Can a law firm be held liable for its client’s fraudulent transfers?

fraudulent transfer

Cadle Co. v. Woods & Erickson, LLP (Nev. Supreme Ct. – Mar. 26, 2015)

In 2004, Robert Krause retained the law firm Woods & Erickson, LLP, for estate planning services. The following year, Woods & Erickson created for Krause various legal entities, including an asset protection trust, into which Krause eventually transferred his assets. Meanwhile, The Cadle Company (Cadle) was attempting to collect on a California judgment against Krause. After learning of the transferred assets, Cadle sued Krause and Woods & Erickson, alleging that Krause had fraudulently transferred assets in order to escape execution of the judgment and that Woods & Erickson had unlawfully facilitated the fraudulent transfers.

The district court dismissed Cadle’s claims against Woods & Erickson without prejudice. Cadle later filed a second amended complaint asserting claims for conspiracy, aiding and abetting, and concert of action against Woods & Erickson, all arising from the fraudulent transfers.

After a bench trial, the district court found in favor of Cadle against Krause. Concluding, however, that Cadle had not shown clear and convincing evidence of Woods & Erickson’s intent to defraud or deceive, the district court entered judgment in favor of Woods & Erickson on all claims. Cadle appealed.

On appeal, Cadle argued that the district court erred because it required Cadle to show actual intent to defraud or deceive in order to establish its accessory liability claims. Woods & Erickson asserted that, regardless of intent, Nevada does not recognize common-law civil conspiracy, aiding and abetting, or concert of action in the context of fraudulent transfers.

The Nevada Supreme Court agreed with Woods & Erickson that nontransferees, i.e., those who have not received or benefited from the fraudulently transferred property, are not subject to accessory liability for fraudulent transfer claims.

The Court reasoned that creditors do not possess legal claims for damages when they are the victims of fraudulent transfers. Instead, creditors have recourse in equitable proceedings in order to recover the property, or payment for its value, by which they are returned to their pre-transfer position, pursuant to NRS 112.210 and NRS 112.220(2). Nevada law does not create a legal cause of action for damages in excess of the value of the property to be recovered. Thus, the Court concluded that Nevada law does not recognize claims against nontransferees under theories of accessory liability.

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