Utah: Client Funds In Escrow Account Not Subject To Fraudulent Transfer Claims

The Utah Supreme Court dismissed as moot a claim predicated on alleged misuse of a firm trust account.

The court let stand  a district court ruling that the use of the escrow account was not a transfer of funds subject to fraudulent transfer claims. 

We granted certiorari in this case to address whether a law firm that deposited funds from a client into its trust account is a “transferee” under the former Uniform Fraudulent Transfer Act (UFTA).  However, while this case was before the court of appeals, Petitioners allowed the judgment that formed the basis of their fraudulent-transfer claim to expire. Respondents filed a suggestion of mootness with this court. They argue that Petitioners have no remedy under the UFTA because they are no longer creditors, so even if Petitioners were to prevail on the transferee issue, it would not affect their rights.

We agree and dismiss the petition as moot. We further vacate the judgment of the court of appeals because Petitioners’ fraudulent-transfer claim became moot before that court’s opinion was issued. The judgment of the district court stands.

Petitioners secured a judgment against  defendants who, like so many “took measures to avoid paying” 

Although the Keetches claimed to have no assets, less than a week after the supplemental hearing, PADRM deposited into its trust account (IOLTA)5 a check for $50,000 drawn from the minor’s bank account. The check had been written over a month earlier, and its memo line read: “Terry Keetch.” With representation from [attorney] Moss, the Keetches later used $20,000 from those funds to make a down payment on a house.

The Timothys tried to access the proceeds in the IOLTA by obtaining a writ of garnishment against PADRM that required the firm to hold all funds owned by the Keetches.  But PADRM twice refused to accept service of the writ. And by the time it did accept service, the Keetches had moved all of their money out of the IOLTA.

 Finally, in August 2012, the Timothys sued both Moss and PADRM, alleging various theories of fraudulent transfer under the UFTA, civil conspiracy, and wrongful conduct.

Respondents filed a motion for partial summary judgment in the district court, arguing that they were not “transferees” under the UFTA and were thus immune from liability on the fraudulent-transfer claims. The district court agreed and granted Respondents’ motion…

Moot because

The district court concluded that because more than eight years had passed since the original judgment was entered on May 6, 2009, the statute of limitations barred the Timothys from renewing their judgment…

The Timothys’ UFTA claim against Respondents is moot. Because the court of appeals issued its decision after the claim became moot, we must vacate that opinion. The judgment of the district court remains in place.

The district court ruling

a “transferee” must exercise dominion or control over the transferred asset. Here, [defendants] did not—and could not—exercise dominion and control over funds held in the firm’s trust account. . . . Accordingly, [defendants were] not “transferee[s]” within the meaning of the Act and the [Timothys’] fraudulent conveyance claims fail as a matter of law. Those claims are hereby dismissed with prejudice.

The court of appeals opinion is linked here. (Mike Frisch)