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Voidable Transactions Article by Jay Adkisson for 2019

Article 2019 Articles2019

New York Finally Modernizes Its Fraudulent Transfer Laws By Adopting The Uniform Voidable Transactions Act
♦ New York has finally updated its fraudulent transfer laws, adopting the Uniform Voidable Transactions Act (UVTA) to replace the outdated Uniform Fraudulent Conveyances Act (UFCA). This change brings New York in line with nearly every other state, aligning its law with the modern Uniform Fraudulent Transfers Act (UFTA). The UVTA, a modern update of the UFTA, uses the clearer phrase "reasonably equivalent value" instead of the problematic "fair consideration," which caused much litigation and confusion in New York. This shift allows New York courts to utilize legal precedent from other states that have adopted the UFTA or UVTA, promoting consistency and clarity across jurisdictions. While adopting the UVTA, New York added a non-uniform provision regarding attorney's fees, potentially deterring transferees and beneficiaries from participating in transactions that harm creditors. Overall, the adoption of the UVTA signifies a significant step towards a more streamlined and predictable legal framework for fraudulent transfer issues in New York, eliminating years of confusing case law and promoting greater consistency with other states. ♦

Repeal Of Kentucky’s Fraudulent Transfer Law In Favor Of UVTA Causes Headaches In Orchard
♦ Derek Orchard sued Western Energy Production, LP (WEP) and obtained judgments against them in California. WEP's general partner, Western Energy Company (WEC), transferred its interests in two entities to its president, Steven Marshall, who then transferred them to another company. Orchard sought a charging order against WEP's interests, claiming the transfers were fraudulent. The Kentucky trial court dismissed Orchard's fraudulent transfer claim, citing the repeal of the relevant statute and the lack of a retroactive provision in the new law. The court also acknowledged the transfers lacked notary acknowledgments but didn't declare them void. The Kentucky Court of Appeals upheld the dismissal, stating that neither the old nor the new statute provided Orchard with legal grounds for a fraudulent transfer claim. They attributed this to a gap in Kentucky law regarding transfers occurring before the new law's adoption. The court remanded the case back to the trial court to determine whether the transfers were properly acknowledged by a notary. Key Takeaways: (1) Legislative oversight: The repeal of Kentucky's fraudulent transfer statute without a retroactive provision for the new law left a gap in legal recourse for pre-2016 transfers. (2) Need for alternative theories: The case highlights the importance of pursuing alternative legal theories like common law fraudulent transfer or unjust enrichment in fraudulent transfer cases. (3) Notary acknowledgment: The lack of notary acknowledgment in the transfers raises concerns about potential fraud and emphasizes the importance of this requirement for validating private transactions. This case offers a cautionary tale about the potential consequences of legislative changes and the need for legal practitioners to consider multiple legal avenues to address fraudulent transfer issues. ♦

Texas Homestead Gets Constitutional Protection From Fraudulent Transfer Claim In Lapides
♦ This summary discusses a legal case where a creditor, Hinds & Shankman, LLP, attempted to recover funds from a debtor, Richard Lapides, by claiming a fraudulent transfer. Lapides and his wife had sold their California properties and used the proceeds to buy a Texas homestead. The court sided with Lapides, ruling that the Texas homestead exemption, enshrined in the state constitution, prevented the creditor from recovering the funds. This exemption is considered superior to state fraudulent transfer laws, meaning the transfer could not be voided. The court referenced similar precedents in Florida, where a constitutional homestead exemption had been upheld despite the debtor's intent to hinder creditors. This decision establishes a similar "Havoco rule" in Texas, providing strong protection for Texas homesteads from creditors. The author highlights the significance of this decision, emphasizing that once funds are transferred into a Texas homestead, they are exceptionally secure, even if the intent behind the transfer was to avoid creditors. The only exceptions are for funds derived from criminal activity or other limited circumstances. ♦

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Of Jeffrey Epstein And The Assets He Placed Into Trust Two Days Before His Death
♦ This article discusses whether Jeffrey Epstein's transfer of assets to a trust for his brother, Mark, protected those assets from his creditors. Here's a summary: (A) Trusts: Trusts are contractual arrangements where a settlor transfers assets to a trustee for the benefit of a beneficiary. While the trustee holds legal title, the beneficiary holds equitable title. Trusts were initially used to avoid taxes, and their use in asset protection planning has been debated for centuries. (B) Epstein's Transfer: Epstein transferring assets to a trust for his brother might initially appear to protect the assets from creditors. This is because he no longer has legal title, preventing direct seizure. (C) Fraudulent Conveyances: However, laws like the Uniform Voidable Transactions Act (UVTA) can be used to challenge transfers made with the intent to defraud creditors. This is often the case when transfers occur shortly before facing financial difficulties. (D) Epstein's Estate: Because Epstein is deceased, his creditors can pursue claims against his estate. This means they can challenge the trust transfer, potentially recovering the assets for distribution to creditors. (E) Evidence of Fraudulent Intent: The timing of Epstein's transfer (while facing numerous creditor claims) provides strong circumstantial evidence that he intended to defraud creditors. This makes it likely the court will deem the transfer voidable. (F) In conclusion: While the transfer initially appeared to shield the assets, it's highly probable that Epstein's creditors will be able to challenge the transfer and access those assets through his estate. ♦

Cortez Rule For California Uniform Voidable Transactions Act Reaffirmed In Potter
♦ This case delves into the California Uniform Voidable Transactions Act (CUVTA) and its unique interpretation of the statute of extinguishment, particularly in light of the "Cortez rule". (A) Key Points: (1) CUVTA's Statute of Extinguishment: Similar to a statute of limitations, it terminates a cause of action related to transfers or obligations. California's CUVTA has a standard 4-year period, with a 1-year discovery rule for the "Intent Test" (whether the debtor intended to defraud creditors). Additionally, there's a 7-year "drop-dead" period, regardless of other factors. (2) The Cortez Rule: California, unlike other states, interprets the "not later than four years after the transfer was made" clause differently. The "Cortez rule" states that the extinguishment period doesn't begin until the creditor obtains a judgment, potentially delaying the deadline by years. (3) The Case: Potter, injured by Tovar in a motorcycle accident, sued Tovar and his insurer, AUIC, for bad faith after AUIC settled with Tovar, potentially hindering Potter's claim. Potter argued the settlement was a voidable transaction under CUVTA. (4) The Court's Decision: Despite the 6-year gap between the settlement and Potter's suit, the court upheld Potter's claim, citing the Cortez rule. The court also ruled that Tovar's bad faith claim against AUIC was an "asset" for CUVTA purposes, making the settlement a transfer. (5) Analysis: The Cortez rule, although controversial, has been consistently upheld in California. While it makes sense in practice due to lengthy litigation, it creates uncertainty for debtors and asset protection planners who must consider a potential 7-year window for challenges. (B) Implications: (1) Creditor-Debtor Litigation: The Cortez rule significantly benefits creditors in California by extending the time for bringing voidable transaction claims. (2) Asset Protection Planning: Asset protection planning in California requires extra caution due to the 7-year "drop-dead" period and the potential for challenges under CUVTA. (3) Future of Cortez: Despite criticism, the Cortez rule remains a significant part of California law, emphasizing the need for careful consideration of CUVTA and the implications of voidable transactions in this state. ♦

Fraudulent Transfers And The Statute of 13 Elizabeth Translated To Contemporary Legal English
♦ The Statute of 13 Elizabeth, passed in 1571, is a crucial piece of legislation in Anglo-American law, laying the foundation for modern voidable transactions law. Its primary purpose was to combat fraudulent conveyances of property designed to hinder creditors, including the Crown, from collecting debts. Here are the key points: (1) The Problem: The Act addressed a prevalent issue of landowners using legal loopholes to defraud creditors by transferring assets to avoid paying debts. (2) Penalties: The statute imposed severe penalties on parties engaging in fraudulent transactions, including forfeiture of half the value of the transferred property to the Crown and the other half to the aggrieved creditor, along with six months imprisonment. (3) Voidability: The Act declared such fraudulent transfers void and ineffective against the intended creditor. (4) Good Faith Exception: The statute recognized a "good faith" defense, exempting transfers made with "good consideration" to those unaware of the fraudulent intent. (5) Historical Significance: The Statute of 13 Elizabeth laid the groundwork for later fraudulent transfer laws in the United States, which also criminalized such conduct. (6) Modern Relevance: The concepts enshrined in the Statute of 13 Elizabeth remain relevant today, with many states adopting similar laws to protect creditors and prevent fraudulent transactions. The "good faith" defense, now codified in the Uniform Voidable Transactions Act (UVTA), continues to provide a key legal exception. In essence, the Statute of 13 Elizabeth aimed to deter and penalize fraudulent transfers, safeguarding the interests of creditors and promoting fair commercial dealings. ♦

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