A Fraudulent Transfer Suit May Commence More Than 4 Years After The Transfer Under CUVTA

• Published date: 25 May 2023
• Subject Matter: Criminal Law, Insolvency/Bankruptcy/Re-structuring, Insolvency/Bankruptcy, White Collar Crime, Anti-Corruption & Fraud
• Law Firm: Holland & Knight
• Author: Lisa Kim and Barbra Parlin

Highlights

• In a recent opinion in In re: Momentum Development LLC, the U.S. Bankruptcy Appellate Panel of the Ninth Circuit held that under Cortez v. Vogt, the four-year period for commencing an action against a third-party transferee to avoid a fraudulent transfer may be counted either from the date of the transfer or from the date that judgment is entered in a suit by the creditor on the underlying debt, even when the transfer occurred before the lawsuit was filed.
• If an action under the California Uniform Voidable Transactions Act (CUVTA) is not brought within seven years after an asset was transferred, California's statute of repose extinguishes the creditor's cause of action for fraudulent transfer.
• Cortez has been criticized by scholars and courts in some jurisdictions, but praised by others. This Holland &amp Knight alert discusses the split of authority concerning the date from which courts have found the limitations period for commencing an action to avoid a fraudulent transfer is triggered and how that split can impact the transferee.

In its 1997 decision Cortez v. Vogt, the California Court of Appeal ruled that the limitations period during which an action to avoid a fraudulent or voidable transfer begins to run either on the date of the transfer or on the date a judgment is entered in an action by the creditor against the debtor with respect to the underlying debt.¹Relying on California's then-Uniform Fraudulent Transfer Act - now California's Uniform Voidable Transactions Act (CUVTA or Act) - the legislative history behind the Act and previous California caselaw, the Cortez court ruled that "where an alleged fraudulent transfer occurs while an action seeking to establish the underlying liability is pending, and where a judgment establishing the liability later becomes final, [the statute of limitations period] does not commence to run until the judgment in the underlying action becomes final."²Cases from the California Courts of Appeal and the U.S. Bankruptcy Appellate Panel of the Ninth Circuit (Ninth Circuit BAP) have since applied Cortez to find that a creditor action effectively tolls the running of the limitations period for commencing an action under the CUVTA to avoid a transfer that occurred while the case was pending until the date that judgment is entered.

In its recent decision in In re Momentum, the Ninth Circuit BAP went even further, finding that the limitations period for commencing an action to avoid a fraudulent transfer may be triggered either by the date of the transfer itself or by the date that judgment is...