Georgia Receivables v. Caregivers Great Lak ( 2004 )

In the
United States Court of Appeals
For the Seventh Circuit
____________
Nos. 03-1086 & 03-3664
DFS SECURED HEALTHCARE RECEIVABLES TRUST,
Plaintiff-Appellee,
v.
CAREGIVERS GREAT LAKES, INC.
and MARC LEESTMA
Defendants-Appellants.
____________
Appeals from the United States District Court for the
Northern District of Indiana, South Bend Division.
No. 3:99-CV-0569RM—Robert L. Miller, Jr., Chief Judge
____________
ARGUED JUNE 10, 2004—DECIDED SEPTEMBER 13, 2004
____________
Before CUDAHY, RIPPLE, and ROVNER, Circuit Judges.
CUDAHY, Circuit Judge. This appeal involves a state law
claim under Indiana’s Uniform Fraudulent Transfer Act
(IUFTA), Ind. Code §§ 32-18-2-1 et seq. It has long been ar-
gued by some that diversity jurisdiction should be limited
or even abolished. The proponents of this view argue that
the federal courts are overburdened, that they lack exper-
tise in matters of state law and that in most cases, the
concern of hometown bias originally driving the estab-
2 Nos. 03-1086 & 03-3664
lishment of diversity jurisdiction represents no real threat
to the parties. While we express no opinion as to whether
diversity jurisdiction should be limited generally, we have
little doubt that this case would have been better brought
in an Indiana state court. This case raises numerous novel
questions of Indiana state law, upon which federal courts
can provide no more than conjecture as to how the Indiana
Supreme Court would hold. The appellee, in oral argument,
made it clear that it did not want us to certify any question to
the Indiana Supreme Court because of the inevitable delay
that would follow. However, it was the appellee that chose
to file its complaint in federal court and it was that com-
plaint which sought novel remedies, never previously awarded
under Indiana law. R. at 36 (Cplt. ¶ 51). Therefore, although
we are not fans of delay, it is with limited sympathy that
ultimately we must certify several of the questions raised
in this appeal to the Indiana Supreme Court. See Stephan
v. Rocky Mountain Chocolate Factory, Inc., 129 F.3d 414,
418 (7th Cir. 1997).
I. BACKGROUND
On May 15, 1996, Caregivers Plus, Inc. (CPI), a provider
of home healthcare services to Medicare recipients and
others, entered into a “factoring” agreement with DFS Secured
Health Receivables Trust (DFS). App. at 63-115. Under this
agreement, DFS purchased “the right to receive the pro-
ceeds of collections of Healthcare Receivables payable by
Governmental Obligors when such collections [were] received
by [CPI]” in exchange for immediate cash payments of 71.5%
of the value of these receivables to CPI. Id. at 165. Addition-
ally, under this agreement, CPI was obligated to pay DFS
2.5% interest for each month that receivables made payable
to DFS went unpaid. Id. Therefore, in addition to its 28.5%
discount on the value of the receivables DFS received, CPI
owed DFS 30% annual interest on unpaid receivables. Id. at
Nos. 03-1086 & 03-3664 3
165. A Monday night quarterback might think this a bad
deal for CPI, but it was still Sunday morning, and it
apparently looked serviceable to CPI at the time.
By February 1997, however, CPI owed DFS approxi-
mately $600,000 under this agreement. Id. at 48. On April
4, 1997, DFS filed suit against CPI and its principal,
Claudette Harrison, in the Northern District of California
to collect the debt. Id. at 49. Before the lawsuit began,
Harrison admitted converting $250,000 in receivables that
should have been paid to DFS. Id. at 48-49. The parties ex-
ecuted a settlement agreement and the suit was dismissed
voluntarily without prejudice. Id. at 394. Following this
settlement, DFS continued to purchase CPI’s receivables
despite the fact that CPI was constantly in default. Id. at
166. By the end of 1998, CPI’s debt to DFS had grown to
approximately $1.7 million. Id. at 53. On February 16, 1999,
DFS again filed suit against Harrison, CPI and others in
the United States District Court for the Eastern District of
California and was granted a default judgment for approxi-
mately $1.7 million. Id. at 49-50, 346-47.
In the meantime, CPI had fallen into financial distress
and its officers were concerned that it would go under by
the end of 1998 due to its debts. Id. at 180. CPI’s financial
distress was due, in part, to changes in the Medicare pro-
gram, including the Balanced Budget Act of 1997, which
changed the Medicare reimbursement method and led to a
35% drop in spending on home health care agencies that
year. Id. at 125. As a result, about one-third of Indiana’s
home health care agencies closed in 1998. Id. at 126.
Harrison decided to sell CPI. Id. at 368-69. On December 4,
1998, Marc Leestma, an entrepreneur in the home health care
business, executed an asset purchase agreement (“APA”) for
the sale of essentially all of CPI’s assets (Medicare provider
number, files, furniture and computers) for $20,000. Id. at
349-54. The APA defined the “buyer” of CPI’s assets as
4 Nos. 03-1086 & 03-3664
“Marc Leestma or, at his option, a corporation to be formed by
him for purposes of this Agreement.” Id. at 349. Under the
terms of the APA, the buyer purchased CPI’s assets and
was also required to lease specific property, employ various
former CPI employees (including Harrison, whose new
salary with CGL was to be even higher than it was with
CPI) and assume CPI’s equipment leases. Id. at 349, 352.
Following execution of the APA, on December 8, 1998,
Leestma filed articles of incorporation for Caregivers Great
Lakes, Inc. (CGL), to be the “buyer” of CPI’s assets. Id. at
383. On January 8, 1999, CGL paid CPI $20,000 and the
transaction was complete. App. at 388. Leestma claims that
$20,000 represented the fair market value of CPI and was
consistent with other offers Harrison had received during this
time period. Id. at 194-95. A jury, however, ultimately
found that the fair value for CPI’s assets was actually
$470,000. Id. at 301.
Because CGL had purchased CPI’s Medicare provider
number, Medicare made payments totaling $439,388 to CGL
for services provided by CPI prior to the asset purchase. Id. at
23. DFS claimed based on its May 15, 1996 agreement with
CPI that it should have received these reimbursements. On
October 1, 1999, DFS filed a complaint in the Northern
District of Indiana claiming fraudulent transfer under the
IUFTA, as well as, civil and criminal conversion. After a
hearing at which the district court found that DFS was the
lawful recipient of the Medicare receivables, CGL paid
these funds to DFS. Id. at 53.
Nonetheless, DFS maintained its action, claiming that the
sale of CPI was a fraudulent attempt to shield CPI’s assets
from its creditors (DFS). After the district court dismissed
the conversion claims, trial began on May 14, 2001. At the
close of trial, the jury found that the “reasonably equivalent
value” of the assets transferred to CGL was $470,000
(rather than the $20,000 paid by CGL) and recommended
Nos. 03-1086 & 03-3664 5
punitive damages of $800,000 against Leestma and
$100,000 against CGL. Id. at 301. Because the remedy
sought was equitable in nature, the district court treated
the jury’s findings as advisory but ultimately adopted its
recommendation. Id. at 303, 305-08, 314. On January 9,
2003, after the district court ruled on various post-judgment
motions, CGL and Leestma filed a timely notice of appeal.
In this appeal, Leestma and CGL challenge four discrete
issues. First, Leestma argues that the district court erred
in finding that he could be personally liable under the
IUFTA. Second, Leestma argues that DFS did not constitute
a “creditor” under the IUFTA because (1) DFS did not ob-
tain its judgment against CPI until after the asset transfer;
and (2) its contract with CPI was void since the sale of
Medicare receivables is illegal. Third, Leestma argues that
a money judgment is not available under the IUFTA when
the transferred assets are available for reconveyance. Fi-
nally, Leestma appeals the district court’s award of punitive
damages, arguing that such damages are not available un-
der the IUFTA.
II. DISCUSSION
A. Leestma’s personal liability
Leestma argues that the district court erred in holding
him personally liable, because under the IUFTA, a judgment
may be entered only against a “first transferee” of fraudu-
lently transferred assets or “a person for whose benefit the
transfer was made,” and Leestma claims to be neither. See
Ind. Code § 32-18-2-18(b)(1). According to Leestma, CGL—
the corporation he created to purchase CPI’s assets—was
the “first transferee” of those assets, and Leestma acted as
a mere agent of CGL. Therefore, he argues that because
DFS did not attempt to pierce the corporate veil of CGL, he
cannot be held personally liable.
6 Nos. 03-1086 & 03-3664
We agree that a “transferee” is one with actual “dominion”
or “control” over the assets in question. See Bonded Fin.
Servs., Inc., 838 F.2d 890, 893-94 (7th Cir. 1988).1 “ ‘Control’
does not mean the ability to steal the money, or use it for
personal purposes in breach of duty.” In re Schick, 234 B.R.
337, 343 (Bankr. S.D.N.Y. 1999). A “transferee” must have
“the right to put the money to one’s own purposes,” rather
than merely being an “agent,” “possessor” or someone “who
touches the money.” Bonded Fin. Servs., Inc., 838 F.2d at 893-
99.
On December 4, 1998, the parties entered into an APA,
under which the “buyer,” defined as “Marc Leetsma [sic] or,
at his option, a corporation to be formed by him for pur-
poses of this Agreement,” agreed to purchase CPI’s assets
for $20,000. See App. at 349. The district court concluded
that because Leestma signed the APA in his own name, he
was not an agent and that he personally became the “first
transferee” of the assets. See Short App. at 15 (“Evidence
supports a finding that Mr. Leestma is personally liable for
buying fraudulently discounted assets—it was he who
signed the asset purchase agreement—so Mr. Lesstma [sic]
is not entitled to dismissal of the fraudulent transfer claim
against him.”)
Of course, under Indiana law (and likely in any other
state), the mere fact that a person signs an agreement in
1
The IUFTA does not define the term “transferee.” The historical
notes to the IUFTA indicate that the relevant section is based on
§ 8 of the Uniform Fraudulent Transfer Act (UFTA). See UFTA
(U.L.A.) § 8, cmt. 1; see also Ernst & Young LLP v. Baker O’Neal
Holdings, Inc., No. 1:03-CV-0123-DFH, 2004 WL 771230, at *14
n.7 (S.D. Ind. March 24, 2004) (noting that Indiana has adopted the
UFTA). Section 8 of the UFTA is based on § 550 of the Bankruptcy
Code. Compare UFTA § 8, cmt. 2 with 11 U.S.C. § 550. In Bonded
Financial Services, this court was interpreting the term “trans-
feree” in the context of § 550 of the Bankruptcy Code. See 838 F.3d
at 395.
Nos. 03-1086 & 03-3664 7
his own name does not preclude a finding that he signs in
an agency capacity. See, e.g., Stepp v. Duffy, 654 N.E.2d
767, 773 (Ind. Ct. App. 1995). A fair reading of the APA sug-
gests that the parties always intended that the buyer would
be CGL rather than Leestma personally. First, the APA’s
definition of “buyer,” which contemplates that no corpora-
tion had yet been established but that one might be, not
only suggests that Leestma could be signing as an agent for
a future corporation but also made it awkward for Leestma
to sign anything other than his name. See App. at 349. It
was not likely that Leestma would sign “Marc Leestma, as
president of the company which will be formed by him for
purposes of this agreement.” More importantly, however, the
APA incorporated by reference (and the asset transfer was
conditioned on executing) certain employment agreements
and a lease agreement, which were apparently attached to
it. Id. at 352 (“The transaction contemplated by this
agreement is conditioned upon the Buyer signing a five (5)
year employment contract . . . in the form of Exhibits ‘A-1’
and ‘A-2’ attached hereto.”) These agreements, which did not
include the same awkward “buyer” definition, were made out
by “Caregivers Great Lakes” (CGL) and signed by “Marc
Leestma, President.” Id. at 355-64, 371.2 Therefore, viewing
the APA as a whole, it is clear that Leestma was signing as
an agent for CGL, and the parties intended that CGL be the
purchaser. Therefore, had a transfer taken place upon the
signing of the APA, CGL would be the “first transferee” and
Leestma, a mere agent.
However, even if CGL were the “first transferee,” it would
not alter the outcome in this particular case, because CGL
2
It is not clear whether these attachments were executed con-
temporaneously with the APA (it appears that at least the typed
“Marc Leetsma [sic], President” line was present on December 4,
1998), but that is not relevant because they were incorporated by
reference into the APA, regardless whether they were executed
subsequently thereto.
8 Nos. 03-1086 & 03-3664
was not legally incorporated until January 1, 1999. See id.
at 383 (articles of incorporation signed December 8, 1998,
but including a delayed effective date of January 1, 1999);
Ind. Code § 23-1-21-3(a); Ind. Enc. Corporations § 8 (“Unless
a delayed effective date is specified, a corporation’s existence
begins when the articles of incorporation are filed.”)
(emphasis added).3 Therefore, there would be no need for
DFS to pierce the corporate veil, as CGL was not yet
wearing one. Leestma could be personally liable whether he
was the “first transferee” or not.
Leestma may yet be saved, however, because although the
parties had signed the APA, that alone was not enough to
cause a “transfer” to occur in this case. An obvious implicit
requirement to being a “first transferee” is that a “transfer” of
3
Leestma properly has not argued that CGL was a de facto corp-
oration under Indiana law beginning on December 8, 1998, when
he signed and presumably filed CGL’s articles of incorporation.
See Ind. Enc. Corporations § 9 (defining a de facto corporation as
“one which exists for all practical purposes, but is not strictly speak-
ing a legal corporation because of a failure to comply with some
legal formality in organization”). Such argument would be una-
vailing. Of course, if the transfer occurred on December 4, 1998,
which is implicit in the district court’s holding (though incorrect),
this argument would be of no help to Leestma because he would
have had control of the assets on December 4,1998—four days
before even de facto status. Regardless, we do not believe that
signing the articles of incorporation was enough to create a de
facto corporation under Indiana law, where the incorporator and
sole shareholder (Leestma) clearly intended that incorporation be
effective at a later date. See, e.g., Sunman-Dearborn Cmty. Sch.
Corp. v. Kral-Zepf-Freitag & Assocs., 338 N.E.2d 707, 709-10 (Ind.
Ct. App. 1975). The record leaves no doubt that Leestma’s intent was
always that CGL would become effective on January 1, 1999.
Moreover, de facto status would not shield an officer from liability
where, as here, he has been found to have engaged in fraud. See
id.; Jennings v. Dark, 92 N.E. 778, 783 (Ind. 1910); Aetna Life Ins.
Co. v. Weatherhogg, 4 N.E.2d 679, 682 (Ind. App. 1936).
Nos. 03-1086 & 03-3664 9
legal rights has taken place. See Rupp v. Markgraf, 95 F.3d
936, 941 (10th Cir. 1996) (“Determining the initial trans-
feree of a transaction is necessarily a temporal inquiry; there
must be a transfer before there can be a transferee.”); see also
Ind. Code. § 32-18-2-10 (noting that a transfer must involve
the “disposing of or parting with an asset or an interest in
an asset”). Therefore, we must determine when a transfer
of legal rights occurred under the facts of this case. The
answer will lie with the parties’ intent.4
4
One might think that the logical way to decide when this
transfer was made would be by considering the IUFTA section
titled “when a transfer is made.” See Ind. Code § 32-18-2-16. This
approach is wrong, however, as that section is intended to be used
to determine when a cause of action arises and provides no useful
answer in this case. Cf. UFTA § 6, cmt. 1. According to this
section, a transfer is made with respect to an asset that is not real
property “when the transfer is so far perfected that a creditor on
a simple contract cannot acquire a judicial lien (other than under
this chapter) that is superior to the interest of the transferee.” Ind.
Code § 32-18-2-16. Although the term “perfected” is not defined,
the comments to the UFTA suggest that the parties are to look to
Article 9 of the Uniform Commercial Code (UCC) for guidance as
to the meaning of the term. See UFTA § 6, cmt. 1. The valuable
assets in this case would be considered “general intangibles”
under Indiana’s version of Article 9 of the UCC. See Ind. Code § 26-
1-9.1-102(a)(42); In re Leasing Consultants Inc., 486 F.2d 367, 371 n.5
(2d Cir. 1973) (noting that “general intangibles” include goodwill);
State St. Bank & Trust Co. v. Arrow Communications, Inc., 833 F.
Supp. 41, 48 (D. Mass. 1993) (noting that “general intangibles”
includes a “governmental license”); App. at 352 (defining the value
of the Company in relation to its goodwill and certification). In
order to perfect a security interest in such assets, a financing
statement must be filed with the state filing office. See Ind. Code
§ 26-1-9.1-310, cmt. z. There is no evidence that a filing statement
was ever filed in this case. Therefore, assuming that the applica-
ble law would permit the transfer of a Medicare provider number
(continued...)
10 Nos. 03-1086 & 03-3664
The APA, signed on December 4, 1998, states that “[s]ub-
ject to the terms and conditions hereinafter set forth, the
Company agrees to sell assign, transfer and deliver to the
Buyer at the Closing provided for hereafter, all of the . . .
assets.” App. at 349 (emphasis added). The APA further
states that “[t]he purchase price for the [a]ssets shall be . . . in
immediately available funds at the [c]losing.” Id. The
closing date was set under the APA for December 22, 1998.
Id. at 353. The APA, however, does not suggest that time
was of the essence. See Smith v. Potter, 652 N.E.2d 538, 542
n.4 (Ind. App. 1995) (“Indiana cases discussing time of the
essence clauses provide that courts do not generally view
time as being of the essence of a contract unless the terms
of the contract or the conduct of the parties make it so.”).
The text of this agreement therefore makes it clear that the
parties had entered into an executory agreement and that
ownership (the right to legally control the assets) would
transfer on December 22, 1998, or at such time as consider-
ation was paid.
Further evidence that the parties did not intend an imme-
diate transfer of assets comes from a letter dated December
15, 1998, in which CPI provided the requisite notice to
Department of Health and Human Services and indicated
that “a new corporation,” CGL was to be the new owner of
the Medicare provider number. App. at 385; see also 42 C.F.R.
§ 489.18(b) (“[a] provider who is contemplating or negotiat-
ing a change of ownership must notify” the Department of
Health and Human Services) (emphasis added). This letter,
dated eleven days after the APA was signed, stated that CPI
was “in the process of selling its assets” rather than that it
4
(...continued)
to be perfected, “the transfer is considered made immediately
before commencement of the action.” Id. at 32-18-2-16(2). Clearly,
that result does not help us to determine when either Leestma or
CGL obtained legal control of these assets.
Nos. 03-1086 & 03-3664 11
had sold its assets. App. at 385 (emphasis added).
Because the APA was an executory contract not governed
by the UCC, neither Leestma nor CGL was given ownership
in or the legal right to control any asset under the APA
until the parties so intended.5 See First Nat’l Bank v.
Smoker, 286 N.E.2d 203 (Ind. Ct. App. 1972) (“Prior to the
adoption of the Uniform Commercial Code, ownership of
goods and the rights incident thereto were defined by the
location of title and the intention of the parties was the
primary test as to who had title.”); Webb v. Clark County,
87 Ind. App. 103, 159 N.E. 19, 20-21 (Ind. Ct. App. 1927)
(holding that an agreement which gives the buyer the right
to property in the future is executory and title does not pass
5
We need not consider how this agreement might be interpreted
under the UCC, as the UCC does not apply to this contract for the
sale of a business containing predominantly intangible assets,
such as a governmental license and goodwill. See Insul-Mark
Midwest, Inc. v. Modern Materials, Inc., 612 N.E.2d 550, 553-54
(Ind. 1993) (applying the “predominant thrust” test to a contract
for the sale of “goods” and non-goods); Baker v. Compton, 455
N.E.2d 382, 387 (Ind. Ct. App. 1983) (same); Ogden Martin Sys. of
Indianapolis, Inc. v. Whiting Corp., 179 F.3d 523, 530 (7th Cir.
1999) (same); D.G. Porter, Inc. v. Fridley, 373 N.W.2d 917, 924
(N.D. 1985) (holding that the North Dakota UCC did not apply to
the sale of a bar business where the essential elements of the sale
involved goodwill, transfer of liquor license, assignment of a lease,
and transfer or assignment of insurance policies and contracts
related to the business); Foster v. Colorado Radio Corp., 381 F.2d
222, 226 (10th Cir. 1967) (finding that the sale of a license,
goodwill, real estate and a studio’s transmission equipment were
not movables and hence not “goods” within the meaning of UCC);
Stewart v. Lucero, 918 P.2d 1, 4-5 (N.M. 1996) (applying a “primary
purpose test” to a sale of a catalog business, where, although dis-
play items and some inventory was sold, the basis of the bargain
was the right to use the Sears name and a noncompetition agree-
ment).
12 Nos. 03-1086 & 03-3664
until the parties comply with terms of the contract);
Branigan v. Hendrickson, 46 N.E. 560, 561 (Ind. App. 1897)
(“In [the] case of [an] executory contract, the purchaser does
not become the owner; [the property to be sold is] not at his
risk. His remedy, if there be a breach, is confined to an
action for damages. Whether any particular contract is one
or the other is, generally, a question of fact depending upon
the intention of the parties, to be gathered from the terms
and stipulations of the agreement.”); Keck v. State ex rel.
Nat’l Cash-Register Co., 39 N.E. 899, 900-01 (Ind. App.
1895) (noting that petitioner “only contracted for an interest
at some time in the future, when he had complied with
certain conditions. Such an interest is not subject to levy
and sale”); see also Bradley v. Michael, 1 Ind. 551 (Ind. 1849);
Frame Station, Inc. v. Indiana Dep’t of State Revenue, 771
N.E.2d 129, 131 (Ind. Tax.Ct. 2002) (“The transfer of
property occurs when the buyer agrees to buy property from
a seller, pays the purchase price, and takes ownership and
possession of the property.”).
Although the closing was originally scheduled by the APA
to take place on December 22, 1998, it appears that nothing
actually happened on that date. See Tr. Vol. 3 at 130. The
record is devoid of information about when any of the tan-
gible assets were physically transferred but, in any case, it
is the legal right to control the asset, not physical possession,
which matters under Bonded Financial Services. See 838
F.2d at 893-94.6 Moreover, the parties agreed in the APA
6
The only evidence presented to suggest that Leestma or CGL
took physical possession of any asset before December 22 was the
following testimony from trial. Leestma was asked: “After you
signed the Asset Purchase Agreement on December 4th of 1998,
there was actually no closing. Was there?” Leestma responded: “I
think about the only thing that remained to be done was the
passing of the check, to pay the money.” Tr. Vol. 3 at 130. This is,
(continued...)
Nos. 03-1086 & 03-3664 13
and at oral argument that the real value of this transaction
was in the intangible assets. App. at 352 (“The parties to
this Agreement acknowledge that the value of the Company
is its certification and good will.”). As we have noted, the
parties intended that the legal right to control the assets
would shift when value was paid. This occurred on January
8, 1999, when CGL issued a check. App. at 388. Therefore, it
is clear that CGL gained the right to control these assets on
January 8, 1999, and is thus the “first transferee.”
The fact that Leestma is not the “first transferee” under
the IUFTA, however, does not necessarily mean that the
only way he can be personally liable is by piercing CGL’s
corporate veil. Under Indiana state law, an officer or share-
holder of a corporation can be held individually liable, without
the need to pierce the corporate veil, if he personally par-
ticipates in the fraud. See State Civil Rights Comm’n v.
County Line Park, Inc., 738 N.E.2d 1044, 1050 (Ind. 2000)
(citing Gable v. Curtis, 673 N.E.2d 805, 809 (Ind. Ct. App.
1996) (“It is well-settled that a corporate officer cannot es-
cape liability for fraud by claiming that he acted on behalf
of the corporation when that corporate officer personally
participated in the fraud.”)); Ind. Code § 23-1-26-3(b)
(Business Corporations Act) (“Unless otherwise provided in
the articles of incorporation, a shareholder of a corporation
is not personally liable for the acts or debts of the corporation
except that the shareholder may become personally liable by
reason of the shareholder’s own acts or conduct.”) (emphasis
added); Ind. Enc. Corporations § 120. This well-established
principle of Indiana law has been applied not just in
common law fraud actions, but in other statutory and
6
(...continued)
at best, weak evidence that there was a physical transfer of assets
before December 22. If anything, it simply reinforces the idea that
the parties defined the closing as the time at which consideration
would be paid.
14 Nos. 03-1086 & 03-3664
common law causes. See, e.g., Roake v. Christensen, 528
N.E.2d 789, 791 (Ind. Ct. App.1988) (finding defendant
individually liable for fraud in connection with his criminal
conversion in violation of Ind. Code § 35-43-4-3); Berghoff v.
McDonald, 87 Ind. 549 (Ind. 1882) (holding an agent
personally liable in an action of replevin for the unlawful
taking or detention); American Indep. Mgmt. Sys. v. McDaniel,
443 N.E.2d 98, 103 (Ind. Ct. App. 1982); Stoutco, Inc. v.
AMMA, Inc., 620 F. Supp. 657, 661 (D. Ind. 1985) (“In
Indiana, the law is also clear that a corporate officer or
shareholder is not shielded from liability on the basis of his
representative capacity when he participates in a tort
because an agent is liable for his own torts.”); In re Mills,
111 B.R. 186, 195 (Bankr. N.D. Ind. 1988) (“[W]hen a personal
debtor who, as an officer of a corporation, actually partici-
pates in the conversion of property which is subject matter
to the security interest of a third party, he is personally
liable to said party and thus the debt is nondischargeable
pursuant to § 523(a)(6).”).
No court has yet considered whether this Indiana common
law rule can be applied to the IUFTA.7 There is good reason
7
We believe that Stepp, 654 N.E.2d 767, provides little insight
into this question. In Stepp, the question was raised as to whether an
officer of a corporation who was not a “transferor,” as required
under the Federal Odometer Act (FOA), could be held personally
liable for an FOA violation, given that he personally participated
in the fraud. Id. at 774. The court did not directly answer the
question because it found that the officer was liable under other
theories. However, even if there are some tea leaves to read from
Stepp, we believe that case is distinguishable. Under the relevant
section of the FOA, only a “transferor” can engage in fraudulent
conduct. See id. at 773 (noting that the FOA requires “any trans-
feror to give . . . written disclosure to the transferee [of the cumu-
lative mileage registered on the odometer].”) (emphasis added).
Therefore, the Indiana court may have felt that if the corporate
(continued...)
Nos. 03-1086 & 03-3664 15
to believe it would apply, however. First, Indiana seems to
treat claims under the IUFTA as a type of fraud claim. See,
e.g., Fire Police City County Federal Credit Union v. Eagle,
771 N.E.2d 1188, 1191 (Ind. Ct. App. 2002) (treating a claim
under Ind. Code § 32-2-7-15 as a fraud claim); Bruce
Markell, The Indiana Uniform Fradulent Transfer Act
Introduction, 28 Ind. L. Rev. 1195, 1200 (1995) (“Indiana
statutes require a finding that fraud existed in connection
with a transaction challenged as a fraudulent transfer.”).
Second, the IUFTA itself expressly incorporates principles
of common law fraud by reference. Ind. Code § 32-18-2-20.
Finally, at least one other court has applied similar com-
mon law to find the president of a corporation personally
liable under another state’s version of the UFTA, despite
the fact that he was not a “first transferee.” See Firstar
Bank, N.A. v. Faul, No. 00-C-4061, 2001 WL 1636430, at *7
(N.D. Ill Dec. 20, 2001).
At least one state with a similar common law rule, how-
ever, has declined to hold an officer who personally partici-
pated in fraud liable under the UFTA. See Kondracky v.
Crystal Restoration, Inc., 791 A.2d 482, 483 (R.I. 2002).
While Kondracky did not specifically discuss or necessarily
consider what effect Rhode Island’s common law “personal
participation” rule would have on the UFTA, a Rhode Island
district court later felt constrained by Kondracky and held
7
(...continued)
officer was not a “transferor” in Stepp, she had no obligation to
disclose under that section of the FOA, and thus her failure to dis-
close could not represent personal participation in the fraud. In
contrast, the fact that a person is not a “first transferee” under the
IUFTA does not suggest that he has not engaged in fraudulent
conduct, but simply that no “judgment may be entered against
[him].” Ind. Code. § 32-18-2-18(b)(1). Moreover, unlike the IUFTA,
the FOA is a federal statute, not expressly intended to be inter-
preted according to Indiana common law principles of fraud. Cf.
Ind. Code § 32-18-2-20 (incorporating the principles of common
law fraud into the IUFTA).
16 Nos. 03-1086 & 03-3664
that the common law would not expand liability under the
UFTA. See Rohm and Haas Co. v. Capuano, 301 F. Supp. 2d
156, 160-61 (D.R.I. 2004) (criticizing Firstar). The court in
Rohm also noted that “most courts have been reluctant to
extend the reach of fraudulent conveyance actions as to
include parties that are only participants in a fraudulent
transfer.” Id. at 161 (compiling cases).
We do not share the concerns of the Rhode Island District
Court, at least with respect to this case. The cases upon
which it relies do not involve officers, directors or sharehold-
ers of the “first transferee,” who personally participated in the
fraud. Instead, they involve novel claims of accessory,
conspiracy or aiding and abetting liability under the UFTA.
See Lowell Staats Mining Co. v. Phila. Elec. Co., 878 F.2d
1271, 1276 n.1 (10th Cir. 1989) (declining to extend UFTA
to find “aiding and abetting” liability against an agent of
the corporation, where it seems the agent was not an offi-
cer, director or shareholder); Mack v. Newton, 737 F.2d
1343, 1361 (5th Cir. 1984) (declining to extend UFTA to
individuals who participated in a conspiracy to commit a
fraudulent transfer); Thompson Kernaghan & Co. v. Global
Intellicom, Inc., No. 99 CIV. 3005(DLC), 1999 WL 717250,
at *2 (S.D.N.Y. Sept. 14, 1999) (declining to apply an ac-
cessory liability theory to a lawyer of “first transferee” who
helped set up the corporation involved). Therefore, these
cases are not on point.
In contrast, we are aware of no case suggesting that “veil
piercing” is impermissible under the UFTA.8 Liability for
officers or shareholders of a “first transferee” who personally
participated in the fraud is a substitute for “veil piercing,”
not an extension of who can be a “transferee” under the
UFTA. Moreover, the reasoning behind the general rule
that courts should avoid extending the parties who can be
8
Leestma, in fact, concedes that veil piercing is permissible under
the UFTA. See Leestma Br. at 29.
Nos. 03-1086 & 03-3664 17
a “transferee” under the UFTA appears to be based, at least
in part, on the difficulty of proving damages. See Duell v.
Brewer, 92 F.2d 59, 61 (2d Cir. 1937) (“[C]ourts have gen-
erally held as to fraudulent conveyances that a person who
assists another to procure one, is not liable in tort to the
insolvent’s creditors . . . . The reasons ordinarily given are
the impossibility of proving any damages, which scarcely
seems sufficient; but the result is settled, at least for us.”)
(cited by Lowell Staats Mining Co., 878 F.2d at 1276). We
do not believe that there would be any such difficulty here,
where joint and several liability would clearly be appropri-
ate.
Finally, this case is somewhat unique in that, because
punitive damages were sought (rightly or wrongly), we have
an actual jury finding that Leestma personally participated
in fraudulent conduct, in addition to the general finding of
liability under the UFTA. App. at 312 (“In deciding the
issue of punitive damages, though, the jury found by clear
and convincing evidence that both defendants [Leestma and
CGL] acted with malice, fraud, gross negligence, or oppres-
siveness.”) (emphasis added); App. at 302 (verdict form).
Therefore, we see no reason that the rule should not be
extended in this case.
Nonetheless, given that we cannot avoid certifying two
other questions to the Indiana Supreme Court (see infra),
in an abundance of caution, we do so here as well. There-
fore, we hereby certify to the Indiana Supreme Court the
question whether an officer or director of a “first transferee”
under the IUFTA who is found to have personally par-
ticipated in the fraud can be held personally liable under
Indiana law on that basis alone.
B. DFS as “creditor”
The appellants’ second argument is that the district court
erred in finding DFS to be a “creditor” under the IUFTA.
18 Nos. 03-1086 & 03-3664
According to the appellants, DFS was not a “creditor” under
the IUFTA because (1) DFS did not obtain its judgment
against CPI until after the asset transfer; and (2) its
contract with CPI was void as the sale of Medicare receiv-
ables is illegal. Leestma Br. at 50-51. Both arguments are
without merit.
We start with the appellants’ argument that DFS is not
a “creditor” because DFS did not obtain its judgment against
CPI until after the asset transfer. The appellants’ argument,
properly articulated, does not have to do with whether DFS is
a “creditor” as defined under section 4 of the IUFTA, but
whether DFS is a “present creditor” under section 15 of the
IUFTA (“Transfers fraudulent as to present creditors”).
Reply Br. at 21. Section 15 notes that “[a] transfer made or
an obligation incurred by a debtor is fraudulent as to a
creditor whose claim arose before the transfer was made or
the obligation was incurred” if certain specified conditions
are met. Ind. Code § 32-18-2-15 (emphasis added).
Although DFS did not receive a court judgment until after
the asset transfer, the court judgment simply made official
the obligation with respect to which DFS had been trying to
recover long before the asset transfer. The appellants have
presented no evidence to suggest that this debt did not arise
before the fraudulent transfer. The IUFTA definition of a
“claim” makes it clear that a “claim” is a right to payment
“whether the right is reduced to judgment or not. . . .” Id. at
32-18-2-3. Therefore, the fact that DFS did not receive a
court judgment until after the asset transfer is not relevant
to the inquiry.
Nor did the district court err in considering the court
judgment in deciding that DFS was a “present creditor”
under the IUFTA, given that the judgment evidenced the
pre-existing debt and the appellants presented no evidence
to the contrary. In fact, it appears that the appellants never
made the argument below that DFS’s claim did not arise
Nos. 03-1086 & 03-3664 19
before the transfer or that DFS was not a “present creditor.”
See Reply Br. at 20. This argument is raised for the first
time on appeal and is thus waived. See Murphy v. Keystone
Steel & Wire Co., 61 F.3d 560, 568 n.3 (7th Cir. 1995). In
any event, even if the appellants had properly made this
argument below, and had presented compelling evidence
that DFS’s claim (not just its judgment) arose after the
transfer, they would presumably still be liable under section
14 of the IUFTA which applies regardless of “whether the
creditor’s claim arose before or after the transfer was made
. . . if the debtor made the transfer . . . with the actual
intent to hinder, delay, or defraud any creditor of the debtor
. . . .” Ind. Code § 32-18-2-14 (emphasis added).
With respect to the appellants’ second contention, they
argue that DFS’s contract with CPI, in which DFS pur-
chased “the right to receive the proceeds of collections of
Healthcare Receivables payable by Governmental Obligors
when such collections [were] received by Provider” is void
for illegality. App. at 115. Essentially, the appellants’ ar-
gument is that the “factoring” agreement violates 42 U.S.C.
§ 1395g(c) which states that “no payment which may be
made to a provider of services under this title . . . for any
service furnished to an individual shall be made to any
other person under an assignment or power of attorney . . . .”
See also 42 U.S.C. § 1396a(a)(32); 42 CFR § 424.73. Although
it is reassuring to see that at least one issue of federal law
managed to creep its way into this appeal, the appellants’
argument is without merit.
On its face, this statute stands only for the proposition
that Medicare funds cannot be paid directly by the govern-
ment to someone other than the provider, but it does not
prohibit a third party from receiving Medicare funds if they
first flow through the provider. Before this statute, health
care providers assigned their right to Medicare receivables
to third parties which then submitted incorrect and inflated
claims to be paid in their own names, creating administra-
20 Nos. 03-1086 & 03-3664
tive nightmares and overpayments in excess of one million
dollars. H.R. REP. NO. 92-231 (1972), reprinted in 1972
U.S.C.C.A.N. 4989, 5090. Therefore, Congress passed this
statute to remedy this problem by ensuring that payments
would be made directly to healthcare providers. However,
nothing suggests that Congress intended to prevent
healthcare providers from assigning receivables to a non-
provider. Id. (“[The] committee’s bill would not preclude a
physician or other person who provided the services and
accepted an assignment from having the payment mailed to
anyone or any organization he wishes, but the payment
would be to him in his name.”).
The appellants cite no case and we have uncovered none,
which interprets this statute to prohibit a provider’s assign-
ment of Medicare or Medicaid receivables to a non-provider.
If anything, case law suggests the opposite. See, e.g., In re
Missionary Baptist Found. of Am., 796 F.2d 752, 759 (5th
Cir. 1986) (holding that a creditor could collateralize its
loan to the debtor by an assignment of the debtor’s accounts
receivable due from medical care payments under 42 U.S.C.
§ 1396(a)); Credit Recovery Sys., LLC v. Hieke, 158 F. Supp.
2d 689, 693 (D. Va. 2001) (“[T]he Court notes that neither
the Medicare nor Medicaid statutes expressly proscribe a
provider’s assignment of the general right to receive
Medicare or Medicaid receivables to a nonprovider. Indeed,
all the parties to this dispute agree that straight-forward
collateral arrangements (such as where a loan to a provider
is secured by Medicare receivables) do not run afoul of any
of the federal rules relating to the assignment of Medicare
and Medicaid claims.”); see also In re Am. Care Corp., 69
B.R. 66, 67 (Bankr. N.D. Ill. 1986) (same); Intermediary
Medicare Manual, Part Three, Ch. Five § 3488(C), Sept. 4,
2002, http://www.cms.hhs.gov/manuals/ 13_int/a3488.asp
(“These provisions preclude Medicare payment of amounts
due a provider or other person to a person or entity furnish-
ing financing to the provider, whether the provider sells
Nos. 03-1086 & 03-3664 21
his/her claims to that person or entity or pledges them to
that person or entity as collateral on a loan.”) (emphasis
added). Further, the record suggests that Medicare was
aware of this agreement between DFS and CPI, at least
post facto, and other than disallowing a $380,000 claim for
the interest on the obligation, there is no evidence that it
expressed any disapproval of the arrangement. App. at 282.
Therefore, we remain unconvinced that this “factoring”
agreement between DFS and CPI was illegal.
In any case, it is doubtful that Leestma and CGL, non-
parties to this fully executed contract, have standing at this
late date to argue that the contract is void for illegality. The
appellants draw our attention to “the general rule” stated
in Corpus Juris Secundum that “when for any reason the
judgment against the grantor is invalid the grantee may show
its invalidity in a proceeding to set aside the conveyance as
fraudulent.” Reply Br. at 22 (quoting 37 C.J.S. Fraudulent
Conveyances § 257). The appellants, however, cite no law
from Indiana, and it is not obvious that Indiana’s rule
would necessarily mirror the rule stated in Corpus Juris or
that it would apply specifically to “illegal” contracts. See
Stolz-Wicks, Inc. v. Commercial Television Serv. Co., 271
F.2d 586, 589 (7th Cir. 1959) (“In the absence of any express
holding in Indiana or Illinois, ‘the rule that the law will not
enforce an illegal contract has application only between the
immediate parties to the contract,’. . . is sound and applica-
ble. Hence, it follows that one in possession of the fruits of
an illegal transaction to which he was not a party cannot
invoke the defense of illegality.”) (citation omitted). How-
ever, even if we were to treat Corpus Juris as gospel, the
appellants ignore the exception to “the general rule”
reported in Corpus Juris immediately subsequent:
Where the judgment against the debtor has been ren-
dered in the regular course of judicial proceedings by a
court of competent jurisdiction and it cannot be objected
to on the ground that it was obtained by fraud or
22 Nos. 03-1086 & 03-3664
collusion, it is, whether rendered on default or after
contest, conclusive as to the relation of debtor and cre-
ditor between the parties and the amount of the indebt-
edness, and cannot be collaterally impeached by the
grantee of the debtor in a suit to set aside the convey-
ance as fraudulent.
37 C.J.S. Fraudulent Conveyances § 257 (emphasis added).
Here, the judgment against CPI was rendered in the course of
a judicial proceeding. The appellants do not argue that the
court that rendered the judgment lacked jurisdiction, that
there were defects in the proceedings or that the judgment
was obtained by fraud or collusion. Therefore the appellants
present no basis upon which the judgment can be attacked.
See Scott v. Indianapolis Wagon Works, 48 Ind. 75, 75-77
(Ind. 1874) (finding that in suit by a judgment creditor to
set aside fraudulent conveyance, a grantee cannot call a
judgment into question by raising matters which might
have been defenses to the action in which the judgment was
rendered); 14 Ind. Enc. Fraudulent Conveyances § 47
(“Matters which have no bearing on the issues in the suit to
set aside the conveyance as fraudulent cannot be urged as
a defense thereto.”) (citing Scott ).9
9
The cases from other jurisdictions upon which the appellants
rely are distinguishable in that they fit into the exception dis-
cussed in Corpus Juris. Reply Br. at 22, citing Reyburn v. Spires,
364 S.W.2d 589, 594 (Mo. 1963) (allowing the grantee “to challenge
the default judgment on the basis that it was fraudulently obtained”)
(emphasis added); Tanner v. Wilson, 17 S.E.2d 581, 584 (Ga. 1941)
(suggesting that the grantee “may defend an action against him by
showing defects in the proceedings”) (emphasis added); Davis v.
Davis, 25 P. 140 (Or. 1890) (“A grantee whose deed is attacked for
fraud by one claiming to be a judgment creditor of his grantor may
plead the statute of limitations against the debt before it becomes
merged in the judgment . . . .”) (syllabus by the court) (emphasis
added).
Nos. 03-1086 & 03-3664 23
Finally, as a technical matter, even if the appellants had
standing to attack the validity of this contract, this would
not change DFS’s status as a “creditor” under the IUFTA.
A “creditor” with a colorable claim cannot lose its status as
“creditor” under the IUFTA simply because the debtor or a
third-party has a legal defense to the claim. The statute
itself defines “creditor” as “a person who has a claim,” Ind.
Code § 32-18-2-4, and notes that a “claim” under the statute
“means a right to payment, whether the right is . . . dis-
puted or undisputed . . . .” Id. at 32-18-2-3. Therefore, the
fact that the appellants may dispute the claim would not
change DFS’s status as a “creditor.”
C. Money damages under the IUFTA
The appellants next argument is that a money judgment
is not available under the IUFTA when the transferred
assets are available for reconveyance.10 Leestma Br. at 30.
10
During the pendency of this appeal, we remanded this case to
the district court “for the limited purposes of determining whether
voiding the transfer and reconveying the transferred assets would
provide adequate remedy in lieu of monetary damages.” In an
order dated July 12, 2004, the district court responded and indi-
cated its belief that reconveyance would not provide an adequate
remedy because (a) reconveyance would simply shift the assets
from CGL to CPI (rather than DFS); (b) CPI may not remain in
existence and even if it does, it may not be in the home health
care business; and (c) DFS is not in the home health care busi-
ness. In hindsight, it appears that our instructions may have been
unclear. Our question assumed that under the IUFTA a court
could order the assets to be conveyed directly to DFS or could be
held for DFS’s benefit—an assumption neither party contested on
appeal. See Leestma Br. at 33 (“[T]he assets were and are
available to be returned to CPI for the benefit of DFS”); DFS Br.
at 14-25. Therefore, we were simply asking for a factual finding as
(continued...)
24 Nos. 03-1086 & 03-3664
The IUFTA specifically discusses the “[r]emedies of a cre-
ditor” and notes that:
(a) In an action for relief against a transfer or an ob-
ligation under this chapter, a creditor, subject to the
limitations in section 18 of this chapter, may obtain any
of the following:
(1) Avoidance of the transfer or obligation to the
extent necessary to satisfy the creditor’s claim.
(2) An attachment or other provisional remedy
against the asset transferred or other property of
the transferee in accordance with the procedure
prescribed by IC 34-25-2-1 or any other applicable
statute providing for attachment or other provi-
sional remedy against debtors generally.
(3) Subject to applicable principles of equity and in
accordance with applicable rules of civil procedure,
any of the following:
(A) An injunction against further disposition by
the debtor or a transferee, or both, of the asset
transferred, its proceeds, or of other property.
10
(...continued)
to whether the assets are available in substantially the same form
as they were when they were transferred. If they are, we see no
reason that the Court cannot order that they be transferred to DFS
or held for the benefit of DFS. The fact that DFS is not in the home
health care business is irrelevant because nothing would prevent
DFS from selling the assets at their discrete value. Surely the
market can better assess the value of these assets than can the
parties’ expert economists. However, we will not delay the case by
a second remand to the district court for further factual findings.
We thus assume for now that the assets are available in substan-
tially the same form as they were when they were transferred. If
the Indiana Supreme Court determines that conveyance of the
assets to DFS is the preferred remedy, we may then remand to the
district court to further address this question as necessary.
Nos. 03-1086 & 03-3664 25
(B) Appointment of a receiver to take charge of
the asset transferred or of the property of the
transferee.
(C) Any other relief the circumstances require.
(b) If a creditor has obtained a judgment on a claim
against the debtor, the creditor, if the court orders, may
levy execution on the asset transferred or its proceeds.
Ind. Code. § 32-18-2-17 (emphasis added). Although the
section specifically discusses only remedies which are equit-
able in nature, the catchall provision (allowing a creditor to
obtain “any other relief the circumstances require”) would
seemingly empower a court to provide monetary relief at its
discretion. See, e.g., Freeman v. First Union Nat’l, 329 F.3d
1231, 1234 (11th Cir. 2003) (citing Hansard Construction
Corp. v. Rite Aid of Florida, Inc., 783 So. 2d 308 (Fla. Dist.
Ct. App. 2001) (“Despite the fact that the other remedies set
forth in the Act are equitable in nature, we find this
catchall provision sufficiently broad to encompass the mone-
tary judgment sought by appellants.”)); Morris v. Askeland
Enters., Inc., 17 P.3d 830, 833 (Col. Ct. App. 2000) (“[A]
court acting in equity always retains the power to enter a
monetary award to implement its decree . . . .”); Profeta v.
Lombardo, 600 N.E.2d 360, 362 (Oh. Ct. App. 1991) (allow-
ing money damages under the catchall provision of OUFTA);
see also Bruce Markell, The Indiana Uniform Fradulent
Transfer Act Introduction, 28 Ind. L. Rev. at 1223 (noting
that “[t]he remedies specified in [Section 17] are not exclu-
sive”); but see Forum Ins. Co. v. Devere Ltd., 151 F. Supp.
2d. 1145, 1148 (C.D. Cal. 2001) (applying Cal. Civ. Code. §
3439.07(a)) (“Terms such as ‘liability’ and ‘damages’ do not
appear in the statute. . . . Thus, by its terms, UFTA allows
only equitable remedies such as avoidance, attachment, an
injunction, or appointment of a receiver.”); Mack, 737 F.2d
at 1361 (same under Bankruptcy Act of 1898).
26 Nos. 03-1086 & 03-3664
The next section of the IUFTA discusses a “[t]ransferee’s
defenses, liability, and protections” and notes that:
(b) Except as otherwise provided in this chapter, to the
extent a transfer is voidable in an action by a creditor
under section 17(a)(1) of this chapter, the creditor may
recover judgment for the value of the asset transferred,
as adjusted under subsection (c), or the amount neces-
sary to satisfy the creditor’s claim, whichever is less . . . .
(c) If the judgment under subsection (b) is based upon
the value of the asset transferred, the judgment must
be for an amount equal to the value of the asset at the
time of the transfer, subject to adjustment as the equi-
ties may require.
Ind. Code. § 32-18-2-18 (emphasis added). Similarly, we find
no language in this section expressly limiting a court’s
ability to award monetary damages to the situation in which
the assets are unavailable for reconveyance. The appellants
argue that the phrase “[e]xcept as otherwise provided in
this chapter” should be read as referring to section 17, and
should thus be understood to mean that monetary damages
are not available if equitable relief is available under section
17. We do not find this to be a plausible reading of the
statute.
First, it is curious that, if the drafters intended this lan-
guage in section 18 to mean that monetary damages are not
available where equitable relief is available under section 17,
they would not just have written “except as otherwise
provided in section 17” or “to the extent sufficient equitable
relief is unavailable.” Second, it seems odd that the drafters
would state “except as otherwise provided” rather than
“except as otherwise available.” The use of the word “pro-
vided” suggests that monetary relief could be awarded instead
of equitable relief, so long as the court has not awarded
equitable relief. Third, because section 17 allows for “any
other relief the circumstances require,” allowing monetary
Nos. 03-1086 & 03-3664 27
relief under section 18 “except as otherwise provided in
[section 17]” would seemingly provide no real limitation on
the court, and allowing monetary relief “except as otherwise
available in [section 17]” would seemingly mean that no
relief could ever be awarded under section 18. Finally,
under the appellants’ interpretation of the “except as other-
wise provided” clause, if a court ordered that assets be
reconveyed under section 17, but the assets had seriously
depreciated in value since the time of the fraudulent trans-
fer, the statute would seemingly not allow for an award of
any additional monetary damages to make up the differ-
ence. This would contradict the holding of even those cases
upon which the appellants rely. See, e.g., Robinson v.
Coughlin, 830 A.2d 1114 (Conn. 2003); In re McLaughlin,
183 B.R. 171, 177 (Bankr. W.D. Wis. 1995).
Nonetheless, we are aware of no reported cases in which
monetary damages were awarded under the IUFTA, and
courts such as Robinson have held under their state version
of the UFTA that monetary damage awards are only
appropriate where reconveyance of the fraudulently trans-
ferred property is impossible or where the subject property
has depreciated in value. Policy considerations would sup-
port such a rule, as it would avoid speculation as to the
value of conveyed assets. See, e.g., In re Vedaa, 49 B.R. 409,
411 (Bankr. N.D. 1985) (noting in the context of the Bank-
ruptcy Code that “it is clear that courts favor a return of the
property itself if at all possible so as to avoid speculation
over its value”). This case exemplifies the problem with such
speculation, in that it has been argued that these assets
range in value from $20,000 to $640,000 (the jury deter-
mined that they were worth $470,000). App. at 222, 295,
301. Therefore, we hereby certify to the Indiana Supreme
Court the question whether an award of monetary damages
under the IUFTA is only available where reconveyance of
the fraudulently transferred property is impossible or
where the subject property has depreciated in value, or
whether the nature of the award is at the court’s discretion.
28 Nos. 03-1086 & 03-3664
D. Punitive damages under the IUFTA
Finally, the appellants appeal the district court’s award
of punitive damages, arguing that such damages are not
available under the IUFTA. Yet a straightforward reading
of the IUFTA’s catchall provision would seemingly allow for
punitive damages. See Ind. Code. § 32-18-2-17(c) (allowing
a court to award “any other relief the circumstances re-
quire”). Moreover, as noted earlier, the IUFTA incorporates
principles of state common law. Ind. Code § 32-18-2-20.
Under Indiana law, tortious conduct involving “malice,
fraud, gross negligence, or oppressiveness which was not
the result of a mistake of fact of law, honest error or judg-
ment, overzealousness, mere negligence, or other human
failing” may be punished by an award of punitive damages.
Erie Ins. Co. v. Hickman, 605 N.E.2d 161, 162 (Ind. 1992).
In this case, the jury found that Leestma personally
engaged in such conduct, seemingly making punitive dam-
ages appropriate. App. at 302, 312.
No Indiana court, however, has addressed the question
whether punitive damages can be awarded under the IUFTA,
and other states are split on the question. Compare Macris
& Assocs., Inc. v. Neways, Inc., 60 P.3d 1176, 1181 (Utah Ct.
App. 2002) (allowing punitive damages under Utah’s
UFTA); Volk Constr. Co. v. Wilmescherr Drusch Roofing Co.,
58 S.W.3d 897, 900 (Mo. Ct. App. 2001) (same under Mis-
souri’s UFTA); Henderson v. Henderson, No. CV-00-53, 2001
WL 1719192, at *2 (Me. Super. 2001) (same under Maine’s
Uniform Fraudulent Conveyance Act); Locafrance United
States Corp. v. Interstate Distribution Servs., Inc., 451
N.E.2d 1222, 1225 (Ohio 1983) (same under Ohio’s Uniform
Fraudulent Conveyance Act), with Morris, 17 P.3d at 833
(finding punitive damages are not available under Colo-
rado’s UFTA), and Northern Tankers Ltd. v. Backstrom, 968
F. Supp. 66, 67 (D. Conn. 1997) (same under Connecticut’s
UFTA).
Nos. 03-1086 & 03-3664 29
Leestma argues that the Indiana Supreme Court would
conclude that punitive damages are not recoverable under
the IUFTA because Indiana construes statutory remedies
narrowly and only allows for punitive damages when the
legislature expressly includes them in the statute. Leestma
Br. at 43-45. However, in none of the cases cited by Leestma
did the statute in question contain anything like the
catchall provision which is present in the IUFTA. See Forte
v. Connerwood Healthcare, Inc., 745 N.E.2d 796, 800 (Ind.
2001) (reversing an award of punitive damages under the
Child Wrongful Death Statute which “contained an exclu-
sive list of damages recoverable by a child’s parent or
guardian”); Fleming v. Int’l Pizza Supply Corp., 676 N.E.2d
1051, 1058 (Ind. 1997) (declining to find individual liability
or punitive damages under Indiana’s Business Corporation
Laws, where the statute allowed only for appraisal); Watters
v. Dinn, 633 N.E.2d 280, 286 (Ind. Ct. App.1994) (declining
to create a civil remedy where the Act under which the
plaintiff was suing did not allow for a civil action); DeMayo
v. State ex rel. Dept. of Natural Resources, 394 N.E.2d 258,
261 (Ind. Ct. App. 1979) (reversing an award of monetary
damages where the statute only “authorized and empow-
ered [the Indiana Department of Conservation] to bring in
any court of proper jurisdiction, actions by way of injunc-
tion, either prohibitive or mandatory, or both”). We do not
believe that these cases provide much insight into how
Indiana would decide this question and we therefore certify
to the Indiana Supreme Court the question whether
punitive damages are available under the IUFTA.
III. CONCLUSION
In conclusion, we certify the following three questions to
the Indiana Supreme Court:
(1) Can an officer or director of a “first transferee”
under the IUFTA who is found to have personally
30 Nos. 03-1086 & 03-3664
participated in the fraud be held personally liable under
Indiana law on that basis alone?
(2) Is an award of monetary damages under the IUFTA
available only where reconveyance of the fraudulently
transferred property is impossible or where the subject
property has depreciated in value?
(3) Are punitive damages available under the IUFTA?
We invite, of course, the Justices of the Indiana Supreme
Court to reformulate our questions if they feel that course
is appropriate. We do not intend anything in this certifica-
tion, including our statement of the questions, to limit the
scope of their inquiry. Further proceedings in this court are
stayed while the Indiana Supreme Court considers this
certification.
A true Copy:
Teste:
________________________________
Clerk of the United States Court of
Appeals for the Seventh Circuit
USCA-02-C-0072—9-13-04