Uniform Fraudulent Transfer Act Claims in Florida Need Not Be Stayed Until Judgment

In a Sept. 25, 2003, opinion, the Florida Supreme Court held that a claim under the Florida Uniform Fraudulent Transfer Act (FUFTA) does not need to be stayed until a judgment is obtained against the alleged fraudulent transferor. Friedman v. Heart Institute of Port St. Lucie, Inc., 2003 WL 22208004 (Fla. 2003).

Friedman was terminated as a physician by the Heart Institute of Port St. Lucie, Inc. (the “Heart Institute”). Subsequently, the Heart Institute commenced an action to enforce a noncompete clause in Friedman's contract with the Heart Institute. The Heart Institute later amended its complaint to include a claim under the FUFTA alleging that Friedman fraudulently transferred the proceeds from the sale of his home to his fiancee in an effort to divest himself of assets. Friedman moved to stay the FUFTA claim and its concomitant discovery until after a judgment was obtained in the underlying breach of contract claim.

The Florida Supreme Court observed that:

“A “creditor” who possesses a “claim” may seek a number of remedies to prevent the fraudulent transfer of assets. Among the remedies are avoidance of the transfer, attachment, an injunction, appointment of a receiver, and “any other relief the circumstances may require.” ' 726.108(1)(b), Fla. Stat. (2002). A transfer is fraudulent if made “without receiving a reasonably equivalent value in exchange for the transfer or obligation and the debtor was insolvent at that time or the debtor became insolvent as a result of the transfer or obligation.” '726.106(1), Fla. Stat. (2002).”

It further observed that a “claim” under the FUFTA may be maintained even though “contingent” and not yet reduced to judgment. Accordingly, the Florida Supreme Court held that the Heart Institute's FUFTA claim did not have to be stayed until it obtained a judgment against Friedman.

In reaching its decision, the Florida Supreme Court pointed out that certain procedural safeguards exist to protect defendants in FUFTA claims. The claimant can be required to post a bond. Additionally, the defendant can seek a protective order, which is designed to allow appropriate discovery yet protect a litigant's privacy and equitable interest. In this regard, the court opined that “[w]hile the general rule in Florida is that personal financial information is ordinarily discoverable only in aid of execution after a judgment has been entered … where materials sought by a party 'would appear to be relevant to the subject matter of the pending action,' the information is fully discoverable.”

A lessor faced with a defendant who may have fraudulently transferred assets should consider bringing a claim under the FUFTA along with its breach of lease/breach of guaranty claims. Not only will this place the lessor in a better position to collect on its judgment when obtained, but may also help encourage settlement of the proceeding before a judgment is entered.

In a Sept. 25, 2003, opinion, the Florida Supreme Court held that a claim under the Florida Uniform Fraudulent Transfer Act (FUFTA) does not need to be stayed until a judgment is obtained against the alleged fraudulent transferor. Friedman v. Heart Institute of Port St. Lucie, Inc., 2003 WL 22208004 (Fla. 2003).

Friedman was terminated as a physician by the Heart Institute of Port St. Lucie, Inc. (the “Heart Institute”). Subsequently, the Heart Institute commenced an action to enforce a noncompete clause in Friedman's contract with the Heart Institute. The Heart Institute later amended its complaint to include a claim under the FUFTA alleging that Friedman fraudulently transferred the proceeds from the sale of his home to his fiancee in an effort to divest himself of assets. Friedman moved to stay the FUFTA claim and its concomitant discovery until after a judgment was obtained in the underlying breach of contract claim.

The Florida Supreme Court observed that:

“A “creditor” who possesses a “claim” may seek a number of remedies to prevent the fraudulent transfer of assets. Among the remedies are avoidance of the transfer, attachment, an injunction, appointment of a receiver, and “any other relief the circumstances may require.” ' 726.108(1)(b), Fla. Stat. (2002). A transfer is fraudulent if made “without receiving a reasonably equivalent value in exchange for the transfer or obligation and the debtor was insolvent at that time or the debtor became insolvent as a result of the transfer or obligation.” '726.106(1), Fla. Stat. (2002).”

It further observed that a “claim” under the FUFTA may be maintained even though “contingent” and not yet reduced to judgment. Accordingly, the Florida Supreme Court held that the Heart Institute's FUFTA claim did not have to be stayed until it obtained a judgment against Friedman.

In reaching its decision, the Florida Supreme Court pointed out that certain procedural safeguards exist to protect defendants in FUFTA claims. The claimant can be required to post a bond. Additionally, the defendant can seek a protective order, which is designed to allow appropriate discovery yet protect a litigant's privacy and equitable interest. In this regard, the court opined that “[w]hile the general rule in Florida is that personal financial information is ordinarily discoverable only in aid of execution after a judgment has been entered … where materials sought by a party 'would appear to be relevant to the subject matter of the pending action,' the information is fully discoverable.”

A lessor faced with a defendant who may have fraudulently transferred assets should consider bringing a claim under the FUFTA along with its breach of lease/breach of guaranty claims. Not only will this place the lessor in a better position to collect on its judgment when obtained, but may also help encourage settlement of the proceeding before a judgment is entered.