In A Matter Of First Impression In Indiana, Court Of Appeals Upholds Award Of Punitive Damages In Fraudulent Transfer Action

Lesson. Parties to fraudulent transfer actions could face punitive damages.

Case cite. Clary-Ghosh v. Ghosh, 223 N.E.3d 216 (Ind. Ct. App. 2023)

Legal issue. Whether the trial court abused its discretion when it awarded punitive damages against Defendants in a fraudulent transfer action.

Vital facts. Plaintiff brought an action against Defendants under the Indiana Uniform Fraudulent Transfer Act (UFTA). As is the case with many of these UFTA actions, the facts are very dense.  Here, the dispute primarily surrounded transfers of vehicles to avoid post-judgment collection. For all the details, please review the Court’s opinion. One noteworthy finding of the trial court was:

98. Here, [Defendant 1] provided no documentation which demonstrated that it followed any of the corporate formalities of filing tax returns, conducting meetings, maintaining minutes or notes, etc. In addition, in [Defendant 1’s] response to [Plaintiff's] discovery, it concealed the transfers of the [v]ehicles by stating that they were to [Defendant 2], when in fact they were to a trust established prior to the dissolution of [Defendant 1]. It was only after obtaining discovery from a non-party, the BMV, that the true nature of the transfers was revealed.

Procedural history. Before the appeal, the trial court awarded a judgment against Defendants in a UFTA action. Defendants appealed on several grounds. This post relates only to the punitive damages matter.

Key rules. In Indiana, "[t]he purpose of punitive damages is not to make the plaintiff whole or to attempt to value the injuries of the plaintiff. Rather, punitive damages have historically been viewed as designed to deter and punish wrongful activity. As such, they are quasi-criminal in nature."

Punitive damages in Indiana “are a creature of common law,” and the UFTA at I.C. § 32-18-2-20 states that “unless superseded by this chapter, the principles of law and equity . . . supplement this chapter.”

Further, the remedies provision in the UFTA at I.C. § 32-18-2-17(1)-(3) “provides that a creditor bringing successful claims may obtain a host of types of relief, including avoidance of the fraudulent transfer or obligation, attachment against the transferred asset, an injunction against further disposition of the debtor's assets, and the appointment of a receiver.” I.C. § 32-18-2-17(3)(C) also states that "[s]ubject to applicable principles of equity and in accordance with applicable rules of civil procedure" a creditor may obtain "[a]ny other relief the circumstances require." The court deemed Section 17(3)(C) to be “catch-all” provision, and nowhere in the UFTA is a recovery of punitives prohibited.

Indiana has a punitive damages statute declaring that damages must not be greater than three times the compensatory damages awarded or $50,000. I.C. § 34-51-3-4.

Holding. The Indiana Court of Appeals, in what appears to be a matter of first impression, affirmed the trial court’s award of punitive damages.

Policy/rationale. Defendants argued that the trial court erred in awarding punitive damages because such damages are inconsistent with the UFTA’s limited purpose of removing obstacles to the collection of a judgment. After conceding that no Indiana state or federal court had determined whether punitives are permitted under the UFTA, the Court concluded “that it was our legislature's intent to allow for the imposition of punitive damages upon successful UFTA claims in order to punish those who have violated the statute and to act as a deterrent to future fraudulent conduct.”

Related posts.

Part of my practice involves post-judgment collection disputes. If you need assistance with a similar matter, please call me at 317-639-6151 or email me at [email protected]. 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.

Bank Records Of Non-Party (Third Party) Discoverable In Post-Judgment Collection Action

Lesson. A bank’s records of a non-party to litigation can be subpoenaed in post-judgment collection proceedings if the document request is reasonably calculated to lead to the discovery of concealed or fraudulently transferred assets.

Case cite. Allstate Ins. Co. v. Orthopedic P.C. 2022 U.S. Dist. LEXIS 42485 (S.D. Ind. 2022)

Legal issue. Whether a judgment creditor could obtain the bank records of a non-party in post-judgment collection proceedings.

Vital facts. The Allstate opinion followed the entry of a 460k judgment that Defendant health care providers failed to pay. Plaintiff claimed that Defendants improperly transferred patients to Non-Party provider and that those patients “were then to be billed using the name of a separate entity apparently to avoid detection by [Plaintiff].” Thus, there was a perceived financial relationship between Defendants and Non-Party in which Defendants were transferring assets to avoid collection. In order to investigate the theory further, Plaintiff subpoenaed the bank records of Non-Party.

Procedural history. Non-party moved to quash the subpoena.

Key rules. Allstate was a federal court action, so the federal rules of procedure applied. The Court noted that Rule 69(a)(2) expressly provides that a judgment creditor "may obtain discovery from any person" to aid in execution of a judgment. This applies to discovery to non-parties too. See also, Indiana Trial Rule 69(E).

Indiana federal case law interprets Rule 69 to allow “a judgment creditor to obtain discovery on ‘information relating to past financial transactions which could reasonably lead to the discovery of concealed or fraudulently transferred assets.’”

Discovery to non-parties “may be permitted where [the] relationship between judgment debtor and nonparty is sufficient to raise a reasonable doubt about bona fides or transfer of assets.”

The Court cited the following test for subjecting third parties (aka non-parties) to discovery: “. . . so long as the judgment creditor provides 'some showing of the relationship that exists between the judgment debtor and the third party from which the court . . . can determine whether the examination has a basis.'”

However, a judgment creditor must keep its inquiry “pertinent to the goal of discovering concealed assets of the judgment debtor and not be allowed to become a means of harassment of the debtor or third persons.”

Holding. The trial court denied the motion to quash and ordered Non-Party’s bank to provide the responsive materials.

Policy/rationale. Non-Party contended that the records were irrelevant and beyond the reach of discovery. Non-Party’s main theory was that it had not been sued by Plaintiff and that Plaintiff had not claimed Non-Party was a part of any conspiracy. The Court disagreed and concluded that the subpoena was “an entirely reasonable and appropriate attempt to obtain discovery in support of [Plaintiff’s] efforts to collect on its judgment . . . .” The Court’s rationale was that Plaintiff met the “reasonable doubt” standard by presenting evidence in the form of emails that indicated Defendants may have fraudulently transferred its patients to Non-Party to evade Plaintiff’s collection efforts.

Related posts.

Part of my practice involves representing parties in post-judgment collection actions. If you need assistance with a similar matter, please call me at 317-639-6151 or email me at [email protected]. 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.

Presumption Of Ownership Through Tenants By The Entirety Can Be Rebutted By Contract

Lesson. Since ownership of real estate by a husband and wife creates a presumption of a tenancy by the entirety, typically a creditor cannot collect the debt of one spouse from the marital real estate. However, the presumption is rebuttable by a contract that states otherwise or that implies otherwise – potentially opening the door to collecting the debt from the debtor spouse’s interest in the real estate.

Case cite. Fund Recovery Servs. LLC v. Wolfe 2022 U.S. Dist. LEXIS 28754 (N.D. Ind. Feb. 17 2022)

Legal issue. Whether a fraudulent transfer case against husband and wife should be dismissed because they held the subject real estate jointly.

Vital facts. Creditor alleged that Husband transferred his interest in real estate that he held jointly with Wife such that Wife become the sole owner. The transfer occurred after entities for which Husband was a personal guarantor filed bankruptcy. The Court’s opinion does not mention anything about the language in any of the deeds, nor is there any discussion of why Husband transferred title to Wife.

Procedural history. Creditor filed suit against Husband and Wife seeking to collect the debt Husband owed to Creditor. Specifically, Creditor claimed the conveyance should be set aside because the real estate transfer violated Indiana’s Uniform Fraudulent Transfer Act (IFTA). Defendants filed a motion to dismiss the Complaint for a failure to state a claim for relief.

Key rules.

Certain transfers made by a debtor are voidable as to a creditor if the transfer was made with intent to hinder, delay, or defraud the creditor. Ind. Code. 32-18-2-14(a)(1).

A transfer can also be voidable “if the transferor did not receive reasonable value for the transfer and the debtor was engaged in a business for which his remaining assets were unreasonably small in relation to that business, or the transferor incurred debts beyond his ability to pay.” Ind. Code § 32-18-2-14(a)(2).

The IFTA also provides that a transfer is voidable if the claim arose before the transfer, if the debtor made it without “receiving reasonably equivalent value,” and if the debtor was insolvent at the time or became insolvent as a result of the transfer. Ind. Code. § 32-18-2-15.

Tenants by the entirety is a form of ownership of real estate in Indiana that is reserved for husband and wife “based on the legal fiction that a husband and wife are a single entity.” The nature of the ownership protects real estate from being seized to satisfy the debts of only one of the spouses.

In Indiana, ownership of real property by a husband and wife creates a presumption of a tenancy by the entirety that is rebuttable by either a contract hat states otherwise or that implies otherwise. Ind. Code § 32-17-3-1(d).

Holding. The Court denied the motion to dismiss.

Policy/rationale. Husband and Wife argued that, because the couple was married, the real estate was held as tenants in entirety and, as such, the real estate would not have been available to satisfy the debt of Husband. Further, Husband and Wife asserted that the Complaint did not allege facts necessary to overcome the presumption of an estate by the entireties. Creditor argued that it may be able to rebut the presumption by virtue of a contract for the purchase of the subject real estate. (The Court did not elaborate on the details of the contract, but clearly something did not sit well with the Court, which allowed the claims to proceed to the next phase of the case.)

Related posts.

I represent parties involved in real estate-related disputes. If you need assistance with a similar matter, please call me at 317-639-6151 or email me at [email protected]. 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.

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 [email protected]. 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.

Wife Was A “Creditor” In Alleged Fraudulent Transfer Case And Proved The Necessary Fraudulent Intent To Prevail Over Husband In Divorce Case

Lesson. Dumping real estate assets for no value shortly before a judgment, even in a divorce case, could lead to a court order unwinding the transfers under Indiana’s UFTA.

Case cite. Hernandez-Velazquez v. Hernandez, 136 N.E.3d 1130 (Ind. Ct. App. 2019)

Legal issues. Whether a wife was a “creditor” under Indiana’s Uniform Fraudulent Transfer Act? Whether the subject transfers violated the UFTA?

Vital facts. This dispute arises out of a divorce and involves the husband (Husband), the wife (Wife), the husband’s brother (Brother), and the Brother’s longtime girlfriend (Girlfriend). In connection with a decree of dissolution, there was a property division in which Wife was to receive certain parcels of real estate. Although the facts are pretty dense, in a nutshell, shortly before the divorce was to become final, Husband conveyed a bunch of real estate to Girlfriend.

Procedural history. The trial court set aside the conveyances based upon the UFTA. Husband appealed.

Key rules. Ind. Code § 32-18-2-14 sets out how a transfer becomes voidable under Indiana’s UFTA. One key inquiry is whether the transfer was made with the “intent to hinder, delay, or defraud” the creditor.

I’ve written about the test for “fraudulent intent” and the so-called “eight badges of fraud” previously.   

The UFTA defines a “creditor” as “a person that has a claim.” I.C. § 32-18-2-2.

Holding. The Indiana Court of Appeals affirmed the trial court ruling in favor of Wife.

Policy/rationale. Husband first contended that Wife was not a creditor because Brother financed the purchase of the subject real estate from Husband and had the right to direct to the conveyances to Girlfriend. However, the evidence showed that Wife contributed to the original purchases of the real estate, which, in part, had been titled in Wife’s name. The Court concluded the properties were part of the marital estate for purposes of the divorce, thereby rendering Wife a “creditor.”

Husband next argued that the transfer of real estate from Husband to Girlfriend was not made with the “intent to hinder, delay, or defraud” Wife. The Court addressed Indiana’s law of fraudulent intent and found that at least five of the eight badges of fraud were present:

First, the record shows that Husband transferred the properties to [Girlfriend] approximately one month before Wife filed for divorce and when the parties' relationship had already begun to deteriorate. Second, the transfer of these properties greatly reduced the marital estate because the rental properties were substantially all of the family's assets. Third, there is evidence that Husband would retain some benefits over the rental properties. That is, Husband, [Brother], and [Girlfriend] would continue to renovate and manage the properties and collect rent from tenants. Fourth, Husband transferred the properties to [Girlfriend] for little or no consideration. That is, he transferred all the properties to [Girlfriend] for ten dollars. Finally, the transfer of these properties from Husband to [Girlfriend] was effectively a transfer between family members. Although [Brother] and [Girlfriend] have never been married, they have been in a relationship for over thirty years and have three children together. All of this together constitutes a pattern of fraudulent intent.

Related posts.


Part of my practice is to advise parties in connection with post-judgment collection matters. If you need assistance with a similar matter, please call me at 317-639-6151 or email me at [email protected]. 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.

“Debtor” In Alleged Fraudulent Transfer Must Be Liable For Creditor’s Underlying Claim

Lesson. If there is no underlying claim, then there can be no fraudulent transfer.

Case cite. Underwood v. Fulford, 128 N.E.3d 519 (Ind. Ct. App. 2019)

Legal issue. What is a “debtor” under Indiana’s Uniform Fraudulent Transfer Act?

Vital facts. This case arises out of a tangled web of disputes between parties to a real estate transaction. Many suits and many years led to this particular opinion. To cut to the chase, Underwood alleged that Kinney, before he died, conveyed certain properties to his wife for the purpose of defrauding Underwood, a purported creditor of Kinney (later, his Estate). The Underwood decision dealt with both the underlying action for damages and the fraudulent transfer action. The nature of Underwood’s primary claim is not important here. The key is that both the trial court and the Court of Appeals concluded that the Estate owed no money to Underwood.

Procedural history. The trial court dismissed Underwood’s fraudulent transfer claim, and Underwood appealed.

Key rules. Indiana's UFTA, at Ind. Code § 32-18-2-14, generally provides that:

A transfer made … by a debtor is fraudulent as to a creditor, whether the creditor's claim arose before or after the transfer was made…, if the debtor made the transfer ... with actual intent to hinder, delay, or defraud any creditor of the debtor[.]

The statute defines a “debtor” as “a person who is liable on a claim.” I.C. § 32-18-2-2.

Indiana courts previously have declared, “a defendant cannot logically be held liable for a fraudulent transfer … if he is not to be held liable for the creditor’s underlying claim.” In other words, when a “UFTA defendant is not a debtor to the plaintiff, dismissal is proper.”

Holding. The Court affirmed the trial court’s dismissal of the UFTA action.

Policy/rationale. The Court first concluded on a separate contention that Underwood had no claim for damages against the Estate. Based on that premise, the Estate was not a “debtor” under the UFTA. For reasons that frankly are not altogether clear, Underwood continued to press her theory that the Estate was a debtor, but the Court found that she “failed to present a cogent argument” in support of her theory. The outcome is not surprising here, but the discussion is nonetheless noteworthy. For those who may be analyzing the viability of a fraudulent transfer claim, Underwood highlights who can be a “debtor” under the UFTA and why that definition is significant.

Related post. More On Piercing The Corporate Veil In Indiana, And The UFTA
Part of my practice is to advise parties in connection with post-judgment collection matters. If you need assistance with a similar matter, please call me at 317-639-6151 or email me at [email protected]. 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.

Judgment Creditor Entitled To Recover Entire Value Of Real Estate Fraudulently Conveyed

Lesson. Although the transferee of real estate fraudulently conveyed theoretically could retain, or receive credit for, money spent to improve or otherwise increase the value of the subject property, the credit will only apply to improvements made after the fraudulent transfer. Otherwise, the judgment creditor will be entitled to the full value of the real estate, unless there is evidence of an inequitable windfall to the creditor.

Case cite. State v. Lawson, 128 N.E.3d 471 (Ind. Ct. App. 2019)

Legal issue. Whether judgment creditor was entitled to one-half ($7,500), or the full amount ($15,000), of proceeds from the sale of a Husband’s interest in real estate fraudulently transferred to him by Wife, the judgment debtor.

Vital facts. In 2017, the State obtained a large civil judgment against Wife for alleged theft. The State claimed that, when the theft was about to be discovered, Wife fraudulently conveyed to Husband her interest in the subject real estate. The property previously had been owned by Husband and a family member, both of whom spent $7,500 each improving the property in the 1990’s. In 2004, Husband transferred his one-half interest to Wife’s daughter, who later transferred her interest to Wife. Upon learning of the theft investigation in August 2014, Wife quitclaimed her one-half interest in the real estate back to Husband. While the litigation was pending, the parties agreed to the sale of Husband’s interests in the real estate for $15,000, which was deposited with the trial court pending the outcome of the case.

Procedural history. Following a bench trial, the trial court found that Wife had fraudulently transferred her interest in the real estate but ordered only $7,500 of the sale proceeds to be released to the State. The trial court ordered the remaining $7,500 to be released to Husband “for his equitable interest in the Property.” The State appealed.

Key rules.

Lawson involved the interpretation of Indiana’s Uniform Fraudulent Transfer Act. Under the Act, a creditor may bring a claim to set aside a fraudulent conveyance made by a debtor. As relevant here, a conveyance is fraudulent and voidable if the debtor made the transfer or incurred the obligation with actual intent to hinder, delay, or defraud a creditor of the debtor. I.C. § 32-18-2-14.

Section 18 was the key provision at issue and states in relevant part:

(b) To the extent that a transfer is avoidable in an action by a creditor under section 17(a)(1) of this chapter, the following rules apply:

    (1) Except as otherwise provided in this chapter, the creditor may recover judgment for the value of the asset transferred, as adjusted under subsection (c), or the amount necessary to satisfy the creditor’s claim, whichever is less....

* * *
(c) If the judgment under subsection (b) is based upon the value of the asset transferred, the judgment must be for an amount equal to the value of the asset at the time of the transfer, subject to adjustment as the equities may require.

The Indiana Court of Appeals interpreted “subject to adjustment as the equities may require” to mean: “A defrauded creditor is entitled to the full value of the fraudulently transferred property at the time of the transfer, and an equitable adjustment is permitted only when an inequitable windfall would result by granting the creditor the full value of the property.”

Holding. The Indiana Court of Appeals reversed the trial court and held that the State was entitled to a judgment for the full $15,000.

Policy/rationale. The trial court granted $7,500 to Husband under the equitable test of Section 18(c) based upon his cash outlay to improve the real estate in the 1990’s. On appeal, the State asserted that it should obtain the full value of the asset, as provided in Section 18(b) and (c). Significantly, Husband incurred the $7,500 “long before” the fraudulent transfer and after he himself transferred the property to Wife’s daughter. The Court of Appeals' focus was on whether any improvements had been made after the fraudulent transfer, and there had been none. Because Husband had not increased the value of the real estate after the subject transfer, “the equities did not require [Husband] to be reimbursed.”

Related post. “Negative Value” Dooms Indiana Fraudulent Transfer And Direct Continuation Claims

I represent parties in disputes arising out of loans that occasionally involve post-judgment fraudulent transfer issues.  If you need assistance with a similar matter, please call me at 317-639-6151 or email me at [email protected]. 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.

District Court Denies Fraudulent Transfer and Alter Ego Claims

Fraudulent transfer and alter ego cases seem to almost always be factually dense and, therefore, difficult to summarize in a blog post.  Since I've written about the essential elements of Uniform Fraudulent Transfer Act and alter ego claims in the past, I've decided simply to post the Court's opinion in Wine & Canvas v. Weisser, 2017 WL 2905026 (S.D. Ind. 2017) here

United States District Judge Pratt authored a thorough, twenty-page opinion dealing with plaintiff's motion for turnover of trademarks and for funds received as royalties in connection with the pending proceedings supplemental.  The two bases of the motion were (1) fruadulent transfer under Indiana Code 32-18-2-14 and 15 and (2) alter ego.  The opinion spells out why the Court denied the plaintiff's motion on both theories.  The Court found that the plaintiff did not show that the subject transfer was fraudulent or voidable.  Further, the Court concluded that company 2 was not the alter ego of company 1. 

For more on the law and the Court's reasoning, please review the opinion, which is a good illustration of how a court will walk through all of the relevant factors toward a decision denying relief.      

22 Houses Evaporate But Judge Rejects Creditor's Indiana Fraudulent Transfer Claims

Lesson.  Fraudulent transfer claims can be expensive to prove and difficult to win, even if the underlying transactions stink.  Lenders trying to collect a judgment, and borrowers/guarantors trying to avoid collection, can learn from Judge Simon’s Pringle opinion. 

Case citePringle v. Wittig, 2014 U.S. Dist. LEXIS 118453 (N.D. Ind. 2014) (.pdf).

Legal issuePringle involved two issues:  (1) whether the defendant provided “reasonably equivalent value” for twenty-two houses he bought and (2) whether the real estate transactions were “made with the intent to hinder, delay or defraud” the plaintiff.

Vital facts.  Garcia allegedly cheated Pringle out of millions in a real estate fraud scheme.  Because Garcia was insolvent, Pringle sued Wittig, who allegedly participated in the scheme by buying several houses from Garcia during the collapse of Garcia’s scheme.  Pringle asserted that Wittig helped Garcia shield assets from Pringle by buying properties from Garcia “on the cheap.”  So, Pringle filed suit against Wittig to void the alleged fraudulent transfers. 

Procedural historyPringle was the federal district court’s decision on Wittig’s motion for summary judgment based essentially on the notion that Pringle failed to produce evidence of fraud. 

Key rules.  At issue was liability under the Indiana Fraudulent Transfer Act, Ind. Code 32-18-2-14 and 15.  The Court noted that an action to set aside a fraudulent conveyance “does not negate the disputed transaction” but only subjects the conveyed property to execution “as though it were still in the name of the grantor.”  There are two paths to victory under the IUFTA.  First, plaintiffs can show that the transfer was made “with the actual intent to defraud creditors” (aka actual fraud).  Second, plaintiffs can show that the transferor did not receive “reasonably equivalent value” in exchange for the transfer (aka constructive fraud).  Actual fraud claims involve proof of the so-called “eight badges of fraud” discussed here previously (see 12/14/06 post).  Constructive fraud claims focus on whether the transferor was insolvent and whether the property was transferred without the receipt of reasonably equivalent value in exchange. 

Holding.  The primary dispute in Pringle was whether Wittig gave “reasonably equivalent value” for the twenty-two houses he bought from Garcia, and the opinion discusses in detail the facts relevant to that question.  As to both the actual and constructive fraud claims, the Court held that, but for two houses, Pringle had not established a case.  The Court therefore granted summary judgment for Wittig concerning twenty of the sales.  The remaining two transactions warranted a trial, however.

Policy/rationale.  “Reasonably equivalent value” is not defined in the IUFTA.  The Court concluded that the law requires “something more than consideration to support a contract,” and there is no fixed formula.  Factors to be considered include whether the transaction was made at arm’s length, whether the transferee acted in good faith and “most importantly” a determination of the fair market value of the property transferred and received.  The opinion in Pringle summarized the evidence submitted by both sides and concluded that Wittig made “a strong case that he paid fair market value for each house” (but for two).  Whereas, Pringle relied only on county tax assessments, which “do not reflect … fair market value….”  Pringle failed to offer appraisals, comparable sales or testimony from real estate agents.  As to the two transactions that survived, however, Pringle successfully showed that, on the same day Garcia sold the houses to Wittig, Wittig sold the houses to Garcia’s IRA, in a deal akin to a “secret or hurried transaction not in the usual mode of doing business.”     

Related posts

Indiana Fraudulent Transfer Act: Statute Of Limitations And Bona Fide Purchaser Defenses

Fraudulent transfer claims have a shelf life and do not necessarily extend to all subsequent transferees.  Hair v. Schellenberger, 2012 Ind. App. LEXIS 158 (Ind. Ct. App. 2012), which dealt with Indiana’s Uniform Fraudulent Transfer Act, Ind. Code § 32-18-2 (“UFTA”), explains some of the parameters of these cases.  Hair was a dispute over who had superior title to certain real estate – a subsequent purchaser (“Purchaser”) or a purported judgment lien holder (“Judgment Creditor”). 

Judgment lien.  By statute, “all final judgments for the recovery of money . . . 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 . . . after the time the judgment was entered and indexed.”  I.C. § 34-55-9-2.  Judgment Creditor held a money judgment against the former owners of the subject real estate that should have created a lien on the property, but the clerk of the court failed to properly index the judgment.  

Acquisition.  The lender for the former owners of the subject real estate foreclosed and took ownership of the property via sheriff’s deed – after the Judgment Creditor obtained her judgment.  A few months later, Purchaser bought the foreclosed property from the lender following a title search that did not disclose Judgment Creditor’s judgment.   

The transfer.  In an effort to enforce her lien, Judgment Creditor brought a claim against Purchaser based on the theory that the former owners had fraudulently conveyed the real estate to a third party (a land trust) about three months following the date of the judgment and several months before the subject sheriff’s sale.  If the former owners - the judgment debtors - fraudulently conveyed the subject real estate to the land trust, could the Court set aside the subsequent transfer to Purchaser? 

Statute of limitations.  The first issue in Hair was whether Judgment Creditor’s claim was time-barred.  The UFTA establishes a statute of limitations “at the later of four years after the transfer was made or one year after the transfer was or could reasonably have been discovered by the claimant.”  I.C. § 32-18-2-19.  Judgment Creditor did not raise the claim until May, 2010, which was more than four years after the November, 2005 conveyance to the land trust and more than one year after the July 2006 recording of the deed to the land trust “which was the date upon which [Judgment Creditor] could have reasonably discovered the transfer.”  The fraudulent conveyance claim was time barred.

BFP defense.  The Court in Hair also noted that a fraudulent conveyance “is a contract for sale or conveyance of property with intent to hinder or delay creditors.”  The UFTA, at I.C. § 32-18-2-18(a), states:

A transfer or an obligation is not voidable under [the UFTA] against a person who took in good faith and for a reasonable equivalent value or against any subsequent transferee or obligee.

Purchaser was a “BFP” (a purchaser in good faith, for valuable consideration, and without notice of the outstanding rights of others) and thus was not subject to avoidance of the transfer of the real estate from the former owners to the land trust.  Purchaser’s title search “did not require inquiry into the legitimacy of the [former owners’] transfer of the property to the land trust.”  Even if the former owners’ transfer was fraudulent and even if Judgment Creditor’s claim was not time-barred, such transfer was not voidable vis-à-vis Purchaser. 

For lenders and other parties seeking to recover debts from individuals or entities that have transferred assets with the intent to avoid collection, Hair reminds us that (1) an Indiana UFTA claim generally must be brought within four years of the transfer or one year from when one could reasonably have discovered the transfer and (2) a claim generally is not enforceable against an innocent purchaser for value. 

Indiana Collection Theories Of Piercing The Corporate Veil, Alter Ego, Successor Liability And Mere Continuation: Part II

This follows-up Part I, from March 29th, dealing with veil piercing from one company to another (alter ego doctrine) in order to recover a debt.  Please click on Part I for introductory information about the subject case, Ziese & Sons v. Boyer.  Today’s post focuses on the second theory of recovery – successor liability. 

Successor liability, generally.  Plaintiff Ziese’s second contention was that defendant Group was liable for Corporation’s debt based upon certain exceptions to the general rule against successor liability, which centers upon the fraudulent sale of assets.  (Although the Ziese opinion did not rely upon Indiana’s Fraudulent Transfer Act, these kinds of cases are very similar to one another.)   Importantly, successor liability “is implicated only when the predecessor corporation no longer exists, such as in the case of dissolution or liquidation in bankruptcy.” 

Indiana’s general rule is that, when one corporation purchases the assets of another, the buyer does not assume the debts or liabilities of the seller.  There are four exceptions:

 1. An implied or express agreement to assume liabilities;
 2. A fraudulent sale of assets done for the purpose of evading liability;
 3. A purchase that is a de facto consolidation or merger; or
 4. Where the purchaser is a mere continuation of the seller.

Ziese focused upon the second and fourth exceptions. 

Exception 2 - fraudulent sale.  Regarding the second exception, Indiana courts look to eight badges of fraud, which are different than the eight badges of fraud applicable to the veil piercing theory discussed in Part I:

 1. The transfer of property by a debtor (defendant) during the pendency of a suit;
 2. A transfer of property that renders the debtor (defendant) insolvent or greatly reduces his estate;
 3. A series of contemporaneous transactions which strip the debtor (defendant) of all property available for execution;
 4. Secret or hurried transactions not in the usual mode of doing business;
 5. Any transaction conducted in a manner differing from customary methods;
 6. A transaction whereby the debtor (defendant) retains benefits over the transferred property;
 7. Little or no consideration in return for the transfer; and
 8. A transfer of property between family members.

Indiana courts examine these badges to determine whether a fraudulent asset sale took place.  In Ziese, the Court concluded that genuine issues of material fact existed as to whether Ziese could recover under this theory.  There was evidence that Group acquired assets of Corporation without giving consideration for them. 

Exception 4 - mere continuation.  The other exception at issue in Ziese was the “mere continuation” (a/k/a "direct continuation") concept that explores “whether the predecessor corporation should be deemed simply to have re-incarnated itself, largely aside of the business operations.”  The focus is upon whether there is a continuation of shareholders, directors and officers into the new corporate entity.  (Remember – successor liability only applies when one entity purchases the assets of another entity.)  After analyzing the evidence in Ziese, the Court held that there were genuine issues of material fact regarding whether Group was a mere continuation of Corporation.  Thus the Court remanded all claims for trial.

The Ziese opinion provides an excellent outline of Indiana law regarding the doctrines applicable to recovering debts owed by one corporation from a separate, yet connected, corporation.  The Court’s analysis is a road map for the proof needed to prevail on these claims or, conversely, to defeat them. 

Fraudulent Transfer Claims Within Post-Judgment Collection Proceedings

Lender (judgment-creditor) obtained a $1+MM judgment against guarantor (judgment-debtor).  Guarantor allegedly transferred millions of dollars to guarantor’s spouse.  Lender, in proceedings supplemental, filed a motion seeking to avoid the transfer and targeted the spouse (garnishee-defendant).  Was a separate cause of action (lawsuit) required?  Did the spouse have a right to a jury trial?  Did the spouse have to file a response to the lender’s motion?  In PNC Bank, 2011 U.S. Dist. LEXIS 99917 (S.D. Ind. 2011) (rt click/save target as for pdf), Magistrate Judge Baker addressed those questions in his report and recommendations, which District Court Judge Pratt subsequently adopted.

General parameters.  In response to the lender’s motion to set aside the alleged fraudulent transfers, the guarantor objected on three grounds.  PNC relied on the Indiana Supreme Court’s decision in Rose v. Mercantile National Bank, about which I wrote on June 29, 2007.  The PNC case noted several basic rules that applied:

 1. A motion to avoid a fraudulent conveyance can be invoked in proceedings supplemental because the claim’s “sole purpose [is] the removal of obstacles which prevent enforcement of a judgment.” 

 2. A garnishee-defendant (third party) can be named for the first time during proceedings supplemental. 

 3. To proceed, the garnishee-defendant must have “property of the judgment-debtor, regardless of whether the judgment-debtor himself could have pursued the garnishee-defendant or whether the garnishee-defendant was a party to the underlying lawsuit.” 

 4. A court need not make a preliminary determination that a garnishee-defendant violated the Fraudulent Transfer Act before requiring the garnishee-defendant to appear.

Objection 1 – new claim?  The first issue in PNC was whether the lender’s fraudulent transfer theory was a “new claim” that warranted the filing of a separate lawsuit. 

 1. Generally, when a judgment-creditor proceeds against a garnishee-defendant, the proceedings merely are a “continuation of the original cause of action, not a new and independent civil action.” 

 2. On the other hand, if a judgment-creditor introduces new claims “unrelated to the enforcement of a judgment,” or if the judgment-creditor “seeks damages greater than the original judgment,” then the judgment-creditor has moved the case outside of proceedings supplemental, and a new cause of action is required. 

3. Although proceedings supplemental can include a fraudulent conveyance claim, the recovery is not for the alleged wrong or for damages.  Rather, “proceedings supplemental seek to continue the original cause of action by enforcing a previously granted judgment.”  If the judgment-creditor is successful, the conveyance remains valid, and the only effect of the judgment is to subject the property to execution “as though it were still in the name of the grantor [judgment-debtor].”  I interpret this to mean that the result is an order subjecting the transferred funds to further judgment execution proceedings (collection).

In PNC, unlike Rose, the lender’s original judgment amount and the amount targeted in its motion were precisely the same.  Accordingly, Indiana law did not require a new cause of action (separate lawsuit). 

Objection 2 – jury trial?  The guarantor also asserted that the law required a new cause of action because the spouse had a right to a jury trial.  Since proceedings supplement derive from equity, they usually should be conducted by the judge.  Nevertheless, jury trials are not completely precluded.  If questions of fact arise as to the claim involving the garnishee-defendant, then the parties may demand a jury trial.  The Court in PNC recognized and preserved the spouse’s right to a jury trial.

Objection 3 – garnishee response required?  In PNC, the lender wanted the Court to compel the spouse to file a written response (an answer) to the lender’s motion.  Once a verified motion triggers proceedings supplemental, pursuant to Trial Rule 69(E) courts shall order garnishees to appear for a hearing or to answer interrogatories, but “no further pleadings shall be required.”  Responsive pleadings are not required unless a new claim arises.  Since there were no new issues of liability as to the spouse in PNC (see Objection 1), the Court did not require the spouse to file a response.   

The upshot of the ruling in PNC was that the Court temporarily denied the lender’s motion pending discovery into whether a factual basis existed for setting aside the disputed transfers.  The proceedings supplemental therefore continued, albeit without a new action against the spouse and without the spouse needing to respond to the motion.  The Court contemplated that the lender would file a renewed motion following limited discovery.  (The case has since been settled.)  

“Negative Value” Dooms Indiana Fraudulent Transfer And Direct Continuation Claims

Not infrequently, a borrower’s loan collateral will fail to fully satisfy a secured debt, particularly after the add-ons of default interest, attorney’s fees and other costs of collection.  In such cases, lenders must choose whether to pursue a recovery of the remaining, unsecured debt from either the borrower or a corporate or individual guarantor.  Sometimes, a pre-loan and post-judgment comparison of financial statements causes lenders to question whether there may have been fraudulent transfers of assets that could be avoided and become a source of recovery.  Guttierrez v. Kennedy, 2010 U.S.Dist. LEXIS 73053 (S.D. Ind. 2010) (.pdf) helps guide a judgment creditor’s decision of whether to incur the time and expense of pursuing suspected fraudulently-transferred assets. 

Fact sensitive.  No two fraudulent transfer/veil piercing cases are alike, and I’ve concluded that a detailed summary of facts in cases like Guttierrez adds little to the overall message.  For more about the assets and relationships at issue, I recommend that you read the opinion. 

Negative value.  The key asset in Guttierrez involved a contract previously held by the judgment debtor that was transferred (assigned) to a related corporate entity.  Indiana’s Uniform Fraudulent Transfer Act (“UFTA”) at Ind. Code § § 32-18-2-1 through 21 permits creditors to obtain avoidance of a fraudulent transfer to the extent needed to satisfy a claim.  Guttierrez specifically touched upon the amount of the potential recovery.  “The creditor may recover the lesser of the amount necessary to satisfy its claim or the value of the transferred asset.”  Valuation is determined at the time of the transfer but can be adjusted “as the equities may require.”  To the extent the asset may generate income from use, the liability of the transferee will be “limited in any event to the net income after the deduction of the expense incurred in earning the income.”  After an examination of the facts in Guttierrez, the Court concluded that the judgment creditor could not recover under the UFTA because the subject contract had negative value after the deduction of the expenses incurred in earning the income. 

Direct continuation.  The judgment creditor in Guttierrez also argued that the corporate assignee of the contract was a “direct continuation” of the judgment debtor and, as such, should be liable for the judgment.  I discussed this type of veil piercing claim on July 28, 2007.  Generally, in Indiana “when a corporation is clearly a direct continuation of the ownership and operations of another corporation, it will be liable to the other corporation’s creditors.”  The corporate entities in Guttierrez operated from the same location and performed the same jobs.  On the other hand, the targeted entity was not created immediately after the threat of judgment against the judgment debtor and indeed preexisted the judgment by twelve years.  Additionally, even though one of the principals of the judgment debtor had a stake in the targeted entity, two of the other principals did not.  Moreover, the judgment creditor did not offer evidence of the important factors of undercapitalization, comingling of personal and corporate assets, or corporate payment of personal obligations.  But the nail in the coffin was the “negative value” of the asset at issue:  “Plaintiffs were not harmed by the transfer because the [contract] turned out to be a losing proposition.”   

No harm, no foul.  From the perspective of judgment creditors, one lesson of Guttierrez is to ensure that the asset being chased is worth chasing.  Guttierrez centered upon the capture of an income-producing asset (a contract) that, on its face, appeared to have significant worth.  But the Court concluded that, after deducting operating/overhead costs, the contract had negative value.  The judgment creditor’s efforts to seize the contract were for naught.  While it may be understandable that a value determination cannot be made before a claim is filed, prompt post-filing discovery and investigation should be undertaken in order to assess what an income-producing asset may be worth.  In Guttierrez, the subject transfers and corporate entities were suspect, but in the end those circumstances didn’t matter because the targeted asset turned out to be a liability. 

BK Trustee Prevails On Indiana Fraudulent Transfer Claims

If you're looking for an illustration of Indiana's fraudulent transfer laws in action, pull out a pen and a notepad, set aside thirty minutes and study Judge Miller's opinion in Boyer v. Crown Stock Distribution, 2009 U.S. LEXIS 12393 (N.D. Ind. 2009) (.pdf).  The February 17, 2009 decision is too involved for me to summarize in a single post, or even two.  Nevertheless, the case is worth mentioning, in this abbreviated fashion, in the event readers are contemplating the pursuit of an Indiana fraudulent transfer claim.

Boyer is a forty-page opinion that dissects a $3.3MM sale of Crown Stock's assets.  Judge Miller, of Indiana's Northern District, affirms the bankruptcy court's October, 2006 decision, which avoided the transaction as fraudulent and required the defendant transferees to return the value of the property transferred.  The opinion discusses Indiana's Uniform Fraudulent Transfer Act (UFTA), including specifically Ind. Code 32-18-2-14 and 15.  The Court's analysis, in part, deals with whether the asset sale should have been treated as a leveraged buyout and collapsed.  In addition, the Court evaluates the good faith transferee defense found in I.C. 32-18-2-18(b).

When (if) you read the opinion, you'll see how fact sensitive the dispute is, as may often be the case with fraudulent transfer claims.  The litigation (a bankruptcy adversary proceeding), which began in March of 2004, resulted in a nine-day trial and an appeal to district court.  Part of the case involved the assessment of expert testimony and related issues.  It's my understanding Judge Miller's ruling is being appealed to the 7th Circuit Court of Appeals.  The case is now in its sixth year.  One of the things that struck me while reading the decision was just how complicated, expensive and time consuming these UFTA matters can be.

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. 

Factual Questions Remain In Indiana Fraudulent Transfer Case

A secured lender’s efforts to collect a debt can from time to time evolve into a cause of action for fraudulent transfer.  As noted by the Indiana Court of Appeals in its May 20, 2008 decision in Hoesman v. Sheffler, 2008 Ind. App. LEXIS 1031 (Ind. Ct. App. 2008), “the purpose of a fraudulent transfer claim is the removal of obstacles which prevent the enforcement of the judgment … [and, if successful,] will subject the [transferred] property to execution….”  For secured lenders, normally a fraudulent transfer claim will come into play, if at all, when a lender is attempting to enforce a deficiency judgment. 

Underlying judgment.  In Hoesman, an individual, acting as a trustee for a family trust, stole about $349,000 from the trust.  The trial court entered a judgment against the trustee for about $288,000, which reflected the total damages recoverable under Indiana law minus, among other things, about $300,000 that the trustee put back into the trust after acquiring money from her parents. 

The allegedly-fraudulent transfer.  The Court’s opinion surrounded the impact of the parents’ payment of the $300,000 that the trustee used to “reimburse” the trust.  The potential problem was that, after the trustee acquired the $300,000, she executed a promissory note to her parents for $300,000, together with a security agreement in which the trustee pledged as collateral for the “loan” several vehicles she owned and a mortgage on her residence.  The trustee also transferred all of her shares in a closely-held S-Corp (a farm) to her parents.  A key question in Hoesman was whether the transfer of the stock and the security interests in the vehicles and the residence should be avoided.  If so, then the plaintiff could satisfy the judgment from those assets.  If not, then the parents’ lien or interests in those assets could shield them from collection.   

Gift vs. loan.  The plaintiff contended the transfer of $300,000 from the parents to the trustee was a gift, for which the trustee incurred no legal obligation.  Arguably, therefore, the subsequent stock transfer and security agreement were not given for consideration (value).  On the other hand, if the $300,000 transfer was a loan, then the stock and security agreement were given to the parents in exchange for value, and the parents were competing creditors of the trustee.  The Court summed-up the issue as follows:  “the [plaintiff’s] success under a fraudulent transfer theory depends upon whether [the trustee’s] transfers to her parents were made (1) for a bona fide and honest debt; (2) in good faith; and (3) free of fraudulent intent. 

Fraudulent intent.  As previously documented in this blog, fraudulent intent in Indiana involves a fact-sensitive question and focuses upon certain “badges of fraud,” which include:

 1. Transfer of property by the debtor during the pendency of a suit;
 2. Transfer of property that renders the debtor insolvent or greatly reduces his estate;
 3. A series of contemporaneous transactions which strip a debtor of all property
  available for execution;
 4. Secret or hurried transactions not in the usual mode of doing business;
 5. Any transaction conducted in a manner differing from customary methods;
 6. A transaction whereby the debtor retains benefits over the transferred property;
 7. Little or no consideration in return for the transfer; and
 8. A transfer of property between family members.

The Court noted that “the existence of several of these badges may warrant an inference of fraudulent intent, but no particular badge constitutes fraudulent intent per se.” 

Questions deferred for trial.  The Court denied summary judgment and concluded that material questions of fact remained as to whether the transfers from the trustee to her parents were made in good faith and free of fraudulent intent:

Here, many of the badges of fraud are arguably present . . ..  However, this is not a typical fraudulent transfer case, as the debtor (the trustee) had received (either by gift or by loan) assets that appear to be worth more than those dissipated, and used the received assets to repay the Trust.  On the other hand [the trustee’s] transfer of assets and grant of security came well after [her] parents transferred funds to [her].  If the [plaintiff’s] theory that the transfer of funds was a gift is correct, the subsequent transfers and grant of security could be found fraudulent. 

The case thus must go to trial to examine and weigh the disputed facts.  For more on the elements of a fraudulent claim, please click on the .pdf of the Hoesman opinion, and you can also click on these two statutes – Ind. Code § 32-18-2-14 and § 32-18-2-18 – upon which the plaintiff in Hoesman relied.  These are sections from the Uniform Fraudulent Transfer Act.   

Lookout.  When you’re struggling with a judgment debtor (borrower or guarantor) on the hook for a deficiency judgment, be on the lookout for suspect asset transfers and funny business between family members.  The eight badges of fraud outlined above are a good place to start when analyzing the viability of a fraudulent transfer claim.     


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.