ASSET PROTECTION - Liability for Asset Protection
Attorney Liability
Many attorneys are
reticent about asset protection work because they fear exposing
themselves to personal liability for assisting their clients’
transfer of assets to avoid exposure creditor claims. Florida’s
fraudulent conveyance statutes do not specifically address liability
of third parties, including a debtor’s attorney, who advise
and assist the debtor with a transfer or conversion which is
subsequently deemed a fraudulent transfer or conversion. Until
recently, no Florida appellate court has addressed the issue
whether a cause of action exists against an attorney, as well
as other third parties for assisting a fraudulent asset transfer
or fraudulent conversion pursuant to §222.30 or §726.101
of the Florida Statutes.
Three Florida cases decided in 2003 in different appellate districts
have addressed this issue. The first decided case, BankFirst
v. Paine Webber, et al., 842 So 2d. 155 (Fla. 5th DCA,
2003) involved a debtor who had personally guaranteed a corporate
debt of an insolvent corporation. After the corporation became
insolvent, the debtor with the help of his UBS Paine Webber
financial advisor and his attorney adopted an asset protection
plan in which debtor transferred non-exempt assets to a domestic
limited liability company whose shares were owned by an offshore
trust sited in the Bahamas.
The Fifth Circuit’s holding is short, yet clear and powerful,
consisting of only one sentence:
“The order dismissing BankFirst’s claim against
USB Paine Webber, et al. is affirmed based on our conclusion
that neither §222.30 nor Chapter 726, Florida Statutes,
creates a cause of action against a party who allegedly assisted
a debtor in a fraudulent conveyance or transfer of property,
where the person does not come into possession of the property.”
The Fifth DCA’s holding protects debtors’ attorneys,
financial advisors, accountants, and any other party whether
or not an agent of the debtor, for any involvement in aid of
the fraudulent conveyance short of actually possessing the transferred
property.
A second case, Danzas Taiwan, Ltd. v. Freeman, (fn-
2003 WL 2107584, May 14, 2003), involved an allegation that
a Taiwanese freight forwarder engaged in a conspiracy to commit
fraudulent transfers. The creditor advanced the theory that
there was personal jurisdiction over Danzas Taiwan because the
company had committed a tortuous act in Florida, specifically
its facilitation of a fraudulent conveyance. The Third DCA cited
the Fifth DCA’s BankFirst ruling and agreed that
there is not cause of action against one who assist a debtor
in a fraudulent conveyance. It concluded that because there
was no cause of action possible against Danzas Taiwan for conspiracy,
there was not possible allegation that the company committed
a tortuous act that would subject it to the Court’s jurisdiction.
The Third DCA also cited its own previous ruling issued in March,
2003 in Beta Real Corporation v. Graham.( 839 So. 2d
890 Fla Dist.3 2003). The defendant debtor allegedly conveyed
$1.4 million of cash into the Florida bank account of Beta Real
Corporation, a British Virgin Islands company. The Third DCA
decided that receiving property fraudulently transferred by
a debtor is not a tortuous act citing many decisions of both
state and federal courts which have held that a fraudulent conveyance
is not an intentional tort.
In May 2003, the Eleventh Circuit Court of Appeals certified
to the Florida Supreme Court the question of whether, under
Florida's Uniform Fraudulent Transfer Act (or FUFTA) there is
a cause of action for aiding and abetting a fraudulent transfer
when the alleged aider-abettor is not a transferee. The
Supreme Court's unanimous answer in Lewis B. Freeman, etc.
et al., v. First Union National Bank (decided January 29,
2004) was an unqualified "No." After considering
legislative intent, the Supreme Court stated, "There is
simply no language in FUFTA that suggests the creation of a
distinct cause of action for aiding-abetting claims against
non-transferees. Rather, it appears that FUFTA was intended
to codify an existing but imprecise system whereby transfers
that were intended to defraud creditors were to be set aside."
The Court further stated, "Consistent with this analysis
we conclude that FUFTA was not intended to serve as a vehicle
by which a creditor may bring a suit against a non-transferee
party's alleged aiding and abetting of a fraudulent money transfer."
This unanimous decision
impacts all attorneys, accountants, bankers, and any other person
who provides services to people transferring their assets.
Freeman v. First Union is another milestone in the
ongoing balancing of creditor remedies and debtors rights under
Florida law.
