SHAMROCK v. Federal Deposit Insurance Corp.

Citations: 629 N.E.2d 344; 36 Mass. App. Ct. 162; 1994 Mass. App. LEXIS 208Docket: 92-P-1437

Court: Massachusetts Appeals Court; March 2, 1994; Massachusetts; State Appellate Court

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Shamrock, Inc. and Heritage Bank for Savings engaged in a dispute over the distribution of $76,000 from a foreclosure sale of a property at 10 King Street, Worcester. The Superior Court ruled that Heritage, holding the first mortgage, was entitled to the proceeds, thus denying Shamrock's claim based on a general attachment of $115,344 against the Eresians' property. This decision was affirmed on appeal. The FDIC, acting as the bank's liquidating agent after Heritage's insolvency, was substituted as the defendant in the case. The court addressed a jurisdictional question concerning the FDIC’s involvement but found that Shamrock had properly filed an administrative claim with the FDIC prior to the appeal, allowing the case to proceed after the FDIC denied the claim. The Eresians had borrowed $125,000 from Shamrock in 1988 and defaulted, leading to the attachment of their properties. The Number Ten King Realty Trust, created by Ara Eresian Jr., acquired the property through a deed recorded shortly after its establishment, with beneficiaries granted limited control over the trust's assets.

In April 1989, Ara Eresian, Jr., as the sole trustee of Number Ten King Realty Trust, sought favorable mortgage financing from a bank for the property at 10 King Street and another property. The bank required that Ara and his mother, Evelyn J. Eresian, obtain title to 10 King Street and execute mortgage documents personally. Following this, the bank permitted them to reconvey the property to the trust. Ara provided a trustee's certificate indicating he was authorized by all beneficiaries of the trust to convey the property to himself and Evelyn. Consequently, title was transferred to them on April 25, 1989, and returned to the trust the following day, with all documents recorded. Shamrock's attachment on April 18, 1989, did not include 10 King Street, as the title had not yet transferred to Ara and Evelyn. Shamrock contended that the trust was a sham and the mortgage deed a fraudulent conveyance. However, the trial judge found that the trust was legitimate and that the beneficial interests belonged to Ara's sisters, Melanie and Eva Eresian. The judge's finding was supported by the record, and there was no evidence that the trust was established to evade debts or that the sisters were obligated to return the property to Ara. Thus, the court upheld the validity of the trust and the transactions involved.

A trust can protect property from future financial difficulties, but a nominee trust is not ideal due to its vulnerability to creditors. Shamrock, as a creditor of Evelyn and Ara, Jr., cannot claim property held solely in their capacity as trustees (Hussey v. Arnold, 185 Mass. 202, 204 (1904)). Shamrock's counterclaim includes two counts alleging that a mortgage to Heritage Bank was a fraudulent conveyance. The first count asserts that Heritage Bank knowingly accepted the mortgage while Evelyn and Ara, Jr. were in default on their Shamrock loan, citing G.L.c. 109A, § 7. The second count claims that the mortgage and the bank's allowance for a second mortgage rendered them insolvent, referencing G.L.c. 109A, § 4, which defines fraud on creditors in situations where a conveyance makes the transferor insolvent without fair consideration.

During trial, procedural confusion arose concerning these fraudulent conveyance claims, which were presented to a jury. The jury found that the Eresians acted with intent to defraud Shamrock and that the bank was aware of this intent, yet also concluded that the bank provided fair consideration. Following the verdict, the bank sought to vacate the jury's findings and for judgment notwithstanding the verdict (n.o.v.), but the judge deemed this motion premature, interpreting Massachusetts Rule of Civil Procedure 50(b) as requiring a judgment entry first. However, the summary indicates that the 10-day limit for filing such a motion does not necessitate a prior judgment, aligning with interpretations of similar federal rules. The judge ultimately acted as if he had granted the bank's motion by setting aside the jury's verdict and determining that the trust was legitimately established with Ara, Jr. as trustee for his sisters' interests.

Neither Evelyn, Ara, Jr., nor Heritage engaged in actions that hindered, delayed, or defrauded a creditor through the mortgage transaction. The judge's decision to not grant judgment notwithstanding the verdict (n.o.v.) was likely influenced by Massachusetts Rule of Civil Procedure 49(a), which requires a judgment consistent with jury findings, while attempting to resolve any inconsistencies in those findings with the evidence and jury instructions. Even if the mortgage transaction with Heritage was deemed to favor an existing mortgagee over Shamrock, it would not contravene G.L.c. 109A, § 7 or § 9, as Heritage provided full consideration of $492,000 for its mortgage lien. A fraudulent conveyance requires a reduction in the debtor's assets available to creditors, which was not demonstrated here. Additionally, Shamrock's claim under Chapter 93A was dismissed due to the judge's findings of no collusion or wrongful motive by the bank, Shamrock's attachments not reaching trust property, the trust's legitimacy, and the bank's provision of good consideration for the mortgage from the Eresians.

Judgment in the case is affirmed, with no need to address the FDIC's appeal argument regarding Shamrock's challenge to the trust's validity under 12 U.S.C. 1823(e). The legal action originated from Shamrock, Inc. suing Evelyn J. Eresian and Ara Eresian, Jr. on a promissory note, with Heritage Bank for Savings intervening. Following FDIC's appointment as liquidating agent for the bank, it was substituted as a defendant. The Eresians did not participate in the appeal and lack a financial interest in the outcome. 

Key procedural points include the requirement under Mass. R.Civ. P. 4.1(c) that property can only be attached with court approval, necessitating the plaintiff to demonstrate the attachment is essential for satisfying a likely judgment and that there's a risk the defendant may evade creditors. The writ of attachment was dated April 18, 1989, and approved on April 19, 1989, but the difference in dates is inconsequential. 

Shamrock's references to the Number Fourteen Duxbury Realty Trust, of which Ara, Jr. was trustee, are deemed irrelevant as the funds sought originate from a different trust's foreclosure. Furthermore, the beneficial interest in the Number Fourteen Duxbury Trust had been assigned to Ara, Jr. before the loan but reverted to the original beneficiaries following the discharge of a related mortgage. The bank would have been aware of the attachment through a title search related to the mortgaged properties. Lastly, any conveyance made with intent to defraud creditors is defined as fraudulent under Section 7, and the bank had established grounds for a directed verdict during the trial.