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Klein v. Weidner

United States Court of Appeals, Third Circuit

September 3, 2013

DEBORAH D. KLEIN
v.
DOUGLAS M. WEIDNER; KATHLEEN K. WEIDNER; DMW MARINE, LLC; JEAN M. WEIDNER; JOHN DOE Douglas M. Weidner, Kathleen K. Weidner, DMW Marine, LLC, Appellants

Argued April 17, 2013

On Appeal from the United States District Court for the Eastern District of Pennsylvania (D.C. Civil No. 2-08-cv-03798) District Judge: Hon. Juan R. Sanchez

William J. Gallagher, Esq. Kristin A. Molavoque, Esq. Jane M. Shields, Esq. (Argued) MacElree Harvey, Counsel for Appellants Douglas M. Weidner, Kathleen K. Weidner, DMW Marine, LLC.

Mary E. Kohart, Esq. (Argued) Elliott Greenleaf & Siedlkowski Counsel for Appellee Deborah D. Klein.

BEFORE: AMBRO, HARDIMAN and COWEN, Circuit Judges.

OPINION

COWEN, Circuit Judge.

Defendants Douglas M. Weidner, Kathleen K. Weidner, and DMW Marine, LLC ("DMW"), appeal from the order of the United States District Court for the Eastern District of Pennsylvania granting Plaintiff Deborah D. Klein's motion for summary judgment as to her claim that Mr. Weidner's transfer of a parcel of real estate to himself and Ms. Weidner as tenants by the entirety violated the Pennsylvania Uniform Fraudulent Transfer Act ("PUFTA"). They also appeal from the subsequent order entering judgment pursuant to the District Court's decision on partial summary judgment, which specifically ordered the Weidners to execute a deed transferring this parcel of real estate to Mr. Weidner in fee simple. In addition, Appellants challenge the District Court's order directing that judgment of $548, 797.07 in punitive damages be entered against Mr. Weidner for his PUFTA violations. We will affirm.

I.

In 1999, Ms. Klein and Mr. Weidner obtained a divorce in California. As part of this divorce decree, the Orange County Superior Court ordered Mr. Weidner to make spousal and child support payments to Ms. Klein. Appellants acknowledge that "Weidner made some child support payments but had paid no spousal support as of the date of trial in this case." (Appellants' Brief at 3 (citing Klein v. Weidner, Civil Action No. 08-3798, 2010 WL 2671450, at *1 (E.D. Pa. Jul. 2, 2010) ("Klein III")).) Mr. Weidner and Ms. Weidner, his current wife, "were aware of Klein's claim that Weidner owed her spousal and child support at the time they married" on January 1, 2006. (Id. at 4 (citing Klein III, 2010 WL 2671450, at *2).) On June 2, 2008, the Orange County Superior Court determined that Mr. Weidner owed Ms. Klein $548, 797.07 in unpaid spousal and child support. A judgment in this amount was entered in the Chester County Court of Common Pleas on August 25, 2008.

On March 17, 2005, Mr. Weidner purchased a parcel of real estate located in Chester Springs, Pennsylvania ("Property"), from his mother. On January 17, 2006, he transferred the Property to himself and Ms. Weidner as tenants by the entirety.

Ms. Klein alleged in the first count of her amended complaint that Mr. Weidner's transfer of the Property violated the PUFTA. On January 6, 2010, the District Court granted her motion for summary judgment as to this claim because "Weidner's transfer of the Property satisfies all three of the fraudulent transfers described by PUFTA." Klein v. Weidner, Civil Action No. 08-3798, 2010 WL 27910, at *1 (E.D. Pa. Jan. 6, 2010) ("Klein I"). According to the District Court, the transfer constituted an actual fraudulent transfer under 12 Pa. Cons. Stat. Ann. § 5104(a)(1) and a constructive fraudulent transfer under 12 Pa. Cons. Stat. Ann. §§ 5104(a)(2) and 5105. On January 13, 2010, the District Court entered an order for entry of judgment pursuant to the District Court's partial summary judgment decision, and the Weidners were ordered to execute a deed transferring the Property back to Mr. Weidner in fee simple by 10 a.m., January 15, 2010.

Ms. Klein also attacked Mr. Weidner's transfer of an ownership interest in DMW and attempted to pierce DMW's corporate veil. The District Court denied Ms. Klein's motion for summary judgment as to these counts in Klein I. Following a bench trial, it entered its findings of fact and conclusions of law on February 18, 2010. According to the District Court, the transfer of the ownership interest in DMW to the Weidners as joint owners—just like the transfer of the Property to the couple as tenants by the entirety—constituted both an actual and a constructive fraudulent transfer under Sections 5104(a)(1), 5104(a)(2), and 5105 of the PUFTA. The District Court also determined that "Weidner has improperly used the LLC form to perpetrate an injustice and therefore Klein may reverse-pierce the corporate veil and treat DMW's assets as Weidner's assets for the purpose of collecting her judgment against Weidner." Klein v. Weidner, Civil Action No. 08-3798, 2010 WL 571800, at *10 (E.D. Pa. Feb. 17, 2010) ("Klein II"). Judgment was entered against Mr. Weidner, Ms. Weidner, and DMW on the second and third counts, and the parties were directed to brief the issue of whether punitive damages should be awarded and, if so, in what amount.

In a memorandum entered on July 6, 2010, the District Court concluded that "[p]unitive damages may be awarded for violations of PUFTA." Klein III, 2010 WL 2671450, at *10. Determining that Mr. Weidner—but not Ms. Weidner— engaged in conduct in connection with his fraudulent transfers that was so outrageous as to warrant an award of punitive damages, the District Court ordered that "judgment of $548, 797.07 in punitive damages is entered" against Mr. Weidner.[1] Id.

II. The District Court had jurisdiction over this diversity matter pursuant to 28 U.S.C. § 1332.[2]

It is undisputed that the substantive law of Pennsylvania applies here. After all, Ms. Klein alleged violations of the PUFTA, i.e., Pennsylvania's specific version of the Uniform Fraudulent Transfer Act ("UFTA"). In the absence of a Pennsylvania Supreme Court ruling on the precise question of law presented, we must predict how it would resolve the question. See, e.g., Orson, Inc. v. Miramax Film Corp., 79 F.3d 1358, 1373 n.15 (3d Cir. 1996). In addressing the statutory predecessor to the PUFTA (i.e., Pennsylvania's version of the Uniform Fraudulent Conveyance Act ("UCFA"), the Pennsylvania Uniform Fraudulent Conveyance Act ("PUFCA")), we explained that, "[w]here Pennsylvania law is silent, we may look to the law in other jurisdictions that have adopted the UFCA, and decisions construing analogous provisions of the Bankruptcy Code." Moody v. Security Pac. Bus. Credit, Inc., 971 F.2d 1056, 1063 (3d Cir. 1992) (citations omitted).

We exercise plenary review over a district court's grant of summary judgment, applying the same standard that the district court should have applied. See, e.g., Farrell v. Planters Lifesavers Co., 206 F.3d 271, 278 (3d Cir. 2000). As the District Court noted, "[s]ummary judgment may be granted 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 judgment as a matter of law.'" Klein I, 2010 WL 27910, at *1 (quoting Fed.R.Civ.P. 56(c) (2009)).

III.

A. The Property Transfer Claim

Appellants argue that the District Court committed reversible error by granting summary judgment on Ms. Klein's claim that the transfer of the Property violated the PUFTA. We nevertheless agree with the District Court that this action constituted an actual fraudulent transfer as well as a constructive fraudulent transfer.

The District Court began with the actual fraudulent transfer category. Section 5104(a)(1) states that "[a] transfer made or obligation incurred by a debtor is fraudulent as to a creditor, whether the creditor's claim arose before or after the transfer was made or the obligation was incurred, if the debtor made the transfer or incurred the obligation . . . with actual intent to hinder, delay or defraud any creditor of the debtor." Section 5104(b) then lists a number of factors—the "badges of fraud"—that may be considered in determining "whether the debtor had an actual intent to hinder, delay or defraud one or more creditors." 12 Pa. Cons. Stat. Ann. § 5104 cmt. 5. These Section 5104(b) factors include:

(1) the transfer or obligation was to an insider;
(2) the debtor retained possession or control of the property transferred after the transfer;
(3) the transfer or obligation was disclosed or concealed;
(4) before the transfer was made or obligation was incurred, the debtor had been sued or threatened with suit;
(5) the transfer was of substantially all the ...

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