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Algreen v. Gardner

Court of Appeals of Iowa

June 20, 2018

ZANE ALGREEN, Plaintiff-Appellee,
v.
TIMOTHY GARDNER and GARDNER CROP INSURANCE, INC., Defendants-Appellants.

          Appeal from the Iowa District Court for Monroe County, Randy S. DeGeest and Lucy J. Gamon, Judges.

         Litigants challenge the finding of a fraudulent transfer and subsequent piercing of the corporate veil. REVERSED AND REMANDED.

          John A. Pabst of Pabst Law Office, Albia, for appellants.

          Andrew L. LeGrant of LeGrant Law Firm, P.C., Urbandale, for appellee.

          Heard by Doyle, P.J., and Tabor and McDonald, JJ.

          MCDONALD, Judge.

         This consolidated appeal concerns two separate but related actions initiated by Zane Algreen against Timothy Gardner and Gardner Crop Insurance, Inc. (GCI). The first action involved a claim for unpaid wages arising under the Iowa Wage Payment Collection Law, Iowa Code chapter 91A (2012). In that suit, Algreen obtained judgment against GCI in the amount of $19, 770.05 for unpaid compensation, $2337.32 for liquidated damages, and $46, 292.89 for attorney fees and expenses. In the second action, Algreen sought equitable relief against Gardner and GCI for the failure to pay the judgment in the first action. Algreen asserted a claim for fraudulent conveyance, arising under Iowa Code chapter 684 (2016), and sought to pierce the corporate veil. The district court granted Algreen's petition, held Gardner would be held jointly and severally liable for the judgment in the first case, awarded punitive damages in the amount of $22, 107.37 against Gardner and GCI, and directed Algreen to submit a supplemental attorney-fee affidavit in the wage-payment case for the award of additional attorney fees and costs incurred in collecting the judgment. After Algreen submitted the affidavit, the district court awarded an additional $22, 202.18 in attorney fees and costs in the wage-payment case. Gardner and GCI timely filed this appeal.

         I.

         The record reflects the following. GCI was in the business of selling multiple peril crop insurance and hail insurance policies. Gardner was the founder and owner-operator of GCI. He founded the company in 2001. Gardner owned 87% of the company stock, and he served as the company's president, secretary, treasurer, and director. Gardner's son owned the minority share of the company.

         Algreen commenced employment with GCI in May 2011. At that time, Algreen was married to Gardner's sister. But when the marriage ended in 2012, so did Algreen's employment. Algreen believed GCI owed him base-wages and commissions at the time of his termination. When Algreen informed Gardner he expected payment, Gardner told him, "You'll never see another dime."

         Approximately one year later, in April 2013, Gardner began negotiating the sale of GCI to CGB Diversified Services, Inc. In February 2014, Gardner and CGB Diversified finalized the terms of the agreement. CGB Diversified purchased GCI's book of insurance business for a maximum of $1.8 million pursuant to a payment schedule with the final purchase price dependent on the revenue produced from the book of business. CGB Diversified also agreed to employ Gardner as a sales agent with Gardner being subject to a non-compete and non-disclosure agreement. GCI thus ceased operations at that time. CGB Diversified was to pay the purchase price in a series of installment payments, with each installment to be split 87% to Gardner and 13% to the minority shareholder in GCI. The first installment of $360, 000 was paid at the time of closing. Additional installment payments have been made in the amounts of $313, 200; $307, 388; $310, 954; and $311, 160.

         In September 2013, after Gardner had commenced negotiation to sell his business to CGB Diversified, Algreen filed his action to collect unpaid wages. In April 2015, following a jury trial, the district court entered judgment against GCI in the amount of $19, 770.05 for unpaid compensation, $2337.32 for liquidated damages, and $46, 292.89 for attorney fees and expenses. The date of the judgment entry is more than one year after Gardner sold his business to CGB Diversified.

         After the entry of the judgment, Algreen began unsuccessful efforts to collect on the judgment against the now-defunct business. A writ of general execution was issued in September 2015 but was returned unsatisfied. Algreen unsuccessfully attempted to garnish GCI in November 2015. In March 2016, Algreen filed an application to levy execution pursuant to Iowa Code section 684.7(2). GCI resisted, and the matter was litigated. Algreen then withdrew his section 684.7(2) application and elected to file an independent action alleging fraudulent transfer of assets. Another writ of execution was issued but returned unsatisfied, and Algreen's second attempt to garnish GCI was also unsuccessful.

         Algreen filed his petition for equitable relief asserting a claim of fraudulent transfer against Gardner and GCI in May 2016. He asked the court to pierce the corporate veil and hold Gardner and GCI jointly and severally liable for the full amount of the judgment in the wage-dispute action. He also asserted he was entitled to an award of punitive damages because Gardner and GCI acted with malice or reckless indifference to his rights. The fraudulent-transfer matter was tried to the bench. The district court concluded Algreen proved his fraudulent transfer claim and proved the corporate veil should be pierced. The court awarded punitive damages in the amount of $22, 107.37-an award equal to the amount of damages awarded by the jury in the wage-dispute suit. The district court held Gardner and GCI jointly and severally liable for the full amount of judgment in the wage-dispute action and for the punitive damage award. The court also ordered Algreen to submit a supplemental application for attorney's fees and expenses in the wage-dispute action and held Gardner and GCI jointly and severally liable for any such fees and expenses awarded. Gardner and GCI's motion to amend and enlarge findings of fact and conclusions of law was denied. Gardner and GCI appeal.

         II.

         We first address Algreen's fraudulent-transfer claim arising under Iowa Code chapter 684. Gardner and GCI contend there is insufficient evidence supporting the fraudulent-transfer claim. This case was tried in equity, and our review is de novo. See Iowa R. App. P. 6.907. We give weight to the district court's factual findings, especially those involving credibility determinations, but we are not bound by them. See Iowa R. App. P. 6.904(3)(g). We examine the entire record and adjudicate anew the rights of the parties on the issues presented. See City of Wapello v. Chaplin, 507 N.W.2d 187, 188 (Iowa Ct. App. 1993). At the time this action was filed, the party alleging a fraudulent transfer had the burden of proving the claim by clear and convincing evidence. See Ralfs v. Mawry, 586 N.W.2d 369, 373 (Iowa 1998) (addressing burden); 2016 Iowa Acts ch. 1040 (codified as amended at Iowa Code § 684.4(3) (Supp. 2016)) (amending section 684.4 to state the burden of proving the elements of the claim is a preponderance of the evidence).

         The Uniform Fraudulent Transfer Act (UFTA), Iowa Code chapter 684, governs fraudulent transactions. The UFTA sets forth two types of fraudulent transfer: those transfers made with "actual intent to hinder, delay, or defraud any creditor of the debtor" and those made without reasonably equivalent value for the transfer. Iowa Code § 684.4(1). Only the first type of claim is at issue in this proceeding. "When a debtor disposes of property with the intent to delay or defraud creditors, we deem the disposition inequitable and will set it aside." Benson v. Richardson, 537 N.W.2d 748, 756 (Iowa 1995). "The rationale for the right to reclaim fraudulently conveyed property is, and always has been, to prevent a debtor from frustrat[ing] his creditor's rights and avoid[ing] his obligations by changing title to his assets." Schaefer v. Schaefer, 795 N.W.2d 494, 498 (Iowa 2011).

         Iowa Code section 684.4(2) sets forth the factors to be considered in determining actual intent. Those factors, also referred to at times as "indicia of fraud" or "badges of fraud, " include: a.Whether the transfer or obligation was to an insider.

b. Whether the debtor retained possession or control of the property transferred after the transfer.
c. Whether the transfer or obligation was disclosed or concealed.
d. Whether, before the transfer was made or obligation was incurred, the debtor had been sued or threatened with suit.
e. Whether the transfer was of substantially all the debtor's assets.
f. Whether the debtor absconded.
g. Whether the debtor removed or concealed assets.
h. Whether the value of the consideration received by the debtor was reasonably equivalent to the value of the asset transferred or the ...

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