Federal Refinance Co. v. Klock

United States Court of Appeals
For the First Circuit

No. 02-1654

FEDERAL REFINANCE CO., INC.,
Plaintiff, Appellant,

v.

DEBORAH KLOCK ET AL.,
Defendants, Appellees.

Nos. 02-1753
02-2547

FEDERAL REFINANCE CO., INC.,
Plaintiff, Appellee,

v.

DEBORAH KLOCK ET AL.,
Defendants, Appellees.
______________

FRANK ROMANO, JR.,
Defendant, Appellant.
______________

APPEALS FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS

[Hon. William G. Young, U.S. District Judge]

Before

Selya, Circuit Judge,
Coffin, Senior Circuit Judge,
and Lipez, Circuit Judge.

Judd L. Peskin, with whom Weiner and Peskin, P.C. was on
brief, for plaintiff.
Valerie S. Carter, with whom Carter & Doyle, LLP was on brief,
for defendant Klock.
 Gary C. Crossen, with whom Rubin & Rudman, LLP, Valerie S.
Carter, and Carter & Doyle, LLP were on brief, for defendant Romano
and intervenor-defendant Essex Group, Inc.

December 5, 2003
 SELYA, Circuit Judge. Many people think that securing a

favorable judgment from a court of competent jurisdiction marks the

end of a plaintiff's journey. In some instances, however, that is

only a step along the road to meaningful relief. This is a case in

point.

In 1997, Federal Refinance Co., Inc. (Federal) obtained

a deficiency judgment for over $331,000 against Frank Romano, Jr.

It spent the next five years trying to satisfy the judgment by

levying upon Romano's principal asset (his shares of stock in a

closely held corporation). When the stock proved elusive, Federal

asked the district court to set aside a series of allegedly

fraudulent transfers. The court's ensuing rulings did not entirely

please either Federal or Romano. Both appeal.

We affirm the district court's bench decision (i) setting

aside Romano's 1988 transfer of the shares to a family trust and

(ii) upholding the creation and funding of certain limited

partnerships. We are less sanguine, however, about the court's

subsequent invalidation of yet a third transfer. See Fed. Refin.

Co. v. Klock, 229 F. Supp. 2d 26 (D. Mass. 2002). Finding a

procedural error, we vacate that order and remand for further

proceedings.

I. BACKGROUND

The background facts are largely undisputed. In 1980,

Wickford Realty Trust obtained a mortgage loan from Second National

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Bank. Romano unconditionally guaranteed repayment of the loan,

which eventually went into default. Federal acquired the defaulted

loan and conducted a foreclosure proceeding. Left with a

deficiency, Federal looked to the guaranty and brought a diversity

action against Romano in the United States District Court for the

District of Massachusetts. On March 3, 1997, the court awarded

Federal a judgment for $331,608.78.

Romano was thought to be a principal of a closely held

corporation, Essex Group, Inc. (Essex), a holding company whose six

wholly-owned subsidiaries each operated a nursing home. Before any

of the transfers here at issue, Essex's shares were held 43.75% by

Romano, 47.25% by his mother Mary, and 9% by the Doyle Family

Trust.

When Federal attempted to satisfy the judgment by

garnishing Romano's stock, it learned that the stock had flown the

coop. In 1988, Romano had transferred 17,500 shares (the whole of

his 43.75% equity interest), without pecuniary consideration, to a

newly formed trust (the B&T Trust) of which he was the trustee and

his children were the beneficiaries.

Federal's frustration grew even more pronounced when it

discovered that, between 1991 and 1994, Essex had created three

limited partnerships. Each had an Essex subsidiary as its general

partner (with a 20% share of the profits) and Romano's wife,

Deborah Klock, as its sole limited partner (with an 80% share of

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the profits). Moreover, the general partners had divested

themselves of their real estate, each having spun off title to its

nursing home into its limited partnership. These transactions

arguably diluted the value of Essex's shares.

Since Romano did not appear to have other significant

assets, Federal sued to get the shares back into his hands1 and to

collapse the limited partnerships.

II. THE BENCH DECISION

All of these claims were tried to the court. The trial

ended in a bench decision handed down on April 23, 2002. As we

explain below, each side got half a loaf.

A. Count I.

The first count of Federal's complaint asked the court to

invalidate the stock transfer as a fraudulent conveyance under

1
As a subset of this goal, Federal also sought the appointment
of a receiver to take temporary custody of the shares. Although
the court initially denied that request, Federal subsequently
renewed it. We discuss the fate of Federal's renewed request
infra.

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section 4 of the Uniform Fraudulent Conveyance Act (UFCA).2 The

UFCA's constructive fraud provision, in force in 1988, read:

Every conveyance made and every obligation
incurred by a person who is or will be thereby
rendered insolvent is fraudulent as to
creditors without regard to his actual intent
if the conveyance is made or the obligation is
incurred without fair consideration.

Mass. Gen. Laws ch. 109A, § 4 (repealed 1996). The district court

determined that Romano's 1988 conveyance violated this section. It

set aside the transfer to the trust and decreed that the 17,500

shares of stock were "deemed to be in the unencumbered possession

of . . . Romano."

B. Counts II-IV.

Counts II through IV of Federal's complaint alleged that

the purpose and effect of the creation and funding of the

partnerships was to dilute the value of Romano's stock. On this

basis, Federal sought to collapse the limited partnerships. In

mounting this attack, it relied upon both UFCA § 4, quoted supra,

and UFCA § 7. The latter provision is an actual fraud provision.

Throughout the relevant time frame, it read:

2
Massachusetts repealed the UFCA in 1996 and replaced it with
the Uniform Fraudulent Transfer Act (UFTA). 1996 Mass. Acts 157
(effective Oct. 8, 1996). Both acts carry the same chapter number,
Mass. Gen. Laws ch. 109A. Massachusetts law is clear that the UFTA
is not to be applied retroactively. First Fed. Sav. & Loan Ass'n
v. Napoleon, 701 N.E.2d 350, 352 (Mass. 1998); Yankee Microwave,
Inc. v. Petricca Communic. Sys., Inc., 760 N.E.2d 739, 754 n.21
(Mass. App. Ct. 2002). Because the conveyances that we have
mentioned up to this point took place during the currency of the
UFCA, that version of chapter 109A governs our analysis of them.

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 Every conveyance made and every obligation
incurred with actual intent, as distinguished
from intent presumed in law, to hinder, delay
or defraud either present or future creditors,
is fraudulent as to both present and future
creditors.

Mass. Gen. Laws ch. 109A, § 7 (repealed 1996).

The district court ruled against Federal on these counts.

It rejected Federal's constructive fraud claim, finding that the

corporations were the actual transferors and that they were not

insolvent at the times of the transfers. The court likewise

rejected the claim of actual fraud, crediting evidence that there

was a legitimate business purpose behind the creation and funding

of the limited partnerships, namely, that the restructuring was a

prerequisite to obtaining needed financing from the United States

Department of Housing and Urban Development (HUD).

III. THE POST-TRIAL PROCEEDINGS

Having won a partial victory, Federal filed a motion in

aid of judgment on May 2, 2002. See Fed. R. Civ. P. 69(a). In

that motion, Federal asked the district court to reach and apply

the 17,500 shares of Essex stock. Much to Federal's dismay, it

learned that the shares had slipped away again. The tale follows.

At some point (the exact time is immaterial for present

purposes), Essex had purchased from another of Romano's creditors

a $15,000,000 debt. See FDIC v. Elder Care Servs., Inc., 82 F.3d

524, 525-26 (1st Cir. 1996) (describing the origin of the debt).

In late April of 2002 (whether before or after the date of the

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district court's bench decision is not entirely clear), Romano

transferred his 17,500 shares to Essex, ostensibly in exchange for

an $85,000 credit and a ten-year forbearance agreement on that

indebtedness.

Faced with a Tantalean predicament, Federal promptly

moved to reconsider the denial of its motion for the appointment of

a receiver, see supra note 1, and to annul this most recent

conveyance. Federal averred that the 2002 transaction should be

rescinded as preferential. Because this latest transfer took place

after the effective date of the Uniform Fraudulent Transfer Act

(UFTA), that updated version of chapter 109A governed the claim

asserted. The UFTA provides in pertinent part:

A transfer made by a debtor is fraudulent as
to a creditor whose claim arose before the
transfer was made if the transfer was made to
an insider for an antecedent debt, the debtor
was insolvent at that time, and the insider
had reasonable cause to believe that the
debtor was insolvent.

Mass. Gen. Laws ch. 109A, § 6(b).

The district court saw no need to take evidence, but,

rather, summarily voided the transfer as preferential. Fed.

Refin., 229 F. Supp. 2d at 28. The court also ensured that the

elusive shares would stay put, enjoining Romano from transferring

or encumbering them in any way that might interfere with Federal's

efforts to reach and apply. Finally, as a sanction for Romano's

misconduct during discovery, the court granted Federal's renewed

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motion for the appointment of a receiver to hold the shares for the

time being. See id. at 28-29 & n.2.

IV. THE APPEALS

The parties have cross-appealed. With respect to the

district court's bench decision, Romano challenges the order

voiding the transfer to the B&T Trust whereas Federal challenges

the order upholding the creation and funding of the limited

partnerships. With respect to the district court's subsequent

written decision, Romano and Essex — which has intervened —

challenge the order invalidating the stock-for-credit-and-

forbearance arrangement. In the pages that follow, we address

these disputes sequentially.

V. THE TRANSFER TO THE B&T TRUST

UFCA § 4 sets out two basic conditions for setting aside

a transfer on the ground of constructive fraud: the transferor

must have (i) been insolvent at the time of the conveyance (or

rendered insolvent by it), and (ii) made the conveyance without

fair consideration. Boston Trading Group v. Burnazos, 835 F.2d

1504, 1510 (1st Cir. 1987). A person is insolvent for these

purposes when the readily realizable market value of his assets is

less than the amount required to pay his existing debts as they

become due. First Fed. Sav. & Loan Ass'n v. Napoleon, 701 N.E.2d

350, 353-55 (Mass. 1998). Fair consideration is given in exchange

for transferred property when, "as a fair equivalent therefor, and

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in good faith, [other] property is conveyed or an antecedent debt

is satisfied." Boston Trading Group, 835 F.2d at 1512 (quoting

former Mass. Gen. Laws ch. 109A, § 3 (repealed 1996)).

On appeal, Romano mounts a rather anemic attack on the

district court's initial insolvency determination. He argues, in

substance, that the court could not reach a decision as to his

solvency without some evidence as to the value of the Essex stock.

This argument is jejune. His own testimony established that the

17,500 shares of Essex stock were his only significant asset at the

relevant time (1988) and that he was then personally obligated to

repay over $10,000,000 in loans that were about to go into default.

If the stock had little value, Romano was insolvent. Conversely,

if the stock's value exceeded Romano's massive liabilities, then

the transfer would have rendered him insolvent. Either way,

Romano's attack misfires.

His challenge to the court's conclusion that the transfer

lacked fair consideration is hopeless. He admitted that he

received no money or property in return for the shares. And

although his brief includes a perfunctory assertion that the

transfer was in fact adequately supported by the love and affection

of his children, he points us to no case law that suggests that,

for purposes of the UFCA, such intangibles may supplant money,

property, or satisfaction of an antecedent debt as fair

consideration.

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 Romano's only colorable argument implicates the district

court's ruling in response to a motion in limine. In the pretrial

proceedings, Romano identified an expert witness whose testimony

was intended to show that, at the time of the conveyance to the B&T

Trust, the 17,500 shares were worthless. Federal moved in limine

to exclude the testimony. Romano objected, exhorting the court to

allow his expert to testify on the theory that a fraudulent

conveyance action will not lie if the asset conveyed is worthless

at the time of transfer.3 The court granted the motion in limine,

holding that the value of the stock was legally irrelevant. Romano

asks us to overturn this ruling, vacate the order setting aside the

transfer, and remand for further proceedings.

As framed, this assignment of error presents an abstract

legal question regarding the proper interpretation of a state

statute. Such questions engender de novo review. See Salve Regina

Coll. v. Russell, 499 U.S. 225, 231 (1991); Protective Life Ins.

3
At oral argument in this court, Romano's counsel suggested
that the expert testimony should have been allowed to show that the
value of the shares (zero) was equal to what B&T paid for them
(nothing), and that, therefore, the transfer had been for fair
consideration. We disregard this argument because Romano never
advanced it in the district court. See Teamsters Union, Loc. No.
59 v. Superline Transp. Co., 953 F.2d 17, 21 (1st Cir. 1992) ("If
any principle is settled in this circuit, it is that, absent the
most extraordinary circumstances, legal theories not raised
squarely in the lower court cannot be broached for the first time
on appeal."); Clauson v. Smith, 823 F.2d 660, 666 (1st Cir. 1987)
(similar).

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Co. v. Dignity Viatical Sett. Partners, 171 F.3d 52, 54 (1st Cir.

1999).

Our starting point is, of course, the statutory text.

UFCA § 4 authorizes the setting aside of certain conveyances. It

defines a conveyance as "every payment of money, assignment,

release, transfer, lease, mortgage or pledge of tangible or

intangible property, and also the creation of any lien or

incumbrance." Nothing in the statute qualifies the term "property"

or in any way indicates a legislative intent to limit the statute's

reach to conveyances involving property having a positive market

value.

Finding no comfort in the language of the UFCA, Romano

falls back upon the decision in Richman v. Leiser, 465 N.E.2d 796

(Mass. App. Ct. 1984). That decision cannot carry the weight that

Romano loads upon it.4

In Richman, an unsecured creditor attempted to set aside

a conveyance of property encumbered by liens exceeding its market

value. Despite a showing of fraudulent intent, the court refused

to invalidate the transfer. The court began with the proposition

that "[a] conveyance is not established as a fraudulent conveyance

upon showing of a fraudulent intention alone; there must also be a

4
The other cases cited by Romano, e.g., Xerox Fin. Servs. Life
Ins. Co. v. Sterman (In re Sterman), 244 B.R. 499, 514 (D. Mass.
1999); Shamrock, Inc. v. FDIC, 629 N.E.2d 344, 349 (Mass. App. Ct.
1994), do little more than cite to Richman. They add nothing to
Romano's argument.

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resulting diminution in the assets of the debtor available to

creditors." Id. at 798. It found no such diminution, reasoning

that the complaining unsecured creditor "could not have reached the

property before the conveyance," and so "the conveyance itself

could not have been fraudulent as to him." Id. at 799 (quoting

Stauffer v. Stauffer, 351 A.2d 236, 245 (Pa. 1976)).

Romano reads this language to signify that a fraudulent

conveyance claim will not lie unless a debtor has equity in the

transferred property. Richman, however, does not sweep so broadly.

The linchpin of the Richman decision is the principle that a

transfer of fully encumbered property (i.e., property that is

mortgaged for more than it is worth and, thus, has no residual

value) puts no otherwise available assets beyond the grasp of an

unsecured creditor. That principle makes good sense: whether or

not the debtor effects a transfer, the accumulated security

interests will prevent an unsecured creditor from reaching and

applying the overencumbered property. Cf. Stauffer, 351 A.2d at

245 (refusing to set aside a conveyance of property held by the

entireties because the husband's creditor could not have reached

the asset pre-conveyance).

The case at hand is cut from a different cloth. The

shares of Essex's stock were free and clear at the time that Romano

signed them over to the B&T Trust. Absent the transfer, Federal

could have reached the stock — whatever its value — in an effort to

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satisfy the judgment. Thus, the transfer put property that would

otherwise have been available out of the complaining creditor's

reach. For that reason, Richman is inapposite.

This result comports with the policies underlying the

UFCA. "The purpose of the UFCA is to preserve a debtor's assets so

that creditors may look to them in the event that the debtor ceases

payments . . . ." First Fed. Sav. & Loan, 701 N.E.2d at 354-55

(citations omitted). A debtor "may not give [his assets] away and

thereby put them beyond the reach of creditors." Id. at 355.

Given the district court's factual findings, Romano's conduct falls

into the heartland of the prohibition against fraudulent

conveyances. Allowing an exception on the ground that the shares

were worthless would be at odds with the rationale underlying that

prohibition. We conclude, therefore, that the district court did

not err in denying the motion in limine.

Romano makes a related claim of error implicating the

district court's denial of his motion for judgment as a matter of

law. See Fed. R. Civ. P. 52(c). In the course of arguing that

motion, he vouchsafed that Federal could not make the required

prima facie showing of Romano's insolvency at the time of the

transfer without some evidence as to the value of the shares. He

now assigns error to the court's denial of this motion. This is an

old whine in a new bottle. The argument essentially repeats a

claim already made and rejected. See supra p.10. As said, the

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evidence established that Romano was deeply in debt at the time of

the transfer and that the transferred stock had been his only

substantial asset. Hence, Federal made out a prima facie case of

insolvency. Since Romano did not rebut this showing — indeed, he

made no discernible effort to do so — the lower court did not err

in denying the motion for judgment as a matter of law.

Before leaving this transfer, we address one related

item. At the tail end of its brief, Federal makes a perfunctory

argument to the effect that the district court erred in denying its

request for attorneys' fees.

We need not tarry. Federal's offhand pitch is

unaccompanied by any developed argumentation. Under our

precedents, therefore, it merits summary rejection. See, e.g.,

Blake v. Pellegrino, 329 F.3d 43, 50 (1st Cir. 2003); Ryan v. Royal

Ins. Co., 916 F.2d 731, 734 (1st Cir. 1990); United States v.

Zannino, 895 F.2d 1, 17 (1st Cir. 1990). In all events, neither

the UFCA nor the guaranty contains a fee-shifting provision, and

Federal offers us no reason to exempt this case from the usual rule

that, absent a specific statutory or contractual fee-shifting

provision, a prevailing party cannot recover attorneys' fees as of

right from the losing party. See Chambers v. Nasco, Inc., 501 U.S.

32, 45 (1991); Alyeska Pipeline Serv. Co. v. Wilderness Soc'y, 421

U.S. 240, 258-59 (1975).

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VI. THE CREATION AND FUNDING OF THE LIMITED PARTNERSHIPS

Federal cross-appeals from the district court's

determination that the creation of the limited partnerships and the

subsequent transfers to them of the nursing home properties did not

constitute fraudulent conveyances under the UFCA. In Federal's

estimation, these transactions were both constructively and

actually fraudulent. Before analyzing Federal's contentions, we

pause to clarify the standard of review.

A. Standard of Review.

A party who challenges a district court's findings of

fact, arrived at after a bench trial, faces a steep uphill climb.

When a district court finds the facts without the intervention of

a jury, the court of appeals is not at liberty to start afresh.

See Cumpiano v. Banco Santander, 902 F.2d 148, 152 (1st Cir. 1990);

Keyes v. Sec'y of Navy, 853 F.2d 1016, 1019 (1st Cir. 1988); see

also Fed. R. Civ. P. 52(a). "The trial judge sees and hears the

witnesses at first hand and comes to appreciate the nuances of the

litigation in a way [that] appellate courts cannot hope to

replicate." Cumpiano, 902 F.2d at 152. Consequently, "[i]f the

district court's account of the evidence is plausible . . . the

court of appeals may not reverse it even though convinced that had

it been sitting as the trier of fact, it would have weighed the

evidence differently." Anderson v. City of Bessemer City, 470 U.S.

564, 573-74 (1985). In the last analysis, factual findings or

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conclusions drawn therefrom may only be set aside if, after a

searching review of the entire record, the court of appeals

"form[s] a strong, unyielding belief that a mistake has been made."

Cumpiano, 902 F.2d at 152.

Federal strives to free itself from this inhospitable

standard of review by arguing that the trial court merely

determined the legal effect of uncontroverted facts. Thus,

Federal's thesis runs, the court's decision should be reviewed de

novo. We reject this thesis for two reasons.

In the first place, Federal's characterization of the

material facts as uncontroverted is wishful thinking. Factual

disputes sprout throughout the record like weeds in an untended

garden. Although Federal classifies such things as the

protagonists' motives in restructuring the nursing home operations

and the rationale for naming Klock, rather than Romano, as the

limited partner, as questions of law, that taxonomy is unrealistic.

We consistently have refused to permit parties to advantage

themselves by couching questions of fact as questions of law, see,

e.g., Reliance Steel Prods. Co. v. Nat'l Fire Ins. Co., 880 F.2d

575, 577 (1st Cir. 1989), and we see no reason to abandon that

salutary practice today. The clearly erroneous standard of review

"cannot be evaded by the simple expedient of creative relabeling."

Id.

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 In the second place, even if the facts were

uncontroverted, that circumstance alone would not alter the

standard of review. When the trier's findings depend upon its

choice of competing inferences drawn from undisputed facts, the

clearly erroneous standard continues to apply. See Jackson v.

United States, 156 F.3d 230, 233 (1st Cir. 1998); Dedham Water Co.

v. Cumberland Farms Dairy, Inc., 972 F.2d 453, 457 (1st Cir. 1992).

To the extent that the raw facts are undisputed, this is such a

case.

We also reject Federal's intimation that mixed questions

of fact and law invariably demand de novo review. The scope of

review for mixed questions varies. The more fact-intensive the

inquiry, the more likely we are to apply clear error review; the

more law-dominated the inquiry, the more likely we are to undertake

de novo review. Sierra Fria Corp. v. Evans, 127 F.3d 175, 181 (1st

Cir. 1997); United States v. Howard (In re Extrad. of Howard), 996

F.2d 1320, 1327-28 (1st Cir. 1993). Probing the existence of a

fraudulent conveyance customarily is a factbound inquiry,

subjecting the court's findings to clear error review. See, e.g.,

Beal Bank v. Pittorino, 177 F.3d 65, 69 (1st Cir. 1999); Barrett v.

Cont'l Ill. Nat'l Bank & Trust Co., 882 F.2d 1, 3-4 (1st Cir.

1989). This result commends itself with particular force where, as

here, a claim turns on elusive issues of motive or intent. See

Crellin Techs., Inc. v. Equipmentlease Corp., 18 F.3d 1, 7 (1st

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Cir. 1994); see also Cumpiano, 902 F.2d at 152 (counseling that

"[f]indings concerning an actor's intent fit neatly within the

integument of the 'clearly erroneous' rule"). We are satisfied,

therefore, that the standard of review applicable to the lower

court's disposition of counts II through IV is clear error.

B. Constructive Fraud.

We turn now to the trial court's findings. Setting aside

a conveyance for constructive fraud under UFCA § 4 requires both a

finding that the transferor was insolvent at the time of the

transfer (or was rendered insolvent thereby) and a finding that the

conveyance was made without fair consideration. Implicit in this

analytic framework is the assumption that the factfinder first must

identify the relevant transferor. See Boston Trading Group, 835

F.2d at 1509. Here, the district court concluded that the

corporations were the relevant transferors:

[T]aking all the evidence and the reasonable
inferences therefrom, the court is not
persuaded that at the time of that
restructuring the corporations, who were
actually the ones who were making the
conveyance of their stock, were thereby
rendered insolvent. (Emphasis supplied.)

Federal mounts two attacks on the district court's

finding. First, it pounces on a mistake embedded in the court's

articulation and labors to persuade us that this bevue discredits

the court's conclusion. Second, it posits that the finding is

clearly erroneous. Neither attack succeeds.

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 To be sure, the district court misspoke at one point in

its bench decision: there was no conveyance of stock involved in

the creation and funding of the limited partnerships. Rather, the

shareholders of the parent company (Essex) voted to create the

limited partnerships, and each subsidiary corporation then

transferred its real estate to its newly formed limited

partnership.

From all indications, the court's passing mention of a

stock transfer amounts to a slip of the tongue, substituting

"stock" for "real estate." The record as a whole makes it crystal

clear that the court squarely decided the identity question. At

the start of the trial, the court put its finger on the problem,

asking Federal's counsel, "[w]ho . . . caused [the limited

partnerships] to be set up?" Counsel's response framed the two

possible answers to this query — either (i) Essex and the

subsidiary corporations (as the donors of the real estate), or (ii)

Romano (whom Federal endeavored to depict as the "actual"

transferor). Trial of the limited partnership claims focused on

which of these proposed answers was correct (i.e., who should be

deemed the transferor). The court proceeded to resolve this

question.

We have held before that a reasoned decision should not

be vacated merely because a lapsus linguae occurred. See, e.g.,

Lenn v. Portland Sch. Comm., 998 F.2d 1083, 1088 (1st Cir. 1993);

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Clauson v. Smith, 823 F.2d 660, 663 n.3 (1st Cir. 1987). So it is

here: taken in context, the district court's infelicitous choice

of words does not undermine the cogency of its determination.

Moving to the next plateau, we perceive no clear error in

the court's conclusion that the corporations, not the individual

defendants, were the relevant transferors. It is undisputed that

Essex and its subsidiaries formed the limited partnerships and

deeded the real estate to them. Although Romano apparently voted

his shares (or, more precisely, the shares standing in the name of

the B&T Trust) in favor of the restructuring, there is no direct

evidence to support a finding that he was the driving force behind

the decision. Romano was not the majority shareholder, and he

testified that he was not "in a position to either block or approve

what took place." While we may regard Romano's assertion as

suspect, weighing the evidence and assessing the witnesses'

credibility is uniquely the province of the district court. Here,

there were two permissible views of the evidence. In such a

circumstance, the factfinder's choice between those competing views

cannot be clearly erroneous. Anderson, 470 U.S. at 574; Keyes, 858

F.2d at 1020.

That ends this phase of our inquiry. Given the court's

supportable finding as to the identity of the transferors,

Federal's claim of constructive fraud must fail. Viewing the

corporations as the transferors, there is no evidence that they

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were insolvent either at the time of the transfers or immediately

thereafter.

C. Actual Fraud.

This leaves Federal's claim under UFCA § 7. Our analysis

of this claim is straightforward. Setting aside a conveyance for

actual fraud requires, at a bare minimum, a finding of "actual

intent . . . to hinder, delay or defraud either present or future

creditors." Palmer v. Murphy, 677 N.E.2d 247, 254-55 & n.15 (Mass.

App. Ct. 1997) (construing UFCA § 7). The court below found as a

matter of fact that the limited partnerships were created and

funded for a legitimate business purpose rather than to hinder,

delay, or defraud creditors. This finding is not clearly

erroneous.

Klock testified that the reason for the restructuring was

to obtain HUD financing to rehabilitate the nursing homes.

According to Klock, HUD required, as a condition of each loan, that

the real estate be separated from the operating entity. The

limited partnerships provided the vehicles for that separation.

Despite countervailing evidence suggesting that the purpose behind

the restructuring was to dilute the value of Romano's stock, the

trial court was free to choose between the two versions of the

truth and draw appropriate inferences. See Anderson, 470 U.S. at

574; Keyes, 853 F.2d at 1020. Consequently, we uphold the court's

rejection of the actual fraud claim.

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VI. THE TRANSFER TO ESSEX

We come now to the order setting aside the post-trial

transfer of Romano's well-traveled shares to Essex.5 In response

to Federal's motion to annul that transfer, the district court held

a status conference on June 17, 2002. Although the court set the

matter down for hearing eight days hence, it was vague as to how

that hearing would proceed. When the appointed date arrived, the

court declined to take testimony, instead inviting oral argument

and telling the parties that it was treating the hearing

"functionally as a motion for summary judgment."

After listening to the lawyers' arguments, the court

reserved decision. It subsequently filed a written rescript in

which it ruled, as a matter of law, that the transfer must be

rescinded. Fed. Refin., 229 F. Supp. 2d at 28.

A. Standard of Review.

In view of the court's explicit statement at the June 25

hearing, we invoke our familiar summary judgment jurisprudence.

Under that rubric, we, like the district court, must accept the

facts most favorable to the nonmoving party (here, Romano) and draw

all reasonable inferences to that party's behoof. Garside v. Osco

Drug, Inc., 895 F.2d 46, 48 (1st Cir. 1990). We review the

5
Essex, qua intervenor, joins Romano in prosecuting this
appeal (No. 02-2547). With respect to this issue, Essex's and
Romano's rights are congruent. For simplicity's sake, therefore,
we treat Romano as if he were the sole appellant.

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district court's entry of summary judgment de novo. Id. We will

affirm only if the "pleadings, depositions, answers to

interrogatories, and admissions on file, together with the

affidavits, if any, show that there is no genuine issue as to any

material fact and that the moving party is entitled to a judgment

as a matter of law." Fed. R. Civ. P. 56(c).

When a party moves for summary judgment and suggests that

no trialworthy issues exist, that party ordinarily must support the

motion with affidavits or other materials of evidentiary quality.

Plumley v. S. Container, Inc., 303 F.3d 364, 368 (1st Cir. 2002).

The burden of production then shifts to the nonmovant to show that

a genuine issue looms. Garside, 895 F.2d at 48. The protocol

differs, however, as to issues on which the nonmovant bears the

burden of proof. As to such issues, the movant is not obliged to

make an initial evidentiary showing. Rather, it is incumbent upon

the nonmovant to demonstrate, in the first instance, that specific

facts exist sufficient to create an authentic dispute. Id.

B. The Preference Claim.

As said, the UFTA controls with respect to Federal's

claim that a preferential transfer occurred. See supra Part III.

That statute empowers a court to set aside a transfer as

preferential if (i) the creditor's claim arose before the transfer

occurred, (ii) the transfer was made to an insider on account of an

antecedent debt, (iii) the debtor was insolvent at the time of the

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transfer, and (iv) the transferee had reasonable cause to believe

that the debtor was insolvent. Mass. Gen. Laws ch. 109A, § 6(b).

Romano first posits that a genuine issue of material fact

existed vis-à-vis his solvency at the time Essex redeemed his

stock. As the moving party, Federal bore the initial burden of

producing evidence of Romano's insolvency. Plumley, 303 F.3d at

368.

A finding of insolvency requires proof of both

liabilities and assets. See First Fed. Sav. & Loan, 701 N.E.2d at

353-55. The papers before the district court contained evidence

tending to show that Romano's debts exceeded $17,000,000 at the

time of the transfer. But Federal provided next to no evidence on

the asset side of the ledger. It merely asked the court to take

judicial notice of the prior ruling that Romano's only significant

asset was the Essex stock and pointed out that Romano had

purportedly "sold" the stock to Essex for an $85,000 credit on an

antecedent debt and a ten-year forbearance agreement as to the

balance of that debt.

We agree with Romano that this evidence was insufficient

to permit a reasoned calculation of the value of his assets (and,

thus, of his financial condition). A finding of insolvency

requires more than a showing of formidable debt; it also requires

a corresponding showing as to the debtor's assets. The fact that

Romano had no assets besides the Essex shares in 1988 — some

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fourteen years before the date of the transfer in question — told

the court very little about the extent of his holdings in 2002.

While it may be likely that the value of Romano's assets was less

than the amount of his liabilities, summary judgment cannot be

granted on the basis of informed intuitions. "The precincts

patrolled by Rule 56 admit of . . . no room for the judge to

superimpose his own ideas of probability and likelihood (no matter

how reasonable those ideas may be) upon the carapace of the cold

record." Greenburg v. P.R. Marit. Shipping Auth., 835 F.2d 932,

936 (1st Cir. 1987). A court considering a summary judgment motion

cannot simply presume that plaintiffs will win cases that seem open

and shut. See Leyva v. On the Beach, Inc., 171 F.3d 717, 720 (1st

Cir. 1999).

In granting summary judgment, the court below glossed

over this evidentiary defect. It noted the mountain of debt facing

Romano and then suggested that it was "undisputed" that this debt

exceeded the dollar value of Romano's assets. Fed. Refin., 229 F.

Supp. 2d at 28. We have been over the record with a fine-tooth

comb and cannot find any such concession. During the June 25

hearing, Romano's counsel acknowledged that the court earlier had

found Romano insolvent, but then reminded the court that the

situation had changed. Counsel stated:

There has to be a valuation hearing and a
trial on the merits to find out if the items
that were conveyed by Mr. Romano to Essex were
conveyed by someone who was then insolvent. .

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 . . That's a factual issue that can't be
glossed over and can't be determined in this
kind of proceeding. (Emphasis supplied.)

That statement squarely raised the insolvency question. Thus, the

district court erred in treating the fact as undisputed.

That error undermines the order for summary judgment. On

this record, Federal simply did not carry its burden of production

anent the insolvency question. Whatever the evidence eventually

may show regarding the ratio of Romano's assets to his liabilities

— a matter on which we take no view — we are constrained at this

stage to rule that summary judgment was improvidently granted.

Romano also argues that other genuine issues of material

fact remained unresolved at the time that the district court

granted summary judgment. To this end, he points us to a series of

defenses available under UFTA § 9. For the sake of completeness,

we examine this argument as well. We use UFTA § 9(f)(2) as an

exemplar.

The UFTA provides that even if a transfer meets the

criteria for avoidance set out in UFTA § 6, a court may not set it

aside so long as it was "made in the ordinary course of business or

financial affairs of the debtor and the insider." Mass. Gen. Laws

ch. 109(a), § 9(f)(2). That provision constitutes an affirmative

defense, and, thus, the burden of proof falls on the party

asserting it. See Prairie Lakes Health Care Sys., Inc. v. Wookey,

583 N.W.2d 405, 414 & n.7 (S.D. 1998) (concluding that the burden

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of proving section 9 defenses falls on the party asserting them).

In order to avoid summary judgment, therefore, Romano typically

would have to shoulder the burden of adducing specific facts

tending to show that his transfer of shares to Essex was a

transaction undertaken in the ordinary course of business.

Romano asserted the section 9(f)(2) defense at the June

25 hearing. He did not, however, adduce any evidence in support of

it. In the usual case, mere assertions of counsel are not enough

to block summary judgment. See Dow v. United Bhd. of Carpenters

and Joiners, 1 F.3d 56, 58 (1st Cir. 1993); Brennan v. Hendrigan,

888 F.2d 189, 191 (1st Cir. 1989). Federal urges us to apply that

rule here.

Federal's argument overlooks the atypical procedural

posture in which this question arose. Federal's motion to set

aside the post-trial transfer was not couched as a motion for

summary judgment. At the June 17 status conference — the first

time the district court addressed Federal's motion — the court set

the matter down for hearing on June 25, stating that it would

attempt to resolve the motion "as a matter of law" and that if it

could not do so it would try the matter.

These comments were imprecise. Although the court may

have intended all along to hold a summary judgment hearing, it did

not say so. No motion for summary judgment had been made, and the

docket entry reveals that the clerk scheduled June 25 as the first

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day for "a jury-waived trial." To confuse matters further, the

court neither specifically mentioned summary judgment nor asked the

parties to prepare affidavits or other evidentiary submissions

before the June 25 hearing.

Courts have recognized that summary judgment is strong

medicine, and the rules provide that parties must be given adequate

notice of summary judgment proceedings and a reasonable time within

which to proffer supporting documents. See, e.g., Rogan v. Menino,

175 F.3d 75, 80 (1st Cir. 1999); Stella v. Town of Tewksbury, 4

F.3d 53, 55 (1st Cir. 1993). Indeed, Rule 56(a) anticipates that

a party opposing summary judgment will have a ten-day window within

which to prepare and present evidence in opposition. We have

taken special pains to emphasize the importance of this temporal

window in cases — analogous to this one — involving sua sponte

grants of summary judgment. The district court must "first give[]

the targeted party notice and a chance to present its evidence on

the essential elements of the claim or defense." Berkovitz v. Home

Box Office, Inc., 89 F.3d 24, 29 (1st Cir. 1996); accord Leyva, 171

F.3d at 720; Stella, 4 F.3d at 55-56.

Viewed against this backdrop, the district court's ruling

cannot withstand scrutiny. No motion for summary judgment had been

filed, and nothing in the court's instructions prior to June 25

alerted Romano to the need to produce evidentiary support for his

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affirmative defenses.6 Accordingly, the first real notice that the

court would treat the matter under the framework applicable to

summary judgment motions came on the day of the hearing: June 25.

Thus, the procedure followed in this case flouted the imperatives

of Rule 56. See Berkovitz, 89 F.3d at 30. The result was that

Romano had neither advance notice of the district court's

intentions nor an adequate opportunity to proffer evidence.

We need go no further. By its very nature, a section

9(f)(2) defense requires a fact-specific inquiry into the workings

of the transferor and the transferee and the specific nature of the

transactions between them. Federal's proffers do not conclusively

demonstrate the futility of a section 9(f)(2) defense and, in the

peculiar circumstances of this case, we cannot hold Romano's

failure to lay a solid factual foundation for that defense against

him. Consequently, the issue remains open, and the entry of

summary judgment must be vacated.7

6
Assuming, for argument's sake, that the court's comments on
June 17 hinted that it might conduct a summary judgment hearing on
June 25, the intervening time was plainly less than the ten-day
interval that Rule 56 requires.
7
Romano's brief also mentions possible defenses under UFTA §
9(f)(1) and (f)(3). Like the section 9(f)(2) defense, these
defenses call for fact-specific inquiries — and Romano had no fair
opportunity to produce evidence regarding them. Thus, Romano
remains free to litigate these issues upon remand.

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VII. CONCLUSION

We affirm the district court's orders setting aside the

1988 stock transfer and refusing to collapse the limited

partnership structures. However, in light of procedural

irregularities and the existence of unresolved factual disputes, we

vacate the lower court's entry of what amounted to a sua sponte

summary judgment regarding the 2002 stock transfer and remand for

further proceedings consistent with this opinion. We leave intact

the court's provisional appointment of a receiver to hold the

embattled shares until such time as their fate is resolved.

Affirmed in part, vacated in part, and remanded. All parties shall

bear their own costs.

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