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Third Circuit Predicts Punitive Damages Available Under the Pennsylvania Uniform Fraudulent Transfer Act

On September 10, 2013 by Schnader in Finance

By Edward J. Sholinsky

The United States Court of Appeals for the Third Circuit has predicted that the Pennsylvania Supreme Court would hold that punitive damages are available in cases under the Uniform Fraudulent Transfer Act (UFTA).

The court in Klein v. Weidner, reasoned that even though the UFTA does not specifically provide for punitive damages, they are available because the UFTA gives courts “broad authority” to award a “package of remedies” based on a case’s individual circumstances.

In Klein, the plaintiff brought a claim under the UFTA against her ex-husband, his current wife, and his business.  In response to a California judgment awarding the plaintiff spousal and child support, the ex-husband defendant transferred his assets and an interest in his business to his wife to insulate them from the California judgment and the plaintiff.  The district court held that this violated the Act and awarded $548,797.07 in punitive damages.  The defendants appealed.

After affirming the district court’s decision that the defendants violated the UFTA, the Third Circuit addressed the issue of punitive damages.  While the UFTA does not expressly provide that punitive damages are available, it contains three provisions that the court believed pointed to an overall statutory scheme to permit punitive damages.  Specifically, the court considered that the Act contained a “catch-all” provision providing for “any other relief the circumstances may require”; a provision awarding all damages necessary to make the creditor whole; and a provision stating that all remedies available under law and equity are available unless specifically displaced by the UFTA.  The court reasoned that because the remedies under the UFTA are “cumulative,” and punitive damages are available at both law and equity in Pennsylvania, the UFTA permitted punitive damages.   The court also held that under the UFTA it was appropriate to consider the ex-husband’s outrageous conduct in conjunction with the fraudulent transfers—including harassing the plaintiff and threatening her attorney—which supported the district court’s award of punitive damages.

The court distinguished the UFTA from cases where the Pennsylvania Supreme Court has held that punitive damages were not available when not directly provided for in the statute.  Specifically, the court focused on the Pennsylvania Supreme Court’s holding in Hoy v. Angelone that punitive damages were not available under the Pennsylvania Human Relations Act.  The court held that the UFTA differed from the Human Relations Act, because the latter was remedial in nature and required “affirmative action” to remedy discrimination.  The UFTA, however, was at least in part based on common law fraud, under which punitive damages have historically been available.  Thus, the court held that punitive damages could supplement the remedies specifically provided for by the UFTA.

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