United States District Court, N.D. Indiana, Hammond Division
BARBARA V. PRINGLE, Independent Executor for the Estate of Arthur D. Pringle III, Plaintiff,
JOE WITTIG, et al., Defendants.
OPINION AND ORDER
PHILIP P. SIMON, Chief District Judge.
Barbara Pringle claims that Sergio Garcia cheated her deceased husband, Arthur, out of millions of dollars in a real-estate-based fraud scheme and that Joe Wittig participated in the scheme by buying twenty-two properties from Garcia while Garcia's real estate scheme was collapsing. According to the complaint, these were fraudulent transfers which Pringle seeks to have undone. Wittig has moved for summary judgment, arguing Pringle has not come forward with evidence of fraud [DE 261]. For the most part, I agree with Wittig. But two of the transactions stick out as suspicious. Because I find that there are unresolved issues of fact with respect to these two properties, Wittig's motion is GRANTED IN PART and DENIED IN PART.
It's not necessary to rehash all of Sergio Garcia's misdeeds for the purposes of this motion. Anyone looking for a more complete account of the Garcia and his family's activities can refer to my November 25, 2013 Order in this case [DE 250]. Suffice it to say for present purposes that Garcia was a real estate investor who operated in Northwest Indiana through a variety of corporations under his control. He bought houses in the area, rehabilitated them, and sold them-or at least that was what he was supposed to do.
Arthur Pringle, the original plaintiff in this suit, invested nearly $5 million with Garcia's companies between September 2006 and May 2008. Garcia was able to scrape together enough money to pay the interest on these loans up until August 2008, at which point, he stopped paying altogether. Pringle accelerated the payments on Garcia's promissory notes, but Garcia still didn't pay. So Pringle filed this lawsuit to recover on the notes, but he also alleged that the Garcia family was a RICO organization that had conspired to defraud investors like himself. Wittig was added as a defendant in the Second Amended Complaint [DE 60]. The Complaint alleged that Wittig helped Garcia shield assets from creditors by buying houses from Garcia on the cheap. Pringle alleged the transactions between Wittig and Garcia were fraudulent and sought to void them.
Wittig is also a Northwest Indiana real estate investor. He operates almost exclusively in the northern part of Lake County in cities like Gary, Hammond, and Lake Station. Like Garcia, Wittig buys existing houses and fixes them up. Unlike Garcia, Wittig doesn't sell the properties; he keeps them and rents them out. As Wittig explains it, Garcia operated like a wholesaler, building up a large inventory of houses and selling them off in lots to investors like Wittig. Wittig operates more like a retailer, selling or renting directly to consumers. These houses are not palaces. Quite the opposite. According to Wittig, he owns around 100 properties in Gary and the vast majority cost him less than $15, 000.
Garcia started selling houses to Wittig in September 2008, right after he stopped paying Pringle. Wittig ultimately bought twenty-six houses from Garcia's companies, but only twenty-two of the transactions are alleged to have been fraudulent. Wittig bought twenty-one of these between September 2008 and December 2008, and the final one in September 2009. The houses were located in Gary, Griffith, Hammond, Hobart, Lake Station and Merrillville, Indiana. All but one of the properties had existing mortgages, which Wittig assumed and satisfied as part of the transaction. Like the rest of Wittig's properties, these were cheap - most cost less than $15, 000. As one would expect, the houses were in rough shape and required extensive rehabilitation before Wittig was able to rent them out.
Pringle alleges Wittig is liable under the Indiana Fraudulent Transfers Act, Ind. Code §§ 32-18-2-14 and 32-18-2-15 [DE 98]. She seeks the avoidance of the twenty-two transactions, an injunction against the disposal of any income derived from the transactions, and a declaratory judgment deeming the transfers fraudulent.
This case has gone through many twists and turns on its way to resolution. There have been several bankruptcy stays, and a gigantic judgment has already been issued against Garcia and his related entities on the counts relating to recovering on the notes. The RICO claim remains pending but it too has been stayed due to a likely criminal prosecution of Sergio Garcia. (I have been told by the parties that the U.S. Attorney for this district has been calling people into a grand jury investigating Sergio Garcia's real estate activities). Plaintiff's case against Wittig, however, is not stayed. Wittig has moved for summary judgment, and the motion is ripe for disposition.
Summary judgment is proper "if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(a). A genuine dispute about a material facts exists only "if the evidence is such that a reasonable jury could return a verdict for the non-moving party." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). In making this determination, I must construe all facts and draw all reasonable inferences from the record in the light most favorable to the nonmoving party. Id. at 255. But the nonmoving party is not entitled to the benefit of "inferences that are supported by only speculation or conjecture." Argyropoulos v. City of Alton, 539 F.3d 724, 732 (7th Cir. 2008) (citations and quotations omitted).
In Indiana, an action to set aside a fraudulent conveyance is governed by Indiana's Uniform Fraudulent Transfer Act ("IUFTA") Ind. Code § 32-18-2, et seq. Fraudulent conveyance actions "have for their sole purpose the removal of obstacles which prevent the enforcement of the judgment" and are "in essence an equitable execution comparable to proceedings supplementary to execution." Rice v. Com'r, Ind. Dep't of Envtl. Mgmt., 782 N.E.2d 1000, 1004 (Ind.Ct.App. 2003) (citation omitted). An action to set aside a fraudulent conveyance does not negate the disputed transaction; its only effect is to subject the conveyed property to execution "as though it were still in the name of the grantor." Id.
A party asserting such an IUFTA claim can go about it in one of two ways. She can show that the transfer was made with the actual intent to defraud creditors, or she can show that the transferor did not receive "reasonably equivalent value" in exchange for the transfer. See Ind. Code §§ 32-18-2-14 and 32-18-2-15; Boyer v. Crown Stock Distribution, Inc., 587 F.3d 787, 792 (7th Cir. 2009); Rice, 782 N.E.2d at 1004. The first is commonly known as an actual fraud claim, whereas the second is known as a constructive fraud claim. Pringle alleges both. I'll start with the constructive fraud theory.
Section 32-18-2-15 permits recovery if 1) a debtor transfers property without receiving reasonably equivalent value in exchange for the transfer and 2) the debtor was insolvent or became insolvent as a result of the transfer. See Ind. Code § 32-18-2-15; Rose v. Mercantile Nat'l Bank, 844 N.E.2d 1035, 1053-54 (Ind.Ct.App. 2006), vacated in part on other grounds, 868 ...