Q: I know receivers often bring
actions to set aside fraudulent transfers and recover the property
transferred, but can a receiver be appointed in a fraudulent transfer
lawsuit to take possession of and safeguard transferred property pending
trial?
A: Yes, a receiver can be appointed in a
fraudulent transfer lawsuit to take charge of the asset transferred or its
proceeds, or an injunction can be obtained to prevent further transfers of
the asset or its proceeds. These remedies are especially useful when the
property involved is income producing. California’s, as well as other
states’, fraudulent transfer laws specifically provide creditors such
remedies. See California Civil Code § 3439.07(a)(3)(A) & (B). You don’t
see it happen too often, however, and there are just a few reported cases.
Even before the adoption of the Uniform Fraudulent Transfer Act,
California cases approved the appointment of receivers in fraudulent
transfer cases. F. M. Heffernan v. Bennett & Armour, et. al., 110
Cal.App.2d 564 (1952); Burrows v. Jorgensen, 158 Cal.App.2d 644
(1958). These cases recognize that a receiver can be appointed to preserve
property pending trial not only under the fraudulent transfer statute, but
also under the general grant of authority to courts to appoint receivers
under California Code of Civil Procedure § 564(a)(9): “In all other cases
where necessary to preserve the property or the rights of any party.”
Injunctive relief is also available to
creditors to prevent the further transfer of assets or their proceeds.
California Civil Code § 3439.07(a)(3)(A) provides that in a fraudulent
transfer action the court can enjoin “disposition by the debtor or a
transferee, or both, of the asset transferred or its proceeds.” The
Legislative Committee Comment (3) endorses “the court, in an action on a
fraudulent transfer or obligation to restrain the defendant from disposing
of his property, to appoint a receiver to take charge of his property, or
to make any order the circumstances may require.” See Oiye v. Fox,
211 Cal.App.4th 1036, 1055-1060 (2012) (affirming a trial court’s
injunction prohibiting, under the California Fraudulent Transfer Act, the
defendant from concealing, transferring, encumbering or disposing of his
assets); see also SRB Investment Services, LLP et al v. Branch Banking
and Trust Company et. al., 289 Ga. 14 (2011) (Georgia Supreme Court,
in interpreting Georgia’s Uniform Fraudulent Transfer Act, identical to
California’s, stated: “Fraudulent transfer cases are especially amenable
to interlocutory injunctive relief.”).
In SRB Investment Services, the
defendant argued that the injunction should not issue because the
plaintiff, who could sue for money damages, had an adequate remedy at
law.. The Georgia Supreme Court rejected that argument noting: “We
recently explained that the ultimate availability of a judgment for money
damages has never precluded an interlocutory injunction when fraudulent
transfers are at issue. While ‘[c]reditors without liens may not, as a
general rule, enjoin their debtors from disposing of property nor obtain
injunctions or other extraordinary relief in equity’ long before the
enactment of the Georgia UFTA in 2002, Georgia law provided, as an
exception to this rule, that ‘[e]quity may enjoin the defendant as to
transactions involving fraud.’ When a money judgment is likely to be
uncollectible because a debtor has fraudulently moved its assets in an
attempt to dissipate or conceal them from a creditor, Georgia law, both
before and under the Georgia UFTA, gives the creditor the right to seek
interlocutory relief by freezing the assets where they are.” Id. at 5-6
(citations omitted).
*Peter A. Davidson is a Partner of Ervin Cohen & Jessup LLP
a Beverly Hills Law Firm. His practice includes representing Receivers and
acting as a Receiver in State and Federal Court.
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