Kelly Kohrs-Manriques v. Tamelia Brown and Lowell Bence

IN THE COURT OF APPEALS OF IOWA
No. 17-1360
Filed January 9, 2019
KELLY KOHRS-MANRIQUES,
Plaintiff-Appellant,
vs.
TAMELIA BROWN and LOWELL BENCE,
Defendants-Appellees.
________________________________________________________________
Appeal from the Iowa District Court for Madison County, Bradley McCall,
Judge.
Plaintiff appeals the district court’s dismissal of fraudulent conveyance
claim. AFFIRMED.
Shane Michael of Michael Law Firm, West Des Moines, for appellant.
Thomas T. Tarbox of Law Office of Thomas T. Tarbox, PC, Des Moines, for
appellee Bence.
Tamelia Brown, Truro, pro se.
Considered by Vogel, P.J., Tabor, J., and Danilson, S.J.*
*Senior judge assigned by order pursuant to Iowa Code section 602.9206 (2019).
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VOGEL, Presiding Judge.
Kelly Kohrs-Manriques brought suit against Tamelia Brown, as owner of a
tavern, and Lowell Bence, as mortgagor of the property. Kohrs-Manriques claimed
Brown’s transfer of the property to Bence was a fraudulent conveyance, designed
to place the property out of her reach as a judgment creditor. The district court
considered the factors of a fraudulent conveyance and found Kohrs-Manriques did
not establish, by clear and convincing evidence, the transfer was fraudulent. We
agree and affirm.
I. Background Facts and Proceedings
In February 2007, Brown purchased the property from Truro Tavern, Inc.,
for $40,000. She received a $45,000 loan from Bence;1 $40,000 was to purchase
the property and $5000 was for operating costs. On February 26, 2007, Brown’s
mortgage instrument to Bence was filed, securing a loan for $45,000. In addition
to the initial loan, Brown testified Bence provided continuous financial assistance
over the years by paying taxes, insurance fees, and repair costs, which she was
not able to pay. She also testified she made monthly payments of $800 to Bence;
however, she sometimes missed payments and at some point Bence “refinanced”
the loan, reducing her payments to $200 per month.
In 2013, Kohrs-Manriques was employed as a bartender at Brown’s
establishment. On September 20, 2013, Kohrs-Manriques slipped and fell on her
left hand and arm while working. Brown did not have workers’ compensation
1
Brown and Bence were in a romantic relationship and lived together from 2004 until
December 2013 when the relationship ended and Bence moved out of Brown’s home.
3
insurance.2 Kohrs-Manriques filed a petition in arbitration for workers’
compensation benefits on November 20, 2013; a hearing was held on April 28,
2015; and a May 19, 2015 decision held Kohrs-Manriques was entitled to benefits
from Brown.
According to Brown’s testimony, Bence approached her in early 2014 and
asked her to convey the real estate to him because she was not able to make the
payments and he had a potential buyer. Brown and Bence entered into an
agreement for non-judicial voluntary foreclosure on February 19, 2014. A quit
claim deed was executed by Brown to Bence in March 2014 and recorded along
with the foreclosure agreement. Bence entered into a purchase agreement for the
sale of the real estate for $40,000 with a third party on April 8, and the sale was
completed on July 24.
On July 18, 2016, Kohrs-Manriques filed a petition alleging Brown and
Bence engaged in a fraudulent conveyance of the property and seeking to avoid
the transfer. A hearing was held on July 20, 2017, and the district court ruled no
fraudulent conveyance occurred. Kohrs-Manriques appeals.
II. Standard of Review
Our review of cases tried in equity is de novo. Prod. Credit Ass’n v. Shirley,
485 N.W.2d 469, 471 (Iowa 1992). “Although we give weight to the fact findings
of the district court, especially when considering the credibility of witnesses, we
are not bound by them.” Id.2
Brown testified that she had general liability insurance and believed that would cover
“anything that would happen.”
4
III. Burden-of-Proof Standard
Kohrs-Manriques argues the district court applied the wrong burden-of-
proof standard in its ruling. In the ruling, the district court stated, “Considering the
factors indicative of a fraudulent transfer, the Court concludes [Kohrs-Manriques]
failed to present clear and convincing evidence to establish the conveyance of real
estate from [Brown] to [Bence] was a fraudulent conveyance.” Kohrs-Manriques
asserts the Iowa Code requires a preponderance-of-the-evidence standard to
prove fraudulent conveyance rather than by clear and convincing evidence. See
Iowa Code § 684.5(3) (2017) (providing the creditor making a claim of relief from
a fraudulent conveyance “has the burden of proving the elements of the claim for
relief by a preponderance of the evidence”). However, the legislature amended
Iowa Code chapter 684 in 2016, which included adding section 684.5(3). See 2016
Iowa Acts ch. 1040, § 4. The act, approved March 30, 2016, explicitly applies only
to transfers made on or after the act’s effective date of July 1, 2016. See id. § 15;
see also id. § 3.7(1) (providing all acts “take effect on the first day of July following
their passage” unless otherwise indicated). See id. Brown conveyed the real
estate to Bence in 2014, prior to the act’s effective date, so Iowa Code section
684.5(3) does not apply to this transfer.
Since Iowa Code section 684.5(3) is inapplicable, we must look to the law
as it existed prior to the enactment of section 684.5(3). In Benson v. Richardson,
our supreme court held “a party asserting fraud must establish its existence by
clear and convincing evidence and demonstrate the fraud has caused him or her
prejudice.” 537 N.W.2d 748, 756 (Iowa 1995). Thus, clear and convincing
evidence is the appropriate burden of proof for claims of fraudulent transfers that
5
occurred prior to the 2016 legislation. See id.; see also Prod. Credit Ass’n, 485
N.W.2d at 472–73 (holding that for fraudulent transfers, “fraud is not presumed
and must be established by clear and convincing evidence”). Therefore, the district
court applied the correct standard. See Benson, 537 N.W.2d at 756.
IV. Fraudulent Transfer3
Kohrs-Manriques also argues the district court erred in finding she had not
proved a fraudulent conveyance occurred. Generally, a fraudulent conveyance is
any “transaction by means of which the owner of real or personal property has
sought to place the land or goods beyond the reach of his [or her] creditors, or
which operates to the prejudice of their legal or equitable rights.” Prod. Credit
Ass’n, 485 N.W.2d at 472 (quoting Graham v. Henry, 456 N.W.2d 364, 366 (Iowa
1990)). When evaluating whether a fraudulent conveyance has occurred, we
consider any badges or indicia of fraud: “inadequacy of consideration, insolvency
of the transferor, pendency or threat of third-party creditor litigation, secrecy or
concealment, departure from the usual method of business, any reservation of
benefit to the transferor, and the retention by the debtor of the property.” Benson,
537 N.W.2d at 756. “The convergence of several badges or indices may support
an inference of fraud, which grows in strength as the badges increase in number.”
Textron Fin. Corp. v. Kruger, 545 N.W.2d 880, 883 (Iowa Ct. App. 1996).
3
On appeal, Kohrs-Manriques argues the district court should have found a fraudulent
conveyance occurred based on a violation of Iowa Code section 684.4. However, her
petition was pled in common law, and we decline to discuss the violation of statute first on
appeal. See Meier v. Senecaut, 641 N.W.2d 532, 537 (Iowa 2002) (“It is a fundamental
doctrine of appellate review that issues must ordinarily be both raised and decided by the
district court before we will decide them on appeal.”).
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Based upon our de novo review, we agree with the district court that Kohrs-
Manriques has not shown by clear and convincing evidence that a fraudulent
conveyance occurred. First, with regard to the consideration, the district court
found “[t]he evidence establishe[d] there was adequate consideration” for the
transfer. Brown testified initially she made monthly payments of $800 to Bence,
but at some point these payments were refinanced to $200 when she struggled to
make payments. After reviewing the record, the district court estimated Brown
likely owed over $30,000 to Bence. In Bence’s appeal brief, he estimates the
principal balance to be over $35,000, considering the evidence that Brown only
made nine payments in 2008 and her payments were reduced to $200 at some
point, which was not enough to even cover the interest each month. The
amortization schedule entered into the record supports that estimate. Additionally,
Brown testified her business owed utilities for $1000 to $2000 and back taxes
estimated around $10,000. With the tax and utilities liens, the property value was
decreased to less than zero in Brown’s hands.4 We agree with the district court
that although Brown received no cash payment from the transfer, the adequate
consideration was her ability to come out from under a heavy debt load from an
asset that held no value in her possession.
Next, the district court found “[t]here was certainly no secrecy or
concealment,” because the non-judicial voluntary foreclosure agreement and the
quit claim deed were filed with the Madison County Recorder. We agree there is
4
As part of the foreclosure action, Bence notified the Iowa Department of Revenue and
paid county property taxes in order to eventually secure clear title to convey the property
to the third party.
7
no evidence Bence or Brown attempted to transfer the property in secret.
Nonetheless, the district court did find the workers’ compensation claim was a
pending third-party creditor litigation and Brown was insolvent following the
conveyance. However, the district court also found those two factors did not
establish a fraudulent conveyance. Based on this evidence, we agree with the
district court and find Kohrs-Manriques had not met her burden of proving by clear
and convincing evidence that a fraudulent conveyance occurred. See Benson,
537 N.W.2d at 756.
V. Conclusion
We find the district court applied the correct standard and Kohrs-Manriques
had not proved by clear and convincing evidence that a fraudulent conveyance
occurred.
AFFIRMED.