Not everything a potential judgment debtor does constitutes a fraudulent transfer to avoid anticipated collection efforts from a judgment creditor. This does not mean arguments cannot and should not be made. It just means that just because a potential judgment debtor does something does not automatically translate into a fraudulent transfer.
In a recent post-judgment collection case, Villamizar v. Luna Capital Partners, LLC, LLC, 43 Fla.L.Weekly D2395a (Fla. 3d DCA 2018), a plaintiff (judgment creditor) recovered a judgment against a defendant on unsecured promissory notes (i.e., the notes were not secured by any mortgage). During the underlying lawsuit, the defendant sold condominium units to a bulk buyer for approximately $13 Million. Although the defendant and buyer shared a similar name, they were unrelated parties, and there was no evidence that they were related parties. Thereafter, the plaintiff recovered a judgment against the defendant and, through post-judgment collection efforts, sued the new buyer arguing that the bulk sale of condominium units was a fraudulent transfer.
The plaintiff (judgment creditor) first argued that the new buyer had some duty to the plaintiff simply because it knew that the plaintiff was suing the defendant / seller of the units on unsecured promissory notes. The appellate court, affirming the trial court, dismissed this argument, as it should:
Luna Capital’s [buyer of units] awareness that Mr. Nieto [plaintiff / judgment creditor] was suing the seller, Luna Developments [defendant / seller of units], on unsecured indebtedness that had not yet been reduced to judgment, did not create a legal duty on Luna Capital’s part. This is so because there is nothing in this record to suggest that Luna Capital was partially or totally controlled by Luna Developments at the time of the sale, or that these entities were under common control, or that they were anything other than a buyer and seller dealing at arm’s length.
Luna Capital’s alleged knowledge of Luna Development’s debts did not impose a legal duty on Luna Capital’s part to assure that specific unsecured creditors of Luna Development were paid. Luna Capital naturally assured that all liens against the condominium units were paid from the proceeds and satisfied of record, but payment of an unsecured claim in a lawsuit pending trial is not such a matter.
Buyers may insist (by contract) on escrows to cover claims-in-process “which, if successful” might become a judgment lien after the closing, but an arm’s length buyer at a fair market price is not under a legal duty to do so for the protection of such claimants.
The plaintiff / judgment creditor next argued that the property was not sold for reasonably equivalent value. However, the plaintiff did not even retain an expert appraiser to support this argument, rendering this theory speculative from the get-go. The appellate court, affirming the trial court, dismissed this argument too, as it should:
Mr. Nieto’s [plaintiff / judgment creditor] affiant [attorney expert] provided a back-of-the-envelope computation questioning whether the per-unit price was below market. Unsubstantiated “guesstimates” of what inflation might have done to values, or what appreciation or depreciation might have been expected during the period Luna Developments [judgment debtor] owned the property, create no genuine issue as against the competent, substantial evidence of an actual arm’s length sale between “a purchaser willing but not obliged to buy” and “one willing but not obliged to sell.”
Mr. Nieto did not file an appraisal or other evidence probative of actual market value of the condominium units as of the July 2015 sale.
The reality is that the defendant / judgment debtor sold condominium units prior to the plaintiff / judgment creditor obtaining a final judgment on unsecured promissory notes. There was no evidence that the buyer was merely a straw party or that the sale was intended to delay, hinder, or defraud the defendant’s creditors, such as the plaintiff. And, on top of that, there was nothing to suggest that the sale was not at fair market value or reasonably equivalent value such that the transaction was really not an arm’s length transaction.
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