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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