george-reilly-trustee-of-the-nathan-l-bentson-1993-irrevocable-trust-v ( 2014 )

This opinion will be unpublished and
may not be cited except as provided by
Minn. Stat. § 480A.08, subd. 3 (2012).
STATE OF MINNESOTA
IN COURT OF APPEALS
A14-0525
George Reilly,
Trustee of the Nathan L. Bentson 1993 Irrevocable Trust; et al.,
Appellants,
vs.
Michael J. Antonello,
Respondent,
and
Michael J. Antonello & Associates, Ltd.
Respondent,
and
Michael J. Antonello & Associates, Ltd. Employee Stock Ownership Plan,
Intervenor
Filed December 1, 2014
Reversed and remanded
Ross, Judge
Hennepin County District Court
File No. 27-CV-10-21437
Byron E. Starns, Douglas R. Boettge, Kathryn I. Landrum, Stinson Leonard Street LLP,
Minneapolis, Minnesota ; and
Phillip Gainsley, Law offices of Phillip Gainsley, Minneapolis, Minnesota (for
appellants)
Warren E. Peterson, Daniel J. Duffek, Peterson, Fram & Bergman, P.A., St. Paul,
Minnesota (for respondent Michael J. Antonello)
T. Chris Stewart, Lindsay W. Cremona, Anastasi Jellum, P.A., Stillwater, Minnesota (for
respondent Michael J. Antonello & Associates, Ltd.)
Thomas Brever, Foster & Brever, PLLC, St. Anthony, Minnesota (for intervenor Michael
J. Antonello & Associates, Ltd. Employee Stock Ownership Plan)
Considered and decided by Chutich, Presiding Judge; Ross, Judge; and
Stoneburner, Judge.
UNPUBLISHED OPINION
ROSS, Judge
Michael Antonello’s judgment creditors attempt to satisfy a 2011 $3 million
judgment against him by attaching artwork that Antonello claims he gave to his wife
seven years before the judgment. The creditors filed a motion in district court arguing
that Antonello fraudulently transferred expensive artwork to his business to keep it from
them and that the district court should reject as groundless Antonello’s defense that he
could not have transferred the artwork to his business because he had already given it to
his wife (whom he says alone transferred the art to his business). The district court held
that the creditors could challenge the alleged spousal gift only within the framework of
the Minnesota Uniform Fraudulent Transfers Act (MUFTA). We hold that creditors may
rely on a legal theory outside MUFTA to challenge a debtor’s assertion that he no longer
owned assets he allegedly fraudulently transferred. We reverse and remand.

Retired judge of the Minnesota Court of Appeals, serving by appointment pursuant to
Minn. Const. art. VI, § 10.
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FACTS
A 2011 district court judgment obligates Michael Antonello to pay appellants
George Reilly and Thomas Braman, as trustees of two irrevocable trusts, and Marquette
Trust $3,005,059.05. The creditors filed an amended motion to execute on the judgment
in October 2012. Their motion asked the district court to find that a February 2010
promissory note and security agreement given by Antonello to his company, Michael J.
Antonello & Associates, Ltd., were fraudulent under the Minnesota Uniform Fraudulent
Transfers Act (MUFTA), that transfers that Antonello and his wife made to the company
in December 2010 were also fraudulent under MUFTA, and that Antonello remained “the
owner of the works of fine art and musical instruments in his possession or under his
control.” The appellant creditors also asked the court to order Antonello to surrender the
artwork to satisfy the $3 million judgment. Antonello opposed the motion by asserting
that he had given the artwork to his wife, Jean Antonello, in 2004, and that she alone later
transferred it to the company in December of 2010.
The district court conducted an evidentiary hearing. Michael Antonello testified
that in 2004 he gave his wife all the paintings he owned. He provided the district court a
corroborating gift statement purportedly executed in 2004. And he asserted that he made
the gift for estate planning purposes—specifically, to take advantage of the federal
unified tax credit. Jean Antonello likewise testified that Michael had given her the
artwork in 2004.
The district court received evidence that in February 2010 Michael Antonello
issued a promissory note for $3.6 million to his company. It also received evidence that
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in December 2010 Michael and Jean Antonello entered into an asset purchase agreement
with the company, and under this agreement the company canceled the February 2010
promissory note in exchange for assets worth $3.7 million owned by the Antonellos.
These assets were primarily the artwork that Michael had allegedly given to Jean in 2004.
Michael Antonello signed the December 2010 agreement as the artwork’s “seller.” At the
time of this 2010 exchange, Michael Antonello was president of the company, and he was
also the sole trustee and beneficiary of the “Associates Employee Stock Ownership
Plan,” which was the only shareholder of the company. In other words, Michael
Antonello was the sole beneficiary of the entity that was the sole owner of the company
that bore his name, and he claimed that in 2004 he gave his wife about $3 million worth
of artwork that he (along with his wife) later sold to his business in 2010 for $3 million,
two months before the appellants secured the $3 million judgment against him.
According to the creditors (and undisputed in the record), the artwork has always
remained in Michael Antonello’s possession and control despite his allegedly giving the
artwork away in 2004 and selling it in 2010.
The district court received briefing on “whether [the creditors] have standing to
challenge the validity of Antonello’s 2004 gift to his wife,” and then it denied the
judgment creditors’ motion. The court openly expressed its suspicion about the purpose
for the 2004 gift, but it reasoned that the 2011 judgment creditors failed to demonstrate
that the gift was a fraud on them under MUFTA because Michael Antonello had no
creditors to defraud in 2004 when the alleged giving occurred. The district court focused
only on whether the gift constituted a MUFTA fraud. It saw the creditors’ argument that
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Michael had never really given the art to his wife in 2004 as a MUFTA challenge to the
gift, and it held that the creditors had no standing to challenge the gift “outside the
context of the MUFTA framework.” Deeming that challenge out of bounds and therefore
deeming the artwork no longer Michael’s by 2010, the district court believed that it had
no basis to consider whether the 2010 transfer of artwork to the company was fraudulent
(because the artwork’s supposed sole owner, Jean, was not a debtor or a party in the
case). The judgment creditors appeal.
DECISION
The judgment creditors challenge the district court’s refusal to address their
argument that, because Michael Antonello’s alleged 2004 gift to his wife never occurred,
he continued to own and fraudulently transferred the artwork in 2010. They ask us to hold
that the 2004 gift did not occur as a matter of law, and they argue that the 2010 artwork
purchase agreement between the Antonellos and Michael’s company constituted a
fraudulent transfer under MUFTA. For the following reasons, we hold that the district
court erred by concluding that it could not address whether Michael Antonello had
divested himself of the artwork by supposedly giving it away in 2004.
I
The appellant creditors have a general right to collect on their $3 million judgment
by attaching Antonello’s property. This is because a judgment creditor may enforce a
judgment by executing on the debtor’s assets. Minn. Stat. § 550.02 (2012). Although
debtors might be tempted to avoid this result by giving away or selling their assets,
Minnesota law “prohibits a debtor from transferring property with the intent to hinder,
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delay, or defraud any creditors.” New Horizon Enters., Inc. v. Contemporary Closet
Design, Inc., 570 N.W.2d 12, 14 (Minn. App. 1997). If the debtor attempts to transfer his
assets to defraud his creditors, the Minnesota Uniform Fraudulent Transfers Act
(MUFTA), Minn. Stat. §§ 513.41–.51, allows creditors to invalidate the transfer so they
can execute on the assets. See Minn. Stat. § 513.47 (2012) (listing “avoidance of the
transfer or obligation to the extent necessary to satisfy the creditor’s claim” as a remedy
for creditors in fraudulent transfer action). MUFTA “prevent[s] debtors from placing
property that is otherwise available for the payment of their debts out of the reach of their
creditors.” Citizens State Bank v. Brown, 849 N.W.2d 55, 60 (Minn. 2014). Before
creditors can convince a court that a debtor’s transfer of assets was fraudulent under
MUFTA, however, they must of course establish that the debtor actually owned the
transferred assets. The question of ownership then precedes and is distinguished from the
question of fraud under MUFTA.
The judgment creditors presented this question to the district court. They asked the
district court to find that Michael Antonello still owned the artwork when he transferred it
to his business in 2010 so that the court could decide whether the 2010 transfer was
fraudulent under MUFTA. The creditors’ request was appropriate; long before MUFTA it
was well settled that “[i]f the property transferred is not subject to the claims of creditors,
the rules as to fraudulent conveyances do not apply.” Kummet v. Thielen, 210 Minn. 302,
306, 298 N.W. 245, 247 (1941). Whether Michael still owned the art in 2010 is a
threshold issue distinct from whether the 2010 transfer was fraudulent. Responding to
Michael’s assertion that he had given the art away before his allegedly fraudulent
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transfer, the creditors maintained that the gift was “a fiction that should be ignored” and
they argued that Michael continued to own the artwork until he and his wife fraudulently
transferred it to Michael’s business.
In a thorough and otherwise well-reasoned order, the district court apparently
treated the two distinct issues (whether Michael actually gifted the art in 2004, and
whether the 2010 transfer was fraudulent) as part of the creditors’ MUFTA claim. It
reasoned that the creditors could not challenge the alleged 2004 gift as a fraudulent
transfer under MUFTA because, at the time of the alleged 2004 gift, the 2011 judgment
debt did not yet exist. The district court’s logic is self-evident, but it overlooks that the
creditors are not challenging the alleged 2004 gift as fraudulent under MUFTA. The
creditors are instead challenging the 2010 transfer as fraudulent, and, only in reply to
Michael Antonello’s defense (specifically, that he could not have fraudulently transferred
the artwork in 2010 because in 2004 he had given away and no longer owned the
artwork), they maintain that, as a matter of fact, the alleged 2004 gift never occurred.
We recognize that the creditors’ arguments may have included an implicit
contention that the alleged 2004 gift constitutes a MUFTA violation, but this was
certainly not their direct or primary argument. Unlike a creditor in a MUFTA claim, who
might challenge an actual gift as constituting a fraudulent transfer, the creditors here
argued to the district court and argue to us that there simply was no 2004 gift. They have
not contended that the gift was a fraud; using their words, they have contended that the
gift was “a fiction.” This contention does not depend on MUFTA. Michael Antonello
offers no persuasive support for the district court’s holding that MUFTA is the only legal
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basis on which the creditors may question Michael’s factual defense to their MUFTA
claim. For this reason we conclude that the district court wrongly accepted as
unassailable Michael’s assertion that a 2004 gift actually occurred. And we consequently
conclude that it did not sufficiently explore the creditors’ contention that Michael
Antonello continued to own the art transferred to his business in 2010.
The judgment creditors urge us to go further than to hold that the district court
erroneously failed to address the fact question of whether Michael Antonello continued to
own the art transferred to his business in 2010. They ask us to determine also that
Antonello’s alleged gift to his wife in 2004 never occurred. The creditors point us to the
supposedly undisputed and uncontradicted evidence they presented to the district court:
that the artwork continues to remain in Michael Antonello’s home; that he used his
ownership of the art to obtain substantial personal financing long after 2004; and that he
signed the 2010 purchase agreement as “seller” of the same artwork that he now claims to
have gifted away six years before. Regardless of the weight we might ascribe to the
creditors’ assertion that this evidence points to only one factual conclusion, it is not
within an appellate court’s duties to decide issues of fact. Kucera v. Kucera, 275 Minn.
252, 254, 146 N.W.2d 181, 183 (1966). And we cannot decide the issue as a matter of
law because a fact-finder is not required to believe even uncontradicted testimony.
Gellert v. Eginton, 770 N.W.2d 190, 196 (Minn. App. 2009), review denied (Minn.
Oct. 20, 2009). The district court is the proper forum to determine factually whether
Antonello owned the artwork at the time of the 2010 transfer, which is a determination
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that will, in turn, help inform the district court as to whether Antonello’s creditors have
successfully challenged the 2010 transfer as fraudulent under MUFTA.
We recognize that this fact question may include legal elements, such as those
arising from the common law, see Oehler v. Falstrom, 273 Minn. 453, 456–57, 142
N.W.2d 581, 585 (1966) (defining the legal elements of a common-law gift as delivery,
intention to make a gift, and absolute disposition of the gifted property), but even so, the
district court should decide it first. See, e.g., In re Estate of Eckley, 780 N.W.2d 407, 415
(Minn. App. 2010) (“Because the district court failed to consider appellant's arguments
and failed to make the findings needed to address these contentions, we remand.”); Clark
v. Clark, 642 N.W.2d 459, 467 (Minn. App. 2002) (remanding case to district court to
decide factual question); see also Doe 175 ex rel Doe 175 v. Columbia Heights Sch. Dist.,
ISD No. 13, 842 N.W.2d 38, 43 (Minn. App. 2014) (quoting In re Judicial Ditch No. 1,
140 Minn. 1, 3, 167 N.W. 124, 125 (1918)) (noting that legal issues must be considered
and decided by the district court before appellate review). We remand for the district
court to decide whether Michael actually owned the artwork at the time of the 2010
transfer.
II
Michael Antonello and the business also argue that any challenge to the alleged
2004 gift from Michael to Jean is barred by the statute of limitations. The creditors insist
that the argument is flawed and should not affect the assessment of whether Michael still
owned the artwork in 2010 when it was transferred to the business. The district court
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never addressed the issue, and for the reasons just discussed, we will not answer the
argument for the first time on appeal.
III
The creditors raise various other arguments challenging the district court’s
conclusion that they failed to establish that the 2010 transfer from Michael Antonello to
the business was fraudulent under MUFTA. Because the district court’s order denying the
creditors’ motion depends entirely on its mistaken holding that it could not address their
argument that Michael Antonello never gave the artwork away before his alleged 2010
fraudulent transfer by sale to his business, we reverse only on that ground. We therefore
decline to address any of the other bases the creditors raise to challenge the district
court’s holding that the 2010 transfer could not have been a fraudulent transfer.
We reverse, and we remand for the district court to make fact findings and legal
conclusions determining whether Michael Antonello owned the artwork in 2010 and if
appropriate to address the creditors’ MUFTA challenge to the 2010 transfer.
Reversed and remanded.
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