CRG News - Blog

During the next few weeks, Cersonsky, Rosen & Garcia, P.C. (“CRG”) will be presenting a blog series on the Texas Uniform Fraudulent Transfer Act (“TUFTA”). This portion of the series is intended to provide a primer to the reader on what TUFTA is and how it can be used by companies, individuals, investors, vendors, and other creditors as a pre and post-judgment remedy. TUFTA is a very valuable statute of which any creditor, potential creditor, or business owner should be aware. However, it is often overlooked by attorneys and, in some circumstances, is misunderstood by the trial courts.

The purpose of TUFTA is to “prevent fraudulent transfers of property by a debtor who intends to defraud creditors by placing assets beyond their reach.” ^[1]Kaufmann v. Morales, 93 S.W.3d 650, 653 (Tex.App.-Houston [14th Dist.] 2002, no pet.)

TUFTA provides that a transfer of an asset is fraudulent, as to a creditor, if the debtor made the transfer with the actual intent to hinder, delay or defraud any of the debtor’s creditors. ^[2]Blackthorne v. Bellush, 61 S.W.3d 439, 443 (Tex. App .— San Antonio 2001, no pet.); Jackson Law Office, P.C. v. Chappell, 37 S.W.3d 15, 25 (Tex. App. — Tyler 2000, pet. denied); Tex. Bus. & … Continue reading. The UFTA lists 11 non-exhaustive “badges of fraud” to assist in determining whether the debtor made the transfer with the requisite fraudulent intent. ^[3]Id.; § 24.005(b)(1)-(11.) The list includes whether:

(1)  the transfer or obligation was to an insider;

(2)  the debtor retained possession or control of the property transferred after the transfer;

(3)  the transfer or obligation was concealed;

(4) before the transfer was made or obligation was incurred, the debtor had been sued or threatened with suit;

(5)  the transfer was of substantially all the debtor’s assets;

(6)  the debtor absconded;

(7)  the debtor removed or concealed assets;

(8) the value of the consideration received by the debtor was reasonably equivalent to the value of the asset transferred or the amount of the obligation incurred;

(9)  the debtor was insolvent or became insolvent shortly after the transfer was made or the obligation was incurred;

(10)  the transfer occurred shortly before or shortly after a substantial debt was incurred; and

(11)  the debtor transferred the essential assets of the business to a lienor who transferred the assets to an insider of the debtor.  ^[4]Id.

In order to prove to a jury that a fraudulent transfer occurred (by way of showing that some of the badges of fraud listed above occurred), a creditor will have to ‘trace the assets’ of the debtor. Tracing assets, often times, requires the creditor to conduct litigation discovery such as sending requests for production of relevant documents to the debtor (to obtain bank records, wire reports, check images, contracts, accounts receivable/payable logs, employment records, accounting records, etc), subpoenas to non-parties and/or subsequent transferees and take depositions of the debtor and other key witnesses.

Ultimately, the evidence compiled will be presented to a judge or jury during trial (or an injunction hearing), and the decision will then be made as to whether a fraudulent transfer occurred. If the fact-finder determines that a fraudulent transfer has taken place, TUFTA permits a creditor, under certain circumstances, to set aside a debtor’s fraudulent transfer of assets. ^[5]See Tex. Bus. & Com.Code Ann. § 24.008(a) (West 2009); Wohlstein v. Aliezer, 321 S.W.3d 765, 776 (Tex.App. – Houston [14th Dist.] 2010, no pet.) . Depending the facts of the case, the subsequent transferee can be held liable for the full amount of the creditor’s claims, regardless of the value of the property transferred. ^[6]See Airflow Houston, Inc. v. Theriot, 849 S.W.2d 928, 933-34 (Tex. App. – Houston [1st Dist.] 1993 no writ.) (Using the broad language of §24.008(a)(3)(c) to permit the court to award a judgment … Continue reading

The next blog will answer the question: Who is a creditor under the Texas Uniform Fraudulent Transfer Act?

Under Section 1692g of the Fair Debt Collection Practices Act, if a consumer disputes a debt within 30 days of the first Miranda warning[1], the debt collector must cease collection efforts until the debt collector “obtains verification of the debt or a copy of a judgment, or the name and address of the original creditor, and a copy of such verification or judgment, or name and address of the original creditor.” 15 U.S.C.A. § 1692g (West). The statute seems straight forward, but with the advice  on the internet (good, bad or indifferent), it has become more complicated. Debtors are now retrieving form letters and sending those off in response to demand letters in efforts to trip up debt collectors. Many times, those expansive letters request anything from the attorney employment agreements with their clients to the law firm’s insurance. The question is, does the law firm have to respond with every document request in order to have properly verified the debt under Section 1692g of the Fair Debt Collection Practices Act?

Fortunately, the courts have answered this question “no.” The courts have developed two tests. First, the traditional and more lenient test still applied by many courts was originally expounded in Chaudhry v. Gallerizzo, 174 F.3d 394, 406 (4th Cir. 1999). It required “nothing more than the debt collector confirming in writing that the amount being demanded is what the creditor is claiming is owed.” Haddad v. Alexander, Zelmanski, Danner & Fioritto, PLLC, 758 F.3d 777 (6th Cir. 2014) (citing Chaudhry 174 F.3d at 406 (4th Cir. 1999); see also, Clark v. Capital Credit & Collection Servs., 460 F.3d 1162 (9th Cir. 2006)). A second test was held in Haddad, where the the Sixth Circuit stated that sufficient “verification” requires the debt collector to “provide the consumer with notice of how and when the debt was originally incurred or other sufficient notice from which the consumer could sufficiently dispute the payment obligation.” Haddad, 758 F.3d at 786.

So what does this mean for a debt collector when responding to these letters? Generally, if the debt collector can give the basis for the original charge, an accounting of the debt and the name of the original creditor, the response to the verification will be sufficient. See e.g. Ritter v. Cohen & Slamowitz, LLP, 118 F.Supp.3d 497, 502, 504 (E.D.N.Y. 2015); Stoneheart v. Rosenthal, No: 01-CV-651, 2001 WL 910771, at *23 (S.D.N.Y. Aug, 13, 2001); and Hawkins-El v. First American Funding, 891 F.Supp. 2d 402 (E.D.N.Y. 2012); Hawkins-El v. First Am. Funding, LLC, 529 Fed.Appx. 45 (2d Cir. 2013) (affirming District Court’s opinion). However, in one instance, a court found that a verification contained internal inconsistencies, and was therefore insufficient. See Mack v. Progressive Financial Servs., Inc., No. 4:13cv544, 2015 WL 123742, at *1 (E.D. Tex. Jan. 8, 2015). Thus, it is important to make sure that the information given is accurate and consistent, otherwise the verification may be deemed insufficient, and all subsequent collection efforts may be in violation of the FDCPA.

Once the debt is verified, the debtors may continue their collection attempts, as stated in Hawkins-El “Plaintiff’s debt already had been verified for purposes of the FDCPA. Plaintiff cannot forestall collection efforts by repeating the same unsubstantiated assertions and thereby contend that the debt is ‘disputed.’ If Plaintiff were permitted to do so, debtors would be able to prevent collection permanently by sending letters, regardless of their merit, stating that the debt is in dispute. Such a result is untenable as it would make debts effectively uncollectible.” Hawkins-El, 891 F.Supp.2d at 410.

[1]See 15 U.S.C.A. § 1962g (a)(4) requiring “a statement that if the consumer notifies the debt collector in writing within the thirty-day period that the debt, or any portion thereof, is disputed, the debt collector will obtain verification of the debt or a copy of a judgment against the consumer and a copy of such verification or judgment will be mailed to the consumer by the debt collector.”