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Warne Investments, Ltd. v. Higgins - 4/15/2008

Arizona Court of Appeals Division One Holds that Corporate Principal is Not Personally Liable For Aiding And Abetting Fraudulent Transfer from Defendant Corporation.


Plaintiff held judgments resulting from a contract action against Bridge IT, Inc. ("IT"), a computer services company owned and operated by Defendant ("Higgins").  When Plaintiff garnished a bank account of IT to collect on the judgments, Higgins stopped operations as IT and opened a similar business under a new name, Bridge Info Tech, Inc. ("Info Tech").  Plaintiff then brought suit against Info Tech, Higgins and her spouse, seeking to enforce the judgments against Higgins and her new company under theories of successor corporate liability, breach of the of Uniform Fraudulent Transfer Act ("UFTA"), and the corporate trust fund doctrine. 

The trial court denied Defendants' motion for summary judgment.  The jury returned verdicts against Higgins under the trust fund doctrine and against Info Tech for the UFTA and successor liability claims.  After further briefing, the trial court ruled as a matter of law that Higgins also was personally liable under the theories of fraudulent transfer and successor corporate liability.  Defendants appealed.

The Court of Appeals upheld the imposition of successor corporate liability against Info Tech on the grounds that it was a "mere continuation" of IT.  A corporation is a “mere continuation”—and thus liable for the debts – of a predecessor corporation if there is (1) a “substantial similarity in the ownership and control of the two corporations” and (2) “insufficient consideration running from the new company to the old” for assets transferred to the new company.  The failure to provide any payment in exchange for the transfer of intangible assets (such as corporate goodwill) to the new company satisfied the second prong of the “mere continuation” test, even though Plaintiff failed to prove the value of the transferred, intangible assets.

Regarding Higgins’ personal liability, the appeals court affirmed the imposition of liability under the trust fund doctrine.  The doctrine requires proof that (1) corporate assets were transferred to the defendant; (2) at a time when the corporation was insolvent; and (3) the transfers preferred defendant to the disadvantage of other creditors of the same priority.  Liability is limited to the value of assets received.  The jury permissibly concluded that IT was insolvent from the time of the initial jury verdict against it in the contract action, despite that the final judgment had not been entered yet.

The trial court erred, however, in findings Higgins personally liable under a theory of successor corporate liability and under the UFTA.  Answering a question of first impression inArizona, the appeals court concluded that UFTA does not provide for personal “aiding-abetting” liability for corporate officers or directors for their role in personally facilitating a fraudulent transfer.  Turning to the successor liability theory, the court found insufficient evidence that Higgins’ actions actually hindered Plaintiff’s collection efforts against IT, because Plaintiff did not show the value of intangible assets transferred to Info Tech.  The court therefore declined to resolve whether the doctrine imposing personal liability for certain corporate torts applies to a fraudulent transfer subject to the UFTA.

Judge Irvine authored the opinion for the panel; Judges Portley and Kessler concurred.

Posted On: 4/22/2008