• Transfer to Hide Property from Collection Efforts Found to Be a Fraudulent Conveyance
  • April 13, 2016 | Author: Richard H. Topaz
  • Law Firm: Gordon Feinblatt LLC - Baltimore Office
  • In Marquitta Russell, et al. v. Pessin Katz Law, P.A., f/k/a Hodes, Pessin & Katz, P.A., No. 1783, Sept. Term, 2014, unreported (filed Oct. 30, 2015), the Court of Special Appeals affirmed the judgment of the Circuit Court for Baltimore City setting aside the transfer of property from Marquitta Russell to her mother, Juanita Russell, and ordering that Pessin Katz Law, P.A. (“PKL”) could levy on the property in the amount of Marquitta’s unpaid attorneys’ fees.

    PKL represented Marquitta from 2007 to 2010 in connection with Marquitta’s challenge to the validity of a will left by her aunt. Marquitta’s aunt had conveyed to Marquitta property located at 1826 Madison Avenue in Baltimore City (the “Property”). PKL withdrew its representation of Marquitta in late 2010 or early 2011, and filed a complaint against her on January 17, 2012 to recover $111,839.91 in unpaid attorneys’ fees. PKL also filed a separate action against Marquitta and Juanita to set aside Marquitta’s conveyance of the Property to Juanita in late 2011, alleging that the conveyance was an attempt by Marquitta to protect the Property from later collection efforts. (The deed conveying the Property from Marquitta to Juanita stated that the consideration for the transfer was forgiveness of a $50,000 debt owed by Marquitta to Juanita.) The Circuit Court for Baltimore City consolidated the two cases.

    At trial, PKL argued that there were “very suspicious circumstances” under which Marquitta conveyed the Property to Juanita, and that these indicia of fraud shifted the burden to the Russells to prove solvency and fair consideration. The circuit court agreed, holding that, pursuant to Maryland Code, Commercial Law Article §15-201 et seq., (1) the fact of Marquitta’s indebtedness to PKL, (2) the lack of consideration for the transfer to Juanita, (3) the threat of litigation, (4) Marquitta’s concealment of the transfer notwithstanding her contemporaneous communications with PKL, and (5) Marquitta’s continued possession of the Property while Juanita maintained a Virginia residence were indicia of Marquitta’s fraudulent transfer of the Property. The circuit court further held that such indicia of fraudulent transfer of the Property shifted to Marquitta the burden to prove that the transfer was bona fide, and that she maintained solvency, with sufficient funds to pay her debts notwithstanding the transfer of the Property. Finding that Marquitta failed to satisfy such burden of proof, the circuit court entered judgment in favor of PKL in the amount of $111,839.91, set aside the transfer of the Property, and ordered that PKL could levy on the Property.

    On appeal, the Court of Special Appeals said: “Badges of fraud can include insolvency of the transferor, lack of consideration, a relationship between the parties, the pendency (or threat) of litigation, and retention by a debtor of possession.” The court further stated that because the trial judge was required to draw inferences based on the evidence before her, she had sufficient evidence to conclude that the transfer was fraudulent. Accordingly, the Court of Special Appeals affirmed the circuit court’s decision.