MIAMI BUSINESS LITIGATION: FRAUDULENT TRANSFER REMEDIES

If a creditor files a claim of fraudulent transfer against a debtor, the creditor has several options for remedies. The remedies available include injunctions, avoidance, attachment, appointment of a receiver, and potentially, money damages. These remedies are articulated in section 726.108, Florida Statutes. Peter Mavrick is a Miami business litigation attorney, and represents clients in Fort Lauderdale, Boca Raton, and Palm Beach. 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 litigation, and other legal disputes in federal and state courts and in arbitration.

Avoidance of the transfer is unique remedy that annuls or voids the fraudulent transfer. See Smith v. Effective Teleservices, Inc., 133 So. 3d 1048 (Fla. 4th DCA 2014) (stating that a fraudulent transfer is “voidable at the instance of a creditor.”). The remedy is not often litigated in the context of strict creditor claims outside the bankruptcy context given the small number of state court legal authorities addressing the issue.

Attachment is the seizing of the fraudulently transferred property. A creditor seeking to attach the property must demonstrate the same criteria needed for an injunction. Therefore, the creditor must prove (1) irreparable harm, (2) a clear legal right, i.e., a substantial likelihood of success on the merits at trial, (3) an inadequate remedy at law, and (4) the injunction serves the public interest. Weinstein v. Aisenberg, 758 So. 2d 705 (Fla. 4th DCA 2000).

As a practical matter, it may be easier to seek and obtain money damages rather than pursuing the equitable remedies permitted under 726.108, Florida Statutes because the creditor does not need to locate the assets in question and prevent their escape or waste. Section 726.109, Florida Statutes expressly permits a creditor to pursue a money judgment against the recipient of a fraudulently transferred asset. The creditor may even be required to pursue money damages rather than the other equitable remedies discussed above under certain circumstances. For example, in Weinstein v. Aisenberg, 758 So. 2d 705 (Fla. 4th DCA 2000), the court refused to grant the creditor’s application for attachment of bank funds because the creditor already had an adequate remedy at law, money damages. “Even where the party seeking [attachment] alleges that the [transferee] may dissipate bank assets, a judgment for money damages is adequate and injunctive relief is improper, notwithstanding the possibility that a money judgment will be uncollectible.”

A creditor seeking to recover money damages associated with a fraudulent transfer can recover the lesser of (1) the value of the asset fraudulently transferred or (2) the amount necessary to satisfy the creditor’s claim. Fla. Stat. § 726.109. The cap on recovery prevents a creditor windfall because it prevents a creditor from obtaining a recovery that exceeds his pre-existing judgment. See Stavrou v. Destination Boat Clubs, Inc., 226 So. 3d 293 (Fla. 2d DCA 2017) (A “judgment should not be entered against a garnishee in excess of the unpaid amount on the judgment against a garnishment defendant or in excess of the garnishee’s liability to the garnishment defendant.”) (internal quotations omitted).

A creditor may also be able to obtain a money judgement against the transferor of the fraudulently transferred asset under the catchall provision in section 726.108. The catchall states that a court can grant “any other relief the circumstances may require.” Two decisions indicate this provision is broad enough to include money judgments against a transferor. Hansard Const Corp. v. Rite Aid of Fl., 783 So. 2d 307 (Fla. 4th DCA 2001); McCalla v. E.C. Kenyon Const. Co., Inc., 183 So. 3d 1192 (1st DCA 2016). In fact, the First District Court of Appeals stated that damages are available against a transferor and transferee jointly and severally. McCalla, 183 So. 3d 1192. In other words, the transferor and the transferee may jointly share in liability to the creditor.

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