ABCD Holdings, LLC v. Hannon, et al. (Lawyers Weekly No. 09-035-17)

Reach and Apply Defendants
This is an action seeking to collect on a personal guaranty and to recover for other allegedly wrongful conduct following the execution of that document. The guaranty was executed by defendant Patrick Hannon who, pursuant to the terms of the guaranty, was required to pay $ 109,879 plus attorney’s fees and collection costs in the event the borrower defaulted. The borrower did indeed default and plaintiff, the assignee of the original lender’s rights under the guaranty, now seeks to collect on the guaranty and asserts other claims, including a claim under Chapter 93A. This Court (Salinger, J.) has already determined that there is a reasonable likelihood that plaintiff will recover against Hannon on the guaranty. There is also ample
evidence that plaintiff will recover an additional $ 45,000 that Hannon had paid on another loan but that had to be disgorged to Hannon’s bankruptcy trustee as a preference. 1
The case is now before the Court on plaintiff’s Motion to Attach property located at 34 Highview Drive in Uxbridge, Massachusetts (the Uxbridge House). Hannon lives there with his girlfriend, Sofia Gagua, named in this case both as a defendant and a reach and apply defendant. Title to the property is in Gagua’s name. According to the Amended Verified Complaint, the Uxbridge House was purchased with funds from Hannon, giving rise to a claim against Gagua under the Uniform Fraudulent Transfer Act, G.L.c.109A §2. After careful review of the documentation and affidavits submitted by the parties — both in connection with this motion and earlier in this litigation — this Court concludes that plaintiff is entitled to an attachment in the amount of $ 258,226.22.2 The Motion is therefore ALLOWED.
This is the third time that plaintiff has requested such an attachment. The first time was shortly after this lawsuit began. This Court (Salinger, J.) denied the request because the allegations that Gagua had used funds fraudulently conveyed to her by Hannon were all made on information and belief. See Memorandum of Decision dated June 24, 2016. The second time was in a related lawsuit, King Root Capital, LLC v. Hannon et al., Civ. No. 2017-02307-BLS 2, which is a suit on a judgment against Hannon.3 This Court denied plaintiff’s request in that case,
1 Hannon and his wife Elizabeth Hannon filed for Chapter 11 bankruptcy in 2012, after the loans that are the subject of the instant litigation became due. In June 2014, the bankruptcy court denied his request for discharge in bankruptcy because Hannon had made material misstatements in his bankruptcy filings.
2 This was the amount requested in plaintiff’s motion filed on October 11, 2017. On the afternoon of October 16, one day before hearing on the motion, plaintiff filed a supplemental memorandum that asked for an attachment in the amount of $ 471,789.72. Because defendants did not have a fair chance to respond to that higher amount and because Hannon’s liability for that higher amount is less certain, this Court allowed the attachment in the amount originally requested.
3 Although King Root was the entity that obtained the judgment against Hannon, that judgment was ultimately assigned to the plaintiff in this case.
in part because Gagua was the owner of the house and because the funds used to purchase the property appeared to have come not from Hannon but from two other corporate entities, RHR, LLC (RHR) and Agritech, Inc. (Agritech). See Memorandum of Decision dated August 25, 2017 (the August 2017 Decision). RHR is owned by Hannon’s son. Plaintiff alleged that RHR and Agritech were the alter egos of Hannon and offered supporting documentation which did indeed raise a serious question as to whether these entities had adhered to corporate formalities. Still, plaintiff’s request seemed to be based on the novel theory of “reverse veil piercing.” Moreover, there was evidence that Gagua was making arrangements to repay RHR the $ 423,124.77 it had contributed to the purchase price. This Court denied this second request for an attachment without prejudice.
This third attempt is not exclusively premised on a theory of reverse veil piercing and is supported by additional information. That information shows that Hannon himself did indeed make a substantial payment toward the purchase price and that funds used to renovate the Uxbridge House following the purchase were drawn from an entity wholly owned by Hannon. Moreover, the circumstances leading up to and surrounding the purchase of the Uxbridge House support the conclusion that plaintiff will indeed be able to prevail on its claim against Gagua. Of particular relevance to this Court’s ruling is the following evidence, all of which concern events that occurred when Hannon had incurred the debt to plaintiff and was effectively insolvent.
The Uxbridge House was originally owned by an individual by the name of Amanda Fresh, who has submitted an affidavit in this matter. In that affidavit, Fresh states that Hannon approached her in 2014 about renting the Uxbridge House for six months, after which time he would purchase it. Hannon executed both a Lease Agreement and an Offer to Purchase. See
Exhibit A and B to Fresh Affidavit. He made an initial deposit of $ 5,000 toward the $ 458,950 purchase price. See Exhibit C to Fresh Affidavit. He also made rent payments.
Hannon moved into the house with Gagua, whom he falsely identified as his wife. See fn. 1. Hannon made three additional payments toward the purchase price of $ 10,000 each. These payments were made in cash in November and December 2014: Hannon met Fresh at a local Dunkin Donuts and delivered the cash in a bag. In July 2015, Hannon signed a Purchase and Sale Agreement with Fresh, who agreed to credit $ 41,500 Hannon had already paid her toward the purchase price. One day before the scheduled closing, Fresh received an email from an attorney who she understood represented Hannon. That email stated: “I have spoken to the Buyer, and his wife Sofia Gagua will be taking title to the property.” See Exhibit G to Fresh Affidavit.
The closing went through as scheduled and Gagua took title, recording a Declaration of Homestead on the Uxbridge House. In the Declaration, signed under the pains and penalties of perjury, she identifies herself (falsely) as Hannon’s wife. In an earlier deposition, Gagua testified that she made $ 600 per week and had virtually no assets. In her affidavit submitted in the instant case, Gagua admits that she could not qualify for a “traditional” loan and that she obtained the money to buy the house from RHR, which gave her what she described as a “bridge loan.” There is no documentation related to that loan and RHR obtained no security for it. As described in this Court’s August 2017 Decision, RHR has no payroll or other operating expenses, has transferred most of the funds it receives to Agritech, and has never filed an annual report with the Secretary of State. Agritech has also failed to file annual reports. Agritech is wholly owned by Hannon, who is its president and sole shareholder.
Since the purchase of the Uxbridge House, substantial payments have been made to contractors performing renovations at the property. Bank records obtained in the King Root litigation show that $ 217,226.22 in payments were made to Thomas LaFlamme Construction, Inc. between July and December 2015. Deposition testimony shows that this was in connection with the construction of a deck and a pool cabana at the Uxbridge House and for work on the kitchen. Copies of the checks written to LaFlamme show that all payments were made by Agritech. Since the filing of the Motion, plaintiff has come up with additional evidence showing that Agritech paid a landscaping business, Perreault Nursery, an additional $ 227,274.56 in 2016 to do work in and around the Uxbridge House. Documents produced by Perrreault show that this was for fencing, a fire pit, stairs to a “backyard,” installation of a garden and patio, and drainage work at the Uxbridge address.
To obtain an attachment, a plaintiff must demonstrate: “that there is a reasonable likelihood that [it] will recover judgment, including interest and costs, in an amount equal to or greater than the amount of the attachment over and above any liability insurance shown by the defendant to be available to satisfy the judgment.” Mass. R. Civ. P. 4.1(c). This Court concludes that plaintiff has satisfied its burden. Plaintiff is reasonably likely to obtain a judgment against Hannon in an amount that exceeds $ 200,000. As to its claim against Gagua based on the Uxbridge House, there is a reasonable likelihood that plaintiff will be able to show that investments in that house came from Hannon’s funds and that the purpose was to place those funds out of reach of his creditors, among them the plaintiff. Plaintiff also has a reasonable likelihood of prevailing on its direct claim against Gagua, who appears to have aided and abetted Hannon in an attempt to defraud his creditors, including plaintiff.
A “transfer” is defined by the Uniform Fraudulent Transfer Act “disposing of or parting with an asset or an interest in an asset, and includes payment of money…” G.L.c. 109A §2. The evidence before this Court supports a finding that Hannon transferred money to Gagua when he contributed $ 41,500 toward the purchase price and that the purpose of this transfer was to place it out of reach of creditors, including the plaintiff. As to the money coming from Agritech, this Court does not have to conclude that Agritech is Hannon’s alterego. Rather (as plaintiff argued), an attachment can be supported by viewing Agritech as an asset of Hannon. Hannon as its sole shareholder has the exclusive right to monies in Agritech’s bank account, which essentially represents Hannon’s equity interest in the company. Hannon used that bank account as his own personal piggy bank, drawing down funds to improve on the Uxbridge House. Title to the house was placed in the name of Gagua in an effort to keep this asset out of the hands of creditors.
This Court is also more inclined than it had been previously to conclude that there is no real distinction between Agritech and Hannon. Although it had previously dismissed Agritech from the case, it is becoming more and more apparent to this Court that Hannon is using the corporate structure as a way to place his assets out of reach. In essence, the company appears to serve as a repository for monies that, if they went to Hannon directly, would be subject to a trustee process attachment. Hannon then uses these monies to pay personal expenses and to enhance the value of an asset ( Uxbridge House) which he effectively controls, at the same time that he arranges to have title to this asset placed in the name of his girlfriend Gagua. Gagua appears only too willing to assist Hannon in this apparent fraud, exposing herself to direct liability in this case as a defendant. At this point, this Court has reason to question the
credibility of both Hannon and Gagua. Their denials of any wrongdoing are thus becoming increasingly hard to swallow.
Janet L. Sanders
Justice of the Superior Court
Dated: October 20, 2017

Full-text Opinions