Opinion ID: 2718842
Heading Depth: 3
Heading Rank: 2

Heading: Maine’s Uniform Fraudulent Transfer Act

Text: [¶42] Raisin and Samsara next contend that the court erred in awarding damages in the amount of $340,000 against them pursuant to Maine’s Uniform Fraudulent Transfer Act, 14 M.R.S. §§ 3571-3582 (MFTA). The trusts make two arguments: first, that the MFTA limits Samsara’s liability to the amount necessary to satisfy KRZ’s underlying claim, and second, that the court’s damages award as to Raisin was not authorized by the statute and was not supported by equitable considerations. We review questions of statutory construction de novo, and in so 28 doing we give effect to the Legislature’s intent by considering the statute’s plain meaning and the entire statutory scheme of which the provision at issue forms a part. Town of Eagle Lake v. Comm’r, Dep’t of Educ., 2003 ME 37, ¶ 7, 818 A.2d 1034. We will consider legislative history when the statute’s language is ambiguous. See id. 1. The MFTA’s Limitations on Transferee Liability [¶43] The trusts first contend that the court erred in concluding that 14 M.R.S. § 3579(2) does not limit KRZ’s ability to recover from Samsara as a transferee. For the reasons set forth below, we agree that the statute does operate to limit Samsara’s liability in the manner advocated by the trusts, and we accordingly vacate the court’s award of damages against Samsara. [¶44] Title 14 M.R.S. § 3579(2) provides as follows: 2. Judgment. Except as otherwise provided in this section, to the extent a transfer is voidable in an action by a creditor under section 3578, subsection 1, paragraph A, the creditor may recover judgment for the value of the asset transferred, as adjusted under subsection 3, or the amount necessary to satisfy the creditor’s claim, whichever is less. The judgment may be entered against: A. The first transferee of the asset or the person for whose benefit the transfer was made; or B. Any subsequent transferee other than a good-faith transferee or obligee who took for value or from any subsequent transferee or obligee. 29 Section 3579(2) thus provides that Samsara, as the first transferee of the asset, may be liable to KRZ only in the amount necessary to satisfy KRZ’s claim, $52,217.40,9 which is less than the value of the asset transferred, $170,000. Samsara will only enjoy limited liability, however, “to the extent [the] transfer is voidable in an action by a creditor under section 3578, subsection 1, paragraph A.” Id. The question is how to construe this condition precedent—“to the extent a transfer is voidable in an action by a creditor under section 3578[(1)(A)]”—that must be met for Samsara to be protected. [¶45] KRZ contends that section 3579(2) should apply only when a creditor has actually brought an action for avoidance pursuant to 14 M.R.S. § 3578(1)(A).10 9 The MFTA defines a “claim” as “a right to payment, whether or not the right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured or unsecured.” 14 M.R.S. § 3572(3) (2013). 10 Maine’s Uniform Fraudulent Transfer Act (MFTA) provides for various remedies, one of which is the avoidance of the transfer. The MFTA’s remedies provision provides in full: 1. Action for relief. In any action for relief against a transfer or obligation under this Act, a creditor, subject to the limitations provided in section 3579, may obtain: A. Avoidance of the transfer or obligation to the extent necessary to satisfy the creditor’s claim; B. An attachment, trustee process or other provisional remedy against the asset transferred or other property of the transferee in accordance with the procedure prescribed by law; or C. Subject to applicable principles of equity and in accordance with applicable civil rules of procedure: (1) An injunction against further disposition by the debtor or a transferee, or both, of the asset transferred or of other property; 30 We disagree. The plain language of section 3579(2) does not require that a creditor actually elect avoidance as a remedy, but instead simply describes the status of the transfer. If the transfer of the asset is voidable as a fraudulent transfer, then the protections of section 3579(2) will apply. KRZ correctly points out that this construction of section 3579(2) may prevent some creditors from pursuing the remedy of their choice pursuant to section 3578. This result, however, is expressly contemplated by section 3578, which provides that a creditor’s remedies are “subject to the limitations provided in section 3579.” 14 M.R.S. § 3578(1). Sections 3578 and 3579(2) thus operate in harmony to limit a creditor’s recovery of damages against a transferee when the transfer at issue is voidable. [¶46] In this case, the entry of default against Samsara established that the transfer of the Bar Harbor property was fraudulent, and was therefore voidable. See Official Post Confirmation Comm. of Creditors Holding Unsecured Claims v. Markheim, 2005 ME 81, ¶ 11, 877 A.2d 155 (“A transfer is voidable if it is (2) Appointment of a receiver to take charge of the asset transferred or of other property of the transferee; (3) Damages in an amount not to exceed double the value of the property transferred or concealed; or (4) Any other relief the circumstances may require. 2. Execution. If a creditor has obtained a judgment on a claim against the debtor, the creditor, if the court so orders, may levy execution on the asset transferred or its proceeds. 14 M.R.S. § 3578 (2013). 31 fraudulent, 14 M.R.S.A. § 3578(1)(A) . . . .”); McAlister v. Slosberg, 658 A.2d 658, 660 (Me. 1995) (“When a default is entered against a defendant, the allegations in the plaintiff’s complaint are deemed to be true and become findings of fact.”). Accordingly, pursuant to section 3579(2), Samsara’s liability was limited to the amount necessary to satisfy KRZ’s claim. We therefore vacate the court’s award of damages and remand for an appropriate entry of damages against Samsara. 2. Damages Pursuant to 14 M.R.S. § 3578(1)(C)(3) [¶47] The trusts next argue that the court erred in construing the MFTA to authorize an award of damages against Raisin in the amount of double the value of the fraudulently transferred property, or $340,000. For the following reasons, we conclude that the court’s award of damages was in error. [¶48] Monetary damages pursuant to the MFTA are governed by 14 M.R.S. § 3578(1)(C)(3), which provides that in any action for relief against a transfer, a creditor, subject to the limitations of section 3579 and applicable principles of equity, may obtain “[d]amages in an amount not to exceed double the value of the property transferred or concealed.”11 The statute does not elaborate on how damages are to be calculated. Nor does the statute disclose the purpose of damages, that is, whether damages are intended to compensate creditors, punish 11 The MFTA’s remedies provision is set forth in full at supra n.10. 32 the parties to a fraudulent transfer, or both. Nonetheless, we construe the unambiguous words of a statute to “convey their plain and ordinary meaning.” Schelling v. Lindell, 2008 ME 59, ¶ 14, 942 A.2d 1226. “Damages” are commonly understood as “[m]oney claimed by, or ordered to be paid to, a person as compensation for loss or injury.” Black’s Law Dictionary 471 (10th ed. 2014). In the context of a fraudulent transfer, the loss or injury to a creditor is necessarily twofold: the amount of the creditor’s underlying claim and additional expenses such as attorney fees or costs incurred in locating the fraudulently transferred asset and in prosecuting an action for fraudulent transfer. Section 3578(1)(C)(3) thus authorizes the recovery of both the creditor’s claim and damages arising from the fraudulent transfer itself. Accordingly, section 3578(1)(C)(3)’s provision that damages are “not to exceed double the value of the property transferred or concealed” can be read to establish a cap on a creditor’s total damages at twice the value of the fraudulently transferred asset, rather than to establish the amount of damages itself. [¶49] We recognize that the statute could reasonably be read to establish the amount of damages at twice the value of the fraudulently transferred asset, and therefore acknowledge that there exists ambiguity in section 3578(1)(C)(3). We nonetheless conclude that the section’s legislative history confirms the interpretation of the statute as setting a cap on damages. See Town of Eagle Lake, 33 2003 ME 37, ¶ 7, 818 A.2d 1034. Since 1832, a Maine statute has authorized the award of damages against parties to a fraudulent transfer. See P.L. 1832, ch. 195, § 13.12 In 1985, the Legislature adopted the Uniform Fraudulent Transfer Act and repealed the then-existing statute that provided for damages in fraudulent transfer actions. See P.L. 1985, ch. 641, §§ 2, 3 (repealing 14 M.R.S.A. § 3155 (1961) and enacting Maine’s Uniform Fraudulent Transfer Act) (effective July 16, 1986). However, in 1991 the Legislature enacted 14 M.R.S. § 3178(1)(C)(3) in order to “restore[] the remedy of double damages for fraudulent transfers.” L.D. 695, Statement of Fact (115th Legis. 1991); see P.L. 1991, ch. 114 (effective Oct. 9, 1991) (codified at 14 M.R.S. § 3578(1)(C)(2013)). The stated purpose of restoring the damages provision at section 3578(1)(C)(3) was that, without it, “the creditor pays more when the creditor is defrauded than when the creditor is not defrauded.” L.D. 695, Statement of Fact (115th Legis. 1991). This legislative history recognizes that a creditor whose claim against an asset is hindered or delayed by a fraudulent transfer must expend additional resources and energy to 12 The original statute authorizing damages against parties to a fraudulent provided as follows: [A]ny person who shall knowingly aid or assist any debtor or prisoner in any fraudulent concealment of his property or estate, or any transfer thereof to secure or conceal the same from creditors, to prevent the same from attachment or execution, he shall be answerable in a special action of the case, to any creditor who, may sue for the same, in double the amount of the property or estate, so fraudulently concealed or transferred, not exceeding however, double the amount of such creditor’s just debt or demand. P.L. 1832, ch. 195, § 13. 34 execute against or attach that asset. The damages authorized by section 3578(1)(C)(3) are thus intended to compensate the creditor for these additional expenses as well as for the underlying claim, but only to the extent of twice the value of the transferred asset. [¶50] Finally, our conclusion that section 3578(1)(C)(3) authorizes the award of attorney fees incurred in the prosecution of an action for fraudulent transfer does not conflict with our prior recognition that “a statutory right to recover attorneys’ fees will be found only in the clearest kind of legislative language.” Vance v. Speakman, 409 A.2d 1307, 1311 (Me. 1979). In the context of the unique legislative history of section 3578(1)(C)(3), as well as the MFTA’s broader purpose of remedying the effects of fraudulent transfers, “damages” must be construed to include the loss or injury to a creditor arising from the fraudulent transfer itself. Additionally, we reject the trusts’ contention that damages pursuant to section 3578(1)(C)(3) are permissible only when the asset has been placed beyond the reach of the court or has been reduced in value. Nothing in the plain language of section 3578(1)(C)(3) or its legislative history compels such a result. [¶51] For these reasons, we vacate the court’s award of damages against Raisin in the amount of $340,000 and remand for the court to make revised findings regarding KRZ’s damages. All the other issues raised by Samsara and 35 Raisin on appeal are resolved against them and the judgments are affirmed in all other respects. The entry is: The judgment entered in the Superior Court (Cumberland County, Cole, J.) is vacated and the case is remanded for a determination of damages with respect to Raisin and Samsara. The judgment entered in the Superior Court (Hancock County, A. Murray, J.) is affirmed. On the briefs and at oral argument: John H. Branson, Esq., Branson Law Office, P.A. Portland, for appellants Raisin Memorial Trust, Samsara Memorial Trust, and Fauna Stone Jennifer A. Archer, Esq., Kelly, Remmel & Zimmerman, Portland, for appellee Kelly, Remmel & Zimmerman Cumberland County Superior Court docket number CV-2013-49 and Hancock County Superior Court docket number CV-2012-26 FOR CLERK REFERENCE ONLY