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Sometimes when folks don’t want to pay money back or when they don’t want to give up collateral to pay off their debts, they’ll transfer assets to a third party so the bank or other creditor can’t get them.  However, when a debtor sells the family farm for less than market value (or nothing at all), especially to a family member, especially if it makes them go broke, especially if it was done with the purpose of keeping it out of the bank’s hands – then the bank might be able to get the family farm anyways.  However, as one Alabama bank recently found out, that’s lot of “ifs.”

In International Management Group, Inc. v. Bryant Bank, The Alabama Court of Civil Appeals took up a Fraudulent Transfer case that a bank had won on summary judgment.  Back when the bank was owed some money, the defendants had transferred some assets (in particular a mortgage note) for no money, and that ended up in a family member’s hands.  The defendants eventually defaulted to the bank, one went through bankruptcy, and this fraudulent transfer case followed several years later.

The issue that allowed the defendants to win this appeal was the fact that a fraudulent transfer requires a showing that the suspect transfer was made with the intent to hinder, delay, or defraud creditors.  Summary judgment and findings of intent rarely go well together and unsurprisingly the case was sent back to the trial court, mostly likely for a trial to determine whether the suspect transfer was done with the intent required to prevail in a fraudulent transfer case.

The opinion from the Alabama Court of Civil Appeals took a long time to get to “there’s a genuine issue of material fact as to defendants’ intent therefore summary judgment was inappropriate,” but fortunately for us, along the way the it dropped several interesting nuggets of holdings including:

  • Perhaps surprisingly, the court expressed some equivocation as to whether recorded notice of a mortgage transfer is sufficient notice to a third party to start the running of a statute of limitations;
  • Not surprisingly, if you’re relying on testimony from a previous hearing (here a preliminary hearing) for your summary judgment, you’d better include a transcript with your motion for summary judgment;
  • The court is only concerned with “notice pleadings.”  A plaintiff doesn’t need to specifically plead subsections of umbrella statutes that cover multiple claims;
  • If a plaintiff has failed to adequately plead a claim, there is no prejudice, if the parties fully develop arguments related to claims that may be “under-plead;” and
  • A plaintiff probably can’t get summary judgment where it has to overcome a statute of limitations defense that involves constructive or inquiry notice.

With respect to the last point, in this case, the plaintiff’s allegations that it lacked notice were insufficient to show it “lacked knowledge of facts which ought to put you on notice.”  The appeals court doesn’t suggest how you would show that negative.  In fact, a footnote says this is a question better left to the finder of fact after trial.

The collection of debts continues to be a big part of the appellate court documents.  In recent weeks, Alabama appellate courts have addressed the priority of construction loans, seizure of VA benefits, and the repossession of fixtures.  While this case adds little substantive law to the collection of debts, it should incrementally add to the literature that makes it easier for defendants to avoid summary judgment and get their cases to trial – thereby putting a little more pressure on creditors to settle.

Read the Alabama Court of Civil Appeals opinion here and contact Browne House Law about your appeal or civil case.