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Court of Appeals Limits Damage Claims in Fraudulent Transfer Cases – Glass & Goldberg | Financing, Property & Bankruptcy Law
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Court of Appeals Limits Damage Claims in Fraudulent Transfer Cases

If a plaintiff wins a monetary judgment against a defendant who subsequently turns around and conveys some of his or her assets to a third party so the plaintiff – now a judgment creditor – will not be able to reach the defendant’s (or judgment debtor’s) assets, the judgment creditor faces a difficult obstacle: how to collect the funds due under the judgment. The Uniform Fraudulent Transfer Act (“UFTA”) provides judgment creditors with the recourse to seek any compensation from those parties to whom assets were transferred or who benefited from such transfers. There remained ambiguity as to whether the UFTA would permit a judgment creditor to seek compensation strictly from transferees or whether it also allowed the plaintiff to obtain a second judgment against the original defendant as the defendant (or judgment debtor) could be deemed to have unfairly benefitted by getting rid of the assets which the judgment creditor could otherwise legally try to collect. For the first time, in the case of Renda v. Nevarez, D063075 (4th Dist. CA Ct. of App. 2nd Div. 2014), a California appellate court has affirmed a trial court’s decision to limit the UFTA’s scope to the transferees.

In this case, Mr. Renda secured a judgment of $817,429.55 against Ms. Nevarez. After Nevarez failed to pay the judgment, Renda learned she conveyed many of her assets to certain sham entities. He proceeded to sue those entities, including other individuals as well as Ms. Nevarez under the authority of the UFTA claiming the other defendants were transferees of fraudulently conveyed assets and Nevarez herself received the benefits of transferring these funds as they could not be collected from her as satisfaction of the judgment in the first case.  He relied on the particular express language of the UFTA statute which reads,” The creditor “”may recover judgment for the value of the asset transferred . . . or the amount necessary to satisfy the creditor’s claim, whichever is less,” and the judgment may be entered against “[t]he first transferee of the asset or the person for whose benefit the transfer was made.” (§ 3439.08, subd. (b)(1).) Renda contended that the phrase “for whose benefit the transfer was made” could refer to Nevarez not just the transferees.

Both the trial court and the Court of Appeals rejected that argument on the primary ground that allowing a second judgment against Nevarez would constitute a double recovery. The appellate court emphasized that, in applying the language of the UFTA, the trial court should consider whether it would be equitable to permit a second judgment against Nevarez. In this case of first impression for the state of California, the Court of Appeals found that these principles of equity properly support the decision of the trial court to limit recovery in this second suit to the transferees who now have judgments against them to the extent of the amount of funds transferred to them by Ms. Nevarez. Mr. Renda could not get a second judgment against Nevarez under the UFTA.

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