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Auld-Susott v. Galindo

United States District Court, D. Hawaii

February 28, 2019

EVAN AULD-SUSOTT, as Trustee for 1 IRREVOCABLE LIFE INSURANCE TRUST OF JOHN L. SUSOTT AND KATHRYN C. SUSOTT UAD 8/17/1988 AS RESTATED, EXEMPT TRUST FBO DANIEL C. SUSOTT, and 2 IRREVOCABLE LIFE INSURANCE TRUST OF JOHN L. SUSOTT AND KATHRYN C. SUSOTT UAD 8/17/1988 AS RESTATED, NON-EXEMPT TRUST FBO DANIEL C. SUSOTT; and JOHN L. SUSOTT, Plaintiffs,
v.
LAURYN GALINDO, Defendant.

          FINDINGS OF FACT AND CONCLUSIONS OF LAW

          Leslie E. Kobayashi, United States District Judge

         This matter came on for a bench trial on on July 10 and 11, 2018. Plaintiffs Evan Auld-Susott (“E. Auld-Susott”), as Trustee for (1) Irrevocable Life Insurance Trust of John L. Susott and Kathryn C. Susott UAD 8/17/1988 as Restated, Exempt Trust FBO Daniel C. Susott, and (2) Irrevocable Life Insurance Trust of John L. Susott and Kathryn C. Susott UAD 8/17/1988 as Restated, Non-Exempt Trust FBO Daniel C. Susott (“Trusts”); and John L. Susott (“J. Susott” and collectively “Plaintiffs”) were represented by Peter Knapman, Esq. Defendant Lauryn Galindo (“Defendant”) was represented by Wayson W.S. Wong, Esq.

         The Court hereby finds in favor of Plaintiffs and against Defendant. Specifically, that Plaintiffs are entitled to judgment on their fraudulent transfer claim, and their claims for unjust enrichment and constructive trust are hereby dismissed. Defendant's Motion for Judgment Under FRCP Rule 52(c) (“Rule 52(c) Motion”), [filed 7/13/18 (dkt. no. 143), ] is hereby denied.

         The Court, having considered the declarations and evidence admitted into evidence, the testimony at trial, and the arguments of counsel, makes the following Findings of Fact and Conclusions of Law and Decision pursuant to Fed.R.Civ.P. 52. Any finding of fact that should more properly be deemed a conclusion of law and any conclusion of law that should more properly be deemed a finding of fact shall be so construed.

         BACKGROUND

         On April 8, 2010, Daniel C. Susott (“D. Susott”) transferred certain real property located at 3880 Wyllie Road, Apartment 6A, Princeville, Hawai`i 96722 (“Property”) by quit claim deed to Defendant. [Complaint, filed 8/10/16 (dkt. no. 1), at ¶¶ 7, 14.] As a result, Plaintiffs filed the instant legal action against Defendant. On May 31, 2016, Defendant filed her First Amended Answer to Complaint Filed August 10, 2016. [Dkt. no. 26.]

         In the lawsuit, Plaintiffs assert three claims: fraudulent conveyance pursuant to the Hawai`i Uniform Fraudulent Transfer Act (“HUFTA”), Haw. Rev. Stat. § 651C-4(a)(1) (“Count I”); unjust enrichment (“Count II”); and constructive trust (“Count III”).

         Prior to trial, two substantive rulings regarding Plaintiffs' claims were made in this action. First, on April 9, 2018, this Court issued the Order Denying Defendant's Motion for Summary Judgment (“4/19/18 Order”) and ruled that Plaintiffs' release of claims against D. Susott did not also release their claims against Defendant. [Dkt. no. 91 at 7 (citing Haw. Rev. Stat. § 663-15.5(a)).[1]

         Second, on June 27, 2018, this Court issued its Order Granting Plaintiffs' Motion for Partial Summary Judgment and Denying Defendant's Motion for Summary Judgment (“6/27/18 Order”) and ruled that both E. Auld-Susott and J. Susott are creditors of D. Susott under Haw. Rev. Stat. § 651C-1, and therefore Plaintiffs both “have standing to pursue their Count I claim against Defendant.” [Dkt. no. 122 at 17.[2]

         At trial, the following claims were litigated:

Count I - On April 8, 2010, D. Susott transferred the Property to Defendant “‘with actual intent to hinder, delay, or defraud [them in their capacity as] creditor[s] of [D. Susott].'” [Complaint at ¶ 19 (quoting § 651C-4(a)(1)).] Further, Plaintiffs allege the Complaint is timely because they “first learned of the fraudulent transfer on March 1, 2016.” [Id. at ¶ 21 (citing Haw. Rev. Stat. § 651C-9).]
Count II - “Defendant knowingly received and accepted the Property from D. Susott without consideration.” [Id. at ¶ 24.] Plaintiffs therefore allege Defendant would be unjustly enriched if she were to retain the Property.
Count III - Plaintiffs allege “the circumstances under which Defendant acquired the Property” require imposing a constructive trust to “convert[] Defendant into a trustee holder of the Property for the benefit of Plaintiffs.” [Id. at ¶ 27.]

         At the non-jury trial, in lieu of live direct testimony, Plaintiffs presented the declarations of E. Auld-Susott and J. Susott. [Dkt. nos. 120, 121.] Defendant likewise presented the declarations of Defendant, Emerald Starr, and Harvey Cohen. [Dkt. nos. 123, 124, 126.] However, because Defendant filed all of her declarations after the court-ordered deadline for filing these declarations, this Court ruled it would consider none of them at trial. [Minutes, filed 7/2/18 (dkt. no. 125).] On July 9, 2018, this Court issued its Order Granting in Part and Denying in Part Defendant's Motion for Reconsideration of this Court's Ruling that She May Not Call Any Witnesses at Trial (“7/9/18 Order”). [Dkt. no. 136.[3] The 7/9/18 Order permits only Defendant's declaration (“Galindo Declaration”) to be considered as direct examination testimony presented by Defendant at the trial. 2018 WL 3350363, at *3.

         The non-jury trial commenced on July 10, 2018 with E. Auld-Susott, J. Susott and Defendant all testifying live on cross-examination. Plaintiffs' Exhibits 2, 7-8, 10-16, 18-19, 21, 26-29, 31, 34, 38-40, and 42-43 were received into evidence, and Defendant's Exhibits E, AA, BB, CC, EE, FF, GG, SS, RR, TT, and YY Exhibits RR and TT were admitted.

         On July 26, 2018, Plaintiffs and Defendant both filed written closing arguments. [Dkt. nos. 147, 148.] On August 13, 2018, Defendant filed her Rebuttal to Plaintiffs' Closing Argument, and on August 17, 2018, Plaintiffs filed their Rebuttal to Defendant Lauryn Galindo's Closing Argument. [Dkt. nos. 162, 163.]

         At the parties' request, on August 10, 2018, leave was granted to file post-trial proposed findings of fact and conclusions of law. [Dkt. no. 160.] On August 17, 2018 and August 24, 2018, respectively, Defendant filed her Posttrial Proposed Findings of Fact and Conclusions of Law, and Plaintiffs filed their Post-Trial Submission of Proposed Findings of Fact and Conclusions of Law. [Dkt. nos. 164, 165.] On August 27, 2018, Defendant filed her Objections to Plaintiffs' Post-Trial Submission of Findings of Fact and Conclusions of Law. [Dkt. no. 166.]

         FINDINGS OF FACT

         The Court makes the following findings of fact based on the declarations, trial testimony, and exhibits submitted by the parties.

         I. Jurisdiction

         1. E. Auld-Susott is a citizen of the State of California.

         2. J. Susott is a citizen of the State of California.

         3. Defendant is a citizen of the State of Hawai`i.

         II. Background Facts

         4. The Property at issue in this action is the real property located at 3880 Wyllie Road, Apartment 6A, Princeville HI 96722, TMK (4) 5-4-005-018 CPR 0020. [Exh. 24, Apartment Deed dated March 6, 2007 (“Exh. 24”).]

         5. D. Susott took title to the Property by deed executed March 6, 2007. [Id.] Galindo testified the purchase price was $490, 000.

         6. On April 8, 2010, D. Susott executed a quitclaim deed transferring title to the Property to Defendant (“Quitclaim Deed” and “the Transfer”). [Exh. C, California All-Purpose Acknowledgment dated April 8, 2010 (“Exh. C”); Exh. 30, Quitclaim Deed filed April 26, 2010 (“Exh. 30”).]

         7. J. Susott and D. Susott are brothers. [E. Auld-Susott Decl. at ¶¶ 1-2.]

         8. E. Auld-Susott is J. Susott's son. D. Susott is E. Auld-Susott's uncle. [Id.]

         9. Non-party Kathryn C. Susott (“K. Susott”) is J. Susott and D. Susott's mother, and E. Auld-Susott's grandmother. [Id.]

         10. K. Susott died in February 2009. Her life insurance proceeds funded the Trusts. [Id. at ¶¶ 11-13.]

         11. D. Susott is the income beneficiary of the Trusts and was the original trustee of the Trusts. E. Auld-Susott and his sister are remainder beneficiaries of the Trusts, and E. Auld-Susott is the successor trustee of the Trusts. [Id. at ¶¶ 15-16.]

         12. On October 26, 2009, D. Susott instructed that the Trusts' brokerage account issue payment totaling $350, 000 to “Wells Fargo Home Mortgage, ” and these payments were applied to pay off the remaining balance of a mortgage loan which was secured by the Property. [Exh. 23, Letter from Daniel C. Susott MD, MPH to Adrian Antonio dated October 26, 2009 (“Exh. 23”); E. Auld-Susott Decl. at ¶ 39 (identifying the payment as coming from the Trusts' accounts).]

         13. By November 2, 2009, D. Susott had removed nearly all of the Trusts' principal, which was about $1, 000, 000. [E. Auld-Susott Decl. at ¶ 20.]

         14. On January 26, 2011, E. Auld-Susott filed In re: ILIT of Susott, No. MP 20193 (“MP20193”), in the Superior Court of Monterey County, State of California (“California state court”), in which he demanded D. Susott provide a financial accounting for the Trusts.

         15. On December 9, 2011, J. Susott filed Susott v. Susott, No. M115348 (“M115348”), in the California state court, in which he alleged D. Susott committed elder abuse against their mother. [Exh. EE, Complaint filed September 25, 2012, (“Exh. EE”).]

         16. On November 13, 2012, in MP20193, the California state court issued an order: removing D. Susott as trustee of the Trusts; appointing E. Auld-Susott as successor trustee; surcharging D. Susott $1, 500, 917 for breach of trust and fiduciary duties; and authorizing E. Auld-Susott, as successor trustee, to take collection actions against D. Susott (“Surcharge Order”). [Exh. 29, Order After Hearing on Petition for Removing and Surcharging Trustee; Appointment of a Successor Trustee and for Attorneys Fees and Costs, filed with the Bureau of Conveyances on November 17, 2014 (“Exh. 29”).]

         17. Pursuant to the Surcharge Order and since November 13, 2013, E. Auld-Susott has attempted to recover assets from D. Susott to satisfy the Surcharge Order. E. Auld-Susott performed an accounting of the amount recovered and the amount still owed to the Trusts pursuant to the Surcharge Order. [E. Auld-Susott Decl. at ¶¶ 28-29.] As of June 26, 2018, the amount D. Susott owes the Trusts is $841, 407.68. [Id. at ¶ 30.]

         18. The Surcharge Order has not been fully satisfied. [Id.]

         19. On April 17, 2013, in M115348, the California state court issued J. Susott a judgment against D. Susott in the amount of $1, 624, 125.07. On October 24, 2015, J. Susott filed a copy of the judgment issued in M115348 in Hawai`i state court pursuant to the Uniform Enforcement of Foreign Judgments Act, Haw. Rev. Stat. Chapter 636C (“J. Susott's Judgment”). [Exh. 35, Exemplified Foreign Judgment (“Exh. 36”).]

         20. J. Susott has not received full payment from D. Susott for the amount owed on J. Susott's Judgment. [J. Susott Decl. at ¶¶ 15-17; E. Auld-Susott Decl. at ¶¶ 28-34.]

         21. The Court finds that J. Susott's Judgment has not been fully satisfied.

         III. D. Susott's Actual Intent and the Badges of Fraud

         22. D. Susott did not testify at trial.

         23. The Court finds, by clear and convincing evidence, that D. Susott made the Transfer with actual intent to hinder, delay, or defraud Plaintiffs, in their capacity as creditors, to recover the Property to satisfy debts D. Susott owed to Plaintiffs. This finding is based on considering the eleven badges of fraud and other evidence of D. Susott's actual intent.

         A. Whether the Transfer Was to an Insider

         24. Defendant refers to D. Susott as her “hanai brother” and D. Susott refers to her as his “hanai sister.” Defendant considers herself to be K. Susott's “hanai daughter.” [Galindo Decl. at ¶ 4.]

         25. “The Hawaiian word ‘hanai' is translated as adopted or foster child, and is sometimes used to refer to an informal (rather than legally binding) adoptive relationship.” Munguia v. Grelyn of Maui, LLC, Civ. No. 09-00058 HG-BMK, 2011 WL 1364026, at *1 n.1 (D. Hawai`i Apr. 8, 2011) (citing Hawaiian Dictionary: Revised and Enlarged Edition 57 (Mary Kawena Pukui & Samuel H. Elbert eds., 1986)).

         26. Defendant became friends with D. Susott in 1983. [Galindo Decl. at ¶ 3.] Defendant and D. Susott have had a “close relationship” for “many years” and show “affection, concern, and caring for each other as close friends.” [Id. at ¶ 59.]

         27. Defendant and D. Susott have engaged in numerous, undocumented, highly informal, and high-value financial transactions. These transactions include:

a. D. Susott's 2007 purchase of the Property -D. Susott took out a mortgage on the Property (“Mortgage”), and borrowed money from E. Auld-Susott to provide the down payment required to obtain the Mortgage. [Id. at ¶ 28.]
b. The Transfer -Defendant and D. Susott agreed to a purchase price of $350, 000 for the Property but, due to the close nature of their friendship, no agreement was finalized as to how payment would be made. [Id. at ¶ 57.]
c. Defendant's informal recording of alleged payments she made in consideration for the Transfer -Defendant contends that she made numerous payments toward the purchase price for the Property without documentation or acknowledgment of these payments. [Id. at ¶ 46.]
d. Not documenting a loan of $188, 000 - Defendant contends she loaned D. Susott $188, 000 for Bali, Indonesia investments in the early 2000s and this loan was not documented due to the mutual trust between them. [Id. at ¶ 68.]
e. Forgetting about a $60, 000 documented loan -Defendant contends that she loaned D. Susott $60, 000 for which D. Susott executed a loan agreement on June 5, 2001 and never repaid but Defendant never sought to collect repayment. [Id. at ¶ 76; Exh. 31 (loan agreement).]

         28. At the time of the Transfer, Defendant and D. Susott were close friends and regarded each other as family.

         29. The court finds by clear and convincing evidence that, at the time of the Transfer, Defendant was an insider with respect to D. Susott.

         30. This factor weighs in favor of finding that D. Susott made the Transfer with actual fraudulent intent.

         B. Whether D. Susott Retained Possession or Control of the Property

         31. Both before and after the Transfer, Defendant resided at the Property. [Galindo Decl. at ¶ 26.]

         32. Before and after the Transfer, D. Susott resided at the property located on Woodlawn Drive in Honolulu, Hawai`i (“Woodlawn Property”). [E. Auld-Susott Decl. at ¶ 32; Galindo Decl. at ¶ 34.]

         33. D. Susott never resided at the Property. [Galindo Decl. at ¶ 34.]

         34. Since purchasing the Property on March 6, 2007, D. Susott expected and received financial or other contribution from Defendant in exchange for her residing at the Property, and D. Susott alone held a mortgage loan for the Property. [Id. at ¶ 28; Exh. 28 at 1-2.]

         35. The Court finds by clear and convincing evidence that that D. Susott possessed and controlled the Property after he purchased it on March 6, 2007. This factor weighs in favor of finding a fraudulent transfer, and is probative of whether D. Susott made the transfer of the property to Defendant with the actual intent of defrauding Plaintiffs and allowing Defendant to retain the benefit of the Property without paying reasonable consideration.

         C. Whether the Transfer was Disclosed or Concealed

         36. On July 6, 2009, E. Auld-Susott emailed D. Susott to inquire about the Susott Family Limited Partnership (“SFLP”) purchasing the Property from D. Susott. In reply, D. Susott stated via email on July 9, 2009 that Defendant was trying to purchase the Property. [Exh. 40.]

         37. On April 26, 2010, the Quitclaim Deed was recorded. [Exh. 30.] The transfer of title was publicly disclosed by this recording.

         38. The Court finds by clear and convincing evidence that D. Susott informed Plaintiffs as of July 9, 2009 that Defendant was intending to purchase the Property. This factor weighs in against finding a fraudulent transfer.

         D. Whether D. Susott Was Sued or Threatened With Suit Before He Made the Transfer

         Claims related to M115348

         39. J. Susott believed that, from 1995 until K. Susott's death in 2009, D. Susott committed wrongful acts against their mother, including physical abuse, taking things of value, and inappropriately influencing her to provide him gifts. [J. Susott Decl. at ¶¶ 9-10.]

         40. J. Susott told D. Susott on numerous occasions that he was potentially going to be sued for his actions against their mother. [Id. at ¶ 13.]

         41. On October 18, 2009, J. Susott emailed E. Auld-Susott a letter that J. Susott was considering sending to D. Susott (“10/18/09 Email”). [Exh. 2.] The 10/18/09 Email discussed allegations that D. Susott financially abused their mother, stole a three-carat diamond ring by removing it their mother's finger, judged D. Susott's character and recent conduct, and threatened to sue D. Susott.

         42. J. Susott testified that he sent the 10/18/09 Email to D. Susott, and discussed its contents with D. Susott.

         43. A preponderance of the evidence establishes that, at the time of the Transfer, D. Susott was aware from discussions with J. Susott and the 10/18/09 Email that serious allegations had been made against him and that legal action against him ...


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