       IN THE COURT OF APPEALS OF TENNESSEE AT
                     KNOXVILLE
                             May 15, 2015 Session

STATE BANK OF REESEVILLE V. MARY BETH SHEA, ET AL.

          Appeal from the Chancery Court of Hamilton County
             No. 13-0672      Jeffrey M. Atherton, Chancellor


                         __________________________

            No. E2014-02170-COA-R3-CV-FILED-JULY 28, 2015
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The plaintiff bank filed this action asserting that defendants fraudulently conveyed
real property located in Tennessee in an effort to defraud the bank and to evade the
collection of a Wisconsin state court judgment against defendant Mrs. Shea. The
trial court granted the bank’s motion for summary judgment, setting aside the
conveyance as fraudulent and declaring the deed from Mrs. Shea to her father null
and void. The defendants appeal. We affirm.

   Tenn. R. App. P. 3 Appeal as of Right; Judgment of the Chancery Court
                        Affirmed; Case Remanded

JOHN W. MCCLARTY, J., delivered the opinion of the Court, in which CHARLES D.
SUSANO, JR., C.J., and D. MICHAEL SWINEY, J., joined.

Wilson C. Von Kessler, II, Chattanooga, Tennessee, for appellants, Mary Beth
Shea and Luverne C. Hall.

Stephen D. Barham and Jeffrey W. Maddux, Chattanooga, Tennessee, for
appellee, State Bank of Reeseville.

                                    OPINION

                               I. BACKGROUND

       This appeal arises out of construction loan agreements and a mortgage
entered into in September 2009, between Reeseville 16, LLC, (“LLC”), a
Wisconsin limited liability company, and State Bank of Reeseville (“Bank”), a
Wisconsin banking corporation. LLC executed a Construction Loan Promissory
Note (“Note 1”) with Bank wherein the company promised to pay the principal
amount of $349,003.46, together with interest at a rate of 5% per annum, in eleven
monthly payments of accrued interest, plus a final payment of the unpaid principal
and accrued interest.

        In order to secure all obligations of LLC to Bank arising from Note 1, as
well as other obligations and liabilities arising out of credit previously granted,
credit contemporaneously granted, and credit granted in the future by Bank, LLC
also executed a real estate mortgage (“Mortgage”) in September 2009. Moreover,
as part of the above construction loan agreement and Mortgage, Mary Beth Shea
(“Shea”) and Ronald L. Shea, her late husband, entered into personal guarantees
(“M. Shea Guaranty” and “R.L. Shea Guaranty”) in September 2009, thereby
jointly and severally guaranteeing payment of LLC’s obligations to Bank. About
three months later, LLC executed another Construction Loan Promissory Note
wherein the company promised to pay to Bank the principal amount of
$326,248.00, together with interest at a rate of 5% per annum, in eleven monthly
payments of accrued interest.

       Approximately two years following the execution of the construction loan
agreements and Mortgage, Shea’s husband committed suicide, leaving two life
insurance policies with his wife as the beneficiary. Subsequent to the suicide,
Bank filed foreclosure proceedings in a Wisconsin court against the mortgaged
Wisconsin property and Shea for defaulting under the terms of the M. Shea
Guaranty. After Shea failed to appear, the court entered a default judgment
(“Wisconsin Judgment”) in favor of Bank on October 12, 2012, ordering a
judgment of foreclosure and sale of the Wisconsin property and payment of debt
owed by Shea under the M. Shea Guaranty in the amount of $239,613.73, plus
attorney fees and costs of collection.

       Two months after Bank obtained Wisconsin Judgment, Shea purchased
property located at 8828 Igou Gap Road, Chattanooga, Tennessee (“Property”),
with proceeds from the life insurance policies. Subsequently, Shea quitclaimed
Property to her father, Luverne C. Hall (“Hall”). In exchange for Property, Shea
received $10.00 plus “love, affection, and support.” As Shea has no other income,
accounts, or assets of any kind, Bank asserts this home is her only asset from
which satisfaction of the Wisconsin Judgment may be obtained.

       Following the transfer, in September 2013, Bank simultaneously filed two
actions: 1) Petition to Enforce Foreign Judgment against Shea; and 2) Complaint
against Shea and Hall, alleging that Shea knew about Wisconsin Judgment, and
therefore purchased and fraudulently transferred Property in an attempt to hide
assets from collection efforts. Additionally, Bank filed an Abstract and Notice of
Lien Lis Pendens against Property seeking to have the conveyance to Hall voided

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or set-aside as a fraudulent transfer and/or to impose a constructive trust or
equitable lien upon the described real estate in the amount of $120,000.

       Ultimately, in May 2014, Bank filed a summary judgment motion against
Shea and Hall alleging the fraudulent transfer of Property in an effort to defraud
Bank and evade collection of Wisconsin Judgment. The trial court granted the
motion on July 21, 2014, ordering inter alia that: Shea’s transfer of Property to her
father be set aside as a fraudulent conveyance pursuant to Tennessee Code
Annotated section 66-3-301; and Property revert back to Shea as its owner in fee
simple under the Warranty Deed. Shea and Hall filed this timely appeal.


                                    II. ISSUE

       We restate the issue presented in this appeal by Shea and Hall as follows:

              Did the trial court properly find that the funds used by
              Shea to purchase her home were not exempt widow’s
              assets under Tennessee Code Annotated section 56-7-
              203, and therefore Bank could collect upon the
              Property to satisfy debt owed.


                         III. STANDARD OF REVIEW

       Appellate review of the trial court’s decision is de novo upon the record
accompanied by a presumption of correctness of the findings of fact unless the
preponderance of the evidence is otherwise. See Tenn. R. App. P. 13(d). A trial
court’s conclusions of law are subject to a de novo review with no presumption of
correctness. Southern Constructors, Inc. v. Loudon Cnty. Bd. of Educ., 58 S.W.3d
706, 710 (Tenn. 2001). We may only overturn the judgment of the trial court if
there was an error of law or the preponderance of the evidence is otherwise.


                                IV. DISCUSSION

       Tennessee Code Annotated section 56-7-203 provides as follows:

              The net amount payable under any policy of life
              insurance or under any annuity contract upon the life
              of any person made for the benefit of, or assigned to,
              the spouse and/or children, or dependent relatives of
              the persons, shall be exempt from all claims of the

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             creditors of the person arising out of or based upon any
             obligation created after January 1, 1932, whether or
             not the right to change the named beneficiary is
             reserved by or permitted to that person.

Tenn. Code Ann.§ 56-7-203. “Tennessee law generally provides that life
insurance payable to a spouse or children of a decedent passes to such person
without being subject to the debts of the decedent.” In re Huffines, 57 B.R. 740,
742. (Bankr. M.D. Tenn. 1985). However, life insurance proceeds are not exempt
from claims of creditors of the surviving beneficiaries. Id. Such was clearly
illustrated in In re Olien, 256 B.R. 280 (Bankr. E.D. Tenn. 2000), where husband
and wife named one another as beneficiaries of their individual life insurance
policies. The court held the plain language of the statute supports the finding that
the cash value of each policy is not exempt from the claims of creditors of either
spouse. Id. at 282-83. See LaForest v. Roberts, No. 3:09-CV-204, 2010 WL
1223921 at *5 (E.D. Tenn. Mar. 24, 2010).

       In this case, Bank is a direct creditor of Shea under the M. Shea Guaranty.
Despite the fact that the basis of Wisconsin Judgment is debt that originated from
the construction loan agreements and Mortgage, Shea’s personal guarantee makes
the policy benefits subject to the claims of Bank. Accordingly, Shea cannot claim
exemption pursuant to Tennessee Code Annotated section 56-7-203.


                               V. CONCLUSION

       We affirm the decision of the trial court. The case is remanded for such
further proceedings as may be necessary. Costs of the appeal are assessed to
appellants, Mary Beth Shea and Luverne C. Hall.



                                                 ___________________________
                                                 JOHN W. MCCLARTY, JUDGE




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