In A Matter Of First Impression In Indiana, Court Of Appeals Upholds Award Of Punitive Damages In Fraudulent Transfer Action
May 03, 2024
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Punitive damages in Indiana “are a creature of common law,” and the UFTA at I.C. § 32-18-2-20 states that “unless superseded by this chapter, the principles of law and equity .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.
- Indiana Court Of Appeals Reverses Fraudulent Transfer Judgment And Remands For Remedy Determination
- Judgment Creditor Entitled To Recover Entire Value Of Real Estate Fraudulently Conveyed
__________
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.