QUESTION: I am a receiver. I filed a fraudulent transfer action against the mother of the defendant in the main case in which I was appointed. I only discovered six weeks ago that the defendant had transferred hundreds of thousands of dollars to his mother, approximately 4½ years ago, in order to, I believe, hide assets from creditors pursuing him. Counsel for the mother claims that the causes of action I am asserting against the mother are barred by the statute of limitations. How can that be when I only just obtained the documents showing the transfers to the mother?
ANSWER: For actual fraudulent transfers, that is transfers made with the “actual intent to hinder, delay or defraud any creditor of the debtor,” the statute of limitations in California provides that the action must be brought “within four years after the transfer was made or the obligation was incurred, or, if later, within one year after the transfer or obligation was or could reasonably have been discovered by the claimant.” California Civil Code § 3439.09(a). A number of cases have dealt with when the one year from discovery statute of limitations starts to run with regard to a receiver. Defendants have asserted that the one year discovery period begins as soon as the receiver is appointed. Where receivers have been appointed in Ponzi scheme cases or other fraud cases, the courts have generally not agreed with this contention. The most recent case to discuss this issue is Donell v. Mojtahedian, __ F. Supp. 2d __, 2013 WL 5143035 (C.D. Cal 2013). There the Court found that the limitations period did not start to run as to the receiver until the receiver determined he had a valid claim against the defendant. In the case, while the receiver knew within one year of his appointment that the defendant had received money back from her investment in the Ponzi scheme, the receiver did not know whether the defendant was a “winner” in the scheme (whether she received back more than her investment) until the receiver subpoenaed records from 74 bank and investment accounts, which first had to be identified by the receiver’s professionals, and then the receiver’s accountants analyzed the 44,000 financial transactions involved. It was only after that analysis was completed that the receiver determined that the defendant indeed had received back more than her investment and, hence, that the receiver had a fraudulent transfer claim to assert. The court acknowledged that in order to meet the requirements of Rule 11 of the Federal Rules of Civil Procedure, the receiver needed to know the facts underlying any possible claim before he could sue the defendant. The court relied on a number of cases which support the proposition that a receiver is not vested with the knowledge of the wrongdoer simply upon his appointment. See Janvey v. Democratic Senatorial Campaign Committee, Inc., 791 F. Supp. 2nd 825 (N.D. Tex. 2011), aff’d, 712 F.3d 185 (5th Cir. 2013), where the court rejected the defendants’ contention that the statute starts to run as soon as the receiver is appointed, stating that the fraudulent transfer statute “requires only the exercise of reasonable diligence, not omniscience.” Id. at 837. See also, In re Bernard L. Madoff Investment Securities LLC, 445 Bankr. 206 (S.D.N.Y.) (“It simply cannot be expected that a newly appointed trustee, with no prior knowledge of the debtor, could assert causes of action within an applicable statute of limitation periods that occur in the very early stages of a case”); Janvey v. Alguire, 2013 WL 2451738, at *11 (N.D. Tex. January 22, 2013) (holding that in the Stanford Ponzi scheme “discovering the fraudulent nature of the Net Winning transfers certainly takes time. Further, the burden is on the Net Winners to (1) conclusively prove when the cause of action occurred, and (2) negate the discovery rule, if it applies and has been pled or otherwise raised… (citations omitted).”).
Therefore, as long as you can show that you acted reasonably in discovering the underlying facts, which gave rise to the fraudulent transfer claim, you should be ok. The statute of limitations does not necessarily immediately start on your appointment date in what the Janvey court termed a “singularity-like moment.” Janvey, supra. at 831.