Date: 05-18-2011

Case Style: Western Hay Company, Inc. v. Lauren Financial Investments, Ltd.

Case Number: 3D10-1071

Judge: Wells

Court: Florida Court of Appeal on appeal from the Circuit Court for Miami-Dade County

Plaintiff's Attorney: Zimmerman Kiser Sutcliffe, J. Timothy Schulte, Kevin P. Robinson, and Keef F. Owens, (Orlando) for appellant.

Defendant's Attorney: Jay A. Gayoso, for appellees.

Description: Western Hay Company, Inc., the plaintiff below, appeals from a final judgment entered in favor of the defendants below, Lauren Financial Investments, Ltd., d/b/a Lauren Associates and Ronald Rubin, on its fraudulent transfer claim under section 726.105(1)(a) of the Florida Statutes. Finding that the trial court correctly applied the time limitations set forth in section 726.110(1) of the Florida Statutes, we affirm.

In November 2005, Western Hay recovered a money judgment against Donner Stone Crabs, Inc. (“DSCI”), a Florida corporation, in a Utah court. Western Hay thereafter domesticated the judgment in Florida and conducted discovery in aid of execution on the judgment.

In January 2006, Western Hay sent a writ of garnishment to Colonial Bank in Hollywood, Florida, where DSCI had a bank account. On February 27, 2006, Colonial Bank answered, informing Western Hay that there were no assets to garnish. In December 2006 and February 2007, Western Hay subpoenaed Colonial Bank for bank records on the account. The bank records showed numerous money transfers from DSCI to Lauren Financial Investments, Ltd. and to Ronald Rubin, between August 2002 and August 2003, which dissipated substantially all of DSCI’s assets in the account.

Ronald Rubin was managing partner of Lauren Financial Investments, Ltd. Patti Rubin, his wife, was the president and director of DSCI. Western Hay sought to depose the Rubins. However, having moved from Florida, the Rubins were not located and deposed until September 25, 2007.

On November 6, 2007, Western Hay filed the underlying lawsuit against Lauren Financial Investments, Ltd. and Ronald Rubin alleging that DSCI had fraudulently transferred monies to them in order to avoid paying Western Hay for services it had rendered to DSCI in violation of section 726.105(1)(a) of the Florida Statutes. In their answer, the appellees raised the limitations period set forth in section 726.110(1) as an affirmative defense.

After holding a bench trial, the trial court entered final judgment in favor of the appellees. Therein, the court below found that DSCI had fraudulently transferred $240,568.97 to the appellees in violation of section 726.105(1)(a), and that Western Hay would be entitled to recover $123,422.05 from the appellees, plus prejudgment interest, but for the applicability of the limitations period set forth in section 726.110(1). Western Hay appealed. For the following reasons, we affirm. Chapter 726, Florida’s Uniform Fraudulent Transfer Act (“FUFTA”), provides “a cause of action for damages in favor of a creditor against an aider or abettor to a fraudulent transaction.” Freeman v. First Union Nat’l Bank, 865 So. 2d 1272, 1273 (Fla. 2004); §§ 726.101-726.112, Fla. Stat. (2007). The chapter addresses three distinct types of fraudulent transfers made by a debtor, which include: (1) transfers made by a debtor with the “actual intent to hinder, delay, or defraud any creditor of the debtor,” § 726.105(1)(a), Fla. Stat. (2007); (2) transfers made by a debtor without “receiving a reasonably equivalent value in exchange for the transfer,” § 726.105(1)(b), Fla. Stat. (2007); § 726.106(1), Fla. Stat. (2007); and (3) transfers made to an “insider for an antecedent debt, [where] the debtor was insolvent at that time, and the insider had reasonable cause to believe that the debtor was insolvent.” § 726.106(2), Fla. Stat. (2007).

Section 726.110(1)-(3) provides a different limitation period for each of these fraudulent transfers:

Extinguishment of cause of action

A cause of action with respect to a fraudulent transfer or obligation under ss. 726.101-726.112 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;

(2) Under s. 726.105(1)(b) or s. 726.106(1), within 4 years after the transfer was made or the obligation was incurred; or

(3) Under s. 726.106(2), within 1 year after the transfer was made or the obligation was incurred.

§ 726.110(1)-(3), Fla. Stat. (2007) (emphasis added). Unlike its predecessor1, which contained no limitations provision, FUFTA expressly provides that a “cause of action” with respect to a fraudulent transfer brought under section 726.105(1)(a) “is extinguished” if not brought “within four years after the transfer was made . . . or, if later, within 1 year after the transfer . . . was or could reasonably have been discovered by the claimant.” § 726.110(1), Fla. Stat. (2007). Here, Western Hay filed its complaint on November 6, 2007, which was more than four years after the last transfer in question was made on August 18, 2003. Thus, this appeal concerns the applicability of the one year savings clause of section 726.110(1).

Western Hay argues here, as it did below, that this Court should read the savings clause to mean that a fraudulent transfer action must be filed within one year after the fraudulent nature of the transfer could reasonably have been discovered by the claimant, as opposed to within one year after the transfer itself could reasonably have been discovered. Thus, according to Western Hay, the one year period did not begin to run until it deposed Patti Rubin on September 25, 2007, because, up until that time, it “could only speculate whether the transfers shown in the bank records were fraudulent.” We disagree and find that the trial court was correct in holding that the savings clause requires that the lawsuit be filed within one year after the transfer itself could reasonably have been discovered. Therefore, the court below properly held that because “the information contained in the bank records could have been discovered by the plaintiff as early as the day Colonial Bank responded to the writ of garnishment,” on February 27, 2006, “the plaintiff could reasonably have discovered evidence of the transfers during the one-year period between February 27, 2006 and February 27, 2007.” As with any statute, Florida courts must give effect to the legislature’s intent by first looking to the actual language of the statute itself; if the statutory language is clear and unambiguous, there is no need to resort to the rules of statutory construction to explore the legislative history behind the act’s enactment:

Our purpose in construing a statute is to give effect to the Legislature’s intent. State v. J.M., 824 So. 2d 105, 109 (Fla. 2002). In attempting to discern legislative intent, we first look to the actual language used in the statute. Joshua v. City of Gainesville, 768 So. 2d 432, 435 (Fla. 2000). If the statutory language is unclear, we apply rules of statutory construction and explore legislative history to determine legislative intent. Id.; Weber v. Dobbins, 616 So. 2d 956, 958 (Fla. 1993).

Freeman, 865 So. 2d at 1276 (quoting BellSouth Telecomm., Inc. v. Meeks, 863 So. 2d 287, 289 (Fla. 2003)); see also Knowles v. Beverly Enterprises-Florida, Inc., 898 So. 2d 1, 10 (Fla. 2004) (stating that “the rules of statutory construction are the means by which courts seek to determine legislative intent only when that intent is not plain and obvious enough to be conclusive,” and finding that “[b]ecause we agree that the language used by the Legislature is unambiguous, it is not necessary to examine the legislative history”); State, Dep’t of Revenue v. Lockheed Martin Corp., 905 So. 2d 1017, 1020 (Fla. 1st DCA 2005) (“When a statute is clear, a court may not look behind the statute’s plain language or resort to rules of statutory construction to determine the legislative intent. This is so because the Legislature is assumed to know the meaning of the words used in the statute and to have expressed its intent through the use of the words.”) (Citations omitted).

In this case the statute is clear. Section 726.110(1) simply says that where a transfer was made with the actual intent to hinder, delay or defraud, no cause of action exists four years after “the transfer” or, if more than four years have passed, no more than one year after “the transfer” was or could reasonably have been discovered. The Act clearly defines the term “transfer” to mean “every mode, direct or indirect, absolute or conditional, voluntary or involuntary, of disposing of or parting with an asset or an interest in an asset, and includes payment of money, release, lease, and creation of a lien or other encumbrance.” § 726.102(12), Fla. Stat. (2007). Nowhere does the Act or section 726.110 state or suggest that the time within which an action may be brought begins to run upon discovery of the fraudulent nature of a transfer. We must, therefore, conclude that section 726.110(1) is clear and unambiguous and means what it says: that actions under section 726.105(1)(a) must be brought within four years of a “transfer,” or at best within one year after a “transfer” could reasonably have been discovered.

Moreover, the savings clause detailed in section 726.110(1) for fraudulent transfers under section 726.105(1)(a) is not present in the limitations periods for the other fraudulent transfers covered by Chapter 726. See § 726.110(1)-(3), Fla. Stat. (2007). The fact that additional time is accorded where intent to conceal forms the basis of a claim further evidences a clear intent by the Legislature to supplant the discovery rule accorded to fraud actions in general.

As the United States District Court for the Middle District of Florida has recently confirmed, had the Legislature intended for this limitations period to run from discovery of the fraudulent nature of a transfer rather from the transfer itself, it could have and would have said so:

If the Florida legislature meant for actions brought within one year of when the “fraudulent nature of the transfer” was or could reasonably have been discovered by the claimant to be timely, it could have so provided in the savings clause. At least one other jurisdiction has done so. See Ariz. Rev. Stat. § 44-1009(1) (Arizona’s savings clause provides that a claim for relief is extinguished unless an action is brought “within one year after the fraudulent nature of the transfer . . . was or through the exercise of reasonable diligence could have been discovered by the claimant.”). The bankruptcy court therefore enunciated the proper standard under the savings clause in its summary judgment order: the fraudulent transfer action is barred under § 726.110(1) unless an action was brought “within one year after the alleged transfers were or could reasonably have been discovered by [the claimant].”

In re Hill, No. 3:03-cv-1034-J-32, 2004 WL 5694988, at *3 (M.D. Fla. Nov. 4, 2004) (footnote omitted).

Western Hay, relying upon Freitag v. McGhie, 947 P. 2d 1186 (Wash. 1997), argues that this Court should ignore the plain language of the Act because giving the term “transfer” its literal meaning would lead to an absurd result and also be in derogation of the common law discovery rule which acts to toll the running of the statute of limitations in cases of fraud. We disagree for the reasons eloquently set forth in the Freitag dissent:

[The Uniform Fraudulent Transfer Act (“UFTA”)] displaces the common law discovery of fraud rule by requiring the one-year limitation to run from the discovery of the transfer, not the fraud. The statute mandates the cause of action is extinguished “within four years” after the transfer was made or “if later, within one year after the transfer” was or could reasonably have been discovered. The Legislature used the word “transfer” in both the four-year and oneyear provisions. No reason is advanced to give the same word, within the same sentence, two completely different meanings. . . . Perhaps the Legislature indeed made the wrong choice; however, [UFTA] clearly reflects a rational and intentional choice, if not the best one. . . . The stated legislative purpose of section 9 of UFTA . . . is to create an orderly, predictable, and uniform time for a claimant to bring a fraudulent transfer suit. The section as written, “transfer” and all, accomplishes just that. See Frank R. Kennedy, The Uniform Fraudulent Transfer Act, 18 UCC L.J. 195, 210 (1986); Uniform Fraudulent Transfer Act § 9 Comment, 7A U.L.A. 665-66 (1985) (UFTA § 9). . . . The finality with which the trial court disposed of Petitioners' claims is exactly what the drafters of section 9 intended: it ended Petitioners' opportunity to file a lawsuit at a specific time one year after discovery of the transfer. This is a tough bright-line rule. In a different sense the one-year discovery rule itself is designed to mitigate the harsh result of the four-year discovery rule that is embodied in the first part of [the statute of limitations]. “UFTA . . . provides an additional, though shorter, time period to guard against the potentially harsh application of the four-year extinguishment provision. . . . The plain language of the statute makes the one-year ‘safety valve’ limitations period available to all claimants under the UFTA.”

Id. at 825-27 (Sanders, J., dissenting) (citations omitted); see also § 726.111, Fla. Stat. (2007) (stating that principles of law and equity and the law relating to fraud supplement the Act “[u]nless displaced by the provisions of ss. 726.101-726.112”).

* * *

See: http://www.3dca.flcourts.org/Opinions/3D10-1071.pdf

Outcome: Accordingly, because the limitations period set forth in section 726.110(1) of the Florida Statutes expired in this case before the instant action was brought, we affirm the final judgment entered in favor of the appellees.

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