371 F.Supp.2d 3 (2005) | Cited 3 times | D. Massachusetts | June 10, 2005


In the instant action, Maria Rodriguez ("Rodriguez") seeks tonullify two real estate conveyances made by Victor Montalvo("Montalvo") to his mother, Carmen Solis ("Solis"), in order toensure that Montalvo has funds available to pay any judgmentawarded in Rodriguez v. Montalvo, Civil Action No.02-40139-NMG ("the related case"). Rodriguez now moves for apreliminary injunction to freeze the proceeds of thoseconveyances.

I. Background

A. The Underlying Case

In December 1998, Rodriguez rented a first-floor apartmentlocated at 47 Salem Street, Fitchburg, Massachusetts fromMontalvo. Her son, Jose, had Duchenne's Muscular Dystrophy and was quadriplegic. He was confined to a wheelchair and eventuallyneeded a ventilator to breathe. Rodriguez requested permission tomake modifications to the dwelling in order to accommodate Jose'sdisability. In particular, she wanted to install a permanent rampon the premises at her own expense and offered to restore thedwelling to its original condition when she moved out. Thatrequest was refused by Montalvo and Jose was forced to use amake-shift ramp to enter the apartment. Jose died of his illnesson June 11, 2002.

Montalvo tells a far different story of the parties'relationship. He contends that he attempted to accommodate Joseby lending the plaintiff tools to build a wheelchair ramp and,eventually, by agreeing to allow the plaintiff to modify thepremises to suit Jose. He also intimates that the plaintiff was apoor tenant, refusing to sign a lease, housing extra peoplewithin the premises and refusing to agree to a rental increase.

On July 29, 2002, in the related case, Rodriguez sued Montalvoand Oltman, the alleged manager of the apartment complex, forstatutory violations of the Fair Housing Act,42 U.S.C. § 3601-31, the Massachusetts Anti-Discrimination Statute, M.G.L. c.151B, and under common law for intentional and negligentinfliction of emotional distress, negligent failure to train andsupervise and negligent retention. On January 12, 2004, thisCourt allowed a motion by plaintiff to attach Montalvo's real estate up to the amount of $75,000, the amountthat the Court found she had a reasonable likelihood ofrecovering.

B. The Fraudulent Transfer Case

Rodriguez filed the instant action after becoming concernedthat Montalvo was attempting to transfer fraudulently his assetsbeyond the reach of a potential judgment creditor. At the timethe original dispute arose, Montalvo owned an apartment complexat 30 Mount Pleasant Avenue, Leominster, Massachusetts ("theProperty"). On February 19, 2003, Montalvo conveyed one-half ofhis interest in the Property to Solis for $100.

On May 27, 2003, Plaintiff's counsel telephoned Montalvo andinformed him that Rodriguez intended to file a motion forprejudgment attachment of the Property (the attachment describedabove). The next day, Montalvo conveyed his remaining one-halfinterest to Solis for another $100.

Montalvo now states that the transfers were made to repay aseries of loans Solis had made to him. In particular, he allegesthat Solis had lent him a sum of money to buy the Property andthat, in 1999, she had lent him an additional $5,000 to buy outhis ex-wife's interest in the Property. There are no documentsevidencing those loans.

On February 9, 2004, Solis mortgaged the Property through WellsFargo Home Mortgage and, on June 1, 2004, she sold the Property to an alleged bone fide purchaser for value. Shereceived a total of $128,000 as proceeds of the sale. Despite anorder of this Court for an accounting, however, she has yet todescribe fully the disposition of the proceeds. She states thatshe gave $32,000 to a friend to purchase a co-op in New York,that she spent $13,000 on moving expenses and that she holds$60,183 in a savings account.

On October 28, 2004, Rodriguez filed the instant actionalleging fraudulent transfer pursuant to M.G.L. c. 109A §§ 5 and6 based on Montalvo's transferral of the Property to Solis andthe latter's subsequent mortgage and sale of it.

On November 4, 2004, this Court issued an ex partetemporary restraining order enjoining Montalvo and Solis from"withdrawing, transferring, spending, lending, liquidating, orotherwise disposing of or encumbering up to $75,000 of theproceeds of the sale and mortgage [of the Property]". This Courtalso scheduled a hearing on plaintiff's motion for a preliminaryinjunction for November 10, 2004 and ordered defendants toprovide an accounting of the proceeds at that hearing.

On November 9, 2004, Montalvo filed a Suggestion of Bankruptcyand the preliminary injunction hearing was cancelled but, onFebruary 24, 2005, the automatic stay of the claims againstMontalvo in this and the related case were lifted. On May 19,2005, a hearing was held. This Court extended the temporary restraining under until June 2, 2005 and heard oralargument on plaintiff's motion for a preliminary injunction.

II. Legal Analysis

A. Preliminary Injunction Standard

To merit a preliminary injunction under Fed.R.Civ.P. 65(a), themoving party must show: 1) a likelihood of success on the merits,2) irreparable injury, 3) that such injury outweighs any harm tothe defendant and 4) that the injunction would not harm thepublic interest. Lanier Professional Services, Inc. v. Ricci,192 F.3d 1, 3 (1st Cir. 1999); Keds Corp. v. Renee Int'lTrading Corp., 888 F.2d 215, 220 (1st Cir. 1989). The firstfactor is considered most important. New Comm Wireless Services,Inc. v. SprintCom, Inc., 287 F.3d 1, 8 (1st. Cir. 2002);Weaver v. Henderson, 984 F.2d 11, 12 (1st Cir. 1993).

B. Likelihood of Success on the Merits

Under Massachusetts law, to prove that a transfer wasfraudulent with respect to a creditor, the creditor must provethat "the debtor made the transfer . . . with actual intent tohinder, delay, or defraud any creditor of the debtor". M.G.L. c.109A § 5(a)(1). Such "actual intent" is commonly proven"circumstantially and inferentially". Hasbro, Inc. v.Serafino, 37 F.Supp.2d 94, 98 (D.Mass. 1999); Palmer v.Murphy, 677 N.E.2d 247 (Mass. 1997). The Massachusetts UniformFraudulent Transfer Act suggests eleven factors that a court "may" consider indetermining whether "actual intent" to hinder, delay or defraudwas present: (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 [not] 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.M.G.L. c. 109A § 5(b). While the "presence of a single badge offraud may spur mere suspicion, the confluence of several canconstitute conclusive evidence of an actual intent to defraud".Hasbro, 37 F.Supp.2d at 98 (citation and quotation omitted).

It appears to be uncontested that several of the factors arepresent in this case. The first factor is present because thetransfers were to Montalvo's mother, an "insider" under thestatute. M.G.L c. 109A § 2. The fourth factor is present because,at the times of the transfers, Montalvo had been threatened with(continuing) litigation and with a real estate attachment by theplaintiff. The fifth and ninth factors are likely present becauseit appears that the Property was Montalvo's only substantial asset and that he was renderedinsolvent by the transfers (he has recently declared bankruptcy).

In addition to those factors, the eighth factor (lack ofreceipt of reasonably equivalent value), which is disputed, alsofavors the plaintiff. The documentary evidence indicates thatSolis paid a total of $200 for the Property, woefully short offair market value and not resembling an arms length transaction.Solis argues that she had made a series of undocumented loans toMontalvo and that the Property was conveyed as repayment. Thatcontention is underwhelming, however, because, in her affidavit,Solis states that she only lent Montalvo $5,000 plus unspecifiedadditional sums which, apparently, were not large enough to bememorable. Even assuming that those loans were legitimate andwere not gifts, the aggregate sum is obviously less than the net$128,000, give or take, that Solis received from the sale of theProperty. Thus, the facts indicate that Solis did not pay a"reasonably equivalent value" for the Property.

Finally, the timing of the transfers, in particular the secondtransfer, is highly suspect. The second transfer occurred onthe day after the plaintiff threatened to seek a realestate attachment, obviously indicative of an intent to hindercreditors. Solis does not even attempt to explain that timing. Assuch, the conclusion is inescapable that the conveyance was madewith the "actual intent" to hinder, delay or defraud the plaintiff, as a potential creditor. Thus, Rodriguez hasdemonstrated a reasonable likelihood of success on the merits ofher fraudulent transfer claim.

C. The Remaining Factors

The remaining factors also weigh in favor of the plaintiff.Rodriguez has established that she would suffer irreparable harmin the absence of an injunction because she would be unable tocollect any judgment in the related case. Aside from the proceedsat issue, neither of the defendants has sufficient funds to pay ajudgment: Defendant Montalvo is in bankruptcy and Solis statesthat she lives on social security payments. In her affidavit,Solis candidly states her intention to spend the remainingproceeds if given the opportunity, speculating that she wouldlike to buy a condominium. Moreover, the defendants' previousactions in response to the prospect of litigation (i.e. theimmediate conveyance of the Property), demonstrate that theywould not hesitate to dispose of the proceeds if permitted.

On the other hand, the potential harm to the defendants causedby the entry of a preliminary injunction would be less onerous.Solis intimates that she needs the subject proceeds for hermedical care but that contention is severely undercut by the factthat she recently gave (or loaned with little chance ofrepayment) $32,000 to a friend and spent $16,000 on moving costsand home furnishings. Because the plaintiff has made a particularly strong showing ofa likelihood of success on the merits, the potential forirreparable harm to Solis is accordingly diminished. The highlysuspect timing of the subject conveyances and the faciallyinadequate consideration paid by Solis render it unlikely thatSolis will be found to have any legitimate claim to the proceeds.As such, a restraint on her ability to dispose of them for thetime being causes her no harm. Accordingly, plaintiff's motionfor a preliminary injunction will be allowed. Further, to assurethe availability of such funds at the conclusion of the case, thefunds are to be held in escrow by the Court.

Moreover, because Solis has not provided a complete accountingof the proceeds, it is unclear whether any portion thereof wasdisposed of in violation of this Court's Temporary RestrainingOrder, entered November 4, 2004, which remained in effect withrespect to Solis even after the filing of Montalvo's bankruptcy.Solis will be directed to file an affidavit addressed to thatsubject.

ORDER In accordance with the foregoing, plaintiff's Motion for aPreliminary Injunction (Docket No. 10) is ALLOWED and thepreliminary injunction, attached hereto and by this referencemade a part hereof, shall enter.

So ordered.

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