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Limitations Period Trips Up Florida Creditor in Fraudulent Transfer Case

In an issue without prior precedent in the Florida courts, the 2d District Court of Appeal addressed an important question regarding the amount of time a party has to challenge a fraudulent transfer. In the recently decided case, the court ruled that a creditor waited too long because the period for filing claims started when the creditor learned of the existence of the allegedly fraudulent transfer, not when it discovered that the transfer was a fraudulent one.

The origin of the business relationship between a St. Petersburg-based landlord, F/R 550, LLC and F/R 3329, LLC, and its tenant, National Auto Service Centers, Inc., was the execution of two 30-year leases in 2005. National, which was in the auto repair business, ran two of its repair shops at a pair of properties owned by the F/R companies. Two years later, National sold off some of its locations, including both of the shops located in the F/R-owned properties. The buyers executed promissory notes to National, which it subsequently assigned to its parent company. By late 2008, nobody was making rent payments to F/R. The landlord sued and obtained a $2.1 million judgment.

As F/R began pursuing the execution of the judgment, it made certain information requests of National. At this point, it learned that National had made the assignments of the promissory notes to its parent company, which National claimed were for debts that it owed to its parent company. However, once National finally turned over its accounting records to F/R, there was no record of the debts owed by National to the parent that  it had claimed.

Armed with this evidence, F/R went to the trial court and, in March 2013, demanded that it void the assignments National made. The assignments, the landlord argued, were designed to “hinder, delay, or defraud creditors” and violated the Florida Uniform Fraudulent Transfer Act. The trial court eventually granted partial summary judgments in favor of F/R that nullified the assignments.

National appealed and won. The problem that doomed the landlord’s case was a matter of timing. National argued successfully at the appellate level that the law, as set out in Florida Statutes Section 726.110, sets up two measurements by which a fraudulent transfer claim like the one advanced by F/R can be timely:  one, that the injured party file its claim within four years from the date of the allegedly fraudulent transfer, or two, that it file within one year from when it acquired knowledge of the allegedly fraudulent transfer. The court concluded that, as National contended, the landlord missed both of these deadlines. National made the assignments in question in November 2007. The landlord, by its own statements, became aware of the transfers at issue in January 2012. The landlord launched its court challenge to the assignments in March 2013, five and one-half years after the execution of the assignments and 14 months after it became aware of them.

The appeals court was not persuaded by the landlord’s argument, which the trial court had accepted, that the 12-month period set out in Section 726.110 did not begin until the date when F/R became aware not only of the transfers’ existence but also of their fraudulent nature. In siding with National, the court noted that the question was one without precedent in Florida courts, and other courts had reached differing decisions. Looking at the statute, the court pointed out that the language in the relevant subsection was worded to say “within 1 year after the transfer or obligation was or could reasonably have been discovered by the claimant.” This language, in the appeals court’s estimation, indicated that the Legislature’s intent was to start the limitations period on the date when the wronged party discovered the existence of the transfer itself, not when that party learned that the transfer was fraudulent.

Whether you are a creditor pursuing a fraudulent transfer or a debtor defending the validity of your transfer, it is important to have highly skilled counsel on your side. The knowledgeable Florida commercial litigation attorneys at Stok Kon + Braverman have the experience and ability to help you succeed in your case.

Contact us online or by calling (954) 237-1777 to schedule your consultation.

More blog posts:

Possible Unjust Forfeiture, Cured Defaults Impede Florida Landlord’s Effort to Evict Restaurant-Nightclub Tenant, Florida Business Lawyers Blog, Feb. 19, 2016

South Florida Commercial Tenant Escapes $2M in Damages Because Lease Did Not Require it to Remove Subtenant, Florida Business Lawyers Blog, Oct. 30, 2015