Marble Bank v. Heaton

MARBLE_BANK_V_HEATON.92-375; 160 Vt. 188; 624 A.2d 365


NOTICE:  This opinion is subject to motions for reargument under V.R.A.P. 40
as well as formal revision before publication in the Vermont Reports.
Readers are requested to notify the Reporter of Decisions, Vermont Supreme
Court, 109 State Street, Montpelier, Vermont 05609-0801 of any errors in
order that corrections may be made before this opinion goes to press.


                                No. 92-375


Marble Bank                                  Supreme Court

                                             On Appeal from
     v.                                      Rutland Superior Court

Jack Heaton, Frank Punderson, Jr.,           February Term, 1993
and Gerald P. Cantini and Francis
W. Murphy, Trustees of the Jack
Heaton Trust


Arthur J. O'Dea, J.

Timothy Martin of Carroll, George & Pratt, Rutland, for plaintiff-appellee

Clarke A. Gravel and Dennis R. Pearson of Gravel and Shea, Burlington, for
    defendants-appellants



PRESENT:  Allen, C.J., Gibson, Dooley, Morse and Johnson, JJ.



    DOOLEY, J.  The trustees of the Jack Heaton Trust appeal from an order
of the Rutland Superior Court requiring them to pay a judgment held by
plaintiff Marble Bank against defendants Jack Heaton and Frank Punderson.
We reverse and remand.
     On May 29, 1991, plaintiff obtained a judgment against defendants
Heaton and Punderson in the amount of $69,019, based on a loan guaranty made
by defendants on behalf of H.P.P., Incorporated.  Unable to collect directly
from defendants, plaintiff issued trustee process, pursuant to V.R.C.P.
4.2(k), to a number of entities it believed held funds or property
belonging to one or both defendants.  Trustee process was issued on December
31, 1991, to Gerald Cantini and Francis Murphy, trustees of the Jack Heaton
Trust.  The trustees filed a disclosure statement, averring that they did
not know whether they held "goods, effects, credits or other property . . .
subject to trustee process," and explained:
       We are Trustees of a certain irrevocable Trust Estate
     which is to be administered for the health, well-being
     and maintenance of Jack E. Heaton . . . .  Our duties
     and obligations under the Heaton Trust Agreement compel
     us, in our sole and absolute discretion, to apply the
     net income of the Heaton Trust for the health, well-
     being and maintenance of Jack E. Heaton.  Jack E. Heaton
     is not the sole beneficiary of the Heaton Trust.  It is
     further provided that no interest of any beneficiary be
     subject to claims of creditors or liable to attachment,
     execution, or other process of law for the satisfaction
     of any beneficiary's obligations.  The assets of the
     trust are not fixed, but change frequently.

The trustees took the position that they could not subject the assets of the
trust to trustee process and referred the question of their liability to the
court.  They disclosed that on the day they were served, and on the day of
disclosure, trust assets were about $4,600,000 and exceeded liabilities by
about $400,000.  The trust agreement provides that the trustees may pay
income to Jack Heaton and may withdraw annually an amount equal to five
percent of the trust principal for the benefit of the beneficiary.  On the
death of Jack Heaton, his wife becomes the beneficiary, and on her death,
his children.
     Plaintiff subpoenaed the trustees to a hearing on April 2, 1992.  In a
memorandum filed the day before the hearing, plaintiff argued that the trust
assets had been fraudulently conveyed to the trust, and that under 12 V.S.A.
{ 3143 it was entitled to payment of the judgment by the trust.  The statute
provides:
       When a person summoned as a trustee has in his
     possession goods, effects or credits of the defendant,
     which he holds by a conveyance or title void as to
     creditors of the defendant, he may be adjudged a trustee
     on account thereof, although the defendant could not
     have maintained an action therefor against him; and, in
     its discretion, the court may order a person so
     summoned to appear personally before the court and
     submit to an oral examination.

12 V.S.A. { 3143.  Plaintiff alleged that defendant Heaton had transferred
most of his assets to the trust without consideration.  Specifically, it
alleged that in a financial statement submitted to plaintiff after the
transfer, defendant stated he was worth only $817,548, whereas before the
transfer his net worth exceeded $11,000,000.  In a deposition prior to the
judgment, defendant described himself as "unemployed."  A later financial
statement indicated a negative net worth.
     Defendants' counsel, who had filed the disclosure for the trustees,
appeared at the hearing on April 2.  It is unclear whether she appeared for
defendants, the trustees or both.  In any event, she filed a memorandum
stating that the spendthrift trust was valid and insulated the assets from
the claims of creditors, including plaintiff.  She sought discharge of the
trustees from the trustee process.
     At a very brief hearing, the court decided that the issue was one of
law only and took no evidence.  Although neither party disputed this
assessment, counsel opposing plaintiff stated that she wanted "to make it
clear we are not in entire agreement on the statement of facts as set forth"
in plaintiff's memorandum.  On June 15, 1992, the court issued a decision
and order finding that the assets of the trust had been conveyed by
defendant Heaton to the trust in fraud of plaintiff as a preexisting
creditor.  It held that the trust was "void" as to plaintiff and ordered the
trustees to pay the outstanding judgment amount.  In reaching this
conclusion, the court relied on the facts alleged in plaintiff's memorandum.
     Before the trial court, as well as initially in this Court, the parties
have been like the proverbial ships passing in the night.  Plaintiff argues
that this case is about a fraudulent conveyance and that the form in which
the assets ended up in the trustees' hands is irrelevant.  The trustees
assert that this case is about the validity of spendthrift trusts and the
extent to which the trust assets can be reached to satisfy the claims of
creditors against trust beneficiaries.
     The confusion is caused in large part by the way in which the issues
arose.  Ordinarily, trustee process is a method for a creditor to get at
property of or obligations due to its debtor, First Wisconsin Mortgage Trust
v. Wyman's, Inc., 139 Vt. 350, 353, 428 A.2d 1119, 1121 (1981), and the
creditor stands in the shoes of its debtor.  See Island Pond Nat'l Bank v.
Chase, 101 Vt. 60, 61, 141 A. 474, 474 (1928).  Without prior notice,
however, plaintiff relied on a different and unique use of trustee process,
and essentially brought an action against the trustees in order to set
aside a fraudulent conveyance.  This is a special use authorized by 12
V.S.A. { 3143, where the debtor has no right to the assets held by the
trustee.
     Because plaintiff provided no notice that trustee process was issued
pursuant to { 3143, the trustees disclosed none of the relevant facts to the
court and gave it no factual basis on which to rule.  See 12 V.S.A. { 3065
(disclosure of trustee may set forth "such facts as he deems material" and
may be supplemented by interrogatories); First Wisconsin Mortgage Trust, 139
Vt. at 356, 428 A.2d  at 1123 (trustee has duty to "adequately present the
exact nature of any obligations claimed to be trusteed").  Although the
parties agreed that the issue was one of law, each party was actually
arguing that the facts asserted by the other were irrelevant under the
proper theory of the case.
     Conclusions of law must be supported by findings of fact, as well as an
explanation as to how the court reached its conclusions.  See Nickerson v.
Nickerson, 157 Vt. ___, ___, 605 A.2d 1331, 1333 (1992).  In turn, findings
must be supported by some credible evidence.  See Blodgett Supply Co. v.
P.F. Jurgs & Co., 157 Vt. ___, ___, 617 A.2d 123, 126 (1992).  Here, there
is no evidence to support the findings, and we cannot uphold them.  In the
absence of valid findings, the conclusions must be reversed.
     Plaintiff presents two ways to avoid this result.  First, it asserts
that the parties stipulated to the facts in plaintiff's memorandum and that
those facts support the decision.  We cannot accept plaintiff's view of what
occurred.  A stipulation is an agreement that involves a meeting of the
minds.  See Public Service Co. v. Town of Seabrook, 580 A.2d 702, 704 (N.H.
1990) (stipulation is contractual in nature, governed by contract rules);
Schere v. Township of Freehold, 375 A.2d 1218, 1219 (N.J. Super. Ct. App.
Div. 1977) (terms of stipulation must be definite and certain and must be
assented to by parties or their representatives).  There does not appear to
have been a meeting of the minds in this case; there is no written
stipulation and the record indicates disagreement regarding at least some of
the facts in plaintiff's memorandum.
     Even if we were to find that the parties stipulated to plaintiff's
statement of facts, these facts do not establish a fraudulent conveyance, as
to plaintiff, of defendant's assets to the trust.  The elements of a
fraudulent conveyance are set forth in Becker v. Becker, 138 Vt. 372, 375,
416 A.2d 156, 159 (1980):
     The plaintiff must establish (1) that there existed a
     right, debt or duty owed [plaintiff] by the defendant,
     which debt, in this case, arose before or near the time
     of the defendant's conveyance; (2) that the defendant
     conveyed property which was subject to execution in
     satisfaction of the defendant's debt; (3) that the
     conveyance here was without adequate consideration, and
     (4) if the conveyance was without adequate
     consideration, as here alleged, that the defendant acted
     fraudulently to the hindrance of the plaintiff's rights
     against him.
Plaintiff's memorandum alleges facts sufficient to satisfy the first three
elements.
     The fourth element is more problematic.  It requires plaintiff to
demonstrate defendant's fraudulent intent.  This intent is presumed upon a
showing that the conveyance was without consideration and "that the con-
dition of the debtor's estate is such that [the creditor] cannot collect on
his debt."  Id. at 378, 416 A.2d  at 161.  The party maintaining the validity
of the transfer may rebut this presumption of fraud, however, by putting
forth evidence indicating that at the time of the transfer the debtor had
sufficient assets to satisfy his debts.  Id. at 378-79, 416 A.2d  at 161.
     Plaintiff's memorandum alleges that defendant Heaton claimed a net
worth of over $800,000 following the transfer of the assets to the trust,
and that eleven months later defendant said his net worth was negative.
There are no facts connecting this decline to the earlier transfer of assets
to the trust.  Even if the trustees had stipulated to the facts in
plaintiff's memorandum, those facts were insufficient for the court to find
that defendant acted fraudulently as to plaintiff.
     Plaintiff's second argument is that the trustees cannot contest the
court's action on appeal because they failed to object below.  The issue of
whether the trust should be adjudicated a trustee and subjected to the
judgment against defendants was contested below, and the court's inappro-
priate use of the facts alleged in plaintiff's memorandum occurred after the
case was under submission.  Under V.R.C.P. 52, it is not necessary to object
to findings or move to amend the findings to subsequently attack the
sufficiency of the evidence to support the findings.  See Reporter's Notes,
V.R.C.P. 52.  The trustees are not precluded from contesting the judgment
against the trust.
     Reversed and remanded.



                                   FOR THE COURT:



                                   _______________________________
                                   Associate Justice