Bankruptcy Appeals Court Rules Statute of Limitations for Intentional Fraudulent Transfers Starts When Transfer is Discovered, Not RecordedThe Bankruptcy Appellate Panel of the Ninth Circuit (“BAP”) recently published a decision determining that a fraudulent transfer action based on “actual intent’ to hinder, delay or defraud creditors can be brought more than four years after the transfer was publicly recorded, expanding the scope of actions that can be timely brought.

In In re Ezra, Doron and Nava Ezra borrowed $500,000 in April 2004 from Shoshana Ezra and secured the loan with a deed of trust. Another deed of trust was mistakenly given to Shoshana Ezra in June 2009 for the same amount, based on a belief that the earlier deed of trust had been reconveyed.

In February 2011, Doron and Nava Ezra filed a joint Chapter 7 bankruptcy petition. In January 2012, the Chapter 7 trustee filed suit to avoid the deeds of trust as fraudulent transfers, alleging that Doron and Nava Ezra were facing creditor demands and possible litigation at the time of each deed transfer. The trustee argued that the debtors conveyed the deeds with the intent to “hinder, delay or defaud” a creditor, making the transfers avoidable.

In response, Shoshana Ezra filed a motion for summary judgment with the bankruptcy court, arguing that the cause of action was time barred since it was filed more than seven years after the deed was recorded and should be extinguished per the seven-year rule laid out for actions involving fraudulent transfers in Cal Civ. Code §3439.09(c).

The bankruptcy court denied motion for summary judgment, saying that under §3439.09(c), the seven-year period is calculated from the date the deed was recorded to the date of the Chapter 7 bankruptcy filing, not the date of when the trustee filed suit to avoid the deeds as fraudulent transfers.

The BAP upheld the bankruptcy court’s ruling, and further examined whether the one-year limitation under Cal Civ. Code §3439.09(a) runs from discovery of the transfer or discovery of the fraud. On this issue, the court disagreed with the appellant’s argument that all creditors should have discovered the transfer within one year of when the deed was recorded. According to the BAP, “…the 1-year period under Cal. Civ. Code §3439.09(a)’s discovery rule does not commence until the plaintiff had reason to discover the fraudulent nature of the transfer.”

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