Norris v. R & T Manufacturing, LLC

Under ORS 95.230(1)(a), a transfer of all business assets to a newly formed company is fraudulent when the transfer is made for the purpose of avoiding payment of a judgment, where the new company conducted business nearly identical to the old company, and no other reason existed for transferring assets other than to avoid paying the judgment.

R&T Manufacturing, LLC, (R&T) appealed from a judgment in favor of Norris in his action for damages under the Uniform Fraudulent Transfers Act (UFTA). Norris was an employee of Action Accessories, LLC (Action), owned by Thomas and Robert Laney (Owners). After Norris was terminated in July 2007, he filed an action against Action and Owners for unpaid wages, penalties and attorney fees. Norris prevailed in arbitration and sought to garnish Action’s Key Bank account, but found no funds. In 2009, Owners dissolved Action and formed R&T, which immediately began doing business nearly identical to Action, different only in that R & T fabricated components or custom parts where Action had manufactured its own line of finished consumer products. R&T purchased all of Action’s tangible assets, except for receivables, and assumed Action’s debt to Key Bank, who held a security interest in Action’s assets. Norris claimed that under the UFTA, Owners fraudulently transferred assets from Action to R&T after Norris had a claim against Action, and the only significant advantage to Action was the elimination of its obligation to Norris. The trial court decided that the transfer was fraudulent and was made for the purpose of avoiding the obligation to Norris. On appeal, R & T made five assignments of error. The Court held that, based on extensive evidence at trial, (1) R & T assumed Action’s entire business assets, both tangible and intangible; (2) the total assets were valued in excess of Key Bank’s security interest; (3) the remedy imposed was not excessive because ORS 95.260 allows any available remedies, including any relief the circumstances require, and R&T’s assignment of error was based on its flawed argument that only tangible assets were transferred; (4) the trial court correctly based R & T’s liability on a fraudulent transfer theory under ORS 95.230(1)(a); and (5) the Defendant failed to assert at trial that the value of Action was less than the amount of Norris’s judgment; thus, the trial court had no reason to consider the amount of Norris’s award and consequently R&T failed to establish it was prejudiced by any error in that finding. Affirmed.