GE v. JB REALTY/TUCEK

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NOTICE: THIS DECISION DOES NOT CREATE LEGAL PRECEDENT AND MAY NOT BE CITED EXCEPT AS AUTHORIZED BY APPLICABLE RULES. See Ariz. R. Supreme Court 111(c); ARCAP 28(c); Ariz. R. Crim. P. 31.24 IN THE COURT OF APPEALS STATE OF ARIZONA DIVISION ONE GENERAL ELECTRIC CAPITAL CORPORATION, a Delaware corporation, ) ) ) ) Plaintiff/Appellee, ) ) v. ) ) JB REALTY INVESTMENTS, INC. and ) RONALD TUCEK, ) ) Third Parties/Appellants. ) __________________________________) ) MELCAR, INC., ) ) Garnishee/Appellee. ) __________________________________) DIVISION ONE FILED: 7/9/2013 RUTH A. WILLINGHAM, CLERK BY: mjt 1 CA-CV 12-0278 DEPARTMENT D MEMORANDUM DECISION (Not for Publication Rule 28, Arizona Rules of Civil Appellate Procedure) Appeal from the Superior Court in Maricopa County Cause No. CV2009-025563 The Honorable John R. Doody, Commissioner AFFIRMED Kutak Rock, LLP By Andrew J. Russell Attorneys for Plaintiff/Appellee Scottsdale Michael P. Fiflis Attorney for Third Parties/Appellants Scottsdale O R O Z C O, Judge ¶1 JB Realty Investments, Inc. (JB) and Ronald Tucek (Tucek) (collectively, Appellants) appeal the trial court s order overruling their objection to the garnishment judgment assigning General Electric creditor. Capital Corporation (GE) as the judgment For the following reasons, we affirm. FACTUAL AND PROCEDURAL BACKGROUND ¶2 On August 7, 2009, GE filed a complaint against Nick Giannis, Donna Giannis and Chris Giannis (collectively, the Giannis family) alleging that they breached their obligations to GE by failing to make payments pursuant to a security agreement in which GE loaned the principal million to the Giannis family. amount of approximately $6 On October 1, 2009, the Giannis family filed an answer to the complaint, denying the allegations. Thereafter, the Giannis family failed to participate in pretrial matters. Consequently, on June 2, 2010, the trial court entered an order striking the Giannis family s answer and granting a default judgment in favor of GE, in the amount of approximately $6 million. ¶3 default GE filed a writ of garnishment seeking to collect the judgment from Melcar, Inc. (Melcar) as garnishee.1 Melcar filed an answer, admitting that it owes Donna certain 1 Donna owns a thirty percent interest in a building in Scottsdale, Arizona (the Scottsdale property) that was rented by Melcar. 2 sums under a [l]ease [a]greement and that it would be withholding the amounts owed to Donna Giannis pursuant to the writ of garnishment. Appellants subsequently filed objections to the garnishment judgment. security interest that They claimed that they had a perfected took priority over the GE security interest in relation to the Scottsdale property owned by Donna and subject to garnishment. Upon Appellants request, the trial court third joined Appellants as parties in the garnishment proceedings. ¶4 The trial court held an evidentiary hearing on the objections filed by Appellants to determine who had priority to the garnished funds as between Appellants and GE. Appellants alleged that they cumulatively lent $450,000 to Nick and Donna, which was evidenced by a promissory note dated August 7, 2009, signed by both Nick and Donna, and a deed of trust dated February 19, 2010 signed by Donna that granted a security interest in the Scottsdale property. ¶5 After reviewing the exhibits and listening to oral arguments, the trial court overruled Appellants objections to the writ of garnishment. lent funds to Donna, and It found no evidence that Appellants as such, the themselves [were] mere empty vessels. security agreements Furthermore, it found that if money was actually lent, the transactions were between 3 Payroll Preferred Services, Inc. (Payroll),2 the Mildred Tucek Family Trust (the Trust),3 and Nick and not between Appellants and Nick and Donna. ¶6 In addition, the trial court held that the February 2010 loan documents signed by Donna, including the deed of trust and assignment of rents, lacked consideration and were unenforceable because the names of the lenders [did] not match the names of the parties on the loan documents. It further found that neither Appellants nor their entities lent any money to Donna, and if money was lent at all, it was to Nick by Payroll and the Trust. The trial court noted that that distinction was of importance because [Donna], not Nick, is the alleged owner of the funds being held by the garnishee Melcar. ¶7 In the alternative, the trial court also found that the February 2010 security agreement was voidable as a fraudulent transfer pursuant to Arizona Revised Statutes (A.R.S.) section 44-1004 (2003) because Donna was indebted to GE before she granted $450,000 in security interests on the Scottsdale property to Appellants and because there [was] no evidence that [Donna] received reasonably equivalent value for that transfer. ¶8 Appellants timely appealed. We have jurisdiction under A.R.S. §§ 12-120.21.A.1 (2003) and -2101.A.1 (Supp. 2012). 2 The owner of JB is also the owner of Payroll. 3 Tucek is the trustee of the Trust. 4 DISCUSSION ¶9 Appellants claim that they had a valid security interest in the rents held by Melcar and that the trial court erred in overruling their objection to the garnishment judgment. They contend that Donna received consideration for the deed of trust and security agreement she signed, as well as loan proceeds and reasonably equivalent value for the lien. Appellants also claim that there is no evidence of a fraudulent conveyance. We disagree. ¶10 On appeal, we review a judgment for an abuse of discretion. trial court s garnishment See Cota v. S. Ariz. Bank & Trust Co., 17 Ariz. App. 326, 327, 497 P.2d 833, 834 (1972). Abuse of discretion occurs when the reasons given by the court for its action are clearly untenable, amount to a denial of justice. legally in a light court s ruling. most or State v. Chapple, 135 Ariz. 281, 297 n.18, 660 P.2d 1208, 1224 n.18 (1983). evidence incorrect, favorable to We also view the sustaining the trial Gutierrez v. Gutierrez, 193 Ariz. 343, 346, ¶ 5, 972 P.2d 676, 679 (App. 1998). to weigh the evidence. It is the role of the trial court Id. at 347, ¶ 13, 972 P.2d at 680. Accordingly, we will not disturb a judgment if there is evidence to support it. Yano v. Yano, 144 Ariz. 382, 384, 697 P.2d 1132, 1134 (App. 1985). 5 ¶11 Fraud is never presumed, but must be proven by clear and satisfactory evidence. Transamerica Ins. Co. v. Trout, 145 Ariz. 355, 360, 701 P.2d 851, 856 (App. 1985). However, direct proof of fraud is not required; [a] party can meet its burden of proof by showing circumstantial evidence through which fraud may reasonably be inferred. Premier Fin. Servs. v. Citibank (Arizona), 185 Ariz. 80, 85, 912 P.2d 1309, 1314 (App. 1995). Furthermore, a fraudulent conveyance exists where the evidence clearly shows an actual intent to hinder, delay or defraud any creditor of the debtor. actual intent, A.R.S. § 44-1004.A.1. consideration may be given to In determining the following factors: (1) whether the transfer was to an insider; (2) whether the debtor retained control or possession of the property after the transfer; (3) whether the transfer was concealed or disclosed; (4) whether the debtor had been sued or threatened with suit before the transfer was made; (5) whether the transfer was of a majority of the debtor s assets; (6) whether the debtor absconded; (7) whether the debtor concealed or removed assets; (8) whether the debtor received a value of consideration that was reasonably equivalent to the value of the asset transferred; (9) whether the debtor was insolvent or became insolvent shortly after the transfer was made; (10) whether the transfer took place shortly before or after a substantial debt was incurred; or (11) whether the debtor transferred the assets of the business to a 6 lienor who then transferred the assets to an insider of the debtor. A.R.S. § 44-1004.B. ¶12 In this case, multiple badges of fraud exist to support the trial court s ruling that there was actual intent on behalf of the Giannis family to hinder, delay or defraud GE by granting property. a security interest to Appellants in the Scottsdale When several [badges of fraud] are found in the same transaction, strong, clear evidence will be required to repel the conclusion of fraudulent intent. Premier Fin. Servs., 185 Ariz. at 84 n.2, 912 P.2d at 1313 n.2 (citation and internal quotation marks omitted). ¶13 First, Donna did not receive consideration that was reasonably equivalent to the value of the security interest in the Scottsdale property that she assigned to Appellants. A.R.S. § 44-1004.B.8. See It is well established that inadequate consideration is a badge of fraud. Torosian v. Paulos, 82 Ariz. 304, 313, 313 P.2d 382, 388 (1957). Although Donna and Nick both signed the promissory note evidencing a loan between Appellants and the Giannis family, Donna s name does not appear on the separate loan agreement signed by Tucek and Nick.4 Furthermore, that loan agreement lists Nick and Boston Blackies Management, 4 Apart from the promissory note, assignment of rents and leases, and the deed of trust, there is nothing in the record that demonstrates a separate loan agreement between JB and the Giannis family. 7 Inc. (Boston Blackie s)5 as borrowers. Moreover, two of the three checks that Appellants claim represent funds loaned to Nick and Donna were made payable only to Nick as payee. While the third check named both Donna and Nick as the payees, all three checks were endorsed only by Nick. In his deposition, Tucek admitted that the loan documents demonstrate that only Nick made a personal guarantee on the loan. Accordingly, we find no evidence that Donna actually received the funds or benefited from the funds. As the trial court noted, this is an important fact because Donna is the owner of the collateral that is subject to garnishment. signed Therefore, we find the deed of trust that she securing the loan from Appellants with the Scottsdale property as collateral, lacks consideration. ¶14 Second, Donna became substantially indebted to GE shortly before she granted a security interest in the Scottsdale property to Appellants. family signed a See A.R.S. § 44-1004.B.10. security agreement on October The Giannis 7, 2008, guaranteeing a loan agreement between GE and Boston Blackie s in the amount defaulted of on approximately the loan and $6 million. on May 20, The 2009, Giannis GE family sought to accelerate the loan and made demand for the full amount pursuant to the loan agreement. In August 2009, Nick and Donna allegedly 5 The various Boston Blackie s operated by the Giannis family. 8 corporations are owned and entered into a loan agreement with Appellants. Donna signed a deed of trust granting a security interest in the Scottsdale property in February 2010 in order to secure that loan agreement. In other words, within a few months of a demand from GE to pay the $6 million dollar loan, Donna allegedly entered into a loan agreement with Appellants and signed a deed of trust that granted a security interest in the Scottsdale property as collateral. We find that the evidence supports GE s argument that Donna was aware of the impending debt and was subject to a judgment by GE. ¶15 Third, the Giannis family was threatened with a lawsuit before the granted. security interest in the See A.R.S. § 44-1004.B.4. Scottsdale property was On May 20, 2009, GE sent a notice of default and demand for payment to the Giannis family. GE subsequently filed suit against the Giannis family on August 7, 2009. Coincidentally, promissory note was this executed is that the same evidences between Appellants and Nick and Donna. date the that alleged the loan However, the deed of trust, giving Appellants a security interest in the Scottsdale property, was not signed by Donna until February 19, 2010, five months after the date that GE filed a suit against the Giannis family. Therefore, the evidence indicates that Donna knew of the GE lawsuit when she transferred her interest in the Scottsdale property to Appellants. 9 ¶16 Accordingly, we find there was sufficient evidence for the trial court to find that several badges of fraud existed. Therefore, the trial court was justified in finding that the security agreement giving Appellants an interest in the Scottsdale property was a fraudulent conveyance under A.R.S. § 44-1004. ¶17 The trial court also found there no evidence that Donna received any consideration for the conveyance of an interest in the Scottsdale property. obligation, interest in the the Without an underlying bona fide debt or security agreement Scottsdale assigning property was the Appellants meaningless. See Merryweather v. Pendleton, 90 Ariz. 219, 224, 367 P.2d 251, 254 (1961). Therefore, the trial court did not abuse its discretion in overruling Appellants objection to the writ of garnishment. ¶18 found Because that granted to the we conclude security Appellants that the trial interest in the behalf of Donna on court correctly Scottsdale was a property fraudulent conveyance and there was no consideration given for the security interest in the Scottsdale Appellants other arguments. property, we need not address See Forszt v. Rodriguez, 212 Ariz. 263, 265, ¶ 9, 130 P.3d 538, 540 (App. 2006) (This court may 10 affirm the trial court s ruling if it is correct for any reason apparent in the record. ).6 Attorney Fees ¶19 with Both Appellants and GE request attorney fees associated this appeal under A.R.S. § 12-1580 (2003). As the prevailing party on appeal, GE is awarded its reasonable attorney fees and costs pursuant to § 12-1580.E and upon compliance with Arizona Rule of Civil Appellate Procedure 21. CONCLUSION ¶20 For the foregoing reasons, we affirm. /S/ ___________________________________ PATRICIA A. OROZCO, Judge CONCURRING: /S/ __________________________________________ ANDREW W. GOULD, Presiding Judge /S/ __________________________________________ MARGARET H. DOWNIE, Judge 6 Appellants also argue that they took in good faith and therefore, under A.R.S. § 44-1008.A (2003), the transfer of interest in the Scottsdale property should not be voidable as to them. Because, as previously stated, there is no evidence that Donna received consideration for the assignment of the interest, we find that this argument is without merit and decline to address it. 11

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