What is a fraudulent transfer in Massachusetts?

18 October 2014

A creditor files suit against you for a debt owed.  It eventually obtains a judgment and then an execution.  You learn that the creditor is seeking to give the sheriff the execution to have him levy against your vacation home and force its sale to satisfy the judgment.  Just before the sale takes place, you sell (transfer) the vacation home to your son for $1.00 to make sure that the creditor cannot take it from you to satisfy the debt.   What you just did is called a “fraudulent transfer” and would most likely be found to fit the definition under Massachusetts law for one type of fraudulent transfer.  The applicable statute reads:

A transfer made or obligation incurred by a debtor is fraudulent as to a creditor, whether the creditor’s claim arose before or after the transfer was made or the obligation was incurred, if the debtor made the transferor incurred the obligation:

          (1) with actual intent to hinder, delay, or defraud
          any creditor of the debtor.

. . . .

Mass. Gen. Laws. c. 109A § 5(a).

So what if it is a fraudulent transfer, what does that mean to me, you might ask.  Well the creditor can sue you and your son.  If it is found to be a fraudulent transfer by the court, the sale can be “avoided” or set aside.  That means the court orders that the sale be undone and the property is back in your ownership.  It can place an attachment on the vacation home.  It can enjoin both you and your son from further transfer of the property.  It also may be able to order you to pay punitive damages and possibly attorneys’ fees and costs.  The applicable statute reads:

 . . . .

(1) avoidance of the transfer or obligation to the extent necessary to satisfy the creditor’s claim;

(2) an attachment or other provisional remedy against the asset transferred or other property of the transferee in accordance with the applicable procedure set forth in chapter two hundred and fourteen for actions to reach and apply chapter two hundred and twenty-three for attachments, and chapter two hundred and forty-six for trustee process and in accordance with applicable rules of civil procedure;

(3) subject to applicable principles of equity and in accordance with applicable rules of civil procedure,

(i) an injunction against further disposition by the debtor or a transferee, or both, of the asset transferred or of other property;

(ii) appointment of a receiver to take charge of the asset transferred or of other property of the transferee; or

(iii) any other relief the circumstances may require.

           (b) 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.

Mass. Gen. Laws. c. 109A § 8.

Fraudulent transfers typically surprise people because they do not know this kind of law exists and have not seen anything like it before.  What also tends to surprise and disturb people is that the transferee, the son in our example, can be sued by the creditor.  Typically this evokes a very bad reaction from the son, the person you thought you were helping, being something like “thanks but no thanks, I do not want to be involved.”

A real detriment to the accusation of conducting a fraudulent transfer is the possibility of punitive damages and attorneys’ fees and costs.  The legal question is what “any other relief the circumstances may require” should be interpreted to mean.  Id.  This varies from state to state with the majority of states finding that they can be awarded.  See e.g. Renbolt v. Kern, 2013 Ohio 1359, 2013 WL 1390607 (April 5, 2013).  So usually the threat is there.

In any event, there is a lot at stake with a fraudulent transfer situation.  In the event that you find yourself involved in a fraudulent transfer situation in Massachusetts, feel free to contact this office.

With which court do I file my civil action, the Massachusetts Superior Court, the Massachusetts District Court, or the Small Claims Session?

1 October 2014

One of the first decisions that a plaintiff has to make after they decide to file suit is which court in Massachusetts to file their case in.  This is not as easy as one may think in many cases.

There are some general rules.  Superior Court has jurisdiction over cases involving $25,000 or more.  Mass. Gen. Laws c. 212 § 3.  District Court has a procedural limit of no more than $25,000.  Notice that I switched from the word jurisdiction to “procedural limit.”  This is because if a case is filed in the District Court that involves over $25,000.00 it can still go forward in the District Court, unless, the defendant properly objects, or, less likely, the judge independently removes the case.  Sperounes v. Farese, 419 Mass. 800, 804-07 (2003).  (Debt collectors frequently sue for over $25,000 in the District Court and hope there is no objection.).  The case can be dismissed based on the procedural limit, but the District Court has jurisdiction the whole time.  Id.  If the case stays in the District Court the District Court is empowered to issue judgment for any amount, including one over $25,000.  Id.  This difference in procedural amount is one reason the Superior Court is perceived as a “higher court” but they are both trial courts for the most part.

Another traditional distinction relates to equity jurisdiction.  Equity, as opposed to legal, or at law, relief.  This distinction goes back to English history that had courts of law and courts of equity (a.k.a. courts of chancery), each having different and distinct powers.  Generally, a court of equity has the power to order someone to do something or not do something, a court of law has the power to order money damages.

In Massachusetts, the Superior Court has traditionally been the court with equity jurisdiction, but in recent history the law changed in Massachusetts to provide the District Court equity power in cases that had a legal component/claim to it.  Mass. Gen. Laws c. 218 § 19C.  It also appears that one can bring a claim that normally could only be brought in the Superior Court if they also bring a claim that is permitted in the District Court in the same case.  Ravnikar v. Bogojavlensky, 438 Mass. 627 (2003).

As with most of the law in Massachusetts, there are exceptions to the general rule.  For example, there are some special circumstances where the Superior Court has exclusive jurisdiction, even if money damages are sought.  Some are: 1) actions under the Massachusetts Tort Claims Act; 2) claims against Massachusetts; 3) claims under the Massachusetts Civil Rights Act; and 4) actions for negligence involving alcohol.  Mass. Gen. Laws. c. 258; c. 212 § 3; c. 12 § 11H; c. 231 §60J.

There are also rare exceptions where the District Court has equity jurisdiction even though there is not a money damages (at law) component to the case.  Some subjects are: 1) sanitary code/unfit buildings; 2) lead paint poisoning prevention; 3) appeals from zoning boards; and 4) illegal entry onto land.  Mass. Gen. Laws c. 219 §19C; c.111 § 198; c. 40A § 17; c. 184 § 18.

Making matters more difficult, there are also myths that circulate about what types of claims have to be brought where.  One you will often hear is that defamation actions may only be brought in Superior Court.  This is not true.  Ravnikar v. Bogojavlensky, 438 Mass. 627 (2003).  The district court is the proper court for defamation actions in Massachusetts.  Id.  It is true that defamation cases are not permitted in the small claims session that is technically a part of the District Court, which may be the bit of truth the myth is based on.

With respect to the small claims session, its jurisdictional limit was recently raised to $7,000!  Discovery is available, but rare to occur.  The rules of evidence are relaxed, such as hearsay is generally admissible.  It is a much faster moving court, with decisions taking months, rather than the years sometimes that can pass before you can obtain a judgment in either the Superior Court or the District Court.

In the event that you file in the wrong court, the court may transfer it.  It can also be a signal that you have not done your homework before filing your case.  For these reasons, it is important to file your case in the right court.  If you need legal help in deciding what court is appropriate for you claim, feel free to give this office a call.