Litigation

By: Kristen Wetzel Ladd

For a creditor, obtaining a judgment against a debtor is only the first step to recovering a debt owed.  Executing on that judgment is the next, trickier step to satisfying the debtor’s obligation.  The creditor must find the debtor’s assets in order to levy, attach, and garnish them.  However, occasionally, when dealing with a sophisticated and savvy debtor, the creditor will find that the debtor has transferred some of his assets so that there is nothing left for the creditor to execute against.

For example, a bank confessed judgment against a corporate borrower and its individual guarantor in the amount of $470,000.  A few days after the judgment was entered, the guarantor deeded title to his 50 ft yacht to his wife, who was not a judgment-debtor. In trying to collect the judgment 30 days after it was entered and notices were served, the sheriff was dispatched to levy upon the yacht, only to learn of the transfer to the wife.  Investigation revealed that the yacht, worth over $500,000, was transferred to the wife for no consideration.  The bank considered the transfer to be fraudulent and brought an action against the guarantor. This was an actual case that occurred in 2006 in Delaware County.

A transfer to defeat the rights of creditors violates civil statutes known as the Pennsylvania Uniform Fraudulent Transfers Act, (PUFTA) 12 Pa.C.S.A. § 5101 et seq.  PUFTA grants a statutory remedy to creditors where a debtor has acted to hinder his creditors and identifies several factors for scrutinizing transfers as fraudulent to creditors.

The general rule is that a transfer made or obligation incurred by a debtor is fraudulent as to a creditor, whether the creditor’s claim arose before or after the transfer was made or the obligation was incurred, if the debtor made the transfer or incurred the obligation:

1. with actual intent to hinder, delay or defraud any creditor of the debtor; or
2. without receiving a reasonable equivalent value in exchange for the transfer or obligation, and the debtor:

(a) was engaged or about to engage in a business or transaction for which the remaining assets of the debtor were unreasonably small in relation to the business or transaction; or
(b) intended to incur, or believed or reasonably believed that the debtor would incur, debts beyond the debtor’s ability to pay as they became due.

To ascertain actual intent, a court will consider whether:

1. the transfer was to an insider;
2. the debtor retained control or possession after the transfer;
3. the transfer was concealed;
4. the debtor had been sued or threatened with suit before the transfer was made;
5. the transfer was substantially all of the debtor’s assets;
6. the debtor absconded;
7. the debtor removed or concealed assets;
8. the value of the consideration received by the debtor was reasonably equivalent to the value of the asset transferred or the amount of the obligation incurred; and
9. the debtor was insolvent or became insolvent shortly after the transfer.

If the court determines that the transfer was fraudulent, PUFTA provides remedies that the court may impose.  The court may void the transfer, or set aside the entire transaction so that the transferred property is actually returned to the ownership of the debtor so that the creditor may proceed against it by legal process.  The court may issue an attachment against the asset transferred which would permit the court to put the transferred asset directly under the control of the court from where the creditor could cause it to be sold and the proceeds used to pay the debt. The court may issue an injunction against further transfers by either the debtor which is an efficient way to ensure that the property to be used to satisfy the debt does not again become lost. The court may appoint a receiver to take physical possession of the asset so that the value may be preserved for the creditor. Finally, the court may directly issue execution process, that is, authorize the sheriff to go out and seize the asset or its proceeds and pay the claim of the creditor.

If you are a creditor and you believe that your judgment-debtor may have transferred assets fraudulently, the law offices of Unruh Turner Burke & Frees may be able to assist you with you claim.  PUFTA limits the period in which you can bring your claim to four years from the date of actual or constructive notice of the fraudulent transfer.

Kristen Ladd

Kristen Ladd is an associate at Unruh, Turner, Burke and Frees, Kristen practices in the areas of Pennsylvania Litigation, and Pennsylvania Creditors’ Rights and Bankruptcy Law. The firm maintains law offices in Malvern, Phoenixville, and West Chester Pennsylvania which serve the Main Line, and many surrounding communities such as Devon, Exton, West Chester, Ardmore and others.

By: Daniel P. Dwyer

There is a joke often repeated in government contracting circles.  While considering some aspect of the work, someone will almost always say, “Remember – all of this work was done by the low bidder.”  This punchline is not exactly accurate: the general rule is that government contracting work is awarded to the lowest responsible bidder.  The purpose of this post is to address what this distinction means and why it is important to both government entities requesting bids and the contractors who submit them.

Decisions about which bidder is the low bidder are objective:  the bottom line prices of the bidders are compared and the lowest wins.  The government entity requesting bids has little discretion in making this determination.  However, a decision about whether the lowest bidder is also a responsible is not so objective.

The lowest responsible bidder is the bidder whose bid is lowest in dollars among the bids of those who are able to perform the contract promptly, faithfully, skillfully and according to plans.  The entity requesting the bids can base this decision on information elicited through pre-qualification, questionnaires included in the bid package, first-hand knowledge that it has of this bidder’s performance or, in some instances, post-bid investigation.  This aspect of the bid decision is subjective and requires the exercise of discretion by the awarding entity.

The question is, “How is this discretion to be exercised?”  On one hand, the government must maintain a “level playing field” for all bidders that does not allow any aspect of favoritism or personal preference.  On the other hand, the government must also get the best value and product for the taxpayer – not just the least expensive.  Although the law is not clear, some requirements can be extrapolated: 1) the government cannot waive any material defects; 2) when it awards a contract to a responsible bidder who is not the lowest, the government must be able to enunciate a clear reason for having done so, and; 3) where this determination is not the product of first-hand knowledge, investigation must be undertaken that gives rise to a substantial reason for not awarding the contract to the lowest bidder.

In conclusion, bidders and government officials alike should always be aware that they are not bound to the lowest number.  The government can, and is obligated to, assure that the bidder can perform.  These officials and bidders must also be aware, however, that this inquiry should be undertaken with care so as not to abuse their discretion.

If you would like more information about this topic or have any questions, please contact Dan Dwyer at ddwyer@utbf.com.

Daniel P. Dwyer

Dan Dwyer is an associate at Unruh, Turner, Burke and Frees, Dan practices in the areas of Pennsylvania Commercial Litigation, and Pennsylvania Governmental Law. The firm maintains law offices in Malvern, Phoenixville, and West Chester Pennsylvania which serve the Main Line, and many surrounding communities such as Devon, Exton, West Chester, Ardmore and others.

By: Litigation Department

Currently there are 25 states that have Hospital visitation laws in the form of relationship recognition laws (marriage, civil unions, domestic partnerships) or separate visitation statutes. Pennsylvania is the only state in the northeast that does not have hospital visitation laws that provide for automatic recognition of nontraditional relationships. That means that hospitals in Pennsylvania do not have to permit visitation of anyone that is not a patient’s immediate biological family or legally recognized spouse under the laws of the Commonwealth of Pennsylvania. This affects long term unwed heterosexual couples, gay and lesbian couples and all non-traditional families of every variety. See a map of those states providing such recognition.

On April 15, President Obama issued a memorandum directing the Department of Health and Human Services to adopt regulations requiring all hospitals receiving Medicaid and Medicare dollars to permit visitation by a designated visitor, without regard to sexual orientation or gender identity. These regulations are not yet in effect. When those regulations take effect most hospitals across the country, including most hospitals in Pennsylvania, will be required to establish non-bias visitation policies. It is important to realize that certain health care and estate planning documents are still necessary. It is extremely important to have documents in place to protect your loved ones, such as health care directives, powers of attorney, and wills. The National Center for Lesbian Rights has put together a general discussion of the importance of these documents.

Please contact our offices to discuss having these important documents drafted for you, if you reside in either Pennsylvania or New Jersey.

By: Daniel P. Dwyer

Previously, I blogged about the “standing” requirements that must be satisfied if a shareholder or member of a corporation or other entity, like an LLC, wants to sue its officers, director or managers for mis- or malfeasance. That blog described the requirement for court certification that a plaintiff in such a derivative action adequately represents all other shareholders or members. A related issue is how Pennsylvania’s courts apply the “business judgment rule” and how this interacts with Pennsylvania’s pleading requirements.

The business judgment rule limits courts in second-guessing corporate decisions. Like any such protection, it must be designed to protect others from abuse of the discretion it provides. The Pennsylvania Supreme Court, in Cuker v. Mikalauskas, 692 A.2d 1042, 1045 (Pa. 1997), indicated that a corporate officer will not be liable for the consequences of his or her decision if:

- It was a business decision, and;

- done in good faith, and;

- the corporate official had no personal interest in the outcome, and;

- he or she was informed about the decision to the extent they reasonably believed was appropriate under the circumstances, and;

- he or she rationally believed it to be in the best interests of the corporation.

One need only look at the qualifiers and modifiers in that paragraph to conclude that the protections of the business judgment rule can be very limited. This is particularly true when one considers Pennsylvania’s pleading and motion standards. Therefore, while the business judgment rule may protect a corporate officer from liability, it will not necessarily protect him or her from lawsuits.

Pennsylvania’s courts, while stricter than the federal courts, give a plaintiff a great deal of latitude when asserting claims. A plaintiff only has to plead facts sufficient to place a corporate defendant on notice of the claims against which he must defend. These facts can sometimes be pleaded “on information and belief” that is, the plaintiff’s personal belief about what may have occurred. Finally, there is a judicial preference in favor of rejecting initial challenges to claims; courts prefer to let the parties go through discovery to collect evidence before claims are dismissed. If a claim requires proof of many facts and subjective conditions, it is more likely to proceed to litigation.

In conclusion, although the business judgment rule may protect an officer or director from ultimate liability, it does not necessarily protect him or her from the time and cost of the litigation necessary to establish whether that rule’s protections apply. Even if a corporate officer or director acted in good faith without personal interest and with sufficient information, he or she could still have to pay significant legal fees.

What can business owners, entrepreneurs and lawyers do about this exposure? When forming a corporation, the founders should consider whether the entity should indemnify, that is compensate, the officer or director for legal fees and other litigation-related costs. They should also be aware of the provisions of Pennsylvania’s Business Corporation Law that address indemnification of corporate officers and directors: under some circumstances indemnification is mandatory; under other circumstances, it is prohibited. Finally, parties who serve in these capacities should know whether they are indemnified and the extent of that indemnification.

A subsequent blog will address the law of indemnification of corporate officers. If you have any questions about these topics, please contact Dan Dwyer.

By: Daniel P. Dwyer

A United States Supreme Court decision issued on June 25 clarified an issue that may be of interest to school districts. For more information about how this decision may impact your school district’s search policies and procedures or your student’s rights, read this post on our Municipal and Land Use Blog or contact our office.

By: Nancy J. Glidden

In this difficult real estate market selling a home without using a realtor or attorney may seem like a good idea. The money saved, however, can easily be paid out in legal fees and damages if a seller fails to comply with certain statutory duties.

Did you know that in Pennsylvania, residential real estate sales require a homeowner/seller to provide a Real Estate Seller’s Disclosure? Conversely, if you are buying a home, have you been provided with a Real Estate Seller’s Disclosure?

For a seller, failing to comply does not invalidate the sale, but it does expose a seller to liability for damages sustained by a buyer. For a buyer who purchases a home without having received a proper disclosure, unanticipated expenses could mount to repair problems with the home that should have been disclosed prior to the sale. Often these matters wind up in litigation.

If you do not know what a Real Estate Seller’s Disclosure is, how to complete one to properly discharge your disclosure duties, how to interpret a disclosure that has been provided to you, or what to do if you are experiencing problems with your home that were not disclosed, you may want to consider consulting an attorney.

For more information on the legal rights and responsibilities associated with residential home purchases and sales, contact our office.

The Department of Labor’s Wage and Hour Division has published a final rule that became effective January 16, 2009, which is available at http://www.dol.gov/esa/whd/fmla/finalrule.htm. This rule updates the Family and Medical Leave Act regulations. For more information about how the new regulations may effect you, please contact our office.