Minnesota

Warning: The following opinion is provided for purposes of discussion only. We have not Shepardized™ this opinion, and do not know the subsequent disposition of this case nor whether the effect of the opinion has been overruled or superceded by other law.

STATE OF MINNESOTA IN COURT OF APPEALS

C4-02-480

September 17, 2002

ROCHELLE ROGERS, ET AL., RESPONDENTS,

v.

STEVEN MELDAHL, D/B/A PREFERRED PROPERTY INVESTMENTS, INC., ET AL., APPELLANTS.

Hennepin County District Court File No. CT948724

Gregory D. Luce, 1113 East Franklin Avenue, Suite 308, Minneapolis, MN 55404 (for respondents)

Paul A. Sortland, 33 South Sixth Street, Suite 4100, Minneapolis, MN 55402-3601(for appellants)

Considered and decided by Anderson Presiding Judge, Klaphake Judge, and Hudson Judge.

The opinion of the court was delivered by: Klaphake, Judge

Affirmed

UNPUBLISHED OPINION

In 1994, respondents Rochelle Rogers and Amos Magee obtained a default judgment against appellant Steven Meldahl, d/b/a Preferred Property Investments, Inc. (Meldahl). In 1999, respondent Magee began these proceedings to collect the judgment; respondent Rogers has not been involved in these collection proceedings and is not represented on appeal.

The district court ordered sanctions and attorney fees against Meldahl based on his conduct during these proceedings and ordered amendment of the pleadings to add appellant SJM Properties as a defendant and judgment debtor.

Because the district court did not abuse its discretion in awarding sanctions and attorney fees based on Meldahl's "pattern of deceit" involving deliberate, calculated, and false representations to the court and counsel, we affirm imposition of those sanctions and fees under Minn. R. Civ. P. 11.01-.03. Because the district court did not err or abuse its discretion in adding SJM Properties as a party and judgment debtor, we affirm on that issue also.

DECISION

I.

A district court's decision to award sanctions is reviewed under an abuse of discretion standard. Leonard v. Northwest Airlines, Inc., 605 N.W.2d 425, 432 (Minn. App. 2000). Despite Meldahl's insistence that the district court improperly sanctioned him for violating its November 2000 order prohibiting any conveyance of property, a reading of the court's decision clearly shows that the court based its award on Minn. R. Civ. P. 11.01-.03.

In particular, rule 11.02 provides that when an attorney presents a pleading or other paper to the court, he or she is certifying that to the best of [his or her] knowledge, information, and belief, formed after an inquiry reasonable under the circumstances, [that the paper] is not being presented for any improper purpose, such as to harass or to cause unnecessary delay or needless increase in the cost of litigation. Minn. R. Civ. P. 11.02.

Rule 11.03 further provides that if the court determines that Rule 11.02 has been violated, the court may * * * impose an appropriate sanction upon the attorneys, law firms, or parties that have violated Rule 11.02 or are responsible for the violation. Minn. R. Civ. P. 11.03.

These rules impose "an affirmative duty * * * on counsel to investigate the factual and legal underpinnings of a pleading." Kellar v. Von Holtum, 605 N.W.2d 696, 701 (Minn. 2000) (quotation omitted). The goal is to "deter bad faith litigation." Id.

The district court here cited Meldahl's ongoing "pattern of deceit," which the court determined was intended to foil Magee's collection efforts and avoid payment of the underlying judgment. In particular, the court noted that Meldahl repeatedly provided Magee and the court with vague, false, and incomplete information regarding available assets, particularly the ownership of certain rental properties. Even when faced with undisputed proof to the contrary, Meldahl continued to claim that he had no interest in any property of any value. Our review of the record convinces us that the district court did not abuse its discretion in awarding sanctions and attorney fees.

Meldahl further describes the sanctions and fees as "harsh" and "punitive." A district court may take into account mitigating factors or a party's ability to pay a sanction. Id. at 702. However, the record contains no evidence regarding inability to pay or mitigating factors, because Meldahl failed to raise this as an issue below and barely mentioned it in his brief on appeal, without supporting argument or authority. See Thiele v. Stich, 425 N.W.2d 580, 582 (Minn. 1988) (reviewing court may not consider issues raised for first time on appeal); State v. Modern Recycling, Inc., 558 N.W.2d 770, 772 (Minn. App. 1997) (party waives issue that is merely raised in brief and not supported by argument or authority). We therefore affirm the district court's imposition of $10,000 in sanctions and more than $12,000 in attorney fees.

II.

Meldahl argues that the district court erred in adding SJM Properties as a party and entering judgment against it. Magee had sought to pierce the corporate veil, in order to allow him to levy on property held by SJM Properties. The district court determined it was not necessary to pierce the corporate veil because it found that by transferring property to SJM Properties, Meldahl violated the Uniform Fraudulent Transfer Act, Minn. Stat. §§ 513.41-.51 (2000).

The judgment adding SJM Properties as a party merely served to give legal effect to the court's order to allow Magee to "levy on property, owned either by Defendant Meldahl individually or which has been transferred to SJM Properties, Inc. by Mr. Meldahl, to satisfy his judgment." While there may be other ways to obtain the same result, the remedy chosen by the district court is not without a legal or equitable basis. The fraudulent conveyance act allows a creditor to obtain various relief, including an attachment against the asset transferred or "any other relief the circumstances may require." Minn. Stat. § 513.47(a)(2), (3)(iii) (2000). The rules of civil procedure also allow a court to direct a person to whom an interest has been transferred "to be substituted in the action or joined with the original party." Minn. R. Civ. P. 25.03. Thus, we cannot conclude that the remedy chosen here was improper, particularly given the difficulty Magee has had in locating assets and collecting on his judgment.

Finally, Meldahl argues that because there was no evidence of any "transfer" or "conveyance" of property, the district court erred in finding that fraudulent transfers occurred. A transfer made by a debtor is fraudulent if the debtor made the transfer "with actual intent to hinder, delay, or defraud any creditor of the debtor." Minn. Stat. §á513.44(a)(1) (2000). In determining actual intent, one of the factors to consider is whether the debtor "retained possession or control of the property." Minn. Stat. §á513.44(b)(2) (2000). In addition, a "transfer" includes "every mode, direct or indirect, absolute or conditional, voluntary or involuntary, of disposing of or parting with an asset or an interest in an asset." In re Butler, 552 N.W.2d 226, 231-32 (Minn. 1996).

The district court concluded that the facts of this case demonstrate an actual intent by Meldahl to hinder, delay, or defraud Magee's collection of a valid judgment. The court explained:

The [rental] properties remain in Meldahl's possession and control. This lawsuit was initiated in 1994. [Meldahl] continually claimed, until recently, that he had no interest in these properties, but his tax returns show otherwise and specifically [show] that they are a substantial portion of his assets. [Meldahl] admits he has, contrary to the Order of this Court, transferred these assets to a new (reincorporated) corporation named SJM Properties, Inc. in October 2000. Similarly, he admits that he has no proof thereof and that he transferred these same properties to another party in 1995, as it appears to be security for a promissory note, although his attorneys claim he transferred "legal title" to someone named Stephano at that time. No record of such change in legal title was ever recorded. If the property was in fact transferred to Stephano in 1995 that also would have qualified as a fraudulent transfer. Although [Meldahl] claimed others owned the properties, his United States tax returns for 1998 and 1999 clearly state that he owned the subject real estate properties in 1998 and 1999 and collected rents. These subject properties and their respective rental income streams represent the bulk of [Meldahl's] assets. It is clear that any subsequent transfer of these assets by [Meldahl] with knowledge of the lawful judgment against him to a "newly incorporated" SJM was a blatant effort to hinder [respondent Magee's] collection efforts.

Thus, although the record owner of the properties may currently be SJM Properties, indirect or involuntary "transfers" have occurred, particularly when that corporation was statutorily dissolved in 1997 and "reincorporated" in 2000 by its sole shareholder, Meldahl. Because the undisputed evidence further demonstrates that Meldahl has orchestrated these transfers and that he controls the corporation and treats its assets as his own, the district court did not clearly err in determining that fraudulent transfers have occurred. Thus, it was within the court's discretion to fashion a remedy so as to allow Magee to force the sale of property owned by Meldahl and his corporations, including SJM Properties, in order to satisfy his judgments.

Affirmed.

The legal opinions are a matter of public record (that's how we got them), and as such there can be no defamation for republishing them. Sometimes, however, legal opinions are reversed, vacated, or significantly modified, etc., and we do not discover this fact until somebody points it out to us. As we do not desire to publish inaccurate or outdated information, if a legal opinion has been reversed, vacated, or significantly modified, please advise us of this fact immediately, by fax to (877) 698-0678 or you may also send regular postal correspondence to Riser Adkisson LLP at 1827 Powers Ferry Road, Building One, Suite 200, Atlanta GA 30339.