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Eskelsen v. Theta Investment Co.

Court of Appeals of Utah

January 4, 2019

Chad Eskelsen and Lorna Eskelsen, Appellants,
Theta Investment Company, Appellee.

          Fifth District Court, St. George Department The Honorable Jeffrey C. Wilcox No. 120500400

          Daniel J. Tobler, Attorney for Appellants

          Bryan J. Pattison, Attorney for Appellee

          Judge Michele M. Christiansen Forster authored this Opinion, in which Judges Kate Appleby and Jill M. Pohlman concurred.



         ¶1 Chad Eskelsen and Lorna Eskelsen appeal from the trial court's judgment in favor of Theta Investment Company (Theta). We affirm.


         ¶2 In August 2007, JENCO LC and VC Holdings LLC teamed up to purchase real property (the Property) in St. George, Utah. Gilbert Jennings formed, and was the manager of, JENCO. Vaughn Hansen and Carolyn Hansen formed VC Holdings in 2005. VC Holdings was a manager-managed company, and the Hansens were the company's only members. Together, the two companies purchased the Property, with JENCO receiving a 68.2% interest in the Property and VC Holdings receiving a 31.8% interest. Shortly after purchasing its interest in the Property, VC Holdings named Mr. Hansen as manager.

         ¶3 In March 2008, JENCO and VC Holdings formed JVC Leasing LC, and Mr. Jennings was appointed manager of the company. A few months later, JENCO and VC Holdings transferred 100% of their respective interests in the Property to JVC Leasing. In return, JENCO received a 68.2% interest in JVC Leasing, and VC Holdings received a 31.8% interest in JVC.

         ¶4 In May 2009, the Eskelsens loaned the Hansens $120, 000. The Hansens signed a promissory note for the full amount of the loan, and, as security for the loan, they executed a "Limited Liability Company Membership Interest Pledge Agreement," pledging to the Eskelsens 100% of the total issued and outstanding membership interests in VC Holdings. Importantly, VC Holdings was not a party to the promissory note.

         ¶5 In June 2010, the Hansens defaulted on the promissory note, and the Eskelsens hired attorney Daniel J. Tobler to help them collect on the promissory note.[1] The Eskelsens also filed a UCC-1 financing statement with the Utah Department of Commerce to perfect their security interest in 100% of the membership interests in VC Holdings.[2]

         ¶6 In late December 2010, as part of his collection efforts, Mr. Tobler sent a letter (the Foreclosure Letter) to the Hansens, stating that the Eskelsens were "accepting [the Hansens'] total issued and outstanding membership interests in VC Holdings" "in full satisfaction" of the promissory note. The letter stated that the Eskelsens "were the sole members of VC Holdings" and that they were removing the Hansens as members and managers of the company. Finally, the letter said the Hansens had twenty days to object to the Eskelsens' proposal.

         ¶7 Mr. Tobler also sent a letter to JVC Leasing in care of Mr. Jennings. That letter stated that the Eskelsens "have elected to be admitted as members of VC Holdings, and are now managers of the same. Thus all notices from JVC Leasing, LC, and payments or distributions for VC Holdings, LLC's 31.8% interest in JVC Leasing, LC, shall be paid to the Eskelsens at the address listed below." The letter did not include a copy of the Foreclosure Letter sent to the Hansens or the loan documents between the Eskelsens and the Hansens. In addition, the letter did not state that Mr. Hansen would be removed as manager of VC Holdings.

         ¶8 In January 2011, Mr. Tobler received a telephone call from another attorney, Mr. Blanchard, who was calling as a favor to the Hansens. Mr. Blanchard stated that his firm officially represented Mr. Jennings. Mr. Blanchard also stated that he did not believe the Eskelsens had properly foreclosed on the Hansens' membership interests in VC Holdings, but he nevertheless suggested a compromise whereby Mr. Hansen would broker a sale of the Property to Mr. Jennings (through one of Mr. Jennings's entities) and place in escrow the proceeds of the sale. The Hansens and the Eskelsens could then determine how the proceeds should be distributed. Mr. Tobler agreed to consult with the Eskelsens and to contact Mr. Blanchard with their answer.

         ¶9 After his discussion with Mr. Blanchard, Mr. Tobler received a letter from Mr. Jennings in response to Mr. Tobler's December 2010 letter. Mr. Jennings asked for "documentary proof of the transition of ownership" of VC Holdings. He also stated that VC Holdings was "indebted to [JVC Leasing] in the amount of $54, 270.50" and suggested that the Eskelsens contact him to "work out a repayment plan." Mr. Tobler never provided Mr. Jennings or Mr. Blanchard with the Foreclosure Letter or the signed agreement between the Eskelsens and the Hansens. He also never provided Mr. Jennings or Mr. Blanchard with the requested "documentary proof" of the transfer of ownership of VC Holdings.

         ¶10 According to Mr. Jennings, after he received the Eskelsens' December 27, 2010 letter, he consulted with Mr. Hansen about the Eskelsens' claims. Mr. Jennings testified that Mr. Hansen claimed that he (Mr. Hansen) was still the owner of VC Holdings. Mr. Jennings also searched Utah's Department of Commerce website and found that Mr. Hansen was still listed as VC Holdings' manager.

         ¶11 In January 2011, Mr. Tobler contacted Mr. Blanchard and informed him that the Eskelsens would agree to the proposed escrow agreement. Both attorneys later testified that they understood that the Eskelsens, the Hansens, and Mr. Jennings would agree to sign the escrow agreement. Approximately one month later, Mr. Blanchard contacted Mr. Tobler and informed him that he had not yet had a chance to put together the escrow agreement. Then, on March 22, Mr. Blanchard informed Mr. Tobler that the Hansens wished to work directly with the Eskelsens. Mr. Blanchard stated that he had not prepared an escrow agreement. He also stated that Mr. Tobler should contact him if the Eskelsens did not hear from the Hansens within the next few days. Mr. Blanchard later testified that when he contacted Mr. Tobler on March 22, he was unaware that the Hansens and Mr. Jennings planned to sell VC Holdings' interest in the Property. Mr. Tobler did not contact Mr. Blanchard within the next few days as requested.

         ¶12 Ultimately, the Hansens and Mr. Jennings agreed that VC Holdings would sell its ownership interest in JVC Leasing to Theta for $236, 337. At that time, Mr. Jennings was the vice president of Theta. Mr. Jennings later testified that he asked Mr. Hansen if he had authority to conduct business on behalf of VC Holdings, and Mr. Hansen confirmed that he did. Mr. Hansen also told Mr. Jennings that the Eskelsens did not have a valid claim to VC Holdings.

         ¶13 On March 23, 2011, Mr. Engstrom, a partner at Mr. Blanchard's firm, ordered closing documents from Southern Utah Title Company for a transfer of 31.8% of the Property interest from JVC Leasing to VC Holdings and then to Theta. Before closing, Southern Utah Title independently verified that Mr. Hansen had the authority to sign the closing documents for VC Holdings. On March 29, Mr. Hansen, acting as manager of VC Holdings, signed an agreement redeeming VC Holdings' 31.8% membership interest in JVC Leasing. In return, JVC Leasing conveyed a 31.8% interest in the Property to VC Holdings. VC Holdings then sold its 31.8% interest in the Property to Theta for $236, 337. After satisfying the $54, 270 debt VC Holdings owed to JVC Leasing, Theta placed $180, 000 in escrow with Southern Utah Title. Mr. Hansen instructed Southern Utah Title to release the $180, 000 to a company called ME Jenkins Management LLC. Mr. Hansen later testified that he used the money for personal expenses instead of repaying the Eskelsens.

         ¶14 In August 2011, the Eskelsens received notice of the Hansens' chapter 7 bankruptcy filing. That same day, Mr. Tobler searched the relevant recorder's office website and discovered the March 29 transfer documents.

          ¶15 The Eskelsens sued the Hansens, VC Holdings, and Theta. The Eskelsens sought a judgment declaring that VC Holdings, not Theta, owned the 31.8% interest in the Property. The Eskelsens asserted that (1) the transfer to Theta was void as a fraudulent transfer, (2) even if the transfer was not fraudulent, it was void because Mr. Hansen lacked authority to act as VC Holdings' manager, and (3) even if the transfer was not fraudulent and Mr. Hansen had authority to act as VC Holdings' manager, the transfer was void because it was "outside of the ordinary course of business" and "Mr. Hansen did not have specific authority to transfer away all of VC Holdings' assets."

         ¶16 After a two-day bench trial, the trial court ruled in Theta's favor. In its written findings of fact and conclusions of law, the court concluded (1) that the March 29, 2011 transfer was not a fraudulent transfer, (2) that the Eskelsens failed to properly remove Mr. Hansen as VC Holdings' manager and Mr. Hansen was therefore VC Holdings' manager on the date of the transfer, (3) and that Mr. Hansen's actions as manager bound VC Holdings.

         ¶17 After trial, the Eskelsens filed a motion to amend and make additional findings pursuant to rule 52(b) of the Utah Rules of Civil Procedure. The trial court granted the motion in part and denied it in part. The court granted the Eskelsens' motion to amend several clerical errors, such as replacing "Theta" with "JENCO" and "2015" with "2011." But the court "otherwise denied" their motion. The Eskelsens appeal.


         ¶18 The Eskelsens first contend that the trial court erred in determining that Mr. Hansen "did not commit a fraudulent transfer under the Utah [Uniform] Fraudulent Transfer Act." With regard to this claim, we review questions of fact for clear error and questions of law for correctness. Tolle v. Fenley, 2006 UT App 78, ¶ 11, 132 P.3d 63. Although we review questions of law for correctness, "we may still grant a trial court discretion in its application of the law to a given fact situation." Id. (quotation simplified). "Questions of statutory interpretation are questions of law that are reviewed for correctness and no deference is given to the trial court's determination." Id.

         ¶19 Second, the Eskelsens contend that the trial court erred in determining the Eskelsens had the burden of disproving Theta's defense that it was a good faith transferee.[3] "Burden of proof questions typically present issues of law that [we] review[] for correctness." Martinez v. Media-Paymaster Plus/Church of Jesus Christ of Latter-day Saints, 2007 UT 42, ¶ 41, 164 P.3d 384.

         ¶20 Third, the Eskelsens contend that the trial court erred in determining two particular facts. They assert error in the trial court's determination that "Theta . . . did not have notice of the Eskelsens' superior claim." A finding that Theta had notice of the Eskelsens' claim, they assert, means Theta could not have been a good faith transferee. See Utah Code Ann. § 25-6-9(1) (LexisNexis Supp. 2015) (stating that a fraudulent transfer "is not voidable . . . against a person that took in good faith and for a reasonably equivalent value"). The Eskelsens also contend that the trial court erred in determining that Mr. Hansen had authority to act on behalf of VC Holdings on March 29, 2011. Theta correctly observes that this issue "depends entirely on the trial court's determination of whether Theta had notice or knowledge of any restrictions on [Mr. Hansen's] authority[, ] which is a fact question." See 4447 Assocs. v. First Sec. Fin., 889 P.2d 467, 471 (Utah Ct. App. 1995). "A determination concerning whether a party had notice or knowledge of a particular transaction or occurrence is a finding of fact and will not be set aside" absent clear error. Id. (quotation simplified); see also Utah R. Civ. P. 52(a)(4) ("Findings of fact, whether based on oral or other evidence, must not be set aside unless clearly erroneous, and the reviewing court must give due regard to the trial court's opportunity to judge the credibility of the witnesses.").

         ¶21 Fourth, the Eskelsens argue that the trial court erred "by not imputing knowledge through the principal-agency relationship between Theta . . . and its attorneys." "Whether a principal is imputed with its agent's knowledge is a legal question" we review for correctness. Lane v. Provo Rehab. & Nursing, 2018 UT App 10, ¶ 23, 414 P.3d 991; see also Insight Assets, Inc. v. Farias, 2013 UT 47, ¶ 13, 321 P.3d 1021 (observing that whether a title company's knowledge of a mortgage was imputed to a bank was a question of law). However, whether an agent has knowledge to impute, and what that knowledge is, presents a question of fact, which is we review for clear error. See id. (observing that whether a bank had actual knowledge of a mortgage was a question of fact).

         ¶22 Fifth, the Eskelsens contend that the trial court erred by denying in part their motion to amend and make additional findings of fact under rule 52(b) of the Utah Rules of Civil Procedure. We review the trial court's underlying factual findings for clear error and its ultimate grant or denial of a motion to amend or make additional findings for abuse of discretion. See Express Recovery Servs. Inc. v. Reuling, 2015 UT App 299, ¶ 22, 364 P.3d 766 ("We review the trial court's denial of a motion to amend a judgment for an abuse of discretion." (quotation simplified)); see also Utah R. Civ. P. 52(a)(4).


         I. Fraudulent Transfer

         ¶23 The Eskelsens contend that "[t]he trial court erred in determining [that] the Hansens did not commit a fraudulent transfer." According to the Eskelsens, "even if [the Hansens] did have some form of authority, the transfer of VC Holdings' property interest (in JVC Leasing) is voidable as a fraudulent transfer under the Utah [Uniform] Fraudulent Transfer Act." We are not persuaded.

         ¶24 Utah's Uniform Fraudulent Transfer Act (the Act) "affords remedies for 'creditors' against 'debtors' who have engaged in fraudulent transfers of property." See Utah Code Ann. § 25-6-303 (LexisNexis 2013). Generally, 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 specified circumstances without receiving reasonably equivalent value in exchange. See id. § 25-6-5(1). Under the Act, a creditor may seek to undo or void a debtor's transfer, for example, that fraudulently "plac[es] assets beyond [the] creditors' reach." Timothy v. Pia, Anderson, Dorius, Reynard & Moss LLC, 2018 UT App 31, ¶ 11, 424 P.3d 937, cert. granted, 421 P.3d 439 (Utah 2018); see also Utah Code Ann. §§ 25-6-1 to -14 (LexisNexis 2013).[4]

         ¶25 Importantly, "[a] fraudulent transfer in Utah first requires a creditor-debtor relationship." Bradford v. Bradford, 1999 UT App 373, ¶ 14, 993 P.2d 887. A "creditor" is "a person who has a claim," and a "debtor" is "a person who is liable on a claim." Utah Code Ann. § 25-6-2(4), (6). A "claim" under the Act is "a right to payment, whether or not the right is reduced to judgment." Id. ยง 25-6-2(3). The Act may afford relief if the parties' circumstances meet these definitions. As relevant here, a creditor may seek a remedy under the ...

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