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Issue  238  Article  379
Published:  8/1/2017

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KB Aircraft Acquisition, LLC v. Berry (15-823) 8/16/2016
Uniform Voidable Transactions Act - Statute of Repose

Chris Burti, Vice President And Senior Legal Counsel

This is the first appellate decision we have noted addressing the relatively new Uniform Voidable Transactions Act, N.C.G.S. Chapter 39 (UVTA). Under the UVTA, a "transfer" refers to the actual transfer of property and not to the date on which a creditor discovers the transfer; furthermore, the Court of Appeals in this opinion holds that N.C.G.S. Section 39-23.9 is a statute of repose and not a statute of limitations deeming that the plaintiff's claims are time-barred and affirming the trial court's Order and Summary Judgment on the question.

This dispute arose out of the transfer of North Carolina real property by the defendant while indebted as a guarantor on a loan acquired by the plaintiff by assignment. The defendant transferred the Property to the defendant's LLC (also a defendant) by special warranty deed that same day it was formed. According to a personal financial statement, the Property was the defendant's most valuable real estate asset and worth $4,250,626.00. No consideration was paid in the transfer. "The deed stated on its face that 'THIS TRANSACTION IS BETWEEN RELATED PARTIES AND THERE IS NO CONSIDERATION BEING PAID'" and was recorded on October 23.

The plaintiff issued a demand letter dated October 4, 2010. Soon after demanding payment the plaintiff filed suit against them in Florida for their failure to cure the longstanding default. A month after filing suit and two months after purchasing the loan from the original lender, the plaintiff conducted a title search which reflected that the defendant had transferred it in 2008. In July 2013, the plaintiff obtained a judgment for $10,577,895.90 against the loan obligor and the defendant in Florida. The plaintiff perfected a judgment lien in North Carolina which is enforceable against any real property owned by the defendant in Watauga County. Plaintiff was unable to enforce the lien against the Property because, although it is in Watauga County, the defendant no longer owned it. The plaintiff filed suit "in North Carolina on December 2, 2013, alleging a claim for fraudulent transfer pursuant to N.C. Gen. Stat. § 39-23.1 et seq. and a claim for declaratory relief. Plaintiff's complaint sought a judgment setting aside the conveyance of the Property to Defendant 585 and, in accordance with the statute, vesting the Property back into Defendant Berry's name and subject to Plaintiff's judgment lien. Defendants moved for summary judgment, arguing that Plaintiff's claims were time barred because they were brought outside the relevant limitations periods allowed by the Uniform Voidable Transactions Act.' The trial ruled in favor of the defendant on his motion for summary judgment.

The court deemed that the core issue in the appeal was the meaning of the term "transfer" in N.C. Gen. Stat. § 39-23.9 because the statute extinguishes claims for fraudulent transfers brought after its defined time period. The parties debated whether the timing of the statutory term "transfer" refers to the actual date of the disputed transfer or the date that the fraudulent nature of the transfer became apparent to the creditor. The Court of Appeals noted that this issue "has not been addressed since our legislature enacted the Uniform Fraudulent Transfers Act, later renamed the Uniform Voidable Transactions Act ("UVTA"), as Article 3A of Chapter 39 of the North Carolina General Statutes nearly two decades ago."

The UVTA defines "Transfer" starting with the word "every," thus the Court deemed this definition as being "all-inclusive" and not limiting its scope to only transfers that are fraudulent or that appear to be fraudulent. The opinion states; "If the legislature had intended for the date triggering extinguishment of the claim to be anything other than when "the transfer was made," it could have said so in the statute. Additionally, the word "fraudulent" appears nowhere in this statute. Thus, the plain language of the statute indicates that the limitations period for all claims authorized by the UVTA begins to run at the time of the transfer upon which the claim is based, or from such point as the claimant should reasonably have known of the transfer."  However, as to claims based on a transfer in which the debtor does not receive reasonably equivalent value, "the limitations period is four years from the date of transfer. N.C. Gen. Stat. § 39-23.9, North Carolina Cmt. (1997) (emphasis added) (citation omitted). In conformity with the plain meaning of the statute, we hold that the term "transfer" within N.C. Gen. Stat. § 39-23.9 refers to the date that the transfer actually occurred, and not the date that the fraudulent nature of the transfer became apparent."

A second issue addressed by the Court of Appeals in this opinion and deemed to be one of "first impression" deals with whether N.C.G.S. Section 39-23.9 operates as a statute of limitations or of repose. The Court held that it is a statute of repose. The court addresses its analysis and the significance of the issue as follows:

A statute of limitations functions to limit the amount of time that a claimant has to file an action. Tipton & Young Constr. Co. v. Blue Ridge Structure Co., 116 N.C. App. 115, 117, 446 S.E.2d 603, 604 (1994). The limitations period begins to run on the date the cause of action accrues, which is generally "the time of an injury or the discovery of the injury." Id. Statutes of limitation are purely procedural bars to the bringing of claims; they "affect only the remedy and not the right to recover." Id. By contrast, statutes of repose function as more rigid stops. The time limitations imposed by statutes of repose are usually not measured from the accrual of the cause of action. Boudreau v. Baughman, 322 N.C. 331, 340, 368 S.E.2d 849, 856 (1988). Instead, they often run from the " 'defendant's last act giving rise to the claim.' " Id. (quoting Trustee of Rowan Tech. v. Hammond Assoc., 313 N.C. 230, 234 n.3, 328 S.E.2d 274, 276-77 n.3 (1985)). While statutes of limitation are classified as affirmative defenses, a statute of repose need not be pled as an affirmative defense. Whittaker v. Todd, 176 N.C. App. 185, 187, 625 S.E.2d 860, 862 (2006). Rather, statutes of repose are more appropriately pled as a condition precedent to the bringing of an action at all. Id. This elemental nature makes the time span imposed by a statute of repose " 'so tied up with the underlying right that ... the limitation clause is treated as a substantive rule of law.' " Boudreau, 322 N.C. at 341, 368 S.E.2d at 857 (quoting Chartener v. Rice, 270 F. Supp. 432, 436 (E.D.N.Y. 1967)). " 'A statute which in itself creates a new liability, gives an action to enforce it unknown to the common law, and fixes the time within which that action may be commenced, is not a statute of limitations.' " McCrater v. Stone & Webster Eng'g Corp., 248 N.C. 707, 709, 104 S.E.2d 858, 860 (1958) (quoting 34 Am. Jur., Limitation of Actions § 7). N.C. Gen. Stat. § 39-23, et seq., like the workers compensation statute at issue in McCrater, crafted a new civil cause of action related to a wide variety of fraudulent transactions not previously recognized in North Carolina. Furthermore, the "common law" claim for fraudulent conveyance upon which Plaintiff relies was itself a creature of statute, dating back to 1966 and adopted from English Code. N.C. Gen. Stat. § 39-23 (2015), Official Cmt. Chapter 39, Article 3A of our General Statutes provides for the definition, cause of action, and procedure for which an individual may bring a claim for relief for a fraudulent transfer. Section 39-23.9 establishes a finite and fixed time within which the prescribed actions may be brought. Because Section 39-23.9 measures the time period in relation to an event separate from the realization of an injury by the claimant, the statute is one of repose.

The plaintiff also contended that if the Court construed Section 39-23.9 is a statute of repose, as it did, time should be equitably extended by the court, but the Court of Appeals disagreed. The Court stated that the plaintiff in quoting the holding in Wood v. BD&A Constr. L.L.C., 166 N.C. App. 216, 220, 601 S.E.2d 311, 314 (2004), that "[e]quitable estoppel may also defeat a defendant's statute of repose defense." had taken it out of context. The statute at issue, N.C.G.S. Section 1-50(a)(5) unlike N.C.G.S. Section 39-23.9 explicitly provides that that the limitation period "shall not be asserted as a defense" by any person who has engaged in fraud, willful or wanton negligence, or wrongful concealment. The opinion, quoting Goodman v. Holmes & McLaurin Attorneys at Law, 192 N.C. App. 467 (2008) held that "'equitable doctrines do not toll statutes of repose.'" (citations omitted). In rejecting the argument, the court noted that N.C.G.S. Section "39-23.9 is a statute of repose and includes no language creating an exception for equitable doctrines, thereby precluding equitable remedies such as equitable tolling, and limiting Plaintiff's arguments on appeal to those founded in law."

The court distinguishes the remedies of N.C.G.S. Section 39-23.4(a)(1) creating a cause of action for voidable transfers as to present or future creditors, extinguished if not brought within four years after the transfer was made but, including a "savings clause" providing that an action is not extinguished if brought within one year after the complaining party discovered, or could have reasonably discovered the transfer and N.C.G.S. Section 39-23.5(a), creating a cause of action for voidable transfers as to present creditors without a "savings clause". N.C.G.S. Section 39-23.4(a)(1) applies only to a debtor who acts "[w]ith the intent to hinder, delay, or defraud any creditor ..." The court held that under the facts of this case, all of the plaintiff's claims were barred because they arose from a transfer occurring more than four years prior to filing the complaint and that the plaintiff had notice of the transfer more than one year prior to filing.

This unanimously decided opinion should be welcomed by real property practitioners in providing a little more certainty in examining title where the search discloses a transfer made while litigation against the transferor was pending.

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