Timothy v. Pia, Anderson, Dorius, Reynard & Moss LLC

2018 UT App 31THE UTAH COURT OF APPEALS
PAUL TIMOTHY AND JANICE TIMOTHY,
Appellants,
v.
PIA, ANDERSON, DORIUS, REYNARD & MOSS LLC
AND BRENNAN MOSS,
Appellees.
Opinion
No. 20150051-CA
Filed February 23, 2018
Third District Court, Salt Lake Department
The Honorable Todd M. Shaughnessy
No. 120905780
Nelson Abbott, Attorney for Appellants
J. Ryan Mitchell, John P. Mertens, and William O.
Kimball, Attorneys for Appellees
JUDGE MICHELE M. CHRISTIANSEN authored this Opinion, in
which JUDGE GREGORY K. ORME and SENIOR JUDGE STEPHEN L.
ROTH concurred.1
CHRISTIANSEN, Judge:
¶1 Paul Timothy and Janice Timothy (collectively, Creditors)
appeal the district court’s grant of summary judgment in favor
of Pia, Anderson, Dorius, Reynard & Moss LLC (Law Firm) and
Brennan Moss (collectively, Appellees). We affirm.
1. Senior Judge Stephen L. Roth began work on this case as an
active member of the Utah Court of Appeals. He completed his
work as a senior judge sitting by special assignment as
authorized by law. See generally Utah R. Jud. Admin. 11-201(6).
Timothy v. Pia, Anderson, Dorius, Reynard & Moss
BACKGROUND
¶2 In 2002, Creditors brought suit against Thomas Keetch
and Teri Keetch (collectively, Debtors) alleging, among other
things, breach of contract and fraud. The case ultimately resulted
in a 2009 judgment in Creditors’ favor.2
¶3 In July 2009, approximately four months after entry of the
judgment, all of Debtors’ bank accounts were closed.3 Then, in
March 2010, Teri Keetch’s high-school-aged son (Son) opened a
bank account.4 The district court later determined that both Teri
Keetch and Son had access to all of the money in the account and
that “[m]uch of the money in [Son’s] bank account belonged to
[Debtors].”5
¶4 On February 12, 2011, Son wrote a check for $50,000 from
“his” account, payable to Law Firm. The check’s memo line read
“Terry Keetch.” Law Firm deposited the check into its trust
account around March 15, 2011. The district court later found
that the $50,000 was Debtors’ money.
2. A more detailed summary of the facts surrounding Creditors’
suit against Debtors may be found in Timothy v. Keetch, 2011 UT
App 104, 251 P.3d 848, in which this court affirmed the trial
court’s ruling. Id. ¶¶ 1–9.
3. According to Teri Keetch, Debtors’ bank closed the accounts.
As of July 29, 2014, Debtors had not paid the judgment. And
according to Creditors, Debtors “have not paid [the judgment] to
this day.”
4. Son’s bank account appears to have been a joint account with
Teri Keetch’s mother.
5. For example, the district court found that since May 2010,
Debtors had collectively made around seventy deposits into
Son’s bank account, totaling $186,283.93, and that Teri Keetch
had written checks on Son’s account totaling at least $6,462.34.
20150051-CA 2 2018 UT App 31Timothy v. Pia, Anderson, Dorius, Reynard & Moss
¶5 Four days before Law Firm deposited the $50,000 into its
trust account, Debtors and Creditors attended a supplemental
hearing to determine whether Debtors had assets that could be
applied to the judgment. Brennan Moss, an attorney from Law
Firm, represented Debtors at the hearing. During the hearing,
Thomas Keetch testified that “he did not have a checking
account, but that friends and family, specifically [Son], ‘cashed’
checks for him.” Teri Keetch testified that she had no assets.6
¶6 On March 16, 2011, after the $50,000 was deposited into
Law Firm’s trust account, Thomas Keetch signed an addendum
to a real estate purchase contract, which stated that Debtors
would “place in a trust [with] their attorney, Brennan Moss, a
sum of no less than 30,000” to help secure a home Debtors
6. Although Law Firm did not deposit the $50,000 check into its
trust account until March 15, 2011, the record suggests that Law
Firm was in possession of the check at the time of the
supplemental hearing. Creditors observe that “Brennan Moss sat
in the supplemental proceeding and heard [Debtors] testify that
they had no assets, could not pay the judgment[,] and were
insolvent,” and Creditors fault Moss for “not correct[ing] this
false testimony.”
If Moss knew that Debtors had misrepresented their
financial circumstances during the supplemental hearing, his
failure to correct them, while not per se unlawful, may have run
afoul of the Utah Rules of Professional Conduct. See, e.g., Utah R.
Prof’l Cond. 3.3(b) (“If a lawyer, the lawyer’s client, or a witness
called by the lawyer has offered material evidence and the
lawyer comes to know of its falsity, the lawyer shall take
reasonable remedial measures, including, if necessary, disclosure
to the tribunal.”); id. R. 3.3(c) (“A lawyer who represents a client
in an adjudicative proceeding and who knows that a person
intends to engage, is engaging, or has engaged in criminal or
fraudulent conduct related to the proceeding shall take
reasonable remedial measures, including, if necessary, disclosure
to the tribunal.”).
20150051-CA 3 2018 UT App 31Timothy v. Pia, Anderson, Dorius, Reynard & Moss
wanted to purchase. Subsequently, Law Firm transferred $20,000
from the trust account to a title company for Debtors as a down
payment on the home. Two months later, at the request of
Debtors, Law Firm transferred an additional $20,560.75 out of its
trust account and paid $2,745 to itself, $16,451.75 to one of
Debtors’ family members, and $1,364 to Creditors.7 The payment
to Creditors was made in response to a court order entered on
May 27, 2011.
¶7 In August 2012, Creditors filed suit against Appellees.
Creditors later filed an amended complaint, alleging various
theories of fraudulent transfer against Law Firm, participation in
wrongful conduct against Moss individually, and civil
conspiracy against Appellees collectively. Appellees filed a
motion for summary judgment, arguing that Law Firm was not a
transferee under Utah’s Uniform Fraudulent Transfer Act. See
Utah Code Ann. §§ 25-6-1 to -14 (LexisNexis 2013).8 The district
court agreed and granted Appellees’ motion for summary
judgment, concluding that
[b]ecause the relevant provisions of the Utah
Uniform Fraudulent Transfer Act were modeled on
federal Bankruptcy law, the court is persuaded that
“transferee” as used in the Act is most logically
7. Appellees correctly note that the district court’s finding that
the $50,000 was actually Debtors’ money, supra ¶ 4, was entered
after Law Firm had distributed the funds.
8. Utah’s version of the Uniform Fraudulent Transfer Act was
amended, renumbered, and renamed as the Uniform Voidable
Transactions Act, effective May 9, 2017. See Utah Code Ann.
§§ 25-6-101 to -502 (LexisNexis Supp. 2017). Because the 2017
amendment took effect after the relevant events in this case
occurred and after oral argument before this court, we cite the
2013 version of the Uniform Fraudulent Transfer Act throughout
this opinion. See id. §§ 25-6-1 to -14 (2013).
20150051-CA 4 2018 UT App 31Timothy v. Pia, Anderson, Dorius, Reynard & Moss
defined in the manner it has been defined in the
Bankruptcy context. That is, a “transferee” must
exercise dominion or control over the transferred
asset. Here, the law firm did not—and could not—
exercise dominion and control over funds held in
the firm’s trust account. The Rules of Professional
Conduct explicitly prevent a law firm from using
those funds at their discretion. Accordingly, the
Law Firm was not a “transferee” within the
meaning of the Act and the Judgment Creditors’
fraudulent conveyance claims fail as a matter of
law. Those claims are hereby dismissed with
prejudice.
Appellees then filed a second motion for summary judgment,
arguing that Creditors’ claim that Appellees “conspired to assist
[Debtors] in transfers that violated the [Uniform Fraudulent
Transfer Act]” was “insufficient to support [Creditors’] civil
conspiracy claim because it is not a valid tort claim against
[Appellees].” The district court observed that
[a]lthough the question has not been addressed by
Utah’s appellate courts, the majority view appears
to be that state and federal statutes governing
“fraudulent” conveyances are not based on tort
principles. Moreover, and perhaps more important,
the majority view appears to be that tort principles,
such as civil conspiracy and aiding and abetting,
cannot be used to get around the statutory limits of
fraudulent conveyance actions; namely, those that
limit the reach of such statutes to “transferees.”
The court was “persuaded that if presented with the question,
Utah’s appellate courts would . . . not permit civil conspiracy,
aiding and abetting, or similar theories to extend the reach of the
Utah Uniform Fraudulent [Transfer] Act.” Consequently, the
20150051-CA 5 2018 UT App 31Timothy v. Pia, Anderson, Dorius, Reynard & Moss
district court granted Appellees’ second motion for summary
judgment and dismissed Creditors’ remaining claims with
prejudice. Creditors appeal.
ISSUES AND STANDARDS OF REVIEW
¶8 Creditors contend that the district court erred in granting
Appellees’ motions for summary judgment. First, Creditors
argue that “[a] law firm that receives money into its [trust]
account is a transferee as defined by the Utah Fraudulent
Transfer Act” and that the district court “erroneously
determined that a transferee is defined by bankruptcy law rather
than by Utah Statute.” Second, Creditors contend that
“[v]iolation of the Utah Fraudulent Transfer Act may serve as a
predicate act to support a claim for civil conspiracy.”
¶9 We review “a [district] court’s legal conclusions and
ultimate grant or denial of summary judgment for correctness,
and view[] the facts and all reasonable inferences drawn
therefrom in the light most favorable to the nonmoving party.”
Orvis v. Johnson, 2008 UT 2, ¶ 6, 177 P.3d 600 (citations and
internal quotation marks omitted). Likewise, “[w]e review a
district court’s interpretation and application of a statute for
correctness.” Robinson v. Robinson, 2016 UT App 32, ¶ 35, 368
P.3d 147.
ANALYSIS
I.
¶10 Creditors first contend that “[a] law firm that receives
money into its [trust] account is a transferee as defined by the
Utah Fraudulent Transfer Act.”
¶11 Utah’s Uniform Fraudulent Transfer Act (the Act), see
Utah Code Ann. §§ 25-6-1 to -14 (LexisNexis 2013), was designed
20150051-CA 6 2018 UT App 31Timothy v. Pia, Anderson, Dorius, Reynard & Moss
to prevent fraudulent transfers of assets by debtors who seek to
defraud creditors or avoid debts by placing assets beyond
creditors’ reach, see Bradford v. Bradford, 1999 UT App 373, ¶ 14,
993 P.2d 887. Pursuant to section 25-6-5 of the Act, a fraudulent
transfer occurs when a debtor (a) transfers property with actual
intent to hinder, delay, or defraud any creditor, or (b) transfers
property under certain conditions without receiving reasonably
equivalent value in exchange. Utah Code Ann. § 25-6-5(1). If a
transfer is demonstrated to be fraudulent, the Act provides
creditors with various remedies “for relief against a transfer or
obligation,” including, among others, “avoidance of the transfer
or obligation to the extent necessary to satisfy the creditor’s
claim.” Id. § 25-6-8(1)(a).
¶12 Generally, “[a] transfer or obligation is not voidable under
Subsection 25-6-5(1)(a) against a person who took in good faith
and for a reasonably equivalent value or against any subsequent
transferee or obligee.” Id. § 25-6-9(1). “[T]o the extent a transfer is
voidable in an action by a creditor under Subsection 25-6-8(1)(a),
the creditor may recover judgment for the value of the asset
transferred, . . . or the amount necessary to satisfy the creditor’s
claim, whichever is less.” Id. § 25-6-9(2). Relevant to this case, the
judgment may be entered against “the first transferee of the asset
or the person for whose benefit the transfer was made.” Id. § 25-
6-9(2)(a) (emphasis added). The primary issue on appeal is
whether, pursuant to subsection 25-6-9(2)(a) of the Act, Law
Firm was the “first transferee” of the $50,000. See id.
A. The definition of “first transferee”
¶13 The Act does not define “first transferee” for purposes of
subsection 25-6-9(2)(a), and Utah appellate courts have not yet
articulated a definition.
¶14 Creditors assert that we “should adopt a definition of the
word ‘transferee’ as used in the [Act] as any person who receives
20150051-CA 7 2018 UT App 31Timothy v. Pia, Anderson, Dorius, Reynard & Moss
an asset by transfer”9 and that under this definition, Law Firm
was a transferee. In making their argument, Creditors rely on the
definition of “transferee” from other sections of the Utah Code.
For example, Creditors cite the Utah Uniform Partnership Act,
which defines transferee as “a person to which all or part of a
transferable interest has been transferred, whether or not the
transferor is a partner.” Utah Code Ann. § 48-1d-102(26)
(LexisNexis 2015); see also id. § 48-2e-102(27) (similar definition of
transferee in the Utah Uniform Limited Partnership Act); id.
§ 48-3a-102(30) (similar definition of transferee in the Utah
Revised Uniform Limited Liability Company Act). Creditors also
rely on Black’s Law Dictionary, which defines “transferee” as
“[o]ne to whom a property interest is conveyed.” Transferee,
Black’s Law Dictionary (10th ed. 2014).
¶15 Appellees, on the other hand, assert that this court should
look to federal bankruptcy law for guidance and “require a
‘transferee’ to be someone who exercise[s] dominion or control
over an asset” and that “[u]nder the dominion and/or control
tests, [Law Firm] is not a transferee.”10 According to Appellees,
this court should “turn to bankruptcy law for guidance” because
subsection 25-6-9(2) of the Act “parallels the Bankruptcy Code,
which provides for recovery ‘from . . . the initial transferee of
9. The Act defines “‘[t]ransfer’” as “every mode, direct or
indirect, absolute or conditional, or voluntary or involuntary, of
disposing of or parting with an asset or an interest in an asset,
and includes payment of money, release, lease, and creation of a
lien or other encumbrance.” Utah Code Ann. § 25-6-2(12)
(LexisNexis 2013). The Bankruptcy Code’s definition of
“transfer” is substantially similar to the Act’s definition. Compare
id., with 11 U.S.C. § 101(54) (2012).
10. Alternatively, Appellees contend that “[d]epositing money
into a law firm’s [trust] account does not dispose of the money,
and thus is not a ‘transfer’ under the [Act].” We address this
argument infra ¶ 28.
20150051-CA 8 2018 UT App 31Timothy v. Pia, Anderson, Dorius, Reynard & Moss
such transfer or the entity for whose benefit such transfer was
made.’” (Quoting 11 U.S.C. § 550(a) (2012).) See also Newsome v.
Charter Bank Colonial, 940 S.W.2d 157, 165 (Tex. App. 1996)
(observing that “[s]imilar to the fraudulent transfer statutes . . .
the Bankruptcy Code allows the bankruptcy trustee to avoid
certain transfers”). Appellees rely on a long line of cases decided
under subsection 550(a)(1) of the Bankruptcy Code, which hold
that one must have dominion or control over the debtor’s funds
to be an initial transferee.
¶16 Similar to the Act, the Bankruptcy Code allows the
bankruptcy trustee to avoid certain transfers. Compare Utah
Code Ann. §§ 25-6-8, -9, with 11 U.S.C. §§ 547, 550 (2012). Section
550 of the Bankruptcy Code provides that the bankruptcy trustee
may recover a preference avoided under section 547 from the
“initial transferee of such transfer or the entity for whose benefit
such transfer was made.” 11 U.S.C. § 550(a)(1). Because the
Bankruptcy Code does not define “initial transferee,” the courts
have sought to articulate a definition.
¶17 The leading case on this issue is Bonded Financial Services,
Inc. v. European American Bank, 838 F.2d 890 (7th Cir. 1988), in
which the Seventh Circuit Court of Appeals articulated the
“dominion test.” The court held that “the minimum requirement
of status as a ‘transferee’ is dominion over the money or other
asset, the right to put the money to one’s own purposes.” Id. at
893; see also id. (“When A gives a check to B as agent for C, then
C is the ‘initial transferee’; the agent may be disregarded.”);
accord In re Incomnet, Inc., 463 F.3d 1064, 1070 (9th Cir. 2006)
(observing that the Bonded decision is “the leading case in this
area” and that “[t]he inquiry focuses on whether an entity had
legal authority over the money and the right to use the money
however it wished” (emphasis added)). The Seventh Circuit
clarified that an entity does not have “dominion” over funds
until it is, in essence, “free to invest the whole [amount] in
lottery tickets or uranium stocks.” Bonded, 838 F.2d at 894.
Applying the dominion test, the Bonded court concluded that the
financial intermediary (a bank), which “[u]nder the law of
20150051-CA 9 2018 UT App 31Timothy v. Pia, Anderson, Dorius, Reynard & Moss
contracts . . . had to follow the instructions that came with the
check,” was not the initial transferee of the check because the
bank held the funds “only for the purpose of fulfilling an
instruction to make the funds available to someone else.” Id.
¶18 The Eleventh Circuit Court of Appeals took a slightly
different, but similar, approach and set forth the “control test.”
See Nordberg v. Societe Generale (In re Chase & Sanborn Corp.), 848
F.2d 1196, 1199 (11th Cir. 1988). This test “requires courts to step
back and evaluate a transaction in its entirety to make sure that
their conclusions are logical and equitable.” Id.; see also id. (“This
approach is consistent with the equitable concepts underlying
bankruptcy law.”). Thus, under the control test, “the outcome of
the cases turn on whether the [receiving parties] actually
controlled the funds or merely served as conduits, holding
money that was in fact controlled by either the transferor or the
real transferee.” Id. at 1200; see also id. (“When banks receive
money for the sole purpose of depositing it into a customer’s
account . . . the bank never has actual control of the funds and is
not a section 550 initial transferee.”). The court noted that as a
matter of public policy, it would be “especially inequitable to
hold conduits liable in situations in which the conduits cannot
always ascertain the identity of the transferor.” Id. at 1201.
¶19 “A number of circuits combined these tests—or at least
combined their names—creating a ‘dominion and control test’ to
determine whether a party is an initial transferee.” In re
Incomnet, 463 F.3d at 1069, 1070–71 (applying the dominion test
from Bonded and observing that the dominion and control tests
“do differ”); see also Jessica D. Gabel & Paul R. Hage, Who Is A
“Transferee” Under Section 550(a) of the Bankruptcy Code?: The
Divide Over Dominion, Control, and Good Faith in Applying the Mere
Conduit Defense, 21 J. Bankr. L. & Prac. 1 Art. 3 (Jan. 2012)
(observing that nearly all of the federal appellate courts that
have “opined on the mere conduit defense” “have adopted
Bonded’s ‘dominion test’ in one form or another, although many
of the courts appear to have combined the ‘dominion test’ with
the ‘control test,’ at least by name, applying what they refer to as
20150051-CA 10 2018 UT App 31Timothy v. Pia, Anderson, Dorius, Reynard & Moss
a ‘dominion and control’ test”); see also, e.g., In re Hurtado, 342
F.3d 528, 533 (6th Cir. 2003) (observing that the Bonded test “has
come to be known as the dominion-and-control test, and has
been ‘widely adopted’” and stating that “[a]n initial transferee
must have ‘dominion’ over the funds to be an ‘initial transferee’”
(citation omitted)); In re Ogden, 314 F.3d 1190, 1202, 1204 (10th
Cir. 2002) (applying the “dominion and control test” from Bonded
and observing that “[i]n order to be a transferee of the debtor’s
funds, one must (1) actually receive the funds, and (2) have full
dominion and control over them for one’s own account, as
opposed to receiving them in trust or as agent for someone else”
(alteration in original) (citation and internal quotation marks
omitted)); Christy v. Alexander & Alexander of New York Inc. (In re
Finley, Kumble, Wagner, Heine, Underberg, Manley, Myerson,
& Casey), 130 F.3d 52, 56–58 (2d Cir. 1997) (stating that “[t]he
Seventh Circuit’s logic [in Bonded] has been widely adopted,”
joining “these other circuits in adopting the ‘mere conduit’ test,”
and observing that “the wording of section 550(a) is not so plain
as to compel, or persuasively argue for, the principle that every
conduit is an initial transferee”); id. at 56 (“The statutory term is
‘transferee’—not ‘recipient’—and is not self-defining. Numerous
courts have recognized the distinction between the initial
recipient—that is, the first entity to touch the disputed funds—
and the initial transferee under section 550.”); Bowers v. Atlanta
Motor Speedway, Inc. (In re Southeast Hotel Props. Ltd.), 99 F.3d 151,
155–56 (4th Cir. 1996) (reviewing “the decisions of courts that
have required legal dominion and control over the funds to
constitute an ‘initial transferee’ and the decisions of courts that
have required merely physical dominion and control” and
adopting “the dominion and control test as set forth in Bonded,”
i.e., “a person or entity must have exercised legal dominion and
control over the property” to be an initial transferee).
¶20 In Security First National Bank v. Brunson (In re Coutee), 984
F.2d 138 (5th Cir. 1993), the Fifth Circuit Court of Appeals
applied a “dominion or control test” to circumstances similar to
this case. Id. at 141. In that case, the debtors received a check in
satisfaction of a judgment and endorsed it to a law firm. Id. at
20150051-CA 11 2018 UT App 31Timothy v. Pia, Anderson, Dorius, Reynard & Moss
140. The law firm then deposited the funds into its trust account,
claimed its legal fees out of the funds, returned a portion of the
award to the debtors, and transferred the remaining funds to a
bank in satisfaction of the debtors’ loan. Id. In concluding that
the bank, not the law firm, was the initial transferee of the funds
under section 550(a)(1) of the Bankruptcy Code, the Fifth Circuit
explained:
Adopting the dominion or control test, we find that
the bank, not the [law] firm, was the initial
transferee of the funds. As the district court noted,
the funds were deposited into the firm’s trust
account, as opposed to its business account,
indicating that they were held merely in a fiduciary
capacity for the [debtors]. Moreover, the
negotiations regarding the firm’s legal fees, which
occurred after it received the funds, indicate that
the firm was not free at that time simply to keep
the money. The only control exercised over the
funds was the control delegated to the law firm by
the [debtors]. As the bankruptcy court noted, “[t]he
law firm, under Louisiana law, was required to
keep the client’s funds in an identifiable trust
account in order to avoid the charge of
conversion.”
. . . The firm’s role with respect to the received
money was to accept the funds in settlement of its
client’s case, deposit the money in trust, keep as
fees only what the [debtors] agreed to, and pay the
rest to the bank on behalf of the [debtors] in
satisfaction of their loan. The law firm had no legal
right to put the funds to its own use, and thus
lacked the requisite dominion required to be the
initial transferee.
Id. at 141 (citations omitted).
20150051-CA 12 2018 UT App 31Timothy v. Pia, Anderson, Dorius, Reynard & Moss
¶21 Turning to the Act, the analog of subsection 25-6-9(2) of
the Act is contained in section 8(b) of the Uniform Fraudulent
Transfer Act (the Uniform Act).11 See Uniform
Fraudulent Transfer Act § 8(b) (Nat’l Conference of Comm’rs on
Unif. State Laws 1984), http://www.uniformlaws.org/
shared/docs/fraudulent%20transfer/UFTA_Final_1984.pdf [https
://perma.cc/M9JM-4BVG]. As the district court correctly noted,
“[t]he drafter’s comments to the Uniform Act give little insight
into what they intended ‘transferee’ to mean.” Indeed, the
comment from the Uniform Act relating to section 8(b) simply
states, “Subsection (b) is derived from § 550(a) of the Bankruptcy
Code. The value of the asset transferred is limited to the value of
the levyable interest of the transferor, exclusive of any interest
encumbered by a valid lien.” Uniform Fraudulent Transfer Act
§ 8(b) cmt. 2 (emphasis added). See generally Carlie v. Morgan, 922
P.2d 1, 7 (Utah 1996) (Howe, J., concurring) (“[C]omments by the
drafters of uniform acts are not written into the statute when
11. The Uniform Fraudulent Transfer Act is now titled the
Uniform Voidable Transactions Act (UVTA). See http://www.uni
formlaws.org/Act.aspx?title=Voidable%20Transactions%20Act%
20Amendments%20(2014)%20-%20Formerly%20Fraudulent%20
Transfer%20Act [https://perma.cc/L7R4-FBHK]. The Uniform
Act was amended in 2014 to “address a small number of
narrowly-defined issues.” Id. The retitling was not motivated by
the “relatively minor” 2014 amendments, but because “the word
‘Fraudulent’ in the original title, though sanctioned by
historical usage, was a misleading description of the [Uniform]
Act as it was originally written. Fraud is not, and never has been,
a necessary element of a claim for relief under the [Uniform]
Act.” Uniform Voidable Transactions Act § 15 cmt. 1
(Nat’l Conference of Comm’rs on Unif. State Laws
2014), http://www.uniformlaws.org/shared/docs/Fraudulent
%20Transfer/2014_AUVTA_Final%20Act_2016mar8.pdf [https://
perma.cc/YV7Y-YWB3]. The amended UVTA does not provide
any further guidance on the primary issue in this case—the
meaning of “first transferee.”
20150051-CA 13 2018 UT App 31Timothy v. Pia, Anderson, Dorius, Reynard & Moss
Utah adopts a version of a uniform act but are nevertheless
considered relevant when seeking legislative intent.”); Schurtz v.
BMW of North Am., Inc., 814 P.2d 1108, 1113 (Utah 1991) (stating
that “the comments of the drafters of the Uniform Commercial
Code” provide “the only thing that could be described as
legislative history”).
¶22 In apparent recognition of the fact that subsection 8(b) of
the Uniform Act was derived from section 550(a) of the
Bankruptcy Code, some state courts have relied on the dominion
or control tests articulated by the federal circuit courts in
interpreting the “first transferee” provision of the Uniform Act.
For example, in Newsome v. Charter Bank Colonial, 940 S.W.2d 157(Tex. App. 1996), the Texas Fourteenth Court of Appeals noted
that “[n]either the former nor current fraudulent transfer statutes
defined a ‘transferee.’” Id. at 165. Recognizing the similarities
between the Uniform Act and the Bankruptcy Code, and that the
Fifth Circuit Court of Appeals has “defined a transferee as a
party who has legal dominion or control over the funds; that is,
the right to put the money to one’s own use,” the court applied a
“dominion or control” test. Id. at 165–66 (citing In re Coutee, 984
F.2d at 141). The court then concluded that a bank that was
“simply complying with its depositors’ instructions to pay” a
doctor “in accordance with applicable law and prudent banking
standards” was not a transferee because the bank “did not
exercise ‘dominion or control’ over the[] funds.” Id. at 166
(citation omitted).
¶23 In PHI Financial Services, Inc. v. Johnston Law Office, PC,
2016 ND 20, 874 N.W.2d 910, a North Dakota case with facts
similar to the case before this court, the debtors deposited funds
into a law firm’s trust account via two transactions. Id. ¶ 5. The
first check was for the law firm’s attorney fees. Id. The second
check was sent to the law firm with instructions to forward the
money to the father of one of the debtors. Id. The law firm
transferred the requested amount from its trust account to the
father and retained the remaining funds for legal fees. Id. The
debtors’ creditors brought suit against the law firm, alleging
20150051-CA 14 2018 UT App 31Timothy v. Pia, Anderson, Dorius, Reynard & Moss
theories of conversion and fraudulent transfer. Id. ¶ 6. After a
bench trial, the district court found that the transfer to the father
was fraudulent and that the creditors were entitled to recover
the amount of the transfer from the law firm. Id. The law firm
appealed, arguing that the district court erred in voiding the
transfer from its trust account to the father at the direction of the
debtors. Id. ¶ 11.
¶24 On appeal, the Supreme Court of North Dakota observed
that section 8(b) of the Uniform Act was derived from section
550(a) of the Bankruptcy Code and concluded that “the ‘mere
conduit’ cases decided under the Bankruptcy Code [were]
helpful in analyzing the issue” in the case. Id. ¶ 14. The court
noted that it was undisputed that the funds at issue were placed
in the law firm’s trust account and that pursuant to the North
Dakota Rules of Professional Conduct, “[c]lient funds must be
held in a trust account to ensure their safekeeping from loss and
to maintain ready availability to the client upon termination of
the representation” and that “[a]ll property that is the property
of clients . . . must be kept separate from the lawyer’s business
and personal property.” Id. ¶ 15 (citations and internal quotation
marks omitted). The court further observed that “[a] law firm is
not free to put monies deposited in a client trust account to its
own use.” Id. Applying the “mere conduit” rule, the court
concluded that because the law firm “held this portion of the
funds ‘only for the purpose of fulfilling an instruction to make
the funds available to someone else,’” the father, not the law
firm, was the “first transferee” under North Dakota’s fraudulent
transfer statute. Id. ¶ 17 (quoting In re Coutee, 984 F.2d at 141).
Thus, the supreme court concluded that the district court had
erred as a matter of law in holding the law firm liable for the
transfer to the father. Id.
¶25 We find the reasoning of the federal and state courts
applying a dominion or control test to be both persuasive and
consistent with the Act’s text and history. See generally Wing v.
Harrison, 2004 WL 966298, at *3–5 (D. Utah Apr. 29, 2004)
(observing that “the Bankruptcy Code was the model for the
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provision of Utah’s Fraudulent Transfer Act that distinguishes
between initial and subsequent transferees” and that “[t]he focus
of the analysis [under the Act] is whether a party exercised
dominion and control over the transferred funds”). We therefore
apply the dominion or control test to determine whether Law
Firm was the first transferee of the $50,000 under the Act, i.e., we
examine whether Law Firm exercised legal dominion and
control over the funds.12 See id. We conclude that Law Firm was
not the first transferee of the $50,000.
B. Law Firm was not the first transferee of the $50,000
¶26 In Utah, money belonging to a client or third party must
be placed in a trust account. Utah R. Jud. Admin. 14-1001(a) (“A
lawyer or law firm shall create and maintain an interest or
dividend-bearing account for client funds (‘IOLTA account’). All
client funds shall be placed into this account except those funds
which can earn net income for the client in excess of the costs to
secure such income . . . .” (emphasis added)). Pursuant to rule
1.15 of the Utah Rules of Professional Conduct, “[a] lawyer shall
hold property of clients or third persons that is in a lawyer’s
possession in connection with a representation separate from the
lawyer’s own property.” Utah R. Prof’l Cond. 1.15(a); id. R. 1.15
cmt. 1 (“All property which is the property of clients or third
persons . . . must be kept separate from the lawyer’s business
and personal property and, if monies, in one or more trust
accounts.”). In addition, “[a] lawyer should hold property of
others with the care required of a professional fiduciary.” Id.R. 1.15 cmt. 1. Simply put, “[a] law firm is not free to put monies
deposited in a client trust account to its own use.” PHI Fin.
Services, 2016 ND 20, ¶ 15; see also, e.g., In re Discipline of Ince, 957
P.2d 1233, 1234–35, 1239 (Utah 1998) (concluding that a lawyer
“must be disbarred” where, among other things, he
12. For purposes of this decision, any distinctions which may
exist between the dominion test and the control test do not affect
our conclusion that Law Firm was not the first transferee.
20150051-CA 16 2018 UT App 31Timothy v. Pia, Anderson, Dorius, Reynard & Moss
“misappropriate[ed] law firm and client funds for his own use
and benefit”).
¶27 Here, it is undisputed that Debtors were Law Firm’s
clients and that the $50,000 was placed in Law Firm’s trust
account not its business account, indicating that Law Firm held
the $50,000 in a fiduciary capacity for Debtors. Thus, based on
Law Firm’s ethical obligations with respect to funds placed in its
trust account, we conclude that Law Firm did not have the
requisite legal dominion (or control) over the $50,000, because
Law Firm “had no legal right to put the funds to its own use.”
See In re Coutee, 984 F.2d 138, 141 (5th Cir. 1993). Consequently,
Law Firm “lacked the requisite dominion” required to be the
first transferee of the funds under subsection 25-6-9(2) of the Act.
See id. And because Law Firm was not the first transferee of the
$50,000, “there was no transfer giving rise to liability” on the
part of Law Firm. See Newsome v. Charter Bank Colonial, 940
S.W.2d 157, 166 (Tex. App. 1996).13
¶28 Our conclusion is bolstered by the definition of “transfer”
in the Act. Under the Act, a transfer is defined as “every mode,
direct or indirect, absolute or conditional, or voluntary or
involuntary, of disposing of or parting with an asset or an
interest in an asset, and includes payment of money, release,
lease, and creation of a lien or other encumbrance.”14 Utah Code
Ann. § 25-6-2(12) (LexisNexis 2013). Here, Debtors’ actions did
not effectuate a transfer within the meaning of section 25-6-
2(12)—even after the $50,000 was deposited in Law Firm’s trust
13. Our decision in no way excuses or condones Debtors’
deliberate disregard for the 2009 judgment. Nor does our
decision free Debtors or Appellees from any potential liability
arising under common-law fraud or related legal theories.
14. The Act’s definition of “transfer” is substantially similar to
the Bankruptcy Code’s definition. Compare Utah Code Ann. § 25-
6-2(12), with 11 U.S.C. § 101(54) (2012).
20150051-CA 17 2018 UT App 31Timothy v. Pia, Anderson, Dorius, Reynard & Moss
account, Debtors retained their interest in, and legal control of,
the $50,000. See, e.g., Bakwin v. Mardirosian, 6 N.E.3d 1078, 1089
(Mass. 2014) (concluding that no transfer was made under
Massachusetts’s version of the Uniform Act where there was no
evidence that the debtor “relinquished control of [a savings
account], or changed title in the account at any point” and his
“right to the proceeds of the . . . savings account never
changed”). As such, we are persuaded that the $50,000 was not
transferred to Law Firm as that term is defined in the Act.15
¶29 Because we have applied the dominion or control test,
Creditors urge us to go one step further and “also adopt the
Harwell test.” See Martinez v. Hutton (In re Harwell), 628 F.3d 1312(11th Cir. 2010). In Harwell, the Eleventh Circuit Court of
Appeals clarified that “good faith is a requirement under [the
Eleventh] Circuit’s mere conduit or control test.”16 Id. at 1323
& n.10. See generally Redmond v. NCMIC Fin. Corp. (In re Brooke
Corp.), 568 B.R. 378, 421 (Bankr. D. Kan. 2017) (“Harwell is a
refinement of the control test.”). The court first observed “that a
15. We note that Creditors’ arguments on appeal only concern
the $50,000 deposited into Law Firm’s trust account. Although
Creditors briefly observe that Law Firm later “paid . . . itself”
$2,745 from its trust account to its operating account at Debtors’
behest, Creditors do not assert that this action constituted a
“transfer” under the Act or that Law Firm was the “first
transferee” of the $2,745. Consequently, we need not consider
whether the $2,745 transfer (assuming it can be called one) to
Law Firm’s operating account is voidable under section 25-6-9 of
the Act.
16. Appellees correctly observe that “Harwell has received almost
no attention outside of the Eleventh Circuit, being cited by a
handful of . . . Bankruptcy Courts” outside of the Eleventh
Circuit. Indeed, our own research indicates that no federal
circuit court outside of the Eleventh Circuit has addressed, much
less accepted or rejected, the control test as set forth in Harwell.
20150051-CA 18 2018 UT App 31Timothy v. Pia, Anderson, Dorius, Reynard & Moss
literal or rigid interpretation of the statutory term ‘initial
transferee’ in § 550(a) [of the Bankruptcy Code] means that the
first recipient of the debtor’s fraudulently-transferred funds is an
‘initial transferee.’” In re Harwell, 628 F.3d at 1322; id. at 1323–24
(noting that the defendant was the initial recipient of the
debtor’s funds and concluding that he was therefore the initial
transferee of the funds under section 550(a)). The court then
noted that over time, it had “carved out an equitable exception
to the literal statutory language of ‘initial transferee,’ known as
the mere conduit or control test, for initial recipients who are
‘mere conduits’ with no control over the fraudulently-
transferred funds.” Id. at 1322. The court further explained that
“as part of the mere conduit or control test, this Court considers
whether the intermediary acts without bad faith, and is simply
an innocent participant to the fraudulent transfer.” Id. at 1323(citation and internal quotation marks omitted). In sum, under
the Eleventh Circuit’s mere conduit or control test as articulated
in Harwell,
initial recipients of the debtor’s fraudulently-
transferred funds who seek to take advantage of
equitable exceptions to § 550(a)(1)’s statutory
language must establish (1) that they did not have
control over the assets received, i.e., that they
merely served as a conduit for the assets that were
under the control of the debtor-transferor and
(2) that they acted in good faith and as an innocent
participant in the fraudulent transfer.
Id. But see id. at 1324 (“In the vast majority of cases, a client’s
settlement funds transferred in and out of a lawyer’s trust
account will be just like bank transfers, and lawyers as
intermediaries will be entitled to mere conduit status because
they lack control over the funds.”).
¶30 We decline to adopt the good faith requirement from
Harwell. To begin with, Creditors concede that under both the
20150051-CA 19 2018 UT App 31Timothy v. Pia, Anderson, Dorius, Reynard & Moss
Act and the Bankruptcy Code, true “initial” or “first” transferees
are “not given a good faith exception.” Moreover, Creditors
spend the majority of their briefing on this issue explaining why
“[t]his court should not adopt the conduit and control test,” and
they maintain that adopting a good-faith test, like that in
Harwell, “is not consistent with the scheme of the [Act].”
Creditors then assert that if we adopt the dominion or control
test, as we do, we should also adopt the reasoning from Harwell.
However, having previously argued only against Harwell,
Creditors fail to then explain or provide any compelling reason
why we should adopt Harwell separately. In light of that failure,
we conclude that Creditors have not carried their burden of
persuasion on appeal on this issue, and we decline to address it
further. See Utah R. App. P. 24(a)(8).
¶31 In sum, we conclude that Law Firm was not a “first
transferee” under the Act, because Law Firm held the $50,000 in
its trust account in a fiduciary capacity and did not have legal
dominion or control over the funds. Accordingly, the district
court did not err in granting Appellees’ motion for summary
judgment on this issue.
II.
¶32 Creditors next contend that “[v]iolation of the [Act] may
serve as a predicate act to support a claim for civil conspiracy.”
¶33 To establish a claim of civil conspiracy, five elements
must be shown: “‘(1) a combination of two or more persons,
(2) an object to be accomplished, (3) a meeting of the minds on
the object or course of action, (4) one or more unlawful, overt
acts, and (5) damages as a proximate result thereof.’” Peterson v.
Delta Air Lines, Inc., 2002 UT App 56, ¶ 12, 42 P.3d 1253 (quoting
Alta Indus. Ltd. v. Hurst, 846 P.2d 1282, 1290 n.17 (Utah 1993)).
“The claim of civil conspiracy require[s], as one of [its] essential
elements, an underlying tort.” Puttuck v. Gendron, 2008 UT App
362, ¶ 21, 199 P.3d 971 (alterations in original) (citation and
internal quotation marks omitted). “Thus, in order to sufficiently
20150051-CA 20 2018 UT App 31Timothy v. Pia, Anderson, Dorius, Reynard & Moss
plead a claim for civil conspiracy, a plaintiff is obligated to
adequately plead the existence of such a tort.” Id. (citation and
internal quotation marks omitted). “Where plaintiffs have not
adequately pleaded any of the basic torts they allege . . .
dismissal of their civil conspiracy claim is appropriate.” Id.(omission in original) (citation and internal quotation marks
omitted).
¶34 Creditors assert that only “[t]wo cases have used the
word ‘tort,’ rather than the term ‘one or more unlawful, overt
acts.’” (Citing Puttuck, 2008 UT App 362, ¶ 21, and Coroles v.
Sabey, 2003 UT App 339, ¶ 36, 79 P.3d 974.) According to
Creditors, even though this distinction has not been developed
by Utah courts, “[i]n reality, these words do not describe
different predicate acts,” and “[c]onspiring to violate the [Act] is
a sufficient predicate act to support a claim of civil conspiracy.”
Appellees contend that “the only underlying conduct alleged to
support [Creditors’] conspiracy claim is that [Law Firm] engaged
in transfers that violated the [Act]” and that “[t]his alleged
conduct is insufficient to support a civil conspiracy claim
because it is not a valid tort claim against [Law Firm].”
Alternatively, Appellees assert that because “[Law Firm] is not a
transferee under the [Act], . . . the fraudulent conveyance claims
against [Law Firm] fail as a matter of law”; therefore, “Creditors
have failed as a matter of law to state any valid underlying claim
as to [Law Firm] upon which to predicate their civil conspiracy
claim.” We agree with Appellees’ alternative argument.
¶35 Creditors’ conspiracy claim is predicated on the existence
of a fraudulent transfer of the $50,000 from Debtors to Law Firm.
In the civil conspiracy section of their complaint, Creditors
alleged that Debtors and Appellees “conspired with each other
to carry out the means to effectuate a fraudulent transfer” and
that “[t]he transfer of the $50,000 to [Law Firm] was in violation
of the [Act].” Even assuming, without deciding, that there is no
requirement for an underlying “tort” to establish a claim for civil
conspiracy and that a violation of the Act could serve as the
unlawful, overt act necessary to support a civil conspiracy claim,
20150051-CA 21 2018 UT App 31Timothy v. Pia, Anderson, Dorius, Reynard & Moss
Creditors have not established that a violation of the Act
occurred in this case.17 See generally National Loan Inv’rs, LP v.
Givens, 952 P.2d 1067, 1070 (Utah 1998) (“To state a claim for
relief [under the Act], a plaintiff must allege that he or she is a
creditor who has a right to payment from the defendant and that
the defendant has made transfers of property or incurred
obligations that meet the criteria of sections 25-5-5 and -6.”). As
previously discussed, there was no transfer of legal dominion or
control of the $50,000 from Debtors to Law Firm, and thus Law
Firm was not the first transferee of the funds. As such, Creditors’
fraudulent transfer claims against Law Firm fail and cannot
serve as the basis for Creditors’ civil conspiracy claim as they
describe it. See generally GATX Corp. v. Addington, 879 F. Supp. 2d
633, 650 (E.D. Ky. 2012) (concluding that “even if Kentucky
recognized a claim of conspiring to effect a fraudulent
conveyance,” “a nontransferee cannot be directly liable for a
fraudulent conveyance and, thus, cannot engage in [the]
underlying unlawful act” necessary to support a claim of civil
conspiracy).
¶36 In the same section of their complaint, Creditors also
alleged that Debtors’ “failure to disclose the $50,000 when asked
about their assets during the supplemental hearing, the transfer
of the $50,000 to [Law Firm], and the subsequent transfer of the
$50,000 from [Law Firm] to itself and various other third parties
were all unlawful, overt acts.” However, the complaint does not
specify how those acts were “unlawful.” Creditors did not
specifically allege that Law Firm’s “subsequent transfer” of a
portion of the $50,000 from its trust account to its operating
account constituted a violation of the Act or that Law Firm’s
“subsequent transfer[s]” to itself and other third parties
constituted, for example, conspiracy to commit common-law
fraud. See generally Utah R. Civ. P. 9(c) (“In alleging fraud . . . , a
party must state with particularity the circumstances
17. Creditors did not assert any common-law fraud or aiding
and abetting claims.
20150051-CA 22 2018 UT App 31Timothy v. Pia, Anderson, Dorius, Reynard & Moss
constituting fraud . . . .”). Moreover, as we previously observed,
supra note 15, on appeal, Creditors only briefly mention the fact
that Law Firm ultimately paid itself $2,745 from the $50,000, and
Creditors do not assert that this action constituted a “transfer”
under the Act or that Law Firm was the “first transferee” of the
$2,745.
¶37 Accordingly, we agree with Appellees that Creditors have
failed “to state any valid underlying claim as to [Law Firm] upon
which to predicate their civil conspiracy claim.” We therefore
conclude that the district court did not err in granting Appellees’
motion for summary judgment on Creditors’ civil conspiracy
claim.
CONCLUSION
¶38 The district court did not err in granting Appellees’
motions for summary judgment. Law Firm was not the first
transferee of the $50,000, because it lacked the requisite legal
dominion or control required to be the first transferee of the
money. In addition, because Creditors have not established that
a violation of the Act occurred as between Debtors and Law
Firm regarding the $50,000, Creditors’ civil conspiracy claim
must fail. We affirm the judgment of the district court.
20150051-CA 23 2018 UT App 31