Thomas M. Fafinski, Respondent,

This opinion is nonprecedential except as provided by
Minn. R. Civ. App. P. 136.01, subd. 1(c).

STATE OF MINNESOTA
IN COURT OF APPEALS
A20-1275

Thomas M. Fafinski,
Respondent,

vs.

Douglas Johnson,
Appellant.

Filed May 10, 2021
Affirmed
Reilly, Judge

Dakota County District Court
File No. 19HA-CV-18-4454

Nathan W. Nelson, Steven V. Rose, Virt us Law, PLLC, Minneapolis, Minnesota (for
respondent)

Chad McKenney, Bradley D. Hendrikson, Donohue McKenney Ltd., Maple Grove,
Minnesota (for appellant)

Considered and decided by Ross, Presiding Judge; Reilly, Judge; and Kirk, Judge.
*
NONPRECEDENTIAL OPINION
REILLY, Judge
After seeking to recover his judgments fo r unpaid wages, res pondent discovered
that his former employer, appellant’s son, ha d transferred all of his business assets to
appellant. Respondent sued appellant pursuant to the Minnesota Uniform Fraudulent

* Retired judge of the Minnesota Court of Ap peals, serving by appointment pursuant to
Minn. Const. art. VI, § 10.

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Transfer Act; the district court found for re spondent and awarded damages. On appeal,
appellant argues that a transfer of assets di d not occur, the district court made erroneous
findings of fact and conclusions of law, and the district court erroneously awarded
damages. We affirm.
FACTS
In July 2005, the son of appellant Doug las Johnson secured a $900,000 personal
loan from Wells Fargo Bank to purchase the assets of a law firm. Following the purchase,
appellant’s son formed a new law firm (the law firm), and entered into an employment
agreement with respondent Thomas M. Fafinski. Respondent worked for the law firm as
an attorney from 2005 until 2009.
In 2007, the law firm began to experience financial problems and was unable to pay
its expenses or make its loan payments, and failed to pay respondent the wages he earned.
Appellant’s son therefore refinanced his $900,000 personal Wells Fargo loan by obtaining
a $600,000 personal loan from First Dakota Na tional Bank in November 2009. At the
direction of appellant’s son, the law firm simultaneously obtained a $150,000 business
credit line also from First Dakota National Ba nk for operational expenses. The law firm
used its assets as collateral to secure both loan s. But as a part of granting the loans, First
Dakota National Bank required a personal guarantee and collateral from appellant, who did
a substantial amount of business with the bank. Appellant personally guaranteed both his
son’s personal loan and the law firm’s loan, and gave First Dakota National Bank a security
interest in real estate he solely owned.

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About a month and a half after appellant’s son and the law firm received loans from
First Dakota National Bank, respondent resigne d because of the law firm’s continued
failure to pay his wages earne d. Respondent brought two lawsuits, the first against
appellant’s son and the law firm in July 2010, and the sec ond against appellant’s son in
2014. Between 2011 and 2016, respondent obtained seven judgments in these lawsuits.
In January 2011, the law firm shut down. About four months later, appellant’s son
and the law firm stopped making loan paym ents, and First Dakota National Bank sought
payment from appellant as guarantor. In September 2011, Western Comfort Limited
Partnership (Western Comfort), a registered South Dakota limited pa rtnership of which
appellant and his wife are the sole partners, satisfied appellant’s guarantee on the First
Dakota National Bank loans. To do so, Western Comfort obtained a loan from First Dakota
National Bank in the amount of $1,447,500, which appellant personally guaranteed.
Western Comfort paid off appellant’s son’s personal loan of $553,406.89 and dispersed
$43,636.30 to satisfy the law firm’s loan.
Following satisfaction of the First Dakota National Bank loans and while the first
lawsuit was pending, appellant’s son prepared a pledge agreement that pledged all of the
law firm’s assets to appellant . The pledge agreement was deemed effective January 1,
2012, and listed appellant’s son and the la w firm as “[p]ledgors” and appellant as
“[l]ender.” The pledge agreement states th at because appellant “paid a loan owed” by
pledgors, pledgors now owe appellant “the amounts he paid to First Dakota National
Bank.” The pledge agreement provided appellant with a first priority security interest in
all of the tangible and intangible assets owned by the law firm. The day before the pledge

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agreement was deemed effective, December 31, 2011, the law firm valu ed its total assets
at $3,864,976.57.
On May 12, 2015, respondent tried to interject into the law firm’s accounts
receivable to collect his judgments, but appellant’s son and the law firm refused to comply.
Three days later, appellant sold property and used the proceeds to pay off the Western
Comfort loan. Respondent then scheduled a sheriff’s execution sale of the accounts
receivable for September 1, 2015. The night before the sale, appellant’s counsel delivered
a copy of the pledge agreemen t to respondent’s counsel fo r the first time. Appellant,
however, did not restrain the sale, and respondent moved forward with it.
At the sheriff’s sale, res pondent bought the accounts receivable for one dollar.
Respondent had a short period to collect on the accounts receivable before the statute of
limitations prohibited recovery. He managed to collect between $4,000 and $5,000. The
day before appellant’s son transferred the law firm’s assets to appellant, the law firm valued
its accounts receivable at $3,381,222.40. By September 2015, however, the value had
significantly diminished and could no longer be used to satisfy respondent’s judgments.
In 2018, respondent sued appellant seekin g to recover $93,345. 46 pursuant to the
Minnesota Uniform Fraudulent Transfer Act (MUFTA) 1 and unjust enrichment, alleging
that appellant’s son and the law firm fraudulently transferred assets to appellant to avoid
payment. Appellant moved for summary judgment; a district court judge granted summary

1 In 2015, MUFTA was amended to the Minne sota Uniform Voidable Transactions Act
(MUVTA). See Minn. Stat. §§ 513.41-.51 (2020). The amended statute does not apply in
this case because the amendmen ts do not apply to a transf er made before August 1,
2015. See 2015 Minn. Laws ch. 17, § 13, at 10.

5
judgment on respondent’s unjust-enrichment claim, and the parties proceeded to a bench
trial in January 2020 on the MUFTA claim. The district court found that appellant violated
MUFTA and awarded respondent $93,345.46 in damages. This appeal followed.
DECISION
I. The district court did not err by concluding that appellant’s son and the law
firm transferred some assets to appellant.

Appellant argues that the district court erred by finding that appellant’s son and the
law firm violated MUFTA when they transfe rred assets to appellant because the pledge
agreement was invalid and thus a transfer of assets did not occur. On appeal from judgment
following a bench trial, we do not reconcile conflicting evidence. Porch v. Gen. Motors
Acceptance Corp., 642 N.W.2d 473, 477 (Minn. App. 2002), review denied (Minn. June
26, 2002). We review whether the district court’s findings were clearly erroneous and
whether the district court erred as a matter of law. In re Distrib. of Attorney’s Fees between
Stowman Law Firm, P.A. & Lori Peterson Law Firm , 855 N.W.2d 760, 761 (Minn. App.
2014), aff’d, 870 N.W.2d 755 (Minn. 2015). “A finding is clearly erroneous if we are left
with the definite and firm convicti on that a mistake has been made.” Id. (quotation
omitted). We however “are not bound by and need not give deference to the district court’s
decision on a purely legal issue.” Porch, 642 N.W.2d at 477. When reviewing mixed
questions of law and fact, we correct “erroneous applications of law, but accord the district
court discretion in its ultimate conclusions and review such conclusions under an abuse of
discretion standard.” Id. (quotation omitted).

6
The purpose of MUFTA is “to prevent de btors from placing property that is
otherwise available for the paym ent of their debts out of the reach of their creditors.”
Citizens State Bank Norw ood Young Am. v. Brown , 849 N.W.2d 55, 60 (Minn. 2014).
MUFTA thus “prohibits a debtor from transferring [assets] with the intent to hinder, delay,
or defraud any creditors.” 2 New Horizon Enters., Inc. v. Contemporary Closet Design,
Inc., 570 N.W.2d 12, 14 (Minn. App. 1997). When a debtor transfers an asset with actual
intent to hinder, delay, or defraud a credito r, the transfer is voidable. Minn. Stat.
§ 513.44(a)(1) (2010).
The act defines asset as “property of a debtor.” Minn. Stat. § 513.41(2) (2010). And
it defines transfer broadly as “every mode, di rect or indirect, absolute or conditional,
voluntary or involuntary, of disposing of or parting with an asset or an interest in an asset,
and includes payment of money, release, lease, and creation of a lien or other
encumbrance.” Minn. Stat. § 513.41(12) (2010 ). Determining whether a transaction is a
transfer is a threshold question under MUFTA. In re Butler, 552 N.W.2d 226, 231 (Minn.
1996). A transfer is made when it is “so far perfected that a creditor . . . cannot acquire a
judicial lien that is superior to the interest of the transferee.” Minn. Stat. § 513.46(1)(ii)
(2010).

2 The district court found that the transfer of the law firm’s assets constituted actual and
constructive fraud. During oral arguments, appellant asserted that he challenged the district
court’s constructive-fraud finding on appeal. Based on appellant’s briefing, however, it is
not clear that appellant challenged this findi ng. Because appellant inadequately briefed
any constructive-fraud claim, we d ecline to reach this issue. See Melina v. Chaplin , 327
N.W.2d 19, 20 (Minn. 1982).

7
The district court found that the pledge ag reement transferred all of the law firm’s
assets to appellant. Appellant argues that the pledge agreement did not perfect and thus no
transfer of assets occurred. The pledge agreement granted appellant “a continuing lien and
security interest in all of [t he law firm’s] . . . property of every kind and nature . . . now
owned or hereafter acquired by [the law firm or appellant’s son].” And it specified that the
law firm’s property included eight specific assets: cash, accounts receivable, inventory,
fixtures, fittings, machinery, apparatus, and equipment, and one catch-all category of any
other property. A pledge “is one of the simplest forms of security devices” and creates an
interest in tangible or intangible property “for the purpose of securing the payment of a
debt.” Koch v. Han-Shire Invs., Inc., 140 N.W.2d 55, 62 (Minn. 1966) (quotation omitted).
Generally, under the Uniform Commercial Code (UCC), to perfect a security
interest, a financing statement mu st be filed. Minn. Stat. § 336.9-310(a) (2010). Here, a
UCC financing statement was not filed to pe rfect the pledge agreement. The UCC,
however, provides exceptions to the general rule and states that filing is unnecessary to
perfect certain categories of security intere sts. Minn. Stat. § 336.9-310(b) (2010). In
holding that the pledge agreement perfected, the district court found that two exceptions to
the general rule applied. First, filing is unnecessary to perfect a security interest in “deposit
accounts, electronic chattel paper, electronic doc uments, investment property, or letter of
credit rights . . . under section 336.9-314” when the secured party has control of the interest.
Minn. Stat. § 336.9-310(b)(8). Second, filing is unnecessary to perfect a security interest
“in collateral in the secured party’s possessi on under section 336.9-313.” Minn. Stat.
§ 336.9-310(b)(6).

8
A. The district court erred by finding that appellant’s security interest in the
law firm’s assets perfected through the control exception to the UCC filing
requirement.

Respondent argues that the district cour t properly concluded that appellant’s
security interests in all of the law firm’s assets perfected because appellant was in control
of the assets. We disagree. Minn. Stat. § 336.9-314(a) (2010) dictates what assets are
subject to the control exception to the UCC filing requirement. It provides that “[a] security
interest in investment property, deposit account s, letter of credit rights, electronic chattel
paper, or electronic documents may be perfected by control.” Since none of the law firm’s
assets included an investment property, deposit accounts, letter of credit rights, electronic
chattel paper, or electronic documents, there were no assets to be perfected by control. So
to the extent that the district court found th at the pledge agreement perfected a security
interest through control, and thus transferred the law firm’s assets to appellant, we conclude
that the district court erred as a matter of law.
B. The district court did not abuse its di scretion by finding that appellant’s
security interest in the la w firm’s inventory, fixtur es, fittings, machinery,
apparatus, equipment, and cash asse ts perfected through the possession
exception to the UCC filing requirement.

Turning to the possession exception to the UCC filing requirement, Minn. Stat.
§ 336.9-313(a) (2010) provides that a secured party may perfect a security interest in
“tangible negotiable documents, goods, instruments, money, or tangible chattel paper” by
taking possession. Perfection occurs when the secured party takes possession. Minn. Stat.
§ 336.9-313(d) (2010). And “[t]he transfer of possession necessary to a valid pledge does
not require a manual delivery of the pledged pr operty by the pledgor, or a manual receipt

9
of it by the pledgee.” Goza v. Fairmont Nat’l Bank of Fairmont , 195 N.W.2d 424, 426
(Minn. 1972) (quotation omitted). Instead, possession occurs when the property “is
committed by the pledgor to th e exclusive control and charge of the pledgee.” Id.
(quotation omitted).
The pledge agreement created a security interest that appellant could perfect through
possession in seven of the eight specified assets: goods (inventory, fixtures, fittings,
machinery, apparatus, and equipment) and money (cash). Appellant argues that he never
possessed any pledged assets and received no money under the pledge agreement. At trial,
both appellant and appellant’s son testified that appellant did not receive any assets under
the pledge agreement, but the district court “simply did not find the testimony of [appellant]
or [appellant’s son] to be credible.” And possession does not require that appellant
manually received the assets. By its express terms, the pledge agreement granted appellant
possession of the law firm’s curre nt and future assets on its e ffective date of January 1,
2012. Thus, the pledge agreement perfected on January 1, 2012, when appellant took
possession of the law firm’s assets. We concl ude that the district court did not abuse its
discretion when it found that cash, inventory, fixtures, fittings, machinery, apparatus, and
equipment transferred from appella nt’s son and the law firm to appellant in violation of
MUFTA.
C. The district court erred by finding that appellant’s security interest in the
law firm’s accounts receivable perfected.

Having addressed seven of the eight specified assets in the pledge agreement, we
now turn to the remaining asset, the accounts receivable. Accounts receivable fall under

10
the security interest category of “account,” which is defined as “a right to payment of a
monetary obligation, whether or not earned by performance . . . for services rendered.”
Minn. Stat. § 336.9-102(a)(2) (2010); see also Black’s Law Dictionary 21 (11th ed. 2019)
(defining an account receivable as “[a]n account reflecting a balance owed by a debtor”).
Although the district court found that all of the law firm’s a ssets transferred to appellant
through the control and possession exceptions to the UCC filing requ irement, an account
is not an articulated security interest that perfects under either exce ption. Minn. Stat.
§§ 336.9-313(a), -314(a). Under Minnesota law, there is only one exception under which
a security interest in an account may pe rfect without satisfaction of the UCC filing
requirement. Minn. Stat. § 336. 9-310(b)(2). This exception provides that a security
interest in an account is perfect ed when it attaches as long as the account “by itself or in
conjunction with other assignments” does not tran sfer a significant part of the assignor’s
outstanding accounts to the secured party. Minn. Stat. § 336.9-309(2) (2010).
Here, the accounts receivable represented a significant portion of the law firm’s
outstanding accounts. They were valued at over $3.3 million when the pledge agreement
was deemed effective, and accounted for 87% of the law firm’s total assets. The pledge
agreement assigned every other law firm asset to appellant. The attachment exception to
the UCC filing requirement is therefore not applicable, and because no UCC financing
statement was filed, appellant’s security interest in the accounts receivable did not perfect.
We conclude that the district court erred as a matter of law by fi nding that appellant’s
security interest in the law firm’s accounts re ceivable perfected through any exception to
the UCC filing requirement.

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II. The district court did not make other erroneous findings of facts or conclusions
of law.

On appeal, appellant also argues that the di strict court made erroneous findings of
fact and conclusions of law. We review whether the district court’s findings were clearly
erroneous and whether the district court erred as a matter of law. In re Stowman Law Firm,
855 N.W.2d at 761. Appellant filed a posttrial motion challenging 27 findings of fact and
20 conclusions of law, and then at a May 2020 hearing withdrew his challenges to six
findings of fact and seven conc lusions of law. Yet on appe al, appellant challenges those
specific six findings and seven conclusions th at he withdrew from the district court’s
consideration. We do not consider matters th at were not argued to and considered by the
district court. Thiele v. Stich, 425 N.W.2d 580, 582 (Minn. 1988). Because the six findings
of fact and seven conclusions of law that appellant withdrew were not considered by the
district court, we decline to consider them on appeal.
We next turn to the remaining 21 findings of fact and 13 conclusions of law. After
a careful review of the record, we conclude that none of the district court’s findings of fact
were erroneous. Similarly, except for the district court’s misapplications of law discussed
in section I, we conclude that the district court did not make an y additional erroneous
conclusions of law.
III. The district court did not err by awarding respondent damages.
Appellant seeks review of the district court’s award and determination of damages
under MUFTA. Appellant argues that the district court had no basis to award damages to

12
respondent, we must reduce the damage award, the damage award was speculative, and the
district court awarded an inappropriate amount of damages.
In reviewing a damage award, we consider the evidence in the light most favorable
to the verdict. Rayford v. Metro. Transit Comm’n , 379 N.W.2d 161, 165 (Minn. App.
1985), review denied (Minn. Feb. 14, 1986). We will se t aside a damage award only if it
is “manifestly and palpably contrary to the evidence.” Levienn v. Metro. Transit Comm’n,
297 N.W.2d 272, 273 (Minn. 1980). In other words, we will not disturb the damage award
“unless the failure to do so would be shocking or would result in plain injustice.” Dunn v.
Nat’l Beverage Corp., 745 N.W.2d 549, 555 (Minn. 2008) (quotation omitted). We review
a district court’s determination of damages under an abuse-of-discretion standard. Peters
v. Mut. Benefit Life Ins. Co., 420 N.W.2d 908, 916 (Minn. App. 1988).
“MUFTA is a remedial statute and is meant to be construed broadly.” Finn v. All.
Bank, 838 N.W.2d 585, 599 (Minn. App. 2013), aff’d, 860 N.W.2d 638 (Minn. 2015).
Under MUFTA, when a debtor makes a transfer with actual intent to hinder, delay, or
defraud a creditor, it is voidable even if the transfer were made before or after the creditor’s
claim arose. Minn. Stat. § 513.44(a)(1). And when a transfer of assets is voidable, a
creditor may recover judgment against the firs t transferee. Minn. Stat. § 513.48(b)(1)
(2010).
We address each of appellant’s damages arguments in turn.
A. The district court had a legal basis to award respondent damages.
Appellant argues that the district court had no legal basis to award damages to
respondent and thus any awar d of damages resulted from passi on or prejudice. When a

13
debtor fraudulently transfers assets, MUFTA allows a creditor to recover judgment against
the first transferee for the amount of the asse ts transferred or the amount necessary to
satisfy the creditor’s claim, whichever is less. Minn. Stat. §§ 513.44(a)(1), .48(b)(1).
Here, while appellant’s security interest in accounts receivable did not perfect, his
security interest in seven of the law firm’s assets—cash, inventory, fixt ures, fittings,
machinery, apparatus, and eq uipment—did perfect and constituted a fraudulent transfer.
When the pledge agreement wa s deemed effective, by its own accounting, the law firm
valued its total assets at $3,864,976.57. Of that total amount, the accounts receivable
consisted of $3,381,222.40, meaning that all other assets accounted for $483,754.17. We
therefore determine that appellant’s son and the law firm fraudulently transferred assets
valued at $483,754.17 to appellant. Respond ent had an outstanding claim of $93,345.46
against appellant’s son and the law firm. Give n that respondent’s cl aim is less than the
value of the assets transferred, MUFTA perm its respondent to recover $93,345.46, the
amount necessary to satisfy his outst anding claim, from appellant. See Minn. Stat.
§ 513.48(b)(1).
Appellant agrees that respondent should be permitted to recover from someone. But
he argues that it would be unfair to allow respondent to recover from appellant based solely
on the wrongdoing of appellant’s son, and that if this court were to permit recovery under
these circumstances, it would be the first time in the history of Minnesota that a court has
done so. While we are symp athetic to appellant’s argument and circumstances, we
disagree. The purpose of MUFTA is to prevent debtors from placing property out of reach
of their creditors. Citizens State Bank Norwood Young Am., 849 N.W.2d at 60. And when

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determining whether a fraudulent transfer occurred, the intent of the transferee—innocent
or otherwise—is of no concern. Minn. Stat. § 513.44 (2010). Minnesota courts have also
permitted a creditor to levy execution on assets that a re lative-debtor fraudulently
transferred to a relative-transferee. See Reilly v. Antonello , 852 N.W.2d 694, 701-02
(Minn. App. 2014) (holding that a creditor may levy execution on assets that a husband
fraudulently transferred to his wife); See also Citizens State Bank Norwood Young Am. ,
849 N.W.2d at 66 (permitting a creditor to le vy execution on assets that an ex-husband
fraudulently transferred to his ex-wife in a divorce decree).
B. There is no basis for reduction of the damage award.
Appellant also argues that “[p]ursuant to equity and under applicable rules related
to fraudulent transfer claims,” respondent’s damage award should be reduced. Appellant,
however, cites no such rules. Having concl uded that Minn. Stat. § 513.48(b)(1) permits
respondent to recover, we analyze appellant’s equity argument under this statutory section.
When a creditor recovers judgme nt against a first transferee for the value of the assets
transferred, the judgment is “subject to adju stment as the equities may require.” Minn.
Stat. § 513.48(c) (2010). Respondent’s recovery, however, was for the amount necessary
to satisfy his claim. No su ch principles of e quity apply to judgments for the amount
necessary to satisfy a creditor’s claim. Minn. Stat. § 513.48(b)(1).
C. The district court’s damage award was not speculative.
Appellant argues that the district court erred by awarding respondent damages that
“were not only entirely speculative, but utte rly unsupported by the evidence at trial.”
Appellant’s argument is unsupported by the re cord. The district court made specific

15
findings about the amounts of the prior judgments respondent obtained against the law firm
in prior actions and awarded respondent $93,345.46—the exact amount of his outstanding
judgments. Because there is nothing speculative about the district court’s damage award,
the district court did not abuse its discretion.
D. The district court did not award an inappropriate amount of damages.
Appellant argues, with no legal citations , that the district court overlooked the
timing of respondent’s underl ying judgments, which he claims was critical to the
determination of damages. He also argues that because respondent only had one judgment
of $1,131.25 against appellant’s son and the law firm at the time that the pledge agreement
was deemed effective and the law firm’s assets were transferred to appellant, $1,131.25 is
the full extent of respondent’s possible damage s. We disagree. As to a creditor under
MUFTA, a transfer is fraudulent even if it occurred before the creditor’s claim arose. Minn.
Stat. § 513.44(a)(1). That means that even t hough the majority of respondent’s claims
arose after the fraudulent transfer, respondent is still entitled to recovery.
In sum, we decline to re duce respondent’s damage award and conclude that the
district court had a legal basis to award re spondent damages, did not award speculative
damages, and did not award an inappropriate amount of damages. The district court did
not abuse its discretion by awarding respondent $93,345.46 in damages under MUFTA.
Affirmed.