Conflicting decisions in Washington Court of Appeals regarding fraudulent transfer liability

On Monday, the Washington Court of Appeals, Division I, held that under Washington's Uniform Fraudulent Transfers Act, lack of an "actual intent to defraud" will not protect an asset transferee from liability to the transferor's creditors, where the assets were acquired for less than reasonable value.

In Thompson v. Hanson, the Court affirmed the trial court's decision to impose personal liability on a couple who acquired two real estate parcels from a construction company several months before the filing of a breach of contract lawsuit against the company.  The evidence at trial showed that the transferred lots were worth $465,000, but the couple acquired them simply by assuming $325,000 in  debt.  Based on the evidence that the construction company did not receive "reasonably equivalent value" for the lots, and that the company's remaining assets were unreasonably small in relation to its business, the trial court  concluded that the couple was liable for "constructive fraud" under the UFTA (to the extent of the equity they received), even though the plaintiffs had failed to prove actual intent to defraud.

In its decision, the Court noted that there are conflicts among divisions of the Court of Appeals regarding whether actual intent to defraud is required to impose liability on a transferee.  For example, the Court expressly disagreed with the 1991 opinion from Division III of the Court of Appeals in Park Hill Corp. v. Sharp, which held that transferees cannot be held liable absent proof of actual intent to defraud.  This issue now appears ripe for review by the Washington Supreme Court.