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HomeMy WebLinkAbout2002-5660 Equity TAM SYSTEMS, INC., Plaintiff : IN THE COURT OF COMMON PLEAS OF CUMBERLAND COUNTY, PENNSYLVANIA v. FIGLIO MIO VISAGGIO, INC., a Pennsylvania Corporation, : ACTION IN EQUITY WILLIAM 1. LUMADUE, SR., and ROSEMARY V. LUMADUE, Husband and Wife, WILLIAM 1. LUMADUE, JR., and JOHN E. LUMADUE, Defendants 02-5660 EQUITY IN RE: SUPPLEMENTAL OPINION PURSUANT TO PA. R.A.P.1925 EBERT, 1., March 14,2007- In this civil case, Plaintiff has appealed to the Pennsylvania Superior Court from an order following a non-jury trial which entered judgment in favor of the Defendants and against Plaintiff. The matters complained of on appeal are as follows: 1. Did the lower Court commit an error of law or abuse of discretion in finding that Plaintiff TAM Systems, Inc. did not meet its burden to show the existence of actual intent to hinder, delay, or defraud Plaintiff in the transfer actions of Defendants in violation of Section 5104(a)(1) of the Pennsylvania Uniform Fraudulent Transfer Act, 12 Pa. C.S.A. 5101 et seq.? 2. Did the lower Court commit an error of law or abuse of discretion when it did not undertake a specific review of the list of factors used to determine actual intent as enumerated in Section 51 04(b) of the Pennsylvania Uniform Fraudulent Transfer Act and their application to the evidence presented on behalf of Plaintiff at trial? 3. Did the lower Court commit an error of law or abuse of discretion in finding that Plaintiff had a burden of clear and convincing evidence that was not met because Defendants justifiably relied upon the advice of their accountant, even though the accountant was not informed at the time of the advice of the existence of a lawsuit against Defendant Figlio Mio Visaggio, Inc. and even though the accountant testified that he was looking strictly at the tax implications in transferring the property when the advice was provided? 4. Did the lower Court commit an error of law or abuse of discretion in finding that Plaintiff had a burden of clear and convincing evidence that was not met because Defendants justifiably relied upon the advice of their attorneys even though Defendants did not introduce any evidence of the advice provided by legal counsel? 5. Did the lower Court commit an error of law or abuse of discretion in determining that Plaintiff TAM Systems, Inc. did not raise the claim of fraudulent transfer under Section 51 04( a )(2) of the Pennsylvania Uniform Fraudulent Transfer Act which provides that a transfer is fraudulent where the debtor did not receive "reasonably equivalent value" in exchange for a transfer? This opinion is written pursuant to Pa. RA.P. 1925(a) and supplements the opinion accompanying the order of November 15,2006, as such, no additional findings of fact are necessary. DISCUSSION It is well established in Pennsylvania that the intent to defraud must be proved by evidence that is clear and convincing. Snell v. Com., State Examining Bd., 416 A.2d 468 (Pa. 1980). With regard to the Pennsylvania Uniform Fraudulent Transfers Act, "actual intent to defraud" may be established through circumstantial evidence, but the Plaintiff bears the burden of showing actual intent to defraud through clear and convincing evidence. Moody v. Security Pacific Business Credit, Inc., 127 B.R 958 (W.D. Pa. 1991). Clear and convincing evidence is the highest burden in civil law, and requires that the fact-finder be able to "come to clear conviction, without hesitancy, of the truth of the 2 precise fact at issue." Suber v. Pennsylvania Commission on Crime and Delinquency, 885 A.2d 678, 682 (Pa. Cmwlth. 2005), citing Lessner v. Rubinson, 592 A.2d 678, 681 (Pa. 1991). Most of Plaintiff s arguments on appeal fail because, and for the reasons set forth in the opinion accompanying the November 15, 2006, order, Plaintiff in this case simply failed to meet this high evidentiary burden. This is simply not a case where the actual intent to defraud is so clear as to remove any hesitation from the fact-finder. In fact, the record supports the finding that although the Defendant entered a transaction that, due to certain circumstances warranted review by this Court under the Pennsylvania Uniform Fraudulent Transfers Act, the Defendant did so in good faith. This opinion, however, addresses two of the issues that this Court believes warrant further examination. Specifically, whether a specific review of all the factors enumerated in S5104(b) was required (Plaintiffs Matter 2), and this Court's analysis regarding s5104(a)(2) and "reasonably equivalent value" (Plaintiffs Matter 5). 1. Specific Review of ~5104(b) Factors Used to Determine Actual Intent Plaintiff argues that this Court erred in failing to "undertake a specific review of the list of factors used to determine actual intent as enumerated" in S5104(b). That subsection provides that, "[i]n determining actual intent under Subsection (a)(1), consideration may be given, among other factors," to a list of eleven factors. 12 Pa. C.S.A. S5104(b). The list of factors in S5l 04(b) is a "nonexclusive catalog of factors" and proof of the existence of one or more of the factors may be relevant to actual intent "but does not 3 create a presumption that a debtor has made a fraudulent transfer or incurred a fraudulent obligation." Committee Comment (5) to S5104. Furthermore, in considering the factors listed in Subsection (b), the Court should evaluate all the relevant circumstances involved in the transfer and may appropriately take into account "all indicia negativing as well as those suggesting fraud." Committee Comment (6) to S 51 04. This Court believes the "relevant circumstances" of this case to be the credible evidence that the Defendant, relying on advice of his accountant and attorney, entered the transaction for understandable financial reasons and not with the actual intent to defraud. This Court considered the specific factors individually, but also deemed this consideration subordinate to the relevant circumstances which strongly negate fraudulent intent. The language of the Subsection taken together with the Committee Comments suggests that even if every listed factor indicating fraud was present, circumstances could be such that a finding of actual intent is inappropriate. In this case this Court believes a specific review of each factor is unnecessary in light of other relevant and credible evidence as to the motives and circumstances of the transaction. 2. "Reasonably Equivalent Value" Analysis Plaintiff argues on appeal that this Court erred in "determining that [Plaintiff] did not raise the claim of fraudulent transfer" under s5104(a)(2) of the Pennsylvania Uniform Fraudulent Transfer Act, which provides that a transfer is fraudulent where the debtor did not receive "reasonably equivalent value" in exchange for a transfer. In fact, to find a transaction fraudulent under s5104(a)(2), in addition to a lack of "reasonably equivalent value," the Court must find that the debtor (i) was engaged or was about to engage in a 4 business or transaction for which the remaining assets of the debtor were umeasonably small in relation to the business or transaction; or (ii) intended to incur, or believed or reasonably should have believed that the debtor would incur debts beyond the debtor's ability to pay as they became due. 12 Pa. C.S.A. s5104(a)(2)(i)-(ii). Plaintiff is correct in asserting that it included claims under both S 51 04( a)( 1), regarding actual intent to defraud, and s5104(a)(2), regarding reasonably equivalent value. This Court did not intend to address whether or not s5104(a)(2) was properly pled, nor is such determination necessary. Rather, the Court was referring to the fact that beyond listing the statute in pleadings and a reference in Plaintiffs Post-Trial Brief that "Figlio Mio did not receive any proceeds from the property," this issue was not specifically addressed in the pleadings or in the evidence Plaintiff presented at trial, nor were either of the additional determinations required for a finding of fraud (s5104(a)(2)(i) and (ii)) addressed. Plaintiff in essence asked this Court to rely on the mere legal assertion that no reasonably equivalent value was received in exchange for a transfer in order to determine that the transaction was fraudulent under s5104(a)(2). The facts in this case do not support Plaintiff s assertion. Figlio Mio transferred the property to the individual defendants for a price of $830,000. The Lumadues personally borrowed this $830,000 from Mid Penn Bank, and Figlio Mio in turn paid $830,000 to Mid Penn Bank to satisfy Figlio Mio's portion of a $1,315,000 mortgage on the property held by the Lumadues. Concurrent to these transactions, the Lumadues signed a note and mortgage in the amount of $830,000, becoming liable for this debt on the property which at the time had a fair market value of $625,000. Thus, Figlio Mio not 5 only received the value of its portion of the mortgage on the property, the Lumadues actually paid $205,000 in excess of the fair market value of the property. The Pennsylvania Supreme Court has held that "Because of the alluring generality of the term 'fraud' there is a temptation to employ it indiscriminately, whereby it tends to degenerate into merely a trite epithet". Bailey v. Bailey 338 Pa. 221,222, 12 A.2d 577, 578 (1940), Peoples-Pittsburgh Trust Co. v. Holy Family Polish Nat. Catholic Church, Carnegie, Pa. 341 Pa. 390, 393, 19 A.2d 360, 361 (1941). Here the Court is satisfied that no intent to defraud Tam Systems, Inc., has been proven by clear and convincing evidence and that the value received in exchange for the property transferred in this case does constitute reasonable equivalent value. BY THE COURT, M.L. Ebert, Jr., 1. Douglas G. Miller, Esq. West Pomfret Professional Building 60 West Pomfret Street Carlisle, P A 17013-3222 Attorney for Plaintiff Keith O. Brenneman, Esq. Snelbaker & Brenneman, P.C. 44 West Main Street Mechanicsburg, P A 17055 Attorney for Defendant 6