Fee Shifting in Fraudulent Conveyance Cases? Yes, Sometimes.
Tennessee follows the American Rule that a successful litigant normally has to bear its own attorneys fees. The typical exceptions to the rule are: (1) if the statute the party is suing under includes an award of attorneys’ fees; or (2) if a contract between the parties provides for attorneys fees.
Attorneys fees can be awarded to a successful fraudulent conveyance plaintiff, but only if there are other creditors besides the plaintiff.
In a December 30, 2015 decision, the Court of Appeals decided whether attorneys fees can be awarded to a plaintiff who proves a fraudulent conveyance by the defendant. In Anderson v. Lowry, the defendant husband, on the day before the trial, quitclaimed real property he owned. The quitclaim was to his wife and him as tenants by the entireties. The trial court found that this was a fraudulent conveyance, the only purpose of which was to protect the property from plaintiff’s claims. The Court of Appeals agreed with this.
However, the trial court also awarded attorneys fees involved in proving the fraudulent conveyance, and the Court of Appeals reversed. There is no statute authorizing attorneys fees for a fraudulent conveyance claim, and there was no contract between the parties. Attorneys fees can be awarded to a successful fraudulent conveyance plaintiff, but only if there are other creditors besides the plaintiff. If only the plaintiff will benefit from recovery of the fraudulent conveyance, there is no award of attorneys fees. But, if other creditors would benefit, then fees can be awarded under the common law “common fund” doctrine. This doctrine allows attorneys fees if one creditor creates a fund, through the expenditure of attorneys fees, from which other creditors will share. Attorneys fees come off the top, and the remaining fund is distributed to creditors pro rata.
In the Anderson case, the plaintiff did not bring the fraudulent conveyance claim on behalf of all creditors, but rather only herself. If she had done so, she would have been eligible for an award of attorneys fees, but the trade-off is she would have had to share the proceeds from the successful claim with the other creditors. Deciding whether to include other creditors will require a mathematical analysis including (1) the anticipated attorneys fees; (2) the amount of other creditors’ claims’ relative to the plaintiff’s claim; and (3) the availability of other assets of the defendant from which the plaintiff could recover if the “common fund” does not pay her in full.
photo credit: Ben Daines via flickr cc