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Fifth Third Bank v. Morales

United States District Court, D. Colorado

December 19, 2017




         This matter is before the Court on dueling motions of summary judgment filed by Plaintiff Fifth Third Bank (Doc. # 52) and Defendants Marie Korallus and Marie Ludian (Doc. # 51). Because the Court finds the existence of a fraudulent transfer as a matter of law, the Court grants Plaintiff's motion and denies Defendants' motion.

         I. BACKGROUND

         In 2009, Lucy T. Morales (Ms. Morales) created the Lucy T. Morales Revocable Trust (the Trust) (collectively, the Defaulting Defendants)[1] and, as grantor, named herself as Trustee and beneficiary. (Doc. # 52-3 at 349.) Ms. Morales later amended the Trust to name her daughters Marie Ann Korallus and Marie Tess Ludian (Defendants) as successor trustees. (Doc. # 52-1 at 1, 9.) Upon Ms. Morales's death, all the Trust's assets would be distributed to the Defendants. (Doc. # 52-2 at 146, 151- 52.) Ms. Morales also transferred real property in Montrose, Colorado (the Montrose Property) to the Trust. (Doc. # 52-1 at 146, 158, 164-67.)

         In 2011, Plaintiff loaned approximately $510, 000.00 to Grand Park Surgical Center (Grand Park) and Chicago Medical and Surgical Center (Chicago Medical). (Doc. # 52-3 at 349-50.) Ms. Morales guaranteed the repayment obligation on the loan. (Id. at 350.) In 2013, based on an alleged default on the loan, Plaintiff commenced a civil suit against them in the Circuit Court of Cook County, Illinois (Illinois Court). (Doc. # 52-2 at 244, 253.) The Illinois Court entered judgment in Plaintiff's favor in the amount of $607, 768.10 (Illinois Judgment). (Doc. # 52-1 at 179-80.) In 2014, Plaintiff domesticated and publicly recorded the Illinois Judgment against Ms. Morales in Montrose County, Colorado (Colorado Judgment). (Id. at 182-84.) Meanwhile, Plaintiff also obtained an Order from the Illinois Court impressing a judicial lien against the assets of the Trust, including the Montrose Property (Judicial Lien). (Doc. # 52-2 at 189.) In September 2015, Plaintiff commenced post-judgment collection proceedings against Ms. Morales on the Illinois Judgment (Id. at 252.)

         In December 2015, the Defaulting Defendants[2] transferred the Montrose Property by warranty deed to the Defendants (the Transfer). In exchange, the Defaulting Defendants received a promissory note and deed of trust (the Note) from the Defendants in the principal amount of $395, 000.00. (Doc. # 51-1 at 3.) The Note had a fifteen-year maturity date and bore no interest. (Id.) It included provisions requiring Defendants to maintain the Montrose Property and an acceleration clause in the event of breach or default. (Id. at 4-10.) At the time of Transfer, the market value of the property was between $395, 000.00 and $400, 000.00. (Doc. # 51 at 4; Doc. # 52 at 6.)

         In July 2017, the Illinois Court entered an Order directing the Defaulting Defendants to “turn over the [Note]” to Plaintiff “who may collect upon it.” (Doc. # 52-3 at 331.) The Illinois Court later ordered that “a writ of execution shall issue directing public auction of the Note.” (Doc. # 58-2 at 91.) Neither party contends that any such auction has occurred.

         As the proceedings in Illinois remained pending, Plaintiff commenced this lawsuit raising three Claims for Relief. (Doc. # 1.) In its First and Second Claims, Plaintiff argues that the Defaulting Defendants fraudulently transferred the Montrose Property to the Defendants pursuant to Colorado Revised Statute § 38-8-105(a) and (b). (Id. at 7- 10.) Plaintiff seeks the avoidance of that Transfer pursuant to § 38-8-108. (Id.) Plaintiff's Third Claim alleges that Defendants are liable for Civil Conspiracy based on their collective participation in the Transfer. (Id. at 10-11.) The parties agree that all claims are ripe for summary judgment.


         Summary judgment is warranted when “the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(a). A fact is “material” if it is essential to the proper disposition of the claim under the relevant substantive law. Wright v. Abbott Labs., Inc., 259 F.3d 1226, 1231-32 (10th Cir. 2001). A dispute is “genuine” if the evidence is such that it might lead a reasonable jury to return a verdict for the nonmoving party. Allen v. Muskogee, Okl., 119 F.3d 837, 839 (10th Cir. 1997). When reviewing motions for summary judgment, a court must view the evidence in the light most favorable to the non-moving party. Id. However, conclusory statements based merely on conjecture, speculation, or subjective belief do not constitute competent summary judgment evidence. Bones v. Honeywell Int'l, Inc., 366 F.3d 869, 875 (10th Cir. 2004).

         The well-pleaded facts in the Complaint are deemed true with respect to defaulting parties. Newell Recycling, LLC v. DC Brands Int'l, Inc., No. 13-CV-1238-WJM-KMT, 2014 WL 1213366, at *2 (D. Colo. Mar. 24, 2014).

         III. ANALYSIS

         Because the parties request summary judgment on each of Plaintiff's claims, the Court address them in turn.


         Plaintiff claims that the Transfer was fraudulent pursuant to § 38-8-105(a) and (b) of the Colorado Uniform Fraudulent Transfer Act (CUFTA). The burden of proof lies with Plaintiff to prove fraudulent transfer under either subsection of this statute. Schempp v. Lucre Mgmt. Grp., LLC, 75 P.3d 1157, 1165 (Colo.App. 2003).

         1. § 38-8-105(a)

         The Court begins with subsection (a), which provides:

A transfer made . . . by a debtor is fraudulent as to a creditor, whether the creditor's claim arose before or after the transfer was made . . ., if the debtor made the transfer . . . (a) [w]ith actual intent to hinder, delay, or defraud any creditor of the debtor.

§ 38-8-105(a). Plaintiff need only demonstrate that the “debtor”-here, the Defaulting Defendants-made the Transfer “with actual intent to hinder, delay, or defraud” Plaintiff-the creditor.

         “Actual intent” under subsection (a) is seldom susceptible to direct proof. Courts therefore look to the following non-exclusive factors, otherwise known as “badges of fraud, ” to assess a debtor's intent:

(a) The transfer or obligation was to an insider;
(b) The debtor retained possession or control of the property transferred ...

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