City National Bank v. Breslin et al

Filing 67

MEMORANDUM DECISION and Order-denying 44 Motion to Strike 54 Brief, ; denying 28 Motion for Summary Judgment ; denying 37 Motion for Summary Judgment ; Denying 54 Brief and Motion. See Order for further details. Signed by Judge Clark Waddoups on 3/29/16. (jmr)

IN THE UNITED STATES DISTRICT COURT
DISTRICT OF UTAH, CENTRAL DIVISION

CITY NATIONAL BANK, N.A.,
Plaintiff,

MEMORANDUM DECISION
AND ORDER

v.
JACK L. BRESLIN and JULIE A.
BRESLIN, TRUSTEES OF THE BRESLIN
FAMILY TRUST, and WALTER L.
BRESLIN, an individual,

Case No. 2:12-cv-00939
Judge Clark Waddoups

Defendants.

INTRODUCTION
This matter is before the court on Plaintiff’s Motion for Summary Judgment [Dkt. No.
28], Plaintiff’s Motion for Summary Judgment (Quiet Title and Declaratory Judgment) [Dkt. No.
37], defendants’ Motion to Strike Plaintiff’s Reply Memorandum in Response to Defendants’
Memorandum in Opposition to Plaintiff’s Motion for Summary Judgment [Dkt. No. 44], and
defendants’ motion to reform their trust deed. [Dkt. No. 54.] The court held a hearing on
Plaintiff’s Motion for Summary Judgment on November 5, 2014 and requested that the parties
provide additional briefing. The court held a hearing on all three motions on August 25, 2015
and requested the parties to provide further briefing. Defendants then moved the court to reform
their trust deed. [Dkt. No. 54.] The court also ordered the parties to submit supplemental
briefing on the legal and factual applicability of UTAH CODE ANN § 25-6-6(2) to this dispute. A
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final hearing on all motions and supplemental briefing was held on March 17, 2016. After
careful consideration of the parties’ oral arguments and review of the pleadings and relevant
legal authorities, the court DENIES defendants’ Motion to Strike Plaintiff’s Reply Memorandum
[Dkt. No. 44], DENIES Plaintiff’s Motion for Summary Judgment [Dkt. No. 28], DENIES
Plaintiff’s Motion for Summary Judgment (Quiet Title and Declaratory Judgment) [Dkt. No. 37],
and DENIES defendants’ motion for reformation [Dkt. No. 54] for the reasons stated below.
BACKGROUND
Jack and Julie Breslin are trustees of the revocable intervivos Breslin Family Trust.
Walter Breslin is Jack’s father, and is the sole remaining settlor and trustee of his own separate
revocable intervivos trust known as the Breslin Trust. The Breslin Family Trust and Jeff Susa,
Jack’s business partner, are the members of IDC Decatur, LLC, which was created for the sole
purpose of being the general partner for EP Decatur, L.P., which was formed in 2005 to acquire,
develop, improve, and operate a property in Las Vegas, Nevada (the “EP Property”). On
December 20, 2005, EP Decatur executed a promissory note in favor of the Breslin Trust, in
exchange for Walter, through his Breslin Trust, loaning $850,000 to EP Decatur. The Breslin
Trust loan is secured by a deed of trust in the EP Property that is in second position behind a
$4,400,000 Bank of Nevada deed of trust in the EP Property. Jack Breslin and Jeff Susa, on
behalf of EP Decatur, also each personally guaranteed the Bank of Nevada loan. At the time the
EP Property was purchased, its value was allegedly $5.9 million; by the end of 2009, its value
had allegedly dropped to $2.5 million, which meant that Walter’s Breslin Trust loan had become
undersecured. The Breslin Trust received interest payments on its loan for the first three years of
the note, but EP Decatur defaulted on the principal payment when the note came due in

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December 2008. EP Decatur continued making interest payments until June 2009, but missed a
payment in July 2009. On August 19, 2009, Jeff Susa wrote Walter a letter explaining that the
economic downturn in particularly hard-hit Nevada prevented payment of the principal, but that
EP Decatur would resume making interest payments until such time as it could arrange to repay
the principal. The Breslin Trust then received some reduced payments intermittently, after which
payments ceased entirely in March 2010. Walter was aware that the value of the EP Property had
declined significantly, and that he was unlikely to obtain any recovery of his loan by foreclosing
his junior lien.
City National Bank is the successor in interest to a loan given to Jack Breslin and Jeff
Susa in 2006 related to a separate Nevada property. The Breslin Family Trust is a guarantor of
this loan. In May 2009 this loan went into default, eventually resulting in City National Bank
obtaining a judgment against Jack Breslin, Jeff Susa, and the Breslin Family Trust (as guarantor)
in the amount of $2,596,893.08. This judgment (the “Nevada Judgment”) was entered July 12,
2011. City National Bank began attempts to collect the Nevada Judgment, including conducting
a debtor’s examination of Jack Breslin, at which time it learned of property owned by the Breslin
Family Trust in Park City, Utah. On February 27, 2012, City National Bank filed a Notice of
Domestication of Foreign Judgment in the Third District Court of the State of Utah. The Clerk of
Court mailed this notice to Jeff Susa, Jack Breslin, and the Breslin Family Trust on March 5,
2012. The domesticated Abstract of Judgment for the Nevada Judgment was subsequently
entered by the Clerk of Court on April 4, 2012. City National Bank recorded a Lis Pendens on
the Park City property on October 10, 2012.

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On March 9, 2012, the Breslin Family Trust, as Trustor, executed a Deed of Trust and
Assignment of Rents (the “Trust Deed”) in favor of Walter L. Breslin, as Beneficiary. It was
recorded in the Summit County Recorder’s Office on March 12, 2012. The Trust Deed states that
its purpose was to secure “(1) payment of the indebtedness evidenced by a promissory note in the
principal sum of $850,000.00, made by Trustor, payable to the order of Beneficiary at the times,
in the manner, and with interest as therein set forth. . .” At the time of the transfer, the Park City
property valued at approximately $895,000 was nearly fully encumbered by a $1,000,000 Wells
Fargo line of credit. The record is unequivocal that no promissory note existed between the
Breslin Family Trust (the Trustor) and Walter L. Breslin (the Beneficiary). Jack’s EP Decatur
partner, Jeff Susa, and his wife executed a similar Deed of Trust and Assignment of Rents for
property in California in favor of the Breslin Trust on March 1, 2012, for the purpose of securing
“(1) payment of the sum of $850,000.00, with interest thereon according to the terms of a
promissory note or notes of even date herewith . . .” The Susa trust deed was subsequently set
aside as a fraudulent transfer by the Superior Court of California on June 18, 2014. In this case,
City National Bank seeks to set aside the March 9, 2012 Trust Deed as a fraudulent transfer
pursuant to Utah’s Uniform Fraudulent Transfer Act or to quiet title of the property in the Breslin
Family Trust. The defendants seek equitable relief to reform their Trust Deed with retroactive
effect to reflect that they intended it to secure the December 20, 2005 promissory note between
EP Decatur and the Breslin Trust.
MOTION TO STRIKE
Defendants filed a Motion to Strike plaintiff’s reply to defendants’ opposition to
plaintiff’s quiet title and declaratory judgment summary judgment motion on DUCivR 7-1(b)(3)

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grounds that it was untimely filed on April 22, 2015. Plaintiff’s reply memorandum was due on
March 23, 2015. Plaintiff claims it believed that an extension of time had been offered by
counsel via e-mail. [Dkt. No. 46.] Defendants dispute that an extension of time was actually
requested and granted, particularly one of this length. [Dkt. No. 47.] A hearing on this motion as
well as both summary judgment motions was held on August 25, 2015. The parties argued the
summary judgment motions as if no objection to plaintiff’s reply memorandum had been made.
Accordingly, the court finds no cognizable reason to strike plaintiff’s reply memorandum and
hereby DENIES defendants’ Motion to Strike.
DISCUSSION
I.

Summary Judgment Standard
Summary judgment is appropriate “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 ‘material fact’ is one which could have an impact on the outcome of the lawsuit, while
a ‘genuine issue’ of such a material fact exists if a rational jury could find in favor of the nonmoving party based on the evidence presented.” Chasteen v. UNISIA JECS Corp., 216 F.3d
1212, 1216 (10th Cir. 2000). “Only disputes over facts that might affect the outcome of the suit
under the governing law will properly preclude the entry of summary judgment. Factual disputes
that are irrelevant or unnecessary will not be counted.” Anderson v. Liberty Lobby, Inc., 477 U.S.
242, 248 (1986). The moving party bears the initial burden of showing the absence of a genuine
issue of material fact. See Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). The burden then
shifts to the nonmoving party to set forth specific facts demonstrating a genuine factual issue for
trial. See Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986); FED. R.

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CIV. P. 56(e). All justifiable inferences arising from the underlying facts must be viewed in the
light most favorable to the nonmoving party. See Matsushita, 475 U.S. at 587.
II.

Fraudulent Transfer
City National Bank seeks summary judgment pursuant to both UTAH CODE ANN. § 25-6-

5(1) (transfer with intent to defraud) and UTAH CODE ANN. § 25-6-6(1) (transfer without value
by an insolvent debtor). With respect to intent to defraud, under Utah’s Uniform Fraudulent
Transfer Act, a transfer is fraudulent as to a creditor if the debtor made the transfer “with actual
intent to hinder, delay, or defraud,” UTAH CODE ANN. § 25-6-5(1)(a). With respect to a creditor
whose claim arose before the transfer was made, a transfer is fraudulent if (1) the debtor did not
receive “a reasonably equivalent value in exchange for the transfer” and (2) “the debtor was
insolvent at the time or became insolvent as a result of the transfer or obligation.” UTAH CODE
ANN. § 25-6-6(1).
A. Transfer With Intent to Defraud (UTAH CODE ANN. § 25-6-5(1))
To determine “actual intent” to defraud under UTAH CODE ANN. § 25-6-5(1)(a), the court
may consider the “badges of fraud” outlined in the statute. Rupp v. Pearson, 2015 U.S. Dist.
LEXIS 170708. These “badges of fraud” include
(a) the transfer or obligation was to an insider; (b) the debtor
retained possession or control of the property transferred after the
transfer; (c) the transfer or obligation was disclosed or concealed;
(d) before the transfer was made or obligation was incurred, the
debtor had been sued or threatened with suit; (e) the transfer was of
substantially all the debtor's assets; (f) the debtor absconded; (g)
the debtor removed or concealed assets; (h) 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; (i) the debtor was insolvent or became insolvent shortly
after the transfer was made or the obligation was incurred; (j) the
transfer occurred shortly before or shortly after a substantial debt
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was incurred; and (k) the debtor transferred the essential assets of
the business to a lienor who transferred the assets to an insider of
the debtor.
UTAH CODE ANN. § 25-6-5(2).
“The existence of one or more of these badges in a case does not necessarily constitute
fraud per se, nor is the presence of one or more of the elements conclusive.” United States v.
Barson, 1999 U.S. Dist. LEXIS 12251 (D. Utah 1999). Where there are multiple plausible
inferences to be drawn from the underlying evidence as to the alleged badges of fraud, summary
judgment should not be granted unless the undisputed facts support an inference of fraudulent
intent. See Wasatch Oil & Gas, L.L.C. v. Reott, 2007 UT App 223, ¶¶ 34-36. Actual fraud “must
be established by clear and convincing evidence.” Territorial Sav. & Loan Ass’n v. Baird, 781
P.2d 452, 462 (Utah Ct. App. 1989).
The undisputed facts supporting City National Bank’s position include elements (a) (“the
transfer or obligation was to an insider”), (b) (“the debtor retained possession or control of the
property transferred after the transfer”), (g) (“the debtor removed or concealed assets”), and (i)
(“the debtor was insolvent or became insolvent shortly after the transfer was made or the
obligation was incurred”). UTAH CODE ANN. § 25-6-5(2). First, the parties do not dispute that
because Walter Breslin is Jack’s father, the Trust Deed was granted to an insider as Walter falls
within the definition of an “insider.” Second, the parties do not dispute that Jack and Julie
Breslin retained possession of the Park City property after their Breslin Family Trust granted a
second position security interest to Walter. Although this is an undisputed fact, the court also
notes that it may be “an unwarranted leap to infer fraud anytime a person transfers a security
interest in an item and maintains possession of it.” Gullickson v. Brown (In re Brown), 108 F.3d

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1290, 1293 (10th Cir. 1997) (contrasting the transfer of a security interest from the transfer of
title to property). Third, as for (g) (“the debtor removed or concealed assets”), UTAH CODE ANN.
§ 25-6-5(2), neither party argues that the defendants concealed the Trust Deed. But City National
Bank argues that granting Walter Breslin a security interest in the Park City property effectively
removed it from the Breslin Family Trust. Defendants claim that the property ownership remains
the same and therefore it was not removed from the trust. On this point, the court is persuaded
that granting the security interest had the effect of removing the Trust Deed from the Breslin
Family Trust for purposes of the Uniform Fraudulent Transfer Act. See Gullickson, 108 F.3d at
1293, n.1 (“there is no question that the grant of a security interest does constitute a transfer”).
Practically speaking, however, because the Trust Deed purports to grant Walter Breslin a second
position security interest behind a nearly fully exhausted $1,000,000 line of credit on a property
that was valued at approximately $895,000 during that time period, see Dkt. No. 28-11 and Dep.
of Jack Breslin, 17:22-18:12, it is difficult to see how the transfer removed the asset any further
out of the bank’s reach than it already was. The court therefore concludes that the effect of
elements (b) and (g) in favor of the bank’s position is de minimis.
Finally, with respect to element (i), City National Bank argues that the Breslin Family
Trust was insolvent or became insolvent shortly after the Trust Deed was executed. The Uniform
Fraudulent Transfer Act states that “a debtor is insolvent if the sum of the debtor’s debts is
greater than all of the debtor’s assets at a fair valuation.” UTAH CODE ANN. § 25-6-3(1).
Alternatively, it states that “[a] debtor who is generally not paying his debts as they become due
is presumed to be insolvent.” Id. § 25-6-3(2). While the record reflects a dispute over the
second, presumptive definition of insolvency, the court finds in the record undisputed evidence

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of insolvency pursuant to the first definition, namely, that at the time the Trust Deed was
executed the Breslin Family Trust had unencumbered assets of less than $2 million (Defs’
Answers to Pl.’s Request for Admission, at No. 6; J. Breslin Dep., at 104:1-15) and liabilities of
at least $2.5 million. (Nevada Judgment, Dkt. No. 28-6).
The undisputed facts supporting the Breslin defendants’ position include elements (c)
(“the transfer or obligation was disclosed or concealed”) and (f) (“the debtor absconded”). UTAH
CODE ANN. § 25-6-5(2). Because the Trust Deed was recorded in the Summit County Recorder’s
Office three days after execution, the parties agree that it was disclosed and not concealed.
Similarly, the parties agree that the Breslin Family Trust did not abscond after execution of the
Trust Deed.

Neither party argues that elements (j) (“the transfer occurred shortly before or

shortly after a substantial debt was incurred”) or (k) (“the debtor transferred the essential assets
of the business to a lienor who transferred the assets to an insider of the debtor”) are at issue.
UTAH CODE ANN. § 25-6-5(2).
There are genuine issues of disputed material facts relating to the remaining elements (d),
(e) and (h). As for (d) (“before the transfer was made or obligation was incurred, the debtor had
been sued or threatened with suit”), UTAH CODE ANN. § 25-6-5(2), City National Bank argues
that the Breslin Family Trust and Jack Breslin personally had been “sued or threatened with suit”
because they knew the Nevada Judgment had been issued in July 2011; Jack had participated in
debtor examination proceedings; the Notice of Domestication of Foreign Judgment was filed in
Utah in February 2012; and just four days prior to executing Trust Deed, the Third District Court
clerk mailed Jack notice that City National Bank was domesticating its Nevada Judgment in
Utah. Although the timing is suspect, “[t]he mere fact that a transaction occurred soon before [a

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legal proceeding] does not necessarily support the inference of fraud. The circumstances of the
transaction must be examined.” See Gullickson, 108 F.3d at 1293. Jack Breslin admits that while
he knew City National Bank had instituted collection efforts at least eight months previously,
there was nothing presently pending and he did not know the Nevada Judgment was being
domesticated in Utah at the time the defendants executed the Trust Deed and that had no bearing
on the timing of the Trust Deed’s execution. Dep. of Jack L. Breslin, 54:1-21; Decl. of Jack L.
Breslin in Opp’n to Pls.’ Mot. For Summ. J., ¶¶ 30-34 [Dkt. No. 30]. Viewing these facts in the
light most favorable to defendants, the court finds that defendants have established a genuine
issue of material fact as to element (d) because Jack Breslin’s credibility on the timing issue
requires evaluation by a fact-finder.
As for element (e) (“the transfer was of substantially all the debtor's assets”), UTAH CODE
ANN. § 25-6-5(2), City National Bank argues that the transfer constituted substantially all of the
debtor’s assets because the Breslin Family Trust had more liabilities than assets and was not
paying all of its debts as they became due. By so arguing, plaintiff is invoking the definitions of
insolvency provided at UTAH CODE ANN. § 25-6-3. The Breslin Family Trust argues that because
it still had assets of approximately $1.25 million at the time it executed the Trust Deed, granting
the deed did not transfer substantially all of its assets. Decl. of Jack L. Breslin in Opp’n to Pls.’
Mot. For Summ. J., ¶ 35 [Dkt. No. 30]. This court must “avoid construing a statute so as to
render statutory language superfluous.” De Leon v. Lynch, 808 F.3d 1224, 1233 (10th Cir.
2015). UTAH CODE ANN. § 25-6-5(2)(i) separately addresses insolvency as a badge of fraud, and
the court will therefore not construe UTAH CODE ANN. § 25-6-5(2)(e) as a duplication of (i)
which renders (e) superfluous. Therefore, because the court must view the Breslin Family Trust’s

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stated assets at the time the Trust Deed was executed in the light most favorable to them, the
court finds that defendants have established a genuine issue of material fact as to whether the
transfer constituted substantially all of the debtor’s assets.
The most disputed element regarding the actual intent to defraud based on the badges of
fraud is element (h) (“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”). UTAH
CODE ANN. § 25-6-5(2). City National Bank argues that the value of the consideration received
by the Breslin Family Trust was not reasonably equivalent to the value of the asset transferred
because the Breslin Family Trust has never been indebted to Walter Breslin, and because no new
loan or note—let alone one supported by an exchange of consideration—was executed between
Walter Breslin and the Breslin Family Trust at the time the Trust Deed was granted.
In response, defendants assert that EP Decatur, L.P., in which the Breslin Family Trust
has an ownership interest as a member of IDC Decatur, LLC, is indebted to Walter Breslin
and/or his trust. This indebtedness is in the form of the December 20, 2005 promissory note for
$850,000 executed by EP Decatur in favor of Walter’s Breslin Trust in exchange for a cash
investment in the EP Property, the principal and interest payments for which investment EP
Decatur has been unable to pay the Breslin Trust since approximately 2010. Defendants further
assert that Walter agreed not to foreclose on the EP Property in exchange for the Breslin Family
Trust granting him an $850,000 second position security interest in the Park City property, which
constitutes reasonably equivalent value for the transfer. Decl. of Jack L. Breslin in Opp’n to Pls.’
Mot. For Summ. J. [Dkt. No. 30], Decl. of Walter L. Breslin in Opp’n to Pls.’ Mot. For Summ. J.
[Dkt. No. 31]. The legal and factual issues surrounding this element require the court to

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determine whether the Trust Deed is ambiguous and requires interpretation, and to examine
whether prohibited third party consideration or the receipt of an indirect benefit supports an
exchange of reasonably equivalent value.
To begin with, the Trust Deed’s recitation of an undisputedly nonexistent promissory
note in the first numbered paragraph regarding what the deed was intended to secure raises the
question of whether the deed is simply invalid. If the Trust Deed is invalid, then there is no
“transfer” pursuant to the Uniform Fraudulent Transfer Act. See UTAH CODE ANN. § 25-6-2(12).
This question and the claims defendants raised in rebuttal of element (h) require the court to
interpret the Trust Deed.
1. Interpretation of Trust Deed
Deeds in Utah are “construed according to ordinary rules of contract construction.”
Panos v. Olsen & Assocs. Const., Inc., 2005 UT App 446 ¶ 15. The court first interprets deeds
based on “the intention of the parties as drawn from the whole deed,” and then if the deed is still
ambiguous, the court looks to “contemporaneous writings on the same subject matter,” and if
necessary to resolve the ambiguity, “to extrinsic parol evidence.” Id. (internal quotations and
citations omitted).
Looking first to the “four corners of the instrument,” id., the Trust Deed on its face states
that it secures “payment of the indebtedness evidenced by a promissory note in the principal sum
of $850,000.00, made by Trustor [Trustees of the Breslin Family Trust], payable to the order of
Beneficiary [Walter L. Breslin] at the times, in the manner, and with interest as therein set forth
. . .” [Dkt. No. 28-8.] The deed is thus facially unambiguous; however, all parties admit that no
promissory note has ever existed between the Breslin Family Trust and Walter L. Breslin. For

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the bank, this should end the inquiry pursuant to Diderickson v. Cyprus Credit Union et al, No.
2:10-CV-00211, 2013 WL 6056598 (D. Utah Nov. 15, 2013) (denying request to rewrite deed of
trust that referred to nonexistent loan and promissory note). The purpose of contract
interpretation, however, is to “ascertain the intentions of the parties to the contract.” WebBank v.
Am. Gen. Annuity Serv. Corp., 2002 UT 88, ¶ 17. Analysis of defendants’ intentions is especially
needed here because the plaintiff has asked the court to grant summary judgment on the basis of
intent to defraud. Therefore, the court must “allow the introduction of relevant evidence
regarding the existence of a potential ambiguity to prevent an inherently one-sided analysis.”
Watkins v. Ford, 304 P.3d 841, 847 (Utah 2013) (internal quotations and punctuation omitted).
Looking next to “contemporaneous writings on the same subject matter,” Panos, 2005
UT App 446 at ¶ 15, the court notes that while there are no contemporaneous writings between
the parties to the Trust Deed that reflect their intent, Jack Breslin’s EP Decatur business partner
and his wife, Jeff and Jill Susa, executed a similar deed of trust on their California property in
favor of Walter’s Breslin Trust on March 1, 2012, three days prior to the execution of this Trust
Deed, for the purpose of securing “(1) payment of the sum of $850,000.00, with interest thereon
according to the terms of a promissory note or notes of even date herewith. . .” [Dkt. No. 28-12.]
This writing at least suggests that both partners of EP Decatur were obligated to the Breslin Trust
for a promissory note in the amount of $850,000, although the Susa deed does not resolve the
ambiguity because first, it does not mention EP Decatur; second, it is not a contemporaneous
writing between the parties to this Trust Deed; and third, it does not reflect the December 20,
2005 date of the actual promissory note between EP Decatur and the Breslin Trust. 1

1

Furthermore, as noted above, the Susa deed has already been set aside as a fraudulent transfer.
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Accordingly, because “Utah’s rules of contract interpretation allow courts to consider any
relevant evidence to determine whether a latent ambiguity exists in contract terms that otherwise
appear to be facially unambiguous,” Watkins, 304 P.3d at 847, the court considers defendants’
pleadings, declarations, and deposition testimony, all of which claim that the defendants intended
for the Trust Deed to secure the December 20, 2005 promissory note between EP Decatur and
the Breslin Trust in the amount of $850,000, which is the same amount recited in the Trust Deed.
Defendants claim that they inartfully drafted the Trust Deed because they were not assisted by
counsel when filling out a deed form provided by a title company. These facts viewed in the light
most favorable to defendants raise a genuine issue of material fact about their intent, which
prevents the court from granting summary judgment on the basis that the deed is invalid. If the
parties’ actual intent was for the Trust Deed to reference the December 20, 2005 promissory
note, this latent ambiguity also eliminates the bank’s argument that the Trust Deed is ineffective
to secure a promissory note that is separate from the promissory note expressly identified in the
deed, because the deed would secure the same note it references, which has not been separated
from the deed. 2 Next, then, the court must determine whether reasonably equivalent value was
exchanged between the Trust Deed parties when interpreted consistent with defendants’ claimed
intent.
2. Reasonably Equivalent Value
The Uniform Fraudulent Transfer Act provides that “[v]alue is given for a transfer or an
obligation if, in exchange for the transfer or obligation, property is transferred or an antecedent
2

Plaintiff has also persuaded the court that this argument has little merit in the context of this case based on its
reading of Commonwealth Property Advocates, LLC v. Mortgage Electronic Registration System, Inc., 263 P.3d 397
(Utah Ct. App. 2011).

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debt is secured or satisfied.” UTAH CODE ANN. § 25-6-4. Defendants’ claim that the Trust Deed
is intended to secure the antecedent debt between EP Decatur and the Breslin Trust raises several
legal issues that the court must address prior to factually examining whether the Trust Deed
secures or satisfies an antecedent debt.
First, City National Bank argues that the Breslin Family Trust’s attempt to satisfy EP
Decatur’s obligation to Walter’s Breslin Trust is prohibited third party consideration in the
fraudulent transfer context pursuant to Dahnken, Inc. v. Wilmarth, 726 P.2d 420 (Utah 1986).
Dahnken was an action to set aside the assignment of a real estate contract brought under an
earlier iteration of the Utah Fraudulent Conveyance Act. Id. There, the stepfather transferee
argued that his payments of debts owed by the transferor’s businesses were personal loans to the
transferor and thus constituted fair consideration for the assignment of the contract. 3 Id. The
court determined that “an otherwise fraudulent transfer is not made nonfraudulent” because a
transferee pays an obligation owed by a third party to the assignment (in this case, the business
corporation set up by the transferor stepson). Id. The court further held that “[s]atisfaction of an
obligation owed the transferee by a third party does not qualify as fair consideration [under the
earlier iteration of the Utah Fraudulent Conveyance Act].” Id. Second, City National Bank also
argues that because the Breslin Family Trust, Jack Breslin, EP Decatur, IDC Decatur, Walter
Breslin, and the Breslin Trust are all separate legal entities, the Breslin Family Trust cannot be
held personally liable to Walter for the promissory note between EP Decatur and the Breslin
Trust. See United States v. Bestfoods, 524 U.S. 51, 61-62 (1998); Burnet v. Clark, 287 U.S. 410,
3

“‘Fair consideration’ is a predecessor term to ‘reasonably equivalent value,’ and serves a similar function to the
latter term in the fraudulent transfer context.” Klein v. King & King & Jones, 571 Fed. Appx. 702 (10th Cir. 2014)
(unpublished).

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415 (1932). Thus, plaintiff argues, the parties to the Trust Deed could not have exchanged
reasonably equivalent value for the Trust Deed because the Breslin Family Trust had no
obligation for EP Decatur’s debt.
It is true that “[o]rdinarily, a corporation is regarded as a separate and distinct legal entity
from its stockholders [for the purpose of insulating] the stockholders from the liabilities of the
corporation. Salt Lake City Corp. v. James Constructors, 761 P.2d 42, 46 (Utah Ct. App. 1988)
(quotations and citation omitted). Liability for corporate stockholders is thus limited to the
amounts that they “voluntarily put at risk.” Id. In this case, defendants assert that the Breslin
Family Trust invested $250,000 in EP Decatur through IDC Decatur, which investment would be
placed at risk in the event Walter Breslin, as Trustee of the Breslin Trust, foreclosed on the EP
Property. Under the “indirect benefit theory” discussed further below, defendants allege that in
exchange for Walter’s forbearance from foreclosing on the EP Property, granting the Trust Deed
enabled the Breslin Family Trust to protect its $250,000 investment in EP Decatur, protect its
ongoing business interest in the EP Property itself, and protect Jack Breslin personally from a
deficiency judgment as guarantor of the EP Property loan. Thus, if a benefit of reasonably
equivalent value flowed indirectly from EP Decatur to the Breslin Family Trust, the Trust Deed
would not be supported by prohibited third party consideration pursuant to Dahnken.
The “indirect benefit theory” of reasonably equivalent value in the fraudulent transfer
context was acknowledged by this court in Wing v. Harrison, No. 2:03-CV-26, 2004 WL
966298, *3 (D. Utah April 29, 2004) (citing to Rubin v. Manufacturers Hanover Trust Co., 661
F.2d 979 (2d Cir. 1981)). “The Rubin court states that a ‘debtor may sometimes receive ‘fair’
consideration even though the consideration given for his property or obligation goes initially to

16

a third person.’” Id. The indirect benefit theory is also available in a similar context in
bankruptcy. In re Brooke Corporation, 541 B.R. 492, 511 (D. Kansas 2015). A “payment made
solely for the benefit of a third party, such as a payment to satisfy a third party’s debt, does not
furnish reasonably-equivalent value to the debtor. An exception to this rule has been recognized
where a debtor receives an indirect benefit from paying or guaranteeing the obligation of a third
party.” Id. (internal quotations omitted).
Defendants’ indirect benefit theory of defense raises a host of disputed factual issues
regarding reasonably equivalent value, including whether there is enough value in the Breslin
Family Trust’s interest in EP Decatur to support an exchange of a second position security
interest in an $850,000 Trust Deed; whether there is any contemporaneous—rather than merely
self-serving, after-the-fact—evidence that Walter, through the Breslin Trust, actually intended to
foreclose on the EP Property to support its exchange of forbearance as consideration for the
Trust Deed; and whether even an actual threat to foreclose on the EP Property was a legitimate
exchange of consideration when all defendants agree that the EP Property had a market value
millions of dollars less than the book value of its loan so that foreclosure of Walter’s junior lien
would not result in recovery on the Breslin Trust note in any event.
In summary, defendants have raised disputed issues of material fact about whether the
deed is invalid and thus cannot constitute a “transfer” under the Uniform Fraudulent Transfer
Act, and about whether the transfer itself was actually fraudulent. Four elements of the statute’s
eleven “badges of fraud” support City National Bank’s position (although two elements only
provide weak support), two elements support defendants’ position, two are not at issue in the
case, and the remaining elements are disputed. At least one of those elements—the exchange of

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reasonably equivalent value—is in significant dispute. Although all badges of fraud need not be
present to support an inference of actual fraudulent intent, those that are present must support an
inference of actual fraud. See Wasatch Oil 2007 UT App 223 at ¶¶ 34-36. Actual fraudulent
intent cannot be inferred by reference to the “badges of fraud” in this case without weighing of
the evidence by a fact-finder. See Selvage v. Johnson, 910 P.2d 1252, 1262 (Utah Ct. App.
1996). Therefore, the court DENIES summary judgment on actual fraud pursuant to UTAH CODE
ANN. § 25-6-5(1).
B. Transfer Without Value By Insolvent Debtor (UTAH CODE ANN. § 25-6-6(1))
A transfer is constructively fraudulent as to a creditor “whose claim arose before the
transfer was made” if (1) the debtor did not receive “a reasonably equivalent value in exchange
for the transfer” and (2) “the debtor was insolvent at the time or became insolvent as a result of
the transfer or obligation.” UTAH CODE ANN. § 25-6-6(1). As described above, with respect to
the element of insolvency, the court has found undisputed evidence in the record that the Breslin
Family Trust was insolvent at the time the deed was executed. Notwithstanding that the
insolvency element has been met, the court also identified above that the defendants have
successfully raised genuine issues of material fact regarding whether “reasonably equivalent
value” was exchanged. Therefore, the court DENIES summary judgment as to constructive fraud
pursuant to UTAH CODE ANN. § 25-6-6(1).
III.

Quiet Title and Declarative Judgment
City National Bank asks the court to quiet title to the Park City property in the Breslin

Family Trust because the Trust Deed is void due to its recitation of a nonexistent promissory
note and a lack of consideration. The bank also argues that the court should not interpret the deed

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to reach the December 20, 2005 promissory note between the Breslin Trust and EP Decatur
because the language of the deed is not ambiguous and does not support the interpretation.
Daines v. Vincent, 2008 UT 51 ¶ 30. Furthermore, even if the court does interpret the deed to
reach the December 20, 2005 promissory note, the bank argues that the promissory note is an
antecedent debt of a third party to the deed and such debts cannot be secured by a trust deed
without additional consideration. Diderickson, 2013 WL 6056598. Finally, City National Bank
argues that a trust deed is ineffective to secure a promissory note that is separate from the
promissory note expressly identified in the deed. Commonwealth, 2011 UT App 232.
Each of these arguments has been addressed in the context of plaintiff’s Uniform
Fraudulent Transfer Act claim. See supra Section II.A. To review, the court has determined that
it must interpret the Trust Deed and has found a latent ambiguity, about which there are disputed
issues of material fact that prevent the court from finding the deed invalid on summary judgment.
Panos, 2005 UT App 446. The court has also found that there are disputed issues of material fact
about whether the Breslin Family Trust received an indirect benefit from Walter’s alleged
forbearance (about which there are similarly disputed issues of material fact). Therefore, the
court cannot yet determine whether Dahnken’s prohibition on using third party payment of
antecedent debt as consideration applies. Finally, because there are disputed issues of material
fact about whether the parties actually intended for the Trust Deed to secure the December 20,
2005 Trust Deed, plaintiff’s final argument also cannot prevail on summary judgment.
Accordingly, the court DENIES summary judgment on the quiet title action.

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IV.

Reformation
Defendants moved to reform the Trust Deed after the court asked the parties to address

the implications for lien priority if the court were to reform the deed because of an alleged latent
ambiguity. The latent ambiguity is that the Trust Deed is allegedly intended to secure the
promissory note dated December 20, 2005 in the amount of $850,000 from EP Decatur in favor
of the Breslin Trust, rather than as stated a “promissory note in the principal sum of $850,000.00,
made by Trustor [The Breslin Family Trust], payable to the order of Beneficiary [Walter L.
Breslin].
As a preliminary matter, a latent ambiguity may be reformed to render the contract
enforceable between the parties to the contract as to the interpretation the court finds reflects the
parties’ true intent at the time they entered the contract. Watkins, 2013 UT 31 (emphasis added)
(A “latent ambiguity . . . does not excuse the parties’ obligations under the Contract because the
parties were in agreement” as to the true intent). The issue in this case, however, is not whether
Walter Breslin can enforce the Trust Deed against the Breslin Family Trust. Instead, the issue is
whether reforming the Trust Deed is appropriate as against third parties who had no knowledge
of the mistake and whether reformation would be retroactive to its original recording date.
“Reformation is an equitable remedy that permits the court to add new terms to a deed or
alter the original language of a deed to conform to the parties’ intent.” FDIC v. Taylor, 2011 UT
App 416 ¶ 26. Mutual mistake of the parties as to what is written in the deed versus what was
agreed upon by the parties is an appropriate ground for reformation. Hottinger v. Jensen, 684
P.2d 1271 (Utah 1984). The party seeking reformation has the burden of proving there was a
mutual mistake of fact by clear and convincing evidence. FDIC, 2011 UT App 416 at ¶ 29. Upon

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finding such proof, the court can “reform the writing to express the agreement, except to the
extent that rights of third parties such as good faith purchasers for value will be unfairly
affected.” Grahn v. Gregory, 800 P.2d 320 (Utah Ct. App. 1990). See also FDIC, 267 P.3d at ¶
51 (reformation “cannot be imposed retroactively if it would ‘unfairly affect’ the right of an
innocent third party”).
Defendants argue that there is clear and convincing evidence of only one intent in
executing the Trust Deed, and that was to provide security to Walter Breslin for the antecedent
$850,000 loan he made to EP Decatur. City National Bank argues that apart from self-serving
testimony generated after-the-fact, there is no evidence before the court to gauge the veracity of
the mistake. For example, there is no contemporaneous documentation of conversations between
the defendants referencing the prior debt or suggesting that Walter Breslin was eager for
additional security. The August 2009 letter from Jeff Susa as the general partner of EP Decatur
to Walter Breslin makes no reference to Walter or the Breslin Trust threatening foreclosure or
seeking additional security. [Dkt. No. 40-4.] Walter Breslin’s declaration suggests to the court
that he understood that foreclosing on the EP Property would be futile because his trust deed in
that property was unsecured due to an underwater senior lien held by the Bank of Nevada. [Dkt.
No. 40.] Further, the court does not see clear and convincing evidence that Walter had any
desire to or had made any threat to foreclose the EP Property because Jack was his last remaining
son and he saw him as being under a lot of pressure in his business. [Dkt. No. 28-7.]
Jack’s declaration and deposition testimony also supports that he was well aware of City
National Bank’s collection efforts, which makes it difficult for the court to find clear and
convincing evidence that the only intent Jack had in executing the Trust Deed was to secure his

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father’s antecedent debt. [Dkt. Nos. 28-1, 30.] In an equitable proceeding that raises questions of
fraudulent intent, the court must also consider Jack’s awareness that the Park City property was
already fully encumbered by a Wells Fargo line of credit when evaluating whether he actually
intended to provide his father’s loan with additional security at all. [Dkt. No. 28-1.] In light of
all of the foregoing, the court concludes that defendants have not met their burden of proving
mutual mistake by clear and convincing evidence.
In the absence of clear and convincing evidence of mutual mistake in the execution of the
Trust Deed, it is not necessary for the court to evaluate whether plaintiffs will be prejudiced by
reformation of the deed. The court therefore DENIES defendants’ motion for reformation of the
Trust Deed.
V.

Additional Briefing Requested On UTAH CODE ANN. § 25-6-6(2)
While this matter was under advisement, the court requested the parties to brief whether

UTAH CODE ANN. § 25-6-6(2) was applicable to this action. In light of the court’s decision
herein, the court declines further analysis of this provision.
CONCLUSION
For the foregoing reasons, the court DENIES defendants’ Motion to Strike Plaintiff’s
Reply Memorandum [Dkt. No. 44], DENIES Plaintiff’s Motion for Summary Judgment [Dkt.
No. 28], DENIES Plaintiff’s Motion for Summary Judgment (Quiet Title and Declaratory
Judgment) [Dkt. No. 37], and DENIES defendants’ motion for reformation [Dkt. No. 54].

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SO ORDERED this 29th day of March, 2016.
BY THE COURT:

______________________________
The Honorable Clark Waddoups
United States District Court Judge

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