The Florida Supreme Court finds no liability for aiding or abetting a fraudulent transfer.

• Author: Kleinfeld, Denis A.

The 11th Circuit Court of Appeals (1) certified to the Florida Supreme Court the question of whether under Florida's Uniform Fraudulent Transfer Act (FUFTA) (2) 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 Freeman v. First Union Nat. Bank, 865 So. 2d 1272 (Fla. 2004), was an unqualified "No."

This unanimous decision impacts all lawyers, accountants, bankers, and any other person who provides services to people transferring their assets. While Freeman involved a banking institution, its legal principles apply to any situation where a client's asset transfers elicit a claim under Florida's Uniform Fraudulent Transfer Act. This decision settles, in Florida at least, a contentious, controversial, and recently much-litigated legal issue. Lawyers, accountants, and others whose client is, or may become, a debtor cannot be held liable for simply aiding and abetting their clients' asset transfers found to be reversible under the FUFTA.

Freeman v. First Union Nat'l Bank

In Freeman, the State of Florida filed a lawsuit in the U.S. District Court for the Southern District of Florida alleging that a company called Unique Gems ran a "Ponzi scheme." Unique Gems maintained bank accounts at First Union National Bank. In the course of litigation, Lewis B. Freeman was appointed receiver over the company. Plaintiff receiver's second amended complaint claimed that First Union National Bank was liable to the receiver for money damages on the grounds that it aided and abetted a fraudulent transfer by allowing Unique Gems to wire transfer money to Liechtenstein even after the state filed the lawsuit. The complaint alleged that although First Union informed Unique Gems in a letter dated February 21, 1997, that it would close its account in 10 days, the bank did not close the account. Subsequently, a court-ordered injunction was entered on March 5, 1997, freezing the Unique Gems account. Presumably, while the motion to freeze its assets was pending, Unique Gems transferred a total of $6.6 million from its First Union account to Liechtenstein. Even after the injunction was entered, and after First Union told Unique Gems that its account would be closed 30 days thereafter, First Union still allowed Unique Gems to wire transfer an additional $2 million to Liechtenstein. Finally, First Union closed the Unique Gems account on July 24, 1997. These facts represent an exceptional and excellent context to analyze the interrelationship between Florida's fraudulent transfer statutes and the common law tort of aiding and abetting by a third party nontransferee.

The district court dismissed the receiver's aiding and abetting claim against First Union with prejudice because it did not state a cause of action under Florida law. The district court held that the FUFTA allows creditors only to set aside fraudulent transfers. The court considered the FUFTA to be similar to the fraudulent transfer provisions of the Bankruptcy Code (3) and held that neither provides for aider and abettor liability. The district court noted that while the receiver cited cases recognizing aiding and abetting as common law fraud, or another cause of action, none of the cases related to the Uniform Fraudulent Transfer Act.

On appeal, the 11th Circuit Court of Appeals noted that the FUFTA remedies for fraudulent conveyance are different and possibly broader than those of the Bankruptcy Code. The appeals court said that, "While the Bankruptcy Code limits remedies to the recovery of transferred property or its value ... the FUFTA clearly provides additionally for 'any other relief the circumstances may require.'" (4) Thus, the issue before the 11th Circuit was whether the FUFTA remedies, like bankruptcy remedies, include only equitable powers to cancel a fraudulent transfer, or whether the FUFTA's "catchall" phrase of "any other relief the circumstances may require" gives rise to common law theories for damages against third party nontransferees. The 11th Circuit felt it could not predict how the Florida Supreme Court would rule on the issue. (5) Specifically, the 11th Circuit asked the Florida Supreme Court, "Under Florida law is there a cause of action for aiding and abetting a fraudulent transfer when the alleged aider-abettor is not a transferee?" (6)

The Florida Supreme Court began its own analysis by reviewing the meaning of the wording "any other relief the circumstances may require" in F.S. [section] 726.108(1)(c)(3). The court concluded that, "We believe that the Legislature intended it to facilitate the use of other remedies provided in the statute, rather than creating new and independent causes of action such as aider-abettor liability...." (7) After further considering legislative intent, the Supreme Court stated, "There is...