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.

Villamizar, supra.

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.

Villamizar, supra

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.

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

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Arbitration is a creature of contract.  This means if you are going to arbitrate a dispute, as opposed to litigating a dispute, there must be an agreement to arbitrate.  However, whether a dispute should be arbitrated pursuant to the terms of the contract is an area that has been heavily litigated for a couple of reasons: 1) a party does not want to arbitrate the dispute and, therefore, files a lawsuit versus a demand for arbitration and 2) an opposing party that has been sued wants to enforce an arbitration provision in a contract.  As a result, an order granting or denying arbitration is an appealable non-final order. 

In a recent construction dispute between a general contractor and its millwork subcontractor, National Millwork, Inc. v. ANF Group, Inc., 43 Fla.L.Weekly D2207a (Fla. 4^th DCA 2018), the subcontractor filed a lawsuit against the general contractor and the general contractor’s payment bond.  The general contractor moved to stay the litigation and compel arbitration pursuant to the arbitration provision in the subcontract.  The subcontractor argued that the arbitration provision was unenforceable, and, therefore, void, because it expanded the scope of judicial review after an arbitrator renders an arbitration award contrary to the Revised Florida Arbitration Code in Florida Statutes Chapter 682 (and, specifically, Florida Statute s. 682.014). 

The arbitration clause in the subcontract empowered the court to address on judicial review any failure by the arbitrator to properly apply the law and if the court or arbitrator failed to properly apply the law then this was subject to appellate review. 

This clause was creating an appellate basis to challenge an arbitration award based on a party’s position that the arbitrator did not correctly apply the law.  However, challenging an arbitrator’s award is very limited to discrete statutory circumstances and a party’s position that the arbitrator did not correctly apply the law is not one of them.   For this reason, the millwork subcontractor claimed the arbitration provision is void against public policy because it expanded the statutory circumstances to challenge an arbitration award set forth in the Revised Florida Arbitration Code.  The appellate court agreed: “A party may not expand the scope of judicial review of an arbitration agreement.”  National Millwork Inc., supra. 

The contract had a severability clause, an important clause in contracts.  Based on the severability clause, the appellate court remanded the issue back to the trial court to determine whether the unenforceable language in the arbitration clause that expanded judicial review of an arbitrator’s award could be severed from the clause such that the parties are still required to arbitrate without the expanded judicial review.   In other words, the appellate court wanted the trial court to determine whether severing the unenforceable language would still retain the essence of the arbitration clause or whether the entire clause was unenforceable because the offending language was integral to the agreement to arbitrate.  See National Millwork, Inc. supra, citing Obolensky v. Chatsworth at Wellington Green, LLC, 240 So.3d 6 (Fla. 4^th DCA 2018).

It would seem that the offending language expanding the scope of judicial review of an arbitration award could be, and should be, severed.  This is the value and point of a severability clause in a contract.  It is uncertain why the appellate court did not make this ruling instead of remanding the matter back to the trial court which could lead to a further appeal.  Severing the offensive language still requires the parties to arbitrate, which is the basis of the arbitration clause, but without the appellate recourse / judicial review of a party challenging the arbitrator’s award based on an incorrect application of law. 

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

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What is a spoliation of evidence claim? Let’s find out…

The recent decision in Amerisure Insurance Company v. Rodriguez, 43 Fla.L.Weekly D2225b (Fla. 3d DCA 2018) involved a case where an employee was injured. While he was collecting worker’s compensation benefits, he sued the the party responsible for his injuries in a premise liability (negligence) claim. He learned that his employer and its worker’s compensation insurer lost a copy of a videotape of his accident. He claimed the video would help prove his premise liability claim. For this reason, he also sued the insurer and his employer for spoliation of evidence—that these third-parties negligently destroyed evidence impacting his ability to prove his premise liability claim. The trial court ordered this trial to occur at the same time as his premise liability trial. A petition for writ of certiorari was taken.

Distinction between First-Party and Third-Party Spoliation Claim

The appellate court first distinguished a first-party spoliation claim with a third-party spoliation claim, with the underlying case being the latter since it involved the plaintiff suing a third-party for spoiling evidence applicable to his premise liability claim:

“First-party spoliation claims are claims in which the defendant who allegedly lost, misplaced, or destroyed the evidence was also a tortfeasor in causing the plaintiff’s injuries or damages.” In contrast, third-party spoliation claims “occur when a person or an entity, though not a party to the underlying action causing the plaintiff’s injuries or damages, lost, misplaced, or destroyed evidence critical to that action.” . The Florida Supreme Court has held that no independent cause of action for spoliation will lie against a first-party tortfeasor. Instead, spoliation in that context should be addressed by the trial court imposing sanctions and presumptions. Here, we are dealing with a classic third-party spoliation claim.

Amerisure Insurance Co., supra (internal citations omitted).

Timing of Third-Party Spoliation Claim

When it comes to third-party spoliation claims, the appellate court held it was premature for the spoliation claim to continue while the underlying premise liability (negligence claim) had not been resolved. Hence, the third-party spoliation claim should be dismissed or abated / stayed until the underlying claim is resolved. Notably, however, the appellate court refrained from deciding whether this applies in the products liability context based on older, questionable legal authority.

If you’re taking legal action against a third party in Georgia, you may want to get legal help from someone like The Millar Law Firm. You can see more at atlantaadvocate.com with their article on third party negligence in a spinal cord injury case.

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

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