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Unjust Enrichment – Viable Alternative To A Fraudulent Transfer Claim

Judge McKinney’s October 22, 2008 denial of defendants’ motion to dismiss in Murray v. Conseco, 2008 U.S. Dist. LEXIS 85500 (S.D. Ind. 2008) (pdf: Murray) addresses the fairly novel approach of utilizing a common law unjust enrichment claim in a fraudulent transfer case.  The U.S. District Court for Indiana’s Southern District concluded that the plaintiff creditor had stated a viable claim for unjust enrichment.  As previously stated here, such causes of action can help secured leaders struggling with the collection of deficiency judgments.

History.  Murray arises out of the demise of Conseco, Inc., which filed for bankruptcy in 2002.  In 1996, Conseco created a loan program in which certain officers and directors could borrow money from a syndicate of banks to purchase large blocks of Conseco stock.  Defendant Dennis Murray participated in the loan program and borrowed several million dollars.  Conseco executed guarantees of Murray’s obligations.  Murray entered into written agreements with the banks and Conseco in which he promised to repay the loans.  Conseco’s bankruptcy filing constituted an event of default under the various loan documents and, consequently, Murray’s obligations became immediately due and payable.  Pursuant to the guarantees, Conseco paid the amounts owed to the bank.  Murray failed to repay the debt to Conseco, so Conseco filed suit.

Unjust enrichment.  The most enlightening part of Judge McKinney’s opinion addresses Conseco’s claim for unjust enrichment against Murray’s wife.  Under Indiana law, “a person who has been unjustly enriched at the expense of another is required to make restitution to [pay back] the other.”  In order to win an unjust enrichment claim, a plaintiff “must establish that a measurable benefit has been conferred upon the defendant under such circumstances that the defendant’s retention of the benefit without payment would be unjust.”  Here was Conseco’s theory: 

Conseco alleges that it is a creditor of Murray; that it has asserted a valid fraudulent transfer claim against him; that Murray conferred a measurable benefit on Margaret Murray through his fraudulent transfers; and that Margaret Murray has been wrongfully enriched at Conseco’s expense.  Therefore, Conseco argues that it would be unjust for Margaret Murray to retain Murray’s fraudulently transferred assets without payment to Conseco.

Third parties?  The tricky question in the case surrounded Mrs. Murray’s assertion that Indiana law required Conseco to have directly benefited her.  Because she did not receive any benefit (money) directly from Conseco, Mrs. Murray contended the claim should have been dismissed.  The legal issue was whether a benefit conferred by a third party (her husband) could support an unjust enrichment action in Indiana.  The Court, citing analogous case law against Mrs. Murray, concluded that Conseco properly stated a claim for relief even though Conseco alleged that Mr. Murray, and not Conseco, conferred the benefit. 

UFTA – constructive fraud.  Conseco also asserted a more traditional claim based on Indiana Code § 32-18-2-14 of the Indiana Uniform Fraudulent Transfer Act (“UFTA”).  The Court noted that this statute protects against two types of fraudulent transfers:  (1) transfers with actual intent to defraud and (2) transfers that are constructively fraudulent (as a matter of law).  The Court set out the test for when constructive fraud will be presumed: 

(1) the debtor made a voluntary transfer; (2) at the time of the transfer, the debtor had incurred obligations elsewhere; (3) the debtor made the transfer without receiving a reasonably equivalent value in exchange for the transfer; and (4) after the transfer, the debtor failed to retain sufficient property to pay the indebtedness.

Judge McKinney denied the motion to dismiss filed by Murray on the UFTA claim.  Conseco met the pleading requirements of the cause of action, mainly because Murray allegedly voluntarily transferred sums of money to his wife at a time when he owed substantial sums of money to Conseco. 

When analyzing various avenues for relief in which you, as a secured creditor, feel that a borrower or a guarantor has transferred assets in order to avoid collection, consider the propriety of suing the transferee based upon a theory of unjust enrichment.  Although I’ve not seen the theory in action, the unjust enrichment theory seems to lend itself to the possibility of an easier burden of proof than the UFTA claim.  I’d love to hear from those of you who have experienced any advantages to this alternative theory. 

Time Limitations Upon The Enforcement Of Non-Indiana Judgments In Indiana

A lawyer from New York recently contacted me after reading my November 20, 2007 post 6 Steps To Enforce A Non-Indiana Judgment In Indiana.  Her client holds a 1994 judgment entered in the State of New York.  She was curious whether her fourteen-year-old New York judgment could still be enforced in Indiana.   

20 years-execution.  Yes, the New York party can domesticate its foreign judgment here in Indiana and proceed with execution, without fear of being time barred.  Ind. Code § 34-11-2-12, entitled “Satisfaction of Judgment or Decree by Expiration of Twenty Years,” states:

Every judgment and decree of any court of record of the United States, of Indiana, or of any other state shall be considered satisfied after the expiration of twenty (20) years. 

This is not a twenty-year statute of limitations but rather a rule of evidence creating a rebuttable presumption of satisfaction (payment) by the lapse of time (twenty years).  Odell v. Green, 121 N.E.2d 304 (Ind. Ct. App. 1918).  In a suit in Indiana on a foreign judgment, instituted after the expiration of twenty years after entry of the judgment, the plaintiff/judgment creditor cannot recover unless it proves the judgment remains unpaid.  Hendricks v. Comstock, 1859 Ind. LEXIS 111 (Ind. 1859).  Since the New York judgment falls within the twenty-year period, the plaintiff/judgment creditor, after domestication of the judgment under I.C. § 34-54-11, can immediately execute. 

10 years-lien.  When New York counsel contacted me, she feared that too much time had passed.  Based upon her quick review of Indiana law, it was her understanding that Indiana may have a statute of limitations of ten years.  I.C. § 34-55-9-2 “Lien Upon Real Estate – Time Limitation” states, in pertinent part:

All final judgments for the recovery of money . . . in Indiana . . . constitute a lien upon real estate . . . in the county where the judgment has been duly entered and indexed in the judgment docket as provided by law:  . . . (2) until the expiration of ten (10) years after the rendition of the judgment . . ..

This ten-year statute of limitations specifically relates to a judgment lien on real estate and not the judgment itself.  In Indiana, a money judgment automatically becomes a lien on real estate owned by the defendant/judgment debtor in the county where the judgment was rendered.  This lien, which can be foreclosed, exists on the real estate for ten years.  Although the lien expires, the judgment itself may be enforced up to twenty years after its entry.  Needham v. Suess, 577 N.E.2d 965 (Ind. Ct. App. 1991). 

Which state’s law applies?  What if New York law held that judgments were presumed paid after ten years?  Would Indiana’s twenty-year statute still apply, or would the Indiana action be subject to New York’s ten-year rule?  In 1859, the Indiana Supreme Court addressed that very issue in Hendricks.  The plaintiff/judgment creditor filed suit in Indiana to collect on a seventeen-year-old Michigan judgment.  Michigan at the time had a statute identical to I.C. § 34-11-2-12 except that the time period was ten years, not twenty.  The defendant/judgment debtor in Hendricks argued that the case should have been dismissed based upon the presumption of payment under the Michigan statute.  The Indiana Supreme Court rejected the argument and held that, because the defense related to the remedy, not the merits, the law of the state where the action was pending (Indiana) applied.  According to Hendricks, the rules of the foreign state do not govern judgment enforcement actions.  Indiana’s do.

The Wall Street Journal On Premier/Chris White and Mezzanine Lending

Over the course of this year, I've been posting about the demise of Premier Properties and its owner Christopher White.  Click here for post and links to all the prior media reports.

Today, The Indianapolis Star, courtesy of a report by The Wall Street Journal, has an insightful article entitled "Premier's Collapse Ruffles Lender."  The piece focuses on the Premier/White saga from the perspective of mezzanine lender Dominion Capital. 

As some of you know, borrowers such as White's real estate development company use mezzanine loans to secure supplementary financing for projects, which financing may be required by the primary construction mortgage lender.  Mezz loans often are collateralized by the stock in the development company rather than the developed property itself.  They're borderline unsecured loans and thus have high interest rates (20+%).  It's my understanding that mezz lenders like Dominion are feeling the pain from the current credit crisis.  The WSJ article supports this.     

Celebrating Two Years

Two years ago, on November 1, 2006, I launched this blog.  126 posts later, I'm still going strong.

Over the past year, I've slightly reconfigured my home page, which now includes a more exhaustive and specific "Categories" directory.  As new topics arise, I may add to this list to make it easier for readers to investigate a particular topic.  As always, I welcome your suggestions by email.  Please let me know if there is another area on which you'd like me to focus.

Click on the "About" link to see my bio, picture, contact information and link to my firm Wooden & McLaughlin's website.  Within a few months, my firm will be launching a new website, and we're all excited about that.     

Within the last several months, I opened the comments option, so please feel free to comment upon my articles.

The "Archives" section along the side of the home page allows you to review posts by month, but more importantly permits you to conduct a word search of all prior content on this blog.  This feature is like having Google specific to this blog.  You can research each and every blog post back to 11-1-06.  Remember that, among other things, I post on all published Indiana state and federal court judicial opinions relevant to the field of commercial foreclosure law.  How do I find the cases?  I have permanent computer searches set up on the Lexis legal research system.  Lexis delivers emails to me whenever a court publishes a new decision.  Readers will always be up to speed on any relevant legal developments under Indiana law.  

Another option for you is to sign up for an RSS feed and/or subscribe to research posts by email.  These are efficient and painless ways to have Indiana Commercial Foreclosure Law articles delivered to you.  By the way, the email feature is secure, and it will never result in any further contact by me.  Please pass these subscription programs along to your friends and colleagues.

I've added a couple more statute links along the left side of the home page this year.  The list of statutes consists of all Indiana Code provisions applicable to commercial foreclosure matters.  I also provide rule links to the Indiana Rules of Trial Procedure, the Indiana Rules of Evidence, together with a link to find each Indiana county's local procedure rules, if they exist.  These are at your fingertips whenever you surf to my blog.  

My home page has permanent links to the websites of all Indiana state and federal courts, as well as the Secretary of State and the Marion County (Indianapolis) civil sheriff's office websites.  These governmental office websites provide a wealth of information for secured lenders and their legal counsel.

In addition, I provide links to some key local media outlets, as well as links to the websites of what I understand to be the most pertinent trade associations.  If there are other websites you think would be valuable to readers, please let me know.

My mission is to provide a "one-stop shop" for secured lenders involved in the foreclosure of commercial real estate mortgages, enforcement of security interests and collection of business debts in Indiana.  I gear my content toward workout professionals and representatives of commercial lending institutions.  Naturally, in-house counsel and Indiana lawyers also will benefit from my efforts to provide an on-line resource for this specialized area.  Please keep reading and spread the word.  And, please contact me with any ideas as to how I can improve.