Kevin M. Higgins and Sue E. Higgins v. Abigail J. Ferrari and Emmitt F. Smith , 474 S.W.3d 630 ( 2015 )

In the
Missouri Court of Appeals
Western District
KEVIN M. HIGGINS AND SUE E. )
HIGGINS, )
) WD78327
Appellants, )
) OPINION FILED:
v. ) November 17, 2015
)
ABIGAIL J. FERRARI AND EMMITT )
F. SMITH, )
)
Respondents. )
Appeal from the Circuit Court of Cass County, Missouri
The Honorable R. Michael Wagner, Judge
Before Division Three: Joseph M. Ellis, Presiding Judge, Karen King Mitchell, Judge
and Gary D. Witt, Judge
Appellants Kevin Higgins ("Kevin")1 and Sue Higgins (collectively "the
Higginses") appeal the trial court's entry of judgment on all counts in favor of
Respondents Abigail Ferrari ("Abigail") and Emmitt Smith ("Smith" and collectively the
"Respondents"). The Higginses claim that the Respondents conspired with Tony Ferrari
("Tony") to fraudulently transfer money received from the Higginses to a bank account
1
Because Respondents Kevin and Sue Higgins and Respondent Abigail Ferrari and Tony Ferrari share the
same surnames, we address them by their first names throughout the opinion. No familiarity or disrespect is
intended.
controlled by Respondents, thereby placing those assets out of the reach of the Higginses
in their attempts to satisfy their claims against Tony.
The Higginses raise three points on appeal. The Higginses argue that the trial
court's judgment erroneously declared and applied the law and was against the weight of
the evidence regarding their claims for fraudulent transfer and civil conspiracy to commit
fraud. We affirm.
FACTUAL BACKGROUND2
This case arises out of the failed construction of an out building by Tony for the
Higginses. Sometime in 2000 or 2001, Kevin was driving near his home and saw a steel
building that was similar to one that he wanted constructed on his property. Kevin
received a referral from the owner of that building to Tony, who had constructed it. Tony
began erecting steel buildings in 1982 and started his own business in 1989. By the time
of these events, he had erected approximately two hundred steel buildings.
Plans to construct the Higginses' building did not begin in earnest until the
Summer of 2002. Kevin initially wanted to construct a building that was three hundred
feet long, in which he could board and train horses. However, Tony's estimate for the
cost of a building this size was too expensive for the Higginses, so Tony was asked to
reconfigure the bid for a smaller building. Tony normally purchased the materials for the
buildings he would erect from a company called Worldwide Buildings ("Worldwide"),
2
This court accepts as true the evidence and inferences favorable to the trial court's judgment and disregard
contrary evidence. Stander v. Szabados, 407 S.W.3d 73, 78 (Mo. App. W.D. 2013).
2
but even the reconfigured smaller building was larger than those manufactured by
Worldwide.3
Tony, therefore, sought bids from another company, Colonial Buildings
("Colonial"), and contacted his stepfather, Smith, who was also in the construction trade,
to obtain a bid from Alliance Steel Building Systems ("Alliance"). The bid from Alliance
was significantly lower than the bid Tony received from Colonial. Tony could not
directly order a building from Alliance because he was not an Alliance dealer. Smith,
however, was able to obtain the building due to a previous business relationship with
Alliance. Up to the time of trial, this was the only building Tony ever purchased through
Smith in all the years he had been working to erect steel buildings.
Tony contacted Kevin and informed him of the estimate for a 168 foot long
building from Alliance. Higgins agreed to provide a $10,000.00 deposit to hold the price
for the building. Kevin gave Tony a $10,000.00 check for the deposit, payable to Tony
Ferrari, which was endorsed by Tony and his wife, Tammy, and deposited into Tammy's
bank account. Although it is unclear from the record, there appears to have been a
transfer of $5,000 from this payment into Respondents' Account from which Alliance
was paid a $4,000 deposit on the building. This issue does not need to be resolved for
purposes of this opinion.
In early August of 2002, Tony provided Kevin a written contract for the
construction of the building. According to the terms of the contract, the total price of the
3
The suppliers of these types of buildings have sets of plans for various size buildings and when the
purchaser orders a particular building, the supplier sends the plans and all of the materials necessary to construct the
building ordered. It is up to the purchaser to then construct the building from the plans and materials provided.
3
building was $182,163.00. Less the $10,000.00 deposit previously conveyed, the
remaining balance on the contract was $172,163.00 to be paid in three installments. The
first payment of $60,257.00 would be paid as a down payment. The second payment of
$86,081.55 would be due at the time of delivery of the building materials and would be
paid in two installments of $78,340.00 and $7,741.55. Finally, the last payment of
$25,824.45 would be made when the building was completed.
Tony received two checks from the Higginses at issue in this litigation; the first
check he received on September 3, 2002 in the amount of $60,257.00 and the second
check on October 9, 2002 in the amount of $78,340.00. Rather than deposit these checks
into his wife's account, as he had done with the original $10,000.00 deposit, these two
checks were deposited into a bank account owned by Abigail, Tony's mother. This
account was an account previously used by Abigail and Smith as a business account
("Respondents' Account")4.
Tony testified that he deposited the funds into Respondents' Account because he
was having marital issues, and Tony and the Respondents wanted to make sure that the
building being purchased from Alliance would be paid for, as Smith was the person
ordering the building from Alliance and would be liable for the costs. The total amount
actually deposited into Respondents' Account was $135,597.00.5
Abigail drafted a check out of Respondents' Account for $76,630.00 and delivered
it to Alliance, at which time the remaining balance owed to Alliance on the building was
4
The account was in Abigail's name but Smith also had check-writing authority on the account.
Accordingly, we will refer to it as Respondents' Account.
5
This amount is less the $3,000.00 cash withdrawal Tony took from the September 3 check, which never
went into Respondents' Account.
4
paid in full. There is no dispute that Alliance was paid in full and there is no dispute that
all the building materials for the project were delivered to the Higginses' property. The
dispute between the Higginses and the Respondents pertains to the funds remaining in the
Respondents' account, which totaled $58,987.00. Apart from payment to Alliance for the
building, the evidence shows that the following sums were subsequently withdrawn from
the Respondents' Account:
 $6,000.00 paid to Colonial for doors for the building that were purchased
from Colonial rather than Alliance;
 $2,500.00 paid to Tony with a note indicating it was used for payroll;6
 $17,000.00 paid to Tony with a note indicating it was used for building
materials;
 $660.32 paid to United Rentals;
 $1,285.70 paid to Case Credit Corp. for equipment used for the building;
 $2,500.00 paid to Smith as commission for obtaining the building from
Alliance;
 $825.28 paid to Smith to reimburse his expenses for a trip to Oklahoma to
the manufacturer's building site to exchange wrong parts which had been
shipped for the building.
6
There does not appear to be evidence in the record to support the trial court's finding that this sum was
spent for payroll for employees working specifically on the Higginses' building. This is inconsequential, however,
as we find that in circumstances of this case that the additional sums returned to Tony count towards the "value" he
received for the transfer of the checks at issue.
5
The trial court found the evidence presented by Tony was credible and that these amounts
were all spent on the Higginses' building project. The total of these expenditures was
$30,771.30. The total from the amounts above when added to the price paid to Alliance
for the building out of Respondents' Account was $111,401.30.7 Therefore, subtracting
this amount from the total deposited for this project into Respondents' account
($135,597.00) leaves a balance of $24,195.70. An additional $27,300.00 was paid out of
the Respondents' account by additional checks made payable to Tony.8
Tony and his crew of employees started work on the building for the Higginses
slowly, constructing piers that had to be installed prior to the erection of the building.
Kevin became dissatisfied with the pace of work. Tony testified that he and his crew
were constructing three buildings at the same time due to the approaching winter and
progress on the Higginses' building was slow. On January 6, 2003, Tony and Kevin had
a final meeting at which there was a confrontation. Tony testified that he felt threatened
and that he was fired from the job.
On January 22, 2003, Kevin brought suit against Tony and Smith. On July 17,
2003, the lawsuit against Smith was dismissed and Kevin obtained a consent judgment
against Tony in the amount of $85,000.00. That judgment remains unsatisfied.
On September 30, 2004, the Higginses filed a lawsuit against Smith and Abigail in
which they alleged, as relevant here, that Smith and Abigail acted in concert with Tony in
furtherance of a conspiracy to hinder, delay, and defraud Tony's creditors. After the
7
This amount includes the $4,000 deposit to Alliance that came out of Respondents' Account.
8
As explained supra, additional funds from the initial $10,000 deposit seem to have been deposited into
Respondents' Account as the $4,000 deposit to Alliance on the building was written from Respondents' Account
prior to the delivery of the two checks at issue in this case.
6
refusal of the trial court to allow the Higginses to amend their Petition to add additional
claims, the Higginses dismissed their petition against Abigail and re-filed a separate
petition against Abigail. The first case against the remaining defendant Smith and the
new case against Abigail were subsequently consolidated into one action from which this
appeal arises.
The consolidated case asserted numerous claims against Smith and Abigail. The
claims relevant to this appeal are Counts I and II, which asserted against both Abigail and
Smith, claims for Fraudulent Transfer. The Higginses alleged that the transfers by Tony
of the checks for $60,257.00 (Count I) and $78,340.00 (Count II) to the Respondents'
Account were fraudulent to the Higginses because the transfers were made with the intent
to hinder, delay, or defraud Tony's creditors or were constructively fraudulent. Also
relevant to this appeal is Count III, asserted against Abigail, for Civil Conspiracy to
Commit Fraud. The Higginses alleged that Abigail conspired with Smith and Tony to
induce the Higginses to purchase the building.
A bench trial was conducted for which evidence was taken by the trial court over
approximately seven separate days over the course of over three years. Each party
submitted proposed findings of fact and conclusions of law. The trial court adopted the
Findings of Fact and Conclusions of Law submitted by the Respondents and entered
judgment in favor of the Respondents on all counts. The Higginses now appeal.
STANDARD OF REVIEW
This appeal is from a bench-tried civil case, the standard of review for which is
firmly established.
7
The standard of review for a bench-tried civil case is that set forth in
Murphy v. Carron, 536 S.W.2d 30, 32 (Mo. banc 1976). This court will
affirm the judgment of the trial court unless there is no substantial evidence
to support it, it is against the weight of the evidence, or it erroneously
declares or misapplies the law. Id. We view the evidence and the
reasonable inferences that may be drawn therefrom in the light most
favorable to the judgment, disregarding evidence and inferences to the
contrary. Id. "Appellate courts should exercise the power to set aside a
decree or judgment on the ground that it is 'against the weight of the
evidence' with caution and with a firm belief that the decree or judgment is
wrong." Id. "We defer to the trial court's determination of the credibility of
the witnesses." River Oaks Homes Ass'n v. Lounce, 356 S.W.3d 855, 859
(Mo. App. W.D. 2012).
Stander v. Szabados, 407 S.W.3d 73, 78 (Mo. App. W.D. 2013).
ANALYSIS
POINT I (ACTUAL FRAUD)
In Point One on appeal, the Higginses argue that the trial court erred when it
entered judgment against them in favor of Respondents on their fraudulent transfer claims
because the court erroneously declared the law, erroneously applied the law, and the
judgment was against the weight of the evidence9 because the evidence at trial
established that the transfers made by Tony to Abigail were made with the actual intent to
hinder, delay, or defraud his creditors and Abigail did not receive the transfers in good
faith for reasonably equivalent value. Accordingly, the Higginses argue the transfers
were fraudulent and voidable pursuant to the Missouri Uniform Fraudulent Transfer Act
("MUFTA").
9
In all three points on appeal, the Higginses' appellate brief combines into the same point relied on a
substantial evidence challenge, a misapplication-of-law challenge, and an against-the-weight-of-the-evidence
challenge. These are distinct claims and must appear in separate points relied on to be preserved for appellate
review. See Rule 84.04; Ivie v. Smith, 439 S.W.3d 189, 199 n.11 (Mo. banc 2014). This Court will gratuitously
address the merits of the Higginses' claims.
8
"To set aside a transfer as fraudulent under MUFTA, it is necessary to show that
the transfer was made with an intent to hinder, delay, or defraud creditors." Birkenmeier
v. Keller Biomedical, LLC, 312 S.W.3d 380, 389 (Mo. App. E.D. 2010); see also Section
428.024. "The burden of proof is on the creditor, and fraud is never presumed when the
transaction may be fairly reconciled with honesty." Bueneman v. Zykan, 52 S.W.3d 49,
54 (Mo. App. E.D. 2001) (citing Nance v. Nance, 880 S.W.2d 341, 346 (Mo. App. E.D.
1994)). The burden is on the plaintiff to prove intent to defraud and it must be shown by
clear and convincing evidence. Birkenmeier, 312 S.W.3d at 389. However, intent to
defraud is often difficult to prove by direct evidence. Id. Therefore, Missouri courts may
look to a number of "badges of fraud" to infer intent to defraud from the factual
circumstances. Id.; see also First Home Savings Bank v. C&L Farms, Inc., 974 S.W.2d
621, 625-26 (Mo. App. S.D. 1998) ("Missouri courts are willing to look to 'badges of
fraud,' which may be considered to determine the presence of fraud, since they are items
which so frequently attend conveyances to hinder, delay or defraud creditors").
In Missouri, the badges of fraud include: (1) a conveyance to a spouse or near
relative; (2) inadequacy of consideration; (3) transactions different from the usual method
of transacting business; (4) transfers in anticipation of suit or execution; (5) retention of
possession by the debtor; (6) the transfer of all or nearly all of the debtor's property; (7)
insolvency caused by the transfer; and (8) failure to produce rebutting evidence when
circumstances surrounding the transfer are suspicious. Taylor v. Clark, 140 S.W.3d 242,
251 (Mo. App. S.D. 2004). Section 428.024.2 has also codified eleven "factors" that may
9
be considered in determining actual intent under Section 428.024.1.10 That section
provides as follows:
In determining actual intent under subdivision (1) of subsection 1 of this
section, consideration may be given, among other factors, to whether: (1)
The transfer or obligation was to an insider; (2) The debtor retained
possession or control of the property transferred after the transfer; (3) The
transfer or obligation was disclosed or concealed; (4) Before the transfer
was made or obligation was incurred, the debtor had been sued or
threatened with suit; (5) The transfer was of substantially all the debtor's
assets; (6) The debtor absconded; (7) The debtor removed or concealed
assets; (8) 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; (9) The debtor was insolvent or became insolvent
shortly after the transfer was made or the obligation was incurred; (10) The
transfer occurred shortly before or shortly after a substantial debt was
incurred; and (11) The debtor transferred the essential assets of the business
to a lienor who transferred the assets to an insider of the debtor.
Section 428.024.2. For a court to find that the transfer was fraudulent, several badges of
fraud must be shown. Birkenmeier, 312 S.W.3d at 389. However, even where a transfer
is found to be fraudulent as to a creditor under Section 428.024.1, the transfer is not
voidable "against a person who took in good faith and for a reasonably equivalent value
[. . .]" Section 428.044.1.
The trial court found that the transfers of the two checks in question were not
made to hinder, delay or defraud creditors. Rather, the court found that there was a "valid
reason" for the transfers. The court accepted as true the testimony that Tony was
required to purchase the metal building through Smith because Tony did not have access
to the necessary supplier. The two checks were deposited into Respondents' Account to
ensure that the full costs of the building would be paid, which it was. The outstanding
10
All statutory references are to RSMo 2000 cumulative currently supplemented, unless otherwise noted.
10
cost of the building, after the initial $4,000.00 deposit, was $76,630.00. The first check
deposited into Respondents' Account, less the $3,000.00 Tony took out as cash, was
$57,257.00, which did not cover the entire purchase price of the building but left
approximately $19,373.00 outstanding. The second check deposited into Respondents'
Account for $78,340.00 which was enough to cover the outstanding cost of the building.
The court thus found that there was a "valid reason" for the transfers of the two checks
into Respondents' Account.
The Higginses argue the trial court ignored evidence of actual fraud. They cite
testimony by Tony that the reason he did not have his own personal checking account
was in order to avoid creditors. While it is true that Tony did testify that he had not
maintained his own bank accounts for a significant amount of time in order to avoid
creditors, he did not testify that in this instance the transfer of these checks into the
Respondents' Account rather than his own accounts was intended to avoid them. Tony
testified that rather than deposit this check into his wife's checking account, as he had
done previously, he deposited these checks with Respondents to make sure that Alliance
was paid for the purchase of the building, an amount for which Smith would have been
liable had Alliance not been paid in full. In addition, both Abigail and Smith testified at
trial that Tony's transfers of the two checks in question were made for the purpose of
purchasing the Higginses' building from Alliance. Using the Respondents' Account was
not a regular practice by Tony to avoid creditors; Respondents' Account was only used
for this one business arrangement in which Smith purchased the building on Tony's
behalf. The trial court did not ignore direct evidence of actual fraud but found that the
11
reasons provided by Tony, Abigail, and Smith for the deposit of the checks into the
account were credible and the transfers were not made with the intent to defraud
creditors.
The Higginses also argue that the "badges of fraud" analysis conducted by the
court was flawed. Regarding the badges of fraud, the trial court found that while the
transfers were made to a near relative, there was a valid reason given for the transfers. In
addition, the court found that Tony received adequate consideration for the transfers as all
the funds were either used to (1) pay for the Higginses' building or (2) returned back to
Tony.11 Further, although this was an unusual transaction for Tony, the court believed, as
explained supra, that there was a valid reason for these unusual transactions; i.e., to
ensure that Smith was able to pay Alliance for the building he agreed to order on Tony's
behalf. The court found that the transfers were not made in anticipation of suit or
execution as, at the time of the transfers, the project was proceeding as planned. Finally,
the court found there was no evidence that the transfer of the checks consisted of all of
Tony's property or how much other property Tony owned.
The Higginses contest each of these findings and argue that the facts tell a
different story. They argue that the transfers were made to Tony's mother, who is an
insider, and the transfers were unknown to the Higginses. Also, they argue that the
transfers were made after Tony had an outstanding judgment against him by another
creditor and, given that he did not have any other accounts or assets in his name, these
11
For further discussion regarding whether reasonably equivalent value was exchanged, see Point Two on
appeal.
12
transfers accounted for substantially all of his assets and he was insolvent after the
transfer. Finally, the Higginses argue that Tony did not receive reasonably equivalent
value for the transfer of the two checks.
The version of the facts the Higginses implore us to adopt ignores our standard of
review as the trial court did not find credible the testimony upon which this version of the
facts must rely. The Higginses' argument also appears to misunderstand the nature of the
"badges of fraud" inquiry. The actual question before the trial court is whether the
transfers were made with the "intent to hinder, delay, or defraud creditors." Birkenmeier,
312 S.W.3d at 389. Because fraudulent intent can be difficult to prove by direct
evidence, the "badges of fraud" inquiry allows a trial court to examine the factual
circumstances surrounding the transfer so that it may conclude that the transfer was
actually made with the requisite fraudulent intent. The "badges of fraud" inquiry is only
a tool that the trial court may use to try to reach the underlying relevant inquiry -
fraudulent intent. See id. ("Fraudulent intent is rarely proven by direct evidence; thus, it
is acceptable in Missouri courts to determine the presence of fraud by considering
particular badges of fraud"); see also Section 428.024.2 ("In determining actual intent
under subdivision (1) of subsection 1 of this section, consideration may be given, among
other factors [ . . . . ]") (emphasis added).
Although the presence of several badges of fraud gives rise to the presumption that
the transfer was fraudulent, even the presumption may be rebutted if the transferor can
provide evidence that the transfer was not made for the purpose to hinder, delay or
defraud creditors. See Taylor, 140 S.W.3d at 251. There is nothing in statute or case law
13
that requires that the trial court find fraudulent intent where a certain number of "badges
of fraud" are present. Rather, the trial court may use a "badges of fraud" inquiry to help it
determine whether fraudulent intent was present. Here, the trial court heard the evidence,
judged the credibility of the witnesses, and concluded that that the transfers were made
for a valid business reason and that the requisite fraudulent intent had not been proven.
As explained above, there was substantial evidence to support the trial court's conclusion
that the transfers were in fact made for a valid business purpose.
The fact that Tony owed other creditors at the time he made these transfers and
had an outstanding judgment against him does not automatically result in a finding that,
in this instance, the transfers of these checks were fraudulent. Evidence at trial showed
that Tony had operated his business for a significant amount of time before the
underlying events in this case and Tony continued to build forty additional buildings for
other customers after his dealings with the Higginses. While the evidence showed Tony
was past due in paying other creditors during this time, the evidence did not conclusively
prove that Tony was insolvent and did not establish that Tony would have been unable to
complete the project had there not been a dispute with the Higginses over the pace at
which the construction of the building was progressing. The trial court considered the
badges of fraud and was ultimately persuaded by the credible evidence that the transfers
were not made with fraudulent intent but for a valid businesses purpose. Contrary to the
Higginses' assertion, the trial court correctly stated the law and applied it appropriately to
the facts the court found credible.
14
Our standard of review requires that we view the facts in the light most favorable
to the trial court's verdict and accept as true evidence and inferences favorable to the trial
court's judgment while disregarding contrary evidence. Stander, 407 S.W.3d at 78. The
trial court's finding that there was a valid business reason for the transfers of the two
checks into Respondents' Account was supported by substantial evidence and not against
the weight of the evidence. Accordingly, the trial court did not err in finding against the
Higginses on their fraudulent transfer claims alleging actual fraud.12
Point One is denied.
POINT II (CONSTRUCTIVE FRAUD)
In Point Two on Appeal, the Higginses claim the trial court erred when it entered
judgment against them on their fraudulent transfer claims because the trial court
erroneously declared the law, erroneously applied the law, and its decision was against
the weight of the evidence in that the Higginses presented clear and convincing evidence
that Tony made transfers to Abigail without receiving reasonable equivalent value in
exchange for the money and, therefore, the transfers were fraudulent under MUFTA.
12
The trial court found that Abigail's only involvement with the case was to make sure Alliance was paid in
full for the building. In addition, the trial court found that Abigail never made any misrepresentations or committed
any unlawful intentional acts against the Higginses. She returned the excess funds deposited into Respondents'
Account back to Tony to whom the funds belonged. There was no evidence the deposit of these checks into the
Respondents' Account were part of a scheme to avoid Tony's creditors but were made only to ensure that Smith was
able to pay for the building. Although not explicit, the facts as set out in the judgment and the court's findings as to
credibility lead to a conclusion that the Respondents acted in all times in good faith. As discussed in Point Two on
appeal, we also find that Tony received reasonably equivalent value for the transfers of the two checks at issue.
Therefore, pursuant to Section 428.044.1, the transfers were not voidable as to the Respondents because they took
the transfers in good faith and for a reasonably equivalent value. Pursuant to Section 428.044.1, "[a] transfer or
obligation is not voidable under subdivision (1) of subsection 1 of section 428.024 [actual fraud] against a person
who took in good faith and for a reasonably equivalent value or against any subsequent transferee or obligee." See
also State ex rel. Mo. Highway & Transp. Comm'n v. Overall, 53 S.W.3d 222, 226 (Mo. App. E.D. 2001) ("pursuant
to section 428.044(1), a transferee may defeat a fraudulent conveyance claim brought under section 428.029(1) by
demonstrating that he took in good faith and paid a reasonably equivalent value for the property").
15
As opposed to actual fraud, a creditor may also prove "constructive fraud" under
Section 428.024.1(2). Rather than considering whether the debtor had an "intent to
defraud", constructive fraud looks to the underlying economic circumstances to
determine whether a particular transfer is injurious to a creditor. See 37 AM. JUR. 2D
Fraudulent Conveyances and Transfers § 7 (database updated August 2015). Under the
constructive fraud theory, a transfer made by a debtor is fraudulent to a creditor if the
debtor made the transfer (1) "[w]ithout receiving a reasonably equivalent value in
exchange for the transfer" and (2) the debtor either (a) "[w]as 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 (b)" [i]ntended to incur,
or believed or reasonably should have believed that he would incur, debts beyond his
ability to pay as they became due." Section 428.024.1(2).
Section 428.019.1 defines "value" for the purpose of MUFTA as follows: "Value
is given for a transfer or obligation if, in exchange for the transfer or obligation, property
is transferred or an antecedent debt is secured or satisfied [ . . . . ]" MUFTA does not
specifically define "reasonably equivalent value." Whether reasonably equivalent value
has been received by the debtor is a fact intensive inquiry that looks to the substance of
the transaction. 37 AM. JUR. 2D Fraudulent Conveyances and Transfers § 25 (database
updated August 2015).
The Higginses argue that the only "value" Tony received from the transfers of the
funds to Respondents' Account was the value of the building from Alliance, which was
$80,630.00 out of the total $135,597.00. The Higginses ignore that the funds over and
16
above the purchase price of the building were either used for the project or returned to
Tony. They argue that when funds are transferred by a debtor to a transferee and
subsequently transferred back without consideration, then the transfer lacks reasonably
equivalent value. In support of this principle, the Higginses cite In re Roti, 271 B.R. 281,
295 (Bankr. N.D. Ill. 2002). In Roti, the bankruptcy court recognized that the Bankruptcy
Code does not define "reasonably equivalent value," so the court uses the following
factors to determine what is a reasonably equivalent value: "(1) whether the value of what
was transferred is equal to the value of what was received; (2) the market value of what
was transferred and received; (3) whether the transaction took place at an arm's length;
and (4) the good faith of the transferee." In re Roti, 271 B.R. at 295. The question is one
of fact and there is no fixed formula for determining reasonable equivalence. Id. The
determination turns on the facts of each case. Id. The Roti court, citing a Seventh Circuit
decision, In re Carlson, stated that the receipt of funds for a debtor by a transferee and
subsequent transfer back to the debtor without consideration paid by the initial transferee
lacks reasonably equivalent value. Id. (citing In re Carlson, 263 F.3d 748, 750 (7th Cir.
2001)). A review of In re Carlson, however, does not persuade us that the same rule
should be followed in the specific circumstances of this case.
In In re Carlson, the debtor in a bankruptcy case challenged the court's denial of
discharge of his debts. 263 F.3d at 749. In that case, the debtor, a few months before
declaring bankruptcy, entered into a "practice merger agreement" with a fellow lawyer,
Lawyer B, which purported to merge their practices. Id. Pursuant to that agreement and
after he declared bankruptcy, a contingency fee owed to the debtor from a settlement
17
arrived by check written to Lawyer B. Id. Lawyer B subsequently transferred funds back
to the debtor and the debtor's designees. Id. The court found that the "agreement" was
obviously made in contemplation of impending bankruptcy and was a transparent effort
to conceal assets from the bankruptcy court. Id. at 750. Accordingly, the court held it
was "a transfer made without consideration and with intent to defraud [debtor lawyer's]
creditors, and thus a fraudulent conveyance and indeed one involving both constructive
and actual fraud." Id. The facts in In re Carlson distinguish it from the facts in the case
at bar.
As recognized by Roti and Carlson, whether reasonably equivalent value has been
exchanged is a highly fact sensitive matter and depends on the specific circumstances of
the transaction. This is not a situation where funds were transferred without
consideration and then transferred back to the transferor for the specific purpose to avoid
creditors. The trial court here found the opposite; that the transfers were made for a
legitimate business purpose. While intent to defraud is not necessary to find liability for
constructive fraud, the intent of the parties is relevant as it bears on the underlying
question of whether reasonably equivalent value was exchanged. See e.g., In re Roti, 271
B.R. at 295 (factor to be considered in whether reasonably equivalent value was
exchanged is good faith of the transferee). The checks at issue here were deposited into
the Respondents' Account so that Smith could pay Alliance for the building and all
remaining funds were spent on building supplies, services for the project, or disbursed
back to Tony. Nothing was retained by Respondents and there is no evidence that
Respondents held the funds on Tony's behalf to help him avoid creditors.
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As stated previously, constructive fraud is concerned with the underlying
economics of the transaction to determine whether a transaction effectively undermined
the position of creditors. "If the debtor's net worth is maintained, creditors cannot
challenge a transfer as constructively fraudulent." 8A C.J.S. Bankruptcy § 692; see also
See 37 AM. JUR. 2D Fraudulent Conveyances and Transfers § 7 (database updated
August 2015); In re Gerdes, 246 B.R. 311, 313 (Bankr. S.D. Ohio 2000) ("If the debtor's
net worth is maintained, its creditors cannot complain of the transfer"); In re Jeffrey
Bigelow Design Grp., Inc., 956 F.2d 479, 484 (4th Cir. 1992) ("[T]he proper focus is on
the net effect of the transfers on the debtor's estate, the funds available to the unsecured
creditors. As long as the unsecured creditors are no worse off because the debtor, and
consequently the estate, has received an amount reasonably equivalent to what it paid, no
fraudulent transfer has occurred"); In re Johnson Bros. Truckers Inc., 9 Fed. Appx. 156,
165 (4th Cir. 2001) (same); In re Congrove, 222 Fed. Appx. 450, 454 (6th Cir. 2007)
(same).
The facts show that the two transfers at issue deposited $135,597.00 into
Respondents' Account. From that amount, Respondent's paid Alliance $80,630.00 for the
building. Smith was paid a total of $2,500.00 as a commission for his purchase of the
building from Alliance for Tony and there was evidence that this was a reasonable
commission price. In addition, Smith was reimbursed $825.28 for costs he expended
travelling to Oklahoma for Tony due to the need to exchange parts for the Alliance
building. The amount of $6,000.00 was paid to Colonial for doors to be used on the
building, which were delivered to the Higginses. The amount of $17,000.00 was taken
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from the account by a check which indicated it was for building materials and testimony
also supported that the amount was used for building materials on this project. A
company called United Rentals was paid $660.32 for a crane to take materials off the
Higginses' property. The amount of $1,285.70 was paid to Case Credit Corp for the use
of a rental machine for the Higginses' job. The amount of $2,500.00 was written by
check to Tony indicating that it was used for payroll. Finally, a number of additional
checks were written to Tony for unknown reasons totaling $27,300.00.
The trial court found Tony
received adequate consideration for the deposits in that other than the
money he received back, all the other payments were for his benefit,
including, of course, the building he was constructing for the Plaintiffs.
Although the transaction was not made in the usual method of transacting
business, the testimony of Tony Ferrari was credible that this was an
unusual transaction for him because of the size of the building that required
him to obtain the building from a source other than his normal supplier.
In effect, Tony was repaid any excess value over and above the cost of the
building that the Respondents received. After these transactions, Tony's financial
position was the same as it had been prior to the transactions. Constructive fraud is
concerned with the underlying economic realities of the situation. The underlying reality
here is that the position of Tony's creditors was not undermined as the result of these
transfers. Because we find that Tony received reasonably equivalent value for the
transfer of the checks in question, it is unnecessary to proceed further. Accordingly, the
trial court did not err in entering judgment against the Higginses on their fraudulent
transfer claims based on their theory of constructive fraud.
Point Two is denied.
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POINT III
In Point Three on Appeal, the Higginses argue that trial court erred in entering
judgment in favor of Respondents on the civil conspiracy to commit fraud claims because
the court erroneously applied the law to the facts and the judgment was against the
weight of the evidence because the evidence admitted at trial established that the
Respondents and Tony engaged in civil conspiracy to commit fraudulent transfers. On
appeal, the Higginses claim that clear and convincing evidence at trial proved that Smith
and Abigail conspired to commit fraudulent transfers to the detriment of Tony's creditors.
A claim for civil conspiracy is not a separate and distinct cause of action but acts
to hold conspirators jointly and severally liable for some underlying act. W. Blue Print
Co., LLC v. Roberts, 367 S.W.3d 7, 22 (Mo. banc 2012). "The gist of the action is not
the conspiracy, but the wrong done by acts in furtherance of the conspiracy or concerted
design resulting in damage to plaintiff." Id. (internal citation and quotation omitted).
"To state a claim for civil conspiracy, Appellants must establish the following: '(1) two or
more persons; (2) with an unlawful objective; (3) after a meeting of the minds; (4)
committed at least one act in furtherance of the conspiracy; and (5) the plaintiff was
thereby injured.'" Mika v. Cent. Bank of Kansas City, 112 S.W.3d 82, 93 (Mo. App.
W.D. 2003) (quoting Phelps v. Bross, 73 S.W.3d 651, 657 (Mo. App. E.D. 2002)).
To establish a claim for civil conspiracy, the proof must be "such as to
warrant a jury in finding that the conspirators had a unity of purpose or a
common design and understanding, or a meeting of minds in an unlawful
arrangement." There must be clear and convincing proof that the alleged
conspirator "knowingly performed any act or took any action to further or
carry out the unlawful purposes of the conspiracy." In addition and by its
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nature, a conspiracy has as its object or purpose the obtaining of a benefit
for the conspirator.
Mika, 112 S.W.3d at 93 (quoting Preferred Physicians Mut. Mgmt. Grp. v. Preferred
Physicians Mut. Risk Retention, 918 S.W.2d 805, 815 (Mo. App. W.D. 1996)).
This point can be dispensed with immediately as the Higginses' claim on appeal is
based solely on the assertion that the Respondents conspired to commit fraudulent
transfers. As we have found the trial court did not err in finding that there was neither
actual fraud nor constructive fraud to support the Higginses claims for fraudulent
transfer, there is no underlying unlawful act or tort to support a civil conspiracy claim.
See Hamilton v. Spencer, 929 S.W.2d 762, 767 (Mo. App. W.D. 1996) ("Civil conspiracy
is not itself actionable in the absence of an underlying wrongful act or tort").
Point Three is denied.
CONCLUSION
For the reasons stated herein, the judgment of the trial court is affirmed.
__________________________________
Gary D. Witt, Judge
All concur
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