Voidable Transactions Article by Jay Adkisson for 2024
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Common Law Fraudulent Transfer Claims Subject To UVTA Extinguishment Period In California
♦ This article discusses the differences between Statutes of Limitation and Statutes of Extinguishment, focusing on their application to fraudulent transfer cases in California. Key Points: (1) Extinguishment vs. Limitation: Extinguishment permanently eliminates a cause of action, while limitation only prevents new lawsuits but allows for counterclaims. (2) UVTA and Extinguishment: The Uniform Voidable Transactions Act (UVTA) has a four-year extinguishment period for fraudulent transfers, with a possible extension to one year from discovery. (3) California's Unique Provisions: California has a non-uniform seven-year ultimate extinguishment period for UVTA claims, regardless of discovery. Additionally, the Cortez rule tolls the four-year period during pending litigation. (4) Common Law Fraudulent Transfer: California still recognizes common law fraudulent transfer, but its statute of limitations is unclear and rarely used due to the existence of the UVTA. (5) MACH-1 RSMH Case: This case involved two creditors seeking to set aside fraudulent transfers. The court ruled that the seven-year UVTA extinguishment period applies to all fraudulent transfer claims, including common law claims. The court also questioned the continued existence of common law fraudulent transfer in California. (6) Analysis: The author expresses concerns about the seven-year extinguishment period potentially trumping common law limitations and argues for a longer period. The author also highlights the inconsistency of California's non-uniform provisions and the potential for abuse by debtors. (7) Laches: The author mentions the equitable doctrine of laches, which can limit the ability to bring a claim after a significant delay, but only if the delay has caused unfair prejudice to the defendant. (8) Common Law Fraudulent Transfer: The author suggests that common law fraudulent transfer is rarely successful and often used as a last resort by creditors who have missed deadlines. (9) Overall, the article highlights the complexities of fraudulent transfer law in California, particularly regarding the interplay between the UVTA, common law, and the seven-year extinguishment period. The author raises concerns about the potential for abuse and advocates for a longer statute of limitations. ♦
11th Circuit Says No Fraudulent Transfer Remedy Against The Debtor/Transferor Only In SE Property Holdings
♦ This case revolves around a failed real estate project in Florida and a subsequent fraudulent transfer of funds by the debtor, Neverve LLC, to its principal's personal lawyer. The creditor, SEPH, sought to recover the transferred funds and additional damages from both the lawyer and Neverve. (A) Key Issues: (1) Jurisdiction: The court dismissed the case against the lawyer due to lack of jurisdiction in Florida. (2) Fraudulent Transfer Law: SEPH argued that the "catch-all" provision of the Florida Uniform Fraudulent Transfer Act (FUFTA) allowed them to recover additional damages from Neverve, even though the transferee (the lawyer) was dismissed. (3) Equitable Remedies: The court ruled that the "catch-all" provision only allows for equitable remedies, and a money judgment against the debtor is not an equitable remedy. (4) Punitive Damages: SEPH also sought punitive damages against Neverve, but the court found no statutory authority for punitive damages in fraudulent transfer cases and that the transfer did not involve egregious conduct. (5) Attorney's Fees: SEPH attempted to recover attorney's fees from Neverve, but the court found no statutory or contractual basis for such an award. (6) Equitable Lien: The court rejected SEPH's request for an equitable lien on the transferred funds because Neverve no longer possessed them. (B) Outcome: The Eleventh Circuit Court of Appeals affirmed the District Court's decision, granting summary judgment in favor of Neverve. (C) Analysis: (1) Misunderstanding of Fraudulent Transfer Law: The court highlights SEPH's fundamental misunderstanding of fraudulent transfer law, which focuses on recovering assets from the transferee, not punishing the debtor. (2) Purpose of Fraudulent Transfer Actions: The primary goal of a fraudulent transfer action is to restore the transferred asset to the debtor so the creditor can execute on it, not to impose additional penalties on the debtor. (3) Double Recovery: The court emphasizes that a creditor cannot seek double recovery by obtaining both a judgment against the debtor and additional damages through a fraudulent transfer action. (4) Choice Between Avoidance and Money Judgment: The decision to pursue avoidance or a money judgment depends on the value of the transferred asset. Avoidance is preferred when the asset retains value, while a money judgment is more appropriate when the asset has depreciated. (C) Key Takeaways: (1) Fraudulent transfer actions are primarily against the transferee, not the debtor. (2) The "catch-all" provision of FUFTA does not allow for additional monetary damages against the debtor. (3) Creditors should carefully consider the appropriate remedy in a fraudulent transfer case, taking into account the value of the transferred asset and the potential for double recovery. ♦