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In Picard v. Legacy Capital Ltd.,[1] the U.S. Bankruptcy Court for the Southern District of New York recently set forth the burden of pleading fraudulent transfers in bankruptcy cases decided under the Securities Investor Protection Act (SIPA). At issue were two complaints seeking the avoidance and recovery of various transfers under the fraudulent transfer provisions of the Code and New York Debtor and Creditor Law (NYDCL).
[1]The in pari delicto defense is a state law-based equitable defense designed to prevent a plaintiff from pursuing damages resulting from wrongful conduct in which the plaintiff itself is complicit. Its goal is to “deter[] wrongful conduct by refusing wrongdoers any legal or equitable relief and protecting the judicial system from having to use its own resources to provide an accounting among wrongdoers.”[2]
In a March 16, 2016, opinion, the U.S. Court of Appeals for the Fifth Circuit held that a claimant’s delay in initiating his investigation of potentially fraudulent transfers while triaging numerous other responsibilities could toll the applicable statute of repose under the Texas Uniform Fraudulent Transfer Act (TUFTA)[1] until the claimant was able to begin investigating the particular transfers at issue, even if that investigation began more than one year after it otherwise could have.
On Sept. 22, 2011, Charlene Milbury filed for chapter 7 bankruptcy protection in the Central District of California,[1] starting the clock on a two-year period for the commencement of avoidance actions by the trustee. The debtor was the sole owner of a materials-hauling business known as Charlene’s Transportation Inc. (CTI).[2]
The Commission recommended that section 550 be amended to permit the trustee to name an alleged subsequent transferee as a defendant in the original complaint to avoid any transfer under Bankruptcy Code sections 544, 545, 547, 548, 549, or 553(b), and to recover such property under section 550, rather than filing an avoidance action prior to filing a recovery action, as the Code currently requires.
