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If you’re a lender involved in commercial foreclosure actions, you should be at least minimally familiar with the elements of a fraudulent conveyance.  This is because a fraudulent conveyance claim may result in the collection of funds that your borrower once had but improperly transferred away.  I cannot tackle the entire body of law here.  But two recent decisions from the United States District Court for the Southern District of Indiana highlight a few principles applicable to this subject.  The cases are Symons International v. Continental Casualty Company, et al., 2007 U.S. Dist. LEXIS 27356 (S.D. Ind.), decided March 31, 2007 (SymonsOpinion.pdf), and Richter v. Corporate Finance Associates, 2007 U.S. Dist. LEXIS 29155 (S.D. Ind.), decided April 19, 2007 (RichterOpinion.pdf ).  Indiana’s Uniform Fraudulent Transfer Act (“IUFTA”) can be found at Ind. Code § 32-18-2, and a link to the Act is on the left side of my blog’s homepage. 

Richter/voiding a transfer. Richter reminds us of the very basic elements that must be alleged for a colorable claim to void a fraudulent conveyance.  The decision dealt with a  Trial Rule 12(B)(6) motion to dismiss for failure to state a claim, and the court outlined the fundamental elements of a fraudulent conveyance claim: 

1. An allegation of jurisdiction;
2. A statement of the date and the conditions under which the defendant executed a promissory note to the plaintiff;
3. A statement that the defendant owes the plaintiff the amount;
4. A description of the events surrounding the defendant’s conveyance of all of his property to the transfer recipient (a third party) for the purpose of defrauding and for delaying the collection of payment by the plaintiff; and
5. The plaintiff’s demand of the court.

Failure to allege any of these elements will result in the dismissal of the claim. 

Fraudulent transfer defined.  The IUFTA defines a fraudulent transfer in I.C. § 32-18-2-14 and 15.  Section 14 involves a situation where “the debtor made the transfer with actual intent to hinder, delay or defraud any creditor of the debtor or if the debtor did not receive reasonably equivalent value in exchange for the transfer.”  Symons at 47.  Importantly “lack of consideration, standing alone, is insufficient to support a charge of fraud – fraudulent intent must be proven as well.”  Id. at 48.  Section 15 deals with situations where “the debtor did not receive reasonably equivalent value in exchange for the transfer, and the debtor was insolvent at the time or became insolvent as a result of the transfer.”  Id. at 47. 

Symons/transferee liability.  This case, decided in the context of a Trial Rule 56 motion for summary judgment, involved multiple issues, many of which are irrelevant to secured lenders.  But one very relevant question in Symons had not been answered before by an Indiana court, namely whether an officer or director of a “first transferee” who was found to have personally participated in the fraud can be held personally liable under the IUFTA.  The defendants’ contention was that they did not qualify as “transferees” of the assets.  See, I.C. § 32-18-2-18(b).  Judge Young noted that the IUFTA does not define the term “transferee” but that it should generally be defined as one to whom a transfer of property is made.  Symons at 44.  Judge Young held that there were facts upon which a reasonable jury could conclude that the individuals in question personally participated in the fraudulent transaction and thus could be liable under the IUFTA.  Id. at 46.

Learn more.  For those who want to become more familiar with the IUFTA and the remedies afforded by it, the Richter and Symons opinions offer good illustrations of the law in action.  I encourage you to read the .pdf’s.  This limited post may help to familiarize you with the issue, but it’s impossible to cram everything into one article.  You can be sure that this subject will continue to be covered on my blog, however.