Pringle v. Garcia et al

Filing 283

OPINION AND ORDER granting in part and denying in part 261 Motion for Summary Judgment: Summary Judgment is DENIED with respect to the Fraudulent Transfer Act claims concerning the properties at 427 S. Liberty Place, Hobart, Indiana and 3325 Massachusetts Street, Gary, Indiana. Summary Judgment is GRANTED with respect to Pringles remaining claims against Wittig. Signed by Chief Judge Philip P Simon on 8/26/14. (mc)

UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF INDIANA
HAMMOND DIVISION
BARBARA V. PRINGLE,
)
Independent Executor for the Estate of )
Arthur D. Pringle III,
)
)
Plaintiff,
)
)
v.
)
)
JOE WITTIG, et al.,
)
)
Defendants.
)

Case No. 2:09-cv-022-PPS-PRC

OPINION AND ORDER
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.
BACKGROUND
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
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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
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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.
DISCUSSION
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
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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 N.E.2d 773 (Ind. 2007). Section 32-18-2-14 operates the same way. See
Ind. Code § 32-18-2-14(2).
There’s no real debate over Garcia’s insolvency. Pringle provided bankruptcy
schedules filed by Sergio Garcia and two of his companies in 2009 as evidence [DE 2761; 276-2; 276-3]. And these do indeed show that Garcia and his entities were broke. In
the fall of 2008, Garcia owed millions to Arthur Pringle and was unable to pay even the
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interest on his loans [DE 250]. Meanwhile, the nation’s economy was in crisis and the
housing market had collapsed, wiping out much of the value of Garcia’s real estate
holdings [DE 266-9; 266-10]. So solvency is not the real issue here.
The key dispute is whether Wittig provided “reasonably equivalent value” for
the twenty-two houses he bought. The term isn’t defined in the IUFTA statute so I have
to look to decisions construing other states' uniform fraudulent transfer acts, as well as
decisions construing the fraudulent transfer provisions of the Bankruptcy Code in order
to figure out whether the terms of the transactions met the threshold. See In re Image
Worldwide, 139 F.3d 577, 580 (7th Cir. 1998).
For starters, “reasonably equivalent value” requires something more than
consideration to support a contract. Id. at 576. Besides this lower bound, however, there
is no fixed mathematical formula. See Barber v. Golden Seed Co., 129 F.3d 382, 387 (7th
Cir. 1997). Rather, I need to consider factors such as whether the transaction took place
at arm's length, the good faith of the transferee, and, most importantly, the fair market
value of what was transferred and received. See id.
Wittig makes a strong case that he paid fair market value for each house. He
didn’t pay much, but he says the prices were reasonable, in line with the rest of his
inventory, and in line with prices in the highly depressed Gary, Indiana market [DE
266-8 ¶¶ 12, 17]. Further, the transactions took place during the midst of the housing
market crash, which hit northwest Indiana hard. As a result, these houses, like many in

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the area, were unoccupied. See id. ¶21. Many had been vandalized and were badly in
need of repair, which further depressed their value. Id.
What’s more, the cash price was only part of the benefit Garcia received in the
bargain. Twenty-one of the properties had mortgages. Id. ¶15. And Wittig assumed
and satisfied these mortgages as part of each sale, relieving Garcia of hundreds of
thousands of dollars in mortgage payments or, more probably, foreclosure. Id. ¶¶ 16-17.
He also relieved Garcia of real estate tax liability, insurance and maintenance expenses.
Since the houses were unoccupied and in crime-ridden areas, the maintenance expenses
were likely considerable. In Wittig’s telling, Garcia got one heck of a bargain.
In response to Wittig’s credible and detailed affidavit in support of summary
judgment, Pringle’s riposte is a single piece of evidence: the 2010 Lake County Real
Property Maintenance Reports [DE 276-4]. The reports contain the Lake County
Assessor’s assessed tax value for each property and they show that Wittig only paid a
fraction of the assessed value of the houses - anywhere from 15 to 40 percent.
The problem with this evidence is that assessed values of the properties do not
reflect their fair market value and are not meant to. Indiana’s county assessors estimate
a property’s “true tax value,” not its fair market value. Kooshtard Prop. VI, LLC v. White
River Twp. Assessor, 836 N.E.2d 501, 504 (Ind. T.C. 2005); Robey v. Fairfiled Twp. Assessor,
918 N.E.2d 29 (Ind. T.C. 2009). And the property tax statute itself even warns that true
tax value should not be confused with fair market value. See Ind. Code § 6-1.1-31-6
(“true tax value does not mean fair market value . . . [it] is the value determined under
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the rules of the department of local government finance.”). Assessors follow a series of
state-published guidelines that generate a quick-and-dirty property assessment by
estimating the value of the land as if it were vacant and then adding the depreciated
costs of any improvements. See Kooshtard Prop., 836 N.E.2d at 504-505; Eckerling v. Wayne
Twp. Assessor, 841 N.E.2d 674, 676 (Ind. T.C. 2006). They generally do not look to actual
market data like comparable sales unless a taxpayer challenges the assessment.
Kooshtard Prop., 836 N.E.2d at 504; Fid. Fed. Sav. & Loan v. Jennings Cty. Assessor, 836
N.E.2d 1075, 1082 (Ind. T.C. 2005). And, like bureaucrats everywhere, county assessors
are trying to do a big job on limited resources. See Eckerling, 841 N.E.2d at 677 (noting
Indiana assessors often operate under the constraints of limited time and resources due
to Indiana’s mass appraisal system). As a result, the assessed values of these homes tell
us very little about their actual market value.
Wittig argues that this tax evidence is irrelevant and ought to be excluded. That
overstates the case; the evidence is relevant, it’s just weak. Pringle hasn’t come forward
with any strong evidence of the type that one would expect in a case like this. There are
no independent appraisals, no evidence of comparable sales, no testimony from real
estate agents. Perhaps that’s because this kind of strong objective evidence doesn’t
exist. Arthur Pringle testified that there were no accurate appraisals for the area after
2006 [DE 266-7 at 33]. Or it could be that this objective evidence is unfavorable to
Pringle. The evidence from the mortgage-holder, Smith Rothchild Financial Company,
certainly suggests that this could be the case. Smith Rothchild was willing to accept
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pennies on the dollar to settle the mortgages it held on twenty-one of the properties
rather than foreclose and try to sell the properties itself [DE 268-8 at 4-5]. For example,
Smith Rothchild accepted $3,814.63 to settle an $80,950.00 mortgage on the properties at
4200 and 4206 Adams Street, in Gary. Id. To me this suggests that Smith Rothchild
believed that the properties’ combined value was closer to the $21,000 Wittig paid for
them then the $105,400 assessed value.
Once Wittig produced credible evidence that there was no genuine issue of
material fact and he was entitled to judgment as a matter of law, the burden shifted to
Pringle. But for whatever the reason, Pringle failed to come forward with convincing
evidence to prove that questions of fact existed. The burden was hers to carry and the
tax assessments, by themselves, do not do the job. See Delta Consulting Grp., Inc. v. R.
Randle Const., Inc., 554 F.3d 1133, 1137 (7th Cir. 2009) (“The existence of merely a
scintilla of evidence in support of the non-moving party’s position is insufficient; there
must be evidence on which a jury could reasonably find for the non-moving party.”).
Since Pringle has not carried her burden, summary judgment is appropriate on the
constructive fraud claim.
In addition to constructive fraud, Pringle also alleges Garcia and Wittig engaged
in actual fraud. IUFTA voids real estate conveyances that were “made with the intent
to hinder, delay or defraud any creditor of the debtor.” See Ind. Code § 32-18-2-14; Med.
& Prof'l Collection Servs., Inc. v. Bush, 734 N.E.2d 626, 630 (Ind. Ct. App. 2000). A
plaintiff asserting an actual fraud claim must prove that the transfer in question was
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made with fraudulent intent. Id.; Kourlias v. Hawkins, 153 Ind.App. 411, 287 N.E.2d 764,
766 (Ind. Ct. App. 1972). Fraudulent intent is inferred from a number of so-called
badges of fraud. See Bush, 734 N.E.2d at 630. These include:
•

the transfer of property by a debtor during the pendency of a suit;

•

a transfer of property that renders the debtor insolvent or greatly reduces his
estate;

•

a series of contemporaneous transactions which strip a debtor of all property
available for execution;

•

secret or hurried transactions not in the usual mode of doing business;

•

any transaction conducted in a manner differing from customary methods;

•

a transaction whereby the debtor retains benefits over the transferred property;

•

little or no consideration in return for the transfer;

•

a transfer of property between family members.

Id.; Otte v. Otte, 655 N.E.2d 76, 81 (Ind. Ct. App.1995).
There isn't any hard and fast rule about how many of these badges must exist in
order for fraudulent intent to be inferred; rather, they must be evaluated holistically on
a case-by-case basis. See Bush, 734 N.E.2d at 630; Otte, 655 N.E.2d at 81. In other words,
I need to consider the badges together to see how many are present and if together they
amount to a pattern of fraudulent intent. See Greenfield v. Arden Seven Penn Partners, L.P.,
757 N.E.2d 699, 703-04 (Ind. Ct. App. 2001) (quoting Otte, 655 N.E.2d at 81).

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Pringle argues that the lack of consideration and the number of transactions
suggest that all twenty-two transactions were fraudulent. I don’t buy it. As I explained
above, there’s no real evidence Wittig paid less than what the houses were worth. And
Pringle has not come forward with any evidence supporting the contention that the
number of transactions was unusual. Wittig argues that selling off properties in large
lots was just what dealers like Garcia did, and he points to the fact that Garcia still
owned over one hundred properties in 2009 to support the argument that the sale of
twenty houses over the course of a couple months was not unusual [DE 276-1; 276-2;
276-3]. That makes a certain amount of sense to me, and, without evidence to the
contrary, I have no reason not to accept it. So Pringle has not established a claim of
actual fraud for the majority of transactions.
She has, however, provided evidence supporting badges of fraud associated with
two transactions in particular. Pringle points to the strange circumstances surrounding
the sale of two properties: 427 S. Liberty Place in Hobart and 3325 Massachusetts Street
in Gary. What happened was Garcia sold the properties to Wittig. Then, that same day,
Wittig turned around and sold them to Garcia’s IRA [DE 276-6 at 15-21]. Pringle
suggests Wittig was acting as a straw purchaser to help Sergio Garcia avoid the selfdealing limitations on Garcia’s IRA and thus shield the properties from creditors. This
sure looks like a “secret or hurried transactions not in the usual mode of doing
business.” Bush, 734 N.E.2d at 630. The issue of adequate consideration is also in
dispute here since it seems very unlikely that Wittig actually paid Garcia the $52,000.00
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he purportedly paid for the privilege of owning the houses for an afternoon. Especially
since Wittig admits he was just acting as “a middleman” for Garcia [DE 276-6 at 21].
Moreover, the timing is suspect, since the sales occurred a couple of months after Garcia
stopped paying Pringle.
Naturally Wittig denies any intent to defraud. That may be the case, but Pringle
has come forward with enough evidence to make this a genuine factual dispute, at least
with respect to these two properties. This will have to be resolved at trial.
CONCLUSION
Wittig’s Motion for Summary Judgment [DE 261] is GRANTED IN PART and
DENIED IN PART. Summary Judgment is DENIED with respect to the Fraudulent
Transfer Act claims concerning the properties at 427 S. Liberty Place, Hobart, Indiana
and 3325 Massachusetts Street, Gary, Indiana. Summary Judgment is GRANTED with
respect to Pringle’s remaining claims against Wittig.
SO ORDERED.
ENTERED: August 26, 2014.
s/ Philip P. Simon
PHILIP P. SIMON, CHIEF JUDGE
UNITED STATES DISTRICT COURT

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