Voidable Transaction Court Opinions
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The use of the black diamond ♦ symbol denotes an artificial intelligence ("AI") synopsis. Since AI is often inaccurate, AI-generated materials such as these synopsis should not be relied upon, and instead proper reference should be made to the underlying real-world materials. Use AI-generated content at your own peril!
SE Property Holdings, LLC v. Welch, 65 F.4th 1335 (11th Cir., 2023).
♦ SE Property Holdings, LLC v. Welch, 65 F.4th 1335 (11th Cir., 2023), revolves around the application of the Florida Uniform Fraudulent Transfer Act (FUFTA), specifically Fla. Stat. § 726.101 et seq. (1) Background: SE Property Holdings, LLC (SEPH) obtained a deficiency judgment against Neverve LLC (Neverve) in 2015. Neverve had defaulted on loans secured by a mortgage on its property. Following this judgment, Neverve received proceeds from an unrelated settlement. (2) Fraudulent Transfer Allegations: Neverve transferred these settlement proceeds to attorneys representing its principal, David Stewart. The transfer was in payment of attorney’s fees related to Stewart’s personal bankruptcy proceedings. SEPH sued Neverve, alleging fraudulent transfer of the settlement proceeds under FUFTA. SEPH sought compensatory damages, punitive damages, attorney’s fees, and an equitable lien. (3) District Court Ruling: The district court granted summary judgment in favor of Neverve. It held that FUFTA’s “catch-all” provision of Fla. Stat. § 726.108(1)(c)(3) did not allow for an award of money damages against the transferor, punitive damages or attorney’s fees. The court also ruled in favor of Neverve on SEPH’s equitable lien claim. (4) On appeal, the Eleventh Circuit held that neither Florida state courts nor the Eleventh Circuit had squarely addressed these FUFTA issues. Based on the narrow interpretation of FUFTA in Freeman v. First Union National Bank (865 So. 2d 1272, Fla. 2004), the court believed that FUFTA’s catch-all provision did not allow for the specified awards. Consequently, the district court’s decision was upheld. In summary, the Eleventh Circuit affirmed the district court’s ruling, emphasizing that FUFTA’s catch-all provision does not permit money damages against the transferor, punitive damages, or attorney’s fees. Additionally, the equitable lien claim was also decided in favor of Neverve. ♦
Paulsen v. Olsen, 2023 WL 8019393 (N.D.Ill., Nov. 20, 2023)
♦ This case involved James Paulsen, who filed for bankruptcy, and the trustee of his bankruptcy estate, Joseph Olsen. Olsen alleged that Paulsen had fraudulently transferred his interest in his home to a tenancy by the entirety with his wife, Kathleen Paulsen, to shield it from creditors. (A) Background: Paulsen and his son took out a loan for their paving business. The business failed, and they fell behind on payments. McHenry Savings Bank sued Paulsen and his son, obtaining a judgment against them. Paulsen and Kathleen transferred their home ownership from joint tenants to tenants by the entirety, placing it in a land trust. Paulsen filed for bankruptcy. (B) Olsen's Claims: The transfer to tenants by the entirety was fraudulent and intended to avoid paying the debt to McHenry Savings Bank. He sought to avoid the transfer, recover the property interest, and sell the home under Bankruptcy Code § 363(h). (C) Paulsens' Arguments: The transfer was not fraudulent, but for estate planning and other legitimate purposes. They had the ability to pay the debt. (D) Bankruptcy Court's Ruling: The Bankruptcy Court found Paulsen's testimony about his motives and ability to pay not credible. The court avoided the transfer and disallowed Paulsen's exemption claim, granting judgment to Olsen on Counts I and II. The court entered judgment for the Paulsens on Count III (the sale under § 363(h)) without prejudice, as Olsen had no proposal for the sale. (E) Appeal: The Paulsens appealed the Bankruptcy Court's decision. They argued that the court erred in denying their motions to dismiss and for summary judgment, as well as in its factual findings and legal conclusions. (F) District Court's Decision: The District Court dismissed the appeal as to Count III for lack of jurisdiction, finding the judgment was not final. The District Court affirmed the Bankruptcy Court's judgment on Counts I and II. The court found no clear error in the Bankruptcy Court's findings of fact, including its credibility determinations. The court also upheld the Bankruptcy Court's denial of the Paulsens' motions to dismiss and for summary judgment, as genuine disputes of material fact existed. (G) Key Takeaways: The case highlights the importance of the "sole intent" standard in Illinois law regarding transfers to tenancy by the entirety. Courts will scrutinize the motives and financial circumstances surrounding such transfers. Credibility determinations by trial courts are given significant deference. The District Court's decision clarifies the jurisdictional rules regarding final orders in bankruptcy appeals. ♦
Mitchell v. Zagaroli (In re Zagaroli), 2020 WL 6495156 (Bk.W.D.N.C., Nov. 3, 2020).
♦ This order addresses the Defendants' attempt to dismiss the Plaintiff's (the Chapter 7 Trustee) Amended Complaint in a bankruptcy case. The Plaintiff sought to avoid certain pre-petition transfers of real property from the Debtor to the Defendants, his parents, alleging the transfers were made without consideration while the Debtor was insolvent. (A) Key Issues: (1) Trustee's Power Under 11 U.S.C. § 544(b)(1): The Defendants argued that the Trustee lacked the authority to use the North Carolina Uniform Voidable Transactions Act (NCUVTA) to avoid the transfers, citing the IRS's unique position and extended look-back period under the Internal Revenue Code (IRC). (2) Statutory Construction and Context: The Defendants argued for a broader interpretation of the statute, including context beyond the plain language of § 544(b)(1), citing the Supreme Court's emphasis on statutory context and avoiding absurd results. (3) Authorization and Procedural Obstacles: The Defendants argued that the Plaintiff needed specific authorization to bring this action and that the Plaintiff's claims violated the Tax Anti-Injunction Act and separation of powers provisions of the Constitution. (B) Court's Reasoning: (1) Plain Language of § 544(b)(1): The court found that the language of § 544(b)(1) clearly allows the Trustee to step into the shoes of the IRS and utilize applicable laws, including the NCUVTA and IRC, to avoid transfers. (2) Precedent: The court relied on the majority view expressed in Vieira v. Gaither (In re Gaither) and Hillen v. City of Many Trees, LLC (In re CVAH, Inc.), which held that the Trustee can utilize the extended look-back period under the IRC. (3) Absurdity and Statutory Scheme: The court rejected the Defendants' argument about absurd results, noting that their interpretation would leave both the Trustee and the IRS unable to avoid transfers. (4) Authorization and Procedural Issues: The court did not find any merit in the Defendants' arguments about authorization and procedural obstacles. (C) Conclusion: The court denied the Defendants' Motion to Dismiss Amended Complaint, concluding that the Trustee can utilize both the NCUVTA and the IRC to pursue avoidance of the pre-petition transfers. The Defendants were given 30 days to file their Answer to the Amended Complaint. Implications: This decision affirms the majority view that allows Chapter 7 Trustees to leverage the avoidance powers available to creditors, including the IRS, to protect the bankruptcy estate. It underscores the power of § 544(b)(1) in providing the Trustee with a valuable tool for recovering assets for the benefit of creditors. ♦
In re Tootian (Goldman v. Dardashti), 2021 WL 4558290 (C.D.Cal., Oct. 5, 2021).
♦ This case involves a fraudulent transfer action brought by a Chapter 7 Trustee (Amy Goldman) against Shawn Dardashti, who purchased a property from debtors Shawn Melamed and Jenous Tootian through a short sale. The Trustee claims the short sale was a scheme to protect the debtors' equity from creditors, with Dardashti paying kickbacks and giving an option to repurchase the property. The Trustee seeks to set aside the transfer as fraudulent and recover the property for the benefit of creditors. The court granted summary judgment in favor of Dardashti, ruling that the property was not an "asset" under California law because it was heavily encumbered by liens exceeding its value at the time of the transfer. This finding negated the Trustee's fraudulent transfer claims based on 11 U.S.C. § 544 and California Civil Code § 3439.04. The court also rejected the Trustee's attempt to impose a resulting trust on the property. It found that: (1) Dardashti provided the purchase price with his own funds, not those of the debtors. (2) The existence of a repurchase option contradicted the intent of a resulting trust. (3) The Trustee lacked standing to pursue a resulting trust claim on behalf of creditors, as this type of action can only be brought by individual creditors, not a bankruptcy trustee. Furthermore, the court found that the Trustee's claims were likely barred by the in pari delicto doctrine, as the debtors' fraudulent actions would be imputed to the Trustee. In conclusion, the court determined that the Trustee lacked a legal basis for her claims and could not demonstrate any injury or harm suffered by creditors as a result of the transfer. ♦
Nagel v. Westen, 2021 WL 58119 (Cal.App., Distr. 2, Jan. 7, 2021).
♦ This case involves a dispute over a house sold by Tracy Westen and Linda Lawson (Sellers) to Nicole Nagel (Buyer) in 2011. After discovering significant water damage, Buyer sued Sellers and won an arbitration award of over $4.5 million. Sellers then attempted to shield their assets from collection by transferring them out of California and into various exempt assets in Texas, Nevada, and Minnesota. Buyer sued again, this time alleging fraudulent transfer under the Uniform Voidable Transactions Act (UVTA). The trial court dismissed the case, reasoning that Buyer couldn't identify a "third-party transferee" who received the assets. The court believed that Sellers merely shifted their assets within their own control and didn't actually transfer them to someone else. The Court of Appeal reversed the lower court's decision in part. It held that the UVTA's definition of "transfer" is broad and includes "every mode, direct or indirect, absolute or conditional, voluntary or involuntary, of disposing of or parting with an asset or an interest in an asset." Therefore, Sellers' actions in moving assets out of state and converting them into exempt assets could constitute a "transfer" under the UVTA. The court further argued that limiting the UVTA to only third-party transfers would allow debtors to easily evade creditors by simply shifting assets within their own control. This would contradict the law's purpose of preventing debtors from hiding assets from creditors. The court affirmed the dismissal of Buyer's common law fraudulent transfer claim as Buyer did not adequately argue its elements in their appeal brief. In summary, this case clarifies that the UVTA's definition of "transfer" is expansive and includes actions where debtors shift assets within their own control, not just to third parties. This decision helps creditors pursue their claims against debtors who attempt to evade their obligations by manipulating their assets. ♦
In re Medina, 2021 WL 3214757 (9th Cir., 2021).
♦ This case involved a dispute over a transmutation agreement, where John and Bernadette Sarkisian converted their community property into separate property. The bankruptcy trustee, Ronald Stadtmueller, argued that this transmutation was an actual fraudulent transfer under California law, intended to hinder his collection of a debt owed by John. (1) Key Points: The Bankruptcy Court: Initially granted summary judgment in favor of the Sarkisians, finding that the trustee failed to prove actual injury from the transmutation. The Bankruptcy Appellate Panel (BAP): Reversed the bankruptcy court's decision, holding that California law does not require a creditor to prove specific injury when alleging an actual fraudulent transfer. The Ninth Circuit: Affirmed the BAP's decision, agreeing that the plain language of the California Uniform Voidable Transactions Act (UVTA) and existing case law do not require proof of specific injury. (2) The Ninth Circuit's Reasoning: The court focused on the language of the UVTA, which states that a transfer is voidable if made with "actual intent to hinder, delay, or defraud any creditor of the debtor." The court found that the BAP correctly interpreted this language to mean that the creditor only needs to prove the transfer was made with the intent to hinder, delay, or defraud, not that the creditor suffered specific harm. The court rejected the Sarkisians' argument that the case of Mehrtash v. Mehrtash required proof of specific injury. The court found that Mehrtash actually supported the BAP's interpretation, as it stated that the necessary injury is the transfer of assets beyond the creditor's reach. (3) Conclusion: The Ninth Circuit affirmed the BAP's decision, holding that a creditor alleging an actual fraudulent transfer under California law does not need to prove specific injury. The only requirement is to prove that the debtor made the transfer with the intent to hinder, delay, or defraud the creditor. This decision clarifies the requirements for proving actual fraudulent transfers under California law. ♦
Kruse v. Repp, 2021 WL 2451230 (S.D.Iowa, June 15, 2021).
♦ This is a legal case where Christina Kruse, who was severely injured in a car accident caused by Steven Weller, is suing the lawyers and bankers who helped Weller hide his assets. The case revolves around several key events: (A) The Accident and Weller's Initial Attempts to Hide Assets: Weller, after causing the accident, transferred his assets into a trust and made cash gifts to family members to avoid paying for Kruse's injuries. He admitted his liability and anticipated being sued. (B) First State Bank's Knowledge and Involvement: First State Bank was aware of Weller's attempts to hide assets but continued to lend him money. They under-valued his property in their financial statements and refinanced his loans using property held by a newly created LLC, even though they knew he had transferred the land to the LLC to shield it from creditors. (C) The Dickinson Law Firm's Role: Weller hired attorney David Repp from the Dickinson law firm to help him set up a limited liability company (LLC) called Weller Farms. Repp was aware of the lawsuit against Weller and his previous attempts to hide assets, yet still helped him establish Weller Farms and transfer the land to the entity. (D) Lawsuits and Fraudulent Transfers: Kruse filed a lawsuit against Weller, resulting in a $2.5 million judgment against him. Kruse filed a second lawsuit alleging that Weller's transfers were fraudulent, and the court ruled in her favor. The court found that Weller Farms was formed to protect his assets from Kruse's judgment lien. (E) Kruse's Current Lawsuit: Kruse is now suing both the bank and the law firm, alleging that they knowingly participated in Weller's fraud. She alleges violations of the Iowa Uniform Fraudulent Transfer Act, RICO, and tortious interference. (F) The court denies summary judgment for both the bank and the law firm. There are too many disputed facts and inferences that could lead a reasonable jury to conclude that both the bank and the law firm were aware of Weller's fraudulent intentions and helped him hide his assets. The court finds that Kruse has presented sufficient evidence to support her claims and the case will proceed to trial. ♦
SE Property Holdings, LLC v. Judkins, 822 Fed.Appx. 929 (11th Cir. July 27, 2020).
♦ This case involved a creditor, SE Property Holdings (SEPH), seeking to recover assets from Russell Judkins, who had transferred them to himself and his wife as tenants by the entirety or to limited liability companies they owned, effectively shielding them from creditors. SEPH specifically challenged the transfer of Judkins' 50% interest in a property to Highway 59, LLC. The district court found that Judkins' transfer to Highway 59 was made with the intent to defraud creditors, specifically SEPH. It relied on several factors, including: (1) Judkins' meeting with an attorney to develop a plan to shield assets from creditors. (2) transfer being concealed from SEPH, with Judkins omitting the transfer from his financial statement. (3) The lack of fair value received by Judkins in exchange for the transfer. (4) Judkins' insolvency at the time of the transfer. (5) The transfer occurring amidst impending defaults on loans Judkins guaranteed. Based on these findings, the court ordered Highway 59 to transfer the property to SEPH and awarded punitive damages of $300,000 against Judkins and Highway 59, jointly and severally. The Eleventh Circuit affirmed the district court's decision. They rejected Judkins' arguments that: (1) The transfer was disclosed by recording the deed, as this did not constitute notice to creditors. (2) The punitive damages were excessive, as the transfer of the property itself constituted a sufficient remedy for SEPH. The court also affirmed the punitive damages award against Highway 59, finding that Judkins' actions as the company's agent were sufficient to attribute fraudulent intent to the company. In conclusion, the Eleventh Circuit upheld the district court's finding of fraudulent transfer and the resulting remedies, including the transfer of the property and the award of punitive damages. ♦
Jones v. Mackey Price Thompson & Ostler, 2020 UT 25, 2020 WL 2507664 (Utah, May 14, 2020).
♦ This is a summary of the case Jones v. Mackey Price Thompson & Ostler, 2020 UT 25, 2020 WL 2507664 (Utah, May 14, 2020): (A) Background: (1) Attorney Gregory Jones sued his former law firm, Mackey Price Thompson & Ostler (MPTO), over the distribution of litigation proceeds from Fen-Phen cases. (2) Jones claimed he was entitled to a larger share of the fees. (3) A jury awarded Jones $647,090 against MPTO on a quantum meruit/unjust enrichment theory. (4) The district court dismissed Jones's claims for breach of fiduciary duty, fraudulent transfer, and punitive damages. (5) The district court also denied Jones's request for a constructive trust. (6) Jones appealed, and MPTO and Mackey Price, LLC cross-appealed. (B) Supreme Court of Utah's Decision: (1) Affirmed: The court affirmed the dismissal of the breach of fiduciary duty claim. (2) Reversed: The court reversed the dismissal of the fraudulent transfer and punitive damages claims. (3) Reversed and Remanded: The court reversed the denial of Jones's request for a constructive trust and remanded for further proceedings. (4) Affirmed: The court affirmed the denial of Jones's alter ego and statutory violation claims against Mackey, Price, and Mackey Price Law. (5) Affirmed: The court upheld the jury verdict on the quantum meruit/unjust enrichment claim. (6) Reversed and Remanded: The court reversed the district court's decision to add Mackey Price, LLC as a successor in interest to MPTO and remanded for further proceedings. (C) Key Issues and Holdings: (1) Fraudulent Transfer: The court held that a "mixed motive" is sufficient to establish "actual intent" to hinder, delay, or defraud under the Utah Fraudulent Transfer Act. The court also held that Jones was required to establish such actual intent by clear and convincing evidence. The court found that there was sufficient evidence in the record for a reasonable jury to find by clear and convincing evidence that MPTO acted with actual intent to hinder or delay Jones. (2) Punitive Damages: The court held that Jones was entitled to pursue his claim for punitive damages because the fraudulent transfer claim was reinstated. (3) Constructive Trust: The court clarified that its prior decision in Jones I did not foreclose the possibility of a constructive trust in this case. The court remanded for the district court to decide whether Jones had established the preconditions for the imposition of a constructive trust. (4) New Claims in Post-Judgment Proceedings: The court affirmed the district court's decision that Jones could not prosecute his claims for fraudulent transfer, alter ego, and statutory violations in post-judgment proceedings. The court held that such claims must be initiated and litigated in the ordinary course under the Utah Rules of Civil Procedure. (5) Substitution of Successor Entity: The court held that the district court had jurisdiction to consider a rule 25 motion for substitution to add Mackey Price, LLC as a successor to MPTO in post-verdict proceedings. However, the court reversed and remanded because Mackey Price, LLC was entitled to contest the merits of the proposed substitution once the district court rejected its jurisdictional arguments. (D) Overall, the Supreme Court of Utah reversed several of the district court's rulings in favor of Jones, finding that he was entitled to pursue his claims for fraudulent transfer, punitive damages, and a constructive trust. The court also clarified the scope of its prior decision in Jones I and provided guidance on the proper procedures for adding a successor entity to a judgment under the Utah Rules of Civil Procedure. ♦
LaMonica v. Harrah's Atlantic City Operating Co., LLC (In re JVJ Pharmacy, Inc.), 2020 WL 4251666 (Bk.D.N.Y., July 24, 2020).
♦ This case involves a Chapter 7 trustee (LaMonica) seeking to recover funds transferred from the debtor (JVJ Pharmacy) to Harrah's Atlantic City. The transfers were made through ATM cash advances initiated by the debtor's principal, Zambri, using the debtor's debit card. The trustee alleged fraudulent transfers and unjust enrichment. (A) Key Findings: (1) Choice of Law: New Jersey law governs the fraudulent transfer claims, as the wrongful conduct occurred in New Jersey, and New Jersey has a greater interest in regulating fraudulent conduct in its casinos. (2) Initial Transferee: Harrah's is deemed the initial transferee of the funds, as Global Cash Access (Global), which facilitated the cash advances, acted as Harrah's agent and was obligated to transfer the collected funds to Harrah's. (3) Reasonably Equivalent Value: The debtor received no reasonably equivalent value in exchange for the transfers, as Zambri, not the debtor, benefited from the cash advances. (4) Intentional Fraudulent Transfer: The trustee abandoned this claim, failing to address Harrah's argument that he failed to allege intent. (5) Unjust Enrichment: This claim is dismissed as it duplicates the constructive fraudulent transfer claim. (B) Outcome: (1) The trustee's motion for summary judgment on the constructive fraudulent transfer claim (Count 2) is granted. (2) Harrah's motion for summary judgment dismissing all other claims (Counts 1, 3-7) is granted. (3) The trustee is awarded $850,449.60, representing the total transfers less the processing fee retained by Global. (C) Key Points: (1) The case highlights the importance of understanding agency relationships in fraudulent transfer cases. (2) The court emphasizes the "initial transferee" concept, holding that the first recipient of funds is not necessarily the initial transferee if they are contractually obligated to transfer the funds to a third party. (3) The case demonstrates the application of the "reasonably equivalent value" test in fraudulent transfer cases, where the debtor must receive something of value in exchange for the transfer. ♦
Foisie v. Worcester Polytechnic Institute, 2020 WL 4249670 (1st Cir., July 24, 2020).
♦ This case involves Janet Foisie, who alleges her ex-husband, Robert, concealed millions of dollars in assets during their divorce proceedings and fraudulently transferred them to his alma mater, Worcester Polytechnic Institute (WPI), after the divorce. Key Points: (A) The plaintiff's claims: Foisie sued WPI in Massachusetts federal court, alleging actual and constructive fraudulent transfers under both common law and the Uniform Fraudulent Transfer Act (UFTA). (B) The defendant's arguments: WPI moved to dismiss the complaint, arguing Massachusetts law governed and Foisie lacked standing as a "creditor" under the UFTA, and that her common law claims were preempted by the UFTA. (C) The district court's ruling: The court dismissed the complaint, finding that Massachusetts law applied and that Foisie did not qualify as a creditor under the UFTA. (D) The appellate court's ruling: The First Circuit vacated the dismissal, holding that: (1) The plaintiff had standing and her claims were ripe under Article III. (2) The district court's choice-of-law determination was premature and should be revisited after discovery. (3) The plaintiff qualifies as a creditor under the UFTA based on her existing claims against Robert. (4) The plaintiff adequately pleaded her fraudulent conveyance claims under both the UFTA and common law. (E) The case was remanded to the district court for further proceedings, including discovery and a reevaluation of the choice-of-law issue. ♦
Ernest Bock, L.L.C. v. Steelman2020 WL 4331529 (D.Nev., July 27, 2020).
♦ This case involves a creditor, Ernest Bock, L.L.C., seeking to collect on a judgment against Paul and Maryann Steelman, who had defaulted on a loan secured by their amusement park development in Atlantic City. The Steelmans transferred assets and businesses to various trusts, including the Steelman Asset Protection Trust (SAPT). Bock alleged these transfers were fraudulent, intended to hinder their ability to collect on the judgment. (A) Key Points: (1) Time-Barred Claims: The court dismissed Bock's claims regarding transfers to the SAPT as time-barred under Nevada's Uniform Fraudulent Transfer Act. The statute of limitations had expired, as the transfers occurred between 2013-2015, and the deeds were recorded by January 2015. (2) More Definite Statement: The court granted the Steelmans' motion for a more definite statement concerning the undated transfers to other trusts and the role of the Steelmans' children, Stephen and Suzanne, in the alleged fraud. Bock's claims lacked sufficient detail about the "who, what, when, where, and how" of the alleged fraud. (3) Motion to Amend Denied: Bock's motion to amend its complaint was denied without prejudice due to the futility of the proposed amendments, which were largely mooted by the court's rulings. (4) Motion to Seal Denied: The court denied Bock's motions to seal exhibits and a reply brief, as neither party presented sufficient justification. The Clerk of Court was instructed to maintain these documents under seal until the Steelmans had the opportunity to file a motion explaining why sealing was necessary. (B) Outcome: (1) Bock's claims regarding the SAPT transfers were dismissed with prejudice. (2) Bock was granted time to amend its complaint to provide more specific details about the undated transfers and the involvement of Stephen and Suzanne Steelman. (3) Bock's motion to amend its complaint was denied without prejudice, allowing for a renewed motion with amendments that take the court's rulings into account. (4) Bock's motions to seal were denied without prejudice, and the Steelmans were given time to file a motion to seal. ♦
In re Cole, 2020 WL 7233190 (Bk.M.D.Fla., Dec. 8, 2020).
♦ This case involves a Chapter 7 bankruptcy proceeding where the Trustee is seeking to avoid fraudulent transfers made by the Debtor, William W. Cole, Jr. The main issue is whether Cole's transfer of nearly $4 million from a limited partnership he indirectly owned (Cole of Orlando Limited Partnership) to joint accounts held with his wife as tenants by the entireties (TBE) constitutes a fraudulent transfer. (1) Key Findings: (a) The Court grants partial summary judgment for the Trustee: The Court finds that the nearly $4 million transfer from Cole of Orlando to Cole and his wife's joint TBE accounts is avoidable as both actual and constructive fraudulent transfers under Florida law. (b) Cole is deemed the transferor: Despite the transfer being made by Cole of Orlando, the Court applies the "control test" and concludes that Cole, as the primary owner and decision-maker, had control over the funds and is therefore the legal transferor. (c) Badges of fraud are present: The Court identifies several badges of fraud, including the transfer to an insider, Cole's retention of control over the funds, the timing of the transfer shortly after a default notice, Cole's insolvency at the time, and the transfer to exempt TBE accounts. (d) No reasonably equivalent value received: The Court rejects Cole's argument that the transfer benefited creditors because it made the funds accessible through a charging order. The Court finds that the transfer actually depleted Cole's estate by making the funds exempt from creditor claims. (e) PRN is a triggering creditor: The Court finds that PRN, despite a disputed claim, has a nominal allowable claim against Cole, giving the Trustee standing to avoid the transfer under § 544(b)(1) of the Bankruptcy Code. (f) Conversion of non-exempt assets into exempt assets: The Court finds that the transfer constitutes a fraudulent conversion of non-exempt assets into exempt assets under Florida law. Cole's interest in Cole of Orlando was not exempt before the transfer, and the transfer to TBE accounts made the funds exempt from most creditors. (g) Defendant's motion for partial summary judgment denied: The Court denies Mrs. Cole's motion for summary judgment regarding a separate transfer of Google stock, finding a genuine issue of material fact exists regarding when PRN first learned (or should have learned) of the transfer, which is crucial to determining if the claim is time-barred. (2) Conclusion: The Court concludes that the Trustee is entitled to partial summary judgment on all counts related to the $4 million transfer, finding it to be a fraudulent transfer under Florida law. The value of Cole's interest in the transfer and the timeliness of the claim regarding the Google stock transfer are reserved for trial. ♦
Sturm v. Moyer, 2019 WL 642708 (Cal.App. Distr. 2, 2/15/2019).
♦ This case revolves around the application of the Uniform Voidable Transactions Act (UFTA) to a premarital agreement. The key question is whether the agreement, which designates all earnings and property acquired during marriage as separate property, constitutes a "transfer" under the UFTA, particularly in the context of a debtor spouse attempting to shield assets from creditors. (A) Background: Robert Sturm holds a judgment against Todd Moyer, who subsequently marries Jessica Schell. They enter a premarital agreement declaring all income and property acquired during marriage as separate property, effectively excluding any community property interest. Sturm alleges that the agreement was intentionally designed by Moyer to defraud creditors, including Sturm. (B) Legal Issues: Does a premarital agreement that designates all marital property as separate property constitute a "transfer" under the UFTA? Can the UFTA be applied to a premarital agreement even though the agreement doesn't take effect until marriage, at which point community property interests are established? (C) Court's Reasoning: The UFTA broadly defines "transfer" to include any method of disposing of an asset or interest in an asset. The premarital agreement, upon marriage, reorders existing property rights established by community property laws, effectively transferring interests in community property. The court examines the legislative history of the UFTA and Family Code, finding evidence supporting the applicability of the UFTA to premarital agreements. The court weighs policy considerations, recognizing the need to protect creditors from fraudulent transfers while acknowledging the policy favoring marriage and premarital agreements. The court concludes that the UFTA can apply to premarital agreements, particularly those that potentially shield assets from creditors. (D) Outcome: The court reverses the judgment dismissing Sturm's claim, finding that the UFTA may be applicable. The question of whether actual fraud occurred in this specific case remains for trial. (E) Significance: This case establishes a precedent for applying the UFTA to premarital agreements in California, particularly those aiming to alter community property laws and potentially hinder creditors. It highlights the complex interplay between family law and creditor protection laws, particularly in cases involving premarital agreements. ♦
Potter v Alliance United Ins. Co., 2019 WL 3296949 (Cal.App., Distr. 2, July 23, 2019).
♦ This case involved a motorcycle accident where Christopher Potter was severely injured by Jesus Avalos-Tovar, who was insured by Alliance United Insurance Company (AUIC) with a $15,000 liability limit. (A) Key Events: Potter offered to settle for the policy limit but AUIC didn't respond. Potter sued Tovar, won a jury verdict for almost $1 million, but the verdict was later vacated. While Potter's appeal was pending, AUIC paid Tovar $75,000 to release any claims he had against AUIC, including bad faith claims. Potter won a second trial against Tovar for over $1 million but Tovar was insolvent. Potter sued AUIC, claiming the release was a fraudulent conveyance under the Uniform Voidable Transactions Act (UVTA) and common law. (B) Trial Court Ruling: The trial court sustained AUIC's demurrer, dismissing the fraudulent conveyance suit. The court ruled the UVTA claim was barred by the statute of limitations and failed to state a proper fraudulent conveyance claim. (C) Court of Appeal Decision: The Court of Appeal reversed the trial court's ruling on the UVTA claim. The court held that the statute of limitations did not begin until the judgment in the personal injury action became final, meaning Potter's claim was timely. The court found that Tovar's right to sue for bad faith was an asset under the UVTA because it was assignable. The court determined that Potter sufficiently alleged injury because the bad faith cause of action was an asset of Tovar's that was put out of reach by the Release. The court concluded that AUIC is a proper defendant because the release was made for its benefit. (D) Common Law Claim: The court did not address the common law fraudulent conveyance claim because Potter did not adequately argue it on appeal. (E) Result: The judgment of dismissal was reversed, and the case was remanded for further proceedings. (F) Key Takeaway: This case highlights the importance of understanding the Uniform Voidable Transactions Act and the concept of "assets" in fraudulent conveyance cases. It also shows how a contingent cause of action can be considered an asset, even if it has not yet matured. ♦
Orchard v. Western Energy Production, LP, 2019 WL 5293489 (Ky.App., Unpublished, Oct. 18, 2019).
♦ This case involves a dispute between Derek Orchard (the trustee of the Orchard Family Trust) and Western Energy Production, LP (WEP). Orchard had previously obtained judgments against WEP for outstanding debt. To avoid paying the debt, WEP's president, Steven Marshall, transferred WEP's interest in Black Rock Farms and Black Rock Thoroughbreds to himself and then to SM Capital Ventures, LLC. Orchard challenged these transfers, arguing they were void because they weren't properly acknowledged as required by the partnership agreements and were made with intent to defraud creditors. The trial court found that the transfers weren't properly acknowledged because they weren't notarized, but dismissed Orchard's lawsuit because it ruled he lacked standing to bring the claim under KRS 378.010, a statute that was repealed before Orchard filed his suit. The Kentucky Court of Appeals reversed the trial court's ruling. The court found that the repealed statute KRS 378.010 still applied to the transfers because they occurred before the statute's repeal. The court remanded the case back to the trial court to apply KRS 378.010. The Court of Appeals did not rule on other arguments regarding Orchard's standing under other statutes because the trial court didn't rule on them. Additionally, the court didn't rule on whether the transfers were void because the trial court did not explicitly make a ruling on that issue. ♦
Morgan Stanley High Yield Securities Inc. v. Jecklin, 2020 WL 2770681 (D.Nev., May 28, 2020).
♦ This case involved a veil-piercing action where Morgan Stanley High Yield Securities Inc. (and other plaintiffs) sought to enforce a judgment against defendants who were alleged to be alter egos of a company that had previously been found liable in a separate case. (A) Key Points: (1) Veil-piercing: The court found that Hans Jecklin, Swiss Leisure Group AG, and JPC Holding AG were alter egos of Seven Circle Gaming Corporation (SCGC) and could be held liable for SCGC's debts. (2) Judgment: The court entered judgment in favor of the plaintiffs, awarding them the full amount of the original judgment plus post-judgment interest, costs, and attorney's fees. (3) Attorney's Fees: The court awarded attorney's fees to the plaintiffs, finding that the circumstances of the case warranted it under Nevada's Uniform Fraudulent Transfer Act (UFTA). This was a matter of first impression in Nevada, as the UFTA doesn't explicitly authorize attorney's fees. (4) Cost Re-Taxation: The court granted the defendants' motion for re-taxation of costs, finding that some of the costs claimed by the plaintiffs were not properly taxable. (5) Motion to Compel: The court granted the plaintiffs' motion to compel, ordering the defendants to provide certain documents that were relevant to the case. (B) Key Takeaways: (1) The court's decision highlights the potential for courts to award attorney's fees under the UFTA, even though the statute doesn't explicitly authorize it. (2) The court's decision to grant the motion for re-taxation of costs underscores the importance of carefully reviewing and supporting cost claims. (3) The court's decision to grant the motion to compel demonstrates the importance of complying with discovery requests and providing relevant information. ♦
Magliarditi v. Transfirst Group, Inc., 2019 WL 5390470 (Nev., Unpublished, Oct. 21, 2019).
♦ This Nevada Supreme Court order addresses seven certified questions from a federal district court regarding the application of the alter ego doctrine in Nevada. Here's a summary of the court's conclusions: (A) Alter Ego as a Separate Cause of Action: A judgment creditor can bring an independent action against a third party alleging they are the alter ego of the judgment debtor to make them liable on the judgment. (B) Alter Ego Applies to LLCs and Partnerships: The alter ego doctrine applies to both limited liability companies (LLCs) and partnerships, as the court reasoned that the rationale for applying it to LLCs in their previous case, Gardner, extends to partnerships. (C) Alter Ego as a Debtor Under UFTA: An alter ego of a judgment debtor can be considered a "debtor" under Nevada's Uniform Fraudulent Transfer Act (NUFTA). This means that transfers to or from an alter ego can be examined under UFTA's provisions. (D) Transfers Between Alter Egos and Debtors: Transfers between alter egos or between the judgment debtor and their alter ego are considered "transfers" under NUFTA. (E) Trusts & Spendthrift Trusts: The court declined to answer the certified questions regarding the application of the alter ego doctrine to trusts and spendthrift trusts. They felt the nature of the specific trusts involved was unclear and thus the questions weren't determinative to the pending case. The court remands the case back to the federal district court for further clarification on the specific trusts at issue. ♦
Hinds & Shankman, LLP v. Lapides, 2019 WL 4956148, 67 Bankr.Ct.Dec. 207 (C.D.Cal., Oct. 8, 2019).
♦ This case involves a dispute between Hinds & Shankman, LLP (H&S) and Richard Lapides and Janis Lapides (the Lapides) regarding payment of attorney fees and costs incurred in a bankruptcy case. H&S was the bankruptcy trustee's legal representation and was owed fees by Richard Lapides. When Richard Lapides failed to pay, H&S obtained a judgment against him. The Lapides then sold their California properties, used the proceeds to purchase a homestead in Texas, and claimed the Texas homestead exemption to avoid paying H&S. H&S sued, seeking to freeze the equity from the California properties and make it available to satisfy their judgment. However, the court dismissed the case, ruling that the Texas Constitution’s homestead exception bars the requested relief. The court's reasoning was based on the following: (1) Texas Homestead Exemption: The Texas Constitution protects homesteads from forced sale for debt payment, except for a limited number of exceptions. The court found that H&S's claim did not fall under any of the enumerated exceptions. (2) Liberal Construction of Homestead Exemption: Texas courts construe the homestead exemption liberally, even if it assists dishonest debtors in avoiding creditors. (3) Prior Case Law: Previous cases involving homestead exemption and fraudulent transfers supported the court's ruling. Texas courts have consistently refused to expand the exceptions to the homestead exemption beyond its text, even when used to hinder creditors. (4) Havoco of America, Ltd. v. Hill: The Florida Supreme Court's decision in Havoco was persuasive to the court, showing that homestead exemptions apply even when debtors acquire homesteads using non-exempt funds with intent to hinder creditors. Therefore, the court found that H&S's requested relief was not available because Texas’s homestead exemption shields the Lapides' property from H&S's claims. ♦
Hawk v. CIR, 2019 WL 2120170 (6th Cir., May 15, 2019).
♦ This case, Hawk v. CIR, involves a complex tax dispute surrounding the sale of a family bowling business, Holiday Bowl. (A) The Facts: Billy Hawk's wife, Nancy Sue, sold the bowling alleys to Bowl New England, generating a significant tax liability for Holiday Bowl. To avoid this tax liability, the Hawks, with the help of a broker, entered into a deal with MidCoast, a company that claimed to have "tremendous tax-loss carry-forwards." MidCoast agreed to pay more than Holiday Bowl's actual value, essentially exchanging a pile of cash for another, minus the tax debt. MidCoast used a purported loan from Sequoia Capital to finance the transaction, but the loan was found to be a sham, with MidCoast actually paying with Holiday Bowl's funds. MidCoast never paid Holiday Bowl's taxes, and the company dissolved. (B) The Legal Issues: (1) Transferee Liability: The court examined whether the Hawks were transferees of Holiday Bowl under 26 U.S.C. § 6901, which allows the government to pursue transferees of delinquent taxpayers. (2) Economic Substance Doctrine: The court analyzed whether the transaction with MidCoast had economic substance or was a sham designed to avoid taxes. (3) Tennessee Fraudulent Transfer Act: The court considered whether the transaction constituted a fraudulent transfer under Tennessee law, which allows creditors to recover assets transferred by insolvent debtors. (C) The Court's Decision: The court found that the Hawks were transferees of Holiday Bowl, as they received the company's assets (the horse farm and cash) through the transaction. The court concluded that the transaction lacked economic substance and was a sham, as the Sequoia loan was a fictitious arrangement used to transfer Holiday Bowl's funds to the Hawks. The court held that the Hawks were liable to the government under Tennessee's Uniform Fraudulent Transfer Act, as Holiday Bowl did not receive reasonably equivalent value in exchange for the transferred assets and became insolvent as a result of the transaction. (D) Key Takeaways: The case highlights the court's willingness to look beyond the form of transactions to their underlying economic reality, particularly when taxpayers attempt to use complex arrangements to avoid taxes. The court emphasizes that taxpayers cannot rely on sham transactions to shield themselves from tax liability. The case underscores the importance of carefully scrutinizing transactions involving net operating losses, as Congress and the courts have erected significant barriers to prevent abuse. The court distinguishes this case from Summa Holdings, where the government attempted to disregard the plain text of the statute. Here, the court upheld the government's enforcement of the Code's provisions regarding transferee liability and the fraudulent transfer act. ♦
Edgefield Holdings, LLC v. Einbinder & Dunn, LLP, 2019 WL 7371054 (N.D.Tex., Slip Op., Dec. 31, 2019).
♦ This case involved a dispute over funds allegedly fraudulently transferred by the Judgment Debtors to the Defendant Einbinder & Dunn, LLP (Einbinder). Einbinder represented the Judgment Debtors in a previous lawsuit where a Final Judgment was entered against them. The plaintiff, Edgefield Holdings, LLC (Edgefield), acquired the rights to the Final Judgment and sought to recover funds transferred to Einbinder, arguing it was a fraudulent transfer under the Texas Uniform Fraudulent Transfer Act (TUFTA). The Court analyzed whether it had specific personal jurisdiction over Einbinder in Texas. It concluded that Edgefield failed to establish the necessary minimum contacts between Einbinder and Texas. While the sales and transfers occurred in Texas, Edgefield did not present sufficient evidence to demonstrate that Einbinder actively participated in the fraudulent transfer scheme. The Court acknowledged that the Texas judgment and charging order alone are not enough to establish jurisdiction, but emphasized that the plaintiff must prove purposeful conduct by the transferee (Einbinder) directed at a creditor (Edgefield) in the forum state. The allegations against Einbinder were deemed insufficient to prove this element, as they relied on conclusory inferences and did not provide sufficient proof of Einbinder's active involvement in the transfer. Therefore, the Court denied Einbinder's motion to dismiss for lack of personal jurisdiction, but instead transferred the case to the Southern District of New York. This decision was based on the following reasons: (1) Proper venue: Einbinder, a New York entity, is subject to general personal jurisdiction in the Southern District of New York. (2) Efficiency: Transferring the case prevents re-filing and unnecessary delays, furthering the interest of justice. In conclusion, the Court found that it lacked specific personal jurisdiction over Einbinder in Texas due to the lack of evidence demonstrating Einbinder's active participation in the alleged fraudulent transfer. However, recognizing the case's suitability in the Southern District of New York, the Court transferred the case instead of dismissing it. ♦
In re Cyr (Rodriquez v. Cyr), 2019 WL 1495137 (W.D.Tex., April 1, 2019).
♦ These two cases deal with the bankruptcy of Dr. Steven Jeffery Cyr ("Cyr") and the subsequent attempts by creditors to recover their debts. In re Cyr (Rodriquez v. Cyr) focuses on the Chapter 7 Trustee's ("Trustee") efforts to avoid transfers of assets made by Cyr to the Bergerud Heritage Trust ("BHT"). The BHT is a spendthrift trust created by Cyr's parents with Cyr as a beneficiary. The Trustee filed eleven claims alleging that the BHT was a self-settled trust and that various assets transferred to it should be considered property of Cyr's bankruptcy estate. The Court granted the BHT Trustee's motion to dismiss in part for the following reasons: Count 1: The Court found the Trustee's claim for declaratory judgment that the BHT was a self-settled trust was not legally tenable. Counts 2, 3, and 4: The Court dismissed the Trustee's claims under § 548(a)(1) (fraudulent transfer) because they were time-barred. Counts 2, 7, 8, 9: The Court dismissed the Trustee's claims under § 548(a)(1) because they failed to properly plead with specificity which claims under § 548(a)(1) were being asserted and failed to show actual intent to hinder, delay, or defraud creditors. The Court denied the BHT Trustee's motion to dismiss in part for the following reasons: Count 2: The Court rejected the BHT Trustee's argument that the Texas Trust Code barred the Trustee's claims under § 548(e)(1) (transfer to a self-settled trust or similar device). Count 4: The Court rejected the BHT Trustee's argument that the Trustee failed to properly allege a transfer of an interest of the debtor. Count 5: The Court denied the BHT Trustee's motion to dismiss because the Trustee's claim under § 549(a) (prohibited post-petition transaction) depended on the success of Count 4. Count 6 & 7: The Court granted the BHT Trustee's motion to dismiss because the Trustee failed to properly allege an indirect transfer of an interest of the debtor. Count 8-10: The Court granted the BHT Trustee's motion to dismiss because the Trustee failed to properly allege a transfer of an interest of the debtor. The Court allowed the Trustee fourteen days to amend the Original Complaint. White v. Cyr focuses on Dr. Johnny Lee White, Jr.'s ("White") attempt to recover a debt owed by Cyr and his LLC, Orthopaedic & Spine Institute, LLC ("OSI"). White argued that OSI was Cyr's alter ego and that Cyr was personally liable for the debt due to fraud, embezzlement, or larceny, and willful and malicious injury. The Bankruptcy Court dismissed all of White's claims, finding that White did not sufficiently plead Cyr's liability for OSI under alter ego or vicarious liability. The District Court affirmed the Bankruptcy Court's decision, finding that White did not plausibly allege: Fraud: White failed to demonstrate that Cyr made false representations with intent to deceive. Alter Ego: White did not demonstrate such unity between Cyr and OSI that holding only OSI liable would be unjust. Agency and Vicarious Liability: White did not demonstrate that D'Spain (OSI's CEO) was acting as Cyr's agent when she communicated with White. The District Court also found that the Bankruptcy Court did not err in implicitly overruling White's Rule 7(b) objections to Cyr's amended motion to dismiss. In conclusion, both cases demonstrate the strict pleading standards required to recover debts from debtors in bankruptcy proceedings, particularly when trying to pierce the corporate veil or establish personal liability for a company's debt. ♦
In re Vorhes, 2018 WL 1577980 (N.D.Iowa, March 29, 2018).
♦ This case involves a Chapter 7 bankruptcy proceeding where the Trustee, David Sergeant, seeks to avoid a transfer of real estate from the debtor, Bill Vorhes, to Blue Mountain Wagyu Trust. The Trustee argues that the transfer constitutes a fraudulent transfer under 11 U.S.C. § 548(e). (A) Key Findings: (1) The transfer occurred: The Court found that Blue Mountain admitted in its answer that the property was transferred, and this admission acts as a judicial admission, binding them from denying the transfer. (2) Debtor had actual intent to defraud: The Court relies on its previous rulings in similar cases involving Vorhes, where it found that the debtor transferred property with actual intent to hinder, delay, or defraud creditors. This pattern of transferring assets to insider trusts while facing lawsuits and without receiving anything in return supports a finding of fraudulent intent. (3) Exemption is irrelevant: The Court, citing the Eighth Circuit Bankruptcy Appellate Panel decision in In re Lumbar, rules that the exemption status of the property does not prevent the Trustee from avoiding the transfer under § 548(e). The Court clarifies that while state law determines the nature of a debtor's interest in property, it does not determine whether a transfer of that interest is fraudulent under federal bankruptcy law. (B) Outcome: The Court granted the Trustee's Motion for Summary Judgment, allowing him to avoid the transfer of the real estate to Blue Mountain Wagyu Trust under 11 U.S.C. § 548(e). The court determined that the transfer was made with actual intent to defraud creditors and that the exemption status of the property is not a bar to the avoidance. ♦
UBS Financial Services, Inc. v. Assurance Investment Mgt., LLC (UBS v. Lacava), 2019 Ohio 3661, 2019 WL 4316807 (Sept. 12, 2019).
♦ This is a case where UBS Financial Services, Inc. (UBS) sued Albert Lacava, his wife Mary Ellen Lacava, and their investment company Assurance Investment Management, L.L.C. (AIM) for fraudulent transfer of assets. Here's a summary of the case: (A) Background: Albert Lacava worked for UBS and received loans as part of his compensation package. After his termination, he created AIM and made himself the sole owner. UBS won an arbitration award against Albert for the unpaid loans. Before the award was announced, Albert transferred a majority ownership interest in AIM to Mary Ellen. UBS sued Albert and Mary Ellen, alleging fraudulent transfer. (B) Trial Court Findings: The trial court found the transfer to Mary Ellen to be fraudulent and awarded UBS damages, a charging order against the Lacavas' interest in AIM, and an injunction against any disposition of AIM's assets. (C) Mary Ellen's Appeal: Mary Ellen appealed, arguing that the transfer wasn't fraudulent and that she was not given proper due process. She argued that she paid reasonably equivalent value for the interest in AIM and that the transfer was made in good faith. She also contested the trial court's remedies. (D) Court of Appeals Decision: The Court of Appeals affirmed the trial court's decision. The court found that Mary Ellen did not pay reasonable equivalent value for the interest in AIM and that she did not accept the transfer in good faith. The court also found that the trial court did not violate the Consumer Credit Protection Act or the statutory exemptions in R.C. 2329.66. In essence, the court agreed with UBS that the transfer of ownership in AIM to Mary Ellen was a fraudulent attempt to shield Albert's assets from UBS's judgment. The court upheld the trial court's decision and remedies, leaving UBS to collect on its judgment. ♦
Regions Bank v. Kaplan, 2018 WL 3954344 (M.D.Fla., Aug. 18, 2018).
♦ This case involves Regions Bank's successful pursuit of a fraudulent transfer action against Marvin Kaplan, Kathryn Kaplan, and their affiliated entities (collectively "Kaplan parties"). Here's a breakdown of the key findings: (A) Background: Between 2010 and 2012, the Kaplan entities incurred significant debt to Regions Bank. Regions Bank won judgments totaling several million dollars against the Kaplan entities in a 2012 lawsuit. Regions discovered that the Kaplan entities transferred over $700,000 to Kathryn Kaplan and over $600,000 in assets to MIK Advanta, LLC (MIKA), another entity owned by Marvin Kaplan's self-directed IRA. (B) The Court's Findings: (1) Transfers to Kathryn Kaplan: The Court found the transfers to Kathryn were both actually and constructively fraudulent. The Kaplan parties' attempts to characterize these transfers as "loans" were deemed unconvincing and likely fabricated after Regions filed the fraudulent transfer lawsuit. The evidence showed the Kaplan entities lacked sufficient documentation for these purported loans and had no logical reason for transferring money through Kathryn instead of directly paying their creditors. (2) Transfers from MK Investing (MKI) to MIKA: The Court found the transfers from MKI to MIKA to be both actually and constructively fraudulent. $73,973.21 "Loan": The Court found MIKA provided no value for this transfer, which depleted MKI's assets, rendering it constructively fraudulent. Assignment of Interest in 785 Holdings: The Court, relying on the parties' stipulation, found that MKI's assignment of its interest in 785 Holdings to MIKA was fraudulent. The Kaplan parties' attempts to invoke Delaware LLC law to shield this transfer were rejected by the Court. $214,711.30 Transfer from IRA: The Court, based on Regions' concession, did not rule on the fraudulent nature of this transfer from the IRA to MIKA. (3) MIKA's Liability for MKI's Debt: The Court found that MIKA was liable for MKI's debt to Regions based on the doctrine of "mere continuation." The evidence demonstrated that MIKA was essentially a continuation of MKI under a new name, sharing the same management, assets, and business operations. (4) Injunction: The Court issued an injunction prohibiting MKI and MIKA from transferring any further interest in 785 Holdings, LLC. (C) Outcome: The Court entered judgments in favor of Regions Bank: Against Kathryn Kaplan for $742,543. Against MIK Advanta, LLC for $1,505,145.93 (representing MKI's debt). The case was closed. (D) Significance: The case illustrates the application of Florida's Uniform Fraudulent Transfer Act in the context of self-directed IRAs and LLCs. It highlights the importance of thorough documentation and the potential consequences of failing to properly characterize financial transactions. The Court's decision demonstrates that entities cannot escape liability for their debts by simply transferring assets to other entities controlled by the same individuals. ♦
Chen v. Berenjian, 2019 WL 1397592 (Cal.App.Distr. 4, March 28, 2019).
♦ This case centers around Pang Yen Chen's attempt to recover money owed to him by Shazad Berenjian. Shazad, with the help of his brother Sharmad, allegedly engaged in a fraudulent transfer scheme to avoid paying Chen. (A) Key Allegations: Shazad owed Chen money for undelivered goods. Shazad and Sharmad colluded in a sham lawsuit where Sharmad filed a false claim against Shazad and they agreed to a default judgment for a large sum. This judgment, intended to shield Shazad's assets from creditors, was never enforced, and instead, Sharmad used it to levy on Shazad's property when Chen tried to collect his debts. Chen sued both brothers for fraudulent transfer under the Uniform Voidable Transactions Act (UVTA). (B) The Court's Ruling: The court ruled in favor of Chen, reversing the trial court's dismissal of his lawsuit. (C) Key Arguments and Findings: (1) Litigation Privilege: The court found that the litigation privilege of Civil Code Section 47(b) did not apply to Chen's fraudulent transfer claim. While the sham lawsuit and judgment were communicative acts, the gravamen of Chen's claim was the noncommunicative act of Sharmad levying on the speakers, which was intended to hinder Chen's recovery. (2) Uncertainty: The trial court's dismissal for uncertainty was also overturned. The court found that the complaint sufficiently alleged that the speakers belonged to Shazad, and any ambiguity could be clarified through discovery. (D) Conclusion: The court's decision allows Chen's fraudulent transfer claim to proceed. It affirms that the litigation privilege does not protect noncommunicative acts, like levying on property, even if they are connected to a legal proceeding. This ruling underscores the importance of the UVTA in protecting creditors from fraudulent schemes designed to shield assets. ♦
Soley v. Soley, 2017 Ohio 2817, 82 N.E.3d 43 (Ohio App., May 12, 2017).
♦ This case involves a dispute over the ownership of real property in Huron County, Ohio, between a divorced couple, Robert and Katalin Soley. (A) Background: Robert transferred the property to Katalin during their marriage to avoid creditors, claiming it was a constructive trust. Katalin later sold the property without Robert's consent. Robert sued, claiming the transfer was fraudulent and he had a dower interest in the property. The court initially found for Katalin, but remanded the case to determine if the property was marital or separate. (B) The Court of Appeals Decision: (1) Jurisdiction: The court held that the trial court had subject matter jurisdiction to classify the property under R.C. 3105.171(B), even though it was not a traditional divorce proceeding, because the Hungarian court, where the divorce occurred, refused to exercise jurisdiction over the property. (2) Property Classification: The court found that the trial court's classification of the property as Robert's separate property was against the manifest weight of the evidence. While the property was initially Robert's separate property, the court held that the transfer of ownership to Katalin via quitclaim deed constituted a gift, even though Robert claimed he did so to avoid creditors. This transfer converted the property to marital property. (3) Remand: The court reversed the trial court's judgment and remanded the case for an equitable distribution of the property under R.C. 3105.171(B). (C) Key Takeaways: Transferring property to a spouse to avoid creditors can constitute a gift, even if the transferor denies donative intent. Ohio courts have broad jurisdiction over marital property disputes, even when a divorce occurs in a foreign jurisdiction. The form of title is not conclusive evidence of whether property is marital or separate; a "totality of the circumstances" test is used. ♦
Shah v. Blaloch, 2017 WL 4543694 (Az.App., Oct. 12, 2017).
♦ This case involves a judgment creditor, Syed Bashir Ahmed Shah, attempting to garnish the retirement funds of his judgment debtor, Abdul J. Baloch. Shah alleges that Baloch fraudulently transferred funds into his 401(k) plan after the judgment was entered. The court ruled in favor of Baloch, upholding the lower court's decision to quash the garnishment. The court's reasoning rests on the following: (1) ERISA preemption: The Employee Retirement Income Security Act (ERISA) preempts state laws that "relate to any employee benefit plan," including Arizona's statute that exempts retirement funds from attachment. (2) Anti-alienation provision: ERISA's anti-alienation provision prohibits assignment or alienation of pension benefits, including garnishment, unless specific exceptions apply. These exceptions, which do not apply in this case, are limited to voluntary assignments, qualified domestic relations orders, and certain other circumstances. (3) Fraudulent transfer: Even if a transfer to a 401(k) plan is fraudulent, ERISA's anti-alienation rule generally prevents recovery from the plan. Courts cannot create exceptions to this rule based on equity or public policy considerations. (4) Exceptions: The court distinguished cases where recovery was allowed from a pension plan because they involved fraudulent transfers made to the plan trustee, not to the participant, as is the case here. Therefore, the court ruled that Shah cannot garnish the funds in Baloch's 401(k) plan, despite the alleged fraudulent transfer. The court also denied both parties' requests for attorney's fees but awarded each their costs on appeal. ♦
PNC Bank, N.A., v. Udell, 2017 WL 3478814 (N.D.Ill., Aug. 13, 2017).
♦ This is a case in which PNC Bank is suing Glenn Udell and several related entities, including Sorrento Enterprises, for alleged fraudulent transfers of assets. Here's a breakdown: (A) Background: PNC loaned money to a company managed by Glenn, who personally guaranteed repayment. The company defaulted, and PNC sued Glenn, winning a judgment of over $5 million. Glenn transferred his assets to Sorrento Enterprises and its Series, entities he formed with his wife, Pamela. PNC argues these transfers were fraudulent, done to avoid paying the judgment. (B) PNC's Claims: Fraudulent Transfer: Glenn made transfers with intent to hinder creditors. Aiding and Abetting: Pamela helped Glenn in the fraudulent transfers. Civil Conspiracy: Glenn and Pamela conspired to defraud PNC. Veil Piercing: PNC wants to hold Sorrento Enterprises and its Series liable for Glenn's debts. Declaratory Judgment: PNC wants a declaration that Sorrento Enterprises holds Glenn's assets as a nominee. Unjust Enrichment: PNC alleges Pamela and Sorrento Enterprises were unjustly enriched by the transfers. Successor Liability: PNC claims Sorrento Enterprises is liable for Glenn's debts as his successor. (C) Defendants' Arguments: Statute of Limitations: PNC's claims are time-barred. Exempt Assets: Glenn's wages and life insurance are exempt from collection. Reverse Veil Piercing: PNC's claim against Sorrento is not recognized under Delaware law. (D) Court's Decision: (1) Summary Judgment: Denied: The court denied summary judgment on the fraudulent transfer, aiding and abetting, and conspiracy claims, finding that genuine disputes exist over whether PNC had sufficient notice of the transfers. Granted: The court granted summary judgment for defendants on the veil-piercing claim, finding that Delaware law does not recognize reverse veil piercing. (2) Motion to Dismiss: Denied: The court denied the motion to dismiss the declaratory judgment, unjust enrichment, and successor liability claims, finding that PNC had alleged sufficient facts to state a claim. (E) Outcome: The case continues with PNC pursuing its claims of fraudulent transfer, aiding and abetting, conspiracy, declaratory judgment, unjust enrichment, and successor liability against Glenn, Pamela, and Sorrento Enterprises and its Series. The veil-piercing claim was dismissed. ♦
Nautilus, Inc. v. Yang, 2017 WL 1422602 (Cal.App., 4th Distr., April 21, 2017).
♦ This case involves a fraudulent conveyance of property and the subsequent dispute over lien priorities. (A) The Facts: Nautilus obtained an $8 million judgment against Stanley Yang. Stanley and his brother Peter owned a property as joint tenants. Stanley fraudulently transferred his interest in the property to his father, Chao Chen. Chao Chen obtained a reverse mortgage loan from Security One, which was later sold to Urban Financial. The title insurance company missed Nautilus's abstract of judgment during the title search for the reverse mortgage. (B) The Legal Issues: (1) Good Faith Defense: Whether Security One and Urban Financial acted in good faith when they made and purchased the reverse mortgage loan, thus avoiding liability under the Uniform Fraudulent Transfer Act (UFTA). (2) Equitable Subrogation: Whether Urban Financial was entitled to equitable subrogation, which would make a portion of its mortgage senior to Nautilus's abstract of judgment even though it was recorded later. (3) Lien Priorities: Whether the trial court was correct in granting priority to Nautilus's lien over a portion of Urban Financial's lien on the reverse mortgage loan. (C) The Court's Decision: (1) Good Faith Defense: The trial court found that Security One and Urban Financial acted in good faith, despite the transfer being fraudulent. The court initially placed the burden of proof on Nautilus to disprove the good faith defense, which was incorrect. However, even with the correct burden on Urban Financial, the court found that the good faith defense was established because there was no evidence that Security One or Urban Financial had actual knowledge of Stanley's fraudulent intent. (2) Equitable Subrogation: The court granted equitable subrogation to Urban Financial, making a portion of its mortgage senior to Nautilus's abstract of judgment. The court reasoned that Security One and Urban Financial acted without culpable neglect, even though the title insurance company made an error. (3) Lien Priorities: The court granted priority to Nautilus's lien against Chao Chen, over a portion of Urban Financial's lien on the reverse mortgage loan. This was deemed proper as the court did not create a new lien through the judgment, but rather prioritized the existing lien based on equitable principles. (4) Stanley's Interest: The court ruled that Nautilus's $8 million lien applied to one-half of the property, rather than one-third, because Stanley's fraudulent conveyance was voided, meaning he retained a one-half interest when Nautilus recorded its abstract of judgment. (D) Key Takeaway: The case clarifies the standard for the good faith defense under the UFTA. The transferee must not only avoid collusion or active participation in the fraudulent scheme, but also must lack actual knowledge of the transferor's fraudulent intent. The court also emphasizes the importance of equitable principles in resolving lien priority disputes. ♦
Knoll v. Uku, 2017 WL 117655 (Pa., 2017).
♦ This case, Knoll v. Uku, involved a dispute over the distribution of profits from a construction company, Yale, between its two owners, Charles Knoll and Eustace Uku. Knoll had sued Uku and Yale for improperly diverting profits, and the court ultimately awarded Knoll $175,882.09. Knoll then sought to collect his judgment by garnishing Uku's assets, including three parcels of real estate that Uku had transferred to himself and his wife, Shelley Fant, as tenants by the entireties. Knoll argued that these transfers were fraudulent under the Pennsylvania Uniform Fraudulent Transfer Act (PUFTA) because they rendered Uku insolvent and hindered his ability to repay Knoll's debt. The trial court initially denied Knoll's petition, finding that the transfers were for reasonably equivalent value because Fant had transferred her own properties into joint ownership with Uku at the same time. However, the Superior Court of Pennsylvania reversed the trial court's decision. The Superior Court held that the transfers were fraudulent under PUFTA because: (1) Uku became insolvent as a result of the transfers: Fant testified that Uku had no assets in his sole name after the transfers, making him insolvent. (2) Knoll's claim arose prior to the transfers: Uku had been diverting profits from Yale, which he owed to Knoll, since 2008, making Knoll a creditor with a claim before the transfers. (3) The transfers were not for reasonably equivalent value: Fant admitted that the properties she transferred were essentially worthless, while Uku had transferred valuable real estate into joint ownership, shielding it from his creditors. The Superior Court reversed the trial court's order and remanded the case, directing the court to void the transfers of the two properties that Uku still owned as of the date of the opinion. This means that Knoll can now potentially collect his judgment by executing on these properties. The court also noted that Uku's refusal to answer questions about his finances during his deposition could have resulted in an adverse inference against him, supporting the finding of fraudulent intent. However, the court ultimately relied on the objective factors of insolvency and lack of reasonably equivalent value to determine the transfers were fraudulent under PUFTA. ♦
Fifth Third Bank v. Morales, 2017 WL 6492108 (Dec. 19, 2017).
♦ This case involved a fraudulent transfer of real property by Lucy Morales and her trust (the Defaulting Defendants) to her daughters, Marie Korallus and Marie Ludian (the Defendants). (A) Background: Fifth Third Bank (Plaintiff) had loaned money to Grand Park Surgical Center and Chicago Medical and Surgical Center, with Ms. Morales guaranteeing the loan. After defaulting on the loan, Plaintiff obtained a judgment against Ms. Morales in Illinois, which was domesticated in Colorado. Plaintiff also obtained a judicial lien on the assets of the trust, including the Montrose Property. Ms. Morales transferred the Montrose Property to her daughters in exchange for a promissory note with a 15-year maturity date and no interest. The transfer was made despite Plaintiff's ongoing efforts to collect on the debt. (B) The Court's Findings: The Court found that the transfer was fraudulent under Colorado's Uniform Fraudulent Transfer Act (CUFTA), as it was made with actual intent to hinder, delay, or defraud Plaintiff. The Court considered several "badges of fraud," including the transfer to an insider, the fact that the transfer occurred shortly before Plaintiff's collection efforts, and the lack of reasonably equivalent value received by the Defaulting Defendants. The Court determined that the promise of future payment in the form of a note with no interest and no immediate payments did not constitute reasonably equivalent value. The Court also found that the Defendants were liable for civil conspiracy, as they participated in the fraudulent transfer. (C) Outcome: The Court granted Plaintiff's motion for summary judgment on all claims. The transfer of the Montrose Property was avoided, and Plaintiff was granted the right to collect on the debt by executing on the property. A hearing was scheduled to determine further relief, including foreclosure on the judicial lien and potential damages. (D) Key Takeaways: Transfers to insiders without reasonably equivalent value can be deemed fraudulent under CUFTA. Future promises without contemporaneous economic obligations are generally not considered reasonably equivalent value. A fraudulent transfer can support a claim for civil conspiracy. ♦
DeGiacomo v. Sacred Heart University, Inc. (In re Palladino), 2016 WL 4259787 (Bk.D.Mass., 2016).
♦ This case revolves around whether tuition payments made by Steven and Lori Palladino, convicted Ponzi scheme operators, to Sacred Heart University (SHU) for their daughter's education can be considered fraudulent transfers. The Key Issue: Did the Palladinos receive "reasonably equivalent value" for their tuition payments, making them non-fraudulent? (A) The Trustee's Argument: Actual Fraud: The trustee argued that the Ponzi scheme presumption applies, meaning all payments by the Palladinos were made with intent to defraud creditors. Constructive Fraud: The trustee claimed that the Palladinos were insolvent and received no tangible value in return for their payments. (B) The University's Argument: Ponzi Scheme Presumption: SHU argued that the presumption only applies to payments made directly in furtherance of the scheme, not general expenses like education. Reasonable Value: SHU argued that the Palladinos received "reasonably equivalent value" in the form of a college degree for their daughter, which would enhance her financial well-being and benefit them economically. (C) The Court's Decision: Actual Fraud: The court rejected the trustee's broad interpretation of the Ponzi scheme presumption, ruling that it only applies to transfers directly related to the scheme. SHU's good faith and lack of knowledge of the Ponzi scheme also contributed to the decision. Constructive Fraud: The court ruled in favor of SHU, finding that the Palladinos' motivation for paying tuition – to ensure their daughter's future financial well-being and, therefore, their own economic benefit – constitutes "reasonably equivalent value." The court's reasoning emphasizes the practical reality of parental investment in their children's education and the reasonable expectation of future economic benefits. The decision also highlights that "reasonably equivalent value" doesn't require a precise monetary exchange, but rather a reasonable quid pro quo. (D) The Outcome: The court granted summary judgment in favor of SHU, dismissing the trustee's claims of both actual and constructive fraud. This means the tuition payments made by the Palladinos to SHU will not be recovered by the bankruptcy estate. ♦
U.S. v. Major, 551 B.R. 531 (M.D.Fla., 2016).
♦ This case involved the United States government seeking to collect unpaid income taxes from Gary Major. The court granted summary judgment in favor of the government, finding that: (A) The tax assessments were valid: The court upheld a prior Tax Court decision establishing Major's tax liability, dismissing his claim of duress in signing the stipulation. (B) The tax debt was not discharged in bankruptcy: Major's Chapter 7 bankruptcy did not discharge his tax debt because he was found to have "willfully attempted to evade or defeat" the payment of taxes. The court found that despite receiving an Employer Identification Number for his business, Doctor Computer, and acknowledging the need to file returns, Major failed to file returns and pay taxes for several years. The court considered various "badges of fraud," including Major's late filing, failure to voluntarily pay the acknowledged debt, transferring assets, and seeking bankruptcy discharge primarily for the tax debt, as evidence of willfulness. (C) The government was entitled to enforce its tax liens: Major had neglected to pay the assessed taxes after demand, establishing the government's right to enforce its tax liens under Section 6321 of the Internal Revenue Code. (D) The transfer of the Sarasota Property was avoidable as a fraudulent transfer: Major transferred his home to himself and his wife as tenants by the entirety, but this was considered a fraudulent transfer because: (1) Major did not receive reasonably equivalent value in exchange for the transfer, as his wife provided no consideration beyond "love and affection," which is not sufficient under Florida law. (2) The transfer rendered Major insolvent, as his liabilities exceeded his assets after the transfer. (E) Conclusion: The court ruled in favor of the government, finding Major liable for the unpaid taxes and allowing the government to enforce its liens against his property, including the Sarasota Property. The court also declared the transfer of the Sarasota Property as a fraudulent transfer, allowing the government to recover it. ♦
In re Kipnis, 2016 WL 4543772 (Bk.S.D.Fla., 2016).
♦ This case, In re Kipnis, deals with a Chapter 7 trustee's attempt to avoid transfers made by the debtor in 2005, which would be time-barred under Florida's four-year statute of limitations. The trustee, however, argues that he can "step into the shoes" of the IRS, which has a ten-year collection period under federal law for tax assessments. The court analyzes the Bankruptcy Code's strong-arm provision (Section 544(b)) and the IRS's authority under the Internal Revenue Code (IRC) to avoid transfers. It finds that while the IRS must prove the transfer is avoidable under state law, the limitations period for the avoidance action is governed by federal law. The court acknowledges a split in authority on this issue, with some courts allowing trustees to utilize the IRS's ten-year collection window and others prohibiting it. The court ultimately aligns itself with the majority view, finding the language of Section 544(b) clear and allowing the trustee to step into the shoes of the IRS to take advantage of the longer collection period. The court addresses concerns that this could create a ten-year look-back period in most cases but ultimately holds that it cannot read a limitation into the statute. The court denies the motions to dismiss, allowing the trustee to proceed with his avoidance actions. ♦
Janvey v. Golf Channel, 2015 WL 1058022 (5th Cir., 2015).
♦ The case of Janvey v. Golf Channel, Inc. (2016) involved a fraudulent transfer clawback action related to a Ponzi scheme perpetrated by R. Allen Stanford. Stanford International Bank Limited (Stanford) had paid The Golf Channel, Inc. $5.9 million for media-advertising services, and the court-appointed receiver for Stanford's assets sought to recover those payments. The issue before the Texas Supreme Court was whether the Golf Channel could keep the payments even though Stanford was a Ponzi scheme. The Court had to interpret the Texas Uniform Fraudulent Transfer Act (TUFTA), which allows for the avoidance of transfers made with intent to defraud creditors. The Court concluded that TUFTA's "reasonably equivalent value" requirement, which is a defense for transferees who acted in good faith, can be met if the transferee: (1) Fully performed under a lawful, arm's-length contract for fair market value. (2) Provided consideration that had objective value at the time of the transaction. (3) Made the exchange in the ordinary course of the transferee's business. The Court held that the Golf Channel had met these requirements, and therefore could keep the payments. The Court reasoned that even though the services provided by the Golf Channel may have ultimately contributed to the Ponzi scheme's continuation, those services had objective value at the time of the transaction. The Court rejected the argument that value should be determined only from the perspective of the debtor's creditors, as this would effectively negate the good-faith defense for vendors who provide services or goods to Ponzi scheme operators. The Court's decision emphasizes the objective nature of the "reasonably equivalent value" inquiry under TUFTA and strikes a balance between protecting creditors and protecting innocent transferees who have provided valuable services or goods. ♦
Janvey v. Democratic Senatorial Campaign Committee, Inc., 699 F.3d 848 (5th Cir., 2012).
♦ The case Janvey v. Democratic Senatorial Campaign Committee, Inc. involved a receiver (Janvey) appointed to recover assets from the Stanford Defendants, who had perpetrated a massive Ponzi scheme. Janvey sued several political committees, including the Democratic and Republican national committees, to recover over $1.6 million in political contributions made by the Stanford Defendants. He argued that these contributions were fraudulent transfers made with the intent to defraud creditors. The Fifth Circuit Court of Appeals affirmed the district court's judgment in favor of the receiver. Here's a summary of the court's reasoning: (A) Receiver's Standing: The court held that the receiver, acting on behalf of the Stanford Defendants' creditors, had the authority to bring claims under the Texas Uniform Fraudulent Transfer Act (TUFTA). This was based on precedent establishing that receivers represent the interests of creditors in such cases. (B) Timeliness: The court rejected the committees' argument that the receiver's action was untimely. It determined that the receiver had exercised reasonable diligence in discovering the fraudulent transfers and had filed the lawsuit within the one-year statute of limitations period. (C) Preemption: The court found that federal campaign finance law did not preempt the receiver's TUFTA claims. It rejected the committees' arguments based on express preemption, field preemption, and conflict preemption. (1) Express preemption: The court held that the preemption provision of the Federal Election Campaign Act (FECA) was intended to apply to state laws specifically regulating federal campaign finance, not general laws like TUFTA. (2) Field preemption: The court concluded that Congress had not occupied the field of campaign finance to the extent that it would preempt state laws like TUFTA. (3) Conflict preemption: The court determined that there was no irreconcilable conflict between TUFTA and FECA. (D) In conclusion, the court found that the receiver had the authority to pursue the fraudulent transfer claims, that the action was timely filed, and that federal campaign finance law did not preempt the state law claims. This allowed the receiver to proceed with his claim to recover the political contributions for the benefit of the Stanford Defendants' creditors. ♦