Opinion ID: 2796489
Heading Depth: 4
Heading Rank: 1

Heading: Fraudulent Transfers

Text: Fraudulent transfers are a common method of shielding assets from creditors and other individuals with legitimate claims to property.15 There is a considerable incentive to defraud because fraudulent transfers are easy to promulgate but difficult to prove: a fraudulent debtor boasts an apparently valid deed while the defrauded creditor must confront the reality that “the intent to hinder, delay, or defraud creditors is seldom susceptible of direct proof.” Uniform Fraudulent Transfer Act, Prefatory Note at 4 (1984). Further, HRS § 651C-8 (Supp. 1985) 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.”16 In other words, at worst the fraudulent debtor is forced to pay what he or she already 14 Although the ICA vacated the $253,000 special damages award, the $253,000 figure still serves as a fair estimation of the statutory interest damages that accrued as of the date of the third jury’s verdict. 15 Fraudulent transfers have been prevalent throughout the entirety of the American judicial tradition. In 1918, the first uniform act codified the “better” decisions of several states that had applied England’s Statute of 13 Elizabeth. The act was updated in 1984 and subsequently adopted by Hawai#i and 42 other states. See Uniform Fraudulent Transfer Act, Prefatory Note at 4 (1984). 16 The availability of punitive damages is not constrained by HRS § 651C-8 because the UFTA contains a savings clause that provides: “Unless displaced by the provisions of this chapter, the principles of law and equity . . . supplement its provisions.” HRS § 651C-10. 22  FOR PUBLICATION IN WEST’S HAWAI#I REPORTS AND PACIFIC REPORTER  owed. Without the possibility of significant punitive damages, it would be difficult to deter this conduct. We conclude that a fraudulent transfer promulgated with the intent required to impose punitive damages justifies a punitive award at a 2:1 ratio to the actual damages suffered by the plaintiff.17 This amount is supported by comparison to “the civil or criminal penalties that could be imposed for comparable misconduct.” BMW, 517 U.S. at 583. The Hawai#i legislature has declared that treble damages (i.e. a 2:1 ratio) are an appropriate sanction for unfair, deceptive, or fraudulent acts committed in the course of commerce. See HRS § 480-13(b)(1) (Supp. 2005) (punishing deceptive practices with the greater of “threefold damages” or “$1,000” in addition to “reasonable attorney’s fees” and the “costs of suit”). In this case, Bornemann’s decision to sign confirmatory quitclaim deeds immediately after he was served as a defendant in the Kekonas’ fraudulent transfer lawsuit illustrates an intentional decision to hinder the Kekonas’ attempt to collect a legitimate debt. See BMW, 517 U.S. at 576 (“[I]nfliction of economic injury, especially when done intentionally through affirmative acts of misconduct or when the target is financially vulnerable, can warrant a substantial penalty.” (internal citation omitted)). The third jury was justified in imposing 17 This results in an award of treble damages once the compensatory and punitive awards are combined. 23  FOR PUBLICATION IN WEST’S HAWAI#I REPORTS AND PACIFIC REPORTER  $506,000 in punitive damages against Bornemann based solely on his decision to participate in a fraudulent transfer “with such malice as implies a spirit of mischief or criminal indifference to civil obligations.” Masaki, 71 Haw. at 16-17, 780 P.2d at 575.