Minnesota Court of Appeals: Reilly v. Antonello, 852 N.W.2d 694 (2014)

Application of MUFTA Between Spouses

This published court of appeals case, decided in August 2014, dealt with an alleged fraudulent sale of shares in violation of what was then Minnesota’s Uniform Fraudulent Transfer Act, Minn. Stat. §§ 513.41–513.51 (“MUFTA”). Effective August 1, 2015, Minnesota renamed this act the Uniform Voidable Transactions Act (“MUVTA”); the case applied the prior law, which still governs transfers made before that date. Reilly v. Antonello, 852 N.W.2d 694 (Minn. Ct. App. 2014) (available at https://mn.gov/web/prod/static/lawlib/live/archive/ctappub/2014/opa140030-081814.pdf).

MUFTA was Minnesota’s adoption of the uniform act then known as the Uniform Fraudulent Transfer Act (“UFTA”). Effective August 1, 2015, Minnesota adopted the Uniform Law Commission’s revisions and renamed the act; under Minn. Stat. § 513.51 the act “which was formerly cited as the Uniform Fraudulent Transfer Act, may be cited as the ‘Uniform Voidable Transactions Act.’” (available at https://www.revisor.mn.gov/statutes/cite/513.51). The citation range (§§ 513.41–513.51) is unchanged.

Under the Act, a transfer made “with actual intent to hinder, delay, or defraud any creditor of the debtor” is voidable as to that creditor. Minn. Stat. § 513.44(a)(1) (available at https://www.revisor.mn.gov/statutes/cite/513.44). Before the 2015 amendments the operative result was phrased as the transfer being “fraudulent”; the statute now makes the transfer “voidable.” An “asset” is considered “property of a debtor” (with some property exceptions). Minn. Stat. § 513.41(2) (available at https://www.revisor.mn.gov/statutes/cite/513.41).

Mere transfer of property is not enough to void it. The “badges of fraud” listed in Minn. Stat. § 513.44(b) help establish that a transfer was made with actual intent to hinder, delay, or defraud a creditor under § 513.44(a)(1). These factors go to actual fraudulent intent; constructive (presumptive) fraud is the separate pathway under § 513.44(a)(2), which requires no proof of intent and does not turn on the badges. Section 513.44(b) lists these factors as:

  • The transfer or obligation was to an insider;
  • The debtor retained possession or control of the property transferred after the transfer;
  • The transfer or obligation was disclosed or concealed;
  • Before the transfer was made or obligation was incurred, the debtor had been sued or threatened with suit;
  • The transfer was of substantially all the debtor’s assets;
  • The debtor absconded;
  • The debtor removed or concealed assets;
  • The value of the consideration received by the debtor was reasonably equivalent to the value of the asset transferred or the amount of the obligation incurred;
  • The debtor was insolvent or became insolvent shortly after the transfer was made or the obligation was incurred;
  • The transfer occurred shortly before or shortly after a substantial debt was incurred; and
  • The debtor transferred the essential assets of the business to a lienor that transferred the assets to an insider of the debtor.

In Reilly v. Antonello, respondents George Reilly, Meridian Bank, and Thomas Braman obtained judgments in excess of $3 million against Michael Antonello. At the time, Michael was the sole shareholder, director and officer of Michael J. Antonello Insurance Associates, a corporation. Pursuant to the judgment, a levy was placed on Antonello’s shares, which totaled 10,000 and were all the outstanding stock in the corporation. A few weeks after the levy was served, the corporation authorized the issuance of 500,000 total shares and sold 90,000 to Antonello’s wife, Jean, for $1,000. A few days later, Jean Antonello purchased an additional 400,000 shares for $100. In total, Jean purchased 98% of the corporation for just $1,100. Antonello’s remaining 10,000 shares were sold to respondents for $10,000.

Reilly sued both Antonello and his wife under MUFTA once he realized his ownership in the corporation had been diluted. The court held that Michael Antonello, the debtor and sole director, officer, and shareholder of the corporation, violated MUFTA by orchestrating the indirect transfers of corporate stock to his wife, Jean, to hinder his creditors; the district court voided those transfers, and the court of appeals affirmed. Jean was the transferee, not an adjudged violator; the court did not find that she had independently violated MUFTA.

Ordinarily the creditor bears the burden of proving that a transfer was fraudulent, using the “badges of fraud” outlined above. Under the common-law rule the Reilly court applied, however, “transfers between spouses are presumptively fraudulent,” so when a transfer is between spouses the burden shifts to the transferee to prove the transfer was legitimate. Reilly, 852 N.W.2d at 700 (internal citations omitted). This spousal presumption is a judge-made doctrine (drawn from State Bank of New London v. Swenson and Kummet v. Thielen), not a codified rule, and Reilly construed the pre-2015 Uniform Fraudulent Transfer Act. For transfers made on or after August 1, 2015, the Uniform Voidable Transactions Act expressly places the burden on the creditor to prove the claim by a preponderance of the evidence. Minn. Stat. § 513.44(c) (available at https://www.revisor.mn.gov/statutes/cite/513.44). No published Minnesota appellate decision has yet decided whether the common-law spousal presumption survives that change, so the burden-shifting rule should not be treated as settled for current transfers.

Finally, the court noted, “[t]o allow a sole director, officer, and shareholder to mask his fraudulent actions behind the façade of a closely held corporation would defy the plain meaning and intent of [MUFTA].” Id. at 701.