Levy v. Markal Sales Corp.

Citations: 724 N.E.2d 1008; 311 Ill. App. 3d 552; 244 Ill. Dec. 120; 2000 Ill. App. LEXIS 53Docket: 1-98-0442

Court: Appellate Court of Illinois; February 2, 2000; Illinois; State Appellate Court

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The Appellate Court of Illinois addressed a certified question regarding the statute of limitations under the Illinois Uniform Fraudulent Transfer Act (740 ILCS 160/10(a)) in the case of Kenneth W. Levy v. Markal Sales Corporation. Specifically, the court needed to determine whether the four-year statute of limitations begins from the date of an alleged fraudulent transfer or from the date of a subsequent judgment obtained by the creditor.

The case stemmed from a lawsuit filed by Kenneth Levy in 1982 against various defendants, including Markal's corporate directors, Victor Gust Jr. and Robert Bakal, for breaching their fiduciary duties. In December 1986, while the lawsuit was ongoing, Victor transferred his interest in a family residence to his wife, Diana Gust. This transfer was recorded in January 1987. After a lengthy trial, the circuit court ruled against Victor and Bakal in October 1991, awarding Levy significant damages.

In March 1992, Levy began supplemental proceedings to enforce the judgment, during which he claimed that Victor's 1986 transfer constituted a fraudulent transfer intended to hinder, delay, and defraud him. This assertion was made for the first time in a motion filed in May 1994. The court is considering whether it can address the retroactive application of the Act in this context.

The transfer in question took place three years prior to the effective date of the Act on January 1, 1990. Under Rule 308, appeals are confined to the specific question identified by the circuit court, excluding any other issues that could have been raised. The circuit court addressed the retroactivity of the Act during proceedings but rejected Levy's claim against retroactive application and did not certify this issue for review, focusing solely on the commencement of the statute of limitations under the Act. 

The certified question for review pertains to when the four-year statute of limitations in section 10(a) begins for a tort claimant challenging a fraudulent property transfer: at the time of the transfer or when the creditor's claim is reduced to judgment. The Uniform Fraudulent Transfer Act, adopted in 1989, repealed former provisions on fraudulent conveyances and stipulates that actions for fraudulent transfers must be initiated within four years of the transfer, or within one year after discovery if later. The primary goal of statutory construction is to reflect legislative intent, derived from the statute's plain language. Statutes of limitations should be interpreted liberally to fulfill their intended purpose. Section 10(a) clearly states that the four-year period begins on the date of the transfer, not from the entry of judgment, aligning with the plain meaning of the Act.

Several courts interpreting the Act have indicated that the four-year limitation period begins on the date of the transfer. Notably, cases such as *In re Gillissie* and *Gilbert Bros. Inc. v. Gilbert* support this view. The Act aims for uniformity in the law of fraudulent transfers across states, making case law from other jurisdictions relevant. Courts like *Freitag v. McGhie* and *First Southwestern Financial Services v. Pulliam* have upheld that the limitation period starts from the transfer date, with the latter explicitly rejecting the notion that it begins from the judgment date.

Conversely, *Cortez v. Vogt* presents a differing perspective, concluding that the limitation period can commence from the judgment date if the creditor waits until securing a judgment to challenge the transfer. This ruling was based on the understanding that the Uniform Act, while straightforward in its language, incorporates prior case law allowing creditors to delay their challenges until after a judgment is obtained. The *Cortez* court emphasized that the Uniform Act's remedies are cumulative of earlier remedies, allowing creditors the option to act against fraudulent transfers before their debts mature. Additionally, the court highlighted that historically, a creditor could wait for a judgment before contesting a transfer, with the limitations period starting upon the finalization of that judgment.

The court found support for its ruling in the committee comments associated with the Uniform Act, concluding that the Act reflects prior law allowing creditors to pursue claims to judgment before seeking relief under its provisions. It emphasized that the limitations period for challenging fraudulent transfers starts when the transfer is made, not when a judgment is obtained, requiring creditors to act within four years of the transfer to preserve their claims. This interpretation diverges from that of the Cortez court, which suggested that limitations periods were linked to the timing of judgments. The court noted that the Uniform Act's limitations provision functions more like a statute of repose, extinguishing the cause of action four years post-transfer. The committee comments clearly indicate that the statutory period's lapse bars the right to relief. Despite concerns about potential litigation burdens, the Act anticipates that provisional litigation may be necessary. The court clarified that its role is to interpret legislative intent rather than assess the procedural wisdom of the Act. Additionally, it acknowledged Levy's argument that under prior law, a judgment was a prerequisite for challenging fraudulent conveyances, but the current Act alters this approach.

Levy argues that the Act retains the common law judgment requirement, citing section 11 which states that pre-existing legal principles supplement the Act unless expressly displaced. However, the Act allows creditors to seek relief from fraudulent transfers without obtaining a prior judgment, as clarified by the drafters of the Uniform Fraudulent Transfer Act. Key definitions within the Act indicate that a judgment is not a prerequisite for relief. Specifically, the Act permits a creditor to initiate actions against a fraudulent transfer, including avoidance of the transfer, provisional remedies, and other equitable relief without prior judgment. The court concludes that the Act replaces the previous judgment requirement and establishes that the four-year limitation period for claims starts from the date of the transfer, rather than the judgment date. The certified question was answered affirmatively, leading to the remanding of the case. The court also noted its agreement with the circuit court's previous ruling in a related appeal. Additional notes indicate similarity to the Uniform Act's provisions and emphasize that the remedies outlined in the Act are cumulative. The commentary from the uniform committee, although not formally adopted, is deemed relevant for interpreting the Act's application.

Levy asserts that the five-year statute of limitations under section 13-205 of the Code of Civil Procedure, relevant to actions for setting aside fraudulent transfers, always commenced upon the date of judgment. However, historical legal precedents indicate that a cause of action could accrue earlier based on specific conditions: (1) when the claimant became a creditor, (2) when a judgment was entered that established the creditor-debtor relationship, and (3) when the creditor became aware of the fraudulent nature of the transfer, adhering to the "discovery rule." In certain instances, a cause of action might not accrue until after a judgment, particularly if the creditor lacked necessary knowledge at the judgment's entry. Therefore, the five-year limitation period did not universally start at the judgment date and was not the definitive measure for assessing the timeliness of a creditor's claim.