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Home New Cases Pleading Badges of Fraud Is Sufficiently Particular Under Rule 9(b)

Pleading Badges of Fraud Is Sufficiently Particular Under Rule 9(b)

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October 20, 2021, Northern District of Oklahoma – Trustee Steven W. Soule for the bankruptcy estate of Alfredo Carlos Paul Galaz and Lois May Galaz (“Debtors”) filed a lawsuit against Defendant Raul Galaz to avoid and recover an alleged fraudulent transfer made by Debtors to Defendant under the Oklahoma Uniform Fraudulent Transfer Act (“OUFTA”) and §§ 544(b) and 550 of the Bankruptcy Code. The Trustee also sought to turnover an alleged matured and payable on demand loan under § 542 as the estate’s property.

By way of background, the alleged transfer was identified as a personal loan by the Debtors. Additionally, the Debtors had not disclosed the alleged transfer in their original or amended statement of financial affairs or their original or amended Schedules.

Defendant contended that the statutes of limitations barred the Trustee’s claims. The Trustee argued that he was not advised of a financial document evidencing the alleged transfer until shortly before he filed the complaint. Thus, the Trustee claimed that the statute of limitations clock did not begin ticking until he discovered or could have discovered the transaction with reasonable diligence. Therefore, the deadline for asserting the claim had not yet expired when he filed the complaint.

The Court found that the Trustee has satisfied his burden under Rule 9(b) of the Federal Rules of Civil Procedure to plead the fraudulent transfer claim with particularity. The Court reasoned that the Trustee had clearly defined the alleged fraudulent transaction as a transfer of money – $150,000 – from Debtors to Defendant in March of 2015 without an exchange of consideration. The Court further stated that pleading badges or circumstantial evidence of fraud, such as transfers to insiders for no consideration and lack of disclosure (or concealment), is sufficiently particular for the purposes of Rule 9(b). Accordingly, the Court ruled that the Trustee has pled sufficient facts to state a claim under § 544(b), § 550, and § 542(b) and that the complaint does not reveal an insuperable bar to any of Trustee’s claims.

In re Galaz, 2021 Bankr. LEXIS 2902

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