The Bankruptcy Appellate Panel (BAP) of the Ninth Circuit recently had
an opportunity to consider a statute of limitations argument concerning
fraudulent transfer actions based on actual intent. In deciding whether
to consider the issue, the BAP had to determine whether the law raised
factual issues or a purely legal issue. Ultimately, the BAP decided that
the statute raised factual issues and decided not to consider the appeal.
Specifically, the issue at hand concerned the statute of limitations from
California Civil Code §3439.09(a), which specifies that a fraudulent
transfer action based on actual intent which is commenced more than four
years from the date of the transfer must be brought within one year after
the transfer or obligation was or could reasonably have been discovered
by the claimant. The BAP ruled that the one-year period referred to in
the statute doesn’t actually begin until the plaintiff had a reason
to discover the fraudulent nature of the transfer.
The BAP applied this decision to the case of Doron and Nava Ezra, who gave
two deeds of trust to one of the debtor’s mothers in 2004 and again
in 2009 under the mistaken belief that the first deed of trust had been
reconveyed. The couple later filed for joint Chapter 7 bankruptcy in 2011.
One year later, the Chapter 7 trustee in the case filed a complaint against
the mother, calling the deeds fraudulent transfers. She responded by filing
a summary motion on the legal theory that more than 7 years had passed
since 2004, when she originally obtained the deeds, but her motion was
denied on the grounds that the seven year period described in §3439.09(c)
was measured from the date the deed was recorded through the date of the
bankruptcy filing, not the later filing of the adversary proceeding seeking
to avoid the transfer.
The biggest lesson in this case is to remember that the “one year”
discovery rule only applies to transfers based on actual intent which
occur more than four years, but not more than seven years, before a bankruptcy.
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