RehabCare Group East, Inc. et al v. Stratford Health Care Properties, LLC
ORDER - (1) Defendant Batson's Motion for Summary Judgment 128 is DENIED; (2) Defendants Stratford Mo/Kan Development Corporation, Stratford Health Care Properties, LLC, Fit for Life, Inc., Fitness for Life, L.C., Stratford Specialty Care, I nc., Kenneth Blom, and Randall Willbanks' Motion for Partial Summary Judgment 131 is GRANTED IN PART as it relates to Count III of the Amended Complaint, and DENIED IN PART in all other relevant aspects; and (3) Plaintiffs' Motion for Partial Summary Judgment as to Counts I, IV, VII, VIII, and XI of the First Amended Complaint 130 is DENIED. The claims against John Doe defendants are also DISMISSED. Signed on 9/29/17 by District Judge Fernando J. Gaitan, Jr. (Enss, Rhonda)
IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF MISSOURI
REHABCARE GROUP EAST, INC. d/b/a
REHABCARE GROUP THERAPY
SERVICES, INC., and PHARMACY
CORPORATION OF AMERICA, AS
ASSIGNEE OF PHARMERICA
STRATFORD HEALTH CARE PROPERTIES, )
LLC, et al.,
Case No. 14-0886-CV-W-FJG
Pending before the Court are (1) Defendant Batson’s Motion for Summary
Judgment (Doc. No. 128); (2) Defendants Stratford Mo/Kan Development Corporation,
Stratford Health Care Properties, LLC, Fit for Life, Inc., Fitness for Life, L.C., Stratford
Specialty Care, Inc., Kenneth Blom, and Randall Willbanks’ Motion for Partial Summary
Judgment (Doc. No. 131); and (3) Plaintiffs’ Motion for Partial Summary Judgment as to
Counts I, IV, VII, VIII, and XI of the First Amended Complaint (Doc. No. 130). All are
Plaintiffs filed their Complaint on October 8, 2014 (Doc. No. 1). On April 29,
2015, the Court granted Plaintiffs’ motion for leave to file an amended complaint, and
Plaintiffs filed their amended complaint (Doc. No. 24) on that same date. Plaintiffs
previously obtained default judgments against Stratford Health Care Group, Inc.
(“Stratford Operator”), and in this lawsuit Plaintiffs allege they have suffered damages
due to defendants’ scheme to defraud Stratford Health Care Group, Inc.’s creditors.
See Doc. No. 24, ¶¶ 64 and 67. Defendants in this matter are (1) Stratford Mo/Kan
Development Corporation (“Stratford Management” or “Stratford Development”); (2)
Stratford Health Care Properties, LLC (“Stratford Properties” or “Properties); (3)
Stratford Health Care Group, Inc. (“Stratford Operator”); (4) Fit for Life, Inc. (“Fit for
Life”); (5) Fitness for Life, L.C. (“FFL, L.C.” or “Fitness for Life”); (6) Stratford Specialty
Care, Inc. (“Seasons Care” or “Specialty Care”); (7) Kenneth Blom (“Blom”); (8) Randall
Willbanks (“Willbanks”); (9) Thad Batson (“Batson”); and (10) John Does 1-10. As an
initial matter, plaintiffs have not identified the Doe defendants at this stage of the
litigation, and therefore the Court will dismiss all claims against John Does 1-10.
Plaintiff’s causes of action against Defendants are as follows:
Fraudulent Conveyance against Stratford Properties; Count II—Conspiracy to Engage
in Fraudulent Conveyance against Blom, Willbanks, John Does 1-10, and Stratford
Properties; Count III—Unjust Enrichment against Stratford Properties; Count IV—
Fraudulent Conveyance against Stratford Properties; Count V – Conspiracy to Engage
in Fraudulent Conveyance against Stratford Properties, Batson, Blom, Willbanks and
John Does 1-10; Count VI—Unjust Enrichment against Stratford Properties; Count VII—
Fraudulent Conveyance against Stratford Management; Count VIII—Fraudulent
Conveyance against Seasons Care; Count IX—Breach of Fiduciary Duty against Blom
and Willbanks; Count X—Aiding and Abetting Breach of Fiduciary Duty against Batson;
Count XI—Piercing the Corporate Veil against Blom, Willbanks, Stratford Management,
Stratford Properties, Fit for Life, Fitness for Life, and Seasons Care; and Count XII—
Claim for Accounting against Stratford Operator. Plaintiffs’ claims in Counts IX and X
were previously dismissed on August 31, 2015. See Doc. No. 64.
A. THE PARTIES
Defendant Stratford MO/Kan Development Corporation (“Stratford Development”
or “Stratford Management”) wholly owns Defendants Stratford Health Care Group, Inc.
(“Stratford Operator”)1; Stratford Health Care Properties, LLC (“Properties” or “Stratford
Properties”); Fit For Life, Inc. (“Fit For Life”); Fitness For Life, L.C. (“FFL, L.C.” or
“Fitness for Life”); and Stratford Specialty Care, Inc. (“Specialty Care” or “Seasons
Care”) (collectively the “Stratford Entities”). The Stratford Entities plus defendants Ken
Blom, and Randy Willbanks are collectively the “Stratford Defendants”. At all times
relevant hereto Valley View State Bank had a security interest in various assets owned
by Stratford Management and its various subsidiaries. Defendant Thad Batson served
as an attorney to the Stratford Defendants.
Stratford Development is presently owned by Willbanks and was formerly owned
by Willbanks, Blom, and non-party Sheila Wade. Willbanks owned about 65% and Blom
owned 35%. Blom and Willbanks are the sole members of the company’s Board of
Directors. Ken Blom was the President of Stratford MO/Kan Development Corporation,
Stratford Operator and Specialty Care. Randy Willbanks served as the Secretary of
these same three entities. From 2010 through 2012, Blom and Willbanks were the sole
members of the Boards of Directors for each of these three entities. These entities also
The parties throughout their briefing interchangeably refer to this entity as “Stratford
Operator” or “Group.” Although the Court has attempted to refer to this entity as
“Stratford Operator” throughout this Order, any reference to “Group” made in this Order
refers to “Stratford Operator.”
employed Blom. Because he owned Type A shares, Blom technically held voting control
over Stratford MO/Kan Development Corporation at the times relevant to this lawsuit.
However, Blom and Willbanks made all financing decisions together. Randy Willbanks
and Ken Blom have never received any distributions from Stratford Management, and
loans Randy Willbanks made to Stratford Management at its founding have never been
Until 2011, Stratford Operator owned the real estate, tangible property and
operations of a nursing home named Hidden Lake Care Center (“Hidden Lake”), located
in Raytown, Missouri. In 2011, the real estate and other tangible property of Hidden
Lake were conveyed to Stratford Properties, after which Stratford Operator leased the
real estate from Stratford Properties and operated Hidden Lake until Hidden Lake was
sold in 2012. Specialty Care owned a skilled nursing facility dedicated to residents with
Alzheimer’s disease called “Seasons Care.” While it owned the land and the facility
itself, the license to operate that facility was held by Stratford Operator.
The Stratford Entities shared a common controller, Chris Walker. Despite
working for multiple entities, Walker’s salary was paid by Stratford Development. The
Stratford Entities also shared other employees who managed all accounts payable for
these entities and who managed the payroll for all the entities. The bookkeepers for
Stratford Operator (Hidden Lake) and Specialty Care (Seasons) were tasked with
working just on those facilities. Chris Walker was responsible for generating all financial
reports for the entities, including providing same to Valley View Bank.
Development and Stratford Operator are S-Corporations, which means that for tax
purposes gains and losses generally flow through the entity and are reported on the
individual shareholders’ returns.
In 2003, Plaintiff RehabCare Group East, Inc. (“RehabCare”) entered into a
Therapy Services Agreement with Stratford Operator for RehabCare to provide therapy
services to Stratford Operator’s residents in exchange for payment from Stratford
Operator. In 2008, Plaintiff PharMerica Corporation (“PharMerica”) entered into a
Pharmacy Services Agreement with Stratford Operator for PharMerica to provide
pharmacy services to Stratford Operator’s residents in exchange for payment from
Stratford Operator. Neither Rehab Care nor PharMerica had any contractual
relationship with any of the other parties to this litigation. Plaintiffs assert that in 2009,
Stratford Operator was having difficulty paying its vendors, including plaintiffs, on time.
B. HUD REFINANCING OF THE HIDDEN LAKE CARE CENTER IN 2011
In 2010, Ken Blom and Randy Willbanks decided to refinance loans which were
secured by the Hidden Lake Care Center through a nursing home program operated by
the U.S. Department of Housing & Urban Development (“HUD”). Willbanks and Blom
indicate they had previously considered refinancing through HUD and finally decided to
apply in 2010 because the interest rate available on HUD loans was better and because
Valley View State Bank was demanding that the Stratford entities reduce the amount of
their loans held by the bank, essentially foreclosing on any benefits or relief that
Stratford Operator could receive from refinancing its mortgage. (Ex. A, Blom Depo., p.
HUD required that the real estate on which Hidden Lake Care Center was
located be owned by a special purpose, single asset entity. This single purpose, single
asset entity could only own the group of assets related to the nursing home and could
have no other debts besides the HUD loan. Stratford Properties was organized by
defendant Batson in August 2010, to serve as the special purpose, single asset entity
as required by HUD. Stratford Properties would own all the tangible assets of the
Hidden Lake Care Center.
Blom and Willbanks were the Managers of Stratford
Properties. When he prepared and filed the certificate of incorporation for Properties,
Batson stated that the company’s purpose was “solely to acquire, operate, construct,
lease and own a nursing home with assisted living facility and apartments project known
as Hidden Lake Care Center located in Raytown, Jackson County, Missouri, and to do
any and all things necessary, convenient or incidental to that purpose.” See Certificate
of Incorporation, Exh. 7.
Prior to June 2, 2011, Stratford Development owned
independent assisted living apartments, and, as noted above, Stratford Operator owned
the real estate for Hidden Lake. Both of those properties were conveyed to Stratford
Properties in 2011.
On June 2, 2011, Stratford Development and Stratford Operator executed a
general warranty deed, transferring the Hidden Lake Care Center and the independent
living apartments to Stratford Properties, LLC for Ten Dollars and other good and
valuable consideration. (Ex. A, Blom Depo., p. 85 and Ex. A-1; Ex. C, Batson Depo., p.
62 and Ex. C-1; Ex. E, Blom Aff. ¶ 11).2 In June, 2011, Stratford Properties completed
Plaintiffs attempt to deny this fact, indicating that no one could identify whether the ten
dollars was paid, nor could Defendants Blom and Batson identify at their depositions
additional consideration received by Stratford Management and Stratford Operator to
make this transfer. (Ex. 1, Blom Depo. at p. 86-88; Ex. 3, Batson Depo. at 62).
Defendants note, however, that plaintiff ignores the $9.4 million in debt relief received
by the two companies in exchange for the HUD loan and more than $600,000 held in
its refinancing and obtained a HUD backed loan from Lancaster Pollard Mortgage
Company for $10,369,300. At the closing of the HUD loan, Valley View State Bank
received $9.4 million to pay down the loans to Stratford Development and Stratford
Operator which were secured by the Hidden Lake Care Center property. The remaining
funds were distributed for attorney’s fees, loan fees, title and recording fees, and held in
escrow for Stratford Operator (and were later distributed to Stratford Operator to be
used to pay some of Stratford Operator’s creditors). (Ex. A, Blom Depo., 189-190 and
Contemporaneous with the HUD re-financing, and as required by HUD, Stratford
Operator and Stratford Properties executed a lease agreement whereby Stratford
Operator would continue to operate the Hidden Lake Care Center, receiving the income
and paying the bills, in exchange for making monthly lease payments to Stratford
Properties, who owned the facility pursuant to HUD requirements. Ex. C, Batson Depo.,
p. 64-69, 88 and Ex. C-2; Ex. E, Blom Aff., ¶¶ 12-14. The parties dispute whether
Stratford Operator was slow paying its bills in the months after this transfer, and dispute
the value of Stratford Operator’s accounts receivable in the 2011-12 time period.
However, by June 2011, Stratford Operator owed RehabCare approximately $190,000
for services rendered that went unpaid. See A/R Customer Detail Query, Exh. 15.
Stratford Operator was also in arrears to Pharmerica for in excess of $74,000. See ZHidden Lake Account Summary, Exh. 16. Further, in its August 31, 2012 Cost Report
submitted to the United States Centers for Medicare and Medicaid Services, Stratford
escrow for Stratford Operator, which was distributed to Stratford Operator after the
close of the Hidden Lake Care Center sale. See Def’s SOF ¶¶ 36-37.
Operator reported current assets for year end 2011 of $1,093,399 and current liabilities
of $3,814,000. At the same time, Blom and Willbanks had personally guaranteed the
$15 million debt to Valley View Bank.
C. SALE OF NURSING HOME FACILITIES
In late 2011, Ken Blom and Randy Willbanks, as corporate officers of the
respective entities which owned the senior care facilities, decided to sell Hidden Lake
Care Center, Seasons Care, and another facility named Elliott Place. Prior to the sales
of Seasons Care and Hidden Lake Care Center, Willbanks consulted with his
accountant/CPA Michael Dobratz about the tax implications of the sales. To this end,
Dobratz prepared a document with calculations regarding taxes which would be owed
upon sale of the Seasons and Hidden Lake Care Center.
Defendants state that
because of IRS provisions that require the recapture of depreciation when real estate is
sold, the potential tax liability upon sale of the Hidden Lake Care Center property was
so significant that the tax liability was likely to exceed the proceeds of the Hidden Lake
Care Center property sale. (Ex. A, Blom Depo., p. 34, 116-117; Ex. B, Willbanks Depo.,
p. 65, 111; Ex. E, ¶ 17-18). Plaintiffs deny this in part, however, arguing that the tax
liability referred to as exceeding the proceeds of the sale of the Facility included the
taxes that would have to be paid by Blom and Willbanks as shareholders, not just the
taxes that would be owed by Properties and Stratford Operator, the sellers of the
Facility. (Ex. 4, Stratford Development Cash Flow Recap 2/8/12; DN 133-2, Stratford
Development Cash Flow Recap 2/9/12; Ex. 5, Dobratz Depo. at pp. 52-57, 65-66).
Further, plaintiffs argue the tax analysis did not take into account any potential effect on
taxes of utilizing proceeds of the sale of the Facility to pay Stratford Operator’s
creditors, which would have been business expenses of Stratford Operator. (Ex. 5,
Dobratz Depo. at p. 28-30).
Given the large potential tax liability, defendants indicated it was recommended
that to avoid having to pay taxes on the gains realized from the sale of Hidden Lake
Care Center, Stratford Properties would have to acquire property under a 1031
Exchange pursuant to § 1031 of the tax code. (Ex. E, Blom Aff., ¶¶ 17- 18). A 1031
Exchange is a common tax planning device which allows a seller of real estate to defer
taxable gains on the sale by using the sale proceeds to invest in new property.3
On December 30, 2011, Blom signed a letter of intent with MGM Geriatric
Management, LLC (“MGM”) for the sale of Hidden Lake and the assisted living
apartment for $13.5 million. Stratford Properties sold the assets of the Hidden Lake
Care Center to Hidden Lake Realty LLC pursuant to an Asset Purchase Agreement
(“APA”) dated March 22, 2012. The operations of the Facility were separately conveyed
to Hidden Lake Management, LLC via an Operations Transfer Agreement (“OTA”) dated
August 15, 2012. (DN 133-39, Operations Transfer Agreement). The Operations
Transfer Agreement provided that the buyer was not acquiring the liabilities of Stratford
Operator. However, Stratford Operator maintained the right to collect on its accounts
receivable accrued prior to the OTA. While the APA was dated March 22, 2012, the sale
by Properties to Hidden Lake Realty LLC did not close until August 31, 2012. (Ex. 6,
Closing Confirmation Signed by Blom). The total sales price was $13.5 million. The
Plaintiffs argue that because a Section 1031 exchange was discussed before
the August 31, 2012 closing means that defendants had the intent to defraud plaintiffs
long before the sale of the property. Defendants argue that this is an improper
inference from the facts.
sales price was allocated as follows: $7.5 million to building, $1.82 million to land,
$750,000 to furniture and fixtures, and $3.43 million to goodwill.
Defendants indicate that the goodwill allocation was attributable to the tangible
assets of the facility being transferred, so its value was subject to depreciation. (Ex. A.
Batson Depo., p. 109-11; Ex. E, Blom Aff., ¶ 23). Further, defendants indicate the
manner in which the Hidden Lake Care Center was operated did not generate any
tangible, goodwill benefits as part of its sale because no value was generated to
Stratford Properties from the manner in which Stratford Operator ran the Hidden Lake
Care Center. Additionally, each operator has a different philosophy in the way the care
facility is operated, including the operator who took over for Stratford Operator. (Ex. B
Blom, Depo. p. 61-64; Ex. E; Blom Aff., ¶ 23). Thus, defendants allocated all the
goodwill to defendant Stratford Properties.
Plaintiffs note, however, that Blom prepared a “Seller’s Opinion on Goodwill
Allocation” acknowledging that goodwill arises from the operations of a nursing home,
not the real estate of the nursing home, and that in the case of Hidden Lake, a 25%
allocation toward goodwill was justified. In particular, Blom stated, “The name
recognition, the reputation within the community, the long-term relationships with the
area hospitals and the hospital discharge planners all have created value for the
property. The facility has created community relationships, physician and clinical
relationships, and established multiple contacts with health care professionals and
community leaders through its twenty years of operation. The seller is confident that
these recognitions with the community at large will continue to have value and will
continue to enhance the census and the rate structures for the project.” Blom confirmed
at his deposition that the opinion was prepared for the IRS and he would not say
anything in it that was not factually true. (DN 133-19, Seller’s Opinion on Goodwill; Ex.
1, Blom Depo. at p. 66- 68). Further, despite that Blom now states in his affidavit that
the goodwill was allocated to Properties’ tangible assets rather than Operator’s
operations, in his deposition, Blom stated that the goodwill allocation of the purchase
price was made based on tax advice from accountant Michael “Mickey” Dobratz, who
was not even aware that the Facility was actually two separate entities, one of which
owned only operations and the other of which owned only tangible assets. (Ex. 1, Blom
Depo. at pp. 306-308; Ex. 5, Dobratz Depo. at p. 73; see Ex. 3, Batson Depo. at p. 114).
In short, the parties dispute whether the goodwill should be considered an asset of
Stratford Properties (which received the payment from the sale of the property) or
Stratford Operator (which received $0 in exchange for any business operations
Plaintiffs argue that Stratford Operator was insolvent on the day of the sale, with
a balance sheet showing that its assets were $1,269,718, with liabilities of $3,502,351.
However, defendants note that Stratford Operator maintained the right to collect its
accounts receivable and further received on the date of closing $605,846 in funds that
had been held in escrow from the HUD refinancing to pay creditors. Defendants assert
these proceeds were used to pay bills and small vendors, including monies owed to the
Federal Government, which took a priority over other sums owed. (Ex. A, Blom Depo.,
p. 120-121). Defendants state the decision to pay the small vendors and the Federal
Government with the escrow sums was made in an attempt to vastly decrease the
number of parties to whom Stratford Operator owed money. (Ex. A, Blom Depo., p. 115-
116). Plaintiff, however, indicates that Stratford Operator’s bank statements reflect that
following the sale, it transferred significant funds to other Stratford Entities. (DN 133-24,
Summary Charts; Ex. 1, Blom Depo. at pp. 288-292). While Plaintiffs were not paid with
these proceeds, other larger creditors were not paid either.
As part of the sale, the buyer of Hidden Lake Care Center agreed to assume the
HUD mortgage of approximately $10.3 million. The sale was not completed until August
31, 2012 because HUD had to approve the buyer’s assumption of Stratford Properties’
mortgage with HUD.
The August 31, 2012 closing statement reflects net proceeds in the amount of
$1,858,866.19. Instead of using this money to pay Stratford Operator’s creditors,
however, the Defendants had the money deposited with First American Exchange
Company, a qualified §1031 intermediary. The net proceeds were then used to
purchase other real property on October 14, 2012, which was titled not to Stratford
Properties or to Stratford Operator but to several different limited liability companies,
many bearing “FAE” (First American Exchange) in their names (the “FAE Entities”). The
FAE Entities are wholly owned by Stratford Properties. Defendants deny, however, that
if the net sale proceeds had not been used to purchase replacement properties as part
of a 1031 Exchange, any proceeds would have been available to pay Stratford
Operator’s creditors because the tax liability of the Hidden Lake Care Center sale would
exceed the net proceeds from the sale. Doc. 132, Def’s SOF ¶¶ 43-44.
Between January 2012 and June 2013, Stratford Operator transferred
$3,991,620 to Stratford Development. Between January 2012 and November 2013,
Stratford Operator endorsed thirty checks
$1,599,575.71. Between January 2012 and September 2012, Stratford Operator
transferred $79,052.80 to Seasons Care. These companies testified that the transfers
were made to manage cash flow needs; however, defendants note that these payments
were noted on the books of Stratford Operator, Stratford Management, and Seasons
Care as accounts payable and receivable, and some of these payments were made to
Stratford Management for payments it held over all the Stratford Entities. Ex. A., Blom
Depo., p. 290-91. Plaintiffs argue that these transfers meant the Stratford Defendants
regularly ignored corporate formalities by moving funds among themselves in order to
manage cash flow shortages. Defendants dispute this characterization of the funds
transfers as the ignoring of “corporate formalities.” Plaintiffs also argue that Willbanks
used his other companies to make loans to the Stratford Defendants, without reducing
the transfers to some sort of promissory note or writing.
For a period of time following the August 31, 2012 closing, Stratford Operator
continued to collect its accounts receivable and pay certain of its accounts payable.
D. UNDERLYING COLLECTION ACTIONS.
On April 16, 2013, RehabCare filed a lawsuit against Stratford Operator because
of Stratford Operator’s failure to pay RehabCare under the Therapy Services
Agreement. Complaint in RehabCare Group East, Inc. v. Stratford Health Care Group,
Inc., United States District Court for the Western District of Missouri, Case No. 4:13-CV373 (DN 1), Exh.25. Stratford Operator did not defend against RehabCare’s lawsuit. On
August 30, 2013, the United States District Court for the Western District of Missouri
entered a default judgment in favor of RehabCare. See RehabCare Default Judgment,
Exh. 26. The judgment entitles RehabCare to $673,398.84 in principal, interest and
attorney fees and costs. Id. It also entitles RehabCare to post judgment interest. Id.
On July 12, 2013, PharMerica filed a lawsuit against Stratford Operator because
of Stratford Operator’s failure to pay PharMerica under the Pharmacy Services
Agreement. Complaint in Pharmacy Corporation of America v. Stratford Healthcare
Group, Inc., United States District Court for the Western District of Kentucky, Case No.
3:13-cv-00704 (DN 1), Exh. 27. On November 6, 2013, the United States District Court
for the Western District of Kentucky entered a default judgment in favor of PharMerica.
See PharMerica Default Judgment, Exh.28. The judgment awarded PharMerica
$198,133.86 in principal, interest and attorney fees and costs. It also entitles
PharMerica to post-judgment interest. Id.
E. FACTS SPECIFIC TO DEFENDANT THAD BATSON
Thad Batson is an attorney who has been in practice for 32 years. Batson’s
practice is primarily commercial real estate transactions. Batson indicates he does not
do tax law, but he has done hundreds of real estate closing involving Section 1031
exchanges under the Internal Revenue Code. Batson has performed real estate related
legal services for Stratford Mo/Kan Development Corporation (“Stratford Development”)
and its various subsidiaries for many years.
Batson was hired to assist in closing on the HUD loan. Batson indicates he did
not know why the loans were being refinanced and did not know about any debts
incurred by Stratford Operator other than the Valley View State Bank loans. (Ex. A,
Batson Depo., pp. 58-59). Plaintiffs argue that defendant Batson, an experienced
attorney, certainly ought to have known that businesses incur operating expenses.4
Blom emailed Batson, however, in May 2011 shortly after they had set a finance rate for
the loan, that “This [interest] rate makes me feel a little better about the pain of the
process. Thanks for your help in all of this. This should help us get through this messy
economy.” 05/05/11 Email from Blom to Batson, Exh. 26.
HUD required that all the real estate on which Hidden Lake Care Center was
located be owned by a special purpose single asset entity (“SPE”). The single purpose
entity could own only the group of assets related to the nursing home and could not
borrow any other money or own other property. Batson created Stratford Healthcare
Properties, LLC (“Stratford Properties”) to serve as the SPE. The idea was that Stratford
Properties would own all the tangible assets and the name of Hidden Lake Care Center.
(Ex. A, Batson Depo., pp. 57-58). Batson also prepared a general warranty deed in
which Stratford Operator and Stratford Development deeded the Hidden Lake Care
Center to Stratford Properties for Ten Dollars and other good and valuable
consideration. (Ex. A, Batson Depo., 62 and Ex 5 thereto; Ex. E, Batson Affidavit ¶ 12).
After the HUD refinancing was completed, per the requirements of HUD, Stratford
Operator leased the assets owned by Stratford Properties and continued to operate the
Hidden Lake Care Center. (Ex. A, Batson Depo., p. 64-66; Ex. E, Batson Affidavit ¶ 1314).
The Court notes that plaintiffs attempt to dispute Batson’s statement of facts 20, 29,
30, 42, 47-52, 67- 68 by incorporating their statement of facts set out in plaintiffs’ motion
for summary judgment. Given that plaintiffs’ motion for summary judgment is aimed
solely at the Stratford Defendants and not at defendant Batson at all, the Court agrees
with defendant Batson that such incorporation of those facts is improper as to defendant
Plaintiffs admit that at the time Batson assisted with conveying the assets of
Stratford Operator to Stratford Properties, Batson had no knowledge that Stratford
Operator was indebted to plaintiffs and planned to continue receiving goods and
services from plaintiffs without paying plaintiffs’ invoices. (Ex. E, Batson Affidavit ¶ 15).
At the time Batson assisted with conveying the assets from Stratford Operator to
Stratford Properties, Batson states he had no knowledge whether Stratford Operator
was insolvent or whether it would become insolvent as a result of the transaction. (Ex.
E, Batson Affidavit ¶ 16). Furthermore, Batson indicates he did not structure the 2011
HUD transaction in a way such that Stratford Operator received no monetary
compensation for the transfer. (Ex. E, Batson Affidavit ¶ 18). Although plaintiffs argue
that Batson was privy to the loan packages submitted to HUD and those packages
included detailed financial information, Batson indicates plaintiffs have presented no
evidence that Batson saw or reviewed the financial information of any Stratford entity at
the time of the HUD refinancing.
Defendant Batson was also involved in the closings when Blom and Willbanks
decided to sell three facilities - Hidden Lake Care Center, Seasons Care and Elliott
Place. The parties dispute the reasons why Blom and Willbanks decided to sell the
facilities, with Batson indicating that Blom wanted to retire and with plaintiffs indicating
that the Stratford Entities were having money problems. The sale of the Seasons Care
facility was the first to close. The closing took place on or about May 1, 2012. During
Batson’s involvement in the closing of the Seasons Care facility he learned that in
October 2010 Rehabcare had obtained a promissory note which was secured by a
Deed of Trust lien which encumbered the Seasons Care facility. (Ex. A, Batson Depo.,
p. 90-93; Ex. E Affidavit Batson, ¶ 20-21). Batson was not involved in drafting or
reviewing the secured promissory note or Deed of Trust involving Rehabcare. (Ex. E,
Batson Affidavit ¶ 22). As part of the Seasons Care closing, Batson made arrangements
for Rehabcare to be paid from the sales proceeds and he obtained a release of lien
from Rehabcare. (Ex. A, Batson Depo., p. 90-92 and Ex. 13 thereto; Ex. E, Batson
Affidavit ¶ 23).
In early 2012, Batson was provided with a copy of a Letter of Intent (LOI)
regarding the potential sale of the Hidden Lake Care Center. Although the sales price
was allocated as follows: $7.5 million to building, $1.82 million to land, $750,000 to
furniture and fixtures, $3.43 million to goodwill, Batson indicates he had no part in
deciding or negotiating how to allocate the purchase price. Batson, however, did help
draft the contracts. The Operations Transfer Agreement (“OTA”) relevant to Stratford
Operator provided that the buyer was not acquiring the liabilities of the seller. Although
the OTA contains a recital that consideration was being exchanged between Stratford
Operator and Hidden Lake Management, LLC, plaintiffs argue that none of the sale
proceeds would be paid to Stratford Operator and all were paid instead to Stratford
Properties. Batson participated in drafting and negotiating the OTA. Batson also knew
that $3.43 million of the $13.5 million purchase price had been allocated to goodwill.
Plaintiffs argue that, although Batson claims to not know where that goodwill comes
from, Blom wrote a seller’s opinion on goodwill which Batson relied upon, which
plaintiffs argue means that the goodwill should have been allocated to Stratford
Operator, not Stratford Properties. Batson, however, argues that allocation of goodwill is
an accounting question and indicated that he would not be prepared to answer that
question for clients, and that instead he was relying on the numbers given to him based
on negotiations between the buyer and seller in drafting the APA and the sales price
Since the liabilities of the seller (except for the HUD mortgage) were not part of
the transaction, Batson indicates that he and his clients never discussed any of the
selling entities’ liabilities except as related to closing costs (brokers, attorney fees,
accounting fees). (Ex. E, Affidavit Batson, ¶ 27). According to Batson, Blom and
Willbanks never discussed with Batson the finances of Stratford Operator and never told
him about any unsecured debts or that they were selling the facilities because they
could not pay their bills. (Ex. A, Batson Depo., p. 73, 77-79). Furthermore, Batson
indicates he did not review any financial documents of the company such as income
statements, balance sheets, accounts payable or accounts receivable because those
documents were not pertinent to the services he was rendering. (Ex. A, Batson Depo.,
p. 68-69, 79, 83-84; Ex. E, Affidavit Batson, ¶ 28). Batson says he had no knowledge of
whether at the time of the sale Stratford Operator was insolvent or whether as a result
of the sale the Hidden Lake Care Center that Stratford Operator would become
insolvent. (Ex. A, Batson Depo., p. 129-130; Ex. E, Batson Affidavit ¶ 31).
In 2012, Batson had no knowledge that Stratford Operator was indebted to
plaintiffs for services and goods provided at Hidden Lake Care Center and that Stratford
Operator planned to continue to receive goods and services at Hidden Lake Care
Center without paying for such goods and services. (Ex. E, Batson Affidavit ¶ 29).
Batson indicates he did not intend as a result of the sale transaction that Stratford
Operator’s assets would be shielded from plaintiffs as creditors. (Ex. E, Batson Affidavit
¶ 32). Although Batson is aware that Stratford Operator received $605,846.08 from
HUD in reimbursement for escrow balances at closing, plaintiffs admit Batson does not
know how that money was used by Stratford Operator.
Plaintiffs argue that Batson had access to an electronically-maintained due
diligence room related to the August 31, 2012 transfer, created using Box.com, and
entitled “Hidden Lake Care Center Due Diligence.” 07/28/16 Batson Dep., DN 133-22
at 84:18-24. That electronic repository contained the contracts between Plaintiffs and
Stratford Operator, and Batson produced from his files a list from that website that
included Stratford Operator’s contracts with Plaintiffs. See 02/24/2012 Box.com files list,
Exh. 30. Plaintiffs indicate that, while Batson disclaimed ever looking at due-diligence
financial information, the due diligence request list included requests for financial
information, and more particularly it sought information as to all assets and all liabilities.
Initial Due Diligence Request List at 1, Exh. 32. Batson, however, indicates that he
looked in the Box account only for documents related to the real estate transaction, and
denies looking at operational contracts or accounts receivable documents.
Depo. pp. 84-85. Batson further notes that plaintiffs offer no evidence that Batson
actually saw or reviewed any documents related to accounts payable or liabilities.
Prior to the sales of Seasons Care and Hidden Lake Care Center, Willbanks
consulted with his accountant/CPA Michael Dobratz about the tax implications of the
sales. Willbanks, Blom, Batson and Dobratz met to discuss the tax implications.
Dobratz prepared a document with calculations regarding taxes which would be owed
upon sale of the Seasons Care and Hidden Lake facilities. (Ex. D, Dobratz Depo., p. 3638, 55-57 and Ex. 107 thereto). Because of IRS provisions that require the recapture of
depreciation when real estate is sold, the potential tax liability upon sale of the Hidden
Lake Care Center property was significant. (Ex. C, Willbanks Depo., p.65, 111; Ex. B,
Blom Depo., p. 34). Dobratz and Blom each testified that the tax liabilities from the sale
would likely exceed the net proceeds. (Ex. B, Blom Depo., p. 116-117, 341, Ex. D,
Dobratz Depo pp. 56-57). Plaintiffs controvert the assertion that the tax liabilities would
exceed the likely net proceeds from the sale; however, plaintiffs do not point to evidence
showing that Batson would have known that fact prior to the closing. Batson assisted in
the Section 1031 exchange in order to defer taxable gains, placing over $1.8 million in
sale proceeds with a qualified intermediary -- First America Exchange Company LLC -and subsequently said sums were used to purchase other real properties.
Plaintiffs argue that defendant Batson set up the Section 1031 exchanges in
order to divert assets from creditors of Stratford Operator, resulting in tax savings to
Blom and Willbanks.
With respect to the underlying collection suits filed by plaintiffs, Batson first
learned of Stratford Operator’s debt with Rehabcare when Randy Willbanks advised him
in 2013 that Rehabcare had filed suit against Stratford Operator to collect the debt
owed. (Ex. A Depo Batson pp. 171-72). Batson first learned of Stratford Operator’s debt
with PharMerica as well as PharMerica’s collection lawsuit and judgment against
Stratford Operation after the instant lawsuit was filed in 2014. (Ex. A Depo Batson p.
Summary judgment is appropriate if the movant demonstrates that there is no
genuine issue of material fact and that the movant is entitled to judgment as a matter of
law. Celotex Corp. v. Catrett, 477 U.S. 317, 327 (1986). The facts and inferences are
viewed in the light most favorable to the nonmoving party. Matsushita Elec. Indus. Co.
v. Zenith Radio Corp., 475 U.S. 574, 586–90 (1986). The moving party must carry the
burden of establishing both the absence of a genuine issue of material fact and that
such party is entitled to judgment as a matter of law. Matsushita, 475 U.S. at 586–90.
A nonmoving party must establish more than “the mere existence of a scintilla of
evidence” in support of its position. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 252
The nonmovant must do more than simply show that there is
some metaphysical doubt as to the material facts, and must
come forward with specific facts showing that there is a
genuine issue for trial. Where the record taken as a whole
could not lead a rational trier of fact to find for the nonmoving
party, there is no genuine issue for trial.
Torgerson v. City of Rochester, 643 F.3d 1031, 1042 (8th Cir. 2011) (en banc) (citations
and quotations omitted).
A. Defendant Batson’s Motion for Summary Judgment (Doc. No. 128)
Defendant Batson moves for summary judgment on the only claim remaining
against him, Count V, for conspiracy to engage in fraudulent conveyances. Defendant
indicates that he is entitled to summary judgment on Count V of the amended complaint
because plaintiffs cannot establish either of the two exceptions to the rule that there can
be no conspiracy between an agent and a principal.
Initially, defendant Batson indicates that plaintiffs have not provided evidence
sufficient to support a claim for civil conspiracy at all. To establish a claim for civil
conspiracy, plaintiff must prove that the defendants had a “meeting of the minds.”
Global Control System v. Luebbert, 2016 U.S. Dist. LEXIS 29976, 2016 WL 910190
(W.D. Mo. 2016). To establish a meeting of the minds, plaintiff must establish that each
participant acted with “a unity of purpose or a common design and understanding.” Id.
See also Temporomandibular Joint (TMJ) Implant Recipients v. Dow Chem. Co. (In re
Temporomandibular Joint (TMJ) Implants Prods. Liab. Litig.), 113 F.3d 1484, 1498 (8th
Cir. 1997)(finding that summary judgment is appropriate when the case lacks evidence
tending to show an agreement or a “meeting of the minds” and concerted action,
summary judgment is appropriate). A conspiracy may be established by circumstantial
evidence. National Rejectors, Inc. v. Trieman, 409 S.W.2d 1, 50 (Mo. 1966); Am.
Builders & Contrs. Supply Co. v. Roofers Mart, Inc., 2012 U.S. Dist. LEXIS 103182,
2012 WL 3027848 (E.D. Mo. 2012).
Here, defendant Batson asserts that, even assuming that the Stratford
Defendants were engaged in the transfers of their real estate and other assets in order
to make Stratford Operator judgment proof, there is no evidence that Batson knew this
was the mission, or knew that Stratford Operator owed debts that it had no intention of
paying. Defendant Batson asserts that without such knowledge, he cannot be found to
have had a meeting of the minds with his clients to fraudulently transfer the assets.
Additionally, Batson makes the same argument as he did in his motion for
judgment on the pleadings:
that as an agent of his client, he cannot be liable for
conspiracy. The general rule is that an agent cannot conspire with a principal. Wiles v.
Capitol Indem. Corp., 75 F. Supp. 2d 1003, 1005-06 (E.D. Mo. 1999).
however, recognizes two limited exceptions to the general rule of impossibility of
conspiracy between a principal and an agent. Macke Laundry Serv. Ltd. P'ship v. Jetz
Serv. Co., 931 S.W.2d 166, 176 (Mo. App. W.D. 1996); Wiles, 75 F. Supp. 2d at 100506. Those two exceptions are the “personal stake” exception and the “exceptional
circumstances” exception. Id.
First, under the “personal stake” exception, “an agent can be liable for conspiracy
with the principal if the agent acts out of a self-interest which goes beyond the agency
relationship.” Macke, 931 S.W.2d at 176 (internal citations omitted). Second, an
attorney may be liable for conspiring with a client in “exceptional circumstances,” when
he or she “acts beyond his conditional or qualified privilege as an attorney,” under the
general principles of law governing attorney liability. Wiles, 75 F. Supp. 2d at 1005-06.
“The rationale for the privilege […] granted to an attorney representing a client is the
attorney's fiduciary duty to the client, and the public policy that attorneys be able to
discharge that duty by freely using those procedures that are necessary to competently
represent their clients unfettered by fear of personal liability.” Macke, 931 S.W.2d at 177
(internal citations omitted). Liability under the exceptional circumstances exception can
still be established, when an attorney, not his client, has committed “fraud, collusion or a
malicious or intentionally tortious act.” Macke, 931 S.W.2d at 177; Wiles, 75 F. Supp. 2d
at 1006. This exception “is limited to intentional torts” and does not apply to legal
malpractice. Macke, 931 S.W.2d at 177.
When first considering this issue, upon denying defendant’s motion for judgment
on the pleadings, the Court found that the facts as alleged in the amended complaint
could potentially rise to the level of conspiring to commit a tortious act. For instance,
the Court found that if Batson knew at the time he assisted in the 2011 HUD refinance
and/or in the 2012 sale of the property that Stratford Operator was indebted to plaintiffs
and planned to continue to receive goods and services without paying invoices, Batson
could be found liable. See Order, Doc. No. 85. The Court further found that Batson
could be found liable if he knew that as a result of these transactions, Stratford Operator
would become insolvent. The Court additionally found that if Batson intended as a
result of these transfers that the assets of Stratford Operator would be shielded from
plaintiffs as creditors and structured those transactions in a way so that Stratford
Operator received no monetary compensation for the transfers, he could be held liable.
The Court, however, found that these issues would be better addressed on summary
judgment, where a record of what Batson knew or intended could be developed.
There is no indication that defendant Batson had a personal stake in this
transaction, so the Court finds that exception to the general rule inapplicable. However,
the Court finds that questions of material fact remain as to whether plaintiffs can
demonstrate “exceptional circumstances” exist which would show that defendant acted
“beyond his conditional or qualified privilege as an attorney.” Wiles, supra, 75 F. Supp.
2d at 1005-06. The Court finds that defendant Batson’s credibility is at issue, and while
defendant has testified that he had no knowledge of Stratford Operator’s indebtedness,
alleged insolvency, or any of Stratford Operator’s financial records, the Court finds that
plaintiffs have set forth enough circumstantial evidence about what defendant ought to
have known for his credibility to be a jury question. As noted by plaintiffs, intent is a
question for the trier of fact, making summary judgment inappropriate. For similar
reasons, the Court finds that questions of material fact remain as to whether Batson had
a “meeting of minds” sufficient to form a conspiracy.
Defendant Batson’s Motion for Summary Judgment is therefore DENIED.
Defendants Stratford Mo/Kan Development Corporation, Stratford
Health Care Properties, LLC, Fit for Life, Inc., Fitness for Life, L.C.,
Stratford Specialty Care, Inc., Kenneth Blom, and Randall Willbanks’
Motion for Partial Summary Judgment (Doc. No. 131)
Defendants Stratford Mo/Kan Development Corporation, Stratford Health Care
Properties, LLC, Fit for Life, Inc., Fitness for Life, L.C., Stratford Specialty Care, Inc.,
Kenneth Blom and Randall Willbanks move for summary judgment as to Counts I-VI,
and XI as asserted in the Amended Complaint (Doc. 24). The Court considers each of
defendants’ arguments, below.
Conspiracy Claims against Ken Blom and Randy Willbanks (Counts
II and V)
Plaintiffs bring two counts of civil conspiracy against Blom and Willbanks. In
Count II, Plaintiffs allege that Ken Blom and Randy Willbanks conspired with Stratford
Properties to engage in a fraudulent conveyance with respect to the HUD refinancing of
the Hidden Lake Care Center mortgage. See Doc. 24 ¶¶ 81-88. In Count V, Plaintiffs
allege that Ken Blom and Randy Willbanks conspired with Stratford Properties to
engage in a fraudulent transfer with respect to the sale of the Hidden Lake Care Center
to Hidden Lake Realty, LLC. See Doc. 24 ¶¶ 112-121. Willbanks and Blom were both
agents and officers of Stratford Properties.
Blom and Willbanks note, as did Batson, that the general rule is that an agent
cannot conspire with a principal. Wiles v. Capitol Indem. Corp., 75 F. Supp. 2d 1003,
1005-06 (E.D. Mo. 1999).
There are two exceptions to that general rule.
Laundry Serv. Ltd. P'ship v. Jetz Serv. Co., 931 S.W.2d 166, 176 (Mo. App. W.D. 1996);
Wiles, 75 F. Supp. 2d at 1005-06. Those two exceptions are the “personal stake”
exception and the “exceptional circumstances” exception. Id.
Given that the “exceptional circumstances” exception has only been applied as to
lawyers in the attorney-client context, Blom and Willbanks argue they cannot be found
liable under that exception.
Further, Blom and Willbanks argue that there is no
evidence that they had a personal stake in the outcome of the transactions that was
separate and apart of that of the corporation. With respect to the HUD refinancing,
there is no evidence that they received any proceeds from such refinancing, and they
argue their role was in the best interest of both Stratford Properties and Stratford
Operator in that Stratford Operator received debt relief and Stratford Properties received
a lower interest loan. With respect to the sale of the Hidden Lake Care Center, Blom
and Willbanks argue that they did not have an independent personal stake because
they have never received any personal financial benefit from Stratford Operator,
Stratford Properties, or Stratford Management (other than Blom’s salary received as a
Stratford Operator employee).
In response plaintiffs argue that defendants Blom and Willbanks had an
independent personal stake in the alleged conspiracy because the actions taken in this
matter demonstrate that, in less than a year and a half, they were able to transfer
substantially all of Stratford Operator’s assets away from it, leaving Stratford Operator
unable to compensate its creditors, and resulting in a separate entity (Stratford
Properties) receiving $1.8 million in sales proceeds. Blom and Willbanks then had the
proceeds invested in a Section 1031 exchange, without consulting with their accountant
about paying Stratford Operator’s creditors. According to plaintiffs, the Section 1031
exchange, moreover, had the effect of reducing (or deferring, at the very least) Blom
and Willbanks’ shareholder taxes (i.e., the personal taxes that would be leveled on them
based on the gain realized after the sale of the real estate). Plaintiffs suggest that
leaving the corporation’s creditors unpaid so that Blom and Willbanks could realize
savings on their personal taxes is a sufficient personal stake so as to apply the personal
stake exception to the general rule.
In reply, defendants argue that plaintiffs rely on unwarranted inferences, noting
that Blom and Willbanks were not the “ultimate owners” of Stratford Properties (as they
were not shareholders in any of the companies other than Stratford Management) nor
can plaintiff show they received tax relief at the shareholder level from the 1031
exchange (given that neither were shareholders of Stratford Properties).
The Court finds that questions of material fact remain as to whether Blom and
Willbanks received a personal benefit from the Section 1031 exchange, giving them an
independent personal stake in the alleged conspiracy.
The Court also finds that
questions of material fact exist as to whether each of the transactions (the HUD
refinancing and that sale of the Hidden Lake facility) were done for legitimate business
reasons or in an effort to defraud creditors under MUFTA.
Accordingly, the Court
DENIES defendants’ Blom and Willbanks’ motion as to Counts II and V of the Amended
Claim XI for “Piercing the Corporate Veil”
Claim XI of Plaintiffs’ First Amended Petition is for “Piercing the Corporate Veil”
and alleges defendants Ken Blom, Randy Willbanks, Stratford Operator, Stratford
Management, Stratford Properties, Fit for Life, Fitness for Life and Seasons Care are
“alter egos of one another.” See Doc. 24 ¶ 173. Plaintiffs allege “Blom, Willbanks and
the Stratford Subsidiaries commingled funds to benefit themselves and harm creditors.”
See Doc. 24 ¶ 176.
Defendants argue they cannot be liable for the debts of Stratford Operator
because: (1) Ken Blom and Randy Willbanks did not use these entities for their own
personal gain; (2) Stratford Properties, Fit for Life, Fitness for Life, and Seasons Care
had no control over or interest in Stratford Operator; and (3) Stratford Management’s
position as the owner of Stratford Operator is insufficient to show it controlled Stratford
Operator. In order to demonstrate a claim for piercing the corporate veil, plaintiffs must
“(1) Control, not mere majority or complete stock control, but complete
domination, not only of finances, but of policy and business practice in respect to the
transaction attacked so that the corporate entity as to this transaction had at the time no
separate mind, will, or existence of its own; and (2) Such control must have been used
by the defendant to commit fraud or wrong, to perpetrate the violation of a statutory or
other positive legal duty, or dishonest and unjust act in contravention of plaintiff’s legal
rights; and (3) The aforesaid control and breach of duty must proximately cause the
injury or unjust loss complained of.” 66, Inc. v. Crestwood Commons Redevelopment
Corp., 998 S.W.2d 32, 40 (Mo. banc 1999) (emphasis in original) (quoting Collet v. Am.
Nat’l Stores, Inc., 708 S.W.2d 273, 284 (Mo.App. 1986)).
Blom and Willbanks
Defendants argue there is no evidence Blom and Willbanks used Stratford
Operator for their own personal gain. The party attempting to pierce the corporate veil
must show an individual has both “complete control and improper purpose” over a
corporation. Blanks v. Fluor Corp., 450 S.W.3d 308, 376 (Mo. Ct. App. 2014).
“Shareholders are not ordinarily liable for corporate obligations” absent a showing that
the individual used the corporation as “an extension of their own personal mind or will.”
Id., 450 S.W.3d at 371, 375 (emphasis added). Demonstrating that an individual used
the corporate form as an extension of themselves requires “[e]vidence that [an
individual] used corporate funds for personal purposes, mixed corporate and personal
accounts, or commingled assets so that the ownership interests were indistinguishable.”
Commonwealth Land Title Ins. Co. v. Miceli, 480 S.W.3d 354, 372, n.10 (Mo.App. E.D.
Defendants argue that Ken Blom and Randy Willbanks did not treat Stratford
Operator’s assets as an extension of themselves, and, therefore, the corporate veil may
not be pierced against them. First, Ken Blom and Randy Willbanks were not
shareholders of Stratford Operator; rather, they were shareholders in Stratford
Management. Neither received distributions from Stratford Management; instead, the
only money either Blom or Willbanks received from these entities was Ken Blom’s
There is no evidence that Blom and Willbanks co-mingled assets, or
comingled corporate and personal accounts. Defendants also argue that there is no
evidence that they used to corporate form to effectuate a fraud against plaintiffs.
In response, plaintiffs indicate that there are several signs that should lead to
piercing the corporate veil as to Blom and Willbanks: (1) there were common officers
and directors of the Stratford Entities; (2) Stratford Development capitalized Stratford
Operator and Stratford Operator and Stratford Development then capitalized Stratford
Properties; (3) Stratford Operator had grossly inadequate capital; (4) the various
Stratford Entities paid each other’s expenses and shared employees; (5) Blom and
Willbanks treated the Stratford Entities as a single entity; (6) the other Stratford Entities
used Stratford Operator’s property as their own, to Stratford Operator’s detriment; and
(7) Blom and Willbanks acted in their own interests as to the Stratford Entities. Plaintiffs
argue that the conveyances made in June 2011 and August 2012 which resulted in
Stratford Operator being unable to pay its creditors while Properties’ subsidiaries were
purchasing $1.8 million in real estate are exactly the sort of wrongs for which alter ego
liability is appropriate.
The Court finds questions of material fact remain as to whether piercing the
corporate veil should apply to Blom and Willbanks. For instance, there are questions as
to whether the Section 1031 exchange was utilized appropriately as a tax planning tool
for the corporations, rather than as a means for Blom and Willbanks to defer personal
tax liability. There are also significant questions as to whether Blom and Willbanks
treated the Stratford Entities as a single entity. Although they may not have co-mingled
their own assets with those of the Stratford Entities, there is evidence that they
instructed their controller to transfer funds amongst the properties without consideration
but instead to manage cash flow issues. In these circumstances, summary judgment is
Stratford Properties, Fit for Life, Fitness for Life, and
With respect to these defendants, all (along with Stratford Operator) are whollyowned subsidiaries of Stratford Management. Defendants indicated that none of these
entities had any interest in or control over Stratford Operator. “Ordinarily, a corporation
is regarded as a separate legal entity, separate and distinct from its stockholders,
officers, and directors, with separate and distinct liabilities and obligations.”
Commonwealth Land Tit. Ins. Co. v. Miceli, 480 S.W.3d 354, 370 (Mo. Ct. App. 2015).
In particular, defendants argue that Fit for Life, Fitness for Life, and Seasons Care
played no role, and are not mentioned in Plaintiffs’ Amended Complaint as playing a
role, in the allegedly fraudulent transactions. See Doc. 24 ¶¶ 70-80; 98-111. Defendants
also argue Stratford Properties was not the alter ego of Stratford Operator even though
Stratford Operator leased the Hidden Lake Care Center from Stratford Properties,
normal corporate barriers were in place between the two companies.
In response, plaintiffs argue for a broader consideration of the alter ego theory:
“[T]he question is whether the corporations are being manipulated through their
interrelationship to cause illegality, fraud, or injustice. If they are, the corporate veil will
be disregarded to provide relief.” Camelot Carpets, Ltd. v. Metro Distributing Co., 607
S.W.2d 746, 750 (Mo. App. 1980) (internal citations omitted). Beyond arguing that
Stratford Operator’s assets and its business operations were sold, with all of the
consideration for those assets and operations being transferred to Stratford Properties,
plaintiffs argue that during the 2012-2013 time frame, money was transferred from
Stratford Operator to cover expenses of the other companies falling within the umbrella
organization. Plaintiffs note that in a March 2012 balance, sheet, Stratford Operator
indicated that other Stratford Entities owed it five million dollars, and that transfers to the
other Stratford Entities to meet cash flow needs continued even after the sale of the
Hidden Lake facility, when Stratford Operator would not be acquiring any new accounts
Again, the Court finds that plaintiffs have demonstrated that, at the very least,
questions of material fact remain as to whether Stratford Properties, Fit for Life, Fitness
for Life, and Seasons Care can be liable under an alter ego theory. Defendants’ motion
for summary judgment is DENIED.
Defendants further argue that Stratford Management exerted insufficient control
over Stratford Operator to be found liable under a piercing the corporate veil theory.
“Generally, two separate corporations act as distinct legal entities, even if one partly or
wholly owns stock in the other.” Ritter v. BJC Barnes Jewish Christian Health Sys., 987
S.W.2d 377, 384 (Mo. Ct. App. 1999) (citing Mitchell v. K.C. Stadium Concessions, Inc.,
865 S.W.2d 779, 784 (Mo. Ct. App. 1993)). “In a parent-subsidiary relationship, the
parent corporation is ordinarily not liable for tortious acts of the subsidiary corporation,”
unless the evidence supports a finding which would pierce the corporate veil. See Id. It
is presumed that a parent corporation is not liable for the actions of its subsidiaries
“without more.” See Blanks v. Flour Corp., 450 S.W.3d 308, 375 (Mo. Ct. App. 2014).
Thus, “[t]o hold a parent liable for its subsidiary’s acts, ‘the control must be actual,
participatory and total.’” Ritter, 987 S.W.2d at 385 (quoting Sedalia Mercantile Bank &
Trust Co. v. Loges Farms, Inc., 740 S.W.2d 188, 202-203 (Mo. Ct. App. 1987)).
Here, defendants argue that plaintiffs cannot demonstrate sufficient control for
Stratford Management to be held liable, nor can plaintiffs demonstrate that the
corporate form was used to perpetrate a fraud against plaintiffs, as the allegedly
fraudulent conduct was all done for legitimate business purposes. Plaintiffs again argue
that Stratford Management engaged in comingling of funds, and used its property to
capitalize other Stratford Entities as its subsidiaries. Plaintiffs argue that they (and
others) remain unpaid creditors while Stratford Operator had been drained of its assets
through, among other things, inappropriate inter-company transfers on money. Again,
the Court finds that questions of material fact remain as to whether defendant Stratford
Management can be held liable under an alter ego theory, and therefore summary
judgment is DENIED.
Claims I and IV for Fraudulent Transfer under MUFTA against
Under MUFTA, a transfer can be fraudulent in one of two ways. The first way is
if the debtor made the transfer with actual intent to hinder, delay, or defraud any creditor
of the debtor (the “actual intent method”). Mo. Rev. Stat. § 428.024.1(1). “Fraudulent
intent is rarely proven by direct evidence” and instead courts look to “badges of fraud”
for that determination. See Taylor v. Clark, 140 S.W.3d 242, 251 (Mo.App. 2004). The
eleven badges of fraud under Mo. Rev. Stat. § 428.024.1 are:
(1) the transfer or obligation was to an insider; (2) the debtor retained
possession or control of the property after the transfer; (3) the transfer or
obligation was disclosed; (4) before the transfer was made or obligation
was incurred, the debtor had been sued or threatened with suit; (5) the
transfer was for substantially all of 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 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
occurred; (10) the transfer occurred shortly before or 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
Although no badge of fraud alone establishes fraud, the presence of several of the
badges raises a presumption of fraud. Behr v. Bird Way, Inc., 923 S.W.2d 470, 473
(Mo.App. 1996); see Higgins v. Ferrari, 474 S.W.3d 630, 638 (Mo.App. 2015).
Additionally, even if several badges are found, “the transfer is not voidable “against a
person who took in good faith and for a reasonably equivalent value.” Id.
Second, a fraudulent transfer can be proven through the “constructive fraud
method.” Specifically, the MUFTA provides that a transfer is fraudulent if the debtor
made it without receiving a reasonably equivalent value in exchange for the transfer or
obligation, and the debtor: (a) Was engaged or was about to engage in a business or a
transaction for which the remaining assets of the debtor were unreasonably small in
relation to the business or transaction; or (b) Intended to incur, or believed or
reasonably should have believed that he would incur, debts beyond his ability to pay as
they became due. Mo. Rev. Stat. § 428.024.1(2).
HUD Refinancing in 2011
Defendants argue that the HUD refinancing in 2011 was not done with the intent
to defraud plaintiffs, noting that Stratford Operator received reasonably equivalent value
for the refinancing by having its $9.4 million note to Valley View Bank paid off.
Defendants further argue that Stratford Properties was formed because HUD requires
the assets to be held by a single entity that has no other debts, and that pursuant to
HUD requirements, Stratford Operator continued running the facility, continuing to
receive the revenues from its operation of that facility.
Defendants further argue there are no badges of fraud through which intent to
defraud may be inferred. The transfer was not to an insider, within the meaning of the
term under Mo. Rev. Stat. § 428.009.7(b)5; defendants argue that leasing the assets
from Stratford Properties did not mean that the debtor retained possession or control of
the property after the transfer; debtor had not been threatened with suit before the
In the context of a corporation, an insider is one of the following: (1) a director of the
debtor; (2) an officer of the debtor; (3) a person in control of the debtor; (4) a partnership
in which the debtor is a general partner; (5) a general partner in a partnership; and (6)
the relative of a general partner, director, officer, or person in control of the debtor. See
Mo. Rev. Stat. § 428.009.7(b).
transfer was made; debtor did not abscond; debtor did not remove or conceal assets,
and debtor did not incur substantial debts after the debt was incurred; debtor received
debt relief in the amount of $9.4 million payoff of the note, and an additional $600,000
held in an escrow account until August 2012, which is reasonably equivalent in value to
the asset transferred; and debtor was not insolvent before or shortly after the
transaction because it continued operating the Hidden Lake Care Center after its assets
had been transferred. Defendants argue that while the transaction was not disclosed,
Stratford Operator was not required to do so. Thus, defendants argue no badges of
fraud exist. Additionally, defendants also argue that Stratford Operator received
reasonably equivalent value for the exchange, so that the constructive fraud method
does not apply. While the term “reasonably equivalent value” is not clearly defined, Mo.
Rev. Stat. § 428.019.1 states that “value is given for a transfer or obligation if, in
exchange for the transfer or obligation, property is transferred or an antecedent debt is
secured or satisfied.” Defendant notes that Missouri courts have previously held that the
sale of a property for 74% of its value was “reasonably equivalent value” for purposes of
a fraudulent transfer analysis where the money the property was sold for ($100,000)
“permitted the corporation to pay the debts it owed at the time of the conveyance.” See
First Home Sav. Bank v. C & L Farms, Inc., 974 S.W.2d 621, 628 (Mo. Ct. App. 1998).
Here, defendants argue that the approximately $10 million Stratford Operator received
from the HUD refinancing was reasonably equivalent value because it was 74% of the
fair market value of the Hidden Lake Care Center.
In response, plaintiffs argue that defendants have mischaracterized the evidence
on the record. With respect to badges of fraud, plaintiffs argue that defendants meet
several. Plaintiffs note that Stratford Operator was in arrears to both plantiffs on the
date of the HUD transfer.
Plaintiffs argue that the no reasonable amount of
consideration was provided to Stratford Operator for the transfer, arguing that it only
received $10 and “other valuable consideration” according to the deed conveying the
property. However, the Court finds that this argument misses the point, as Stratford
Operator did receive significant benefits in having its mortgage paid in full. The Court,
however, also notes that the $9.4 million mortgage amount plus the $600,000 in escrow
is not nearly as much as the value the Stratford Properties received less than a year
later, $13.5 million. Plaintiffs argue that because debtor remained liable for making
lease payments to Stratford Properties, as well as paying taxes, insurance, etc., the
debtor retained control of the property after the transfer.
The transfer was not
disclosed, and it was for substantially all of the debtor’s assets (except for accounts
receivable). Plaintiffs argue that debtor was insolvent prior to the 2011 transaction, and
as of year-end 2010, Stratford Operator’s current liabilities ($3.403 million) were more
than triple its current assets ($1.022 million). Plaintiffs also argue that transferring to a
related corporation is a transfer to an “insider.” Sunbelt Envt’l Serv., Inc. v. Rieder’s
Jiffy Market, Inc., 138 S.W.3d 130, 135 (Mo.App. 2004) (transfer between companies
under common ownership was insider transaction).
Plaintiffs also argue that
subsequent events demonstrate that the transfer was fraudulent, because shortly after
the transfer, the Hidden Lake Care Center was listed for sale.
Upon consideration of the parties’ arguments, the Court finds that questions of
material fact remain for the jury to determine whether the transfer was fraudulent under
MUFTA. In particular, the Court is unprepared to find that Stratford Operator received
reasonably equivalent value based on the First Home Sav. Bank case, as it is unclear
whether Stratford Operator was able to pay all its debts owed at the time of that
conveyance. Defendant’s motion for summary judgment is DENIED.
Sale of Hidden Lakes Care Center in 2012
Plaintiffs argue that the sale of Hidden Lakes Care Center in 2012 was fraudulent
under MUFTA because no money was allocated to Stratford Operator as a result of that
sale. Defendants argue that no money was due to Stratford Operator, and the $3.43
million attributable to goodwill in the property was not Stratford Operator’s to sell.
Plaintiffs respond that goodwill tends to be an intangible asset related to the operation
of a business. In Hanson v. Hanson, the Missouri Supreme Court, reviewing accounting
texts and case law, stated, “The common theme in all of these definitions is that the
goodwill which can be sold, and is therefore property, attaches not to an individual but
to a business entity. Goodwill has no separate existence; it has value only as an
incident of a continuing business.” 738 S.W.2d 429, 433 (Mo. banc 1987). It further
stated, “Irrespective of the setting in which it is found, the meaning of goodwill does not
change. It is property which attaches to and is dependent upon an existing business
entity.” Id. Plaintiffs, therefore, argue that the $3.43 million in goodwill ought to have
been allocated to Stratford Operator rather than to Stratford Properties. Plaintiffs also
note that many badges of fraud are present as to this claim – all of the purchase price
was allocated to Properties, an insider to Stratford Operator, the transfer consisted of
the entirety of Stratford Operator’s business operations; Stratford Operator received no
monetary consideration for the transfer; the transfer left Stratford Operator insolvent,
with debts over $3.5 million and assets of less than $1.3 million.
The Court finds that there are questions of material fact preventing summary
judgment on this claim. At the very least, there are significant questions as to whether
the goodwill of the business should have been allocated to the property itself (Stratford
Properties) or to the business operations (Stratford Operator). Certainly, the allocation
made by defendants has left them open to significant arguments that there are badges
of fraud supporting plaintiffs’ claims under MUFTA, considering that Stratford Operator
was left with only its accounts receivable at the closing, and with very little
consideration, if any, paid to it at the time of closing of this sale. Defendants’ motion for
summary judgment on this claim is DENIED.
Claims III and VI for Unjust Enrichment against Stratford Properties
Defendant Stratford Properties argues that Claims III and VI fail because
plaintiffs never conferred a benefit to Stratford Properties. The essential elements of an
unjust enrichment claim under Missouri law are: (1) a benefit conferred by a plaintiff on
a defendant; (2) appreciation by the defendant of the benefit; and (3) the acceptance
and retention of the benefit under circumstances that would render that retention
inequitable. US Bank Nat’l Ass’n v. Cox, 341 S.W.3d 846, 852 (Mo. Ct. App. 2011).
When a third party is alleged to have been benefitted by plaintiffs’ services, Courts will
hold the third party liable when there is some benefit to the third-party’s property due to
the Plaintiffs’ actions. Compare JB Constr., Inc. v. Bierman, 147 S.W.3d 814 (Mo. Ct.
App. 2004) (denying unjust enrichment claim where there was no evidence of any
benefit to Defendants’ “leasehold interest” from Plaintiffs’ services); with Green
Quarries, Inc. v. Raasch, 676 S.W.2d 261 (Mo. Ct. App. 1984) (allowing unjust
enrichment claim where a building owned by defendant was benefited by plaintiff’s
financing of renovations, increasing the building’s value significantly).
Here, defendants argue that, with respect to Count VI and the sale of the Hidden
Lake Care Center, (1) all of plaintiffs’ services were provided to Stratford Operator, not
Stratford Properties; (2) the nature of the services provided to Stratford Operator did not
create anything of value for the Hidden Lake Center’s assets, only for its operations;
and (3) the goodwill sold as part of the purchase of the Hidden Lake Care Center is
attributable only to the Care Center’s tangible assets, not to its operations.
discussed earlier, the Court believes that there are questions of material facts as to the
propriety of the allocation of the businesses’ goodwill in the sale of the Hidden Lake
Care Center. Furthermore, as noted by plaintiffs, if services such as the kind it provided
to Hidden Lake Care Center were not provided, there would be less value to the
operations, and possibly the goodwill, to be transferred. Therefore, defendants’ motion
for summary judgment as to Count VI is DENIED.
With respect to Count III, regarding the HUD Transfer, defendants argue that
Stratford Properties did not benefit from that transfer at all because Stratford Properties
agreed to be encumbered by debt in the amount of $10,369,300. Further, although it
was receiving rent from Stratford Operator, none of plaintiffs rendered services to
Stratford Properties creating any value for it. Additionally, Stratford Operator remained
an ongoing business concern, doing the work of operating the nursing home until the
end of August 2012. Plaintiffs filed no response with respect to the claim made in Count
III. Therefore, the Court finds that plaintiffs have set forth no genuine issue of material
fact as to Count III of the Amended Complaint, and for the reasons stated by
defendants, summary judgment is GRANTED in favor of defendants on this unjust
Plaintiffs’ Motion for Partial Summary Judgment as to Counts I, IV,
VII, VIII, and XI of the First Amended Complaint (Doc. No. 130)
Plaintiffs move the Court for a judgment as a matter of law on Counts I, IV VII,
VIII and XI of the First Amended Complaint. For the same reasons as stated about with
respect to Stratford Defendants’ Motion for Partial Summary Judgment, summary
judgment will be DENIED as to the claims in Counts I, IV, and XI, as issues of material
fact remain for trial on those claims. The Court considers Counts VII and VIII, below.
Counts VII and VIII are claims for fraudulent conveyances, brought against
Stratford Development (Count VII) and Seasons Care (Count VIII).
January 2012 and through November 2013, plaintiffs assert that defendant Stratford
Operator transferred nearly $4 million to Stratford Development, and additional funds to
Seasons Care. Plaintiffs say that the only explanation the companies could provide for
these transfers were that they were made to manage the cash flow needs of the other
Stratford Entities. Plaintiffs state that Stratford Operator received nothing in return for
the money paid to Stratford Development and Seasons care in this time period, and was
left without any way to pay its outstanding debts to plaintiff.
In response, defendants indicate the money transfers between Stratford Operator
and Stratford Mo/Kan Development Corporation (referred to as “Stratford Management”
in the First Amended Complaint) and Stratford Specialty Care, Inc. (referred to as
“Seasons Care” in the First Amended Complaint) were not constructively fraudulent
because these transfers were done to manage cash flow, were marked on the books as
accounts payable and receivable, and paid certain of Stratford Operator’s bills to
The Court is unable to determine on the evidence before it that the transfers
made from Stratford Operator to Stratford Management and Seasons Care were
fraudulent. Questions of material fact remain as to whether these transfers were done
to pay legitimate business expenses to and from these related entities, or whether the
transfers were done in an attempt to defeat corporate formalities and remove assets
from Stratford Operator. The Court notes, however, that just because these transfers
were noted on defendants’ books does not mean, by itself, that reasonably equivalent
value was given for those transfers (as argued by defendants). Plaintiffs’ motion for
summary judgment as to Counts VII and VIII is DENIED.
Accordingly, for the foregoing reasons, (1) Defendant Batson’s Motion for
Summary Judgment (Doc. No. 128) is DENIED; (2) Defendants Stratford Mo/Kan
Development Corporation, Stratford Health Care Properties, LLC, Fit for Life, Inc.,
Fitness for Life, L.C., Stratford Specialty Care, Inc., Kenneth Blom, and Randall
Motion for Partial Summary Judgment (Doc. No. 131) is GRANTED IN
PART as it relates to Count III of the Amended Complaint, and DENIED IN PART in all
other relevant aspects; and (3) Plaintiffs’ Motion for Partial Summary Judgment as to
Counts I, IV, VII, VIII, and XI of the First Amended Complaint (Doc. No. 130) is DENIED.
The claims against John Doe defendants are also DISMISSED.
IT IS SO ORDERED.
Date: September 29, 2017
Kansas City, Missouri
S/ FERNANDO J. GAITAN, JR.
Fernando J. Gaitan, Jr.
United States District Judge
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