Case Summary:
The chapter 7 trustee filed a three-count complaint under 11 U.S.C. § 544(b) and Wisconsin Statutes §§ 242.04(1)(a), 242.04(1)(b), and 242.05(1) against the debtor and his non-filing spouse to recover an allegedly fraudulent transfer of the couple’s residence, which the debtor and his spouse transferred to only the spouse via quit claim deed in 2017.  The parties disputed whether the trustee’s claims were timely.  Section 544(b) allows a trustee to avoid a transfer of property that is voidable under applicable law by a creditor holding an allowable unsecured claim.  Under the applicable Wisconsin law, the statute of limitations for a fraudulent transfer claim is generally one or four years.  However, if the IRS is the creditor seeking to avoid a fraudulent transfer, then the applicable reach-back period is 10 years under 26 U.S.C. § 6502(a)(1).  The Court determined that the trustee could step into the shoes of the IRS and take advantage of the longer limitations period available to the IRS.  The Court reasoned that there is no limitation in § 544(b), and that the claim should be allowed to proceed if the underlying creditor (here, the IRS) could avoid the transfer under the law applicable to that creditor.  Conversely, a claim should not be allowed to proceed if the underlying creditor could not pursue the claim.  The Court also held that the debtor-transferor was a proper party defendant to the fraudulent transfer claim because a transferor could be made a party to a fraudulent transfer action if he had retained some benefit in the property after it was transferred.  Finally, the Court held that the trustee’s allegations were insufficient under Civil Rules 8 and 9 and on that basis granted the motions to dismiss.  The Court held that the trustee had pleaded insufficient facts to support an inference that the debtor had transferred the property with actual intent to defraud his creditors.  The Court also held that the trustee’s constructive fraudulent transfer claim was insufficient because the trustee had not pleaded facts regarding the value, or an estimate of the value, of the property at the time of the transfer and had not pleaded facts demonstrating that the debtor was insolvent at the time of or because of the transfer.  The Court granted the trustee leave to amend the complaint.

Statute/Rules References:
11 U.S.C. § 544(b) -- Trustee as Successor to Certain Creditors
26 U.S.C. § 6502(a)(1) -- Collection After Assessment
Wis. Stat. §§ 242.04(1)(a), (1)(b) -- Transfers Fraudulent as to Present and Future Creditors
Wis. Stat. § 242.05(1) -- Transfers Fraudulent as to Present Creditors

Key Terms:
Fraudulent Transfer