UNITED STATES COURT OF APPEALS

TENTH CIRCUIT

XETA CORPORATION, an Oklahoma corporation,

Plaintiff - Appellee,

No. 96-4176
v.	(D. Utah)
CANTON INDUSTRIAL CORPORATION, a Nevada corporation,

Defendant - Appellant,

and

RICHARD DAVID SURBER and GERALD CURTIS,

Defendants.	(D.C. No. 95-CV-218)

ORDER AND JUDGMENT *

Before SEYMOUR, Chief Judge, ANDERSON, and HENRY, Circuit Judges.

Defendant, Canton Industrial Corporation ("Canton"), appeals from a grant of summary judgment in favor of Plaintiff, Xeta Corporation ("Xeta"), in which the district court found that a transfer of funds Canton had received from ATC II, Inc. ("ATC II") was constructively fraudulent under Utah Code Ann. § 25-6-6(2).

On appeal, Canton contends that genuine issues of material fact exist with respect, essentially, to four issues: (1) whether all of the elements of § 25-6-6(2) were satisfied; (2) whether Canton was in fact the transferee of the funds or a mere conduit; (3) whether Canton gave new value to the debtor, ATC II, in exchange for the transferred funds; and (4) whether the funds were transferred in the ordinary course of business between ATC II and Canton. We affirm.

BACKGROUND

In August 1993, Xeta obtained a judgment against ATC II for $149,859.14. As a result of this judgment, in January 1994, the district court ordered ATC II "not to pay out, transfer, mortgage, alienate, or make any other disposition of money, property, or assets, either real or personal, not exempt by law, until further order of the court (except in the ordinary course of business)." In March 1994, in order to satisfy the judgment, Xeta filed an application for an order requiring ATC II to turn over certain assets and property, which the district court granted.

In April 1994, Canton Financial Services, a subsidiary of Canton, began providing financial consulting services to ATC II. In that same month, Richard Lapsley, the only director of ATC II, appointed Ron Mayoral, Richard Surber, and Larry Adams as the new officers and directors of ATC II. 1 Mr. Mayoral, ATC II's new secretary, was then a Canton employee, and Mr. Surber, ATC II's new chief financial officer, was then also serving as the president of Canton.

In May 1994, in order to satisfy its judgment against ATC II, Xeta filed a second application for the turnover of property and assets. Specifically, this application requested the proceeds from a judgment ATC II had won against another company, Nationwide Cellular Services ("Nationwide"). In July 1994, this application was granted.

In the meantime, however, ATC II had received the $116,500 balance from its judgment against Nationwide and had immediately transferred the full amount to Canton's bank account. From the time of the transfers on June 6 and June 9, 1994, the entire $116,500 was commingled with Canton's own funds, and Canton did not maintain a separate ledger showing debits against the $116,500. Xeta sued in district court to set aside the transfer to Canton as fraudulent under the Utah Fraudulent Transfer Act ("the Act"), naming Mr. Surber, Mr. Curtis, and Canton as defendants.

After discovery, Xeta moved for summary judgment. Based on the pleadings, depositions, and affidavits, and following briefing by the parties and a hearing, the district court made specific factual findings and determined that the transfer to Canton was constructively fraudulent under Utah Code Ann. § 25-6-6(2). The district court then granted Xeta's motion for summary judgment as to Canton, but not as to Messrs. Surber and Curtis.

DISCUSSION

We review de novo the district court's grant of summary judgment in favor of Xeta and apply the same legal standard used by the district court, viewing the facts and any reasonable inferences that might be drawn from them in the light most favorable to the nonmoving party. Taylor v. Mecham, 82 F.3d 1556, 1559 (10th Cir.), cert. denied, 117 S. Ct. 186 (1996); Henderson v. Inter-Chem Coal Co., 41 F.3d 567, 569 (10th Cir. 1994). Summary judgment is appropriate only when "there is no genuine issue as to any material fact and . . . the moving party is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(c).

A. Elements of Utah Code Ann. § 25-6-6(2)

Canton's omnibus contention that issues of material fact exist as to the alleged violations of Utah Code Ann. § 25-6-6(2) (nothing more specific is offered) is not properly before us. Although Canton lists this issue in its "Statement of the Issues Presented for Review," Appellant's Br. at 1, it does not address it until its reply brief. See Appellant's Reply Br. at 2, 3. Therefore, this issue is waived. See Johnson by Johnson v. Thompson, 971 F.2d 1487, 1499 (10th Cir. 1992) (stating that this court generally does not address issues merely listed in the brief's "Statement of the Issues" and not argued in the brief); Abercrombie v. City of Catoosa, Okla., 896 F.2d 1228, 1231 (10th Cir. 1990) (stating that where appellant listed the issue on appeal but failed to argue the issue in the brief or at oral argument, it is waived); see also Fed. R. App. P. 28(a)(6) (stating that the appellant's brief must include an argument "contain[ing] the contentions of the appellant with respect to the issues presented, and the reasons therefor, with citations to the authorities, statutes, and parts of the record relied on"). Canton could not revive this issue by addressing it in its reply brief or in oral argument. See Codner v. United States, 17 F.3d 1331, 1332 n.2 (10th Cir. 1994) (stating that an issue raised for the first time in the reply brief is waived); Gross v. Burggraf Constr. Co., 53 F.3d 1531, 1547 (10th Cir. 1995) (stating that an issue inadequately briefed on appeal but asserted at oral argument is waived).

In any event, Canton's arguments lack merit. In its reply brief, Canton asserts that genuine issues of material fact exist as to two elements—whether Canton was an insider of ATC II, and whether there was reasonable cause to believe ATC II was insolvent at the time of the transfer. 2 As to the first argument, Canton makes conclusory assertions that "[e]vidence has never been presented that ATC II was ever dominated by Canton," and that "[n]o decision or action of ATC II has ever been shown to have not been taken wholly and exclusively in ATC II's best interest." 3 Appellant's Reply Br. at 2. However, Xeta clearly did provide the district court with evidence of Canton's control of ATC II as an insider, 4 and the "best interests" standard is not the test for insiders outlined in the Act. See Utah Code Ann. § 25-6-2(7)(b).

The second element of § 25-6-6(2) challenged by Canton in its reply brief is whether there was reasonable cause to believe ATC II was insolvent at the time of the transfer. 5 However, Canton either misstates or misunderstands the issue, arguing only that ATC II's officers subjectively believed that ATC II was solvent. Appellant's Reply Br. at 3. This argument is meritless for several reasons. First, the Act requires only "reasonable cause to believe" and not subjective belief. See Utah Code Ann. § 25-6-6(2). Second, even if subjective belief were the standard, the Act refers to the insider's belief—who in this case is Canton—not the belief of the debtor, ATC II. See id. Third, even if the debtor's belief were relevant, Canton's argument addresses only one definition of insolvency under § 25-6-3(1) (where the debtor's assets are less than its debts) and fails to address the alternative definition available in this case (where the debtor is generally not paying debts as they came due). See Utah Code Ann. § 25-6-3(1).

In sum, the district court did not err in granting summary judgment as to the existence of constructive fraud under § 25-6-6(2).

B. Conduit Theory

Next, Canton asserts that under the "mere conduit theory," it was not the actual transferee of the funds and thus is not liable. 6 Canton's appeal on this point is also procedurally defective. Although Canton elliptically alluded to the conduit theory in its brief in the district court in opposition to Xeta's motion for summary judgment, 7 it did not directly identify or discuss it, and correspondingly, the district court did not address it. In this circuit, we will not consider on appeal an issue that was not properly raised before the district court. See Bancamerica Commercial Corp. v. Mosher Steel of Kan., Inc., 100 F.3d 792, 798-99 (10th Cir.), amended on other grounds, 103 F.3d 80 (10th Cir. 1996); Walker v. Mather (In re Walker), 959 F.2d 894, 896 (10th Cir. 1992).

In any event, as with Canton's previous contention, the argument is meritless. While Canton insists that "the record shows that" the large majority of the $116,500 transferred to it was immediately transferred to other third parties, Appellant's Br. at 7-8, it identifies nothing in the record to support this assertion. 8

C. New Value

Next, Canton argues that even if the elements of constructive fraud under § 25-6-6(2) were satisfied, summary judgment was improper because a genuine issue of material fact exists as to whether Canton gave ATC II new value for the transfer. 9 This issue also was not clearly presented to, and was therefore not addressed by, the district court. 10 Therefore, it is not appealable. See Walker, 959 F.2d at 896; Bancamerica, 100 F.3d at 798-99.

Furthermore, as with Canton's previous contentions, this argument is wholly unsupported. Canton generalizes that "financial records, together with the personal affidavits," prove that it "gave new value to the debtor after the transfer," Appellant's Br. at 8, and alleges that "the affidavits and evidence it has presented concerning the consideration and value given for the transfer have not been duly considered." Id. at 9. However, once again it refers us to no specific portion of the record supporting its assertion.

D. Ordinary Course of Business

Finally, Canton argues that even if the elements of constructive fraud under § 25-6-6(2) were satisfied, summary judgment was improper because a genuine issue of material fact exists as to whether ATC II transferred the money to Canton in the ordinary course of business.11 And, again, we find that this issue was not developed in, and therefore was not addressed by, the district court, 12 thus leaving no basis for appeal. Walker, 959 F.2d at 896; Bancamerica, 100 F.3d at 798-99.

But again, even if considered, the argument is meritless. Canton claims that the "financial records, together with the personal affidavits of [Canton] employees and others . . . give rise to a genuine issue of material fact as to whether the funds were used in the ordinary course of ATC II's business." Appellant's Br. at 8. In particular, Canton asserts that "these funds were applied to pay debts ATC II had incurred in the usual course of its business." Id. Assuming this to be true, Canton has nevertheless failed to satisfy the requirements of the Act, which refers to the ordinary course of business "of the debtor and the insider." Utah Code Ann. § 25-6-9(6)(b) (emphasis added). More important, however, Canton presented no evidence sufficient to create a genuine issue of material fact that it regularly paid ATC II's obligations on ATC II's behalf or that transfers under these circumstances and in this manner were integral to the ordinary course of ATC II's business. 13

CONCLUSION

For the reasons stated, Canton's appeal is procedurally defective. Alternatively, it has not demonstrated the existence of any genuine issues of material fact, or any error of law by the district court. 14 Accordingly, the judgment of the district court is AFFIRMED.

ENTERED FOR THE COURT

Stephen H. Anderson

Circuit Judge