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Court of Appeals Partially Upholds Default Judgment Premised on Claim Under Uniform Fraudulent Transfer Act

On April 26, 2012, the District of Columbia Court of Appeals decided Bertram v. WFI Stadium, Inc., No. 11-CV-396, slip op. (D.C. Apr. 26, 2012) in which it considered an appeal of a default judgment premised on a claim for fraudulent conveyance. By way of background, the plaintiff, WFI Stadium, Inc. (“Stadium”), had previously obtained a Maryland judgment against another company, Distributive Networks, Inc. (“Distributive”). The defendant, Kevin D. Bertram (“Bertram”), was the Chief Executive Officer and majority owner of Distributive. Stadium filed a complaint against Bertram alleging a claim for fraudulent conveyance. Bertram failed to answer. The trial court entered a default and then, following an evidentiary hearing on damages, awarded approximately $1.9 million to Stadium.

On appeal, Bertram challenged the judgment on the grounds that (1) the trial court should not have entered a default because Stadium’s complaint failed to state a claim upon which relief may be granted, and (2) the amount of the damage award was excessive.

With respect to the first issue, the Court of Appeals ruled that Stadium adequately pleaded a fraudulent conveyance claim against Bertram under the Uniform Fraudulent Transfer Act (“UFTA”), D.C. Code §§ 28-3101 to -3111 (2001), where Stadium had alleged in its complaint that (1) Bertram entered into an agreement on behalf of Distributive to transfer substantially all of the valuable assets of Distributive for the benefit of third party creditors of Distributive while knowing at the time of the agreement that the assets were encumbered by Stadium’s Maryland judgment; (2) Bertram personally benefited from the agreement because he received a release from personal liability on amounts owed by Distributive to the third party creditors, and (3) Bertram entered into the agreement intentionally, willfully, and maliciously and with the intent to defraud Stadium and that such intent could be imputed to Distributive.

With respect to the second issue, however, the Court ruled (based on the limited evidence presented to the trial court) that the assets fraudulently transferred by Distributive were clearly less than the amount of the judgment entered by the trial court and thus the amount of the judgment was excessive.

Accordingly, the Court affirmed the judgment as to liability but reversed and remanded for further proceedings regarding the amount of the judgment.

To view the Court of Appeals’ opinion, click here.