McMahen v. Robinson , 2017 Ark. App. 270 ( 2017 )

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    2017 Ark. App. 270
                     ARKANSAS COURT OF APPEALS
                                           DIVISION IV
    REBECCA K. MCMAHEN                                 OPINION DELIVERED: MAY 3, 2017
                                                       APPEAL FROM THE POPE
    V.                                                 COUNTY CIRCUIT COURT
                                                       [NO. 58CV-15-063]
    BANK                           HONORABLE KEN D. COKER, JR.,
                         APPELLEES JUDGE
                                                       REVERSED AND REMANDED
                                 ROBERT J. GLADWIN, Judge
            Rebecca McMahen appeals the August 14, 2015 order of the Pope County Circuit
     Court that denied her petition for declaratory judgment. In denying the petition, the trial
     court found that the three-year statute of limitations provided in Arkansas Code Annotated
     section 4-59-209 (Repl. 2011) did not apply to prevent appellee Kenneth Mack Robinson
     from obtaining an order to set aside the August 23, 2007 quitclaim deed that transferred
     certain real property to Rebecca from her husband, David McMahen. Rebecca argues that
     the trial court improperly applied the statute and erred in finding that David had a curtesy
     interest to which Robinson’s judgment lien could attach. We reverse and remand.
                                                 I. Facts
            Rebecca filed a complaint on March 2, 2015, seeking a declaration that Arkansas
     Code Annotated section 4-59-209 prevented judgments against David from attaching to the
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    land she had acquired from him. 1 She alleged that on August 23, 2007, David quitclaimed
    to her certain real property located in Pope County. When he made the transaction, David
    was insolvent, and the property was subject to a mortgage. On April 7, 2010, American
    Express Centurion Bank (Centurion) obtained a judgment against David; and on October
    12, 2010, Robinson was awarded a consent judgment against David, that was filed on
    November 1, 2010, in Pope County. Rebecca alleged in her complaint that the statute of
    limitations expired on August 23, 2010, on any action arising under Arkansas Code
    Annotated sections 4-59-201 to -213 (Arkansas Fraudulent Transfers Act). Rebecca further
    claimed that on June 2, 2011, David sought bankruptcy protection by filing a petition for
    Chapter 7 relief in the Bankruptcy Court for the Eastern District of Arkansas, and on
    October 20, 2011, the debts to Robinson and Centurion were discharged. 2
           Rebecca and David signed an escrow agreement on December 22, 2011, agreeing
    to sell the quitclaimed property at issue to Owen Jones. Subsequently, when Jones tried to
    sell the property, he could not acquire title insurance because of the prospect that either
    Robinson or Centurion might have a cause of action against David under the Arkansas
            Ark. Code Ann. § 4-59-209 provides that a cause of action with respect to a
    fraudulent transfer is extinguished unless action is brought within three years.
             Rebecca obtained a “Declaratory Order” on April 15, 2015, after Centurion was
    served on March 9, 2015, and failed to answer the complaint. The order states that four
    and one-half years had passed since the three-year period of limitations had ended under
    Ark. Code Ann. § 4-59-209 for anyone attacking the transfer of land she had received from
    David on August 23, 2007. The order states that “the Court is of the opinion that the
    Plaintiff may pass title to all or any part of the lands described in Paragraph 2 above to any
    person without threat of a successful action by the Defendant, American Express Centurion
    Bank, to set aside the transaction whereby Plaintiff initially acquired title to the land.” This
    order was not appealed.
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    Fraudulent Transfers Act. Rebecca sought a declaration from the trial court that the time
    for either Robinson or Centurion to obtain an order setting aside the quitclaim deed—
    which would allow their judgments to attach to the land—had expired and that the
    judgments against her husband were not enforceable as to her or her property.
           Robinson answered that the quitclaim deed lacked consideration and was void; so,
    the lien on the property arising from his judgment was still attached. He argued that the
    statute of limitations for an action on a judgment, such as a lien foreclosure, had not run.
    Ark. Code Ann. § 16-56-114 (Repl. 2005) (actions on all judgments and decrees shall be
    commenced within ten years after cause of action shall accrue). Rebecca filed a first-
    amended complaint alleging that Robinson did not have a judgment against any owner of
    the property in question. Robinson pled affirmatively that the statute of limitations cited
    by Rebecca was not applicable to his efforts to rescind the quitclaim deed to her, which is
    a remedy sounding in equity. He alleged that the quitclaim deed at issue was a fraudulent
    transfer and lacked consideration and was therefore void. Thus, he argued that David still
    had an interest in the subject property, and Robinson’s lien on the property arising from
    the judgment was still attached.
           At the hearing on Rebecca’s declaratory-judgment complaint, Rebecca’s counsel
    argued that when the three-year statute of limitations had run, Robinson’s opportunity to
    pull that property back into David’s ownership had also expired. Counsel claimed, “It did
    not affect the lien of the judgment, it’s just that there was no property in Mr. McMahen’s
    name to which [Robinson’s] lien might attach.”
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           Counsel for Robinson declared that the three-year statute of limitations did not
    preclude other principles of law and equity under Arkansas Code Annotated section 4-59-
    210 (Repl. 2011). Counsel argued that a court of equity was not bound by limitations fixed
    by statute if it would be inequitable or unjust to do so. Counsel pointed to Rebecca’s
    admission that David was insolvent at the time of the transfer and that she had given no
    money for the property. Even though the quitclaim transaction occurred about ten years
    prior, counsel argued that the homestead exemption the McMahens would have enjoyed
    ended in 2011 when they signed the escrow agreement with Jones. Counsel argued that
    caselaw supports the position that a homestead is abandoned when the property is sold.
    Further, he claimed that the escrow agreement was not recorded, so Robinson had no
    reason to know about it until it was brought to his attention in 2015. Finally, counsel
    argued that David had a curtesy interest in his wife’s property.
           The trial court filed an order on August 14, 2015, finding that, despite the three-year
    limitation provided in Ark. Code Ann. § 4-59-209, the issue of when the time for setting
    aside the quitclaim transaction expired was a question of fact under the equitable doctrine
    of laches. The trial court stated,
           When applying the doctrine of laches to the timeliness of a rescission action, the
           courts must consider various factors including the circumstances, purposes, and
           nature of the action or inaction and the attempt to rescind a contract “must be made
           within a reasonable time after the facts supporting the right of rescission become
           known.” See Brill, Arkansas Law of Damages, § 31:3, at p. 715; Ark. Code Ann. § 4-
    The trial court held that it could not find that the time for obtaining an order to set aside
    or rescind the transaction from David to Rebecca had expired under the doctrine of laches,
    and it denied the declaratory-judgment petition.
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           Rebecca filed a motion to modify the order on August 19, 2015, and the trial court
    denied it by order filed September 10, 2015. A second notice of appeal was filed on
    September 18, 2015, and this appeal timely followed. 3
                                        II. Standard of Review
           The standard of review for an appeal from a bench trial is whether the court’s findings
    were clearly erroneous or clearly against the preponderance of the evidence. Dye v.
    2017 Ark. 42
    , at 3–4, 
    510 S.W.3d 759
    , 762. A finding is clearly erroneous when,
    although there is evidence to support it, the reviewing court on the entire evidence is left
    with a definite and firm conviction that a mistake has been committed. Id. Because our
    inquiry involves statutory interpretation, our review is de novo. Taylor v. City of Fort Smith,
    2014 Ark. App. 450
    , at 3, 
    441 S.W.3d 36
    , 39.
                        III. Application of Ark. Code Ann. §§ 4-59-209, -210
           Rebecca argues that the trial court failed to properly apply Arkansas Code Annotated
    section 4-59-209 to the undisputed facts of this case. We agree. Section 4-59-209 provides
    as follows:
           A cause of action with respect to a fraudulent transfer or obligation under this
           subchapter is extinguished unless action is brought:
           (a) under § 4-59-204(a)(1), within three (3) years after the transfer was made or the
           obligation was incurred;
           (b) under § 4-59-204(a)(2) or § 4-59-205(a), within three (3) years after the transfer
           was made or the obligation was incurred; or
           (c) under § 4-59-205(b), within one (1) year after the transfer was made or the
           obligation was incurred.
           This appeal arrives before us for the second time after we ordered Rebecca
    McMahen to file a supplemental addendum on March 15, 2017, and she complied on March
    20, 2017. See McMahen v. Robinson, 
    2017 Ark. App. 169
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           The parties agree that the quitclaim deed was transferred from David to Rebecca on
    August 23, 2007. Robinson obtained his consent judgment against David on October 12,
    2010, and it was filed of record on November 1, 2010, which is more than three years after
    the quitclaim deed had been transferred to Rebecca. Therefore, any cause of action to
    rescind the quitclaim deed based on the Arkansas Fraudulent Transfers Act was extinguished
    after August 23, 2010.
           The question of the application of Arkansas Code Annotated section 4-59-210 must
    be answered; section4-59-210 provides as follows:
           Unless displaced by the provisions of this subchapter, the principles of law and equity,
           including the law merchant and the law relating to principal and agent, estoppel,
           laches, fraud, misrepresentation, duress, coercion, mistake, insolvency, or other
           validating or invalidating cause, supplement its provisions.
    Citing section 4-59-210, Robinson contends that the trial court properly ruled that the
    theory of laches applies to his rescission claim despite section 4-59-209 and that the time for
    him to bring his rescission claim has not expired.
           Robinson claims that David transferred his interest in the property to Rebecca for
    no consideration in August 2007, knowing that Robinson would soon file a lawsuit against
    him. David’s sole reason for the conveyance was to prevent Robinson’s future judgment
    from attaching to the real property. Robinson contends that he did not pursue rescission
    earlier because he could not attach his judgment lien to the property under the homestead
    exemption. See Ark. Const. art. IX, § 3. He asserts that the homestead exemption was
    waived when Rebecca signed an escrow agreement on December 22, 2011, with Owen
    Jones. See Stone v. Bowling, 
    191 Ark. 671
    87 S.W.2d 49
     (1935); Beeson v. Byars, 
    187 Ark. 966
    63 S.W.2d 540
     (1933). Robinson contends that because the escrow agreement was
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    not recorded, he could not have known that the homestead exemption had been waived
    until Rebecca filed her declaratory-judgment action on March 2, 2015.
              Robinson cites Self v. Self, 
    319 Ark. 632
    , 636, 
    893 S.W.2d 775
    , 778 (1995), which
                     The doctrine of laches is based on a number of equitable principles that are
              premised on some detrimental change in position made in reliance upon the action
              or inaction of the other party. Anadarko Petroleum v. Venable, 
    312 Ark. 330
    850 S.W.2d 302
     (1993). It is based on the assumption that the party to whom laches is
              imputed has knowledge of his rights and the opportunity to assert them, that by
              reason of his delay some adverse party has good reason to believe those rights are
              worthless or have been abandoned, and that because of a change of conditions during
              this delay it would be unjust to the latter to permit him to assert them. Briarwood
              Apartments v. Lieblong, 
    12 Ark. App. 94
    671 S.W.2d 207
              Robinson contends that for laches to bar the rescission, Rebecca must, by reason of
    Robinson’s delay, have good reason to believe that his right to rescind the fraudulent transfer
    was abandoned or worthless. Self, 319 Ark. at 636, 893 S.W.2d at 778. Robinson claims
    that Rebecca knew the transfer of real property by her husband was a fraudulent attempt to
    keep it from attaching to Robinson’s judgment lien; therefore, Rebecca did not have a good
    reason to believe that Robinson’s right was abandoned or worthless. Thus, Robinson argues
    that the trial court’s finding that the time to bring the rescission claim had not expired is not
    clearly erroneous.
              In Self, the issue was whether the chancellor had erred in failing to apply the doctrine
    of laches after the appellee had waited more than twenty-four years to file her action to set
    aside a divorce. Id.      The supreme court held that the appellee had allowed the voidable
    decree to remain in effect for twenty-four years, even though her attorney had told her it
    could be set aside. Id. at 637, 893 S.W.2d at 778. The court stated,
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                   Our general rule is that a party who has knowledge of a judgment against
           himself or herself is required to exercise reasonable diligence in seeking to have it set
           aside, and an unexcused delay can justify a court in refusing to grant relief prayed for.
           O’Neal v. B.F. Goodrich Rubber Co., 
    204 Ark. 371
    162 S.W.2d 52
    Id., 893 S.W.2d at 778.
           In the present case, the trial court found that the issue of when the time for setting
    aside the quitclaim transaction expired was a question of fact under the equitable doctrine
    of laches. We disagree. The question whether or when Robinson knew of the quitclaim
    transfer is irrelevant in this circumstance because the time limitation in section 4-59-209
    had run its course before Robinson obtained a judgment against David, and any claim
    attacking the quitclaim deed had been extinguished. Section 4-59-210 does not apply
    because Robinson did not obtain his judgment against David within the three-year period
    that the conveyance was vulnerable under section 4-59-209. Had his judgment been
    granted within the three-year period following the quitclaim-deed transfer to Rebecca,
    Rebecca could have utilized section 4-59-210 and argued that laches prevented any claim
    Robinson may have had after the three-year period had expired.
          Because we hold that Robinson is barred from making a fraudulent-transfer claim
    attacking the quitclaim deed conveyed to Rebecca on August 23, 2007, we decline to
    address Rebecca’s arguments involving curtesy.
           Reversed and remanded.
           GRUBER, C.J., and VAUGHT, J., agree.
           Jon R. Sanford, P.A., by: Jon R. Sanford, for appellant.
          Niswanger Law Firm PLC, by: Stephen B. Niswanger and Benjamin M. Ross, for appellee
    Kenneth Mac Robinson.