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Pleading Badges of Fraud Is Sufficiently Particular Under Rule 9(b)


October 20, 2021, Northern District of Oklahoma – Trustee Steven W. Soule for the bankruptcy estate of Alfredo Carlos Paul Galaz and Lois May Galaz (“Debtors”) filed a lawsuit against Defendant Raul Galaz to avoid and recover an alleged fraudulent transfer made by Debtors to Defendant under the Oklahoma Uniform Fraudulent Transfer Act (“OUFTA”) and §§ 544(b) and 550 of the Bankruptcy Code. The Trustee also sought to turnover an alleged matured and payable on demand loan under § 542 as the estate’s property.

The Trustee alleges that the alleged transfer was identified as a personal loan by the Debtors and the Debtors had not disclosed the alleged transfer in their original or amended statement of financial affairs or their original or amended schedules.

Defendant contended that the statutes of limitations barred the Trustee’s claims. The Trustee alleged that he was not advised of a financial document evidencing the alleged transfer until shortly before he filed the complaint. The Trustee asserted that the statute of limitations clock did not begin ticking until he discovered or could have discovered the transaction with reasonable diligence. Therefore, the Trustee alleges that the deadline for asserting the claim had not yet expired when he filed the complaint.

The Court highlighted that in cases of fraud, though, limitations periods are measured from the time that the plaintiff discovers, or by using reasonable diligence should have discovered, the facts underlying the fraud. OUFTA § 121 contains its own “discovery rule” for intentional fraudulent transfers. The Court added that If a defrauded creditor does not discover the transfer within the four-year period, the limitations period begins on the date the transfer is discovered (or should have been discovered) and expires one year later. The Court found that in the case at bar, the complaint did not establish that the one-year period after discovery of (or ability to discover) the transfer had expired. Thus, the Court ruled that it cannot dismiss the claim as time-barred under OUFTA § 121(1).

Next, the Court found that the Trustee has satisfied his burden under Rule 9(b) of the Federal Rules of Civil Procedure to plead the fraudulent transfer claim with particularity. The Court reasoned that the Trustee had clearly defined the alleged fraudulent transaction as a transfer of money – $150,000 – from Debtors to Defendant in March of 2015 without an exchange of consideration. The Court further stated that pleading badges or circumstantial evidence of fraud, such as transfers to insiders for no consideration and lack of disclosure (or concealment), is sufficiently particular for the purposes of Rule 9(b). Accordingly, the Court ruled that the Trustee has pled sufficient facts to state a claim under § 544(b), § 550, and § 542(b) and that the complaint did not reveal an insuperable bar to any of Trustee’s claims.

In re Galaz, 2021 Bankr. LEXIS 2902