SE Prop. Holdings, LLC v. Welch, 65 F.4th 1335 (11th Cir. 2023)SE Prop. Holdings, LLC v. Welch, 65 F.4th 1335 (11th Cir. 2023)

The following is a case update written by the Hon. Meredith Jury (U.S. Bankruptcy Judge, C.D. CA., Ret.), analyzing a recent decision of interest:

SUMMARY

The Eleventh Circuit Court of Appeals (the Court), interpreting Florida’s Uniform Fraudulent Transfer Act (FUFTA), which is patterned after the Uniform Fraudulent Transfer Act (UFTA) approved by the national Uniform Law Commission, ruled that a creditor asserting a claim for either actual fraud or constructive fraudulent transfer is not entitled to obtain a money judgment for compensatory damages, punitive damages, or attorney’s fees against the transferor of property.  In addition, the Court held that the creditor was not entitled to assert an equitable lien against the transferor.  SE Prop. Holdings, LLC v. Welch, 65 F.4th 1335 (11th Cir. 2023).

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FACTS

Plaintiff SE Property Holdings, LLC (“SEPH”) foreclosed on property owned by Neverve and obtained a deficiency judgment for $19.5 million in 2015.  In 2016, Neverve settled a claim and received funds, which it did not apply toward SEPH’s judgment.  Instead, at the direction of its principal David Stewart, it paid about $350,000 to Stewart’s attorney in Oklahoma, Ruston Welch, to pay Stewart’s personal attorney’s fees.  SEPH filed a fraudulent transfer action against Neverve, Welch and his law firm, WLF, in the Northern District of Florida, seeking compensatory and punitive damages, attorney’s fees and costs, to set aside the fraudulent transfer, and to impose an equitable lien.  Welch and WLF, located in Oklahoma, were dismissed for lack of personal jurisdiction.  Their dismissal subsequently limited the relief which SEPH could obtain against Neverve, because they were indispensable parties to the equitable relief sought, other than an equitable lien against Neverve alone. 

Neverve filed a summary judgment motion, asserting that compensatory and punitive damages were not available against a transferor under FUFTA, nor were attorney’s fees.  In addition, it asserted that an equitable lien could not be imposed against it because it was no longer in possession of the property in question.  The District Court granted summary judgment on all claims in favor of Neverve, concluding that FUFTA, as interpreted by the Florida Supreme Court, did not provide those remedies and that an equitable lien could only be imposed on a party in possession of the subject property.  Neverve appealed to the Court, which affirmed in all respects.

REASONING

The Court’s decision, which was one of first impression in the Circuit and compelled the Court to predict how the Florida Supreme Court would rule, focused on the wording of the statutory provision under which Neverve sought relief, Fla. Stat § 726.108, and on the leading Florida case on FUFTA, Freeman v First Union National Bank, 865 So. 2d 1272 (Fla. 2004), which required a narrow interpretation of the FUFTA.  Section 726.108, modeled after the UFTA, provides the remedies available for a fraudulent transfer: avoidance of the transfer; an attachment against the asset transferred or other property of the transferee; an injunction against further disposition of the asset transferred; appointment of a receiver to take charge of the asset; and, as pertinent here “(c)(3) Any other relief the circumstances may require.”  These remedies are limited by the subsequent section, § 726.109, which states in relevant part that a judgment may be had only against the first transferee of the asset or the person for whose benefit the transfer was made or any subsequent transferee, other than a good faith transferee who took for value or from any subsequent transferee.

SEPH asserted that it was entitled to recover damages against the transferor, Neverve, based on the catch-all provision, subsection (c)(3), and cited two Florida district court cases which so held.  The Court addressed these arguments by using statutory interpretation of the two relevant statutes, relying primarily on the principle of expressio unius est exclusio alterius, which means the mention of one thing implies the exclusion of another.  Because § 726.108 specified only certain remedies and § 726.109 limited the parties subject to a money judgment, the Court concluded the statutes could not be expanded to allow a judgment of compensatory damages against the transferor, Neverve.  Bolstering this conclusion was the Freeman decision, which had been issued subsequent to the two district court cases upon which SEPH relied, making them distinguishable on facts and law.  Freeman compelled the other courts to narrowly construed the language in FUFTA, limiting it to only its plain and explicit meaning, which did not include a money damage remedy against a transferor.

The Court used similar reasoning to reject the claim for punitive damages, a right that is subject to the plenary authority of the legislature in Florida.  Nothing in FUFTA granted the right to punitive damages, nor did Freeman or other relevant case law extend such right to fraudulent transfer actions in explicit terms.   SEPH’s attorney’s fee claim also failed, as Florida requires a statute or contractual agreement authorizing their recovery.  Nothing in FUFTA accords fees to a prevailing party.

Finally, the Court agreed that an equitable lien was unavailable against Neverve because Florida law would impose such lien only against a party in possession of the asset in question.  Welch and WLF, not Neverve, might possess the funds, so no lien could be imposed against Neverve.

AUTHOR’S COMMENTS

Although this case was decided by the Eleventh Circuit applying Florida law, the version of the Uniform Fraudulent Transfer Act enacted in Florida mirrors very closely the widely used uniform law.  In addition, although the Court relied in part on a decision by the Florida Supreme Court to construe the statute narrowly, its use of standard statutory interpretation tools to assist in determining that the catch-all provision was not intended to expand the statute to authorize a money judgment, punitive damages, or attorney’s fees against the transferor makes the ruling have potentially widespread acceptance.  I checked the California version of what is now called the Uniform Voidable Transaction Act to see if the pertinent parts of Fla. Stat. §§ 726.109 and 726.109 are adopted here and I found the provisions are identical (although the California version adds additional provisions which are not pertinent to the issues in this case.)  Since most states allow citation to out of state authority on uniform acts if no instate authority is available, the principles enunciated here may be argued in other jurisdictions.

This review was written by the Hon. Meredith Jury (U.S. Bankruptcy Judge, C.D. CA., Ret.), a member of the ad hoc group. Thomson Reuters holds the copyright to these materials and has permitted the Insolvency Law Committee to reprint them. This material may not be further transmitted without the consent of Thomson Reuters.