FORT LAUDERDALE BUSINESS LITIGATION: FRAUDULENT TRANSFER LIABILITY

When a debtor fraudulently transfers assets to a third party to avoid paying a debt owed to a creditor, the creditor can pursue legal relief by filing a fraudulent transfer claim. But this begs the question – who can a creditor sue in a fraudulent transfer lawsuit to recover monies owed by the debtor? Is the creditor limited to suing the debtor, or can the creditor sue third-party recipients of the fraudulently transferred assets? This article explores those options. Peter Mavrick is a Fort Lauderdale business litigation attorney. The Mavrick Law Firm represents businesses and their owners in breach of contract litigation and related claims of fraud, non-compete agreement litigation, trade secret litigation, trademark infringement litigation, employment law, and other legal disputes in federal and state courts and in arbitration.

A fraudulent transfer plaintiff has several options when determining who to sue to recover its debt. The plaintiff can sue the person transferring the assert, the recipient of the transferred asset (known as the transferee), and all subsequent asset transferees. Edwards v. Airline Support Group, 138 So. 3d 1209 (Fla. 4th DCA 2014); Fla. Stat. § 726.109. If the transferee is a business, a fraudulent transfer plaintiff can also sue the owner or officer of that business in his or her personal capacity.

Fraudulent transfer claims are usually brought against the transferee because the plaintiff knows the transferee has an asset of value that may fully or partially satisfy the debt owed. However, a fraudulent transfer plaintiff could likely assert a lawsuit against the asset transferor too. The fraudulent transfer statute contains a catchall remedy allowing a court to grant “other relief that the circumstances may require.” The Florida Fourth District Court of Appeals and First District Court of Appeals have stated that this catchall remedy allows a fraudulent transfer plaintiff to assert a claim for money damages against the asset transferor. Hansard Const. Corp. v. Rite Aid of Florida, Inc., 783 So. 2d 307 (Fla. 4th DCA 2001); McCalla v. E.C. Kenyon Const. Co., Inc., 183 So. 3d 1192 (Fla. 1st DCA 2016).

Business owners and officers could also be susceptible to personal liability in a fraudulent transfer case. Businesses make decisions through the persons operating the business. If those persons decide to fraudulently transfer assets to a third party to hinder a creditor claim or decide receive fraudulently transferred assets, they could open themselves up to personal liability. According to Balsamo v. Gruppo Ceramiche Ricchetti, 862 So. 2d 812 (Fla. 4th DCA 2003), a creditor can obtain a judgment against company officers or shareholders in a fraudulent transfer lawsuit if the creditor establishes that the company’s corporate veil should be pierced. Veil piercing is not unique to fraudulent transfer claims and can be used to impose liability on owners and officers of a business in a number of contexts. A creditor can pierce a company’s corporate veil and hold its owners and officers liable for the acts of the corporation when the corporation was dominated by shareholders, the corporation was used fraudulently or for an improper purpose, and the plaintiff was injured. Philip Morris USA, Inc. v. Rintoul, 342 So. 3d 656 (Fla. 4th DCA 2022). Case law indicates a company is used fraudulently or for an improper purpose when it acts as a subterfuge to mislead or defraud creditors. See Lipsig v. Ramlawi, 760 So. 2d 170 (Fla. 3d DCA 2000). Therefore, as long as the other two veil piercing prongs are satisfied, the creditor may have a claim against a company’s owners or officers (as well as the company itself) for fraudulent transfer if the company fraudulently transferred an asset or accepted a fraudulently transferred asset.

Peter Mavrick is a Fort Lauderdale business litigation lawyer, and represents clients in Miami, Boca Raton, and Palm Beach. This article does not serve as a substitute for legal advice tailored to a particular situation.