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Janice M. Hinrichsen, Inc. v. Messersmith Ventures, L.L.C.

Supreme Court of Nebraska

May 19, 2017

Janice M. Hinrichsen, Inc., a Nebraska corporation. APPELLANT AND CROSS-APPELLEE,
v.
MESSERSMITH Ventures, L.L.C., a Nebraska limited liability company, appellee and cross-appellant, and Risk Assessment and Management, Inc., a Nebraska corporation, appellee.

         1. Conveyances: Fraud: Equity. An action under the Uniform Fraudulent Transfer Act is equitable in nature.

         2. Conveyances: Fraud: Equity: Appeal and Error. An appeal of a district court's determination that transfers of assets were in violation of the Uniform Fraudulent Transfer Act is equitable in nature.

         3. Equity: Appeal and Error. 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.

         Appeal from the District Court for Buffalo County: John P. Icenogle, Judge. Affirmed in part, and in part reversed and remanded with directions.

          Larry W. Beucke, of Parker, Grossart, Bahensky, Beucke, Bowman & Symington, L.L.P, for appellant.

          Bradley D. Holbrook and Nicholas R. Norton, of Jacobsen, Orr, Lindstrom & Holbrook, PC, L.L.O., for appellee Messersmith Ventures, L.L.C.

          [296 Neb. 713] Heavican, C.J., Wright, Miller-Lerman, Cassel, Stacy. Kelch, and Funke, JJ.

          Miller-Lerman, J.

         NATURE OF CASE

         In this action brought under the Uniform Fraudulent Transfer Act, Neb. Rev. Stat. §§ 36-701 to 36-712 (Reissue 2016) (UFTA), Janice M. Hinrichsen, Inc. (JMH), alleged that Risk Assessment and Management, Inc. (RAM), against whom JMH had a judgment from a previous action, had fraudulently transferred certain assets to Messersmith Ventures, L.L.C. The district court for Buffalo County entered judgment in favor of JMH in the amount of $250. JMH appeals, and Messersmith Ventures cross-appeals.

         We conclude that the district court did not err when it implicitly found that a fraudulent transfer of assets had occurred. However, we further conclude that the judgment in the amount of $250 was not the appropriate relief. Instead, the appropriate relief afforded under the UFTA in this case is for the court to enter an order that would allow JMH's previous judgment against RAM to be satisfied by authorizing JMH to levy execution on the assets or the proceeds of the assets that RAM transferred to Messersmith Ventures. We therefore affirm the judgment of the district court to the extent it found that there was a fraudulent transfer, but we reverse the order to the extent it awarded JMH a monetary judgment of $250. We remand the cause with directions to the district court to order the appropriate relief.

         STATEMENT OF FACTS

         Janice M. Hinrichsen purchased an insurance agency in Elm Creek, Nebraska, in 1999. She incorporated the business in 2000 as JMH and operated it under the name "Platte Valley Insurance Agency." In January 2011, JMH sold 90 percent of its assets to RAM; Chad Messersmith is the sole shareholder of RAM. Pursuant to the purchase agreement, RAM was to pay JMH $108, 870 over a period of time. JMH and RAM [296 Neb. 714] formed PVIA Partnership and operated the insurance agency through the partnership. RAM held a 90-percent interest in the partnership, and JMH held a 10-percent interest.

         In late 2011, RAM failed to make a required payment under the purchase agreement. JMH thereafter left the partnership and filed an action against RAM to enforce the purchase agreement. In the amended complaint, this earlier case was referred to as "Case No. CI 12-88." In July 2012, the district court for Buffalo County entered a judgment in favor of JMH and against RAM in the amount of $98, 606.94. In its answer in the instant case, Messersmith Ventures admits the existence of this judgment.

         In October 2013, Messersmith created Messersmith Ventures to operate a business under the name "Mid-States Insurance Agency." On October 28, RAM, as managing partner of PVIA Partnership, transferred to Messersmith Ventures the customer list of PVIA Partnership for the amount of $250. The primary agency contracts of PVIA Partnership were subsequently renewed in the name of Messersmith Ventures. In November, RAM notified JMH that RAM was withdrawing as a partner of PVIA Partnership, and RAM filed paperwork with the Nebraska Secretary of State indicating that PVIA Partnership was dissolved effective October 31, 2013.

         In February 2014, JMH filed the present action against Messersmith Ventures in the district court. JMH alleged in its complaint that RAM's transfer of PVIA Partnership assets to Messersmith Ventures was a fraudulent transfer. JMH alleged various reasons the transfer was fraudulent, including (1) the transfer was made with the actual intent to hinder, delay, or defraud; (2) the transfer was made without receiving a reasonably equivalent value, and RAM was engaged, or was about to engage, in a business or transaction for which its remaining assets were unreasonably small in relation to the business or transaction; (3) the transfer was made without receiving a reasonably equivalent value in exchange for the transfer, and RAM was insolvent at the time or became insolvent as a [296 Neb. 715] result of the transfer; (4) the transfer was made to an insider for an antecedent debt, the debtor was insolvent at the time, and the insider knew or reasonably should have known the debtor was insolvent. These allegations generally tracked the language of provisions of the UFTA. JMH requested an order avoiding the transfer to allow the assets to be used to satisfy JMH's judgment against RAM and an order allowing JMH "to levy execution on the assets of Messersmith Ventures and [its] proceeds" in accordance with § 36-708(b) of the UFTA. JMH also requested "further relief as the Court deems just and equitable." JMH amended its complaint, and, inter alia, added RAM as a defendant and added a request for "a charging order charging the assets of Messersmith Ventures."

         After a bench trial, the district court filed an order ruling on the action. After reviewing the evidence and JMH's allegations, the court stated, inter alia, that "the only assets considered valuable by [JMH] transferred by RAM would be the customer list and the agency contracts." The court concluded its order with the following paragraphs:

Nebraska law provides that if the court determines that a transfer is voidable the creditor may recover judgment for the value of the asset transferred as adjusted, or the amount necessary to satisfy the creditor's claim, whichever is less. [Messersmith Ventures] at most acknowledges that the assets transferred were valued at $250.00. [JMH] obviously believes that the assets were valued at a substantially greater amount. It is the burden of [JMH], however, to establish the amount and value of the transferred assets. The court finds that [JMH] did not offer adequate and sufficient evidence to establish the value of the assets transferred at the time of the transfer. The court will therefore rely upon the testimony of [Messersmith Ventures] and enter judgment in favor of [JMH] and against [Messersmith Ventures] in the amount of $250.00. Interest will accrue from today's date at 2.137% per annum.
[296 Neb. 716] The remaining issue is the request of [JMH] to levy an execution on the assets of [Messersmith Ventures] to satisfy [JMH's] judgment against RAM. Nebraska law provides that if a creditor has obtained a judgment on a claim against the debtor, the creditor, if the court so orders, may levy execution on the asset transferred or its proceeds. The court again finds that the value of the asset transferred is $250.00 and [JMH] may levy execution against [Messersmith Ventures] to partially satisfy the debt of the transferor to [JMH]. The court, however, finds that there is not sufficient evidence as to the amount ...

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