The opinion
STATE OF MICHIGAN
COURT OF APPEALS
CITY OF RIVERVIEW, UNPUBLISHED
May 19, 2015
Plaintiff-Appellee,
v No. 319786
Wayne Circuit Court
FOREST ISLAND RECYCLING II, INC., LC No. 10-006512-CK
FOREST ISLAND RECYCLING I, INC., and
ANTHONY JOSEPH,
Defendants,
and
RICHARD J. GIBBS, JR., and MARK SIMON,
Intervenors-Appellants.
Before: TALBOT, C.J., and CAVANAGH and METER, JJ.
PER CURIAM.
Intervenors, Richard J. Gibbs, Jr. and Mark Simon, appeal as of right an opinion and
order denying their motion to quash execution of a consent judgment between plaintiff, City of
Riverview and defendants, Forest Island Recycling I, Inc., Forest Island Recycling II, Inc., and
Anthony Joseph, in this case arising under the uniform fraudulent transfer act (UFTA), MCL
566.31 et seq. We affirm.
I. STANDARD OF REVIEW
The decision whether to quash an execution of judgment rests within the sound discretion
of a trial court. Arkin Distrib Co v Jones, 288 Mich App 185, 187; 792 NW2d 772 (2010). “An
abuse of discretion occurs when the trial court’s decision is outside the range of reasonable and
principled outcomes.” AFP Specialties, Inc v Vereyken, 303 Mich App 497, 517; 844 NW2d 470
(2014) (internal quotation marks omitted). A trial court’s findings of fact are reviewed for clear
error. Mericka v Dep’t of Community Health, 283 Mich App 29, 36; 770 NW2d 24 (2009). “A
finding is clearly erroneous where, after reviewing the entire record, this Court is left with a
definite and firm conviction that a mistake has been made.” Alan Custom Homes, Inc v Krol,
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256 Mich App 505, 512; 667 NW2d 379 (2003). We review de novo the interpretation of
statutes as a question of law. Estes v Titus, 481 Mich 573, 578-579; 751 NW2d 493 (2008).
II. INTERVENORS’ CLAIMS ON APPEAL
Intervenors argue that the trial court erred in multiple respects, particularly in finding that
the UFTA was violated and that certain assets were fraudulently transferred.
A. VIOLATION OF UFTA
Intervenors first claim that the trial court erred in finding that the transfer of assets from
Forest Island II to them violated the UFTA. We disagree.
In Dillard v Schlussel, ___ Mich App ___, ___; ___ NW2d ___ (2014, Docket No.
315485); slip op at 9, this Court provided a brief overview of the UFTA:
“The modern law of fraudulent transfers had its origin in the Statute of 13
Elizabeth, which invalidated ‘covinous and fraudulent’ transfers designed ‘to
delay, hinder or defraud creditors and others.’ ” The [UFTA] codifies the
common law. The UFTA is “designed to prevent debtors from transferring their
property in bad faith before creditors can reach it.” The Supreme Court of
Wisconsin has explained: “The Uniform Fraudulent Transfer Act reflects a strong
desire to protect creditors and to allow for the smooth functioning of our credit-
based society. It is a creditor-protection statute. Without such protection for
creditors, ‘creditors would generally be unwilling to assume the risk of the
debtor’s fraudulent transfers.’ ” Our Legislature enacted the [UFTA] in 1998.
[Citations omitted; footnote omitted.]
Generally, the UFTA provides two types of fraudulent transfers in violation of the act.
The first type, i.e., “actual intent to defraud,” is defined as follows:
(1) 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.
(b) Without receiving a reasonably equivalent value in exchange for the transfer
or obligation, and the debtor did either of the following:
(i) 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.
(ii) Intended to incur, or believed or reasonably should have believed that he or
she would incur, debts beyond his or her ability to pay as they became due.
[MCL 566.34(1).]
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Because “debtors rarely admit to having deliberately placed assets out of the reach of
their creditors,” Dillard, ___ Mich App at ___: slip op at 11, the “badges of fraud” provided
under MCL 566.34(2) are used to determine whether a transfer qualifies as one made with
fraudulent intent:
(2) In determining actual intent under [MCL 566.34(1)(a)], consideration may be
given, among other factors, to whether 1 or more of the following occurred:
(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 had been
sued or threatened with suit.
(e) The transfer was of substantially all of 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.
(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.
(k) The debtor transferred the essential assets of the business to a lienor who
transferred the assets to an insider of the debtor.
“Badges of fraud are not conclusive, but are more or less strong or weak according to their nature
and the number occurring in the same case, and may be overcome by evidence establishing the
bona fides of the transaction. However, a concurrence of several badges will always make out a
strong case.” Dillard, ___ Mich App at ___; slip op at 11, quoting Bentley v Caille, 289 Mich
74, 78; 286 NW163 (1939). “The question of fraudulent intent, in all cases arising under [the
UFTA] . . . , shall be deemed a question of fact and not of law. MCL 566.224; Dillard, ___
Mich App at ___; slip op at 11.
Additionally, the UFTA provides a second species of fraudulent transfer, commonly
known as “constructive fraud,” Dillard, ___ Mich App at ___; slip op at 11, provided in MCL
566.35:
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(1) A transfer made or obligation incurred by a debtor is fraudulent as to a
creditor whose claim arose before the transfer was made or the obligation was
incurred if the debtor made the transfer or incurred the obligation without
receiving a reasonably equivalent value in exchange for the transfer or obligation
and the debtor was insolvent at that time or the debtor became insolvent as a
result of the transfer or obligation.
(2) A transfer made by a debtor is fraudulent as to a creditor whose claim arose
before the transfer was made if the transfer was made to an insider for an
antecedent debt, the debtor was insolvent at that time, and the insider had
reasonable cause to believe that the debtor was insolvent.
The UFTA defines “asset” as “property of a debtor,” but does not include (1) property
that is encumbered by a valid lien, (2) property that is exempt under nonbankruptcy law, or (3)
an interest in property that is held in a tenancy by the entirety, to the extent that a creditor who
holds a claim against only one tenant cannot attack the tenancy by the entirety. MCL
566.31(b)(i)-(iii). “Transfer” is defined as “every mode, direct or indirect, absolute or
conditional, voluntary or involuntary, of disposing of or parting with an asset or an interest in an
asset. Transfer includes payment of money, release, lease, and creation of a lien or other
encumbrance.” MCL 566.31(l). The term “insider,” in the context of when the debtor is a
corporation, is defined to include all of the following:
(A) A director of the debtor.
(B) An officer of the debtor.
(C) A person in control of the debtor.
(D) A partnership in which the debtor is a general partner.
(E) A general partner in a partnership described in sub-subparagraph (D).
(F) A relative of a general partner, director, officer, or person in control of the
debtor. [MCL 566.31(g)(ii)(A)-(F).]
Further, a “lien” is defined as “a charge against or an interest in property to secure payment of a
debt or performance of an obligation, and includes a security interest created by agreement, a
judicial lien obtained by legal or equitable process or proceedings, a common-law lien, or a
statutory lien.” MCL 566.31(h).
Here, because the trial court’s holding considered the “badges of fraud,” it appears that its
decision was founded upon the “actual intent” species of fraudulent transfer. See Dillard, ___
Mich App at ___; slip op at 11-12. However, before addressing the trial court’s findings
regarding the badges of fraud, intervenors first claim that the trial court “skipped” the initial step
of any UFTA analysis by failing to determine whether a “transfer” of “assets” ever occurred
under the act. The issue appears to center on the interaction of MCL 566.31(b), defining “asset”
under the act, and MCL 566.31(l), defining “transfer” under the act. As noted above, the term
“asset” as used in the UFTA includes all property of a debtor, but does not include “[p]roperty to
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the extent that it is encumbered by a valid lien.” MCL 566.31(b)(i) (emphasis added). “Valid
lien” is defined by the UFTA as “a lien that is effective against the holder of a judicial lien
subsequently obtained by legal or equitable process or proceedings.” MCL 566.31(m).
However, “transfer” is defined broadly under the UFTA, and includes “payment of money,
release, lease, and creation of a lien or other encumbrance.” MCL 566.31(l) (emphasis added).
In addressing whether the UFTA even applies to the instant transfer, the trial court was required
to determine whether the security interest possessed by intervenors was valid, thereby removing
it from the confines of the UFTA. MCL 566.31(b)(i). Alternatively, the very security interests
on which intervenors rely to show that the transfer of assets was done pursuant to a valid “lien”
could be considered a “transfer” that is ultimately fraudulent under the UFTA. MCL 566.31(l).
In order to make this determination, the trial court necessarily had to consider if the security
interest was created “[w]ith actual intent to hinder, delay, or defraud any creditor of the debtor.”
MCL 566.34(1)(a). Therefore, the trial court did not “skip” a step by assessing the badges of
fraud; such an analysis was required to determine if intervenors’ security interest was valid at all.
Further, even assuming, arguendo, that intervenors’ “general security interest in all
assets” of Forest Island II is sufficient to constitute a “lien,” Riverview’s judgment lien and
judgment levy against Forest Island I existed before intervenors’ security interests; it was
specifically adopted by Forest Island II in the second contract for waste disposal services with
Riverview; and Simon was involved in the negotiation of the contract. Therefore, Forest Island
II adopted the antecedent lien possessed by Riverview against Forest Island I, and it does not
meet the definition of “a judicial lien subsequently obtained by legal or equitable process or
proceedings,” MCL 566.31(m) (emphasis added), as required to make intervenors’ security
interests “valid lien[s]” under the UFTA.
Next, we turn to whether Riverview established that Forest Island II and intervenors had
actual intent to defraud Forest Island II’s creditors. The trial court found that Riverview proved
sufficient badges of fraud, and that intervenors admitted that the property was transferred after
Riverview’s claim arose and the case was pending. On this basis, the fourth badge of fraud, i.e.,
“[b]efore the transfer was made or obligation was incurred, the debtor had been sued or
threatened with suit,” MCL 566.34(2)(d), was sufficiently proved.
Though the trial court did not expressly address the other badges of fraud beyond its
blanket statement that Riverview met its burden, the trial court’s findings of fact and the hearing
admissions of intervenors sufficiently prove a number of the other badges of fraud provided in
MCL 566.34(2). Factor (a) creates an inference of fraudulent intent to transfer when the transfer
is made to an insider. MCL 566.34(2)(a). The UFTA defines an “insider” in the context of a
corporation debtor as, among other definitions, a director, officer, or other person in control of
the debtor. MCL 566.31(g)(ii)(A)-(C). Here, Gibbs and Simon were both shareholders of Forest
Island II, and therefore, exercised sufficient control over the corporation to be considered
insiders. Additionally, Simon admitted that he had signed the surrender agreement that
transferred the assets to Simon and Gibbs on behalf of Forest Island II, in his capacity as
president of the corporation. Thus, the evidence satisfied this badge of fraud.
Factor (b) is satisfied if “[t]he debtor retained possession or control of the property
transferred after the transfer.” MCL 566.34(2)(b). As the trial court noted, the property that was
transferred to intervenors was seized from Forest Island II’s place of business, located at 3300
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Denton Street, Hamtramck, Michigan. Although the personal property was transferred from
Forest Island II to intervenors pursuant to a surrender agreement, the property’s physical location
remained in Forest Island II’s building, i.e., in its possession.
Factor (e) provides that a badge of fraud is established if “[t]he transfer was of
substantially all of the debtor’s assets.” MCL 566.34(2)(e). During the evidentiary hearing,
Gibbs testified that he and Simon “repossessed everything” from Forest Island II. Even if
Gibbs’s statement was more colloquial than a statement of true accounting, neither party has ever
asserted that Forest Island II had additional assets left after intervenors received the transferred
property. Therefore, there is sufficient evidence to satisfy factor (e).
Finally, factor (i) is satisfied if “[t]he debtor was insolvent or became insolvent shortly
after the transfer was made or the obligation was incurred.” MCL 566.34(2)(i). At the
evidentiary hearings, Mathias testified that Forest Island II’s liabilities exceeded its assets, and
Joseph testified that Forest Island II was insolvent for practically its entire existence. Thus, at all
times relevant to the instant dispute, and at the time the property was transferred to Gibbs and
Simon, Forest Island II, “the debtor[,] was insolvent.” Id. Accordingly, the evidence supports
the existence of at least five of the 11 factors that give rise to an inference of actual intent to
defraud. “These strands of direct and circumstantial evidence give rise to a prima facie case
under MCL 566.34(1)(a).” Dillard, ___ Mich App at ___; slip op at 14.
In addition to the trial court’s proper finding of “actual intent” to defraud under the
UFTA, the evidence admitted at the evidentiary hearings supports a finding of fraudulent transfer
under the “constructive fraud” provision of the UFTA. Again, a “constructive fraud” claim can
be shown as follows:
A transfer made by a debtor is fraudulent as to a creditor whose claim arose
before the transfer was made if the transfer was made to an insider for an
antecedent debt, the debtor was insolvent at that time, and the insider had
reasonable cause to believe that the debtor was insolvent. [MCL 566.35(2).]
Riverview had an existing default judgment against Forest Island I that was expressly adopted by
Forest Island II in their June 1, 2009 contract for waste disposal services. Intervenors received
secured interests in all of Forest Island II’s property for antecedent loans that they allegedly
made to the company, which ultimately led to the surrender of Forest Island II’s property to
intervenors. Riverview’s claim arose against Forest Island I on November 14, 2008, and it was
explicitly adopted by Forest Island II, with Simon’s direct knowledge, on June 1, 2009. Further,
the testimony at the evidentiary hearing showed that Forest Island II was insolvent throughout its
entire existence. Thus, the trial court could have found that the transfer of assets to intervenors
occurred (1) after Riverview’s claim arose against Forest Island I—though before it was
expressly adopted by Forest Island II, (2) to insiders, i.e., Gibbs and Simon, and (3) at a time
when Forest Island II was insolvent. MCL 566.35(2).
Intervenors next claim the trial court erred in finding they failed to rebut the presumption
that the transaction was fraudulent. In support of this contention, they argue that the trial court
did not address their claim that the transfer was in satisfaction of a valid security interest
intervenors held pursuant to numerous loans given to Forest Island II. However, as noted above,
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the very creation of the security interest held by Gibbs and Simon could give rise to a fraudulent
transfer under the act. See MCL 566.31(l). Whether the subsequent transfer of assets was
proper and pursuant to a valid lien was the question that was ultimately determined through the
trial court’s analysis of the badges of fraud. MCL 566.38(1) does provide defenses to bona fide
purchasers, providing that: “A transfer or obligation is not voidable under [MCL 566.34(1)(a)]
against a person who took in good faith and for a reasonably equivalent value or against any
subsequent transferee or obligee.” The trial court did not commit clear error in finding that the
security interest for “loans in excess of $150,000.00” was unsupported when the testimony at the
evidentiary hearings showed that Gibbs and Simon were owed far less than $150,000. Although
the subsequent asset transfer was valued at far less than the $150,000 that intervenors’ security
interest claimed they were owed, it was in partial satisfaction of that unsupported claim of
indebtedness. Therefore, the testimony adduced by the trial court showed that intervenors were
not “person[s] who took in good faith and for a reasonably equivalent value,” id., and therefore,
intervenors’ claim that their security interests rebutted the presumption that the transaction was
fraudulent is without merit.
B. FACTUAL ERROR REGARDING DETERMINATION OF ASSETS
Intervenors next contend that the trial court clearly erred in denying their motion to quash
and finding that a red/orange hi-lo was properly seized pursuant to the consent judgment between
Riverview and Forest Island II because the red/orange hi-lo was always owned by Gibbs, not
Forest Island II. We disagree.
MCL 566.37 provides:
(1) In an action for relief against a transfer or obligation under this act, a creditor,
subject to the limitations in [MCL 566.38], may obtain 1 or more of the
following:
(a) Avoidance of the transfer or obligation to the extent necessary to satisfy the
creditor’s claim.
(b) An attachment against the asset transferred or other property of the transferee
to the extent authorized under [MCL 600.4001], and applicable court rules.
(c) Subject to applicable principles of equity and in accordance with applicable
court rules and statutes, 1 or more of the following:
(i) An injunction against further disposition by the debtor or a transferee, or both,
of the asset transferred or of other property.
(ii) Appointment of a receiver to take charge of the asset transferred or of other
property of the transferee.
(iii) Any other relief the court determines appropriate.
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(2) 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. [Footnote omitted.]
Additionally, the UFTA provides that fraudulent transfers may be set aside “in an action by a
creditor.” MCL 566.38(2).
Here, as noted above, the trial court correctly found that intervenors had committed a
fraudulent transfer under the UFTA, and therefore, avoidance of that transfer, and seizure of the
asset, was a proper remedy available to Riverview. See MCL 566.37(1)(a). However,
intervenors claim that the evidence was uncontroverted that the red/orange hi-lo that was part of
the property seized by Riverview was never owned by Forest Island II, and therefore, should not
have been seized pursuant to the consent judgment. Despite intervenors’ contention, Joseph
testified that all of the items listed on the partial payment sheet and received by the court officer
were at one time the rightful property of Forest Island II. Though the parties alternatively
referred to this hi-lo as either red or orange, it is clear they were referencing the same piece of
equipment, especially in light of the fact that the trial judge and counsel for intervenors discussed
the color ambiguity during one of the evidentiary hearings. Thus, there was contradictory
testimony between Joseph and Gibbs regarding whether the red/orange hi-lo belonged solely to
Gibbs or was at one time owned by Forest Island II. The trial court was in the best position to
judge credibility and weigh the evidence elicited at the evidentiary hearings. See MCR
2.613(C); Chelsea Investment Group LLC v Chelsea, 288 Mich App 239, 251; 792 NW2d 781
(2010). Therefore, the trial court did not clearly err in finding that the red/orange hi-lo was one
of the fraudulently transferred assets subject to seizure. See Mericka, 283 Mich App at 36.
III. RIVERVIEW’S CLAIM FOR COSTS AND FEES
Finally, Riverview argues that this Court should award all costs and fees it incurred in
storage of the seized assets during the pendency of these proceedings. We disagree.
In total, Riverview requests that this Court award it $50,000 for storage fees of the seized
property and $5,070 for costs attributed to towing and court officer fees. However, as Riverview
notes, the trial court did not address costs and fees in its December 10, 2013 opinion and order
denying intervenors’ motion to quash execution of the judgment. And Riverview did not file a
cross-appeal in this matter. Where an appellee seeks “a decision more favorable than that
rendered by the lower tribunal” the appellee is required to file a cross appeal in order for the
issue to properly be before this Court. Cheron, Inc v Don Jones, Inc, 244 Mich App 212, 221;
625 NW2d 93 (2000). “Generally, failure to file a cross appeal precludes an appellee from
raising an issue not appealed by the appellant.” Kosmyna v Botsford Comm Hosp, 238 Mich App
694, 696; 607 NW2d 134 (1999). Accordingly, we will not consider this issue.
Affirmed.
/s/ Michael J. Talbot
/s/ Mark J. Cavanagh
/s/ Patrick M. Meter
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