BANKRUPTCY CORNER
BANKRUPTCY CORNER
Injunctive Relief Not Available for Actions at Law
JASON S. RIGOLI
A substantial amount of the litigation in bankruptcy cases involves avoidance actions, fraudulent transfers and preferences. These cases sometimes involve transfers to friendly insiders to conceal the assets for the benefit of the debtor-transferor. A plaintiff looking to recover the transferred assets from the party assisting debtor in concealing, would undoubtedly want to prohibit further disposition or concealment of the transferred assets in this instance.
Federal Rule of Civil Procedure 65, made applicable in adversary proceedings by Federal Rule of Bankruptcy Procedure 7065, authorizes the issuance of injunctions and restraining orders. Injunctive relief restraining a defendant from disposing of assets because the plaintiff fears they would be disposed of leaving the defendant uncollectible is referred to as a Mareva injunction from the case Mareva Compania Naviera S. A. v. International Bulkcarriers, S. A., [ 1975 ] 2 Lloyds Rep. 509.
In cases brought pursuant to 11 U. S. C. § 544( b) and Chapter 726, Florida Statutes(“ FUFTA”), there is a further statutory basis for injunctive relief found in Fla. Stat. § 726.108( 1)( c)( 1).
Injunctive relief, however, is an equitable remedy and not available where there is an adequate remedy at law. See Grupo Mexicano de Desarrollo S. A. v. Alliance Bond Fund, Inc., 527 U. S. 308, 333( 1999)( barring Mareva injunctions in federal practice.); Accord Noble Prestige Ltd. v.
Galle, 83 F. 4th 1366, 1382( 11th Cir. 2023). Similarly, the remedies available in Fla. Stat. 726.1081( c) are“[ s ] ubject to applicable principles of equity …”
How does this impact fraudulent transfer and preference actions? It depends on the type of relief the plaintiff is seeking. In fraudulent transfer cases the plaintiff can seek to“ recover the property transferred or … the value of such property,” 11 U. S. C.
§ 550( a). In other words, the plaintiff can seek to recover the actual property or obtain a money judgment for the value of the property transferred.
Where the plaintiff is seeking recovery of certain property that was fraudulently transferred, a collection of highly valuable vintage watches for example, then the claim lies in equity. See Bakst v. Bank Leumi, USA( In re D. I. T., Inc.), 578 B. R. 534, 538 n. 5( Bankr. S. D. Fla. 2017)( citing authorities that“ restor [ ing ] funds or property in the possession of a defendant” is equitable in nature rather than an action at law( citations omitted)). Where the plaintiff, however, seeks relief in the form of a money judgment for the value of those watches, the claim is one at law. See D. I. T., 578 B. R. at 538( holding the fraudulent transfer action for a money judgment is an action at law( citations omitted)).
Preference actions have their own particular twist. If the defendant to a preference claim does not file a proof of claim in the bankruptcy estate, then the preference action seeking a money judgment is an action at law. D. I. T., 578 B. R. at 536-37. However, where the defendant has filed a proof of claim in the bankruptcy case, the preference action becomes part of the claim allowance process which does proceed in equity. Id.( citing Langenkamp v. Culp, 498 U. S. 42, 44 111 S. Ct. 330, 112 L. Ed. 2d 343( 1990)).
Accordingly, whether a plaintiff is entitled to prejudgment injunctive relief in avoidance actions is dependent on the type of relief being sought, return of the property or money judgment, and whether the preference action is part of the claims process.
This article submitted by Jason S. Rigoli, Esq., Furr and Cohen, P. A., 2255 Glades Road, Suite 419A, Boca Raton, FL 33431, jrigoli @ furrcohen. com
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