- Category: Judge Somers
- Published: 22 February 2011
- Written by Judge Somers
Village of Overland Pointe LLC v. Terra Bentley II LLC, 10-06025 (Bankr. D. Kan. Feb. 18, 2011) Doc. # 85
SIGNED this 17 day of February, 2011.
Dale L. Somers
UNITED STATES BANKRUPTCY JUDGE
Opinion Designated for Electronic Use, But Not for Print Publication
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF KANSAS
TERRA BENTLEY II, LLC,
VILLAGE OF OVERLAND POINTE,
TERRA BENTLEY II, LLC,
NRC ADVISORS, LLC,
CASE NO. 09-23107-11
ADV. NO. 10-6025
OPINION GRANTING MOTION TO DISMISS FILED BY DEFENDANTS
NRC ADVISORS, LLC, STEVEN SEAT, ERIC COMEAU, AND TONY BETTIS
Case 10-06025 Doc# 85 Filed 02/17/11 Page 1 of 20
This proceeding is before the Court on a motion to dismiss filed by NRC Advisors,
LLC, Steven Seat, Eric Comeau, and Tony Bettis (“the NRC Defendants”), four of the
five Defendants in this action. They appear by counsel Frank Wendt of Brown &
Ruprecht, PC. Plaintiff Village of Overland Pointe, LLC (“Village”), appears by counsel
Steven R. Smith and Eldon J. Shields of Gates, Shields & Ferguson, P.A., and Ronald S.
Weiss of Berman DeLeve Kuchan & Chapman L.C. The Court has reviewed the relevant
pleadings and is now ready to rule.
Village is suing under the Kansas Uniform Fraudulent Transfer Act to avoid a
mortgage the Debtor gave to another creditor. The NRC Defendants are those who
allegedly caused the Debtor to give the mortgage, but there are no allegations that they
personally received any interest in the mortgage or any personal benefit from the Debtor
granting it. Village seeks relief in three counts. The first two counts ask to have the
mortgage avoided, and the third count asks for actual and punitive damages. The NRC
Defendants contend the Kansas UFTA does not authorize any recovery from someone
who may have participated in a fraudulent transfer but personally received neither any of
the property transferred nor any benefit from the transfer. After giving the matter due
consideration, the Court concludes the NRC Defendants are right, and their motion to
dismiss should be granted.
Village is a creditor of the Chapter 11 Debtor, and brought this proceeding to try to
avoid a $2,566,165.12 mortgage the Debtor gave to Bentley Investments of Nevada, LLC,
Case 10-06025 Doc# 85 Filed 02/17/11 Page 2 of 20
in April 2008. Village alleges that Seat, Comeau, and Bettis were, at the relevant times,
managers and members of NRC Advisors, LLC, and that NRC Advisors was the manager
of both the Debtor and Bentley Investments when the mortgage was given. Village
alleges the mortgage encumbers substantially all of the Debtor’s assets.
Village’s original, first amended, and second amended complaints all make the
same allegations against the NRC Defendants, namely, that Seat, Comeau, and Bettis are
the managers and members of NRC Advisors, which was in turn the manager of the
Debtor and of Bentley Investments when the Debtor gave Bentley Investments a
mortgage on its Mission Corner property. The Court has compared the proposed second
amended complaint to the original complaint, and found no change in Village’s claims
against the NRC Defendants. Consequently, even though Village’s motion to file the
second amended complaint has not yet been ruled on, whether or not the motion is
granted will have no impact on the issues decided by this opinion.
In Count I, Village alleges the mortgage was given to Bentley Investments with the
actual intent to hinder, delay, and defraud the Debtor’s creditors, in violation of K.S.A.
33-204(a)(1) of the UFTA, so Village can avoid the mortgage under K.S.A. 33-207(a)(1).
Village also alleges that because of the Debtor’s and Bentley Investments’ common
ownership and management, Bentley Investments knew or should have known the
mortgage was a fraudulent transfer.
In Count II, Village alleges the Debtor gave the mortgage without receiving “any
reasonably equivalent value” in return, in violation of K.S.A. 33-204(a)(2) of the UFTA.
Case 10-06025 Doc# 85 Filed 02/17/11 Page 3 of 20
When the Debtor gave the mortgage, Village further alleges, the Debtor was engaged in
business for which its remaining assets were unreasonably small in relation to its
business, and the Debtor believed or reasonably should have believed it would incur debts
beyond its ability to pay as they became due, and the mortgage was therefore a fraudulent
transfer as defined by K.S.A. 33-204(a)(2)(A) and (B). Village again alleges the Debtor’s
and Bentley Investments’ common management means Bentley Investments knew or
should have known the mortgage was a fraudulent transfer under those provisions.
Village concludes Count II by alleging it is entitled to avoid the mortgage under K.S.A.
In Count III, Village alleges the giving of the mortgage involved the following
circumstances: (1) the transfer was to an insider of the Debtor because the Debtor and
Bentley Investments are both owned by Gary Hall and managed by NRC Advisors, which
has the same managers as the Debtor, namely, Seat, Comeau, and Bettis; (2) the Debtor
remained in possession and control of Mission Corner after giving the mortgage; (3) the
Debtor did not disclose the mortgage to Village; (4) the Debtor had been sued by Village
in state court before it gave the mortgage; (5) the mortgage encumbers substantially all
the Debtor’s assets; (6) Bentley Investments gave the Debtor no consideration for the
mortgage; (7) the Debtor claims it became insolvent shortly after giving the mortgage;
and (8) the mortgage was given shortly after the state court granted partial summary
judgment on Village’s counterclaims against the Debtor. Village alleges that as a direct
and proximate result of the Debtor giving the mortgage to Bentley Investments, Village
Case 10-06025 Doc# 85 Filed 02/17/11 Page 4 of 20
sustained actual damages in excess of $75,000. Pursuant to K.S.A. 33-207(a)(3)(C)1 and
McCain Foods, USA, Inc., v. Central Processors, Inc.,2 Village asserts, the Debtor and
the NRC Defendants are liable to it under the UFTA for actual and punitive damages.
On October 21, 2010, the NRC Defendants filed a motion to dismiss and
memorandum in support, arguing (1) the UFTA does not provide a remedy against any of
the NRC Defendants because none of them are transferors, transferees, beneficiaries, or
subsequent transferees of the mortgage that Village is trying to avoid; (2) the NRC
Defendants are not proper parties because a manager or member of a limited liability
company is not liable for the company’s debt based solely on his status as a manager or
member, citing K.S.A. 17-7688; and (3) Village’s claim against the NRC Defendants for
punitive damages cannot stand alone, which it does since neither of its other claims states
a valid claim for relief against them. In response, Village argues (1) individuals who
perform the acts by which an entity makes a transfer that can be avoided under the UFTA
are indispensable parties to litigation seeking to avoid the transfer and can be held liable
for corporate acts; (2) in McCain Foods, the Kansas Supreme Court held an officer and
director of a company liable for a fraudulent transfer because he was the actor who
caused the company to make the transfer; (3) the NRC Defendants are apparently no
longer managers of the Debtor and Bentley Investments, so if they are dismissed, the
1Village actually gives the cite as “K.S.A. 33-207(c),” but that provision contains no subsection
(c), only (a) and (b). The Court concludes Village intended to refer to subsection (a)(3)(C), which says a
creditor may obtain “any other relief the circumstances may require.” Nothing else in the provision is
even arguably broad enough to cover actual and punitive damages.
2275 Kan. 1 (2002).
Case 10-06025 Doc# 85 Filed 02/17/11 Page 5 of 20
Debtor might claim it was not aware of and did not authorize the mortgage; (4) in order to
prove the existence of the “badges of fraud” set out in K.S.A. 33-204(b), Village “must
deal with the actor[s] who made the transfer,” the Debtor’s knowledge and actions had to
come through the NRC Defendants, and the NRC Defendants are therefore necessary
parties; and (5) in McCain Foods, both actual and punitive damages were awarded against
the officer-director who performed the acts that were determined to be a fraudulent
transfer, so actual and punitive damages may be awarded in this case against the NRC
Defendants because they performed the acts Village alleges were a fraudulent transfer.
The standard governing a ruling on a motion to dismiss for failure to state a
claim for relief.
Federal Rule of Civil Procedure 12 provides that defenses are generally to be
asserted in a responsive pleading but that certain defenses may be made by motion,
including the defense of “failure to state a claim upon which relief can be granted.”3 In
Bell Atlantic Corporation v. Twombly,4 the Supreme Court described the standard that
must be met in pleading a claim for relief this way:
Federal Rule of Civil Procedure 8(a)(2) requires only “a short and plain
statement of the claim showing that the pleader is entitled to relief,” in order
to “give the defendant fair notice of what the . . . claim is and the grounds
upon which it rests,” Conley v. Gibson[,] 355 U.S. [41,] 47 (1957). While a
3Fed. R. Civil P. 12(b)(6). Fed. R. Bankr. P. 7012(b) makes Civil Rule 12(b) apply in adversary
4550 U.S. 544 (2007).
Case 10-06025 Doc# 85 Filed 02/17/11 Page 6 of 20
complaint attacked by a Rule 12(b)(6) motion to dismiss does not need
detailed factual allegations, ibid.; [additional citation omitted], a plaintiff's
obligation to provide the “grounds” of his “entitle[ment] to relief” requires
more than labels and conclusions, and a formulaic recitation of the elements
of a cause of action will not do, [citation omitted]. Factual allegations must
be enough to raise a right to relief above the speculative level, [citation and
footnote omitted], on the assumption that all the allegations in the complaint
are true (even if doubtful in fact), [citations omitted].5
The Court further explained in Iqbal v. United States:
Two working principles underlie our decision in Twombly. First, the
tenet that a court must accept as true all of the allegations contained in a
complaint is inapplicable to legal conclusions. Threadbare recitals of the
elements of a cause of action, supported by mere conclusory statements, do
not suffice. [Citation omitted]. Rule 8 marks a notable and generous
departure from the hyper-technical, code-pleading regime of a prior era, but
it does not unlock the doors of discovery for a plaintiff armed with nothing
more than conclusions. Second, only a complaint that states a plausible
claim for relief survives a motion to dismiss. [Citation omitted].
Determining whether a complaint states a plausible claim for relief will . . .
be a context-specific task that requires the reviewing court to draw on its
judicial experience and common sense. [Citation omitted]. But where the
well-pleaded facts do not permit the court to infer more than the mere
possibility of misconduct, the complaint has alleged — but it has not
“show[n]” — “that the pleader is entitled to relief.”6
The Court also rejected an assertion that Twombly was limited to antitrust complaints,
saying the ruling was its interpretation and application of Civil Rule 8, and Civil Rule 1
states that the Rules apply “in all civil actions and proceedings” in federal trial courts.
Twombly and Iqbal require Village’s complaint to state a plausible claim for relief
against the NRC Defendants in order to withstand their motion to dismiss. Since Village
5Id. at 555-56. Fed. R. Bankr. P. 7008(a) makes Civil Rule 8 apply in adversary proceedings.
6___ U.S. ___, 129 S.Ct. 1937, 1949-50, 173 L.Ed.2d 868 (2009).
Case 10-06025 Doc# 85 Filed 02/17/11 Page 7 of 20
bases its claims solely on the UFTA, the claims must be plausible under that Act.
B. Relevant provisions of the Kansas Uniform Fraudulent Transfer Act.
K.S.A. 33-204(a)(1) defines a transfer made by a debtor to be fraudulent as to a
creditor if it is made with the actual intent to hinder, delay, or defraud any of the debtor’s
creditors. K.S.A. 33-204(a)(2) defines a transfer to be fraudulent as to a creditor if it is
made without receiving reasonably equivalent value in exchange and the debtor either
(1) was engaged in business or a transaction for which its remaining assets were
unreasonably small, or (2) the debtor intended to incur, or believed or reasonably should
have believed it would incur, debts beyond its ability to pay. These provisions define
transfers that are fraudulent, but do not specify any remedies a creditor may obtain by
showing a transfer its debtor made was fraudulent. Some of the available remedies are set
out in K.S.A. 33-207. It provides:
Remedies of creditors. (a) In an action for relief against a transfer
or obligation under this act, a creditor, subject to the limitations in K.S.A.
33-208, may obtain:
(1) Avoidance of the transfer or obligation to the extent necessary to
satisfy the creditor's claim;
(2) an attachment or other provisional remedy against the asset
transferred or other property of the transferee in accordance with the
procedure prescribed by K.S.A. 60-701 et seq. and amendments thereto or
other appropriate provision of law;
(3) subject to applicable principles of equity and in accordance with
applicable rules of civil procedure:
(A) An injunction against further disposition by the debtor or
a transferee, or both, of the asset transferred or of other property;
Case 10-06025 Doc# 85 Filed 02/17/11 Page 8 of 20
(B) appointment of a receiver to take charge of the asset
transferred or of other property of the transferee; or
(C) any other relief the circumstances may require.
(b) 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
K.S.A. 33-208(b), not cited by Village, is also relevant here. It reads:
Except as otherwise provided in this section,7 to the extent a transfer
is voidable in an action by a creditor under subsection (a)(1) of K.S.A. 33207,
the creditor may recover judgment for the value of the asset
transferred, as adjusted under subsection (c), or the amount necessary to
satisfy the creditor’s claim, whichever is less. The judgment may be
(1) The first transferee of the asset or the person for
whose benefit the transfer was made; or
(2) any subsequent transferee other than a good faith
transferee who took for value or from any subsequent
C. Analysis of the language of these UFTA provisions.
Village relies only on subsection (a) of K.S.A. 33-207 as the statutory authority for
the remedies it seeks against the NRC Defendants. The Kansas Supreme Court has said:
When we are called upon to interpret a statute, we first attempt to
give effect to the intent of the legislature as expressed through the language
enacted. When a statute is plain and unambiguous, we do not speculate as
to the legislative intent behind it and will not read the statute to add
something not readily found in it. We need not resort to statutory
construction. It is only if the statute’s language or text is unclear or
ambiguous that we move to the next analytical step, applying canons of
construction or relying on legislative history construing the statute to effect
7None of the exceptions in the section would apply here.
Case 10-06025 Doc# 85 Filed 02/17/11 Page 9 of 20
the legislature’s intent.8
The Court believes that Village is asking the Court to “read the [UFTA] to add something
not readily found in it.” The Court notes that subsection (a) of K.S.A. 33-207 provides
remedies only against transfers, obligations, and assets, that is, in rem relief (relief against
property). This means the language of K.S.A. 33-207(a)(3)(C) — the provision Village
relies on9 — authorizing “any other relief the circumstances may require” does not invite
courts to craft remedies against persons involved in an avoidable transfer, but only
additional remedies against the transfers, obligations, or assets involved. The provision
would be stretched beyond recognition if it were applied to authorize in personam relief
against every person who might have participated in the transfer. K.S.A. 33-208(b),
however, does authorize monetary in personam relief, but only against a limited group of
persons, namely, the first transferee of the fraudulent transfer, the person for whose
benefit the fraudulent transfer was made, or a subsequent transferee who did not take in
good faith for value. Furthermore, unlike K.S.A. 33-207(a), K.S.A. 33-208(b) contains
no language even remotely suggesting courts are free to expand this list of persons against
whom a judgment may be entered. In short, Village’s claims against the NRC Defendants
ask the Court “to read the [UFTA] to add something not readily found in it,” an approach
the Kansas Supreme Court has rejected. The language of the UFTA does not suggest
Village’s claims against the NRC Defendants are plausible claims for relief.
8In re K.M.H., 285 Kan. 53, 79 (2007).
9See footnote 3 above.
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D. McCain Foods USA, Inc., v. Central Processors.
In response to the NRC Defendants’ argument that K.S.A. 33-207(a)(1) and
K.S.A. 33-208(b) do not authorize any remedies against anyone but the transferee of the
asset, a person for whose benefit the transfer was made, or a subsequent transferee other
than one who took in good faith for value, Village contends that McCain Foods shows it
has stated a claim for relief against the NRC Defendants. Village says the Kansas
Supreme Court affirmed an award of both actual and punitive damages against an
individual who was an officer and director of the plaintiff-creditor’s debtor because that
individual “had committed the fraudulent transfer of the company’s assets to the
detriment of” the plaintiff-creditor.10 A thorough review of McCain Foods is in order.
In McCain Foods, the Kansas Supreme Court affirmed the state trial court’s
factual findings, concluding they were supported by substantial competent evidence. The
findings established the following facts.11 A man named Glen Shore became involved as
an officer and director of two intimately-related Kansas companies, Allen Quality Foods,
which mainly procured government food contracts and owed a debt to McCain Foods,
and Central Processors, which mainly provided food Allen needed to fulfill its
government food contracts. The same people served as officers and directors of Allen
and Central. Shore loaned money to both companies and guaranteed leases and loans
10Docket #79 at 4-5.
11This description of the facts is based on the summary judgment facts and the findings the trial
court made after the bench trial, as quoted by the supreme court. 275 Kan. at 3-9.
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made to them. Allen12 sent a check to McCain Foods for $125,000, part of the amount
McCain Foods claimed it was owed. A few days later, someone caused Allen to transfer
$120,000 to Central for no consideration; after hearing the evidence, the trial court found
that Shore made that transfer, rejecting his denial of that fact. The court also found
Allen’s assets were worth at most only $5,000 to $6,000 from this time forward. After
transferring the money between the companies, Shore stopped payment on the $125,000
check. Shore claimed he could not verify a debt was owed to McCain Foods, but two
other officer-directors testified they told him the debt was legitimate.
A short time after Shore stopped payment on the $125,000 check and transferred
Allen’s $120,000 to Central, Allen paid $25,000 by check on a bank debt that Shore had
guaranteed; Shore was one of the authorized signers of the check. A few days later,
Central paid $50,000 by check on the bank debt Shore had guaranteed; Shore was one of
the authorized signers of this check. In an Illinois court, McCain Foods sued Allen to
collect its debt, and a couple of weeks after the $25,000 and $50,000 payments were
made, Shore was served with process in that suit on behalf of Allen. A week after that,
Allen paid Shore $45,000 by check to repay a loan he had made; Shore was one of the
authorized signers of this check. Finally, about six weeks after making that payment to
Shore, Allen paid another $4,495 on the bank debt that Shore had guaranteed; Shore was
one of the authorized signers of this check. A few days after that payment was made,
12Early on, the opinion states the check came from Central, 275 Kan. at 4, but then quotes several
of the trial court’s findings that state the check came from Allen, 275 Kan. at 5, 8, and 9. The first
statement appears to be an error.
Case 10-06025 Doc# 85 Filed 02/17/11 Page 12 of 20
McCain Foods obtained a default judgment against Allen for almost $240,000. That
Illinois judgment was then registered in Sedgwick County, Kansas.
McCain Foods later sued Shore, among others, in a Kansas state court, asserting
claims under the Kansas UFTA. The trial court initially granted a partial summary
judgment against Shore, concluding the three payments on the bank debt and the one
payment to Shore himself were fraudulent under K.S.A. 33-205(b). Then, following a
bench trial, the court found that Shore had made those same four transfers with actual
intent to hinder, delay or defraud Allen’s creditors, so the transfers were fraudulent under
K.S.A. 33-204(a)(1). The court awarded McCain Foods a judgment against Shore for
$124,495 (the sum of the transfers of $25,000, $50,000, $45,000, and $4,495), and also
awarded $20,000 in punitive damages against Shore, finding that he had acted toward
McCain Foods with “willful conduct and fraud.”
Shore appealed and the appeal was transferred to the Kansas Supreme Court on
that court’s motion. The court noted that neither the trial court’s authority to award
punitive damages under the UFTA nor the amount it awarded was an issue on appeal.13
The court affirmed the bench trial judgment entered under K.S.A. 33-204, so it declined
to review the partial summary judgment ruling entered under 33-205(b). The court said
the issues Shore raised all tested the sufficiency of the evidence.14 After reviewing the
facts found by the trial court and considering Shore’s arguments, the court concluded the
13Id. at 3.
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evidence supported the trial court’s findings, and therefore affirmed the judgment.15 One
of Shore’s arguments was that the bank was not an insider of Allen, so the payments
made on its debt could not be treated as satisfying the “insider” badge of fraud under
K.S.A. 33-204(b)(1).16 The court rejected this argument for several reasons, including the
fact K.S.A. 33-201(l) defines “transfer” to include indirect transfers, which meant the
benefits Shore received from the payments on the debt he had guaranteed could make the
transfers qualify as ones to an insider.
Village argues McCain Foods means an entity’s officer, director, or manager may
be found liable for actual and punitive damages because the officer, director, or manager
participated in a transfer of the entity’s property that was fraudulent under K.S.A. 33-204
or 33-205. The NRC Defendants respond that Shore was found liable in that case because
he was a direct or indirect transferee of the four transfers at issue, not simply because of
his corporate position. The Court agrees with the NRC Defendants. Shore’s liability was
based on the fact he either directly received or indirectly benefitted from the four
payments the creditor successfully attacked, not the fact he caused the transfers to be
made. This is exactly what K.S.A. 33-208(b)(1) says: “[T]o the extent a transfer is
voidable in an action by a creditor under subsection (a)(1) of K.S.A. 33-207, the creditor
may recover judgment for the value of the asset transferred, . . . or the amount necessary
to satisfy the creditor’s claim, whichever is less. The judgment may be entered against:
15Id. at 9-19.
16Id. at 14-15.
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(1) The first transferee of the asset or the person for whose benefit the transfer was
made.” Shore was clearly covered by this provision in McCain Foods, and the decision
says nothing about the possibility of recovering from a person or entity who participated
in a fraudulent transfer but did not either receive the property transferred or receive a
benefit from the transfer. Bentley Investments, not the NRC Defendants, received and
still holds the mortgage Village is seeking to avoid, so the NRC Defendants were not first
or subsequent transferees of the mortgage. Village has not alleged any of the NRC
Defendants benefitted in any way from the mortgage given to Bentley Investments, so
McCain Foods does not support Village’s claim against them.
Some decisions considering the remedies for fraudulent conveyances under
the Bankruptcy Act suggest additional reasons to reject Village’s effort to
expand the remedies specified in the UFTA.
It may seem plausible that if a creditor can prove a person running an entity
intentionally caused the entity to make a fraudulent transfer, the creditor might be entitled
to some kind of recovery from the person. In Elliott v. Glushon,17 the Ninth Circuit said it
was tempted to apply the usual rule that joint tortfeasors are jointly liable for the tort they
commit, when it was considering a plaintiff’s attempt under the fraudulent conveyance
provisions of the Bankruptcy Act of 189818 to recover from a person who participated in a
17390 F.2d 514 (9th Cir. 1967).
18Under the current Bankruptcy Code, § 550(a) specifies those from whom avoided transfers,
including fraudulent transfers, may be recovered. Section 550(a) consolidated recovery provisions of its
predecessor, the Bankruptcy Act, with some modifications. See 5 Collier on Bankruptcy ¶ 548.LH (Alan
N. Resnick & Henry J. Sommer (eds.-in-chief, 16th ed. 2010). Comment 2 to § 8 of the UFTA (which is
Case 10-06025 Doc# 85 Filed 02/17/11 Page 15 of 20
fraudulent conveyance but received no property or other benefit from the conveyance.
However, it instead concluded the Bankruptcy Act authorized the recovery of a fraudulent
conveyance only from the transferor or transferees of the conveyed property, and not
from anyone who did not receive any interest in that property:
We must remember, however, that we are interpreting a statute
designed to deal with bankruptcy matters in a somewhat circumscribed
fashion, and not to preempt all state laws governing, for example, questions
of fraud and deceit. The purpose of those sections of the Bankruptcy Act
which are here relevant is clearly to preserve the assets of the bankrupt;
they are not intended to render civilly liable all persons who may have
contributed in some way to the dissipation of those assets. The Act
carefully speaks of conveyances of property as being “null and void,” and
authorizes suit by the trustee to “reclaim and recover such property or
collect its value.” The actions legislated against are not “prohibited”; those
persons whose actions are rendered “null and void” are not made “liable”;
and terms such as “damages” are not used. The legislative theory is
cancellation, not the creation of liability for the consequences of a wrongful
It is also significant that the term “fraudulent transfer” as used in the
Act includes a great many transactions which do not constitute “actual”
fraud; no intent to defraud need be found so long as the prescribed statutory
criteria are met. Thus there is affirmative justification for rejecting a rule
under which all persons having a hand in transactions later held void under
the Act would be civilly liable. Limiting recovery in the manner suggested
by the appellee Glushon protects innocent persons from civil liability, while
at the same time preserving the assets of the bankrupt's estate. The trustee
may bring suit against those persons who received the transferred property.
He may recover from them the value of that property if, for example, they
have converted it so that recovery in specie is no longer possible. In the
overwhelming number of instances, these rights will suffice to allow the
trustee fully to protect the interests of creditors. And even if recovery
against the recipients of the property is not possible [(]because, for instance,
K.S.A. 33-208) says subsection (b) is derived from § 550(a) of the Bankruptcy Code. See Uniform
Fraudulent Transfer Act of 1984, § 8, cmt. 2, 2006 Main Volume (available on Westlaw in Uniform Laws
Annotated (“ula”) database). Consequently, rulings about the remedies for fraudulent conveyances under
the Bankruptcy Act can be persuasive authority on questions arising under the UFTA.
Case 10-06025 Doc# 85 Filed 02/17/11 Page 16 of 20
of their own insolvency), state law may well — where actual fraud was
engaged in — allow a damage action in the nature of deceit against any
In Mack v. Newton, the Fifth Circuit agreed with Elliott’s interpretation of the fraudulent
conveyance provisions of the Bankruptcy Act, and then looked at the Texas version of the
Uniform Fraudulent Conveyance Act, the predecessor to the UFTA, to see whether it
authorized recovery from someone who participated in a transfer but received none of the
transferred property, and concluded the same reasoning applied to the Texas statute.20
The Fifth Circuit also said the majority rule was that the UFTA’s predecessor imposed
liability only on transferors or transferees of property, not on those who participated in a
transfer but received no property or other benefit from the transfer.21 The Tenth Circuit
made a similar assertion in dicta in a footnote in its decision in Lowell Staats Mining
Company, Inc., v. Philadelphia Electric Company, disagreeing with the lower court’s
finding that a creditor had stated a claim for relief against an entity’s agent by alleging the
agent personally helped the entity make fraudulent conveyances, saying, “‘[C]ourts have
generally held as to fraudulent conveyances that a person who assists another to procure
one, is not liable in tort to the insolvent’s creditors.’”22
The Kansas version of the UFTA uses language that is similar to the language
19390 F.2d at 516-17.
20737 F.2d 1343, 1361 (5th Cir. 1984).
21Id. at 1361-62.
22878 F.2d 1271, 1276 n. 1 (1989) (quoting Duell v. Brewer, 92 F.2d 59, 61 (2d Cir.1937), which
cited Adler v. Fenton, 65 U.S. (24 How.) 407, 412 (1860)).
Case 10-06025 Doc# 85 Filed 02/17/11 Page 17 of 20
referred to in Elliott and Mack: (1) transfers are declared to be “fraudulent” and subject
to “avoidance” or “voidable,” (2) a creditor is authorized to sue to avoid a transfer and
attach or levy execution on the transferred asset, (3) the word “damages” is not used,
(4) the only money judgment explicitly authorized is limited to the lesser of the value of
the transferred asset or the creditor’s claim, and (5) the money judgment is only available
against either the first transferee of the asset, the person for whose benefit the transfer was
made, or any subsequent transferee who did not take in good faith for value.
Furthermore, unlike the old Bankruptcy Act and now the Bankruptcy Code, the UFTA
does not establish a process that operates for the collective benefit of a debtor’s creditors,
but instead one that enables a single creditor to avoid a fraudulent transfer and recover the
transferred asset or its value solely for itself. This suggests the UFTA should not be
broadly construed to provide more expansive remedies than those available under the
fraudulent conveyance provisions of the bankruptcy laws. Elliott and Mack provide
strong support for the conclusion that Village’s second amended complaint does not state
a claim for relief against any of the NRC Defendants because it does not allege any of
them received the mortgage or benefitted either directly or indirectly from the Debtor’s
giving of the mortgage.
F. Punitive damages.
Before the UFTA was adopted in Kansas, the Kansas Court of Appeals held that
punitive damages were available in an action under K.S.A. 33-102 to avoid a fraudulent
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conveyance.23 The court said punitive damages are not compensatory, but are awarded in
Kansas to punish a wrongdoer for his malicious, vindictive, or willful and wanton
invasion of another’s rights; their ultimate purpose is to deter others from committing
similar wrongs.24 However, punitive damages are available only in connection with an
independent cause of action, which the court determined could be an action to avoid a
fraudulent conveyance.25 Since Village has not stated a valid claim for relief against the
NRC Defendants, either for avoidance of a fraudulent conveyance or for anything else, it
has also failed to state a valid claim to recover punitive damages from them under Kansas
The fact a person was an entity’s manager and member at the relevant time,
and therefore should have knowledge of and might have performed or
authorized action the entity took makes that person a potential witness in a
suit about the entity’s action, but unless a valid claim for relief is asserted
against the person, that fact does not make the person a necessary party to the
Village argues the NRC Defendants are necessary parties to its suit to avoid the
mortgage the Debtor gave Bentley Investments because, as the managers and members of
the Debtor, they had knowledge of and either performed or authorized the Debtor’s
23Golconda Screw, Inc., v. West Bottoms Ltd., 20 Kan. App. 2d 1002, 1005-08 (1995).
24Id. at 1007.
25Id. at 1006-08.
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actions. But the fact someone has knowledge about the events on which a lawsuit is
based means only that the person should be a witness in the suit. A plaintiff must state a
valid claim for relief against the person, or else the Court must grant the person’s motion
to be dismissed as a party. Even though the Court is dismissing Village’s claims against
the NRC Defendants, Village may still pursue discovery against them as non-parties
(until the time for discovery ends, of course), and may subpoena them to appear and
testify at trial even though they will no longer be parties to the suit. Having been
involved in the events that give rise to a lawsuit simply does not make a person a
necessary party to the suit.
For these reasons, the Court concludes Kansas Uniform Fraudulent Transfer Act
does not authorize a creditor to recover actual and punitive damages from a person or
entity who participated in a fraudulent transfer the creditor may avoid under the UFTA if
the person or entity did not receive an interest in the transferred asset or receive some
other personal benefit from the transfer. Consequently, the NRC Defendants’ motion to
dismiss should be and it is hereby granted. Village’s claims against the NRC Defendants
are hereby dismissed.
# # #
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