Are Attorney’s Fees Available for Fraudulent Transfers in Florida?
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Florida’s Uniform Fraudulent Transfer Act (“FUFTA”) provides creditors with various remedies. See Charles B. Jimerson’s blog post on the various remedies under FUFTA, Remedies for Creditors Under FUFTA Chapter 726 – Part I: Who May Be Liable. However, while FUFTA provides creditors with various, nonexclusive remedies, do these remedies cover attorneys’ fees incurred because of post-judgment collection actions? Contrary to FUFTA’s remedial goal of putting the creditor back in the same position it would have been, but for the fraudulent transfer, Florida courts do not generally allow recovery for attorney’s fees under the Act.
Attorney’s Fees: Overview
Regardless of the outcome, the American rule on attorney’s fees requires parties compensate their own attorneys. See Alyeska Pipeline Serv. Co. v. Wilderness Soc’y, 421 U.S. 240, 245-47 (1975). Florida law follows this rule as “each party generally bears its own attorneys’ fees unless a contract or statute provides otherwise.” United States v. Pepper’s Steel & Alloys, Inc., 289 F.3d 741, 742 (11th Cir. 2002) (citing Fla. Patient’s Comp. Fund v. Rowe, 472 So. 2d 1145, 1148 (Fla. 1985)). Therefore, in fraudulent conveyance actions, creditors have two sources that potentially provide for a right to attorney’s fees: FUFTA and the parties’ borrower agreement.
Attorney’s Fees Under Florida’s Uniform Fraudulent Transfer Act
There is no statutory fee provision in Chapter 726 for fraudulent transfer actions. However, section 726.108(1)(c)3, Florida Statutes, otherwise known as the “catchall provision,” authorizes courts to grant “[a]ny other relief the circumstances may require.” Fla. Stat. § 726.108(1)(c)3; McCalla v. E.C. Kenyon Constr. Co., 183 So. 3d 1192, 1194 (Fla. 1st DCA 2016) (citing Hansard Constr. Corp. v. Rite Aid of Fla., Inc., 783 So. 2d 307, 309 (Fla. 4th DCA 2001). Irrespective of this seemingly broad provision, Florida courts have held FUFTA does not authorize the recovery of attorney’s fees. Euro RSCG Direct Response, LLC v. Green Bullion Fin. Servs., 872 F. Supp. 2d 1353, 1364 (S.D. Fla. 2012) (holding § 726.108 does not provide a sufficient basis for attorney’s fees). Indeed, this is supported by the Florida Supreme Court’s narrow interpretation of the catchall provision. Freeman v. First Union Nat‘l Bank, 865 So. 2d 1272, 1276-77 (Fla. 2004) (holding FUFTA does not create an independent cause of action for aiding-abetting).
Nonetheless, while not a Chapter 726 action, judgment creditors may still be able to recover attorney’s fees through the use of proceedings supplementary. Proceedings supplementary assists judgment creditors obtain payment by using equitable remedies. Specifically, section 56.29(9), Florida Statutes, allows judgment creditors to bring a cause of action under FUFTA through proceedings supplementary. Fla. Stat. § 56.29(9). As a result, if a judgment creditor can prove a debtor’s transfer was either actually or constructively fraudulent in the proceedings supplementary, the debtor will be liable for reasonable attorney’s fees. See Branch Banking & Trust Co. v. Hamilton Greens, LLC, 2016 U.S. Dist. LEXIS 77087, at *72-73 (S.D. Fla.), modified, 2016 U.S. Dist. LEXIS 77086 (S.D. Fla. June 14, 2016) (citing In re Berkman, 517 B.R. 288, 303 (Bankr. M.D. Fla. 2014)).
It is worth noting that other states, such as New York and Texas, provide creditors with a statutory right to attorney’s fees. See N.Y. Debt. & Cred. Law § 276-a; Tex. Bus. & Com. Code Ann. § 24.013 (West 1987). Additionally, other states, such as Alaska, authorize attorney’s fees by judicial discretion. See In re Good Taste, Inc., 317 B.R. 112, 114 (Bankr. D. Alaska 2004). Nevertheless, despite FUFTA’s remedial goal of putting the creditor back in the same position it would have been, but for the fraudulent transfer, Florida courts do not generally allow attorney’s fees under FUFTA.
Contractual Post-Judgment Fees
FUFTA is not the only source of a right to attorney’s fees in cases of fraudulent transfers. Among other things, borrower agreements frequently contain a provision in which the debtor agrees to pay the creditor’s reasonable fees and costs for post-judgment collection actions. Accordingly, a debtor’s failure to pay the creditor’s attorney’s fees incurred because of post-judgment collection actions can create a claim for breach of contract.
However, a contractual provision for a borrower to pay attorney’s fees for post-judgment collections is likely not enforceable when the contract itself is merged into a final judgment. See Florida Pottery Stores of Panama City, Inc. v. Am. Nat. Bank, 578 So. 2d 801 (Fla. 1st DCA 1991). Under the “doctrine of merger,” a valid and final judgment held in favor of the plaintiff “causes the original debt or cause of action which an adjudication is predicated” to merge into the final judgment, thereby, terminating “the cause’s independent existence.” Weston Orlando Park, Inc. v. Fairwinds Credit Union, 86 So. 3d 1186, 1187 (Fla. 5th DCA 2012). Therefore, a judgment creditor’s contractual right to attorney’s fees for enforcing a final judgment would no longer be enforceable.
On the other hand, this conclusion is far from black letter law, as courts have consistently held the doctrine of merger does not apply if there is a clear intention by the parties for a contract term to survive termination of the contract. See e.g., Engle Homes, Inc. v. Jones, 870 So. 2d 910, 910 (Fla. 4th DCA 2004). For example, the parties could explicitly state in the borrower agreement that the debtor’s obligation to pay the creditor’s attorney’s fees for post-judgment collection will not merge into the judgment. See e.g., SunTrust Bank v. Goldman, 29 A.3d 724, 732 (Md. Ct. Spec. App. 2011) (acknowledging a possible “method of avoiding the merger doctrine is for the parties to clearly state their intent in the contract that the fee provision shall not merge into the judgment.”). With the right language in the loan documents, a judgment creditor may have the right to post-judgment fees even after fees were obtained in the underlying judgment.
Despite FUFTA’s broad array of remedies and goal of putting the creditor back in the same position it would have been, but for the fraudulent transfer, Florida courts do not generally allow recovery of attorney’s fees under the Act. Nonetheless, there may be limited circumstances in which creditors may recover attorney’s fees incurred because of post-judgment collection actions.