Preview:

REPORTED IN THE COURT OF SPECIAL APPEALS OF MARYLAND No. 1447 September Term, 2004

BONNIE CRUICKSHANK-WALLACE v. COUNTY BANKING AND TRUST COMPANY

Kenney, Eyler, Deborah S., Adkins, JJ. Opinion by Eyler, Deborah S., J.

Filed: October 31, 2005

In the Circuit Court for Cecil County, County Banking and Trust Company ("the Bank"), the appellee, sued Bonnie Cruickshank Wallace ("Bonnie"), the appellant, for actual and constructive fraudulent Conveyance conveyances Act under Md. the Maryland (1975, Uniform 2000 Fraudulent Vol.),

("MUFCA"),

Code

Repl.

sections 15-201 through 15-214 of the Commercial Law Article ("CL"). In a prior suit ("the Debt Action"), the Bank had obtained a judgment against Great Christian Books, Inc. ("GCB"), and William Wallace ("William"), Bonnie's husband, as guarantor of a debt of GCB. It is undisputed that the judgment in the Debt Action In the case at bar, the Bank alleged was insolvent, William fraudulently

rendered William insolvent. that, in 1999, after he

conveyed his 1998 federal and state income tax refunds to Bonnie, thus keeping them out of the Bank's reach. Bonnie and the Bank each moved for summary judgment. court denied Bonnie's motion and granted the Bank's motion.1 Bonnie noted an appeal, posing two questions, which we have rephrased slightly: I. Did the circuit court err in denying her motion for summary judgment on the fraudulent conveyance claim The

The Bank's complaint included other allegedly fraudulent conveyances, in addition to the transfer of the income tax refunds. The court granted summary judgment in favor of Bonnie on some of those other fraudulent conveyance claims. They are not the subject of this appeal. The court denied summary judgment on yet other of those fraudulent conveyance claims. The Bank thereafter voluntarily dismissed those claims.

1

for the amount of the 1998 federal and state income tax refunds? II. Did the circuit court err in granting summary judgment to the Bank on its fraudulent conveyance claim for the amount of the 1998 federal and state income tax refunds?

For the reasons set forth below, we answer "no" to both questions and shall affirm the judgment of the circuit court.

FACTS AND PROCEEDINGS
At all times pertinent to this case, William and Bonnie were husband and wife and were living together in an intact marriage with their two sons, born in 1990 and 1993. William has an adult

child from a prior marriage who visits the Wallaces occasionally, but does not live with them. The Wallaces were married in 1987. On November 27, 1987, they executed a property agreement.2 They amended that agreement on

December 4, 1991, while residing in the State of Washington, which is a community property state, by means of a document entitled "Separate Property Status Agreement."3 It appears from the name of

the December 4, 1991 agreement that it and the prior agreement were entered into for the purpose of characterizing some of the

Wallaces' property--that otherwise would be community property under the laws of the State of Washington--as their own separate property.

2

That agreement is not in the record. That document also is not a part of the record. 2

3

On June 8, 1994, William purchased 75% of the stock of GCB from Walter C. Hibbard and Phillip Hibbard. A week later, the Wallaces executed a "Community Property Agreement,"4 modifying their December 4, 1991 Separate Property Status Agreement. The modification language states:

[Bonnie] and [William] agree as follows . . . . [Bonnie] and [William] shall own as community property the assets pertaining to the June 8, 1994 Agreement Stock Ownership Of Great Christian Books, Inc. entered into between Walter C. Hibbard, Phillip Hibbard, and [William] including, without limitation: 203 shares of Great Christian Books, Inc. ("GCB") stock transferred from Walter C. Hibbard; and 547 shares of authorized GCB stock to be immediately issued; and all future issued and transferred GCB Stock and any stock of any present and future affiliate of GCB to either [Bonnie] or [William] or any entity owned in part or whole by either or both of the parties hereto. Sometime in late 1994 or early 1995, the Wallaces moved from Washington to Pennsylvania, which is not a community property state. In May of 1995, the Bank extended a one-year revolving line of credit and a $234,000 secured loan to GCB. William gave a

personal guaranty of payment for GCB on both obligations. On June 1, 1995, the Wallaces executed a document entitled "Transfer Agreement,"5 which modified their June 15, 1994 Community Property Agreement. The Transfer Agreement states:

The Community Property Agreement does not bear a signed date but states in the body of the agreement that it is "dated effective June 15, 1994." The "Transfer Agreement" is not dated either, but states in its body that it is "dated effective June 1, 1995." 3
5

4

[Bonnie] and [William] agree as follows . . . . [William] transferred his interest in the stock of Great Christian Books, Inc. ("GCB") to the community property of [Bonnie] and [William], as provided in the June 15, 1994 Community Property Agreement, and [William] hereby transfers all his rights and property ("benefits") from his late father's estate, and from GCB to and to be derived by [William], including without limitation, deposits in GCB's employee deposit plan, loan repayment obligations, pension and retirement plans, wages, reimbursements, refunds, options, commissions, bonuses, deferred compensation, automobile and equipment leases, and from legal claims that [William] may have concerning GCB, to [Bonnie] and [William] to be held in common during the term of their marriage with the survivor owning these benefits in entirety. (Emphasis added.) At the end of 1996, the GCB credit line was paid off, and then was renewed for $750,000. It was again renewed in early 1998. The

loans were current until October of 1998. That month, GCB missed a payment. The Bank accelerated the

loan balance and, in the Circuit Court for Cecil County, filed a confessed judgment action against William, as guarantor. On

November 25, 1998, a confessed judgment was entered in favor of the Bank and against William.6 In 1998, GCB was paying William a salary, from which federal and state income taxes were withheld. Immediately after the

judgment was entered against him in the Debt Action, William

The amount of the judgment is unclear. Bonnie states that it was $722,534, while the Bank maintains that it was $865,959.34. In either case, the debt rendered William insolvent. 4

6

stopped taking a salary from GCB and started collecting $1,000 a month in unemployment benefits. Somewhere in this time frame, not clearly disclosed by the record, the Wallaces moved to Elkton, Maryland. In early 1999, William and Bonnie filed joint federal and state income tax returns for the 1998 tax year. The returns,

prepared by an accountant, showed they were entitled to a $19,984 tax refund from the Internal Revenue Service ("IRS") and a $2,821 tax refund from the State Comptroller's Office. The refund amounts equaled the amounts of federal and state income tax withheld from William's 1998 salary from GCB. 1998. She did have a loss Bonnie did not earn any income in however, from her

carry-forward,

subchapter S corporation, Cruickshank Holsteiners, Inc., a horse boarding and breeding business. In April and May of 1999, the Wallaces received income tax refund checks from the IRS and the Maryland Comptroller's Office. The checks were payable to both of them. William endorsed the

checks and gave them to Bonnie, who deposited them in her Merrill Lynch CMA account ("CMA account"). Bonnie's CMA account statements show that the amount of the state refund check, $2,821, was added to her account balance on April 19, 1999, and the amount of the federal refund, $19,984, was added to her account balance on May 3, 1999. Statements for the CMA account show in detail how the funds

5

were spent.7

Bonnie spent the entire $22,805 in income tax refunds

by June 30, 1999. The Bank learned of these and other transfers through

discovery in aid of enforcement, including a deposition of William taken on May 21, 1999, and a deposition of Bonnie taken on March 31, 2000. On February 24, 2000, in the Circuit Court for Cecil County, the Bank filed the instant suit against Bonnie.8 The Bank alleged

that William's transfer to Bonnie of the refund from his 1998 federal income tax return was a fraudulent conveyance.

Specifically, it alleged that the transfer was an actual fraudulent conveyance, because it was made with the actual intent to defraud William's creditors, see CL

Download Cruickshank-Wallace v. County Banking.pdf

Maryland Law