Minnesota Court of Appeals: Reilly v. Antonello,
852 N.W.2d 694 (2014)
This published court of appeals case that was decided in August 2014 dealt with alleged fraudulent sale of shares in violation of Minnesota’s Uniform Fraudulent Transfer Act (“MUFTA”), in Minnesota Statutes sections 513.41-513.51.
MUFTA is Minnesota’s adoption of the Uniform Fraudulent Transfer Act (“UFTA”). Under MUFTA, if an asset is transferred “with actual intent to hinder, delay, or defraud the creditor of the debtor” then the transfer is considered fraudulent.” Minn. Stat. § 513.44. An “asset” is considered “property of a debtor” (with some property exceptions). Minn. Stat. § 513.41. However, mere transfer of property is not enough to trigger MUFTA. The “Badges of Fraud” may establish constructive fraudulent intent. Section 513.44 lists these factors as:
- The transfer or obligation was to an insider;
- The debtor regained 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 reasonable 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 transferred occurred shortly before or shortly after a substantial debt was incurred; and
- The debtor transferred the essential assets of the business to a lienor who transferred the assets to an insider of the debtor.
In Reilly v. Antonello, Reilly, Meridian Bank and Thomas Braman obtained approximately a $3 million dollar judgment 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 total 10,000 and were the 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 40,000 shares for $100. In total, Jean purchased 98% of the corporation for just $1,100. Antonello’s remaining 10,000 shares were sold to Reilly for only $10,000.
Reilly sued both Antonello and his wife under MUFTA once he realized his ownership in the corporation had been diluted. The court found that Antonello and his wife had violated MUFTA. Usually, it is the burden of the creditor to prove that a transfer was fraudulent based on the “Badges of Fraud” outlined above. However, “transfers between spouses are presumptively fraudulent,” thus, when a transfer is between spouses, the burden shifts to the transferee to prove that the transfer was legitimate. Reilly, 852 N.W.2d at 700 (internal citations omitted). 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.