In reviewing fraudulent transfer cases, including Judge Mullins’ recent opinion in the IMA case, I noticed citations to an opinion in the case of Kipperman v. Onex Corp., et al (click for opinion), Civil Action No. 1:05-CV-1242-JOF (N.D. Ga. Sept. 15, 2006). 

In this case, Richard Kipperman, the trustee of a Litigation Trust in the Chapter 11 case of In re Magnatrax, Inc.,  filed suit against several parties related to a corporate acquisition and the financing thereof.  Among the nineteen causes of action were claims for fraudulent transfer under Georgia (pre and post enactment of the Uniform Fraudulent Transfer Act) and Bankruptcy law. 

The 80 page opinion hits on several issues, including standing of the trustee, personal jurisdiction, et. al, but it has been cited primarily for its discussion of the pleading requirements for fraudulent transfers. Notably, the Court, finding a split of authority, found that the more stringent requirements of Rule 9(b) did not apply to allegations of constructive fraud under the Uniform Fraudulent Transfer Act, as applicable in Georgia for transfers after July 1, 2002. 

 Courts in other circuits, in addressing this issue, are split on whether to apply Rule 9(b) to claims under UFTA. See General Elec. Capital Corp. v. Lease Resolution Corp., 128 F.3d 1074 (7th Cir. 1997) (applying Rule 9(b) to constructive fraudulent transfer claim); Kruse v. Aamed, Inc., 1997 WL 102528 (N.D. Ill. 1997) (dismissing claim under Illinois’ Fraudulent Transfer Act for failure to comply with Rule 9(b)); In re White Metal Rolling & Stamping Corp., 222 B.R. 417 (S.D.N.Y. 1998) (distinguishing between intentional and constructive fraudulent transfer and finding that Rule 9(b) does not apply in constructive fraudulent transfer claims); China Resource Prods. 31 (U.S.A.) Ltd. v. Fayda Intern., Inc., 788 F. Supp. 815, 818-19 (D. Del.1992) (finding Rule 9(b) does not apply to pleadings made pursuant to those sections of Delaware’s Fraudulent Conveyance Act under which plaintiff need not prove actual or constructive fraud). Although Judge Alaimo, in Nesco, Inc, v. Cisco, 2005 WL 2493353 (S.D. Ga., Oct. 7, 2005), opined  that the pleading requirements of Rule 9(b) did not apply to claims of fraudulent conveyance brought pursuant to Georgia’s UFTA, id., slip op. at 3, he also found that Plaintiff therein had sufficiently set forth the details of the transfer under attack to comply with Rule 9(b) requirements. Id.

Many of the above-cited cases distinguish between claims of actual or intentional fraudulent transfers and those that challenge transfers as constructively fraudulent. While concluding that Rule 9(b)’s requirement of pleading with particularity applies to claims of actual or intentional fraud, the “great majority of cases” hold that the heightened pleading requirements of Rule 9(b) do not apply to claims sounding in constructive fraud. In re Actrade Financial Technologies, Ltd., 337 B.R. 791, 801 (S.D.N.Y. 2005), citing, inter alia, White Metal Rolling, supra. This court agrees that in determining whether to apply the particularity requirements of Rule 9(b) to fraudulent transfer claims brought in this court under Georgia’s UFTA, the distinction between claims of actual or intentional fraud and those of constructive fraud is relevant. As explained in the White Metal Rolling case, while Rule 9(b) claims apply to claims of intentional fraudulent transfer, constructive fraud claims are different: “Although tagged with the title ‘fraudulent,’ fraud has nothing to do with the The transaction is based on the transferor’s financial  condition and the sufficiency of the consideration provided by the transferee.” White Metal Rolling, 2225 B. R. at 428-29.

Slip. Op. at 31-32.  Because the trustee’s claims involved actual constructive fraud claims, and such claims covered transfers made before and after the effective date of Georgia’s Uniform Fraudulent Transfer Act, the court addressed each category of allegations.