« January 2022 | Main | March 2022 »

Indiana Court Of Appeals Reverses Fraudulent Transfer Judgment And Remands For Remedy Determination

Lesson. The devil’s in the details when looking at fraudulent intent, and various statutory remedies are available in Indiana fraudulent transfer actions.

Case cite. Holland v. Ketcham, 2021 Ind. App. LEXIS 404 (Ct. App. Dec. 27, 2021)

Legal issue. Whether Defendant’s conversion of cash into real estate, instead of using the cash to pay Plaintiff’s prior money judgment against Defendant, constituted a fraudulent transfer.

Vital facts. Plaintiff brought a fraudulent transfer claim against Defendant on the basis that Defendant transferred her cash assets into the purchase of a house. Plaintiff alleged that the purpose of transaction was for Defendant to avoid paying Plaintiff’s judgment.

Procedural history. The trial court entered judgment for Defendant after concluding that Plaintiff failed to meet his burden of establishing an intent to defraud.

Key rules. Indiana Code 32-18-2-14(a)(1) states that a fraudulent transfer, or a fraudulent obligation incurred, may be subject to Indiana's Uniform Fraudulent Transfer Act if it is made “with actual intent to hinder, delay, or defraud any creditor of the debtor….”

I.C. 32-18-2-14(a)(2) outlines a list of nine nonexhaustive factors that courts may consider when determining whether a pattern of actual intent under subsection (1) exists. Indiana case law identifies three more factors: “any transaction conducted in a manner differing from customary methods; a transaction whereby the debtor retains benefits over the transferred property; and a transfer of property between family members."

Holding. The Court of Appeals reversed the trial court and held that the evidence demonstrated Defendant’s actual intent to hinder, delay, or defraud Plaintiff’s right to payment under the judgment. The Court remanded the case to the trial court to determine the appropriate remedy.

Policy/rationale. As I’ve said here before, these types of cases are highly fact sensitive, and Holland is no different. Please read the opinion to learn more about what happened. The Court walked through all of the pertinent factors - some of which actually weighed in favor of Defendant. It would seem this case was a close call. A key piece of evidence seemed to be Defendant’s admission “that converting the cash into equity in the [real estate] placed it beyond the reach of [Plaintiff] to collect it.” In the end, the Court accepted Plaintiff’s theory that, rather than pay Plaintiff with money Defendant had in hand, Defendant bought a 200k house and claimed it as a homestead.

One of the reasons this case caught my eye was Holland’s discussion of Plaintiff’s remedy. First, the Court stated that “the immediate issuance of an injunction that prohibits [Defendant] from transferring the [real estate] is appropriate while the trial court on remand determines [Plaintiff’s] remedy. The Court then deferred to the trial court to rule in its discretion what the ultimate remedy should be under I.C. 32-18-2-17:

(a) In an action for relief against a transfer or an obligation under this chapter, a creditor . . . may obtain any of the following:

    (1) Avoidance of the transfer or obligation to the extent necessary to satisfy the creditor's claim.

    (2) An attachment or other provisional remedy against the asset transferred or other property of the transferee in accordance with the procedure prescribed by IC 34-25-2-1 or any other applicable statute providing for attachment or other provisional remedy against debtors generally.

    (3) Subject to applicable principles of equity and in accordance with applicable rules of civil procedure, any of the following:

        (A) An injunction against further disposition by the debtor or a transferee, or both, of the asset transferred, its proceeds, or of other property.

        (B) Appointment of a receiver to take charge of the asset transferred or of the property of the transferee.

    (C) Any other relief the circumstances require.

(b) If a creditor has obtained a judgment on a claim against the debtor, the creditor, if the court orders, may levy execution on the asset transferred or its proceeds.

Related posts.

__________
Part of my practice involves post-judgment collection-related matters.  If you need assistance with a similar matter, please call me at 317-639-6151 or email me at john.waller@dinsmore.com. Also, don’t forget that you can follow me on Twitter @JohnDWaller or on LinkedIn, or you can subscribe to posts via RSS or email as noted on my home page.


Reinstated Federal Tax Liens On Property Owned Pre-Bankruptcy

Lesson. An erroneously-released federal tax lien can be reinstated, and the lien can reattach to a debtor’s pre-petition property, even in the wake of a bankruptcy discharge.

Case cite. United States v. Shadoan, 2021 U.S. Dist. LEXIS 219003 (S.D. Ind. Nov. 12 2021)

Legal issue. Whether Debtor’s bankruptcy discharge from tax liabilities prevented a reinstated federal tax lien from attaching to Debtor’s property.

Vital facts. A federal tax lien arose against Debtor, and the USA recorded the lien with the Hamilton County Recorder. Debtor subsequently sought Chapter 7 bankruptcy protection and received an order of discharge. The USA then released the lien by mistake, but later reinstated it (to the chagrin of Debtor).

Procedural history. The Shadoan opinion stems from litigation between the USA and Debtor related to, among other things, the validity of the tax lien reinstatement. Debtor filed a motion to dismiss the USA’s action.

Key rules. The opinion contains all sorts of citations to federal tax lien law. If interested or needed, dig in.

A BK discharge “does not disturb valid, pre-petition federal tax liens.” The USA may still enforce the lien in rem by proceeding against the property.

Under the US Code, the USA, through the IRS, can reinstate an erroneously-released lien by filing a revocation certificate. 26 U.S.C. § 6325(f)(2). Such a lien will reattach to a debtor’s pre-bankruptcy property.

Holding. The court denied Debtor’s motion to dismiss.

Policy/rationale. Debtor made two assertions. First, he claimed that the certificate of release of lien conclusively established that the federal tax lien was extinguished such that a reinstatement could not occur. Alternatively, Debtor argued that, once he obtained his BK discharge, the individual income tax liability ceased to exist such that there was no longer a federal tax lien to reinstate. The court rejected Debtor’s contentions and found that the USA followed the required procedure to appropriately reinstate the federal tax lien against Debtor’s property and Debtor’s corresponding rights to it. Remember that liens on real estate don’t disappear simply because the underlying debt disappears through BK.

Related posts.

__________
I represent lenders, as well as their mortgage loan servicers, entangled in lien priority and title claim disputes. If you need assistance with a similar matter, please call me at 317-639-6151 or email me at john.waller@dinsmore.com. Also, don’t forget that you can follow me on Twitter @JohnDWaller or on LinkedIn, or you can subscribe to posts via RSS or email as noted on my home page.


Legal Reader: How Best To Prepare When Facing A Foreclosure

I thought this article by Samantha Higgins on legalreader.com was quite informative for borrowers: How Best to Prepare When Facing a Foreclosure.  Although the piece is designed for residential/consumer foreclosures, many of the tips identified by Higgins apply with equal vigor to commercial borrowers and guarantors.  Engage, seek advice, and follow-up.

_________

I represent parties in loan-related litigation. If you need assistance with such a matter, please call me at 317-639-6151 or email me at john.waller@dinsmore.com. Also, don’t forget that you can follow me on Twitter @JohnDWaller or on LinkedIn, or you can subscribe to posts via RSS or email as noted on my home page.