A “fraudulent conveyance” occurs when a debtor tries to avoid paying an unsecured debt by transferring property to another entity or person if the property is at risk of being seized by a creditor. In a Georgia appellate decision, a defendant LLLP appealed the lower court’s granting of an LLC’s motion asking to be substituted for the plaintiff in the lawsuit, as well as its motion for summary judgment denial. The defendant LLLP argued that the lower court had made a mistake in finding that the LLC had standing to recover under the Uniform Fraudulent Transfer Act (“UFTA”) claim.
The case arose in a trial of a different lawsuit. In that case, the court ordered the estate should specifically perform to buy the LLC’s stock from shareholders. A few months later the shareholders sued the estate, the LLLP and others asserting UFTA claims and asking for damages for fraudulent conveyances.
The plaintiffs claimed that a couple had created the LLLP in 2010 in order to transfer $5 million to the company with the goal of defrauding creditors. The couple asked for damages, including satisfaction of the $1.2 million judgment they’d been awarded. The plaintiffs argued that the UFTA allowed voiding of those transfers since they were made in order to defraud, delay or hinder the estate’s creditors (such as the plaintiff).
About a year later, the plaintiff’s assignee asked to be substituted as the plaintiff. The assignee asked for an order stopping the LLLP and other defendants from further transferring or encumbering the property at issue and from diluting its interest. The assignee claimed that after the original plaintiff started the suit, the plaintiff assigned to it their rights to collect on the $1.2 million judgment.
The LLLP argued that the assignee didn’t have standing to pursue the UFTA claim. It also moved for summary judgment, claiming the original plaintiffs weren’t creditors because their interests had been assigned. It also argued that the claims were not assignable. The appellate court agreed. The court explained that in an earlier case, it had been asked to determine whether, under OCGA § 44-12-24 and a Supreme Court holding, someone assigned a debt has standing to claim a debtor’s fraudulent conveyance. The UFTA’s plain language suggests that someone assigned a debt would usually qualify as a creditor, but nothing in the UFTA explicitly addresses this type of assignment. However, certain claims cannot be assigned. The appellate court presumed that assignments weren’t allowed under the UFTA, which said nothing on the question of whether fraudulent transfer claims could be assigned.
In this case, the assignee argued that amendments to the UFTA, not the UFTA itself, applied to the instant matter. The fraudulent transfers happened before July 1, 2015, which was the date the amendments became effective. The fraudulent transfer claim wasn’t assigned until October 2015. The Supreme Court’s holding in the earlier case had held that the amendments only applied to obligations and transfers that happened on or after July 1, 2015, and right of actions accruing after that.
The appellate court explained that it was undisputed that the original creditors who sued didn’t have a claim under the amendments that could have been automatically assigned to the assignee. Accepting the assignee’s arguments would have required the court to overrule its prior construction of the amendments. It found that the lower court erred in finding the assignee had standing to pursue the UFTA claim. The judgment was reversed.
Whether you are preparing to launch a commercial litigation action or defend against one, or you are a judgment creditor seeking to collect, the experienced Atlanta collections attorneys at Poole Huffman, LLC are here to help. Put the power of our attorneys’ skills and experience to work for you. Contact us online or by calling 404-373-4008 to schedule your confidential consultation.
More blog posts:
New Garnishment Ruling: What You Should Know, Atlanta Business Litigation Attorneys Blog, Sept. 29, 2015
How Procedural Errors Can Derail Your Judgment Collection Activity in Georgia, Atlanta Business Litigation Attorneys Blog, July, 2018
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