Daily Development for Monday, October 18,
1999
By:
Patrick A. Randolph, Jr.
Professor of Law
UMKC School of Law
Of Counsel: Blackwell Sanders Peper Martin
Kansas City, Missouri
randolphp@umkc.edu
FRAUDULENT CONVEYANCES; REQUIREMENT OF FRAUDULENT
INTENT: In light of the fact that a defendant rarely, if ever admits to actual
intent, where statute requires a
showing of actual fraudulent intent, a court may infer such intent from the
facts.
Beal Bank, SSB v. Felix J. Pittorino, Etc.,
et al., No. 981029 (1st Cir. 1999).
Defendants, Felix Pittorino and Ralph P.
Amelia, as trustees of the Pigeon Hill Trust, guaranteed several loans, made to
Felix Pittorino, individually, which went unpaid. The bank made claims against Pittorion
individually and against the trust (through Pittorino and Amelia) as guarantor.
The court bifurcated the claim against Pittorino individually.
After judgment entered against Pittorino,
but prior to the commencement of trial against Amelia and Pittorino, Amelia
transferred the bulk of the Trust's assets to Pitt Construction and ALA Realty
Trust. Pittorino was the president, treasurer, and controlling shareholder of
Pitt Construction and Amelia was the sole trustee of ALA, while Amelia's wife
was the sole beneficiary. The trust then settled the case against it and a
judgment was entered against the trust for a little over $3 million. The
Trust's remaining assets were far below this amount.
The Bank alleged that the conveyances were
fraudulent and therefore voidable pursuant to M.G.L.c. 109A which states that a
conveyance made with actual intent to hinder, delay or defraud either present
or future creditors, is fraudulent. M.G.L.c.109A, §7.
Held: Pursuant to the Massachusetts Uniform
Fraudulent Conveyance Act, courts may infer fraudulent intent by considering
certain "badges of fraud" including (1) actual or threatened
litigation against a debtor; (2) purported transfer of all or substantially all
of a debtor's property; (3) insolvency or other unmanageable indebtedness on
the part of a debtor; (4) a special relationship between the debtor and
transferee; and, (5) retention by the debtor of the property involved in the
putative transfer. Comment 1: Note that this case was decided under the Uniform
Fraudulent Conveyance Act and not the more recent Uniform Fraudulent Transfer
Act. The court held that the Fraudulent Transfer Act, which Massachussets
adopted after the events described in this case, did not apply retroactively.
Comment 2: A major defense raised by the
trust was a form of estoppel based upon the notion that the FDIC had earlier
determined not to pursue the guarantor and, relying upon that, the parties had
reordered their assets (this does not refer to the alleged fraudulent
conveyance that is the subject of the case.) The court invoked the now classic
D'Oench doctrine to disallow the estoppel claim when it appeared that there was
nothing in the FDIC files to support the alleged representation to the defendants
that the FDIC would not pursue the guarantors.
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