- Case Type:
- Case Status:
- Reversed and Remanded
- No. 15-10881 (5th Circuit, Feb 03,2017) Published
- Contractual payments due during the sixty-day notice period prior to the termination of a contract are "assets" under the Texas Uniform Fraudulent Transfer Act's ("TUFTA's") broad definition, and may be the subject of claims brought under that law.
- Procedural context:
- Appeal from the District Court for the Northern District of Texas judgment granting a motion to dismiss the plaintiff's TUFTA claim under Rule 12(b)(6). The District Court found that the relevant contracts were not "assets" covered by TUFTA, and thus no transfer of assets could have occurred. The Fifth Circuit REVERSED AND REMANDED based on its determination that the right to payments during the sixty-day termination period is an "asset," as that term is defined in TUFTA.
- Defendant Prime Income Management, LLC ("Prime LLC") served as an advisor to three publicly traded real estate companies (the "Publics") pursuant to certain contracts (the "Agreements"). The Agreements included a provision requiring sixty-days written notice to Prime LLC before they could be cancelled without penalty. Prime LLC owes the plaintiff here ("Hometown") approximately $2MM arising from its guaranty of a real-estate loan made to an affiliate that resulted in a foreclosure and a deficiency judgment. Before a final judgment was entered against Prime LLC, the individuals who owned and controlled it created a new entity, "Pillar." The Publics then terminated the Agreements with Prime LLC without giving the required sixty-day notice and Prime LLC did not object. The Publics then immediately entered into substantially identical contracts with Pillar. The fees that Prime LLC would have earned during the 60-day notice period would have been more than sufficient to pay the amount due to Hometown. The Publics and Pillar filed a declaratory action in Nevada seeking a declaration that they were not the alter egos of Prime LLC and an affiliate. Hometown sued Prime, LLC, the Publics, Pillar, and the individual officers and directors of Prime LLC in Texas asserting claims for fraudulent transfer under TUFTA, tortious interference, alter ego, and conspiracy-related claims. Both lawsuits eventually landed before the District Court for the Northern District of Texas.
- Higginbotham, Dennis, and Clement
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