Marjorie A. Elken, OSB #073368

mae@buckley-law.com

BucrLBv Lnw P.C.

5003 Meadows Road, Suite 200

Lake Oswego, OR 97035

Telephone: 503.620.8900

Facsimile: 503.620.4878

C. Robert Steringero OSB #983514

bob.steringer@harrang.com

HRRRaNC LONC G¡,NY RUPNICT P.C.

1001 S.W. Fifth Ave., 16th Floor

Portland, Oregon 97204

Telephone: 503.242.0000

Facsimile: 503.968.8017

Of Attorneys for Plaintiff MALBCO HOLDINGS, LLC,

a Washington limited liability company

UNITED STATES DISTRICT COURT

DISTRICT OF OREGON

PORTLAND DIVISION

MALBCO HOLDINGS, LLC, a Washington

limited liability company,

Plaintiff,

VS

BHUPENDRA R. PATEL ANd NILA B.

PATEL, husband and wife; HEETAN B.

PATEL; HEETAL B. PATEL.MANANI; ANd

MUKESH PATEL,

Case No. 3 :14-cv-947-PK

PLAINTIFF'S COMBINED RESPONSE

TO DEFENDANTS' MOTIONS TO

DISMISS CLAIMS FOR ATTORNEY

FEES AND PUNITIVE DAMAGES

Defendants.

PLAINTIFF'S COMBINED RESPONSE TO DEFENDANTS' MOTIONS TO

DISMISS CLAIMS FOR ATTORNEY FEES AND PUNITIVE DAMAGES

Page 1 -

Case 3:14-cv-00947-PK Document 131 Filed 06/06/16 Page 1 of 8
Malbco Holdings, LLC ("Malbco") responds to Defendants Heetan and Heetal Patel's

Motion to Dismiss Malbco's Claims for Attorney Fees and Punitive Damages in Second

Amended Complaint [Doc. No. 128], Defendants Bhupendra R. Patel's and Nila B. Patel's

Motion to Dismiss Malbco's Claims for Attorney Fees and Punitive Damages in Second

Amended Complaint [Doc. No. 129] and Defendant Mukesh Patel's Motion to Dismiss Malbco's

Claims for Attorney Fees and Punitive Damages in Second Amended Complaint [Doc. No. 130],

as follows:

I. INTRODUCTION

On May 3,2016, Malbco filed its Second Amended Complaint, which asks the Court to

award Malbco attorneys' fees and punitive damages in this case. Defendants ask the Court to

dismiss Malbco's requests on the basis that Oregon's Uniform Fraudulent Transfer Act

("UFTA") does not specifically allow for the recovery of either attorneys' fees or punitive

damages. However, Oregon's UFTA states that this Court may award Malbco any "relief the

circumstances may require." ORS 95.260(1)(c)(C). The Patel Family asks the Court to limit the

powers granted to the Court under this provision and find that the Court is not authorized to

award punitive damages or attorneys' fees. The Court should deny the Patel Family's motions

because they are not supported by the plain language of UFTA or by case law.

II. LEGAL STANDARI)

Dismissal of a claim is proper only where there is no cognizable legal theory or an

absence of sufficient facts alleged to support a cognizable legal theory. Taylor v. Yee,780 F.3d

928,935 (9th Cir. 2015), cert. denied,136 S. Ct.929 (2016). There is a strong presumption

against dismissing an action for failure to state a claim. Gilligan v. Jamco Dev. Corp,, 108 F.3d

246,249 (9th Cir. 1997).

PLAINTIFF'S COMBINED RESPONSE TO DEFENDANTSO MOTIONS TO

DISMISS CLAIMS FOR ATTORNEY FEES AND PUNITIVE DAMAGES

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Case 3:14-cv-00947-PK Document 131 Filed 06/06/16 Page 2 of 8
III. ARGUMENT

A. Malbco is entitled to plead punitive damages for a transfer made with actual intent

to defraud.

Oregon's UFTA provides that principles of law and equity, including the law of fraud,

supplement its provisions. ORS 95.290.

"Unless displaced by the provisions of ORS 95.200, the principles of law and

equity, including the law merchant and the law relating to principal and agent,

estoppel, laches, fraud, misrepresentation, dutess, coercion, mistake, insolvency

or other validating or invalidating cause, supplement its provisions."

Id. Orcgon's common law makes clear that punitive damages are avulable in cases involving

fraud. Donald H. Hartvig, Inc. v. Clackamas Town Ctr. Associates,I0l Or. App. 79,85,789

P.2d 679,633 (1990) (punitive damages allowed in fraud case). Fraudulent transfers are a

species of fraud. See, e.g. HustE Int'l Electronics, Inc, v. ^Rll2, No' 15-145, slip op', 578 U'S' 

-

(May 16, 2016) (holding that fraudulent conveyances performed with actual intent to hinder,

delay or defraud creditors are non-dischargeable in bankruptcy because they constituted o'actual

fraud" as that term is used in 1 1 U.S.C. $ 523(aX2)(A)). Thus, under a plain reading of Oregon's

UFTA, Malbco is entitled to seek an award of punitive damages in this case'

Oregon state courts have not addressed whether punitive damages are available under

Oregon's UFTA. However, this Court has allowed a trustee to pursue a request for punitive

damages under Oregon's UFTA. In re Stein, 1997 WL 30822 (D. Or. Jan, 17 , 1997) (allowing a

trustee to pursue a request for punitive damages). Additionally, several other states with

fraudulent transfer statutes that have similar language to Oregon's UFTA have determined that

punitive damages can be plead and awarded in a fraudulent transfer case. For example, In

Locafrance (LS. Corp. v. Interstate Distribution Servs., Inc.,6 Ohio St.3d 198,202,451 N.E.2d

PLAINTIFF'S COMBINED RESPONSE TO DEFENDANTSO MOTIONS TO

DISMISS CLAIMS FOR ATTORNEY FEES AND PUNITIVE DAMAGES

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1222,1226 (1983), the Ohio Supreme Court determined that punitive damages were authorized

under Ohio's UFTA.1

In Locafrance U.S. Corp., the court determined that the defendant's willful transfer of its

assets to avoid paying on a judgment supported an award of punitive damages. 1d The court

stated:

"Considering the facts in this case, punitive damages are appropriate to deter the

delinquent judgment debtor from attempting to avoid paying the judgments.

Setting aside the conveyance and other remedies set forth in R.C. 1336.10 and

1336.11 would not be a sufficient deterrent to discourage appellants and other

debtors from making fraudulent conveyances to avoid creditors. Without punitive

damages as a deterrent, the purpose of the Fraudulent Conveyance Act would be

severely weakened.'o

Id,

Several other states have also allowed an award of punitive damages in UFTA cases'

Kekonav. Bornemann,I35 Hawai'i 254,265,349P.3d36I,372 (2015), recons. den., 135

Hawai'i 326,349 P.3d 11S1 (2015),andrecons. granted,l35 Hawai'i405,353 .P3d 408 (2015)

(affirming an award of punitive damages in a fraudulent transfer claim, and finding "HRS $

651C-8 (Supp.19S5) limits a defrauded creditor's actual damages to 'the value of the asset

transferred ... or the amount necessary to satisfy the creditor's claim, whichever is less.' In other

words, at worst the fraudulent debtor is forced to pay what he or she already owed. V/ithout the

possibility of significant punitive damages, it would be difficult to deter this conduct."); Johnson

I The version of the Ohio UFTA in effect at the time of this decision had similar language

to Oregon's UFTA. It provided: "[i]n any case not provided for in [the Ohio UFTA], the rules of

law and equity including the law merchant, and in particular the rules relating to the law of

principal and agent, and the effect of fraud, misrepresentation, duress, or coercion, mistake,

Èankruptcy, or ôther invalidating cause shall govern." Locafrance U.S. Corp.,6 Ohio St.3d at

201 (quoting R.C. 1336.1 1). It also included a similar remedies provision that allowed the court

to "[m]ake ány order which the circumstances of the case may require." Id. atn.2 (quotingR.C.

1336.09).

PLAINTIFF'S COMBINED RESPONSE TO DEFENDANTS' MOTIONS TO

DISMISS CLAIMS FOR ATTORNEY FEES AND PUNITIVE DAMAGES

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v. Ventling, 852 N.V/.2d20 (Iowa Ct App 2014) (affrrming an award of punitive damages in a

fraudulent transfer case); McCain Foods USA, Inc. v. Cent. Processors, lnc.,275 Kan 1,2,61

P3d 68, 70 (2002) (affirming award of punitive damages under Kansas's UFTA); Henderson v.

Henderson ex rel. Estate of Adams,2001 WL I7I9l92 (Me. Super. Ct. 2001) (awarding punitive

damages in fraudulent transfer case brought under Maine's UFTA); Volk Constr. Co. v.

l|/ilmescheru Drusch Roofing Co.,58 S.W.3d 897, 900 (Mo. Ct. App. E.D. 2001) ("[W]e hold

that the UFTA does not prohibit the award of punitive damages"); Rolleston v. Estate of Sims,

253 Ga. App. 182,187,558 S.E.2d 4Il,416 (2001) (allowing punitive damages in fraudulent

transfer case).

Defendants fail to address any of this case law, and instead focus on an August 20,2013,

Memorandum from the Chair of the UFTA Drafting Committee ("August 2013 Memorandum").

In the Memorandum, the Committee declined to reçommend a revision to UFTA to include an

express provision for punitive damages. However, the Committee specifically recognizedthat

some courts had already determined that UFTA's provisions, as written, authorized an award of

punitive damages, and the Committee did not disagree with that interpretation. Nothing in the

August 2013 Memorandum prohibits - or suggests to prohibit - a court from awarding punitive

damages in an UFTA claim.

In sum, as detailed above, no Oregon court has held that punitive damages cannot be

plead in an UFTA case. Instead, several courts, including this Court, have allowed a party

damaged by a scheme to defraud creditors to seek punitive damages. Defendants' motion

seeking to dismiss Malbco's request for punitive damages should be denied.

B. Malbco is entitled to plead attorneys' fees in its fraudulent transfer lawsuit.

Defendants move to dismiss Malbco's request for fees because they say fees may only be

awarded if a statute expressly allows them, and they say Oregon's UFTA does not expressly

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DISMISS CLAIMS FOR ATTORNEY FEES AND PUNITIVE DAMAGES

Case 3:14-cv-00947-PK Document 131 Filed 06/06/16 Page 5 of 8
allow for attorneys' fees.2 Mot. to Dismiss [Doc. No. 128], pp. 2-3. To prevail on their motion,

defendants must show that there is no legal basis for Malbco's request for fees. Defendants have

not made - and cannot make - that showing.

First, while Oregon state courts have not determined whether a court may award

attorneys' fees under the UFTA provision allowing ooany othet relief the circumstances may

require,"3 other courts have looked at that issue and have allowed an award of fees. See, e.g., In

re Berg,376 BR 303, 310 (Bankr D Kan 2007) (finding that a Court may award attorneys' fees

under Missouri's UFTA which allows a court to award "any other relief the circumstances may

require"); In re Youngstown Osteopathic Hosp. Ass'n,280 BR 400,410 (Bankr ND Ohio 2002)

("[T]he court may order the party that committed the fraudulent transfer to pay attorney fees and

punitive damages.").

Defendants ignore this case law and instead focus on a June 6,2012, memorandum issued

by the Chair of the Study Committee on choice of Law for Fraudulent Transfer (the "June2012

Memorandum"). In the June2012 Memorandum, the Study Committee determined that it was

not "clearly necessary" to revise the Uniform Law Commission's UFTA to include an express

attorneys' fees provision. See Jvne2012 Memorandum $$ II and IV.B. However, the June

2012Memorandum also acknowledges that some courts are awarding fees under the current

2 As an initial matter, it appears that Defendants' motion is too early. FRPC 54(dX2)

provides that the court determines liability for fees after judgment. In In re Stein,1997 WL

ZOçZZ (D. Or. Jan, 17, 1997),this Court, relying on FRCP 54, denied a motion for judgment on

the pleadings challenging a claim of attorney fees in a fraudulent transfer action on the basis that

the issue was raised too early and should be addressed after judgment.

3In Norris v, R & T Mfg., LLC,266 Or. App. 123, t25,338 P.3d 717 ,718 (2014), review

denied sub nom, Norris v, R & f MfS.,LLC,335 Or. Ill,346P.3d l2l2 (2015), the court

declined to consider the issue because it had not been properly preserved for appeal.

("Assuming, without deciding, that an award of attorney fees could be considered a remedy and

encompassed within ORS 95.260(1)(c)(C) ... we decline to consider plaintiff s argument '...")

page 6 - PLAINTIFF'S COMBINED RESPONSE TO DEFENDANTS', MOTIONS TO

DISMISS CLAIMS FOR ATTORNEY FEES AND PUNITIVE DAMAGES

Case 3:14-cv-00947-PK Document 131 Filed 06/06/16 Page 6 of 8
version of the UFTA, and nothing in the memorandum suggests that the Committee disagreed

with those courts or felt their interpretations of the UFTA were erroneous. Further, read as a

whole, the June 2012Memorandum shows that the Committee's decision to decline to add an

attorneys' fees provision was not based on any sentiment that attorneys' fees should not be

awarded in UFTA cases, but rather was based on the Committee's decision to limit the number

of substantive revisions to the UFTA. See June 2012Memorandum $ IV.F ("The generally

successful functioning of the UFTA, long continued, means that its terms should not be altered

absent a substantial need, and the suggestions did not, in the Study Committee's opinion, reach

that high threshold.").

The second problem with defendants' motion is that it ignores the fact that this Court has

inherent powers to award attorneys' fees, even when it is sitting in diversity. Chambers v.

NASCO, Inc.,50! U.S.32, 52-53,111 S. Ct.2123,Il5L.Ed.2d27 (1991) (courtmay award

attorneys' fees for bad faith, irrespective of state law since the court's equitable powers transcend

the applicable state law under those circumstances).

In sum, there are cognizable legal theories for Malbco's request for attorneys' fees, and

defendants' motions to dismiss Malbco's request for fees must be denied.

PLAINTIFF'S COMBINED RESPONSE TO DEFENDANTS' MOTIONS TO

DISMISS CLAIMS FOR ATTORNEY FEES AND PUNITIVE DAMAGES

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Case 3:14-cv-00947-PK Document 131 Filed 06/06/16 Page 7 of 8
ry. CONCLUSION

For the reasons stated above, Malbco respectfully requests the Court to deny defendants'

motions to dismiss.

DATED thß tÚday of June, 2016.

BUCKLEY LAW, P.C.

By:

Rd., Suite 200

No I

5300

t817673

Lake Oswego, OR 97035

Tel: (503) 620-8200lFax: (503) 620-4878

Of Attorneys for Plaintiff MALBCO

HOLDINGS, LLC,

a Washington limited liability company

PLAINTIFF'S COMBINED RESPONSE TO DEF'ENDANTS' MOTIONS TO

DISMISS CLAIMS FOR ATTORNEY FEES AND PUNITIVE DAMAGES

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