rupp. I write separatеly, however, because I conclude that Rupp lacks standing to pursue a claim under the Utah Fraudulent Transfer Act (UFTA). For reasons explained below, I would reverse on the ground that Rupp‘s case should be dismissed for lack of standing.
¶ 23 The UFTA authorizes suit by “creditors” or by those with “a right to payment.” See
¶ 24 To have standing a trustee must show that “the challenged transfer involved an interest of the debtor in property, i.e., the debtor transferred property in which it had
¶ 25 The majority seems to agree. It observes that there is no injury here, and thus concludes that the trustee could never have had an interest in that to which he was not entitled. See supra ¶¶ 17-20 (using language such as “theoretical harm” and “no-harm-no-foul,” and noting that under the “clear language of the Act,” Rupp essentially had nothing he could lay claim to since the house and the rents flowing from it were entirely the property of the mortgage company).1
¶ 26 I see no basis for the trustee‘s standing in light of the above. Trustees may pursue claims “if [the] claim is a general one, with no particularized injury arising from it, and if that claim could be brought by any creditor of the debtor.” See, e.g., St. Paul Fire & Marine Ins. Co. v. PepsiCo, Inc., 884 F.2d 688, 701 (2d Cir. 1989). Conversely, where a claim is “specific” to a creditor (such as when one creditor holds a perfected security interest), it is a “legal or equitable interest only of the creditor,” and the trustee lacks standing to bring it. Bd. of Trs. of Teamsters Local 863 Pension Fund v. Foodtown, Inc., 296 F.3d 164, 169-70 (3d Cir. 2002) (emphasis added).
¶ 27 Claims that are general, with no “particularized injury” arising from them, and that “could be brought by any creditor” are precisely the sorts of claims that belong to the bankruptcy estate. But claims that belong to one creditor, the denial of which would result in a “particularized injury” and which accordingly could not “be brought by any creditor of the estate” do not belong to the estate, and thus are not within the reach of the trustee. The trustee simply has no third-party standing to suе on behalf of such a creditor, and therefore suffers no particularized injury.
¶ 28 This problem is apparent in the district court‘s award of the rents to Rupp. After deeming the transfer fraudulent, the court awarded $34,200 to Rupp, to then be placed in the bankruptcy estate for creditors to sort through. But those rents belonged to Bayrock, not Rupp or any of the debtor‘s other creditors. Giving them to someone else is not an aрpropriate exercise of our judicial power. For that reason the trustee lacks standing. I would reverse on that basis, without reaching the merits.