Article
| Jurisdiction | Utah,United States |
| Citation | Vol. 27 No. 2 Pg. 26 |
| Pages | 26 |
| Publication year | 2014 |
March, 2014
The Utah Fraudulent Transfer Act: Choosing Whom to Sue
Kristen C. Kiburtz
The Utah Fraudulent Transfer Act (the Act) provides a remedy for creditors when debtors conceal their assets by transferring them to another individual or entity. Utah Code Ann. §§ 25-6-1 to -14 (LexisNexis 2013). Under the Act, a creditor may obtain "avoidance of the transfer or obligation," "an attachment," or "other provisional remedy against the asset transferred or other property of the transferee. "Id. § 25-6-8(1) (a)-(b).
The Act allows a creditor to sue the transferee and other qualifying individuals directly. Thus, for instance, if a debtor gives all his assets to a friend or sells his assets to the friend for $ 1 to avoid a judgment that has been entered against him, the Act permits the creditor to collect against the friend. Additionally, if the friend then transfers the assets to another individual who is not a good faith transferee, a creditor may collect from the subsequent transferee as well. Specifically, Utah Code section 25-6-9(2) provides,
[T]o the extent a transfer is voidable in an action by a creditor under Subsection 25-6-8(1) (a), the creditor may recover judgment for the value of the asset transferred, as adjusted under Subsection (3), or the amount necessary to satisfy the creditor's claim, whichever is less. The judgment may be entered against:
(a) the first transferee of the asset or the person for whose benefit the transfer was made; or
(b) any subsequent transferee other than a good faith transferee who took for value or from any subsequent transferee.
Id. § 25-6-9(2).
The Act identifies three categories of individuals or entities against whom a creditor can recover: (1) "the first transferee of the asset," (2) or "the person for whose benefit the transfer was made," (3) or "any subsequent transferee other than a good faith transferee who took for value or from any subsequent transferee." Id.
Utah courts have not defined the contours of these three classifications. However, Utah's Act is derived from the Uniform Fraudulent Transfer Act, much of which is also incorporated into the avoidance provisions of the Bankruptcy Code. Consequently, a number of federal courts have construed the same or similar language. The first appellate court to do so was the Seventh Circuit, in an opinion authored by Judge Posner in Bonded Financial Services, Inc. v. European American Bank, 838 E2d 890 (7th Cir. 1988). Bonded provides a comprehensive framework for determining whom a trustee can recover against under 11 U.S.C. § 550 of the Bankruptcy Code, and has become the seminal case in interpreting that section. Id. at 895-97 The categories identified in section 550 essentially mirror those found in the Act:
(a) Except as otherwise provided in this section, to the...
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