Conveyance of Assets to LLCs Challenged as Fraudulent Conveyances

Conveyance of Assets to LLCs Challenged as Fraudulent Conveyances

       An Oklahoma court has recently considered whether the capitalization of a pair of LLCs would be set aside as a fraudulent conveyance.  Scottsdale Ins. Co. v. Tolliver, 2012 WL 524414 (N.D. Okla. Feb. 16, 2012)

      Scottsdale had insured a house owned by Sandra and Michael Tolliver.  After that house was destroyed in a fire, Scottsdale sought to set aside the insurance contract on the basis that the Tollivers omitted material information on their application for insurance, namely the fact that at least three of their prior properties have likewise suffered fire losses.  As is noted in footnote 2 of the opinion, Michael Tolliver has otherwise been convicted of using fire or explosives to commit mail fraud and arson.

      Scottsdale prevailed at the initial trial seeking to set aside the insurance contract.  That decision was appealed, whereupon it was remanded for a new trial.  Again, Scottsdale prevailed.  Thereafter, Scottsdale requested attorney’s fees exceeding $163,000, and the magistrate judge awarded $140,000 to Scottsdale.  That judgment was appealed and in turn affirmed by the Tenth Circuit Court of Appeals.

       In a post-judgment collection proceeding, Scottsdale learned that, in March 2010, Michael and Sandra Tolliver had transferred assets into a pair of LLCs in which they were the two equal members.  These transfers took place subsequent to the entry of the $140,000 judgment against the Tollivers, and the LLCs admitted that the transfers were made to them after entry of the judgment for the attorney’s fees.  2012 WL 524414, *3.  Scottsdale, appreciating that the entry of a charging order against each Tolliver’s interest in the LLCs likely would not yield funds to satisfy the judgment, sought to set aside the transfers as having been themselves fraudulent.

       Applying the Oklahoma fraudulent transfer law, while implicitly accepting the determination that the conveyances were made “with actual intent to hinder, delay, or defraud any creditor of the debtor,” the Court found on the evidence presented there was no showing that the Tollivers, either at the time of the transfer or consequent thereto, were insolvent.  On that basis, the matter was remanded to the magistrate judge for a supplemental report as to the question of insolvency.