-25-
previously issued a notice of deficiency to DDL and assessed the
Federal corporate income taxes (inclusive of penalties) listed
therein. Given DDL’s financial position, it would be futile for
respondent to attempt to collect the delinquent debt from DDL.
Sixth, the amount of the attorney checks diverted by the Les in
each year ($295,940 and $197,072, respectively) totaled greater
than DDL’s corresponding Federal income tax liabilities
(inclusive of penalties).
We now turn to whether the Les are liable as transferees
under applicable State law or equity. Given that the diversion
of funds occurred in California, the applicable State law is that
of California. In 1986, California adopted the Uniform
Fraudulent Transfer Act (UFTA), effective with transfers made or
obligations incurred after January 1, 1987. Cal. Civ. Code, sec.
3439.12 (West 1997). In that the diversions of funds at issue
all occurred after January 1, 1987, we conclude that California’s
version of the UFTA applies. That version, which is codified at
Cal. Civ. Code secs. 3439-3439.12, allows transfers to be set
aside by present or future creditors for either actual fraud
(sec. 3439.04(a)) or constructive fraud (sec. 3439.04(b)).
In order to establish transferee liability under an actual
fraud theory, respondent must show that the transferor acted with
actual intent to defraud a creditor. In determining such an
intent, courts have considered certain “badges of fraud”. Lyons
Page: Previous 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 NextLast modified: May 25, 2011