A debtor can transfer assets to a non-debtor at any time including after a creditor has filed a lawsuit and even after the court has awarded a money judgment against the debtor. Such late asset transfers can be challenged as fraudulent conveyances.
The creditor remedies for a debtor’s fraudulent conveyance statute are provided by section 726.108 of the Florida Statutes:
(a) Avoidance of the transfer or obligation to the extent necessary to satisfy the creditor’s claim;
(b) An attachment or other provisional remedy against the asset transferred or other property of the transferee in accordance with applicable law;
(c) Subject to applicable principles of equity and in accordance with applicable rules of civil procedure:726.108, Fla. Stat.
–1. An injunction against further disposition by the debtor or a transferee, or both, of the asset transferred or of other property;
–2. Appointment of a receiver to take charge of the asset transferred or of other property of the transferee; or
–3. Any other relief the circumstances may require.(2) If a creditor has obtained a judgment on a claim against the debtor, the creditor, if the court so orders, may levy execution on the asset transferred or its proceeds.
Most often, the creditor seeks either to reverse the conveyances and place the asset back in the debtor’s name or to get a money judgment against the non-debtor transferee (the recipient of the asset) in the amount of the transferred asset’s value.
The statute provides other possible equitable remedies, including injunctions and receivership. The statute also includes the broadly worded remedy of “any other relief the circumstances may require.” This remedy is referred to as the “catch-all” remedy.
Why a Creditor Might Seek Monetary Damages for a Fraudulent Conveyance
Fraudulent transfers often frustrate judgment creditors. Not only does the fraudulent transfer prevent satisfaction of the judgment, but the creditor must spend time and significant attorney’s fees going through the procedural steps to assert fraudulent transfer remedies.
Creditors understandably believe that the court should penalize debtors who engage in blatant fraudulent conveyances in an obvious effort to evade money judgments.
Court Says No Monetary Damages Allowed
A court in one recent case addressed the issue of whether a creditor can be awarded monetary damages for a debtor’s frauldent conveyance: SE Property Holdings, LLC. vs. Neverve, LLC.
In that case, a creditor asked a federal court to sanction a debtor for fraudulent transfers by awarding recovery of attorney fees and imposing punitive damages. The creditor argued that adding these awards to the underlying money judgment is warranted under the “catch-all” provision of the fraudulent conveyance statute.
The federal court found that Florida’s fraudulent transfer statute does not permit awards of attorney fees or punitive damages no matter how egregious the debtor’s fraudulent transfer.
Citing a Florida Supreme Court decision, Freeman vs. First Union National Bank, the court said that fraudulent transfer actions do not permit additional money damages against the debtor for any reason. Instead, the “catch-all” provision of the statute was merely intended to facilitate the use of the other statutory remedies rather than to create an opportunity to add remedies such as punitive damages and attorneys fees.
As a result, Florida law does not permit a judgment creditor to recover its attorney’s fees incurred in pursuing a fraudulent transfer remedy, and the law does not permit a creditor to penalize the transferor debtor with punitive damages.