ASSET PROTECTION - Liability for Asset Protection

Attorney Liability

Many attorneys are reticent about asset protection work because they fear exposing themselves to personal liability for assisting their clients’ transfer of assets to avoid exposure creditor claims. Florida’s fraudulent conveyance statutes do not specifically address liability of third parties, including a debtor’s attorney, who advise and assist the debtor with a transfer or conversion which is subsequently deemed a fraudulent transfer or conversion. Until recently, no Florida appellate court has addressed the issue whether a cause of action exists against an attorney, as well as other third parties for assisting a fraudulent asset transfer or fraudulent conversion pursuant to §222.30 or §726.101 of the Florida Statutes.

Three Florida cases decided in 2003 in different appellate districts have addressed this issue. The first decided case, BankFirst v. Paine Webber, et al., 842 So 2d. 155 (Fla. 5th DCA, 2003) involved a debtor who had personally guaranteed a corporate debt of an insolvent corporation. After the corporation became insolvent, the debtor with the help of his UBS Paine Webber financial advisor and his attorney adopted an asset protection plan in which debtor transferred non-exempt assets to a domestic limited liability company whose shares were owned by an offshore trust sited in the Bahamas.

The Fifth Circuit’s holding is short, yet clear and powerful, consisting of only one sentence:

“The order dismissing BankFirst’s claim against USB Paine Webber, et al. is affirmed based on our conclusion that neither §222.30 nor Chapter 726, Florida Statutes, creates a cause of action against a party who allegedly assisted a debtor in a fraudulent conveyance or transfer of property, where the person does not come into possession of the property.”

The Fifth DCA’s holding protects debtors’ attorneys, financial advisors, accountants, and any other party whether or not an agent of the debtor, for any involvement in aid of the fraudulent conveyance short of actually possessing the transferred property.

A second case, Danzas Taiwan, Ltd. v. Freeman, (fn- 2003 WL 2107584, May 14, 2003), involved an allegation that a Taiwanese freight forwarder engaged in a conspiracy to commit fraudulent transfers. The creditor advanced the theory that there was personal jurisdiction over Danzas Taiwan because the company had committed a tortuous act in Florida, specifically its facilitation of a fraudulent conveyance. The Third DCA cited the Fifth DCA’s BankFirst ruling and agreed that there is not cause of action against one who assist a debtor in a fraudulent conveyance. It concluded that because there was no cause of action possible against Danzas Taiwan for conspiracy, there was not possible allegation that the company committed a tortuous act that would subject it to the Court’s jurisdiction.

The Third DCA also cited its own previous ruling issued in March, 2003 in Beta Real Corporation v. Graham.( 839 So. 2d 890 Fla Dist.3 2003). The defendant debtor allegedly conveyed $1.4 million of cash into the Florida bank account of Beta Real Corporation, a British Virgin Islands company. The Third DCA decided that receiving property fraudulently transferred by a debtor is not a tortuous act citing many decisions of both state and federal courts which have held that a fraudulent conveyance is not an intentional tort.

In May 2003, the Eleventh Circuit Court of Appeals certified to the Florida Supreme Court the question of whether, under Florida's Uniform Fraudulent Transfer Act (or FUFTA) 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 Lewis B. Freeman, etc. et al., v. First Union National Bank (decided January 29, 2004) was an unqualified "No."  After considering legislative intent, the Supreme Court stated, "There is simply no language in FUFTA that suggests the creation of a distinct cause of action for aiding-abetting claims against non-transferees.  Rather, it appears that FUFTA was intended to codify an existing but imprecise system whereby transfers that were intended to defraud creditors were to be set aside."  The Court further stated, "Consistent with this analysis we conclude that FUFTA was not intended to serve as a vehicle by which a creditor may bring a suit against a non-transferee party's alleged aiding and abetting of a fraudulent money transfer."

This unanimous decision impacts all attorneys, accountants, bankers, and any other person who provides services to people transferring their assets.  Freeman v. First Union is another milestone in the ongoing balancing of creditor remedies and debtors rights under Florida law.