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Federal National Mortgage Association v. Grossman

United States District Court, D. Minnesota

August 15, 2014

Federal National Mortgage Association, Plaintiff,
v.
Andrew C. Grossman; Andrew Grossman Revocable Trust, under agreement dated June 23, 2005; ABCO Research, LLC; Venerable Group, LLC; Ambient Consulting, LLC; and Grossman Investments, LLC, Defendants.

Frank Visciano, Senn Visciano Canges P.C., 1700 Lincoln St., #4500, Denver, CO 80203; Charles F. Webber, Adam M. Nodler, Faegre Baker Daniel LLP, 2200 Wells Fargo Center, 90 South Seventh St., Minneapolis, MN 55402-3901, for Plaintiff.

Mark R. Bradford, Bassford Remele, P.A., 33 South Sixth St., Suite 3800, Minneapolis, MN 55402, for Defendants Andrew C. Grossman and Venerable Group, LLC.

Daniel N. Rosen, Parker Rosen, LLC, 888 Colwell Building, 123 North Third St., Minneapolis, MN 55401, for Defendants ABCO Research LLC, Ambient Consulting, LLC, and Grossman Investments, LLC.

MEMORANDUM OPINION AND ORDER

SUSAN RICHARD NELSON, District Judge.

This matter is before the Court on the motion for partial summary judgment brought by Defendants Andrew C. Grossman, ABCO Research, LLC ("ABCO"), Venerable Group, LLC ("Venerable"), Ambient Consulting, LLC ("Ambient"), and Grossman Investments, LLC ("Grossman Investments") (Doc. No. 27). For the reasons stated below, this Court denies the motion.

I. FACTUAL AND PROCEDURAL BACKGROUND

In 2007, Plaintiff Federal National Mortgage Association ("Fannie Mae") obtained two Oklahoma state-court judgments against Defendant Andrew C. Grossman personally, and recorded each, in November 2007 and April 2011, respectively, in Minnesota, where Grossman resides. The judgments originally were in excess of $16 million, and the outstanding balance is in excess of $10 million. Although Grossman had substantial assets-including membership interests in four limited liability companies-ABCO, Venerable, Ambient, and Grossman Investments (collectively, the "LLC Defendants")-Fannie Mae has not been able to recover in full on those judgments.[1] In September 2008-after Fannie Mae obtained the two Oklahoma judgments-Grossman established the "AG 2008 Trust" under the law of the Cook Islands ("the Cook Islands Trust" or "the Trust"). Grossman then transferred the majority of his assets-all of Grossman's membership interests in the LLC Defendants, [2] which were worth several million dollars[3]-to the Cook Islands Trust.[4] The present beneficiaries of that trust are Grossman himself and the "Defendant Andrew Grossman Revocable Trust" (the "Grossman Trust"). Plaintiff alleges that trusts established under the law of the Cook Islands, which are located in the South Pacific Ocean, serve as well-known vehicles for sheltering assets from United States creditors. (Doc. No. 1, ¶ 33.) And as Fannie Mae learned after filing its Complaint, the LLC Defendants then distributed several million dollars to the Cook Islands Trust.[5]

Fannie Mae thus filed the present action seeking to recover the unpaid balance on the two judgments it obtained against Grossman, alleging that Grossman fraudulently transferred his interests in the LLC Defendants to the Cook Islands Trust in order to evade his creditor's attempts to satisfy the judgments. Fannie Mae named as Defendants not only Grossman himself, but also the LLC Defendants.[6] Fannie Mae seeks various forms of relief (substantially tracking that provided in the section of Minnesota's Uniform Fraudulent Transfer Act governing "remedies of creditors, " Minn. Stat. § 513.47), including an order setting aside the transfer of Grossman's membership interests in the LLC Defendants as well as injunctive relief. (Doc. No. 1, at 16-17.)

Grossman and the LLC Defendants (collectively, the "Moving Defendants") now move for partial summary judgment.[7]

II. DISCUSSION

Plaintiff's Complaint asserts two claims: (1) a claim under Minnesota's Uniform Fraudulent Transfer Act ("MUFTA"), Minn. Stat. §§ 513.41-.51; and (2) a claim for injunctive relief. The Moving Defendants first seek summary judgment with respect to the fraudulent transfer claim insofar as Plaintiff seeks remedies beyond the charging order provided under Minn. Stat. § 322B.32, which provides that such an order is the sole remedy a creditor such as Fannie Mae may obtain with respect to a debtor who is a member of a limited liability company.[8] In the course of the briefing and oral argument in this matter, the Moving Defendants clarified that their request for relief seeks to have the LLC Defendants dismissed entirely from this action. They also seek summary judgment on the claim for injunctive relief. Other issues such as whether Grossman's transfers were in fact fraudulent remain for later adjudication.

A. Summary Judgment Standard

A party is entitled to summary judgment "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). This Court must review the evidence, as well as any inferences that may be reasonably drawn from the evidence, in a light most favorable to Fannie Mae as the non-movant here. E.g. Young v. Builders Steel Co., 754 F.3d 573, 577 (8th Cir. 2014).

B. Limitation of Plaintiff's Claim Against The LLC Defendants To A "Charging Order"

Fannie Mae first asserts a claim for relief under the Minnesota Fraudulent Transfer Act against not only Grossman himself, but also against the LLC Defendants (as well as against the Grossman Trust). Grossman and the LLC Defendants seek summary judgment with respect to this claim on the grounds that the Minnesota Limited Liability Company Act, Minn. Stat. § 322B.32, confines a creditor such as Fannie Mae to the remedy of a charging order, and thus expressly precludes relief in the form of "traditional collection remedies." (Doc. No. 28, at 1-2).

They contend that while the Complaint names the LLC Defendants as parties, it does not "allege that any of the LLC Defendants engaged in tortious conduct or other wrongdoing." (Id. at 4.) They further contend that in light of the limitation of remedies to a charging order, the only issue is whether Grossman's membership interests in the LLCs were fraudulently conveyed to the trust, but that such an issue is not one "for which any of the LLC Defendants is a necessary party, " particularly insofar as "none of the LLC Defendants is alleged to have engaged in wrongdoing." (Id. at 8-9.)[9]

Fannie Mae responds that at this juncture, the purported remedy limitation of Section 322B.32 (and its Delaware counterpart) is not yet relevant. Fannie Mae seeks to have the transfers of Grossman's membership interests set aside and ownership restored in Grossman's name. "Once Fannie Mae proves liability for a fraudulent transfer, § 322B.32 may be relevant to possible remedies from which the Court could select; only at that time would the exclusive remedy' language in § 322B.32 have any potential application." (Doc. No. 61, at 18.)[10]

With respect to the charging order remedy, the Court understands this remedy-limitation provision as a means of effectuating the "pick your partners" doctrine. E.g. 6B Uniform Laws Annotated (2008), Revised Uniform Limited Liability Act (2006) Prefatory Note, at 412. A member of an LLC (or a partner in a partnership) has two distinct interests: (1) a right to distributions from the entity; and (2) a right to participate in the management of the entity. By limiting a creditor of a debtor-member to a charging order, the statute ensures that "judgment creditor status does not give a non-member creditor any right to become a member of a limited liability company or to exercise governance rights." Minn. Stat. § 322B.32, Reporter's Notes, 1992. As the Comment to the relevant provision of the 2006 Uniform Law provides,

[t]his section balances the needs of a judgment creditor of a member or transferee with the needs of the limited liability company and the members. The section achieves that balance by allowing the judgment creditor to collect on the judgment through the transferable interest of the judgment debtor while prohibiting ...

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