McGonagle v. Palli

S1ATEOFMAINE SUPERIOR COURT

CUMBERLAND, ss CIVIL ACTION

DOCKET NO. RE-12-413 //

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WILLIAM F. MCGONAGLE, III

and KAREN E. BARSTOW,

Plaintiffs

ORDER ON MOTION

v. FOR PARTIAL

SUMMARY JUDGMENT

WILLIAM P ALLI, JR.,

and DNINE MERCY, LLC,

Defendants

Before the court is defendant William Palli, Jr.'s motion for partial

summary judgment on the following counts of the plaintiffs' complaint: count II,

trespass; count VI, declaratory judgment; and count VII, fraudulent transfer. In

his reply memorandum, defendant Palli focuses only on count VII and whether

defendant Divine Mercy should be dismissed from count VI. For the following

reasons, the motion is denied.

BACKGROUND

Plaintiffs own two lots located at 138 Ledge Road in Yarmouth, Maine.

(Def.' s Supp. S.M.F. <[ 1.) Defendant Palli owns adjacent land benefitted by an

easement appurtenant across a portion of plaintiffs' property. (Def.'s Supp.

S.M.F. <[ 2.) Plaintiffs filed a previous lawsuit on January 30, 2012, which

involved defendant Palli's easement. 1 (Def.'s Supp. S.M.F. <[ 3.) That case settled

in July 2012 and plaintiffs' complaint was dismissed with prejudice. (Def.'s Supp.

S.M.F. <[<[ 4-5.)

1

The record does not show whether defendant Palli is the sole owner of the land. (Pl.'s Reply

S.M.F. <][ 2.)

In September 2012, defendant Palli filed a Certificate of Formation with

the Secretary of State to form Divine Mercy, LLC (Divine Mercy). (Def.'s Supp.

S.M.F. <J[ 6.) Defendant Palli is the sole principal of the entity. (Def.'s Supp.

S.M.F. <J[ 6.) On October 18, 2012, plaintiffs' counsel sent a letter to defendant

Palli's attorney requesting that defendant comply with certain provisions of the

parties' settlement agreement. (Def.'s Supp. S.M.F. CJ[ 9; Pis.' A.S.M.F. CJ[ 12.) The

following day, defendant Palli's counsel sent a letter to the Town of Yarmouth's

attorney to inform the Town that defendant Palli would be transferring a portion

of his Ledge Road property to Divine Mercy. (Def.'s Supp. S.M.F. CJ[ 10.) On the

same day, 10/19 I 12, defendant Palli transferred the property for no

consideration to defendant Divine Mercy by deed, which is recorded at book

30041, page 224 in the Cumberland County Registry of Deeds. (Def.'s Supp.

S.M.F. <J[<J[ 12, 15.) This transfer created two lots, one owned by defendant Palli

and one owned by defendant Divine Mercy, both of which were intended to be

benefitted by the easement across plaintiffs' property. 2 (Def.'s Supp. S.M.F. CJ[ 11.)

After plaintiffs filed suit, defendant Divine Mercy conveyed the Ledge

Road land back to defendant Palli on January 24, 2013. (Def.'s Supp. S.M.F. <J[ 27.)

These two. deeds contain language that differs from the easement language in the

original deed to defendant Palli. (Pis.' Opp. S.M.F. CJ[ 20.) On February 14, 2013,

defendant Divine Mercy was cancelled and a Certificate of Cancellation was filed

with the Secretary of State. (Def.'s Supp. S.M.F. <J[ 29.)

2

Plaintiffs acknowledge that the transfer intended to create two lots benefitted by the easement

but dispute whether both lots were in fact benefitted by the easement. (Opp. S.M.F.Cj[ll.)

2

PROCEDURAL HISTORY

Plaintiffs filed their complaint on 11 I 9 I 12. On 11 I 26 I 12, plaintiffs filed a

motion for attachment, which the court denied on 215113. On 414113,

defendants filed this motion for partial summary judgment on counts II, VI, and

VII of the complaint. In his reply memorandum, defendant Palli does not press

the motion as to count VI and concedes there are genuine issues of material fact

regarding count II of the complaint. (Def.'s Reply Mem. 1.) Accordingly, the

court considers count VII only and whether defendant Divine Mercy should be

dismissed from count VI.

DISCUSSION

1. Standard of Review

"Summary judgment is appropriate when there is no genuine issue of

material fact that is in dispute and, at trial, the parties would be entitled to

judgment as a matter of law." Fitzgerald v. Hutchins, 2009 ME 115, err 9, 983 A.2d

382 (citing Dyer v. Dep't of Transp., 2008 ME 106, err 14, 951 A.2d 821). An issue

II

is genuine if there is sufficient evidence supporting the claimed factual dispute to

require a choice between the differing versions; an issue is material if it could

potentially affect the outcome of the matter." Brown Dev. Corp. v. Hemond, 2008

ME 146, err 10, 956 A.2d 104 (citing Univ. of Me. Found. v. Fleet Bank of Me., 2003

ME 20, err 20, 817 A.2d 871). Disputes of material fact "must be resolved through

fact-finding, even though the nonmoving party's likelihood of success is small."

Curtis v. Porter, 2001 ME 158, err 7, 784 A.2d 18 (citing Niehoff v. Shankman &

Assocs. Legal Ctr., P.A., 2000 ME 214, err 10, 763 A.2d 121, 124-25).

3

2. Fraudulent Transfer

Plaintiffs allege that defendant Palli' s transfer of land to defendant Divine

Mercy was intended to "hinder and delay" plaintiffs in collecting a judgment.

(Compl. 9[ 88.) Under Maine's version of the Uniform Fraudulent Transfer Act,

A transfer made or obligation incurred by a debtor is fraudulent as

to a creditor, whether the creditor's claim arose before or after the

transfer was made or the obligation was incurred, if the debtor

made the transfer or incurred the obligation:

A. With actual intent to hinder, delay or defraud any creditor of

the debtor ....

14 M.R.S.A. § 3575(1)(A) (2013). 3 Plaintiffs must show by clear and convincing

evidence that the transfer was fraudulent. See F.D.I.C. v. Proia, 663 A.2d 1252,

1254 n.2 (Me. 1995) (noting that the Act did not alter the previous burden of

proof for fraud in conveyance). Generally, "[w]hether a conveyance is fraudulent

is a question of fact." Proia, 663 A.2d at 1254 (citing Watson v. Watson, 607 A.2d

383, 388 (Conn. 1992)).

The Act provides a non-exhaustive list of factors for the court to consider

in determining a party's intent:

A. The transfer or obligation was to an insider;

B. The debtor retained possession or control of the property transferred

after the transfer;

C. The transfer or obligation was disclosed or concealed;

D. Before the transfer was made or obligation was incurred, the debtor

sued or threatened with suit;

E. The transfer was of substantially all the debtor's assets;

F. The debtor absconded;

G. The debtor removed or concealed assets;

H. The value of the consideration received by the debtor was reasonably

equivalent to the value of the asset transferred or the amount of the

obligation incurred;

3

Creditor is defined as "a person who has a claim." 14 M.R.S. § 3572(4). Claim is defined as "a

right to payment, whether or not the right is reduced to judgment, liquidated, unliquidated,

fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured or

unsecured." 14 M.R.S. § 3572(3).

4

I. The debtor was insolvent or became insolvent shortly after the transfer

was made or the obligation was incurred;

J. The transfer occurred shortly before or shortly after a substantial debt

was incurred; and

K. The debtor transferred the essential assets of the business to a lienor

who had transferred the assets to an insider of the debtor.

14 M.R.S.A. § 3575(2). Insider is defined, inter alia, as "[a] corporation of which

the debtor is a director, officer or person in control." 14 M.R.S.A. § 3572(7)(A)(4).

A genuine issue of material fact has been raised regarding a fraudulent

transfer under section 3575(1)(A). First, the transfer was made to an insider

because defendant Palli was the sole principal of defendant Divine Mercy. (Def.'s

Supp. S.M.F. 1 6.) Second, defendant Palli remained in control of the property

after the transfer as the sole principal of defendant Divine Mercy. (Def.'s Supp.

S.M.F. 1 6.) Third, the transfer occurred the day after plaintiffs' attorney sent

defendant Palli's attorney a demand letter. (Def.'s Supp. S.M.F. 119-10.) Fourth,

the defendant received no consideration for the transfer of the property. (Def.'s

Supp. S.M.F. 115.)

Defendant Palli argues that many of the other statutory factors weigh

against finding a fraudulent transfer. (Def.'s Mem. 11-12.) Defendant Palli also

relies on conclusory statements that he did not intend "to hinder, delay, or

defraud" and the transfer was made, instead, so the remaining parcel could be

sold. 4 (Supp. S.M.F. 1 20.) These facts and conclusions, however, are insufficient

for the court to find as a matter of law in defendants' favor. See Mitsubishi

Caterpillar Forklift Am., Inc. v. Superior Servs. Assocs., Inc., 81 F. Supp. 2d 101,

114-15 (D. Me. 1999) (finding that similar conclusory statements in a fraudulent

transfer case were "not sufficient to establish either the absence of disputed

4

Plaintiffs have raised an issue of fact regarding defendant Palli's claim that he planned to

develop his property. (Pl.'s Opp. S.M.F. 9I 8.)

5

material facts on this point or their entitlement to summary judgment as a matter

of law").

Plaintiffs allege also that defendant Palli was insolvent at the time of the

transfer. (Compl. <]I 92.) Under Maine's version of the Uniform Fraudulent

Transfer Act,

A transfer made or obligation incurred by a debtor is fraudulent as

to a creditor, whether the creditor's claim arose before or after the

transfer was made or the obligation was incurred, if the debtor

made the transfer or incurred the obligation:

B. Without receiving a reasonably equivalent value in exchange for

the transfer or obligations and the debtor:

(1) Was engaged or was about to engage in a business

or a transaction for which the remaining assets of the

debtor were unreasonably small in relation to the

business or transaction; or

(2) Intended to incur, or believed or reasonably should

have believed that he would incur, debts beyond his

ability to pay as the debts became due.

14 M.R.S. § 3575(1)(B)(1)-(2). Defendant Palli argues the plaintiffs cannot show

the transfer violated section 3575(1)(B). (Def.'s Mem. 12.) The plaintiffs respond

that they have not been permitted discovery regarding financial assets. 5 (Pis.'

Opp. S.M.F. 'li'li 16-19.)

The plaintiffs have been precluded from discovery of financial

information that could raise an issue of material fact regarding section

3575(1)(B). 6 (Order dated 9/9/13.) Based on that order and this decision, the

court does not address this section of Maine's Fraudulent Transfer Act.

5

The plaintiffs state they have some information based on public records. (Pis.' Mem. 9-10.) This

information does not appear in the plaintiffs' statements of fact.

6

In the discovery order, the court anticipated inclusion of the claim for punitive damages in this

motion for partial summary judgment. See Order dated 9/9/13.

6

3. Mootness

Citing no authority, defendant Palli argues that the fraudulent transfer

count is now moot because the transfer has been reversed. Various remedies are

available to a creditor who prevails on a fraudulent transfer claim. 14 M.R.S.A. §

3578(1). Further, any effect of the transfer and retransfer of the land and the

inclusion of easement language in the two deeds that differs from the language

in the original deed are not developed on this record. (Pis.' Opp. S.M.F. 11 15,

20.)

4. Dismissal of Defendant Divine Mercy, LLC

Defendant Palli argues defendant Divine Mercy, LLC should be dismissed

from count VI if the fraudulent transfer claim is resolved. That claim is not

resolved. Whether Divine Mercy has been dissolved does not affect its capacity

to be sued. 31 M.R.S. § 1596(2)(B) (2013).

The entry is

Defendant Palli' s Motion for Partial Summary

Judgment on Count VII of Plaintiffs'

Complaint is DENIED.

Plaintiffs are allowed to renew their discovery

requests for Defendants' financial information.

See Order dated 9 I 9 I 13. The court will

schedule a conference call with counsel during

the week of February 10, 2014 to discuss a

schedule for discovery.

Defendant Palli' s Motion to Dismiss Defendant

Divine Mercy, LLC is DENIED.

Date: February 7, 2014

Nancy Mills

Justice, Superior

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