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KENNETH W. LEVY, Plaintiff-Appellee, v.
MARKAL SALES CORPORATION, et al., Defendants-Appellants 311 Ill. App. 3d 552; 724 N.E.2d
1008;2000 Ill. App. LEXIS 53; 244 Ill. Dec. 120 February 2, 2000, Decided SUBSEQUENT HISTORY: [*1] Released for
Publication March 14, 2000. As Corrected February 3, 2000. PRIOR HISTORY: Appeal from the Circuit Court
of Cook County. Honorable Lester D. Foreman, Judge Presiding. DISPOSITION: Certified question answered
and case remanded. JUDGES: JUSTICE CERDA delivered the
opinion of the court. CAHILL, P.J., and BURKE, J., concur. OPINION BY: CERDA JUSTICE CERDA delivered the opinion of
the court. The circuit court pursuant to Supreme
Court Rule 308 certified the following question of law for an interlocutory
appeal: "Whether the four-year statute of
limitations period provided by section 10(a) of Illinois' Uniform Fraudulent
Transfer Act, 740 ILCS 160/10(a), runs from the date of the alleged fraudulent
transfer or from the date of a subsequent judgment obtained by the
creditor." On March 26, 1998, this court, exercising
its discretion, declined to consider the circuit court's Rule 308 order.
However, on October 6, 1998, the Illinois supreme court issued a supervisory
order vacating our March 26 ruling and directing us to address the question
certified by the circuit court. In compliance with the supreme court's mandate,
and pursuant to Rule 308, [*2] we allowed the instant appeal. In October 1982, plaintiff, Kenneth Levy,
filed suit on behalf of Markal Sales Corporation (Markal) and individually as
one of its shareholders against several defendants, including two of Markal's
corporate directors, Victor Gust Jr. and Robert Bakal. In pertinent part, Levy
alleged that Victor and Bakal breached their fiduciary duties to Markal by
failing to present a business opportunity to the company before pursuing it on
their own through a new business venture, and by also using Markal assets for
the benefit of the new business' operations. In December 1986, during the pendency of
Levy's case, Victor transferred, by quitclaim deed, his one-half interest in
his family residence located in Park Ridge, Illinois, to his wife, Diana Gust.
Prior to the transfer, Victor and Diana held the property as joint tenants. As
a result of the transfer, Diana became the property's sole owner. Victor's
transfer was formally recorded with the Cook County Recorder of Deeds on
January 16, 1987. After a lengthy bench trial, the circuit
court found that Victor and Bakal breached their fiduciary duties to Markal and
Levy, and on October 17, 1991, it issued judgment [*3] against
them. On March 6, 1992, the court ordered Victor and Bakal, jointly and
severally, to pay Levy $ 5,614,523.37 in actual damages and $ 3,000,000 in
punitive damages, for a total damages award of $ 8,614,523.17. The court later
reduced the actual damages to $ 1,952,249.48, for a total damages award of $
4,952,249.48. n1 - - - - - - - - - - - - - - Footnotes - -
- - - - - - - - - - - - - n1 On appeal, this court upheld the
circuit court's decision and award of monetary damages. Levy v. Markal Sales
Corporation, 268 Ill. App. 3d 355, 643 N.E.2d 1206, 205 Ill. Dec. 599 (1994). - - - - - - - - - - - - End Footnotes- -
- - - - - - - - - - - - On March 9, 1992, Levy commenced
supplemental proceedings under section 2-1402 of the Code of Civil Procedure (
735 ILCS 5/2-1402 (West 1996)) to execute on the judgment by, in part, filing a
citation to discover assets against Victor. On May 26, 1994, Levy filed a
motion seeking a turnover of certain assets held by Victor. In count four of
his motion, Levy asserted for the first time that the December 1986 transfer of
Victor's interest in the Park Ridge [*4] property to Diana
constituted a fraudulent transfer. In pertinent part, Levy alleged that
Victor's transfer was made with the actual "intent to hinder, delay and
defraud" him in violation of section 5(a)(1) of the Illinois Uniform
Fraudulent Transfer Act (Act) ( 740 ILCS 160/5(a)(1) (West 1996)). Initially, we consider Levy's contention
that we may go beyond the scope of the question certified to consider whether
the Act can be applied retroactively under the circumstances of this case.
Notably, the transfer at issue occurred some three years before the Act's
effective date of January 1, 1990. Review of an appeal under Rule 308 is
strictly limited to the question identified by the circuit court's order, and
will not be expanded on appeal to encompass other matters that could have been
included but were not. Sassali v. DeFauw, 297 Ill. App. 3d 50, 51, 696 N.E.2d 1217,
1218, 231 Ill. Dec. 646 (1998); McCarthy v. LaSalle National Bank & Trust
Company, 230 Ill. App. 3d 628, 631, 595 N.E.2d 149, 151, 172 Ill. Dec. 86
(1992). The issue of whether the Act could be retroactively applied was
extensively addressed by the parties throughout [*5] the
proceedings before the circuit court. The court rejected a claim by Levy that
the Act could not be given retroactive effect, and it explicitly declined to
certify this issue for our review, explaining that its order would only address
the question of when the applicable limitation period commences under the Act.
Indeed, the certified question reflected in the court's order speaks solely of
this matter. The issue of retroactivity, despite its apparent relevancy, will
therefore not be addressed on this appeal. As noted, the question certified for our
review concerns when the four-year statute of limitations contained in section
10(a) begins to run for purposes of an action brought under the Act by a tort
claimant challenging a transfer of property by a defendant-debtor. In
particular, we must determine whether the four-year limitation period commences
to run on the date of the transfer challenged, or instead on the date the
creditor's claim is reduced to judgment. In 1989, our General Assembly adopted the
Uniform Fraudulent Transfer Act of 1984 (Uniform Act), which as noted became
effective on January 1, 1990. Our state's act repealed the provisions contained
in the statute of [*6] frauds that addressed fraudulent conveyances
(Ill. Rev. Stat. 1987, ch. 59, §§ 4-7). Section 10 of the Act, which
sets forth the time period in which a claim for relief must be brought,
provides in relevant part: "A cause of action with respect to a
fraudulent transfer *** under this Act is extinguished unless action is
brought: (a) under paragraph (1) of subsection (a)
of Section 5 [which addresses transfers made with actual intent to hinder,
delay or defraud], within 4 years after the transfer was made *** or, if later,
within one year after the transfer *** was or could reasonably have been
discovered by the claimant." n2 740 ILCS 160/10(a) (West 1996). - - - - - - - - - - - - - - Footnotes - -
- - - - - - - - - - - - - n2 This provision is identical to the
statute of limitations contained in section 9 of the Uniform Act. See Uniform
Fraudulent Transfer Act, 7A U.L.A. § 9, at 359 (1998). - - - - - - - - - - - - - - - - -End
Footnotes- - - - - - - - - - - - - - - - - The primary aim of statutory construction
is to effectuate the intent of the legislature. Ruva v. Mente, 143 Ill. 2d 257,
263, 572 N.E.2d 888, 891, 157 Ill. Dec. 424 (1991). [*7] The best
indicator of this intent is the express wording of the statute itself, which
must be given its plain and ordinary meaning. Namur v. The Habitat Company, 294
Ill. App. 3d 1007, 1011, 691 N.E.2d 782, 785, 229 Ill. Dec. 309 (1998). Where
the intent can be ascertained from the statute's plain language, that intent
must prevail. DiFoggio v. Retirement Board of County of Employees Annuity and
Benefit Fund of Cook County, 156 Ill. 2d 377, 382, 620 N.E.2d 1070, 1073, 189
Ill. Dec. 753 (1993). Statutes of limitations must be construed in light of
their objectives and must be liberally construed to fulfill the object for
which they were enacted. Namur, 294 Ill. App. 3d at 1011, 691 N.E.2d at 785. Section 10(a) explicitly provides that a
cause of action attacking a transfer as fraudulent under paragraph (a)(1) of
section 5 must be brought within 4 years "after the transfer was
made." n3 (Emphasis added.) 740 ILCS 160/10(a) (West 1996). As the clear
and unambiguous wording of the Act demonstrates, the four-year limitation
period begins to run on the date the challenged transfer was made. The explicit
[*8] language of section 10(a) defeats any construction that the limitation
period runs from the entry of judgment. Other courts applying the Act, although
not squarely confronting the question presented in this case, have similarly
indicated that the four-year period of limitation commences on the date of
transfer. See In re Gillissie, 215 B.R. 370, 374, n. 1 (1997); Gilbert Bros.
Inc. v. Gilbert, 258 Ill. App. 3d 395, 399, 630 N.E.2d 189, 192, 196 Ill. Dec.
492 (1994). - - - - - - - - - - - - - - Footnotes - -
- - - - - - - - - - - - - n3 Section 7 of the Act ( 740 ILCS 160/7
(West 1996)) specifies when a transfer is made, and thus necessarily requires
consideration when determining the timeliness of a claim. - - - - - - - - - - - - End Footnotes- -
- - - - - - - - - - - - The express aim of the Act is that its provisions
be applied and construed to make uniform the law of fraudulent transfers among
the states adopting the law. 760 ILCS 160/12 (West 1996). Thus, case law of
other jurisdictions is relevant in resolving the question before us. Several
courts [*9] have relied on the plain language contained in their
respective statutes to find that the date the transfer is made represents the
starting point for the four-year limitation period involved in this case. See
Freitag v. McGhie, 133 Wn.2d 816, 947 P.2d 1186, 1188 (1997); Intili v.
DiGiorgio, 300 N.J. Super. 652, 693 A.2d 573, 577-78 (1997); First Southwestern
Financial Services v. Pulliam, 121 N.M. 436, 912 P.2d 828, 830 (1996). The
court in First Southwestern specifically rejected a creditor's claim that this
time period begins to run from the judgment's date of entry. First
Southwestern, 121 N.M. 436, 912 P.2d at 830. As Levy notes, one court has expressed a
contrary position and has concluded that the four-year limitation period
reflected in the Uniform Act commences from the time of judgment. In Cortez v.
Vogt, 52 Cal. App. 4th 917, 60 Cal. Rptr. 2d 841 (1997), the plaintiff brought
suit against the defendants under the Uniform Act as adopted by the California
legislature for a transfer that had occurred during the pendency of earlier
litigation between the parties. In successfully moving [*10] for
summary judgment, the defendants argued that the plaintiff's claim was untimely
because he failed to assert it within four years of the date of the alleged fraudulent
transfer. The California Court of Appeals, in
finding the plaintiff's claim not time-barred, held that in cases where the
alleged fraudulent transfer occurs during the pendency of a tort creditor's
suit to establish his claim, and the creditor waits until he secures judgment
against the debtor before seeking to set aside the transfer, the four-year time
period begins to run on the date judgment is entered. Cortez, 52 Cal. App. 4th
917, 937, 60 Cal. Rptr. 2d at 853-54. Notwithstanding the plain language of the
statute, which the court noted "appears to be straightforward in its
reference to the time 'the transfer was made,'" the court determined the
Uniform Act incorporated prior case law holding that where a creditor waits to
attack a fraudulent transfer until after judicial establishment of his claim,
the statutory period of limitations commences upon the judgment's entry.
Cortez, 52 Cal. App. 4th at 929, 60 Cal. Rptr. 2d at 848. In reaching its conclusion, the Cortez
court stressed [*11] the remedies afforded under the Uniform Act,
as well as its predecessor statute, the Uniform Fraudulent Conveyance Act, are
cumulative of remedies that existed before the uniform laws were drafted.
Cortez, 52 Cal. App. 4th at 930, 60 Cal. Rptr. 2d at 849. The court noted the
Uniform Act does not set forth a particular procedure for a creditor to seek
relief against fraudulent transfers. Under the statute, a creditor is
permitted, but not required, to maintain an action to annul a fraudulent
transfer before his debt has matured. Cortez, 52 Cal. App. 4th at 930, 60 Cal.
Rptr. 2d at 849. The court explained that pursuant to preexisting remedies, a
creditor could wait for his claim to be reduced to judgment before attacking a
transfer as fraudulent. In such cases, the common law provided a creditor the
benefit of a limitations period that began to run when judgment on the
underlying debt became final. Cortez, 52 Cal. App. 4th at 929-30, 60 Cal. Rptr.
2d at 848-49. The court specifically found support for its holding in the
committee comments published in conjunction with the Uniform Act. n4 Cortez, 52
Cal. App. 4th at 934-37, 60 Cal. Rptr. 2d at 852-53. [*12] - - - - - - - - - - - - - - Footnotes - -
- - - - - - - - - - - - - n4 The commentary relied on by the court
states that "the remedies specified in § 7, like those enumerated in
§§ 9 and 10 of the Uniform Fraudulent Conveyance Act, are
cumulative." Uniform Fraudulent Transfer Act, 7A U.L.A. § 7, at 341
(1998). In support of this statement, the drafters cite Lind v. O.N. Johnson
Co., 204 Minn. 30, 40, 282 N.W. 661, 667 (1939), Conemaugh Iron Works Co. v.
Delano Coal Co., Inc., 298 Pa. 182, 186, 148 A. 94, 95 (1929), and 1 G. Glenn,
"Fraudulent Conveyances and Preferences," 120, 130, 150 (Rev. ed
1940). - - - - - - - - - - - - End Footnotes- -
- - - - - - - - - - - - The court concluded that since the
Uniform Act was a carry-over of the remedies that existed under the prior law,
the act incorporated the procedure of permitting a creditor to pursue his claim
to judgment before seeking relief under its provisions and, as such,
incorporated prior case law starting the limitations period from the time of
judgment. Cortez, 52 Cal. App. 4th 917, 60 Cal. Rptr. 2d at 849-50. We are not convinced [*13] by
the Cortez analysis. Although the Uniform Act does not specify the particular
method by which a fraudulent transfer is to be attacked, the limitations
provision sufficiently delineates how an aggrieved creditor must proceed in
order to obtain relief. As discussed, the Act's plain language clearly
indicates that an action challenging a transfer as fraudulent on the basis that
it was made with the actual intent to defraud, and of which the creditor had
knowledge, must be brought within four years from the date the transfer was
made. Consequently, a cause of action in such cases accrues when the transfer
became effective, and the limitations period is not tolled until the creditor's
claim is reduced to judgment. As drafted, the limitations provision requires a
creditor in certain instances to institute action before judgment in order to
preserve his claim against the fraudulent transfer. Although a creditor may
elect to pursue his claim to judgment before instituting a fraudulent transfer
action, he does so at the risk of losing his right to relief. See Intili, 300
N.J. Super. 652, 693 A.2d at 577 ("the [Uniform Act] expressly limits a
creditor's right to set [*14] aside a transfer to the time period
in the statute, notwithstanding the date a party obtains a final judgment").
We do not agree with the reading given the committee comments by the Cortez
court and do not believe those comments support the court's ruling. We note several courts have determined
that the limitations provision in the Uniform Act does not represent a
traditional statute of limitations. Rather, according to these authorities, the
act's provision is more akin to a statute of repose since it operates to
extinguish the cause of action on a certain date, i.e., four years from the
date of transfer. Intili, 300 N.J. Super. 652, 693 A.2d at 577-78; In re
Princeton-New York Investors, 219 B.R. 55, 62 (Bankr. D. N.J. 1998)
(considering limitations provision under New Jersey uniform law); First
Southwestern, 121 N.M. 436, 912 P.2d at 830; United States v. Vellalos, 780 F.
Supp. 705, 707 (D. Haw. 1992) (same under Hawaii uniform law). Indeed, the
uniform committee comments reflect this approach. According to the drafters,
the purpose of the limitations provision "is to make clear that lapse of
the statutory [*15] periods prescribed *** bars the right and not
merely the remedy." Uniform Fraudulent Transfer Act, 7A U.L.A. § 9,
at 359 (1998). n5 - - - - - - - - - - - - - - Footnotes - -
- - - - - - - - - - - - - n5 Although the uniform committee
comments were not expressly adopted by the Illinois legislature, we believe
they are nonetheless relevant and applicable in determining the meaning and
application of the Act in this case. - - - - - - - - - - - - End Footnotes- -
- - - - - - - - - - - - We are further cognizant of the concerns
expressed by the Cortez court regarding the potential of needless litigation
should a creditor be required to bring a fraudulent conveyance action during
the pendency of his underlying claim. Yet, the Act plainly contemplates that such
provisional litigation may be necessary under certain circumstances. In
considering the operation of the Act's provisions in this case, we are solely
concerned with determining the intentions of the legislature and giving that
intent effect. We are not in the position to question the wisdom of the
procedure necessitated by the Act or to explore alternative methods that may
prove more [*16] efficient. In support of his contention that the
four-year limitation period in section 10(a) begins to run on the date of
judgment, Levy notes that, under prior law, a judgment against the debtor was a
precondition to an action seeking to set aside a fraudulent conveyance. See
Circle Security Agency, Inc. v. Ross, 99 Ill. App. 3d 1111, 1115-16, 425 N.E.2d
1283, 1287, 55 Ill. Dec. 110 (1981) (stating the well established rule in
Illinois is that entry of judgment against a debtor is a condition precedent to
setting aside a fraudulent conveyance); Pape v. Pareti, 315 Ill. App. 1, 5-6,
42 N.E.2d 361, 364 (1942), citing Dawson v. First National Bank, 228 Ill. 577,
579, 81 N.E. 1128, 1129 (1906). Relying on section 11 of the Act, Levy
maintains the Act did not change the common law requirement of judgment.
Section 11 of the Act states: "Unless displaced by the provisions
of this Act, the principles of law and equity, including the law merchant and
the law relating to principle and agent, estoppel, laches, fraud,
misrepresentation, duress, coercion, mistake, insolvency or other validating or
invalidating cause, supplement its provisions." [*17] 740 ILCS
160/11 (West 1996). Levy argues the Act supplemented, rather
than displaced, the judgment requirement under preexisting law. With the passage of the Act, however, a
creditor is no longer required to secure a judgment before seeking relief from
a fraudulent transfer. The drafters of the uniform law specifically noted a
creditor is not required to obtain a judgment in order to proceed under the
act. Uniform Fraudulent Transfer Act, 7A U.L.A. § 7, at 340 (1998); see
also Prescott v. Baker, 644 So. 2d 877, 880 (Ala. 1994) (noting remedies under
its state's version of uniform law are available notwithstanding the absence of
judgment). Moreover, the Act's definitions of "creditor" and
"claim" clearly indicate that a judgment is no longer a pre-condition
to relief. See 760 ILCS 160/2(c) (West 1996) (defining "claim," in
part, as "a right of payment, whether or not the right is reduced to
judgment"), and 160/2(d) (defining "creditor" as "a person
who has a claim"). Finally, section 8 of the Act provides, in part, that a
creditor may obtain in an action for relief against a transfer or obligation:
[*18] "(1) [an] avoidance of the transfer or obligation to the
extent necessary to satisfy the creditor's claim; (2) an attachment or other provisional
remedy against the asset transferred or other property of the transferee in
accordance with the procedure prescribed by the Code of Civil Procedure; (3) subject to applicable principles of
equity and in accordance with applicable rule of civil procedure,(A) an
injunction against further disposition by the debtor or a transferee, or both,
of the asset transferred or of other property. (B) appointment of a receiver to take
charge of the asset transferred or of other property of the transferee; or (C) any other relief the circumstances
may require." 740 ILCS 160/8 (West 1996).Under the express wording of this
provision, a creditor can take action against a fraudulent transfer before the
entry of judgment. Contrary to Levy's contention, we conclude that the Act
displaced the judgment requirement under the pre-existing law. n6 - - - - - - - - - - - - - - Footnotes - -
- - - - - - - - - - - - - n6 In claiming a judgment is still
required, Levy suggests that the five year statute of limitations under section
13-205 of the Code of Civil Procedure ( 735 ILCS 5/13-205 (West 1996))
applicable to an action to set aside a fraudulent transfer by a tort claimant
before the adoption of the Act always began to run on the date of judgment.
However, this was not always the case. Under prior law, a cause of action
accrued when (1) the claimant became a creditor (see Tcherepnin v. Franz, 457
F. Supp. 832, 838-39 (N.D. Ill. 1978) (applying Illinois law); Cook v. Tedrick,
338 Ill. App. 573, 578, 88 N.E.2d 515, 518 (1949)), (2) a judgment was entered
establishing the creditor-debtor relationship ( Circle Security, 99 Ill. App.
3d at 1115-16, 425 N.E.2d at 1287), and (3) the creditor knew or reasonably
should have known of his injury, i.e., he knew of the fraudulent nature of the
transfer (the "discover rule) ( In re Martin, 142 B.R. 260, 265 (Bankr.
N.D. Ill. 1992) (applying Illinois law); In re Lyons, 130 B.R. 272, 278 (Bankr.
N.D. Ill. 1991) (same)). It was possible in certain cases that a cause of action
did not accrue until after the judgment was entered, that is where the creditor
did not have the requisite actual or constructive knowledge at the time of the
judgment's entry. Thus, contrary to Levy's suggestion, the five-year limitation
period did not in all cases commence at the time of judgment, and thus was not
the benchmark for determining the timeliness of a creditor's claim. - - - - - - - - - - - - End Footnotes- -
- - - - - - - - - - - - [*19] In answering the certified question, we
conclude the four-year limitation period contained in section 10(a) of the Act
commences from the date the transfer is made, and not on the date judgment is
entered. Certified question answered and case
remanded. CAHILL, P.J., and BURKE, J., concur. |