Huntington National Bank v. David L Steuer Revocable Trust

If this opinion indicates that it is “FOR PUBLICATION,” it is subject to
revision until final publication in the Michigan Appeals Reports.
STATE OF MICHIGAN
COURT OF APPEALS
HUNTINGTON NATIONAL BANK, UNPUBLISHED
July 16, 2020
Plaintiff,
and
TARRANT ASSURANCE FUNDING LIMITED
PARTNERSHIP,
Plaintiff-Appellee,
v No. 346998
Ingham Circuit Court
BRENDA S. STEUER, individually and as Trustee LC No. 07-000790-CK
of the BRENDA S. STEUER REVOCABLE
TRUST, and STEUER & ASSOCIATES, INC.,
Appellants/Cross-Appellees,
and
MARK A. CANVASSER, as Trustee of the MARK
A. CANVASSER REVOCABLE TRUST, DAVID
L. STEUER, individually and as Trustee of the
DAVID L. STEUER REVOCABLE TRUST, and
MILLER PARK TOWNHOME CONDOMINIUMS,
LLC,
Defendants,
and
EDEN GLEN CONDOMINIUM ASSOCIATION,
CANVASSER DEVELOPMENT, INC., SCOTT
EISENBERG, and INGHAM COUNTY
TREASURER,
-1-
Intervenors,
and
STUART R. SHAFER, Receiver,
Intervenor-Appellee/Cross-Appellant.
Before: FORT HOOD, P.J., and JANSEN and TUKEL, JJ.
PER CURIAM.
Appellants/cross-appellees, Steuer & Associates (SAA) and Brenda S. Steuer (Brenda),
individually and as the trustee of the Brenda S. Steuer Revocable Trust (BSST)1, appeal as of right
the trial court’s opinion and order entered after a postjudgment bench trial covering the powers of
appellee/cross-appellant Stuart R. Shafer,2 who was appointed as a receiver during the proceedings
below, to assist in collecting a judgment entered against Brenda’s husband, David L. Steuer
(David), and in favor of Tarrant Assurance Funding Limited Partnership (Tarrant). The court
found that certain assets that had been transferred to Brenda and the BSST by David, either in his
own name or in the name of SAA, the couple’s company, were attachable by Shafer to be used to
satisfy the judgment against David because the transfers had been made fraudulently for the
purpose of avoiding satisfaction of the judgment. We affirm in part, reverse in part, and remand
for clarification of the trial court’s order.
I. FACTUAL AND PROCEDURAL BACKGROUND
David and his former business partner, Mark Canvasser, operated a home-construction
business in Detroit. At one point, David and Canvasser borrowed approximately $4,000,000 from
Huntington National Bank (Huntington) for purposes of a condominium project. When the real
estate market began to “crash,” David and Canvasser defaulted on the loan, and in June 2007,
Huntington sued them. In February 2009, a judgment of approximately $4,000,000 was entered
against David and Canvasser, jointly and severally. Later that year, Huntington assigned its
interest in the judgment to Tarrant.3 The judgment became final in December 2011.4 At the
1
Brenda and SAA are referred to in this opinion either individually or, collectively, as “appellants”
or “cross-appellees.”
2
This party is referred to in this opinion as “Shafer,” “the receiver,” “appellee,” or “cross-
appellant.” Tarrant Assurance Funding Limited Partnership is also an appellee in the main appeal,
but for ease of reference this opinion uses the singular term “appellee.” The company has merely
adopted Shafer’s appellee brief, without modification.
3
Evidence was presented that Tarrant obtained the judgment for an amount much less than
$4,000,000.
4
We refer to the judgment against David as “the Tarrant judgment” in this opinion.
-2-
request of Tarrant, the court appointed Shafer as a postjudgment receiver of David’s assets, to aid
in the satisfaction of this judgment. It is solely the postjudgment proceedings that are at issue in
the present appeal. The postjudgment proceedings eventually progressed to a bench trial, after
which the trial court concluded that David had fraudulently transferred several assets to Brenda
and the BSST in order to avoid satisfaction of the judgment. The court deemed these assets
attachable by Shafer. The court also concluded that several assets had not been transferred
fraudulently and were not subject to attachment. This appeal followed.
II. APPELLANTS’ CLAIMS ON APPEAL
A. AUTHORITY OF THE RECEIVER TO CHALLENGE THE ASSET TRANSFERS
Appellants first argue that Shafer had no authority to challenge the transfers made to
Brenda or the BSST. We disagree.
This issue involves a question of law, and this Court reviews issues of law de novo. Hill v
L F Transp, Inc, 277 Mich. App. 500, 507; 746 NW2d 118 (2008). Moreover, the issue was
addressed by way of a motion for summary disposition brought before the bench trial. This Court
also reviews summary disposition decisions de novo. Dell v Citizens Ins Co of America, 312 Mich
App 734, 739; 880 NW2d 280 (2015).
Appellants argue that a receiver stands in the shoes of a debtor and a debtor has no standing
to recover a fraudulent transfer because the transfer is valid in the eyes of the debtor. They argue
that Shafer, as David’s proxy, had no standing to pursue any claims against Brenda or her
associated entities. This assertion is belied by applicable Michigan authorities.
As authority for bringing his fraudulent transfer claims, Shafer cited the Revised Judicature
Act of 1961 (RJA), MCL 600.101 et seq., and also cited the Michigan uniform fraudulent transfer
act (MUFTA), MCL 566.31 et seq. MCL 600.6104, a provision of the RJA, states:
After judgment for money has been rendered in an action in any court of
this state, the judge may, on motion in that action or in a subsequent proceeding:
* * *
(4) Appoint a receiver of any property the judgment debtor has or may
thereafter acquire; and
(5) Make any order as within his discretion seems appropriate in regard to
carrying out the full intent and purpose of these provisions to subject any
nonexempt assets of any judgment debtor to the satisfaction of any judgment
against the judgment debtor. . . . [Emphasis added.]
MCL 600.6128, another provision of the RJA, states:
(1) Where it appears to the court that:
-3-
(a) The judgment debtor may have an interest in or title to any real property,
and such interest or title is disclaimed by the judgment debtor or disputed by
another person;
(b) The judgment debtor may own or have a right of possession to any
personal property, and such ownership or right of possession is substantially
disputed by another person; or
(c) A third party is indebted to the judgment debtor, and the obligation of
the third party to pay the judgment debtor is disputed; the court may, if the person
or persons claiming adversely is a party to the proceeding, adjudicate the
respective interests of the parties in such debt or real or personal property, and may
determine such property to be wholly or in part the property of the judgment debtor,
or that the debt is owed the judgment debtor.
(2) If the person claiming adversely to the judgment debtor is not a party to
the proceeding, the court shall by show cause order or otherwise cause such person
to be brought in and made a party thereto, and shall set such proceeding for early
hearing. [Emphasis added.]
MCL 600.6131(3), yet another provision of the RJA, states:
Where it appears that the judgment debtor at a time within 1 year prior to
the date of the commencement of the action in which the judgment is entered has
had title to or has paid the purchase price of any real or personal property to which
at the time of the examination his wife, or a relative or a person on confidential
terms with the judgment debtor may claim title or right of possession, the burden
of proof shall be upon the judgment debtor, or person claiming title or right of
possession, to establish that the transfer or gift from him was not made for the
purpose of delaying, hindering, and defrauding creditors.
MCL 600.2926, a fourth provision of the RJA, states, in part:
Circuit court judges in the exercise of their equitable powers, may appoint
receivers in all cases pending where appointment is allowed by law. This authority
may be exercised in vacation, in chambers, and during sessions of the court. In all
cases in which a receiver is appointed the court shall provide for bond and shall
define the receiver’s power and duties where they are not otherwise spelled out by
law. Subject to limitations in the law or imposed by the court, the receiver shall be
charged with all of the estate, real and personal debts of the debtor as trustee for the
benefit of the debtor, creditors and others interested. [Emphasis added.]
In light of the foregoing, we conclude that the RJA authorizes the appointment of a receiver
and refers to a trial court’s broad discretion in achieving the satisfaction of judgments. It addresses
the issue of fraudulent transfers of real property—and the present case encompasses such a
transfer. Significantly, it also allows the court to define a receiver’s powers and duties, and, as
-4-
noted, the court in the present case specifically ruled that Shafer could pursue claims against
Brenda, SAA, and the BSST.
Moreover, in Prescott v Pfeiffer, 57 Mich. 21, 23; 23 N.W. 477 (1885), our Supreme Court
concluded that a receiver could sue to attach fraudulent transfers, in law or equity, as the case
might require. Further, in Pontiac Trust Co v Newell, 266 Mich. 490, 499-500; 254 N.W. 178 (1934),
the Court stated, “[w]hen persons other than the receiver have property in their hands which should
be in the hands of the receiver, or when any person diverts or attempts to divert from the receiver
property which belongs to the receiver, such receiver may take all appropriate steps in law or
equity to reduce such property to possession and protect it from being diverted from its lawful
custodian.” Finally, in Woodliff v Frechette, 254 Mich. 328, 330-331; 236 N.W. 799 (1931), the
Court cited with approval the proposition that a receiver is normally limited to suing only on behalf
of the debtor, except in those instances when he or she is suing on behalf of a creditor to avoid
fraudulent transfers by the debtor. The Woodliff Court also noted that a receiver “derives his
authority as such receiver from the statutes and rules of court, the order appointing him, and
specific orders which may from time to time be made by the court of his appointment.” Id. at 329.
The receiver’s actions in this case conformed with the court’s orders. As stated in Hofmeister v
Randall, 124 Mich. App. 443, 445; 335 NW2d 65 (1983), receivership is generally a matter of
equity to allow the court to obtain justice for the parties before it, and a receiver is essentially an
arm of the court used to preserve the litigating parties’ property.
Under applicable statutes and caselaw, Shafer had the authority to pursue the claims against
Brenda, the BSST, and SAA. Tarrant is the entity who requested Shafer’s appointment, a lawyer
for Tarrant was present at trial, and Tarrant has joined in appellee’s brief on appeal. This belies
appellants’ assertion that Tarrant could obtain an inconsistent judgment in a separate proceeding;
it would clearly be bound by res judicata.5
Appellants argue that this case is governed solely by the MUFTA and that the MUFTA
does not allow a receiver to pursue claims on behalf of a creditor. But a review of the RJA
provisions cited above contradicts this assertion.6 The MUFTA, at any rate, states that a “creditor”
can obtain an attachment of a transferred asset, MCL 566.37(1)(b), but it also states that a creditor
can obtain,
5
Also, as noted by appellee on appeal, at the time of Shafer’s appointment, MCR 2.622 stated that
“[i]f a person brought before the court by [a] judgment creditor . . . claims an interest in . . .
property . . . adverse to the judgment debtor, and a receiver has been appointed, the interest may
be recovered only in an action by the receiver.” Brenda and her associated entities were claiming
an interest adverse to David. And the receiver, appointed at the request of Tarrant, had been
empowered by the court to add the third parties to the proceedings.
6
MCL 600.6143 states that chapter 61 of the RJA “is in addition to and does not affect enforcement
of judgments or proceedings supplementary thereto, by any other methods now or hereafter
provided by law.” In other words, the RJA provides additional avenues for obtaining enforcement
of judgments, aside from any that may derive from the MUFTA.
-5-
[s]ubject 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. [MCL 566.37(1)(c)
(emphasis added).]
The court here deemed it appropriate that a receiver be appointed, at the request of the creditor,
and that the receiver pursue fraudulent transfer claims against appellants. Thereafter, a lawyer for
Tarrant appeared throughout trial. Appellants admitted below that Tarrant asked the receiver to
bring the supplemental complaint. The court granted Tarrant “other relief” under MCL
566.37(1)(c)(iii) by allowing the receiver to pursue the fraudulent transfer claims in accordance
with Michigan caselaw. In light of all the applicable statutes and caselaw, appellants’ argument
that the MUFTA somehow barred the receiver’s action in the present case is unpersuasive.
B. TRANSFER OF STOCK PROCEEDS
Appellants next argue that the trial court erred by finding that proceeds from the sale of
stock in a company called “Sun Healthcare” had been fraudulently transferred into the BSST and
those proceeds therefore were subject to attachment by the receiver. We agree.
The parties agree that this issue is one of law because it involves the legal characterization
of the proceeds. A trial court’s conclusions of law following a bench trial are reviewed de novo.
Chelsea Investment Group LLC v Chelsea, 288 Mich. App. 239, 250; 792 NW2d 781 (2010).
The parties also agree that property held by the entirety is not subject to a fraudulent
transfer action in the present case. The MUFTA specifically excludes from the definition of
attachable “asset” an “interest in property held in tenancy by the entireties to the extent it is not
subject to process by a creditor holding a claim against only 1 tenant.” MCL 566.31(b)(iii).
However, the trial court determined that even if the stock had been held by the entirety, this
entireties status was dissolved when the stock was converted into cash, and therefore subsequent
transfer of the cash into the BSST was fraudulent. We cannot agree.
MCL 557.151 states:
All bonds, certificates of stock, mortgages, promissory notes, debentures,
or other evidences of indebtedness hereafter made payable to persons who are
husband and wife, or made payable to them as endorsees or assignees, or otherwise,
shall be held by such husband and wife in joint tenancy unless otherwise therein
expressly provided, in the same manner and subject to the same restrictions,
consequences and conditions as are incident to the ownership of real estate held
-6-
jointly by husband and wife under the laws of this state, with full right of ownership
by survivorship in case of the death of either.
This Court has concluded that checks payable jointly to a married couple are “evidence of
indebtedness made payable to persons who [are] husband and wife” under MCL 557.151. Theisen
v Theisen, 27 Mich. App. 356, 358; 183 NW2d 373 (1970). In DeYoung v Mesler, 373 Mich. 499,
504; 130 N.W. 38 (1964), our Supreme Court concluded that MCL 557.151 operates to create a
tenancy by the entirety when a debenture is conveyed jointly to a husband and wife, unless “an
intent to do otherwise is affirmatively expressed.” Id. at 501-502, 504. The Court discussed real
estate law and noted, “[i]n Michigan, the common-law rule that a conveyance to husband and wife
creates a tenancy by the entirety has persisted except in respect to conveyances explicitly indicating
that some other kind of tenancy is intended.” Id. at 504 (citations and quotation marks omitted).
The Court stated, “Such being the case as to conveyances of realty under our settled law, we are
constrained to hold that the language of the statute is indicative of a legislative intent to create in
the evidences of indebtedness specified in the statute an estate by the entireties.” Id.
In this case, the stock sale occurred on December 4, 2012, and tax documents identify
David and Brenda as recipients of the monies. The document refers to “proceeds from broker and
barter exchange transactions.” It specifically lists Sun Healthcare as the “payer” and David and
Brenda as the recipients as tenants by the entirety.7 While the appellate record does not contain a
jointly payable check as in Theisen, 27 Mich. App. at 358, it does contain clear and uncontroverted
evidence8 of a broker exchange resulting in proceeds being transferred from the “payer” to the
husband and wife recipients, jointly. The uncontroverted evidence shows that when Sun
Healthcare initiated a forced redemption,9 there was “indebtedness” “payable” to Brenda and
David as tenants by the entirety. In essence, we conclude that the whole of the Sun Healthcare
transaction was analogous to the check as discussed in Theisen. The stock was held by David and
Brenda as tenants by the entirety, with proceeds payable to them as husband and wife, and subject
to a forced redemption. We conclude that under the authority of MCL 557.151, Theisen, and
DeYoung, David and Brenda held the stock and its resultant proceeds by the entirety. Accordingly,
the trial court erred by finding that it was fraudulent for David and Brenda to move the stock
proceeds money into a BSST account because the proceeds were not reachable by Tarrant in the
first instance.
C. TRANSFER OF HOUSE ON OTTER LAKE
Third, appellants argue that the trial court erred by finding that the value of a house on
Otter Lake (the Otter house) was subject to attachment by the receiver because the house was not
mentioned in the receiver’s complaint, and because the limitations period had passed with regard
to any Otter house claim. This issue was not raised in a timely fashion below and we thus review
7
The earlier stock-acquisition documents also list David and Brenda as tenants by the entirety.
8
Appellee, on appeal, cites to nothing contradicting the stock documents referred to by appellants.
9
Appellee does not dispute that the stock was sold because of a forced redemption.
-7-
it under the plain-error doctrine of People v Carines, 460 Mich. 750, 763; 597 NW2d 130 (1999).
Kern v Blethen-Coluni, 240 Mich. App. 333, 336; 612 NW2d 838 (2000).
As an initial matter, appellee does not contest the assertion that the applicable statute of
limitations would, if applied, bar attachment by the receiver of the value of the Otter house. David
transferred the house to Brenda in 2007, and the receiver filed his supplemental complaint in March
2014. The limitations period is six years. MCL 566.39(a); MCL 600.5813. Appellee argues,
however, that appellants waived application of the statute of limitations because they (1) failed to
raise it, aside from making a general, blanket statute of limitations reference in their answer to the
complaint; and (2) participated in litigating the issue of the transfer of the Otter house. Appellee
also argues that appellants, by participating in litigating the issue, acquiesced to the trial court’s
resolution of the issue despite the fact that the Otter house was not specifically mentioned in the
complaint.
In filing his initial motion for supplemental proceedings, the receiver stated that David
“enjoys a boat and a cottage on Otter Lake in Brenda Steuer’s name.” In addition, even though
the Otter house was not specifically mentioned in the complaint, it was discussed extensively at
trial. David testified that he transferred the deed to the Otter house to Brenda approximately four
months after the 2007 commencement of the present lawsuit. David claimed that he could not
remember if he received payment for the transfer of the Otter house, but later stated that he did not
receive anything in exchange aside from the “proverbial dollar.” David testified that the Otter
house was owned for the benefit of his and Brenda’s children and that no “trickery” was involved
in connection with its ownership. David also claimed that at the time he transferred the Otter house
to Brenda, it had had no net equity.
In Leavenworth v Mich Nat Bank, 59 Mich. App. 309, 314; 229 NW2d 429 (1975), this
Court concluded that an issue had been tried by implied consent of the parties. This Court stated
that in that case, the defense never objected to the introduction of evidence regarding the issue. Id.
at 314. Further, this Court noted, “[n]or did defendant either claim any prejudice from a trial on
the issue or request a continuance.” Id. The same can be said about the Otter house issue in the
present case. Appellee specifically requested in its posttrial pleadings that the value of the Otter
house be deemed attachable. Appellants, in responding to this posttrial brief, raised no objection
to this request. As stated in MCR 2.118(C)(1), “When issues not raised by the pleadings are tried
by express or implied consent of the parties, they are treated as if they had been raised by the
pleadings.” Under the circumstances, no plain-error is apparent with regard to the fact that the
trial court issued a ruling regarding the Otter house even though it was not specifically mentioned
in the complaint.
In Attorney Gen ex rel Dep’t of Environmental Quality v Bulk Petroleum Corp, 276 Mich
App 654, 665; 741 NW2d 857 (2007), this Court concluded that “a statute of limitations defense
is an affirmative defense that may be waived.” “Such a waiver may be shown by a course of acts
and conduct, and in some cases will be implied therefrom.” Id. (quotation marks and citations
omitted). This Court stated:
Even if defendants had properly asserted a statute of limitations defense in
their responsive pleading, they failed to reiterate such a defense in response to
plaintiff’s motion for summary disposition. In the motion for summary disposition,
-8-
plaintiff asserted that no genuine issue of material fact existed with regard to
defendants’ liability for the alleged statutory violations. In responding to the
motion, defendants made no reference to any statute of limitations as an affirmative
defense to plaintiff’s claims.
* * *
[B]y failing to raise a statute of limitations defense in response to plaintiff’s motion
for summary disposition and at the first hearing regarding penalties, defendants
waived the defense. [Id. at 665-666.]
Similarly, appellee in the present case argued forcefully for attachment of the value of the Otter
house, yet appellants did not raise the limitations period as a defense. In light of binding precedent,
appellee’s appellate argument provides no basis for reversal.
D. ALLEGED LOANS TO SAA BY BRENDA
Finally, appellants argue that the trial court erred by concluding that certain monies
transferred to Brenda by SAA were not legitimate transfers of loan repayments. We disagree.
The issue of the alleged loans involves a factual finding subject to clear-error review. Alan
Custom Homes, Inc v Krol, 256 Mich. App. 505, 512; 667 NW2d 379 (2003). “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.” Id.
Although David, Brenda, and appellants’ expert witness, Brenda Orlando, testified that
Brenda had made various loans to SAA and that certain payments made to her or the BSST were
repayments on these loans, the trial court’s finding that no such loans had been made was not
clearly erroneous. First, the court specifically concluded that Orlando’s testimony on this point
was not credible. As stated in Ambs v Kalamazoo Co Rd Comm’n, 255 Mich. App. 637, 652; 622
NW2d 424 (2003), an appellate court is to give deference to the trial court’s “superior ability” to
judge the credibility of witnesses at trial.
Additionally, ample evidence supported the court’s conclusion that no such loans existed.
David admitted that no loan agreement had been put in writing. Later, David appeared to admit
that much of the “loaned” money came from joint accounts. He also said that no interest rate or
repayment due date had been established. Moreover, there was no written documentation about
security for the “loans.” David claimed that Brenda’s security was expected returns from SAA,
but he testified that SAA had a net value at trial of $10,000. Brenda admitted that there were no
specific terms for the alleged loans but that she was hopeful that she would be repaid. She also
admitted that a lot of the money she put into SAA was used to pay for David’s personal liabilities,
and that she used joint accounts at times to make her “loans.” Appellants’ own expert admitted
that the joint funds belonged as much to David as to Brenda. Appellee’s expert witness, Richard
Henderson, testified that there was no evidence of any loans by Brenda or interest charged. He
-9-
admitted that some checks had “loan” written on them and that tax returns referred to loans, but
he said that the “loans” were shareholder loans from David.10
A review of the evidence as a whole does not leave one with a definite and firm conviction
that the trial court was mistaken when rejecting the argument that certain monies transferred to
Brenda or the BSST from SAA were legitimate loan repayments. Alan Custom Homes, 256 Mich
App at 512.
III. APPELLEE’S CROSS-APPEAL
A. TRANSFER OF INCOME-TAX REFUNDS
On cross-appeal, Shafer argues that the trial court erred by concluding that income-tax
refunds from amended joint returns filed by David and Brenda to take advantage of loss-carryback
rules constituted entireties property not subject to fraudulent transfer claims in this case. We
disagree. This issue involves a question of law, and, as noted, this Court reviews issues of law de
novo. Hill, 277 Mich. App. at 507.
As indicated earlier, MCL 557.151 states:
All bonds, certificates of stock, mortgages, promissory notes, debentures,
or other evidences of indebtedness hereafter made payable to persons who are
husband and wife, or made payable to them as endorsees or assignees, or otherwise,
shall be held by such husband and wife in joint tenancy unless otherwise therein
expressly provided, in the same manner and subject to the same restrictions,
consequences and conditions as are incident to the ownership of real estate held
jointly by husband and wife under the laws of this state, with full right of ownership
by survivorship in case of the death of either.
Checks payable jointly to a married couple are “evidence of indebtedness made payable to persons
who [are] husband and wife.” Theisen, 27 Mich. App. at 358. And again, the Supreme Court has
construed MCL 557.151 to mean that a conveyance to a husband and wife creates a tenancy by the
entirety in the absence of explicit language to the contrary. DeYoung, 373 Mich. at 504. The
checks that are acknowledged to have been addressed to David and Brenda—i.e., the check for
$117,057, the check for $121,513.16, and the check for $66,607—fit within this statutory law and
caselaw—i.e., they were held by the entireties.11
10
Orlando appeared to admit that certain “loans” had originally been “booked” as loans from
David and were later reclassified as loans from Brenda. She also admitted that “loaned” money
came from joint accounts.
11
Despite the parties’ urging, we decline to rely on a nonbinding federal case cited by the parties,
or other nonbinding cases cited by cross-appellant.
-10-
Shafer argues that even if the jointly addressed checks are viewed as entireties property,
entireties property cannot be created, after a judgment, to keep creditors from assets. He contends
that this prohibited action has happened here. Presumably, this argument encompasses not only
the jointly addressed checks but also certain checks belonging solely to Brenda that were
associated with joint returns.12 But the Michigan cases cited by Shafer are distinguishable.
Shafer relies on Newlove v Callaghan, 86 Mich. 297; 48 N.W. 1096 (1891) aff’d 86 Mich.
301 (1891), McCaslin v Schouten, 294 Mich. 180; 292 N.W. 696 (1940), and Dunn v Minnema, 323
Mich. 687; 36 NW2d 182 (1949). In Newlove, 86 Mich. at 300-301, the defendant purchased
entireties real estate with monies that should have been subject to collection by creditors, and the
Court found this to be fraudulent. In McCaslin, 294 Mich. at 185, the Court stated that “payment
on [a] mortgage debt was tantamount to an investment of [the defendant’s] funds in property which
he and his wife would hold as tenants by the entireties; and thus he would hinder and possibly
prevent his creditors from reaching the funds invested by him.” The Court disallowed such an
action, characterizing it as a form of fraud. Id. at 186. In Dunn, 323 Mich. at 692-694, the Court
found that the defendant committed constructive fraud by making payments on entireties property
instead of paying toward a judgment owed to a creditor.
The situation in the present case is distinguishable. The Steuers were, quite simply,
following applicable tax laws with regard to the joint returns. They were amending returns filed
in years prior in order to take advantage of loss-carryback rules. There is no indication or
allegation that the filing of joint returns before 2008 was improper. Cross-appellant agrees that
the Steuers filed amended returns in obtaining the refunds and that these refunds were issued in
connection with pre-lawsuit tax years. As such, the Steuers were amending their pre-insolvency
and pre-judgment tax status on the basis of losses incurred, and no party has contended on appeal
that the Steuers broke any tax laws. They legally used the carryback provisions of the tax code to
amend the joint returns.
26 CFR 6013-1(a)(1) states, in part, “[f]or any taxable year with respect to which a joint
return has been filed, separate returns shall not be made by the spouses after the time for filing the
return of either has expired.” As such, the filing of joint amended returns was proper and had to
be done within a prescribed timeframe. See 26 USC 6511(d)(2)(A). And the carryback losses
were joint losses. See, e.g., 26 CFR 1.172-7(f) (discussing computation of carryback losses for
spouses). By taking advantage of loss-carryback provisions and legally amending their pre-
insolvency tax status, the Steuers were not committing fraud. The money, in essence, “related
back” to pre-lawsuit finances as a result of the legal application of tax laws, and the trial court did
not err by excluding the tax refunds from the attachable assets.
B. HOME-EQUITY LINE OF CREDIT
Next, Shafer argues that the trial court erred by finding that a home-equity line of credit
(HELOC) obtained by David and Brenda was not subject to attachment because it constituted
12
Brenda, when filing separately after 2008, had obtained certain carryforwards of money owed
from earlier joint returns.
-11-
entireties property. Again, we disagree. The issue is one of law and subject to de novo review.
Hill, 277 Mich. App. at 507.
In SNB Bank & Trust v Kensey, 145 Mich. App. 765, 776; 378 NW2d 594 (1985), the Court
stated, “[i]n Michigan, rents from property held by the entireties are not subject to garnishment to
pay the debts of the husband.” In People’s State Bank of Pontiac v Reckling, 252 Mich. 383, 383-
384; 233 N.W. 353 (1930), a husband and wife owned a premises by the entirety and leased it. A
judgment creditor of the husband sought to garnish rent due on the lease and was granted a writ of
garnishment by the lower court. Id. at 384. Our Supreme Court ruled that MCL 557.151
necessitated reversal. Id. at 384-385.
The present case involved an HELOC as opposed to rents. However, there is no logical
reason for treating an HELOC secured by entireties property differently from rents derived from
entireties property. In fact, the argument for treating an HELOC as remaining in the character of
entireties property is even stronger than corresponding argument for rents, seeing as the owned
home is used as security for and put at risk to obtain an HELOC and experiences a decline in equity
value as a result. As such, the trial court did not err by finding that the HELOC amount was not
attachable by the receiver.13
C. TAX-FORECLOSURE PURCHASES
On four occasions, David purchased property at tax-foreclosure auctions in his own name
and then transferred the properties to Franklin Ridge Homes, LLC, a BSST entity. Shafer argues
that by doing so, David used his own money to transfer property to Brenda and that the trial court
erred by finding that these transfers were not fraudulent. He also argues that the trial court applied
an incorrect burden of proof when analyzing the transfers. Because the trial court, not this Court,
sits as the arbiter of credibility, we disagree.
Whether the transfers made to Franklin Ridge were fraudulent is a question of fact. As
such, the clear-error standard of review is applicable. Alan Custom Homes, Inc, 256 Mich. App. at
512. To the extent that cross-appellant is arguing that the trial court applied an incorrect burden
of proof, this argument involves a question of law and the standard of review is de novo. Hill, 277
Mich. App. at 507.
In rejecting Shafer’s claim of fraud, the trial court referred to testimony by David that he
used funds from SAA or the BSST to purchase the properties and noted that no evidence had been
presented to rebut this testimony. The court explicitly stated that it found David’s testimony on
the topic of the Franklin Ridge transfers to be credible. It stated that David acquired the properties
as an agent of SAA and specifically found that “this was not a situation where [David] turned his
own money into real property that he then transferred to Franklin Ridge.”
13
Given that there is Michigan caselaw available to apply in these non-bankruptcy state
proceedings—namely SNB Bank & Trust and People’s State Bank of Pontiac—we decline to rely
on bankruptcy caselaw cited by Shafer.
-12-
At trial, David testified that he worked on Franklin Ridge projects as an employee of SAA
and was involved in acquiring lots Franklin Ridge owned. He admitted that he acquired several
lots for Franklin Ridge in his own name and then transferred the lots to the company. Three of the
properties in question were acquired in 2010 and one in 2014. David claimed that he used his own
name at the tax auctions because he did not know, at the time, how to acquire tax-sale property in
the name of an entity. He said that, in general, he was shocked at how inexpensive properties were
and that he saw investment opportunities. Significantly, he said that it was Brenda’s money, from
her inheritances, that funded all of Brenda’s real estate entities.
The fundamental problem with Shafer’s argument is that the trial court was the arbiter of
credibility, Ambs, 255 Mich. App. at 652, and the court believed David’s testimony: in the course
of these transactions, David was acquiring property using Brenda’s money for the benefit of
Franklin Ridge, and not “laundering” his own money. It is not this Court’s role to usurp reasonable
credibility determinations made by a lower court. Id.; see also MCR 2.613(C) (“[R]egard shall be
given to the special opportunity of the trial court to judge the credibility of the witnesses who
appeared before it.”).
Shafer claims that David’s testimony about whether he knew how to acquire a tax-sale
property in the name of an entity was contradicted by evidence that before one of the transactions
at issue—i.e., the 2014 transaction—he had, in fact, acquired properties at tax sales in the name of
entities. But the trial court did not place any emphasis on this aspect of the evidence; it was
concerned with whether David used his own money to buy the properties, and it explicitly found
that he did not. Instead, the trial court determined that David was acting in the service of Franklin
Ridge and Brenda—and was not “laundering” his own money.
Shafer also argues that David’s testimony about the four transactions cannot be deemed
credible because David, for details of the transactions, was relying on Orlando’s report, and the
court specifically found Orlando to lack credibility. But David, without any reference to Orlando’s
report, testified that it was Brenda’s money, received from her inheritances, that funded all of
Brenda’s real estate entities.
Shafer finally argues that the trial court applied an improper burden of proof because he
had made out a prima facie case of a fraudulent conveyance and it was therefore up to the
appellants “to show that the transaction [was] in all respects bona fide[.]” See MCL 600.6131(1).
In support of his position that the trial court applied an improper burden of proof, Shafer refers to
the trial court’s statement that “no evidence was admitted to refute” David’s testimony that he did
not use his own money to purchase properties for Franklin Ridge. However, the trial court’s
statement does not demonstrate that it applied an improper burden of proof. The court’s opinion
makes clear that it was concluding, on the basis of evidence presented by appellants—specifically
David’s testimony—that the transactions were bona fide. In other words, the trial court found that
appellants had proved the validity of the transactions. Shafer’s burden-of-proof argument is
without merit.
D. VEIL-PIERCING
Finally, Shafer argues that the trial court erred by failing to find that corporate veils could
be pierced to obtain, for Tarrant, funds held by Brenda’s limited-liability companies (LLCs). He
-13-
claims that access by the receiver to assets of the LLCs is necessary to effectuate the other rulings
of the trial court.
The receiver argued below that all assets of Brenda’s LLCs should be subject to liquidation
to satisfy the Tarrant judgment because the LLCs were essentially “alter egos” of David made up
of fraudulently transferred funds. Thus, that aspect of the present issue is preserved. People v
Metamora Water Serv, Inc, 276 Mich. App. 376, 382; 741 NW2d 61 (2007). However, Shafer did
not argue below that the assets of the LLCs should be used to satisfy other aspects of the
receivership judgment itself. That aspect of the present issue is not preserved. Id. Whether fraud
occurred in connection with the LLCs such that attachment of all their assets was warranted is a
question of fact subject to clear-error review, see Alan Custom Homes, Inc, 256 Mich. App. at 512,
but unpreserved issues are reviewed under the plain-error doctrine, Kern, 240 Mich. App. at 336.
Henderson testified that all the business entities of David and Brenda actually belonged to
David and that he had valued them at “between 4 and 5 million” dollars for purposes of the bench
trial. This figure was obtained by “project[ing] backwards” the current value of $8.3 million to
2007, 2009, or 2010, years when investments into the companies had been made. The receiver
claimed that $5,000,000 was subject to attachment on the basis of an alter-ego theory and David’s
“amass[ment]” of value in various entities. The court found that this theory had not been properly
pleaded by Shafer, thus depriving appellants of an ability to challenge it at trial. The trial court
also found that veil-piercing was not appropriate because no fraud or wrong had been committed
with regard to the LLCs at issue.
Shafer’s complaint did not indicate that he was seeking to liquidate and attach the value of
all the LLCs at issue. Cross-appellant contends that such specific pleading was not required
because once fraud was proven, obtaining the value of the LLCs was merely a remedy that did not
need to be pleaded. This argument is a stretch, however, because after trial, and without having
asserted as much in the complaint, Shafer sought to attach up to $5 million in assets on the basis
of claimed fraud in connection with the alleged alter-ego companies. This amounted to more than
a “remedy” applied to the other legal theories raised.14
Reversal is not warranted in any event. Shafer acknowledges that his claim is not
traditional because he is not attempting to “reach a shareholder where the corporation is already
obligated.” But he acknowledges that veil-piercing cases such as Florence Cement Co v Vettraino,
292 Mich. App. 461; 807 NW2d 917 (2011), and Foodland Distributors v Al-Naimi, 220 Mich. App.
453; 559 NW2d 379 (1996), are nevertheless applicable to his claim. In Florence Cement Co, 292
Mich. App. at 469, this Court indicated that a necessary element for concluding that a corporate
form has been abused for the purpose of avoiding liability is that the corporate entity “must have
been used to commit a wrong or fraud[.]” See also Foodland Distributors, 220 Mich. App. at 457.
The trial court in the present case concluded that this necessary element had not been established.
It stated, “The [c]ourt sees a very clear distinction between the assets [David] had at the time of
[j]udgment in the underlying litigation and any profits earned post [j]udgment by the companies.”
Significantly, it stated, “Those profits were realized by the companies themselves and by [Brenda]
14
Cross-appellees forcefully objected to the receiver’s attempt to add this theory after trial.
-14-
as owner of those companies.” The trial court stated that the mere fact that David performed work
for Brenda’s companies did not establish that fraud was taking place such that the companies’
value should be deemed attachable by the receiver. We find no error in the trial court’s position.
A review of the record does not lead to a definite and firm conviction that the trial court
made a mistake with regard to this finding. Alan Custom Homes, Inc, 256 Mich. App. at 512. David
testified that it was Brenda’s money, from her inheritances, that funded all of Brenda’s real estate
entities. He claimed that management fees, for the management of Brenda’s investments, were
paid at market rates. Shafer’s own expert witness, Henderson, acknowledged that if Brenda
legitimately owned an entity, she could hire someone to manage it and thereby make a profit. He
also agreed that Brenda had received significant loans from her father and that nothing on paper
showed anyone other than Brenda or her trust owning the LLCs at issue. Brenda testified that she
invested in various real estate LLCs and realized profits through David’s work. She said that she
decided to invest her inheritance money in real estate through David’s work because the timing
was good for getting into the real estate market. Brenda said that David would look for the
investment opportunities and she would decide whether to invest. She said the investments had
been good and that she had made a profit. Henderson admitted that David was very talented with
regard to his real estate work.
As noted, the trial court sits as the arbiter of credibility, Ambs, 255 Mich. App. at 652, and
it believed Brenda’s assertion that she used her inheritance money to invest in real estate, that she
realized profits as the owner of the companies, and that David did not have any ownership interest
in the companies. The trial court also found, “To the extent [Shafer] argue[s] that the various
LLCs were funded using co-mingled funds, the [c]ourt has already ruled on those funds (e.g., tax
returns and settlement funds) individually.” The trial court was implicitly concluding that even
though some commingling of funds had occurred—and that funds improperly assigned as Brenda’s
would be subject to attachment—this was not enough to prove that it was actually David who
“owned” the companies at issue.
Shafer goes on to argue that corporate veil-piercing must be allowed in this case in order
to effectuate the other findings of fraudulent transfers made by the trial court. But the trial court’s
ruling makes clear that a significant number of assets are indeed attachable. Disregarding the Sun
Healthcare monies and the “extra” $100,000 discussed below, the court found a total of
$2,167,626.06, plus the as-yet-to-be-determined value of certain SAA stock, attachable where it
had been fraudulently transferred to Brenda or the BSST. Shafer argues that he will be unable to
collect on this judgment without a ruling that the corporate veil of the LLCs can be pierced. But
satisfaction of the trial court’s receivership judgment was not the subject being addressed by the
trial court. The proper method for collecting on the receivership judgment has not yet been
addressed below and will not be addressed in the first instance by this Court.
IV. CONCEDED ISSUE
We lastly note that the trial court’s order mistakenly lists $100,000 in transferred checks
as attachable twice by the receiver. Shafer has conceded on appeal that the order must be amended
to make clear that the $100,000 is attachable only once, and we so order.
-15-
Affirmed in part, reversed in part, and remanded for proceedings consistent with this
opinion. We do not retain jurisdiction.
/s/ Karen M. Fort Hood
/s/ Kathleen Jansen
/s/ Jonathan Tukel
-16-