Opinion
Case No. 00-1312-KMH.
September 18, 2001.
MEMORANDUM AND ORDER
This matter is before the court on plaintiff's motions for partial summary judgment (Doc. 14 and 37). For the reasons stated below, the motions shall be GRANTED IN PART.
The parties consented to the exercise of jurisdiction by the undersigned magistrate judge in accordance with 28 U.S.C. § 636(c) and Fed.R.Civ.P. 73. (Doc. 22).
Background
In 1994 plaintiff sued H-30 Drilling, Inc. (H-30) in Oklahoma state court to recover expenses associated with his remediation of ground water pollution caused by an Oklahoma oil well. Shortly after a judgment was entered in favor of Corman (January 10, 2000), H-30 transferred substantially all of its assets into the Dean Britting Living Trust. Those transfers occurred between January 10, 2000 and January 16, 2000. Dean Britting is the sole stockholder, director, and officer of H-30 and also the settlor, trustee, and primary beneficiary of the living trust.
Corman secured an order from the Oklahoma court prohibiting H-30 from disposing of its assets (February 2, 2000). However, H-30's transfers occurred prior to entry of the Oklahoma order.
Plaintiff alleges that the transfers were fraudulent conveyances designed to hinder, delay, or defraud him, as a creditor of H-30, from collecting on the Oklahoma judgment. Because Britting's real estate and oil interests are located in Kansas, plaintiff filed this diversity action in Kansas to void the transfers, execute on the judgment, and obtain punitive damages.
Plaintiff moved for partial summary judgment (Doc. 14). Defendants did not contest plaintiff's statement of facts but argued that H-30 had appealed the Oklahoma judgment and "planned" to file a supersedeas bond to stay execution of the judgment. Eventually, H-30 did file a supersedeas bond in Oklahoma (November 16, 2000) and, by agreement of the parties, this case was administratively closed while H-30 pursued its appeal of the Oklahoma judgment. (Doc. 29). However, at defendants' request and prior to resolution of the appeal pending in Oklahoma, the case has been reopened and plaintiff has renewed its motion for partial summary judgment. (Doc. 37).
SUMMARY JUDGMENT STANDARDS
The standards for summary judgment are well established. The court shall render summary judgment upon a showing that there is no genuine issue of material fact and that the movant is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(c). The rule provides that "the mere existence of some alleged factual dispute between the parties will not defeat an otherwise properly supported motion for summary judgment; the requirement is that there be no genuine issue of material fact." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-48 (1986). The substantive law identifies which facts are material. Id. at 248. A dispute over a material fact is "genuine" when the evidence is such that a reasonable jury could find for the non-movant. Id. "Only disputes over facts that might properly affect the outcome of the suit under the governing law will properly preclude the entry of summary judgment." Id. at 248. Shapolia v. Los Alamos Nat'l. Lab, 992 F.2d 1033, 1036 (10th Cir. 1993).
The court must view the facts in the light most favorable to the non-movant and allow the non-movant the benefit of all reasonable inferences to be drawn from the evidence. See, e.g., United States v. O'Block Oak, 788 F.2d 1433, 1435 (10th Cir. 1986). When cross motions for summary judgment are filed, the court must consider and review each motion separately and in the light most favorable to the other party. See Wright, Miller Kane, Federal Practice and Procedure: Civil 2d § 2720 (1998). The court's function is not to weigh the evidence, but merely to determine whether there is sufficient evidence favoring the non-movant for a finder of fact to return a verdict in that party's favor. Anderson, 477 U.S. at 249. Essentially, the court performs a threshold inquiry determining whether a trial is necessary. Id. at 250.
The following material facts are set forth with these rules in mind. Facts which are neither material to the court's ruling nor properly supported as required by D. Kan. R. 56.1 have been disregarded.
UNCONTROVERTED FACTS
1. On January 10, 2000, plaintiff obtained judgment against H-30 in the amount of $197,676.05 in Jack Corman v. H-30 Drilling, Inc., Case No. 94-3696, District Court of Oklahoma County, Oklahoma. On March 29, 2000, plaintiff was awarded attorney fees and costs of litigation of $111,605.65, resulting in a total judgment against H-30 of $309,281.70.
2. Beginning on January 11, 2000, the day after judgment was entered against H-30, Dean Britting, acting as the sole officer, director, and shareholder of H-30, transferred substantially all of H-30's assets to the Dean Britting Living Trust. The transferred assets included a 12,000 square foot office building and appurtenant real estate and parking lot located in Wichita, Kansas; oil equipment storage facilities and yards located in and near Great Bend, Kansas; and numerous oil and gas leases, all as specifically described in plaintiff's complaint (Doc. 1).
3. Britting was actively involved in H-30's defense of the Oklahoma lawsuit.
4. Britting is the settlor, trustee, and primary beneficiary of the Dean Britting Living Trust.
5. Britting testified at his deposition that he transferred the H-30 assets "to make sure that I was paid back for the money that I loaned to H-30."
6. After the transfer of H-30 assets to the living trust, H-30 was insolvent and without sufficient assets to satisfy the Oklahoma judgment in favor of Corman.
7. On the date this fraudulent conveyance lawsuit was filed (July 25, 2000), H-30 had not posted a bond or other surety to stay execution of the Oklahoma judgment against the assets of H-30. After plaintiff moved for summary judgment, Britting filed a supersedeas bond for H-30 in the Oklahoma action (November 17, 2000.)
FRAUDULENT CONVEYANCE
Plaintiff contends that he is entitled to summary judgment on his claim that H-30's transfers to the Dean Britting Living Trust were fraudulent conveyances under the Uniform Fraudulent Transfer Act, K.S.A. § 33-201. et seq. For the following reasons, summary judgment on the fraudulent conveyance claim shall be entered in plaintiff's favor.
This matter is controlled by K.S.A. § 33-205(b) which provides:
(b) A transfer made by a debtor is fraudulent as to a creditor whose claims arose before the transfer was made if the transfer was made to an insider for an antecedent debt, the debtor was insolvent at that time, and the insider had reasonable cause to believe that the debtor was insolvent.
The facts are uncontroverted that H-30 transferred substantially all of its assets to Britting's living trust after entry of the judgment in favor of plaintiff. Because Britting was a director and officer of H-30, he is an "insider" for purposes of the Fraudulent Conveyance Act. K.S.A. § 33-201(g)(2). Moreover, after the transfer, H-30 was insolvent and unable to pay the judgment owed plaintiff. Thus, all elements of the fraudulent transfer statute are satisfied.
Defendants do not contest the application of K.S.A. § 33-205(b) to the facts but argue instead in conclusory fashion that the filing of the supersedeas bond makes the fraudulent conveyance claim moot. The court is not persuaded by defendants' "mootness" argument. First, no legal authority is offered in support of defendants' argument. A party who fails to press a point by supporting it with pertinent authority, or by showing why it is sound despite a lack of supporting authority or in the face of contrary authority forfeits the point. Smith v. Plati, 258 F.3d 1167 (10th Cir. 2001). Second, and more importantly, punitive damages are available to punish a debtor who willfully conveys property with the intent to "hinder, delay, or defraud creditors." Golconda Screw, Inc. v. West Bottoms, Ltd., 894 P.2d 260, 265 (Kan.App. 1995). Defendants have made no showing that the supersedeas bond somehow "moots" plaintiff's claim for punitive damages for the fraudulent conveyances. Thus, plaintiff's motion for partial summary judgment on his fraudulent conveyance claim shall be granted.
In Golconda Screw, Inc., the Kansas Court of Appeals addressed in 1995 whether punitive damages were permissible under K.S.A. § 33-102. Section 33-102 was later amended in 1999 by virtue of the adoption of the Uniform Fraudulent Conveyance Act, K.S.A. § 33-201 et. seq. Although the statutes have been amended, the court's reasoning in Golconda Screw, Inc., remains applicable and punitive damages may be awarded for a fraudulent conveyance.
REMEDY
Plaintiff requests an order voiding the transfers or, in the alternative, granting plaintiff permission to execute on the transferred assets. See K.S.A. § 33-207. Defendants argue that the remedies in § 33-207 are discretionary and the court should exercise its discretion and deny plaintiff any relief under § 33-207. Because a supersedeas bond has been filed in the Oklahoma proceeding, the court declines, at this time, to grant plaintiff permission to execute on the Oklahoma judgment. However, because the H-30 transfers to the Dean Britting Living Trust were clearly fraudulent conveyances, the transfers shall be voided. Voiding the transfers returns the parties to the status quo on the date (January 10, 2000) the Oklahoma judgment was granted. In addition to voiding the transfers, defendants are prohibited from disposing of and/or transferring any H-30 assets or income attributable to H-30 assets without further order of the court.
2. Punitive Damages
Plaintiff argues that he is entitled to punitive damages as a matter of law based on the uncontroverted facts. Defendants counter that punitive damages are not permissible because plaintiff suffered no actual damages. See e.g. Wilkinson v. Shoney's Inc., 269 Kan. 194 (2000) (general rule is that punitive damages cannot be awarded in the absence of an award of actual damages). However, defendants ignore the notable exception which has potential application in this case: where the equitable relief granted is the substantial equivalent of actual damages, punitive damages may be awarded. Capitol Federal Savings Loan Association v. Hohman, 235 Kan. 815, 816-17 (1984) (exception to general rule recognized as still valid in Wilkinson). Here, the relief granted plaintiff will be equitable in nature and the equivalent of actual damages. In view of the exception recognized in Capitol Federal, defendants' legal argument is unpersuasive.
Defendants argue in the alternative that plaintiff has not shown that he is entitled to punitive damages as a matter of law. The court will defer consideration of the punitive damage claim until counsel provide a supplemental report regarding the status of the Oklahoma appeal. Counsel's report shall include their recommendations for further proceedings concerning the punitive damage issue.
The precise nature of defendants' argument is difficult to articulate.
IT IS THEREFORE ORDERED that plaintiff's motion for partial summary judgment on its claim of fraudulent conveyance (Doc. 14 37) is GRANTED. H-30's asset transfers are voided and defendants are prohibited from disposing of or transferring any H-30 assets or income without further order of this court.
IT IS FURTHER ORDERED that counsel for the parties shall submit a joint report concerning the status of the Oklahoma appeal on or before October 10, 2001.