Wing v. Dockstader (Standing under the UFTA, Statute of Limitations, Tax Offset in Judgment Computation)

2012 WL 2020666

In Wing v. Dockstader the Tenth Circuit follows the Seventh Circuit (Scholes v. Lehman, 56 F.3d 750 (7th Cir. 1995)) in holding that a receiver of an entity that was used to perpetrate a Ponzi scheme does have standing to bring actions under the Uniform Fraudulent Transfer Act as if it were a creditor in the scheme. And then, all transfers by that entity involved in the Ponzi scheme are presumed fraudulent under the UFTA. The holding of Scholes v. Lehman has also been endorsed by the Second Circuit in Eberhard v. Marcu, 530 F.3d 122, 132-33 (2d Cir. 2008)) and the Ninth Circuit in Donnell v. Kowell, 533 F. 3d 762, 76-77 (9th Cir. 2008).

Furthermore, the 10th Circuit addressed the issue of Statute of Limitation for UFTA actions. The UFTA provides that any action to recover a fraudulent transfer must be brought within four years after the transfer was made, or it is tolled until it could have been reasonably discovered by the claimant. The Court emphasized in Wing v. Dockstader that the tolling period refers to when the transfer could have been reasonably discovered by the claimant—which in this case is the receiver, not the entity. Thus, the time does not begin to run until the receiver has been appointed. The Court approved of the District Court’s use of “adverse domination” theory in this case for the purpose of computing the statute of limitations. Under “adverse domination” theory, as long as the entity is controlled by the wrongdoers against whom a cause of action exists, the statute of limitations is tolled because the wrongdoers cannot be expected to bring a cause of action against themselves.

In Wing v. Dockstader, Defendants had also argued that they should be entitled to offset from the judgment the taxes they paid on the money they received from the Receivership entity. The 10th Circuit approved of the District Court’s reliance on Donnell v. Kowell, 533 F. 3d 762 (9th Cir. 2008), determining that tax offsets are not allowed because they would frustrate the purpose of the UFTA because they could not be limited. Tax offsets would also introduce proof and tracing problems and the amount offset would come at the expense of other investors.