Attorney Liability for Assisting Fraudulent Transfers in Florida

An attorney who provides legal advice and prepares documents for a transfer that is later found to be fraudulent is not liable to creditors under Florida’s fraudulent transfer statute. The Florida Supreme Court settled this in Freeman v. First Union National Bank, 865 So. 2d 1272 (Fla. 2004), holding unanimously that the statute creates no cause of action against non-transferees, including attorneys, accountants, bankers, and financial advisors.

That protection ends when an attorney gains control of the assets. Taking title to transferred property, or deciding which checks leave a trust account, exposes the attorney to civil liability as a transferee and to disciplinary sanctions.

The Freeman v. First Union Decision

The Eleventh Circuit Court of Appeals certified a question to the Florida Supreme Court: does Florida law recognize a cause of action for aiding and abetting a fraudulent transfer when the alleged aider-abettor is not a transferee? The case involved a court-appointed receiver who sued First Union National Bank for allowing a company called Unique Gems to wire millions of dollars to Liechtenstein while a Ponzi scheme enforcement action was pending. The receiver argued that the bank aided and abetted the fraudulent transfers by continuing to process wire transfers after the state filed its lawsuit.

The Florida Supreme Court’s answer was no. The court held that Florida’s Uniform Fraudulent Transfer Act is an equitable creditor’s remedy, not a tort. The statute authorizes courts to set aside transfers and restore property to the debtor’s estate. It does not create independent causes of action for damages against people who were not transferees. The court examined the catch-all remedy provision in section 726.108(1)(c)3., which allows “any other relief the circumstances may require,” and concluded that this language helps carry out the statute’s listed remedies rather than creating new theories of liability.

Three Florida appellate decisions had reached the same conclusion in 2003. In BankFirst v. UBS Paine Webber, Inc., the Fifth District affirmed the dismissal of a civil conspiracy claim against a debtor’s lawyers and financial advisors. The court held that neither the fraudulent transfer statute nor the asset-conversion statute creates a cause of action against someone who assists a transfer but never comes into possession of the property. The Third District applied the rule in Danzas Taiwan, Ltd. v. Freeman, directing dismissal of claims against a freight forwarder paid to move assets it never received.

The third, Beta Real v. Lawrence Graham (Fla. 3d DCA 2003), marks the jurisdictional boundary. Receiving a fraudulent transfer is not a tortious act under Florida’s long-arm statute, so a Florida court has no personal jurisdiction over an out-of-state transferee on that ground. The transferred property can still be reached through a constructive trust or an equitable lien.

In Yusem v. South Florida Water Management District, 770 So. 2d 746 (Fla. 4th DCA 2000), the Fourth District defined a fraudulent conveyance action as a creditor’s equitable remedy limited to setting aside transfers or recovering assets from transferees.

Why Florida’s Fraudulent Transfer Statute Creates No Tort Liability

A fraudulent transfer under Florida’s statute is not common law fraud. Common law fraud requires intentional misrepresentation, reliance by the victim, and damages. A fraudulent transfer involves no misrepresentation to the creditor and causes no independent harm. The creditor’s loss comes from the underlying debt. The transfer makes collection harder, but it does not increase what the debtor owes.

That distinction removes the foundation for aiding and abetting, civil conspiracy, and other third-party theories, each of which requires an underlying tort. In Beck v. Prupis, 529 U.S. 494 (2000), the U.S. Supreme Court described the settled common-law rule that a civil conspiracy plaintiff must have been injured by an act that was itself tortious.

But Freeman itself ruled only on the statutory question: footnote 4 confines the answer to the fraudulent transfer statute and declines to address other theories of liability. No Florida appellate court has since decided whether a common-law conspiracy claim can reach an advisor who assisted a transfer. Other states have answered that question, in both directions.

The Ninth Circuit reached the same result decades earlier in Elliott v. Glushon, 390 F.2d 514 (9th Cir. 1967). A bankruptcy trustee sued an attorney who had served as counsel and escrow holder in transfers the trustee alleged were fraudulent but who never received any of the assets. The court held that recovery ran only against people who received the property. The Bankruptcy Act declared a fraudulent transfer void and let the trustee reclaim the property or collect its value; it said nothing about damages.

The Conduit Theory

Attorneys are protected from aiding-and-abetting claims, but they face potential transferee liability if they handle funds during a fraudulent transfer. The Eleventh Circuit addressed this in a 2010 decision involving an attorney who received money from a debtor and deposited it into his law firm trust account. After a creditor obtained a judgment, the attorney disbursed funds to third parties and used a portion to pay his own legal fees. When the debtor filed bankruptcy, the trustee argued the attorney was liable as a transferee.

The bankruptcy court held the attorney was not an initial transferee because he never had dominion and control over the funds. The Eleventh Circuit reversed in Martinez v. Hutton (In re Harwell), 628 F.3d 1312 (11th Cir. 2010), holding that a party claiming mere-conduit status must also prove it acted in good faith as an innocent participant. It made no control finding and sent the case back for the bankruptcy court to decide control and good faith. That court then ruled against the lawyer on good faith.

Providing legal advice and preparing transfer documents does not create transferee liability. Section 550(a)(1) still makes the first recipient of the money the initial transferee, so a lawyer whose trust account receives it escapes only by proving both lack of control and good faith. The Eleventh Circuit added that in the vast majority of cases a lawyer’s trust account works like a bank transfer, and intermediaries have no duty to investigate the transferor.

Ethical Rules and “Fraudulent” Transfers

Florida Rule of Professional Conduct 4-1.2(d) prohibits a lawyer from counseling or assisting a person the lawyer represents in conduct the lawyer knows or reasonably should know is criminal or fraudulent. The word “fraudulent” in the ethics rules means something different from its use in Florida’s fraudulent transfer statute. The ethics rules use “fraud” for conduct that has a purpose to deceive, and they exclude merely negligent misrepresentation.

A transfer can be fraudulent under Florida’s statute without any deception. Its constructive branch turns on what the debtor received in exchange and on the debtor’s finances at the time. Even where a creditor proves the debtor meant to hinder, delay, or defraud, the statute requires no misrepresentation and no creditor who relied on one. A lawyer who advises on a transfer that is later unwound has not, for that reason alone, assisted fraud within the meaning of the ethics rules.

The rule’s commentary permits analyzing the legal aspects of questionable conduct but not recommending how a fraud could be committed with impunity. A lawyer may not draft or deliver documents the lawyer knows are fraudulent, or suggest how wrongdoing might be concealed. The rule still allows a lawyer to discuss the legal consequences of a proposed action and to help someone make a good faith effort to determine what the law means.

The Florida Bar has disciplined attorneys who took the property themselves. In Florida Bar v. Scott, 566 So. 2d 765 (Fla. 1990), an attorney was suspended for 91 days after accepting three conveyances from a friend who wanted the property beyond a creditor’s reach. He paid nothing and was to deed it back on request. He then told the friend’s sons their father had left no assets, and he claimed the properties as his own.

In Florida Bar v. Rood, 622 So. 2d 974 (Fla. 1993), an attorney took a conveyance from his son after a creditor won a judgment against the son. He then swore an affidavit denying he had known the judgment existed, which the court found false.

Both cases involved attorneys who became transferees. They took title to property. Neither attorney was disciplined for giving legal advice about a transfer.

Liability of Other Professionals

The Freeman holding protects all professionals who provide services involving asset transfers. Accountants, financial advisors, bankers, and trust officers are not liable to creditors under the fraudulent transfer statute as long as they do not become transferees by taking control of the transferred assets.

The Fifth District confirmed this in BankFirst v. UBS Paine Webber, Inc., 842 So. 2d 155 (Fla. 5th DCA 2003), affirming the dismissal of a conspiracy claim against a debtor’s lawyers and financial consultants. The Third District reached the same result in Danzas Taiwan, Ltd. v. Freeman: a Taiwanese freight forwarder that shipped the goods for a fee and never held them was dismissed from the receiver’s conspiracy claim.

The protection turns on the same line that applies to attorneys: providing services is protected, but taking control of the assets is not. A financial advisor who recommends a transfer strategy is in a different position from one who opens accounts, moves funds, and exercises discretion over where assets go.

Practical Boundaries

Several practices fall safely within the protected zone of legal advice. Analyzing assets and liabilities to identify fraudulent transfer risk is core legal work. Preparing deeds, trust agreements, LLC formation documents, and other transfer instruments is standard document preparation. Advising a person about the legal consequences of proposed transfers, including the risk that a transfer may be challenged, is expressly permitted by Rule 4-1.2(d).

Certain practices cross the boundary. Holding funds in a trust account and disbursing them at the attorney’s discretion in furtherance of a transfer creates transferee exposure. Taking title to property, even temporarily, makes the attorney a transferee under the statute. Directing third parties to move assets or execute transfers goes beyond advice and into active participation. Concealing the existence or terms of a transfer from creditors or courts exposes the attorney to sanctions beyond what the fraudulent transfer statute itself addresses.

The safest practice is to limit involvement to advice and document preparation. If funds must pass through a trust account for a legitimate reason, such as a real estate closing, the attorney should document that the handling occurred during ordinary legal representation. Escaping transferee liability under Harwell takes proof of two things: no discretionary control over where the funds went, and good faith.