FT - Great So. Life Ins v Agri. Building Co (4/30/2002)

[Riser Adkisson LLP]

Great Southern Life Insurance Co. v. Agricultural Building Company Industries.
No. 01-CV-1112 (D.Minn. 04/30/2002)

UNITED STATES DISTRICT COURT DISTRICT OF MINNESOTA

01-CV-1112(JMR/FLN)

April 30, 2002

GREAT SOUTHERN LIFE INSURANCE COMPANY

v.

AGRICULTURAL BUILDING COMPANY INDUSTRIES AND ELINOR LUCAS AND AMCORE BANK

The opinion of the court was delivered by: James M. Rosenbaum United States Chief District Judge

ORDER

This interpleader action is before the Court on cross- motions for summary judgment brought by
defendant Elinor Lucas and intervenor AMCORE Bank.

Great Southern Life Insurance Company commenced this action, recognizing it owes someone life
insurance proceeds upon the death of Robert W. Lucas. Its problem, of course, is a lack of
clarity as to whom it should pay: claims were submitted by Elinor Lucas, Mr. Lucas's widow, and
by his former business and employer, Agricultural Building Company Industries ("ABCI").

ABCI owes a substantial amount of money to AMCORE Bank. As ABCI's creditor, AMCORE intervened in
this matter on October 29, 2001, claiming it is entitled to the proceeds.

Elinor Lucas seeks summary judgment on AMCORE's conversion, constructive fraud, and actual fraud
claims. AMCORE seeks summary judgment on its constructive fraud claim. The Court finds Ms. Lucas
is entitled to summary judgment; AMCORE Bank's motion is, perforce, denied.

I. Background

Robert Lucas and Charles Weikel were the sole shareholders of ABCI and its predecessor,
Agricultural Holding Company, Inc. In 1994, the company obtained a $500,000 life insurance
policy, No. 35-09410120, on Robert Lucas from Ohio Life, Great Southern Life's predecessor.
Agricultural Holding Company was the owner and named beneficiary of the policy.

Agricultural Holding Company's successor, ABCI, suffered a series of financial setbacks. As a
result, it ceased paying the policy's premiums after April, 1998. On February 1, 2000, Ohio Life
sent ABCI a "Grace Period Notice," indicating the policy was in its grace period and would lapse
unless a $190 payment was made by April 16, 2000. The notice also showed the policy's current
fund value was $68. By letter and personal check dated March 30, 2000, Mr. Lucas made the $190
payment, and indicated ABCI would transfer the policy's ownership to him the following day.

On March 31, 2000, Mr. Weikel signed a form transferring ownership of the policy from ABCI to
Robert Lucas. Mr. Weikel now claims he signed the transfer form believing he was transferring a
different life insurance policy based on representations by Mr. Lucas. Mr. Lucas did not pay ABCI
for the policy transfer. When the policy was transferred, ABCI was in financial difficulty, and
its major creditor was AMCORE Bank.

On April 1, 2000, Mr. Lucas changed the policy's beneficiary from ABCI to Elinor Lucas. Mr. Lucas
died on April 6, 2000, from a self-inflicted accidental gunshot wound. The coroner examined the
circumstances of the death and found Mr. Lucas's death was accidental.

II. Claims

ABCI and AMCORE originally claimed Mr. Lucas fraudulently induced Mr. Weikel to transfer
ownership of the policy. Following Ms. Lucas's previous motion for summary judgment, both ABCI
and AMCORE agreed to dismiss these claims.

ABCI has entirely abandoned any claim it had to the life insurance proceeds. AMCORE bases its
remaining claim on theories of conversion, as well as constructive and actual fraud under
Minnesota's fraudulent transfer statute. Ms. Lucas seeks summary judgment against AMCORE on all
its claims. AMCORE seeks summary judgment against Ms. Lucas on its constructive fraudulent
transfer claim.

Great Southern Life has placed the life insurance proceeds with the court, in accord with Rule
1335(a)(2) of the Federal Rules of Civil Procedure ("Fed. R. Civ. P.").

III. Discussion

A. Summary Judgment Standard

Summary judgment is appropriate when no material facts are in dispute and the moving party is
entitled to judgment as a matter of law. Fed. R. Civ. P. 56; Celotex Corp. v. Catrett, 477 U.S.
317, 322-23 (1986); Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 246 (1986). The party opposing
summary judgment may not rest upon the allegations in its pleadings, but must produce significant
probative evidence demonstrating a genuine issue for trial. See Fed. R. Civ. P. 56(e); Liberty
Lobby, 477 U.S. at 248-49; see also Hartnagel v. Norman, 953 F.2d 394, 395-96 (8th Cir. 1992).

"[T]he 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." Liberty Lobby, 477 U.S. at 247-48. If the opposing party fails
to carry that burden, or fails to establish the existence of an essential element of its case, on
which that party will bear the burden of proof at trial, summary judgment should be granted. See
Celotex, 477 U.S. at 322.

B. Conversion Claim

Ms. Lucas moves for summary judgment on AMCORE's conversion claim. AMCORE does not oppose the
dismissal of this claim.

Accordingly, the motion for summary judgment on this claim is granted.

C. Fraudulent Transfer

AMCORE claims both constructive and actual fraud under Minnesota's statute prohibiting fraudulent
transfers.

1. Constructive Fraud

In accord with the Uniform Fraudulent Transfer Act, Minnesota law provides:

A transfer made or obligation incurred by a debtor is fraudulent as to a creditor whose claim
arose before the transfer was made or the obligation was incurred if the debtor made the transfer
or incurred the obligation without receiving a reasonably equivalent value in exchange for the
transfer or obligation and the debtor was insolvent at that time or the debtor became insolvent
as a result of the transfer or obligation. Minn. Stat. § 513.45(a). Therefore, constructive fraud
requires proof of (1) a transfer, (2) a prior claim, (3) no "reasonably equivalent value," and
(4) debtor insolvency. Ms. Lucas claims AMCORE cannot establish either that (1) a transfer
occurred, or (2) the debtor did not receive a reasonably equivalent value. The Court agrees.

a. Transfer

A "transfer" encompasses "every mode . . . of disposing of or parting with an asset or an
interest in an asset." Minn. Stat. § 513.41(12). An "asset" is "property of a debtor." Minn.
Stat. § 513.41(2). "Property" is "anything that may be subject of ownership." Minn. Stat. § 513.41
(10).

The Court finds that proceeds of a life insurance policy are not "property" subject to
Minnesota's fraudulent transfer statute. The Court does so, recognizing that Minnesota's Supreme
Court has not spoken on the issue. Other jurisdictions, however, have so construed the Uniform
Fraudulent Transfer Act's predecessor, the Uniform Fraudulent Conveyance Act. See Equitable Life
Ins. Co. v. Hitchcock, 258 N.W. 214, 216 (Mich. 1935) (holding "an insurance policy represents a
mere expectancy dependent upon the performance of certain conditions and the happening of a
certain contingency" and is not "property" subject to Michigan's Fraudulent Conveyance Act);
First Wisconsin Nat'l Bank of Milwaukee v. Roehling, 269 N.W. 677, 680 (Wisc. 1937)
(reasoning "[t]he Uniform Fraudulent Conveyance Act evidences no intent to protect the creditors
against the loss by transfer of an interest so speculative, so remote, and so completely within
the power of the insured to destroy"). Moreover, under Minnesota law, an "asset" does not
include "property to the extent it is generally exempt under non-bankruptcy law," Minn. Stat. §
513.42(2)(ii), and life insurance proceeds are exempt from the claims of the insured's creditors,
Minn. Stat. § 61A.12, subd. 2.

Therefore, based on these teachings, the Court finds it highly probable that the Minnesota
Supreme Court would resolve this issue in accord with its sister courts, finding that life
insurance proceeds are not property subject to the Uniform Fraudulent Transfer Act. As a result,
no transfer of property occurred as required by the statute.

b. Reasonably Equivalent Value

The Uniform Fraudulent Transfer Act is concerned with transfers that are not of reasonably
equivalent value. Pertinent to this case, courts have held that the reasonably equivalent value
of a transferred life insurance policy is its cash surrender value, not its proceeds. See, e.g.,
Hitchcock, 258 N.W. at 216. Here, at the time of transfer, the policy in question had a current
fund value of $68, and was about to lapse. The Court finds that Mr. Lucas's agreement to bring
the policy current and pay future premiums constitutes reasonably equivalent value for the policy.

Accordingly, because AMCORE cannot establish that, first, a transfer occurred or, second, the
debtor did not receive a reasonably equivalent value, the Court grants summary judgment to Ms.
Lucas on AMCORE's constructive fraud claim.

2. Actual Fraud Under Minnesota law,

A transfer made or obligation incurred by a debtor is fraudulent as to a creditor, whether the
creditor's claim arose before or after the transfer was made or the obligation was incurred, if
the debtor made the transfer or incurred the obligation . . . with actual intent to hinder,
delay, or defraud any creditor of the debtor . . . .Minn. Stat. § 513.44(a)(1).

AMCORE's actual fraud claim, like its constructive fraud claim, fails as a matter of law for lack
of a transfer of property for the reasons set forth above.

Notwithstanding this determination, the Court has reviewed the evidence proffered in these
summary judgment motions, and considered it in the light most favorable to AMCORE. See
Radaszewski v. Telecom Corp., 981 F.2d 305, 310 (8th Cir. 1992); Fed. R. Civ. P. 56. After doing
so, the Court finds there is simply no evidence to prove Mr. Lucas acted with actual intent to
defraud, hinder, or delay.

On the evidence before this Court, no reasonable jury could find actual intent. To the contrary,
the evidence suggests that by assuming premium payment obligations, Mr. Lucas preserved a lapsing
life insurance policy for the benefit of his family. He certainly died shortly thereafter, but
the occurrence of a tragic accident is not an indicia of fraud.

AMCORE also asserts that "traditional badges of fraud," as codified in Minnesota's fraudulent
transfer statute, are present in this case. *fn1 According to AMCORE, they provide circumstantial
evidence suggesting Mr. Lucas's fraudulent intent. AMCORE emphasizes the fact that the insurance
policy was transferred to an insider (factor 1), its view that the consideration paid was not
reasonably equivalent to the policy's value (factor 8), and the debtor's insolvency (factor 9).

The Court rejects this argument. Doubtless, Mr. Lucas and Mr. Weikel were "insiders" -- they were
virtually the whole company. Any transactions between either of them and their business were,
therefore, insider transactions. And there is no question the company was insolvent; that's why
it owed money to AMCORE. But the fulcrum of the argument fails: as explained above, under
Minnesota law, and in fact, the money paid to purchase this policy was "reasonably equivalent" to
the policy value. AMCORE's actual fraud argument, when clearly analyzed, is nothing more than a
recasting of its previously rejected fraudulent transfer claim. *fn2 The argument could not be
sustained before, and it fails again.

Finally, the Court declines to entertain AMCORE's suggestions that the timing and circumstances
of Mr. Lucas's death indicate fraudulent intent. Mr. Lucas's death was considered by the coroner,
who ruled it accidental. The mere fact that his accidental death happened closely in time to the
life insurance policy transfer does not make the transfer fraudulent with respect to AMCORE.

In summary, AMCORE has not met its burden in opposing a summary judgment motion. It has failed to
produce significant probative evidence demonstrating a genuine issue for trial. As a result, Ms.
Lucas is entitled to judgment as a matter of law, and her motion is granted.

III. Conclusion

For the foregoing reasons IT IS ORDERED that:

1. Ms. Lucas's motion for summary judgment is granted. [Docket No. 52.]

2. AMCORE Bank's motion for summary judgment is denied. [Docket No. 59.]


Opinion Footnotes

*fn1 Minnesota's statute prohibiting fraudulent transfers lists several factors that
may be considered in determining actual intent: (1) the transfer or obligation was
to an insider; (2) the debtor retained possession or control of the property
transferred after the transfer; (3) the transfer or obligation was disclosed or
concealed; (4) before the transfer was made or obligation was incurred, the debtor
had been sued or threatened with suit; (5) the transfer was of substantially all the
debtor's assets; (6) the debtor absconded; (7) the debtor removed or concealed assets;
(8) 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; (9) the
debtor was insolvent or became insolvent shortly after the transfer was made or the
obligation was incurred; (10) the transfer occurred shortly before or shortly after a
substantial debt was incurred; and (11) the debtor transferred the essential assets of
the business to a lienor who transferred the assets to an insider of the debtor. Minn.
Stat. § 513.44(b).

*fn2 AMCORE had previously claimed Mr. Lucas falsely represented to Mr. Weikel that
the documents Weikel was signing transferred a different life insurance policy than
the one at issue. AMCORE has dropped this fraudulent inducement claim, however, and
it has been dismissed with prejudice.