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Are Florida’s Fraudulent Transfer Claims Subject to Equitable Tolling?
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Are Florida’s Fraudulent Transfer Claims Subject to Equitable Tolling?

October 3, 2016 Banking & Financial Services Industry Legal Blog

Reading Time: 7 minutes

Many creditors are aware that Florida’s Uniform Fraudulent Transfer Act (“FUFTA”) is a powerful remedy used to avoid and unwind transfers of assets that debtors may make to hinder, delay and defraud their creditors. But what if you (the creditor) discover that your debtor made a transfer, and you didn’t know it was actually fraudulent under FUFTA until a year later? Your fraudulent transfer claims may be forever extinguished as being time-barred without a tolling period to account for the time that elapsed before the fraudulent nature of the transfer was discovered.

The Second District Court of Appeal recently held that principles of equitable tolling do not apply to actual fraud under FUFTA, because the applicable limitations period set forth in Fla. Stat. § 726.110(1) is a statute of repose and not a statute of limitations. Nat’l Auto Serv. Centers, Inc. v. F/R 550, LLC, 192 So. 3d 498 (Fla. 2d DCA 2016). The court’s interpretation of § 726.110 as a statute of repose is critical to the outcome of many actual fraudulent transfers.

Fla. Stat. § 726.110, titled “Extinguishment of cause of action,” provides the time limitations on when a fraudulent transfer claim must be filed, and the limitations periods vary, depending on which “type” of fraudulent transfer is asserted. Specifically, when a transfer is made with actual intent to hinder, delay or defraud a creditor, Section 726.110(1) provides as follows:

Extinguishment of cause of action. – A cause of action with respect to a fraudulent transfer or obligation under ss. 726.101726.112 is extinguished unless action is brought:

(1) Under s. 726.105(1)(a), within 4 years after the transfer was made or the obligation was incurred or, if later, within 1 year after the transfer or obligation was or could reasonably have been discovered by the claimant . . .

Fla. Stat. § 726.110(1).

In other words, claims for “actual” intent to defraud a creditor will be time-barred if the claims are brought outside the time period that is (a) four years after the transfer was made; or, if later, (b) one year after the transfer was discovered or could have reasonably been discovered. The one-year discovery extension to the limitations period is referred to as the “one-year savings clause”.

Equitable estoppel is well-recognized in Florida as a bar to a statute of limitations defense. See Major League Baseball v. Morsani, 790 So. 2d 1071, 1078–79 (Fla. 2001). Equitable estoppel is based upon the premise that a defendant cannot benefit from a statute of limitations defense, when the very reason for the delay in plaintiff’s filing is due to the defendant’s own misconduct in concealing the accrual of the cause of action. See id. at 1077. Equitable estoppel arguably applies in fraudulent transfer cases, as FUFTA expressly states that its provisions are supplemented by principles of law and equity, including estoppel. Fla. Stat. § 726.111. In reliance on that premise, the Bankruptcy Court for the Middle District of Florida has held that Fla. Stat. § 726.110(1) is a statute of limitation, which is subject to equitable doctrines. In re Hill, 332 B.R. 835, 841 (Bankr. M.D. Fla. 2005).

However, the National Auto court held just the opposite: that equitable defenses are not available under § 726.110(1) because it is a statute of repose. Nat’l Auto, 192 So. 3d at 504. (“We conclude that section 726.110(1) is a statute of repose that is not subject to an assertion of equitable estoppel as a matter of law, which renders any additional remand for fact-finding on the subject unnecessary). The distinction between classification of § 726.110 as a statute of repose rather than a statute of limitation is critical.

A statute of limitation “set[s] a time limit within which an action must be filed as measured from the accrual of the cause of action, after which time obtaining relief is barred.” Hess v. Philip Morris USA, Inc., 175 So. 3d 687, 695 (Fla. 2015). In contrast, a statute of repose functions to “extinguish valid causes of action” irrespective of the date that the cause of action accrues. See Nehme v. Smithkline Beechham Clinical Labs., Inc., 863 So. 2d 201, 208 (Fla. 2003); see also Carr v. Broward Cty., 505 So. 2d 568, 570 (Fla. 4th DCA 1987 (“At the end of the [repose] period the cause of action ceases to exist.”)). “As a result, the time constraints of a statute of repose are wholly unrelated to when a plaintiff suffers or discovers an actual injury.” Nat’l Auto, 192 So. 3d at 510. Restated, statutes of repose are the outermost date in which claims can be brought, irrespective of any mitigating conduct or extenuating circumstances. If § 726.110 is truly a statute of repose, then equitable estoppel cannot apply to the cause of action after it is extinguished.

In National Auto, the court noted that § 726.110 is intended as a statute of repose because it is titled “Extinguishment of Cause of Action,” and its text provides that the cause of action is “extinguished” if not brought within the later of 4 years of the transfer or the one-year savings clause. Id. at 510. The court further noted that several other courts, interpreting various codifications of the UFTA are in agreement that the statute is one of repose.[1] While the one-year savings clause is related to the discovery of the transfer, the National Auto court determined that the savings clause is merely an exception to the 4-year statute of repose, and it does not render the statute subject to equitable principles. Id. at 513 (“That the statute provides this single discovery-based exception and does not provide any others is a textual indication that equitable estoppel principles, which would effectively create a second discovery-based exception when a plaintiff is delayed in learning of the fraudulent nature of the transaction by defendants’ misinterpretation, are not to apply.”).

The National Auto court rejected Hill as a misinterpretation of the plain language of the statute, and—with the exception of Hill—the court’s decision is consistent with decisions of other Florida courts[2] and courts of other jurisdictions interpreting similar codifications of UFTA.

Because this issue has not been presented to the Florida Supreme Court, Florida’s federal district courts are “bound to follow the decisions of the state’s intermediate appellate courts, unless there is some persuasive indication that the highest court of the state would decide the issue differently.” McMahan v. Toto, 311 F.3d 1077, 1080 (11th Cir. 2002). In the absence of conflicting authorities from the other Florida District Courts of Appeal, and given the persuasive authorities consistent with the decision of National Auto, it is unlikely that Florida’s federal courts would find some indication that the Florida Supreme Court would hold otherwise. In recent months, both the Southern District and Northern District of Florida have recognized National Auto as binding authority on this issue. See In re Tabor, No. 14-20731, 2016 WL 3462100, at *4 (Bankr. S.D. Fla. June 17, 2016); SE Property Holdings, LLC, v. Rupert E. Phillips, No. 15-00554, ECF. No. 50 at 17 (N.D. Fla. May, 4, 2016).

In conclusion, § 726.110 will be deemed a statute of repose, and the debtor’s assertion of the statute as a defense to a creditor’s FUFTA claims will not be barred by equitable estoppel. Rather, § 726.110 may serve to extinguish a creditor’s claims, irrespective of any misconduct on the part of the defendants.

It is conceivable that lenders and creditors, who often review annual financial statements, would learn and should learn of various transfers made by debtors, and yet not realize that such transfers were actually fraudulent until it is too late. For these reasons Creditors and their counsel should be aware of the time limitations to assert actual fraudulent transfer claims under FUFTA.

[1] Collecting cases, the court notes that New Jersey, Pennsylvania, Massachusetts, New Mexico and Texas hold that the provision is a statute of repose that extinguishes the cause of action.

[2] See Paragon Health Servs., Inc. v. Cent. Palm Beach Cmty. Mental Health Ctr., 859 So. 2d 1233, 1235–36 (Fla. 4th DCA 2003) (stating, “[t]he statute is clear and unambiguous and extinguishes the cause of action under section 726.106(2) one year after the date of transfer.”); see also Steinberg v. A Analyst Ltd., 04-60898-CIV, 2009 WL 806780, at *10 (S.D. Fla. Mar. 26, 2009) (unpublished) (finding equitable tolling does not apply to claims under § 726.110(2) because the claim is extinguished if not brought within 4 years).

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